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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
COMMISSION FILE NUMBER 000-22609
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QWEST COMMUNICATIONS INTERNATIONAL INC.
(Exact name of registrant specified in its charter)
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DELAWARE 84-1339282
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
555 SEVENTEENTH STREET, SUITE 1000
DENVER, COLORADO 80202
(Address of principal executive offices)
(303) 291-1400
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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NAME OF EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
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Common Stock, $.01 Par Value NASDAQ
Contingent Cash Consideration Rights
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 4, 1998, 206,677,742 shares of the Registrant's Common Stock,
$.01 par value, were issued and outstanding. The aggregate market value of the
Common Stock held by non-affiliates of the Registrant, based on the closing
price of the Common Stock as reported on the Nasdaq Stock Market (National
Market System) on March 4, 1998 was approximately $7,492,068,148
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement to be used in
connection with the annual meeting of shareholders to be held in 1998 are
incorporated by reference in Part III of this Form 10-K
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QWEST COMMUNICATIONS INTERNATIONAL INC.
FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
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Part I
Item 1 Business............................................................................... 3
Item 2 Properties............................................................................. 23
Item 3 Legal Proceedings...................................................................... 23
Item 4 Submission of Matters to a Vote of Security Holders.................................... 24
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.................. 24
Item 6 Selected Financial Data................................................................ 25
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.. 26
Item 8 Financial Statements and Supplementary Data............................................ 34
Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure... 60
Part III
Item 10 Directors and Executive Officers of the Registrant..................................... 61
Item 11 Executive Compensation................................................................. 61
Item 12 Security Ownership of Certain Beneficial Owners and Management......................... 61
Item 13 Certain Relationships and Related Transactions......................................... 61
Glossary............................................................................... 62
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................... 65
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of federal securities laws, including statements about the
Company's plans to complete its approximately 16,250 route mile, coast-to-
coast, technologically advanced, fiber optic telecommunications network,
expectations as to funding its capital requirements, anticipated expansion of
carrier services and commercial services, regulatory and pricing trend
projections, and other statements of expectations, beliefs, future plans and
strategies, anticipated developments, and other matters that are not
historical facts. Management cautions the reader that these forward-looking
statements are subject to risks and uncertainties that could cause actual
events or results to differ materially from those expressed or implied by the
statements. Important factors that could prevent the Company from achieving
its stated goals include, but are not limited to: (i) failure of the Company
to manage effectively, cost efficiently and on a timely basis the construction
of the Qwest Network (see definition below) route segments; (ii) failure to
enter into additional customer contracts to sell dark fiber or provide high-
volume capacity and otherwise expand its telecommunications customer base;
(iii) failure to obtain and maintain all necessary rights-of-way; (iv) intense
competition in the Company's carrier services and commercial services markets;
(v) the potential for rapid and significant changes in technology and their
effect on the Company's operations; (vi) operating and financial risks related
to managing rapid growth and integrating acquired businesses; (vii) adverse
changes in the regulatory environment; and (viii) risks of being highly
leveraged and sustaining operating cash deficits. For additional information,
see "Risk Factors" included in the Company's registration statement on Form S-
4, No. 333-46145, and other Company filings with the SEC.
PART I.
ITEM 1. BUSINESS
General
Qwest Communications International Inc. (together with its subsidiaries,
"Qwest" or the "Company") is a facilities-based provider of multimedia
communications services to interexchange carriers and other communications
entities, businesses and consumers, and it constructs and installs fiber optic
communications systems for interexchange carriers and other communications
entities, as well as for its own use. The Company is expanding its existing
long distance network into the Qwest MacroCapacity (SM) Network (the "Qwest
Network"), an approximately 16,250 route mile coast-to-coast, technologically
advanced, fiber optic telecommunications network. The Company will employ,
throughout substantially all of the Qwest Network, a self-healing SONET ring
architecture equipped with the most advanced commercially available fiber and
transmission electronics manufactured by Lucent and Nortel, respectively. The
Qwest Network's advanced fiber and transmission electronics are expected to
provide the Company with lower installation, operating and maintenance costs
than older fiber systems in commercial use today. In addition, the Company has
entered into construction contracts for the sale of dark fiber along the route
of the Qwest Network, which will reduce the Company's net cost per fiber mile
with respect to the fiber it retains for its own use. As a result of these
cost advantages, the Company believes it will be well-positioned to capture
market share and take advantage of the rapidly growing demand for long haul
voice and data transmission capacity and services.
Under the Company's current plan, the Qwest Network will extend
approximately 16,250 route miles coast-to-coast and connect approximately 125
metropolitan areas that represent approximately 80% of the originating and
terminating long distance traffic in the United States. Construction of the
Qwest Network is scheduled to be completed in 1999. Through a combination of
the Qwest Network and leased facilities, the Company will continue to offer
interstate services in all 48 contiguous states. The Qwest Network will
connect to three trans-Atlantic cable heads and two trans-Pacific cable heads,
as well as cross-border points to Canada and Mexico. In addition to the 16,250
route mile U.S. network, the Company recently extended its network to the
United Kingdom through an exchange of capacity for two 155-megabit circuits
that will carry international data and voice traffic between London and New
York. The Company is also extending its network approximately 1,400 route
miles into Mexico through dark fiber to be owned by the Company on the fiber
optic system of a third
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party. Completion of the Mexico Network is scheduled for late 1998. These
connections will allow the Company to participate in the anticipated growth in
demand for international long distance data and voice services. The Company
plans to transfer carrier and retail switched services provided on leased
facilities onto the Qwest Network as the Company activates its own facilities.
Industry Overview
General. The telecommunications industry involves the transmission of voice,
data and video communications. The industry has been undergoing rapid change
due to deregulation, the construction of additional infrastructure and the
introduction of new technologies, which has resulted in increased competition
and demand for telecommunications services.
United States Domestic Long Distance. The structure of the domestic long
distance telecommunications industry was strongly influenced by a 1982 court
decree that required the divestiture by AT&T of its local telephone businesses
and divided the country into approximately 200 LATAs that range in size from
metropolitan areas to entire states. The seven resulting RBOCs were initially
limited to providing local telephone service, access to long distance carriers
and "in-region" long distance service (service within a LATA). The right to
provide inter-LATA service was initially ceded to AT&T and other long distance
carriers, as well as to LECs other than the RBOCs. However, under the
Telecommunications Act of 1996 (the "Telecommunications Act"), the RBOCs may
now provide inter-LATA long distance service, subject to certain conditions.
See "Regulation--General Regulatory Environment."
For each long distance call, the originating and terminating LECs charge the
long distance carrier an access fee to carry the call across their local
networks. The long distance carrier charges the customer a fee for its
transmission of the call, a portion of which consists of the access fees
charged by the originating and terminating LECs. To encourage the development
of competition in the long distance market, the LECs are required to provide
all long distance carriers with access to local exchange service that is
"equal in type, quality and price" to that provided to AT&T. These "equal
access" and related provisions were intended to prevent preferential treatment
of AT&T and to require that the LECs charge the same access fees to all long
distance carriers, regardless of their volume of traffic. These provisions,
along with the development and evolution of fiber optic technology with its
increased capacity and transmission quality, have helped smaller long distance
carriers emerge as alternatives to the largest companies for long distance
telecommunications services. See "Regulation--General Regulatory Environment."
United States International Long Distance. The United States international
long distance industry is large and growing. The onset of competition gave
rise to deregulation and a decrease in prices, which led to the initial growth
in the market and improvements in service offerings and customer service.
Subsequent growth has been largely attributable to the worldwide trend toward
deregulation and privatization, technological improvements, the expansion of
telecommunications infrastructure and the globalization of the world's
economies.
The profitability of the United States international long distance market is
principally driven by the difference between settlement rates (i.e., the rates
paid to other carriers to terminate an international call) and billed revenue.
The difference in cost between providing domestic long distance and
international service is minimal, and increased worldwide competition has
already brought about certain reductions in settlement rates and end user
prices, thereby reducing overseas termination costs for United States-based
carriers. However, it is believed that certain foreign countries use
settlement rates to subsidize their domestic call rates, contributing to
significantly higher rates for certain international calls compared to
domestic long distance calls. The FCC recently adopted measures intended to
overhaul the system of international settlements by mandating that U.S.
carriers negotiate settlement rates with foreign correspondents at or below
FCC-mandated benchmark levels. Several parties have filed petitions for
reconsideration with the FCC or court appeals or both following this order, so
it remains subject to modification. Additionally, recent worldwide trade
negotiations may lead to reduced settlement rates. See "Regulation--General
Regulatory Environment."
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Multimedia. Continuing developments in multimedia applications are bringing
new entrants to the telecommunications market. Internet service providers
("ISPs") and cable television, entertainment and data transmission companies,
for instance, are potential customers for voice, data and video communications
over high bandwidth networks such as the Qwest Network.
Long Distance Network Services. Switched voice and data require varying
amounts of bandwidth, depending on the nature of the communication.
Traditional telephony services such as "1 Plus" dialing require only limited
bandwidth (such as 64 Kbps). Emerging broadband services, such as the
Internet, private networks and multimedia applications, require higher
bandwidth for effective communication. Such services are increasingly
transmitted over SONET ring-protected Optical Carrier level paths (such as OC-
48 or OC-192) using advanced transmission protocols, such as Frame Relay and
ATM.
Telecommunications Technology. The market for video, voice and data
communications is served primarily through fiber optic and coaxial copper
cables, microwave systems and satellites. Before the 1980s, telecommunications
traffic generally was transmitted through satellites, microwave radio or
copper cable installed undersea or buried in the ground. By 1990, copper cable
had been largely replaced by fiber optic systems that provided greater
capacity at lower cost with higher quality and reliability.
Fiber Optic Systems. Fiber optic systems use laser-generated light to
transmit voice, data and video in digital format through ultra-thin strands
of glass. Fiber optic systems are characterized generally by large circuit
capacity, good sound quality, resistance to external signal interference
and direct interface to digital switching equipment or digital microwave
systems. A pair of modern fiber optic strands, using the most advanced
technology commercially available, is capable of carrying OC-192 level
capacity, equal to over 129,000 simultaneous telephone calls. Because fiber
optic signals disperse over distance, they must be regenerated/amplified at
sites located along the fiber optic cable. Fiber optic systems using
earlier generation fiber, as compared to the more advanced fiber being
installed in the Qwest Network, require frequent intervals between
regeneration/amplifier sites, typically between 20 and 45 miles. The
Company's advanced fiber allows for greater distances between
regeneration/amplifier sites, and the Qwest Network is designed to use a
maximum of 60-mile intervals. Greater distances between
regeneration/amplifier sites generally translate into substantially lower
installation and operating costs.
Microwave Systems. Although limited in capacity compared with fiber optic
systems, digital microwave systems offer an effective and reliable means of
transmitting lower volume and narrower bandwidths of voice, data and video
signals. Generally, no more than 21 DS-3s can be transmitted by microwave
between two antennae. Microwaves are very high frequency radio waves that
can be reflected, focused and beamed in a line-of-sight transmission path.
Because of their electro-physical properties, microwaves can be used to
transmit signals through the air, with relatively little power, in much the
same way that electrical signals are transmitted through a copper wire. To
create a communications circuit, microwave signals are transmitted through
a focusing antenna, received by an antenna at the next station in the
network, then amplified and retransmitted. Microwaves disperse as they
travel through the air, and as a result this transmission process must be
repeated at repeater stations, which consist of radio equipment, antennae
and back-up power sources.
Satellite Systems. Although satellites initially were used for point-to-
point long distance telephone and television transmissions, fiber optic
cables have proven to be a more cost effective delivery method for high
volume point-to-point applications. Currently, satellites are primarily
used for transmissions that must reach many locations over vast distances
simultaneously, such as the distribution of television programming, for
point-to-point traffic in developing countries lacking terrestrial networks
and for other point-to-point traffic that cannot be connected efficiently
or cost-effectively by terrestrial transmission systems.
Telecommunications Markets. AT&T, MCI, Sprint and WorldCom together
constitute what are generally referred to as the "Tier 1" companies in the
long distance market. Long distance companies may generally be categorized as
"facilities-based" carriers and "nonfacilities-based" carriers. The four Tier
1 companies are facilities-based carriers because each operates a network
principally using its own transmission facilities and
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extensive geographically dispersed switching equipment. The completed Qwest
Network will enable the Company to become this type of facilities-based
carrier. All of the Tier 1 carriers, including AT&T, lease some of their
transmission facilities from other carriers to back up their service routing,
augment areas where they may have traffic bottlenecks or cover a particular
geographic area not covered by their own networks.
Medium-sized long distance companies, some with national capabilities,
constitute the "Tier 2" companies in the long distance market. Certain Tier 2
carriers are known as "partial facilities-based" carriers in that they own
some of their own transmission facilities but operate using mostly leased
facilities. However, most Tier 2 carriers are nonfacilities-based carriers in
that they lease substantially all of their transmission facilities. Tier 2
carriers design, manage and operate their own networks just as the Tier 1
carriers, but generally on a smaller regional scale, focusing on selling
traffic originating in their target geographic area. These carriers are also
generally referred to as "switch-based" or "switched" because they typically
operate their own switches. Some of these carriers lease high volume DS-3
capacity and resell lower volume DS-1 capacity to other carriers at higher
unit prices. DS-3 level capacity is generally only sold by carriers that own
facilities on the route on which the service is sold.
The "Tier 3" carriers, often called "switchless" resellers, neither operate
networks nor own facilities, but rather resell "minutes" of service which they
purchase from other carriers. These companies, which vary significantly in
size, are primarily sales and marketing companies that generate their margins
by buying in large volumes to obtain a low price per minute from switch-based
carriers and reselling at higher prices. These companies may receive an
invoice from their underlying carrier and bill the end user or, in some cases,
the underlying carrier may bill the end user directly. The barriers to entry
into this segment of the long distance market are minimal and there are
currently numerous Tier 3 companies providing long distance services. As its
business increases, a Tier 3 company may install its own switch and move into
the Tier 2 category.
Operator services companies concentrate on providing operator services and
other communications services to the long distance industry, private pay phone
operators, prisons and credit card companies. These carriers also manage their
own networks and switching networks and switching equipment while leasing
virtually all of their facilities.
Competition in the retail long distance industry is based upon pricing,
customer service, network quality and valued-added services, creating
opportunities for smaller long distance providers. Sales efforts of long
distance companies focus increasingly on telemarketing and the use of
independent contractors rather than full-time employees. This has created an
opportunity for smaller companies to compete in certain segments of the long
distance market, and many of them are quickly able to build sizable customer
bases on the strength of their marketing efforts and distribution channels.
Business Opportunities
The Company believes that demand from interexchange carriers and other
communications entities for advanced, high bandwidth voice, data and video
transmission capacity will increase over the next several years due to
regulatory and technological changes and other industry developments. These
anticipated changes and developments include: (i) continued growth in capacity
requirements for high speed data transmission, ATM and Frame Relay services,
Internet and multimedia services and other new technologies and applications;
(ii) continued growth in demand for existing long distance services; (iii)
entry into the market of new communications providers; (iv) requirements of
the four principal nationwide carriers (AT&T, MCI, Sprint and WorldCom) to
replace or augment portions of their older systems; and (v) reform in
regulation of domestic access charges and international settlement rates,
which the Company expects will lower long distance rates and fuel primary
demand for long distance services.
Accommodation of the Internet and Other New Applications. The Company
believes that additional network transmission capacity and faster response
times will be required to accommodate multimedia (voice, data and video) and
other potential high-bandwidth applications, such as increasing use of the
Internet by
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commercial users, the deployment of corporate intranets and the use of
telecommunications infrastructure for providing cable television and other
entertainment services. The Company believes this growth will result in
increased demand for high-bandwidth dedicated circuits and other network
services provided by the Company (such as Frame Relay and ATM).
Base Growth of Existing Telecommunications Providers. Domestic long distance
industry revenue has increased in recent years. The revenue increases were
achieved against a backdrop of declining unit prices for most
telecommunications services, which suggests that the demand for
telecommunications bandwidth has increased at an even higher rate. The Company
believes that these growth trends generally will continue and that certain
companies that do not own most of their networks have potential needs to
invest in network facilities or lease high bandwidth network capacity in order
to remain competitive. In addition, the Company believes that the Qwest
Network will allow the Company to offer an attractive alternative for leased
capacity simply to meet current levels of demand for wholesale
telecommunications services.
Capacity Required by New Communications Entrants. Competition and
deregulation are bringing new entrants into the telecommunications market. The
Company anticipates that this trend will accelerate as a result of the
Telecommunications Act. The Telecommunications Act allows the RBOCs and GTE to
enter the long distance business and enables other entities, including
entities affiliated with power utilities and ventures between LECs and cable
television companies, to provide an expanded range of telecommunications
services. As these entities emerge as long distance competitors, the Company
believes they will need their own facilities and additional high-bandwidth
capacity to compete effectively with facilities-based providers.
Augmentation of Older Systems. The coast-to-coast fiber systems currently
operated by the Tier 1 carriers were constructed for the most part prior to
1990, using standard, single mode fiber. Most of these systems were buried
directly in the ground without protective conduit. The conversion of these
older systems to the use of SONET ring architecture requires increasingly more
bandwidth over additional route miles. Accordingly, the Company believes that
the Tier 1 carriers will generally need to replace or augment parts of their
networks to add more capacity, route diversity and redundancy to their systems
and to lower their overall operating costs. The Company believes that the
older, legacy systems operated by certain of the Tier 1 carriers generally
face certain other disadvantages when compared to the Qwest Network, such as:
(i) lower transmission speeds; (ii) lower overall capacity; (iii) shorter
distances between regeneration/amplifier facilities; (iv) more costly
maintenance requirements; (v) greater susceptibility to system interruption
from physical damage to the network infrastructure; and (vi) greater
difficulty in upgrading to more advanced fiber due to lack of a spare conduit.
Access Charge and International Settlement Rate Reform. The Company
anticipates that primary demand for long distance services will be stimulated
by reforms of domestic access charges and international settlement rates and
recent international trade negotiations. As long distance prices decline, the
Company expects that overall demand for its services by carriers, businesses
and consumers will increase.
Business Strategy
The Company's objective is to become a leading, coast-to-coast facilities-
based provider of multimedia communications services to other communications
providers, businesses and consumers. To achieve this objective, the Company
intends to:
Deploy a Technologically Advanced Network. The Company believes the
technical characteristics of the Qwest Network will enable it to provide
highly reliable services to interexchange carriers and other communications
entities at low per unit costs as it expands its customer base and increases
network traffic volume. For instance, the Qwest Network's advanced fiber optic
cable and electronic equipment permit high capacity transmission over longer
distances between regeneration/amplifier facilities than older fiber systems.
This translates into generally lower installation and operating costs. These
costs typically constitute a significant portion of the overall cost of
providing telecommunications services.
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Build on Network Construction Expertise and Existing Network Assets. As of
December 31, 1997, the Company had built over 9,800 route miles of
telecommunications conduit systems over the last eight years for itself and
major interexchange carriers including AT&T, MCI, Sprint and WorldCom. As of
December 31, 1997, Network Construction Services employed over 950 experienced
construction personnel led by a senior construction management team. The
Company utilizes its own fleet of owned and leased railroad equipment and had
in place railroad and other right-of-way agreements covering approximately 94%
of the Qwest Network and had installed approximately 60% of the route miles of
conduit required for the Qwest Network as of December 31, 1997. In addition,
the Company has fixed-price supply agreements for the provision of all the
fiber and transmission electronics necessary to construct and activate the
Qwest Network.
Establish Low Cost Position. The Company has entered into major construction
contracts for the sale of dark fiber in the Qwest Network that will allow the
Company to achieve a low net capital investment in the Qwest Network and share
future operating and maintenance costs. Earnings from these agreements will
reduce the Company's net cost per fiber mile with respect to the fiber that it
retains for its own use. The Company believes that this network cost
advantage, coupled with the operating and maintenance cost advantages of
owning an entirely new network with advanced fiber and equipment uniformly
deployed systemwide, will enable it to establish a low cost position in the
long distance industry relative to its competitors.
Build on Management Experience. The Company's management team and board of
directors include individuals with significant experience at major
telecommunications companies. These executives have extensive management
experience in marketing, sales, finance, construction, information technology,
network operations and engineering, having served in various capacities within
large, rapidly growing organizations.
Grow Carrier Revenue Base. The Company is currently expanding Carrier
Services to increase its revenue stream and reduce per unit costs, targeting
capacity sales on a segment-by-segment basis as the Qwest Network is deployed
and activated, and is increasingly seeking long-term, high volume capacity
agreements from major carriers. In addition to traditional telecommunications
carriers, the Company is marketing to ISPs and other data service companies.
In January 1998, the Company signed a long-term contract to provide Apex
Global Internet Services, Inc. ("AGIS") telecommunications capacity along
approximately 10,000 route miles of the Qwest Network. In consideration, the
Company will receive 19.99% of AGIS's common stock and up to $310.0 million in
cash over an extended payment term. There are restrictions on the sale by the
Company of AGIS's common stock, and AGIS has the right to repurchase the
common stock until the contract's second anniversary. The Company will also
receive monthly operations and maintenance fees totaling approximately $251.0
million over the term of the multi-year contract. Prior to delivery of the
telecommunications capacity and acceptance by AGIS, AGIS has the right to
purchase interim capacity from the Company. The total cash consideration under
the contract will be reduced by 60% of the sums paid by AGIS for purchases of
interim capacity. Pursuant to the terms of the contract, AGIS may require the
Company to purchase an additional $10.0 million of its common stock. If the
Company fails to complete at least 75% of AGIS's network by the contract's
third anniversary, AGIS may, at its option, either accept the completed
portion and pay for it on a pro rata basis or terminate the contract and
require the Company to return all consideration received. Under the terms of
the contract, the companies will enter into a joint marketing arrangement to
expand their product and service offerings to include internet protocol ("IP")
telephony, video conferencing, ATM and Frame Relay services. AGIS, founded in
1994, provides Internet access to users via its extensive customer base of
RBOCs, content providers, large corporations and ISPs.
Develop Commercial Services. The Company plans to build on its Carrier
Services experience to expand its presence in the Commercial Services market
by developing its distinctive "Ride the Light(TM)" brand identity and
aggressively marketing its existing and planned voice, data and other
transmission products and services. The Company plans to build direct end user
relationships by developing strong distribution channels, providing
competitive pricing and superior network quality and offering enhanced,
market-driven services to businesses and consumers.
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Acquire Complementary Businesses. The Company continually evaluates
opportunities to acquire or invest in complementary, attractively valued
businesses, facilities, contract positions and assets to improve its ability
to offer new products and services to customers, to compete more effectively
and to facilitate further growth of its business. The Company recently
announced the following acquisitions or proposed acquisitions:
In October 1997, the Company acquired SuperNet, Inc. ("SNI"), an ISP for
$20.2 million in cash, including acquisition costs. SNI is a regional ISP in
the Rocky Mountain region that offers Internet services ranging from metered
dial-in access to Internet-based data management and hosting services. SNI
provides a customer base, existing product lines and technical expertise from
which the Company can build product lines in Commercial Services, including
corporate intranet and extranet services and virtual private networks.
In January 1998, the Company signed a definitive merger agreement to acquire
Phoenix Network, Inc. ("Phoenix Network"), a non-facilities-based reseller of
long distance services. Phoenix Network currently has approximately 40,000
customers, primarily in the business market. Under the terms of the
acquisition, up to $28.5 million of the Company's common stock and up to $4.0
million of cash will be exchanged for the outstanding shares of Phoenix
Network as of the close of the acquisition. The cash portion of the
consideration is being withheld pending the outcome of litigation for which
Phoenix Network or its affiliates may have certain potential liability. The
transaction is subject to the approval of the Phoenix Network stockholders,
the receipt of certain state and federal regulatory approvals and the
satisfaction of other customary closing conditions. The meeting of the Phoenix
Network stockholders to consider approval of the acquisition is scheduled for
March 30, 1998.
On March 8, 1998, the Company and LCI International, Inc., a Delaware
corporation ("LCI"), entered into a definitive agreement and plan of merger
that will result in LCI becoming a wholly-owned subsidiary of the Company. The
board of directors of each company has approved the merger.
The merger will create the fourth largest U. S. long distance company, based
on revenue, after giving effect to the proposed merger of WorldCom and MCI.
The combined companies had 1997 revenue of approximately $2.3 billion, serve
over two million business and residential customers and have a total current
equity market capitalization of over $11.0 billion. The merger enables the LCI
nationwide customer base to fully leverage the capabilities and efficiencies
of the Qwest Network and allows the Company to take full advantage of LCI's
sales and marketing expertise, distribution channels, intelligent network
platform and LCI's customer care and billing system.
The all-stock transaction is valued at approximately $4.4 billion. The
actual number of shares of the Company's Common Stock to be exchanged for each
LCI share will be determined by dividing $42.00 by a volume weighted average
of trading prices for the Company's Common Stock for a specified 15-day period
prior to the closing, but will not be less than 1.0625 shares (if the
Company's average stock price exceeds $39.53) or more than 1.5583 shares (if
the Company's average stock price is less than $26.95). If the Company's
average stock price is less than $26.95, LCI may terminate the merger unless
the Company then agrees to exchange for each share of LCI the number of Qwest
shares determined by dividing $42.00 by such average price. The merger is
intended to qualify as a tax-free reorganization and will be accounted for as
a purchase.
Completion of the transaction is anticipated to occur during the third
quarter of 1998. The transaction is subject to the majority vote of the
shareholders of the Company and LCI and to other customary conditions such as
receipt of regulatory approvals. Anschutz Company (the "Majority
Shareholder"), owning approximately 83.7% of the Company's Common Stock, has
agreed to vote in favor of the transaction.
The Qwest Network
As of December 31, 1997, the Company's network infrastructure included,
among other assets: (i) approximately 9,500 route miles of conduit in place,
consisting of approximately 3,400 route miles of lit fiber including the spans
connecting Los Angeles to Sacramento to Denver, to Kansas City, to
Indianapolis, and Dallas
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to Houston; approximately 3,300 route miles of dark fiber installed in
conduit; and approximately 2,800 route miles of vacant conduit; (ii) right-of-
way agreements in place for approximately 5,500 additional route miles of
planned construction for the Qwest Network; (iii) an approximately 3,500 mile
operating digital microwave system (the "Microwave System"); (iv)
approximately 15,000 DS-3 miles of fiber transmission capacity leased by the
Company from other carriers, used primarily to extend the Company's switched
services for originating and terminating traffic beyond the boundaries of the
Company's lit fiber network; and (v) five digital switches (two of which are
leased).
The physical components of the Qwest Network are: (i) high density
polyethylene conduit, which is hollow tubing 1 1/2 to 2 inches in diameter;
(ii) fiber optic cable, which consists of fiber strands placed inside a
plastic sheath and strengthened by metal; (iii) electronic equipment necessary
to activate the fiber for transmission; (iv) switches that enable the Company
to provide switched services to carrier and commercial customers; and (v)
approximately 125 points of presence, which allow the Company to concentrate
customers' traffic at locations where the Company does not have switches and
carry the traffic to switching centers over the Qwest Network.
With the completion of the Qwest Network, the Company will provide
telecommunications services nationally to its customers primarily over its own
facilities, using leased facilities in those portions of the country not
covered by the Qwest Network. The Company is evaluating the economics of
extending its core network versus continuing to lease network capacity. The
Company expects to deploy three new DMS 250 switches from Nortel. The new
switches are planned to be installed in Atlanta, Indianapolis, and New York
City. The additional switches will expand the Company's on-net switch network
to include key business centers in the Northeast, Southeast and Midwest
regions of the United States. Also, the Company continues to evaluate
opportunities to acquire or invest in complementary, attractively valued
businesses, facilities, contract positions and assets to improve its ability
to offer new products and services to customers, to compete more effectively
and to facilitate further growth of its business.
Advanced Technology. The Company is installing technologically advanced
fiber optic cable and electronic equipment in a uniform configuration
throughout the Qwest Network, using an advanced network management system. The
Qwest Network's technologies include Lucent's non-zero dispersion shifted
fiber and Nortel's dense wave division multiplexing, forward error correction
technology and SONET ring technology that enable OC-192 transmission capacity
and high integrity levels.
The Qwest Network is designed for superior security and reliability, based
on (i) bi-directional SONET ring architecture, a self-healing system that
allows for nearly instantaneous rerouting and virtually eliminates downtime in
the event of a fiber cut; (ii) fiber cable installed in high density
polyethylene conduit generally buried 42-56 inches below the ground; and (iii)
extensive use of railroad rights-of-way, which typically offer greater
protection of the fiber system than other systems built over more public
rights-of-way such as highways, telephone poles or overhead power transmission
lines.
The Qwest Network is designed for expandability and flexibility and will
contain two conduits along substantially all of its route. The first conduit
will contain a cable generally housing at least 96 fibers, and the second
conduit will serve as a spare. The spare conduit will allow for future
technology upgrades and expansion of capacity at costs significantly below the
cost of new construction. After existing and anticipated dark fiber sales, the
Company generally plans to retain a minimum of 48 fibers for its own use in
the Qwest Network. With the combined use of non-zero dispersion shifted fiber,
dense wave division multiplexing and high bit rate transmission electronics,
each of the fibers retained by the Company can achieve substantially greater
capacity per fiber than standard, single mode fiber now in use.
The Company monitors its current network, and will monitor the Qwest
Network, 24 hours a day, seven days a week from its Network Management Center
in Denver, Colorado. This facility provides centralized network surveillance,
troubleshooting and customer service, using technology that enables the
Company to reduce service costs and customer downtime. The system currently
allows the Company's technicians to detect a component malfunction in the
Qwest Network, quickly reroute the customer to an available alternate path and
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effect an expedited repair. Upon completion of the Qwest Network with its
SONET ring architecture, the rerouting function will be fully automated. In
addition, the Company is deploying new management tools, including Nortel's
Integrated Network Management Solutions, that will give the Company's Carrier
Services customers the ability to monitor and reconfigure their leased
capacity on an essentially real time basis from their own network management
centers and the ability to rapidly increase or reduce bandwidth to better
match their needs. The available software features equipment inventory
management, bandwidth inventory management, configuration management, fault
isolation management, "point-and-click" provisioning on partitioned network
and alarm monitoring. As of December 31, 1997, the Company maintained a staff
of approximately 255 technicians and other related personnel across the system
to provide maintenance and technical support services. The Company has also
implemented a "Call Before U Dig" ("CBUD") program, backed up by its 24-hour
Network Management Center to reduce the risk of damage to the conduit or fiber
system. Additionally, above ground markers are placed at frequent intervals
along the route of the Qwest Network.
Railroad Rights-of-Way. The Company has agreements in place with major
railroads that provide it with rights-of-way throughout the United States. The
Company believes that use of railroad rights-of-way, along with the protective
conduit, give the Company inherent advantages over other systems built over
more public rights-of-way, such as highways, telephone poles or overhead power
transmission lines. These advantages include higher security for the Qwest
Network and greater protection of the fiber system.
Railroad rights-of-way also provide the Qwest Network generally with a
direct, continuous route between cities. This eliminates the potential need,
and the associated time and costs, to piece together rights-of-way using a
combination of agreements with private owners and state or municipal agencies.
In addition, railroad rights-of-way typically extend into downtown areas of
cities that are strategically important to the Company. The Company's right-
of-way agreements provide for continuing or lump-sum cash payments, exchanges
of rights-of-way for network capacity or a combination of both. Between 70%
and 80% of the Qwest Network will be installed on railroad rights-of-way.
The Company has other right-of-way agreements in place, where necessary or
economically preferable, with highway commissions, utilities, political
subdivisions and others. As of December 31, 1997, the Company had in place
agreements for approximately 94% of the rights-of-way needed to complete the
Qwest Network. As of December 31, 1997, the remaining rights-of-way needed for
completion of the Qwest Network consisted of approximately 1,100 route miles
located primarily in the Midwest and Mid-Atlantic regions. The Company has
identified alternative rights-of-way for these route miles and is currently in
negotiations with respect to all of them.
Network Installation. As of December 31, 1997, the Company employed over 950
experienced construction personnel and uses its own fleet of equipment, as
well as leased equipment. The Company supplements these resources with
independent contractors.
Dark Fiber Sales. The Company has entered into agreements with Frontier,
WorldCom and GTE and others whereby each is purchasing dark fiber along the
Qwest Network. The proceeds from these contracts for the sale of dark fiber
will provide cash for a significant portion of the total estimated costs to
construct the Qwest Network and provide the dark fiber sold to Frontier,
WorldCom and GTE and others. This is expected to provide the Company with a
strategic network cost advantage on the fibers that the Company retains for
the Qwest Network. Each agreement requires the purchaser to pay an aggregate
price consisting of an initial payment followed by installments during the
construction period based on the Company's achievement of certain milestones
(e.g., commencement of construction, conduit installation and fiber
installation), with final payment for each segment made at the time of
acceptance. Each agreement provides for the sharing of certain maintenance
costs. The Frontier and GTE agreements also provide for sharing of certain
operating costs. The agreements establish anticipated delivery dates for
construction and delivery of segments along the route of the Qwest Network.
Delivery may be extended under each agreement for force majeure events. The
Frontier and GTE agreements provide for penalties in the event of delay of
segments and, in certain circumstances, allow Frontier and GTE to delete non-
delivered segments from the contracts.
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The Company believes that significant opportunities exist to sell additional
dark fiber throughout the Qwest Network and management has identified and is
in various stages of negotiations with potential customers. However, the
Company does not expect to enter into additional agreements of the size and
scope of the Frontier and GTE contracts. These potential customers include
other interexchange carriers, cable, entertainment and data transmission
companies, RBOCs, ISPs, LECs and CLECs. The Company believes that these
potential customers will view the Company as an attractive source for certain
of their long distance transmission needs. In order to meet the needs of this
diverse group of customers, the Company expects to offer a wide variety of
pricing and system options to meet specific needs of each customer. For
example, customers may purchase or lease dark fiber or purchase capacity on a
short- or long-term basis.
The Frontier and GTE agreements each provide for the purchase of 24 fibers
along major portions of the Qwest Network, while the WorldCom agreement
generally provides for the purchase of 24 or, in certain segments, 36 fibers.
Several smaller construction contracts for sales of dark fiber provide for the
sale of smaller numbers of fibers over a more limited number of segments. In
segments where the Company agrees to sell dark fiber to others, it generally
will install enough fibers so that it can retain 48 fibers for its own use
along substantially all of the route of the Qwest Network.
Significant Customers
During 1997 and 1996, the Company's top 10 customers accounted for
approximately 83.6% and 69.3%, respectively, of its consolidated gross
revenue. Frontier, WorldCom and GTE accounted for 31.2%, 6.1% and 36.6% of
such revenue, respectively, in 1997 and 26.3%, 27.8% and 0.0% of such revenue,
respectively, in 1996, attributable primarily to construction contracts for
the sale of dark fiber to these customers that extend through 1998 or into
1999 pursuant to the applicable contract.
Carrier Services
General. The Company has been positioned historically in the long distance
business as a "carrier's carrier," providing dedicated line and switched
services to other carriers over the Company's owned or leased fiber optic
network facilities. Management believes that the Company has earned a
reputation of providing quality services at competitive prices to meet
specific customer needs. Total revenue from Carrier Services was approximately
$55.6 million, $57.6 million and $67.8 million for the years 1997, 1996 and
1995, respectively. These revenue amounts have not been adjusted for the sale
of the Company's resale dedicated line services on leased capacity which
occurred in July 1996.
Products. Products offered by Carrier Services fall into three primary
categories: (i) high volume capacity services; (ii) conventional dedicated
line services; and (iii) switched services.
High Volume Capacity Services. The Company provides high volume transmission
at or above the OC-3 level (or its equivalent) through service agreements for
terms of one year or longer. As the Qwest Network is deployed, the Company
also is targeting potential large users in the inter-LATA market that may seek
to augment their own networks or provide diverse routing alternatives in
strategic areas of their systems.
Conventional Dedicated Line Services. The Company provides dedicated line
services on owned capacity to a wide range of customers at capacities below
the OC-3 level generally for terms of one year or less. The Company expects
the Qwest Network will enable the Company to offer these services over a
significantly expanded geographic area.
Switched Services. The Company provides switched terminating services over
its switched service network to large and small long distance carriers. The
carrier switched terminating service business is specifically used to increase
volume on the Company's switched service network to allow for more efficient
"trunking" of calls. While the carrier switched services generate revenue at
lower margins than the dedicated line services, such services facilitate cost
effective management of the Qwest Network.
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The Company also plans to provide high speed ATM and Frame Relay data
services to carriers and ISPs by installing ATM and Frame Relay switching
equipment. The Company expects such services to become available in 1998.
Customers. Carrier Services' customer base in the inter-LATA carrier market
consists of the following:
Tier 1 and Tier 2 Carriers. The Company offers high volume transmission
capacity, conventional dedicated line services and dedicated switched
services to the Tier 1 and Tier 2 carriers on a national or regional basis.
As RBOCs enter the long distance market, the Company believes they will be
potential customers to lease high volume capacity from the Company on a
national basis.
Tier 3 Carriers. The Company currently offers switchless resale services
to Tier 3 carriers on a limited basis. The Company anticipates that this
business will expand as coverage of the Company's switched network grows.
Internet Service Providers. The Company currently offers high volume
capacity to ISPs on a limited basis.
Operator Services Companies and Other Niche Companies. These companies
concentrate on providing operator services and other communications
services to the long distance industry, private payphone operators, prisons
and credit card companies. These carriers also manage their own networks
and switching equipment while leasing virtually all of their transmission
facilities. The Company provides transmission services to these carriers.
Service Agreements. The Company provides high volume transmission capacity
services through service agreements for terms of one year or longer. Dedicated
line services are generally offered under service agreements for an initial
term of one year. High volume capacity service agreements and dedicated line
service agreements generally provide for "take or pay" monthly payments at
fixed rates based on the capacity and length of circuit used. Customers are
typically billed on a monthly basis and also may incur an installation charge
or certain ancillary charges for equipment. After contract expiration, the
contracts may be renewed or the services may be provided on a month-to-month
basis. Switched services agreements are generally offered on a month-to-month
basis and the service is billed on a minutes-of-use basis. Revenue from
carrier customers that is billed on a minutes-of-use basis has the potential
to fluctuate significantly based on changes in usage that are highly dependent
on differences between the prices charged by the Company and its competitors.
The Company, however, has not experienced significant fluctuations to date.
Commercial Services
General. The Company began offering Commercial Services in 1993. Commercial
Services focuses primarily on the sale of inter-LATA long distance services to
the retail market, principally to small- and medium-sized businesses and to
consumers. The Company currently provides facilities-based services along the
majority of its lit routes, and is a switch based reseller elsewhere. Total
revenue from Commercial Services was approximately $59.6 million, $34.3
million and $20.4 million in 1997, 1996 and 1995, respectively. The Company
plans to transfer carrier and commercial switched traffic from leased
facilities onto the Qwest Network as it is activated. As traffic volume
increases and the Company carries a greater percentage of traffic on the Qwest
Network, the Company believes it will realize economies of scale and thereby
lower its cost of sales as a percentage of revenue.
Products. The Company markets the following products:
One Plus. This basic service offers customers the ability to make
outbound long distance calls from any local telephone line by simply
dialing a 1, plus the area code and phone number. Customers select the
Company as their primary long distance provider by placing an order with
it. This service may be used for both domestic and international calling.
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10056. This service allows the customer to access the Qwest Network by
dialing 10056 plus 1, plus the area code and phone number, with no need to
change their primary long distance provider. These customers are solicited
through direct mailing.
Dedicated Access Service. These lines are designed for larger users with
enough traffic volume to warrant the use of a dedicated access line to
originate calls. Instead of a switched access line that is shared by many
users, this service uses a high capacity line that is used exclusively to
connect between the end user and the long distance carrier's switch. This
results in lower originating access cost and reduced rates to the user.
Toll Free 800/888. This inbound service, where the receiving party pays
for the call, is accessed by dialing an 800/888 area code. This is used in
a wide variety of applications, many of which generate revenue for the user
(such as reservation centers or customer service centers). The Company
plans to introduce additional enhanced features such as call routing by
origination point, time of day routing and other premium features in 1998.
Calling Card. These traditional, basic telephone calling cards allow the
user to place calls from anywhere in the United States or Canada. The
Company offers additional features such as conference calling,
international origination, information service access (such as weather or
stock quotes), speed dialing and voice messaging.
Prepaid Card. Prepaid cards allow a customer to purchase and pay in
advance for a card with a fixed amount of calling time. The card is then
used as a standard calling card. Prepaid cards may be purchased with
enhanced features similar to those of calling cards and also may be renewed
by purchasing additional time.
International Callback. This service operates by allowing a customer in a
foreign country to place a toll-free call to the U.S. and be "called back"
by the Company's equipment. The Company charges a rate similar to that
which the customer would pay if the call were originally initiated in the
U.S., allowing the customer to take advantage of the fact that the rates
for calling from the U.S. to many foreign destinations are lower than the
cost of the same call if it were originated in the foreign country.
Media Express(TM). This is an exclusive switched digital broadband
service that provides variable bandwidth for video communications and other
data applications on demand and allows users to control all the required
components of a video conference from a personal computer.
Voice Over IP. In February 1998, the Company began commercial service for
its voice over internet protocol ("IP") telephony service, Q.talk (SM),
with customers using the service through a controlled introduction in nine
cities. The Company expects to expand its service offering to approximately
25 cities by mid-1998, and continue the expansion of the service in
conjunction with the planned Qwest Network buildout. The Company offers to
customers uncompressed voice over IP service at 7.5-cents per minute, 24
hours a day, seven days a week.
Other services offered by Commercial Services include audio conferencing,
operator services, directory assistance, special rate structures, custom
services, special contract pricing and special local access arrangements in
selected markets. In addition, the Company intends to develop and offer
additional value-added services to its customers, particularly business
customers, to differentiate the Company from its competitors and enhance
Commercial Services profit margins. The Company also is evaluating and intends
to introduce in the future a variety of services specifically designed to
capture a share of the growing data networking market.
In September 1997, the Company entered into an arrangement with Cisco
Systems Inc. under which they will jointly define and test new broadband
business multimedia services.
Customers. Commercial Services currently targets small and medium to large
businesses. The strategy of Commercial Services is to develop a customer base
in geographic proximity to the Qwest Network.
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Network Construction Services
General. The Company's Network Construction Services operations commenced in
1988 with the construction of conduit systems for major interexchange
carriers. Total revenue from Network Construction Services was approximately
$581.4 million, $139.2 million and $36.9 million in 1997, 1996 and 1995,
respectively.
Products. The principal product of Network Construction Services
historically has been turn-key conduit systems built for other carriers. In
most cases, while fulfilling customer contracts, the Company installed
additional conduit that it retained for its own use. The Company is using its
Network Construction Services resources to implement its strategic plan to
complete the Qwest Network, in addition to providing Network Construction
Services to third party customers along Qwest Network routes.
In 1996, the Company began selling dark fiber to telecommunications entities
to help fund development of the Qwest Network. In 1996, the Company's Network
Construction Services revenue was derived largely from two principal dark
fiber sales contracts with Frontier and WorldCom. These two contracts, along
with the contracts with GTE, generated the majority of Network Construction
Services revenue in 1997, and it is expected that these contracts will also
generate the majority of such revenue in 1998. In addition, the Company
expects to generate additional revenue through the sale of dark fiber along
various segments of the Qwest Network to other carriers.
Customers. Network Construction Services customers historically have been
primarily interexchange carriers, as well as major LECs and other
telecommunications companies. For the year ended December 31, 1997, GTE was
the largest single Network Construction Services customer, accounting for
approximately 36.6% of the Company's consolidated gross revenue, with Frontier
accounting for approximately 31.2%. For the year ended December 31, 1996,
WorldCom was the Company's largest single customer, accounting for
approximately 27.8% of the Company's consolidated gross revenue, and Frontier
accounted for approximately 26.3% of the Company's consolidated gross revenue.
No other customers accounted for more than 10% of consolidated gross revenue
in 1997 and 1996. For the year ended December 31, 1995, MCI was the Company's
largest single customer, accounting for approximately 35.4% of consolidated
gross revenue. No other customer accounted for more than 10% of consolidated
gross revenue in 1995.
Sales and Marketing
The Company sells network dedicated and switched services to carriers
through its carrier sales organization. This organization consists of senior
level management personnel and experienced sales representatives with
extensive knowledge of the industry and key contacts within the industry at
various levels in the carrier organizations.
In Commercial Services, the Company currently solicits targeted businesses
through telemarketing personnel, independent contractors and a direct sales
channel. The Company plans to expand its presence in the Commercial Services
market by developing its distinctive "Ride the Light (TM)" brand identity and
aggressively marketing its existing and planned voice, data and other
transmission products and services. The Company plans to build direct end user
relationships by developing strong distribution channels, providing
competitive pricing and superior network quality and offering enhanced,
market-driven services to businesses and consumers.
In September 1997, the Company entered into a marketing agreement with
Innova, Inc. ("Innova") under which Innova will be an authorized sales
representative of the Company marketing the Company's long-distance products
through affinity groups. Innova is a marketing company that wholesales and
retails telecommunication products on a national basis with an emphasis on
developing bundled product packages.
Also in September 1997, the Company entered into a marketing agreement with
en-able, a joint venture of KN Energy, Inc. ("KN") and PacifiCorp. Jordan
Haines, a Director of the Company, is also a Director of KN.
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The Company's One Plus and Calling Card services (with competitive
international pricing for both) will be offered to utilities across the nation
along with other services provided by en-able under its Simple Choice (SM)
brand name.
In February 1998, the Company introduced its QwestLinked (TM) partner
marketing program. Carriers, corporations and technology partners who choose
the Qwest Network for their data, multimedia and voice connections are
eligible to become QwestLinked and share the brand trademark.
Competition
The telecommunications industry is highly competitive. Many of the Company's
existing and potential competitors in the Carrier Services, Commercial
Services and Network Construction Services markets have financial, personnel,
marketing and other resources significantly greater than those of the Company,
as well as other competitive advantages. Increased consolidation and strategic
alliances in the industry resulting from the Telecommunications Act of 1996
(the "Telecom Act of 1996") could give rise to significant new competitors to
the Company.
In the Carrier Services market, the Company's primary competitors are other
carrier service providers. Within the Carrier Services market, the Company
competes with large and small facilities-based interexchange carriers. For
high volume capacity services, the Company competes primarily with other
coast-to-coast and regional fiber optic network providers. There are currently
four principal facilities-based long distance fiber optic networks (AT&T, MCI,
Sprint and WorldCom, although WorldCom made an unsolicited exchange offer for
MCI and a proposed merger is pending). The Company is aware that others are
planning additional networks that, if constructed, could employ advanced
technology similar to the Qwest Network. Upon completion of the Qwest Network,
Frontier and GTE will each have a fiber network similar in geographic scope
and potential operating capability to that of the Company. Another competitor
is constructing, and has already obtained a significant portion of the
financing for, a fiber optic network. The scope and capacity of that
competitor's network, as publicly announced, is less than that of the Company,
and does not contain all of the advanced technologies designed for the Qwest
Network, but is expected to compete directly with the Qwest Network for many
of the same customers along a significant portion of the same routes. A
carrier's carrier announced in January 1998 that it plans to sell wholesale
capacity on its fiber optic network and that it has entered into an agreement
with one of the RBOCs to be the primary user of its network. The Company
believes that this network, although potentially competitive, is different in
operating capability from the Qwest Network. Another potential competitor, a
new telecommunications company, has announced its intention to create a
telecommunications network based on Internet technology.
The Company's competitors in Carrier Services include many large and small
interexchange carriers. The Company's Carrier Services business competes
primarily on the basis of pricing, transmission quality, network reliability
and customer service and support. The ability of the Company to compete
effectively in this market will depend upon its ability to maintain high
quality services at prices equal to or below those charged by its competitors.
Commercial Services has been and expects to continue to be a provider of
high quality, low cost service primarily to small- and medium-sized business
customers and consumers. The Company intends to move into the market for
higher volume business customers as the Qwest Network is completed and new
products are introduced. In recent years the small- and medium-sized business
market has experienced increased competition. The industry wide changes in
technology and the effects of deregulation resulting from the
Telecommunications Act are likely to further increase competition. Many of the
Company's competitors and potential competitors have financial, personnel and
other resources substantially greater than those of the Company. In the
Commercial Services market, the Company's primary competitors include AT&T,
MCI, Sprint and WorldCom, all of whom have extensive experience in the long
distance market. In October 1997, MCI and WorldCom announced a proposed
merger. The impact on the Company of such a merger or other consolidation in
the industry is
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uncertain. In addition, the Telecom Act of 1996 will allow the RBOCs and
others to enter the long distance market.
In the future, the Company may be subject to additional competition due to
the development of new technologies and increased supply of domestic and
international transmission capacity. The telecommunications industry is in a
period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite transmission capacity
for services similar to those provided by the Company. For instance, recent
technological advances permit substantial increases in transmission capacity
of both new and existing fiber, and the introduction of new products or
emergence of new technologies may reduce the cost or increase the supply of
certain services similar to those provided by the Company.
High initial network cost and low marginal costs of carrying long distance
traffic have led to a trend among nonfacilities-based carriers to consolidate
in order to achieve economies of scale. Such consolidation could result in
larger, better capitalized competitors. However, the Company believes that
such competitors would also be stronger prospects as potential Carrier
Services customers.
Regulation
General Regulatory Environment. The Company's operations are subject to
extensive federal and state regulation. Carrier Services and Commercial
Services (but not Network Construction Services) are subject to the provisions
of the Communications Act of 1934, as amended, including the
Telecommunications Act and the FCC regulations thereunder, as well as the
applicable laws and regulations of the various states, including regulation by
PUCs and other state agencies. Federal laws and FCC regulations apply to
interstate telecommunications (including international telecommunications that
originate or terminate in the United States), while state regulatory
authorities have jurisdiction over telecommunications both originating and
terminating within the state. The regulation of the telecommunications
industry is changing rapidly, and the regulatory environment varies
substantially from state to state. Moreover, as deregulation at the federal
level occurs, some states are reassessing the level and scope of regulation
that may be applicable to the Company. All of the Company's operations are
also subject to a variety of environmental, safety, health and other
governmental regulations. There can be no assurance that future regulatory,
judicial or legislative activities will not have a material adverse effect on
the Company, or that domestic or international regulators or third parties
will not raise material issues with regard to the Company's compliance or
noncompliance with applicable regulations.
The Telecommunications Act may have potentially significant effects on the
operations of the Company. The Telecommunications Act, among other things,
allows the RBOCs and GTE to enter the long distance business, and enables
other entities, including entities affiliated with power utilities and
ventures between LECs and cable television companies, to provide an expanded
range of telecommunications services. Entry of such companies into the long
distance business would result in substantial competition to the Company's
Commercial Services and Carrier Services customers, and may have a material
adverse effect on the Company and such customers. However, the Company
believes that the RBOCs' and other companies' participation in the market will
provide opportunities for the Company to sell fiber or lease long distance
high volume capacity.
Under the Telecommunications Act, the RBOCs may immediately provide long
distance service outside those states in which they provide local exchange
service ("out-of-region" service), and long distance service within the
regions in which they provide local exchange service ("in-region" service)
upon meeting certain conditions. GTE may enter the long distance market
without regard to limitations by region. The Telecommunications Act does,
however, impose certain restrictions on, among others, the RBOCs and GTE in
connection with their provision of long distance services. Out-of-region
services by RBOCs are subject to receipt of any necessary state and/or federal
regulatory approvals that are otherwise applicable to the provision of
intrastate and/or interstate long distance service. In-region services by
RBOCs are subject to specific FCC approval and satisfaction of other
conditions, including a checklist of pro-competitive requirements. On December
31, 1997, the U.S. District Court, Northern District of Texas (Wichita Falls)
(the "District Court"), in SBC Communications, Inc. v. FCC and U.S. (the "SBC
Communications Case"), overturned as unconstitutional the provisions of the
Telecommunications Act which prohibited RBOCs from providing inter-
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LATA long distance services within their own region without demonstrating that
the local exchange market was opened to local competition. The decision,
however, affects only SBC Communications, Inc., U.S. West Inc. and Bell
Atlantic. Bell South has filed a recent suit making similar claims. Ameritech
has not yet filed such a suit. Following the filing of respective petitions
for stay by AT&T, MCI, the FCC and other intervenors in the SBC Communications
Case, the District Court on February 11, 1998, stayed its decision, pending
appellate review. In an order entered on January 22, 1998, the Eighth Circuit
Court of Appeals ruled that the FCC may not require the RBOCs to comply with
other checklist items, the FCC's standard for pricing of access and
interconnection, as a condition of providing in-region service. Under the
Telecommunications Act, the RBOCs may provide in-region long distance services
only through separate subsidiaries with separate books and records, financing,
management and employees, and all affiliate transactions must be conducted on
an arm's length and nondiscriminatory basis. The RBOCs are also prohibited
from jointly marketing local and long distance services, equipment and certain
information services unless competitors are permitted to offer similar
packages of local and long distance services in their market. Further, the
RBOCs must obtain in-region long distance authority before jointly marketing
local and long distance services in a particular state. Additionally, AT&T and
other major carriers serving more than 5% of presubscribed long distance
access lines in the United States are also restricted from packaging other
long distance services and local services provided over RBOC facilities. GTE
is subject to the provisions of the Telecommunications Act that impose
interconnection and other requirements on LECs, and must obtain regulatory
approvals otherwise applicable to the provision of long distance services in
connection with its providing long distance services.
Federal Regulation. The FCC has classified QCC, the Company's principal
operating subsidiary, as a non-dominant carrier. Generally, the FCC has chosen
not to exercise its statutory power to closely regulate the charges, practices
or classifications of non-dominant carriers. However, the FCC has the power to
impose more stringent regulation requirements on the Company and to change its
regulatory classification. In the current regulatory atmosphere, the Company
believes that the FCC is unlikely to do so with respect to the Company's
domestic service offerings.
The FCC regulates many of the charges, practices and classifications of
dominant carriers to a greater degree than non-dominant carriers. Among
domestic carriers, large LECs and the RBOCs are currently considered dominant
carriers for the provision of interstate access services, while all other
interstate service providers are considered non-dominant carriers. On April
18, 1997, the FCC ordered that the RBOCs and independent LECs offering
domestic interstate inter-LATA services, in-region or out-of-region, be
regulated as non-dominant carriers. However, such services offered in-region
must be offered in compliance with the structural separation requirements
mentioned above. AT&T was classified as a dominant carrier, but AT&T
successfully petitioned the FCC for non-dominant status in the domestic
interstate interexchange market in October 1995 and in the international
market in May 1996. Therefore, certain pricing restrictions that once applied
to AT&T have been eliminated. A number of parties sought the FCC's
reconsideration of AT&T's status, but the FCC denied these petitions on
October 9, 1997.
As a non-dominant carrier, QCC may install and operate facilities for the
transmission of domestic interstate communications without prior FCC
authorization, so long as QCC obtains all necessary authorizations from the
FCC for use of any radio frequencies. Non-dominant carriers are required to
obtain prior FCC authorization to provide international telecommunications,
and the Company has obtained international authority that permits it to
operate as a facilities-based carrier to all permissible international points
and to operate as a resale carrier (including the resale of private lines for
the provision of switched services) to all permissible points. The FCC also
imposes prior approval requirements on certain transfers of control and
assignments of operating authorizations. Non-dominant carriers are required to
file periodic reports with the FCC concerning their interstate circuits and
deployment of network facilities. International carriers are also required to
file periodic reports regarding traffic and revenue and regarding circuit
status and additions. The Company is required to offer its interstate services
on a nondiscriminatory basis, at just and reasonable rates, and remains
subject to FCC complaint procedures. While the FCC generally has chosen not to
exercise direct oversight over cost justification or levels of charges for
services of non-dominant carriers, the FCC acts upon complaints against such
carriers
18
<PAGE>
for failure to comply with statutory obligations or with the FCC's rules,
regulations and policies. The Company or any of its operating subsidiaries
could be subject to legal actions seeking damages, assessment of monetary
forfeitures and/or injunctive relief filed by any party claiming to have been
injured by the Company's practices. The Company cannot predict either the
likelihood of the filing of any such complaints or the results if filed.
Under existing regulations, non-dominant carriers are required to file with
the FCC tariffs listing the rates, terms and conditions of both interstate and
international services provided by the carrier. Pursuant to such regulations,
the Company has filed with the FCC tariffs for its interstate and
international services. On October 29, 1996, the FCC adopted an order in which
it eliminated, as of September 1997, the requirement that non-dominant
interstate carriers such as the Company maintain tariffs on file with the FCC
for domestic interstate services and in fact prohibited the filing of such
tariffs, although tariffs for international service must still be filed. Such
carriers were given the option to cease filing tariffs during a nine-month
transition period that concluded on September 22, 1997. The FCC's order was
issued pursuant to authority granted to the FCC in the Telecommunications Act
to "forbear" from regulating any telecommunications service provider if the
FCC determines that the public interest will be served. However, on February
19, 1997, the United States Court of Appeals for the District of Columbia
Circuit stayed the FCC's order pending further expedited judicial review or
FCC reconsideration or both. In August 1997, the FCC issued an order on
reconsideration in which it affirmed its decision to impose complete or
mandatory detariffing, although it decided to allow optional or permissive
tariffing in certain limited circumstances (including for interstate,
domestic, interexchange dial-around services, which end users access by
dialing a carrier's 10XXX access code). Petitions for further reconsideration
of this order are pending, and this order also remains subject to the Court of
Appeals' stay pending further judicial review and the pending appeals of the
order on reconsideration. The Company cannot predict the ultimate outcome of
these or other proceedings on its service offerings or operations.
On May 8, 1997, the FCC released an order intended to reform its system of
interstate access charges to make that regime compatible with the pro-
competitive deregulatory framework of the Telecommunications Act. Access
service is the use of local exchange facilities for the origination and
termination of interexchange communications. The FCC's historic access charge
rules were formulated largely in anticipation of the 1984 divestiture of AT&T
and the emergence of long distance competition, and were designated to replace
piecemeal arrangements for compensating LECs for use of their networks for
access, to ensure that all long distance companies would be able to originate
and terminate long distance traffic at just, reasonable, and non-
discriminatory rates, and to ensure that access charge revenues would be
sufficient to provide certain levels of subsidy to local exchange service.
While there has been pressure on the FCC historically to revisit its access
pricing rules, the Telecommunications Act has made access reform timely. The
FCC's recent access reform order adopts various changes to its rules and
policies governing interstate access service pricing designed to move access
charges, over time, to more economically efficient levels and rate structures.
Among other things, the FCC modified rate structures for certain non-traffic
sensitive access rate elements, moving some costs from a per-minute-of-use
basis to flat-rate recovery, including one new flat rate element; changed its
structure for interstate transport services; and affirmed that ISPs may not be
assessed interstate access charges. In response to claims that existing access
charge levels are excessive, the FCC stated that it would rely on market
forces first to drive prices for interstate access to levels that would be
achieved through competition but that a "prescriptive" approach, specifying
the nature and timing of changes to existing access rate levels, might be
adopted in the absence of competition. The FCC intends to address these and
other related matters in subsequent proceedings. Several parties have filed
petitions for reconsideration or judicial appeals or both of this order, many
of which are still pending. Though the Company believes that access reform
through lowering and/or eliminating excessive access service charges will have
a positive effect on its service offerings and operations, it cannot predict
how or when such benefits may present themselves, or the outcome of the
pending judicial appeals or petitions for FCC reconsideration.
The FCC also released a companion order on universal service reform on May
8, 1997. The universal availability of basic telecommunications service at
affordable prices has been a fundamental element of U.S. telecommunications
policy since enactment of the Communications Act of 1934. The current system
of universal
19
<PAGE>
service is based on the indirect subsidization of LEC pricing, funded as part
of a system of direct charges on some LEC customers, including interexchange
carriers such as QCC, and above-cost charges for certain LEC services such as
local business rates and access charges. In accordance with the
Telecommunications Act, the FCC adopted plans to implement the recommendations
of a Federal-State Joint Board to preserve universal service, including a
definition of services to be supported, and defining carriers eligible for
contributing to and receiving from universal service subsidies. The FCC ruled,
among other things, that: contributions to universal service funding be based
on all interexchange carriers' gross retail revenues from both interstate and
international telecommunications services; only common carriers providing a
full complement of defined local services be eligible for support; and up to
$2.25 billion in new annual subsidies for discounted telecommunications
services used by schools, libraries, and rural health care providers be funded
by an assessment on total interstate and intrastate revenues of all
interexchange carriers. The FCC stated that it intends to study the mechanism
for continued support of universal service in high cost areas in a subsequent
proceeding. Several parties have filed petitions for reconsideration or
judicial appeals or both of this order, many of which are still pending. The
Company is unable to predict the outcome of the further FCC proceedings or of
the pending judicial appeals or petitions for FCC reconsideration on its
operations. The Company will be required to contribute in 1998 a percentage of
its gross retail revenue to the universal services fund and plans to include
charges for these contributions in its 1998 billings.
On April 11, 1997, the FCC released an order requiring that all carriers
transition from three-digit to four-digit Carrier Identification Codes
("CICs") by January 1, 1998. CICs are the suffix of a carrier's Carrier Access
Code ("CAC"), and the transition will expand CACs from five (10XXX) to seven
digits (101XXXX). These codes permit customers to reach their carrier of
choice from any telephone. Parties filed petitions for reconsideration of this
design, arguing in part that this short transition (following the FCC's
proposal for a six-year transition) does not permit carriers sufficient time
to make necessary hardware and software upgrades or to educate their customers
regarding the need to dial additional digits to reach their carrier of choice.
In response to these petitions, the FCC on October 22, 1997 issued an order on
reconsideration that modified the transition to create a "two-step" process.
LECs must have completed switch changes to recognize the new codes by January
1, 1998, but interexchange carriers have until June 30, 1998 to prepare for
and educate their consumers about the change to new codes. Petitions for
reconsideration and judicial appeals of the FCC's orders are pending. The
Company cannot predict the outcome of these proceedings or whether this
transition period will permit adequate customer notification.
The Microwave System subsidiary is subject to applicable FCC regulations for
the use of radio frequencies. The FCC issues domestic microwave radio licenses
for limited periods not to exceed 10 years. The Company must seek renewal of
such licenses prior to their expiration. The Company knows of no facts that
would result in the denial of any such renewals, although there can be no
assurance in that regard. Although the FCC has never denied a microwave
license application made by the Company, there can be no assurance that the
Company will receive all authorizations or licenses necessary to implement its
business plan or that delays in the licensing process will not adversely
affect the Company's business.
The Communications Act of 1934 limits the ownership by non-U.S. citizens,
foreign corporations and foreign governments of an entity directly or
indirectly holding a common carrier radio license. These ownership
restrictions apply to the Company's Microwave System but currently do not
apply to non-radio facilities, such as fiber optic cable. The FCC adopted
rules relating to requests to exceed the statutory limit on indirect foreign
ownership of common carrier radio licenses, and the participation of foreign
carriers or U.S. entities with foreign carrier affiliates (generally an
ownership interest greater than 25% or a controlling interest) in an entity
holding U.S. international authority. Under those rules, the FCC has
scrutinized either form of foreign participation to determine whether the
relevant foreign market offers "effective competitive opportunities" ("ECO").
The FCC may impose restrictions (including prohibition of the proposed
participation or investment) on applicants not meeting the ECO test. These
rules have also required international carriers to notify the FCC 60 days in
advance of an acquisition of a 10% or greater interest by a foreign carrier in
that U.S. carrier. The FCC has discretion to determine that unique factors
require application of the ECO test or a change in regulatory status of the
U.S.
20
<PAGE>
carrier even though the foreign carrier's interest is less than 25%. These
rules also reduce international tariff notice requirements for dominant,
foreign-affiliated carriers from 45 days' notice to 14 days' notice. Such
reduced tariff notice requirements may make it easier for dominant, foreign-
affiliated carriers to compete with the Company. The Telecommunications Act
partially amends existing restrictions on foreign ownership of radio licenses
by allowing corporations with non-U.S. citizen officers or directors to hold
radio licenses. Other non-U.S. ownership restrictions, however, currently
remain unchanged, but the U.S. has agreed in recent world trade negotiations
to allow for a significant increase in permissible foreign investment,
including 100% indirect foreign ownership of U.S. common carrier radio
licensees. On November 26, 1997, the FCC issued a new order that modified the
continued applicability of its ECO test in light of this agreement. In that
order, which became effective February 9, 1998, the FCC eliminated the ECO
test for applicants from the World Trade Organization ("WTO") member countries
seeking international authority from the FCC or seeking to exceed the indirect
foreign ownership limits on US common carrier radio licenses. The FCC instead
adopted an open entry standard with a presumption that such participation by
WTO member countries is permissible. The FCC retained the ECO test, however,
for applicants from non-WTO member countries. The FCC also modified certain
dominant carrier safeguards and further reduced the tariff notice requirements
from 14 to one day's notice. Finally, the FCC raised the threshold for the
required 60-day advance notification of foreign carrier affiliations from 10%
to 25%. Petitions for reconsideration of this order are pending at the FCC.
The Company cannot predict the outcome of this proceeding. Although the
Company believes these changes will have a positive effect on its ability to
identify potential sources of capital, they will also increase the number of
competitors for international traffic. The effect on the Company of the
Telecommunications Act or other new legislation, negotiations or regulations
which may become applicable to the Company cannot be determined.
International Settlements. Under the international settlement system,
international long distance traffic is exchanged under bilateral correspondent
agreements between facilities-based carriers in two countries. Correspondent
agreements generally are three to five years in length and provide for the
termination of traffic in, and return traffic to, the carriers' respective
countries at a negotiated accounting rate, known as the Total Accounting Rate
("TAR"). In addition, correspondent agreements provide for network
coordination and accounting and settlement procedures between the carriers.
Both carriers are responsible for their own costs and expenses related to
operating their respective halves of the end-to-end international connection.
Settlement costs, which typically equal one-half of the TAR, are the fees
owed to another international carrier for transporting traffic on its
facilities. Settlement costs are reciprocal between each party to a
correspondent agreement at a negotiated rate (which must be the same for all
U.S. based carriers, unless the FCC approves an exception). For example, if a
foreign carrier charges a U.S. carrier $0.30 per minute to terminate a call in
the foreign country, the U.S. carrier would charge the foreign carrier the
same $0.30 per minute to terminate a call in the United States. Additionally,
the TAR is the same for all carriers transporting traffic into a particular
country, but varies from country to country. The term "settlement costs"
arises because carriers essentially pay each other on a net basis determined
by the difference between inbound and outbound traffic between them.
The difference in cost between providing domestic long distance and
international service is minimal, and technical advances in facilities
deployed for international calling are making distance largely irrelevant to
cost. Increased worldwide competition has already brought about certain
reductions in settlement rates and end user prices, thereby reducing overseas
termination costs for United States based carriers. However, it is believed
that certain foreign countries use settlement rates to subsidize their
domestic call rates. As a result, domestic customers currently pay
significantly more for an international call than they do for a domestic long
distance call. The FCC has adopted measures intended to overhaul the system of
international settlements by mandating that U.S. carriers negotiate settlement
rates with foreign correspondents at or below FCC-mandated benchmark levels.
Several parties have filed petitions for reconsideration with the FCC or
judicial appeals or both following this order, so it remains subject to
modification. Additionally, recent worldwide trade negotiations may have a
significant impact on settlement rates.
21
<PAGE>
The Company believes that the average cost of international telephone calls
will be reduced, and anticipates further international opportunities will be
created as a result of recent worldwide trade negotiations. On February 15,
1997, representatives of 70 countries, including the United States, finalized
the WTO Basic Telecommunications Agreement ("WTO Agreement"), a compact
addressing market access, investment and pro-competitive regulatory principles
in areas currently generating over 95% of the world's telecommunications
revenue. The WTO Agreement took effect on February 5, 1998. Among other
things, the agreement provides U.S. companies market access for local, long
distance and international service in 53 historically monopolized countries
through any means of network technology, either as a facilities-based provider
or as a reseller of existing network capacity. The countries providing market
access for telecommunications services as a result of the WTO Agreement
account for 99% of the world's telecommunications revenue. Although some
countries have reserved specific exceptions, the agreement generally ensures
that U.S. companies may acquire, establish, or hold a significant stake in
telecommunications companies around the world, and that foreign companies may
acquire, establish or hold such a stake in U.S. telecommunications companies.
Additionally, pro-competitive regulatory principles based largely upon the
Telecommunications Act were adopted by 65 countries within the WTO Agreement.
U.S. companies will be able to enforce these principles, as well as the WTO
Agreement's market access and investment commitments, at the WTO and through
enabling legislation in the U.S. The Company expects to benefit from the
anticipated effects of the WTO Agreement, but cannot predict where or when
such opportunities may present themselves.
State Regulation. The Company's intrastate long distance telecommunications
operations are subject to various state laws and regulations including, in
many jurisdictions, certification and tariff filing requirements.
Generally, the Company must obtain and maintain certificates of authority
from regulatory bodies in most states in which it offers intrastate services.
In most of these jurisdictions the Company must also file and obtain prior
regulatory approval of tariffs for its intrastate services. Certificates of
authority can generally be conditioned, modified, canceled, terminated, or
revoked by state regulatory authorities for failure to comply with state law
and/or the rules, regulations, and policies of the state regulatory
authorities. Fines and other penalties also may be imposed for such
violations. The Company is currently authorized to provide intrastate services
in 47 states, and has a pending application for authority to provide
intrastate services in one additional state. The Company intends to have
authority in all states where competition is allowed.
Those states that permit the offering of intrastate/intra-LATA service by
interexchange carriers generally require that end users desiring to use such
services dial special access codes. Historically, this has put the Company at
a competitive disadvantage compared with LECs whose customers can make
intrastate/intra-LATA calls simply by dialing 1 plus the desired number. If a
long distance carrier's customer attempts to make an intra-LATA call by simply
dialing 1 plus the desired number, the call will be routed to and completed by
the LEC. Regulatory agencies in a number of states have issued decisions that
would permit the Company and other interexchange carriers to provide intra-
LATA calling on a 1 + basis. Further, the Telecommunications Act requires in
most cases that the RBOCs provide such dialing parity coincident to their
providing in-region inter-LATA services. The Company expects to benefit from
the ability to offer 1 + intra-LATA services in states that allow this type of
dialing parity.
Local Regulation. The Company is occasionally required to obtain street use
and construction permits and licenses and/or franchises to install and expand
its fiber optic network using municipal rights-of-way. Termination of the
existing franchise or license agreements prior to their expiration dates or a
failure to renew the franchise or license agreements and a requirement that
the Company remove its facilities or abandon its network in place could have a
material adverse effect on the Company. In some municipalities where the
Company has installed or anticipates constructing networks, it will be
required to pay license or franchise fees based on a percentage of gross
revenue or on a per linear foot basis. There can be no assurance that,
following the expiration of existing franchises, fees will remain at their
current levels. In addition, the Company could be at a competitive
disadvantage if its competitors do not pay the same level of fees as the
Company. However, the Telecommunications Act requires municipalities to manage
public rights-of-way in a competitively neutral and non-discriminatory manner.
22
<PAGE>
Other. The Company monitors compliance with federal, state and local
regulations governing the discharge and disposal of hazardous and
environmentally sensitive materials, including the emission of electromagnetic
radiation. The Company believes that it is in compliance with such
regulations, although there can be no assurance that any such discharge,
disposal or emission might not expose the Company to claims or actions that
could have a material adverse effect on the Company.
Employees
As of December 31, 1997, the Company employed approximately 1,600 employees
of which 165 perform corporate and administrative services, 950 provide
Network Construction Services, 210 provide Commercial Services, 20 provide
Carrier Services, and 255 perform network engineering and related functions.
The Company uses the services of independent contractors for installation and
maintenance of portions of the Qwest Network. None of the Company's employees
are currently represented by a collective bargaining agreement. The Company
believes that its relations with its employees are good.
Corporate and Other Information
The Company is a Delaware corporation, organized in 1997 to hold the stock
of its indirect principal subsidiary, Qwest Communications Corporation
("QCC"). QCC started its telecommunications business in 1988. The Company
operates in a single industry segment, telecommunications.
The Company's principal executive offices are located at 1000 Qwest Tower,
555 Seventeenth Street, Denver, Colorado 80202, and its telephone number is
(303) 291-1400. The Company's web site is http://www.qwest.net.
ITEM 2. PROPERTIES
The Qwest Network in progress and its component assets are the principal
properties owned by the Company. The Company owns substantially all of the
telecommunications equipment required for its business. The Company's
installed fiber optic cable is laid under the various rights-of-way held by
the Company. Other fixed assets are located at various locations in geographic
areas served by the Company. The Company is opening sales offices in selected
major geographic locations.
The Company's executive and administrative offices and its network
management center are located at its principal office in Denver, Colorado. The
Company leases this space from an affiliate of Anschutz Company at market
rates under an agreement that expires in October 2004. The Company also leases
office space in the Denver area for SNI and customer service operations. The
Company leases additional space in Dallas, Texas, housing the headquarters for
operation of its Microwave System.
In December 1995, the Company entered into an agreement (as amended in
January 1997) with Ferrocarriles Nacionales de Mexico whereby the Company was
granted easements for the construction of multiple conduit systems along
railroad rights-of-way within Mexico for consideration of approximately $7.7
million, including $1.1 million in value-added taxes. The Company has
capitalized total costs, including rights-of-way, equipment, construction and
design costs, relating to this investment of approximately $13.0 million as of
December 31, 1997.
In July 1997, the Company entered into an agreement with an unrelated third
party whereby the Company will receive (i) four dark fibers along a 2,220
kilometer route to be constructed in Mexico by the third party; and (ii)
certain construction inventory and value-added tax refunds, totaling
approximately $2.9 million. In exchange for these assets, the third party will
receive the stock of the Company's subsidiary, SP Servicios de Mexico S.A. de
C.V. and approximately $6.7 million in cash upon achieving certain milestones.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various claims and
proceedings in the ordinary course of business. Based on information currently
available, the Company believes that none of the current claims or
proceedings, individually or in the aggregate, will have a material adverse
effect on the Company's financial condition or results of operations, although
there can be no assurances in this regard.
23
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
(a) The Company's Common Stock is listed on the NASDAQ National Market under
the trading symbol "QWST." As of March 4, 1998, there were 206,677,742 shares
of Common Stock issued and outstanding held by 867 stockholders of record.
The following table sets forth, for the periods indicated, the high and low
sales prices per share of Common Stock as reported on the NASDAQ National
Market (as adjusted to reflect the two-for-one stock split effected on
February 24, 1998 as a dividend):
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1997:
First Quarter.............................................. N/A N/A
Second Quarter............................................. N/A N/A
Third Quarter.............................................. $ 25.50 $13.625
Fourth Quarter............................................. $32.875 $ 23.75
</TABLE>
The Company completed its initial public offering on June 27, 1997. The
Registrant has not paid cash dividends on its Common Stock since becoming a
public company and does not anticipate paying cash dividends in the
foreseeable future. The terms of the Indentures governing its outstanding
notes and certain debt instruments of the Company's subsidiaries restrict the
Company's ability to pay dividends. Any payment of future dividends will be at
the discretion of the Company's Board of Directors and will depend upon, among
other things, the Company's earnings, operations, capital requirements, level
of indebtedness, financial condition, contractual restrictions and other
relevant factors. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations.")
No equity securities of the registrant were sold by the registrant during
the period covered by this report that were not registered under the
Securities Act of 1933 and that have not been previously reported on Form 10-
Q.
(b) The Company has used approximately $187.1 million of the $319.5 million
net proceeds from its initial public offering for construction of its fiber
optic telecommunications network with the remaining net proceeds temporarily
invested in certain short-term investment grade securities.
24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data related to the Company's financial condition and
results of operations for the five years ended December 31, 1997 are
summarized as follows and should be read in conjunction with the discussion
under "Business," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and the notes thereto, appearing elsewhere in this Form 10-K (in
thousands, except per share information and operating data).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS AND
OTHER FINANCIAL DATA:
Total revenue................ $ 696,703 $230,996 $125,102 $ 70,873 $ 69,327
Total operating expenses..... 673,222 243,010 161,158 81,488 80,247
Earnings (loss) from
operations.................. 23,481 (12,014) (36,056) (10,615) (10,920)
Other income (expense)(1)....... 99 1,813 (2,411) (70) 122,631
Earnings (loss) before income
taxes....................... 23,580 (10,201) (38,467) (10,685) 111,711
Net earnings (loss).......... $ 14,523 $ (6,967) $(25,131) $ (6,898) 68,526
Earnings (loss) per share--
basic....................... $ 0.08 $ (0.04) $ (0.15) $ (0.04) $ 0.40
Earnings (loss) per share--
diluted..................... $ 0.07 $ (0.04) $ (0.15) $ (0.04) $ 0.40
EBITDA(2).................... $ 41,733 $ 6,912 $(26,007) $ (6,338) $ (824)
Net cash provided by (used
in) operating activities.... $ (36,488) 32,524 (56,635) 3,306 (7,125)
Net cash provided by (used
in) investing activities.... $ (356,824) (52,622) (58,858) (41,712) 107,496
Net cash provided by (used
in) financing activities.... $ 766,191 25,519 113,940 34,264 (95,659)
Capital expenditures(3)...... $ 444,659 $ 85,842 $ 48,732 $ 40,926 $ 3,794
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Total assets................. $1,398,105 262,551 184,178 89,489 60,754
Long-term debt............... $ 630,463 109,268 68,793 27,034 2,141
Total stockholders' equity... $ 381,744 9,442 26,475 24,581 12,079
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING DATA:
Route miles of conduit installed............ 9,500 3,650 3,200
Route miles of lit fiber installed.......... 3,400 900 580
Total minutes of use........................ 669,000,000 382,000,000 237,000,000
</TABLE>
- - --------
(1) In November 1993, the Company sold substantially all of its then owned
fiber optic network capacity and related equipment and assets to a third-
party purchaser for $185.0 million (the "1993 Capacity Sale"). After
deducting the carrying value of the assets sold and direct costs
associated with the 1993 Capacity Sale, the company recognized a gain of
approximately $126.5 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
(2) EBITDA represents net earnings (loss) before interest, income tax expense
(benefit), depreciation and amortization, a non-recurring expense of $2.6
million in the year ended December 31, 1996 to restructure operations, the
gain on sale of telecommunications agreements of $6.1 million (which is
non-recurring) in the year ended December 31, 1996, and the gain on sale
of contract rights of approximately $9.3 million (which is non-recurring)
in the year ended December 31, 1997. Without the effect of Growth Share
Plan expense, EBITDA would have been $115.2 million, $20.0 million, and
$1.8 million for the years ended December 31, 1997, 1996 and 1993,
respectively.
(3) Capital expenditures include expenditures for property and equipment,
accrued capital expenditures, capital expenditures financed with the
equipment credit facility and initial obligations under capital leases.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's accompanying audited consolidated financial statements and the notes
thereto appearing elsewhere in this Form 10-K.
OVERVIEW
The Company is a facilities-based provider of multimedia communications
services to interexchange carriers and other communications entities ("Carrier
Services") and to businesses and consumers ("Commercial Services"); and it
constructs and installs fiber optic communications systems for interexchange
carriers and other communications entities, as well as for its own use
("Network Construction Services").
The Company is expanding its existing voice and data network into the Qwest
Network, an approximately 16,250 route-mile, coast-to-coast, technologically
advanced fiber optic telecommunications network. The domestic network is
expected to be completed in 1999. The Company is also expanding its network to
carry international data and voice traffic into Mexico and the United Kingdom
through London. Completion of the Mexico network is scheduled for late 1998.
The network extension to London will be obtained through the exchange of
telecommunications capacity with Teleglobe Inc., including two 155-megabit
circuits crossing the Atlantic Ocean from New York City to London. The
transatlantic telecommunications capacity supports the Company's growth into
the European market. The Company's European services will be terminated in
London.
In October 1997, the Company acquired SuperNet, Inc. ("SNI"), an internet
service provider ("ISP") for $20.2 million in cash, including acquisition
costs.
In January 1998, the Company signed a definitive merger agreement to acquire
Phoenix Network, Inc. ("Phoenix Network"), a non-facilities-based reseller of
long distance services. Phoenix Network currently has approximately 40,000
customers, primarily in the business market. The transaction is subject to the
approval of the Phoenix Network stockholders, the receipt of certain state and
federal regulatory approvals and the satisfaction of other customary closing
conditions. The meeting of Phoenix Network stockholders to consider approval
of the acquisition is scheduled for March 30, 1998.
In March 1998, the Company signed a definitive merger agreement with LCI
International, Inc. ("LCI"), a communications services provider. The boards of
directors of each company have approved the merger. The terms of the merger
agreement call for the acquisition of all of LCI's outstanding common shares
and the assumption of all of LCI's stock options by the Company. The purchase
price of the all-stock transaction is anticipated to be approximately $4.4
billion. The merger is intended to qualify as a tax-free reorganization and
will be accounted for as a purchase. Completion of the merger is anticipated
to occur during the third quarter of 1998.
Carrier Services. Carrier Services provides high-volume and conventional
dedicated line services over the Company's owned capacity and switched
services over owned and leased capacity to interexchange carriers and other
telecommunications providers. The Company is expanding Carrier Services to
increase its revenue stream and reduce per unit costs, targeting capacity
sales on a segment-by-segment basis as the Qwest Network is deployed and
activated, and is increasingly seeking longer-term, high-volume capacity
agreements from major carriers. In addition to traditional telecommunications
carriers, the Company is marketing to ISPs and other data service companies.
For the years ended December 31, 1997, and 1996, the Company's five largest
carrier customers accounted for approximately 42.3% and 41.3% of Carrier
Services revenue, respectively.
Commercial Services. Commercial Services provides voice, data and video
services to businesses and consumers. The Company plans to expand its presence
in the Commercial Services market by developing its distinctive "Ride the
Light(TM)" brand identity and aggressively marketing its existing and planned
voice, data and other transmission products and services. The Company plans to
build direct, end-user relationships by developing strong distribution
channels, providing competitive pricing and superior network quality and
offering enhanced, market-driven services to businesses and consumers.
26
<PAGE>
Revenue from Commercial Services is recognized primarily on a minutes-of-use
basis. Commercial Services has generated revenue using four primary sales
channels: direct sales, direct mail, agent and telemarketing. In September
1997, the Company entered into an arrangement with a third party under which
they will jointly define and test new broadband business multimedia services.
The Company also entered into marketing agreements in September 1997 with two
additional third parties. Under one agreement a marketing company that
wholesales and retails telecommunications products on a national basis will
act as an authorized sales representative of Qwest and will market the
Company's long-distance products through affinity groups. Under the other
agreement, the Company will offer its One Plus and Calling Card services (with
competitive international pricing for both) and other services to utilities in
the United States under the Simple Choice(SM) brand name of that third party.
Network Construction Services. Network Construction Services constructs and
installs fiber optic communication systems for interexchange carriers and
other telecommunications providers, as well as for the Company's own use. The
Company began operations in 1988 constructing fiber optic conduit systems
primarily for major long distance carriers in exchange for cash and capacity
rights. In 1996, the Company entered into major construction contracts for the
sale of dark fiber to Frontier and WorldCom whereby the Company has agreed to
install and provide dark fiber to each along portions of the Qwest Network.
The company also entered into two substantial construction contracts with GTE
in 1997 for the sale of dark fiber along portions of the route of the Qwest
Network. After completion of the Qwest Network, the Company expects that
revenue from Network Construction Services will be less significant to the
Company's operations. See "Business--The Qwest Network--Dark Fiber Sales."
Revenue from Network Construction Services generally is recognized under the
percentage of completion method as performance milestones relating to the
contract are satisfactorily completed. Losses, if any, on uncompleted
contracts are expensed in the period in which they are identified and any
revisions to estimated profits on a contract are recognized in the period in
which they become known.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company reported net earnings of $14.5 million in the year ended
December 31, 1997, compared to a net loss of $7.0 million in the same period
of the prior year. Excluding the effect of the compensation expense relating
to the Growth Share Plan, net of income tax, the Company's reported net
earnings would have been approximately $61.6 million and $1.5 million for the
years ended December 31, 1997 and 1996, respectively.
Revenue. Total revenue increased $465.7 million, or 202% during the year
ended December 31, 1997, as compared to 1996. Carrier Services revenue
decreased $1.9 million, or 3% for the year ended December 31, 1997, as
compared to 1996, primarily due to the Company's sale of its resale dedicated
line services on leased capacity on July 1, 1996. The sold business generated
revenue of $18.8 million for the year ended December 31, 1996. Exclusive of
this revenue, Carrier Services revenue increased $16.9 million, or 44%, during
the year ended December 31, 1997, as compared to 1996. This increase in
Carrier Services revenue was due primarily to increases in revenue from
carrier switched services and carrier dedicated line services provided on the
Qwest Network. Commercial Services revenue increased $25.4 million, or 74% for
the year ended December 31, 1997, as compared to 1996. The increase was due
primarily to growth in switched services provided to small- and medium-sized
businesses and to consumers as a result of continued expansion of the
Company's direct sales, direct mail, agent and telemarketing sales channels.
Revenue from Network Construction Services increased $442.2 million, or 318%
during the year ended December 31, 1997, as compared to the corresponding
period in 1996. The increase was due primarily to revenue from dark fiber
sales to WorldCom, GTE and Frontier.
Operating Expenses. The Company's principal operating expenses consist of
expenses for telecommunications services, network construction incurred by
Network Construction Services, expenses for selling, general and
administrative expenses (SG&A), Growth Share Plan expense and depreciation and
27
<PAGE>
amortization. Total operating expenses increased $430.2 million, or 177%
during the year ended December 31, 1997 as compared to the corresponding
period in 1996. Expenses for telecommunications services primarily consist of
the cost of leased capacity, Local Exchange Carrier ("LEC") access charges,
engineering and other operating costs. Expenses for telecommunications
services increased $10.8 million, or 13% for the year ended December 31, 1997,
as compared to 1996. The growth in telecommunications services expenses was
primarily attributable to the continued growth in switched services and
network engineering and operations, partially offset by the reduction in
expenses resulting from the sale on July 1, 1996 of the Company's resale
dedicated line services on leased capacity and an increase in on-net traffic
over the Qwest Network. When the Qwest Network is completed and activated, the
Company will be able to serve more customer needs over its own capacity on the
Qwest Network.
Expenses for Network Construction Services consist primarily of costs to
construct the Qwest Network, including conduit, fiber cable, construction
crews and rights-of-way. Costs attributable to the construction of the Qwest
Network for the Company's own use are capitalized. Expenses for Network
Construction Services increased $309.6 million, or 354% in the year ended
December 31, 1997, as compared to 1996, due to costs of construction contracts
relating to increased dark fiber sales revenue.
SG&A includes the cost of salaries, benefits, occupancy costs, commissions,
sales and marketing expenses and administrative expenses. SG&A increased $45.4
million, or 99% in the year ended December 31, 1997, as compared to 1996. The
increase was due primarily to increases in expenses related to the Company's
direct mail sales program, the development of the Company's new brand
identity, administrative and information services support of the Company's
growth, and the recruiting and hiring of additional personnel. The Company is
in the process of opening commercial sales offices in selected major
geographic markets to implement the Company's strategy, as segments of the
Qwest Network become operational. In addition, SG&A expenses will increase as
the Company continues to expand its Carrier and Commercial Services, initiate
its United States and international direct sales operations, and recruit
experienced telecommunications industry personnel to implement the Company's
strategy.
The Company has a Growth Share Plan for certain of its employees and
directors. Growth Share Plan expense, reflects the Company's estimate of
compensation expense with respect to the Growth Shares issued to participants.
A "Growth Share" is a unit of value based on the increase in value of the
Company over a specified measuring period. The Company estimated an increase
in the value of Growth Shares, primarily triggered by the June 1997 initial
public offering (the "IPO"), and has recorded $73.5 million of additional
compensation expense in the year ended December 31, 1997, and $13.1 million in
the year ended December 31, 1996. The Company anticipates total additional
expense of up to approximately $23.4 million through the year 2002 in
connection with this plan. The Company does not anticipate any future grants
under the Growth Share Plan.
The Company's depreciation and amortization expense increased $4.0 million,
or 25% during the year ended December 31, 1997 as compared to 1996. This
increase resulted primarily from activating segments of the Qwest Network
during 1997, purchases of additional equipment used in constructing the Qwest
Network and purchases of other fixed assets to accommodate the Company's
growth. The Company expects that depreciation and amortization expense will
continue to increase in subsequent periods as the Company continues to
activate additional segments of the Qwest Network and amortizes the goodwill
acquired with the SNI purchase (discussed above).
Other Income (Expense). Pursuant to a capacity sale in 1993, the Company
obtained certain rights of first refusal to re-acquire network communications
equipment and terminal locations including leasehold improvements should the
purchaser, under that agreement, sell the network. In the first quarter of
1997, the Company sold certain of these rights to the purchaser in return for
$9.0 million in cash and the right to re-acquire certain terminal facilities,
which the Company received in 1997 and has recorded as gain on sale of
contract rights.
28
<PAGE>
During 1997, the Company's net interest income (expense) increased $2.8
million as compared to 1996. The increase resulted from an increase in
interest on long-term indebtedness, related primarily to the 10 7/8% Notes and
the 9.47% Notes (see "Liquidity and Capital Resources" below), partially
offset by increases in capitalized interest resulting from construction of the
Qwest Network and interest income attributable to the increase in cash
equivalent balances. In January 1998, the Company issued the 8.29% Notes (see
"Liquidity and Capital Resources" below), which are expected to increase net
interest expense in subsequent periods.
As previously discussed, the Company sold a portion of its dedicated line
services on leased capacity in July 1996. During the transition of the service
agreements to the buyer, the Company incurred certain facilities costs on
behalf of the buyer, which were to be reimbursed to the Company. A dispute
arose with respect to the reimbursement of such costs and, as a result, the
Company made a provision of approximately $2.0 million in the first quarter of
1997.
Income Taxes. The Company is included in the consolidated federal income tax
return of Anschutz Company (the "Majority Shareholder"). A tax sharing
agreement provides for allocation of tax liabilities and benefits to the
Company, in general, as though it filed a separate tax return. The Company's
effective tax rate in 1997 was higher than the statutory federal rate as a
result of permanent differences between book and tax expense relating to the
Growth Share Plan and amortization of goodwill. The Company's effective tax
rate in the year ended December 31, 1996 approximated the statutory federal
rate.
Net Earnings (Loss). The Company realized net earnings of $14.5 million in
the year ended December 31, 1997, as compared to a net loss of $7.0 million in
the corresponding period of 1996 as a result of the factors discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Total revenue increased $105.9 million, or 85%, due primarily to
significantly higher revenue from Network Construction Services, as well as
increased revenue from Commercial Services, offset in part by lower revenue
from Carrier Services. Revenue from Network Construction Services increased
$102.3 million, or 277%, due to revenue from dark fiber sales of approximately
$121.0 million to WorldCom and Frontier. Commercial Services revenue increased
$13.9 million, or 68%. This increase is largely attributable to growth in
switched services provided to small- and medium-sized business and consumers
as a result of the expansion of the Company's agent, telemarketing and direct
mail sales channels. Carrier Services revenue decreased $10.2 million or 15%,
primarily due to decreases in revenue resulting from the Company's sale of a
portion of its dedicated line services on leased capacity on July 1, 1996. The
sold business generated revenues of $18.8 million for the year ended December
31, 1996 and $39.7 million for the year ended December 31, 1995. The decrease
in Carrier Services revenue was partially offset by an increase in revenue
from carrier switched services, which increased to $19.4 million in 1996 from
$13.8 million in 1995.
Operating Expenses. Total operating expenses increased $81.9 million, or
51%, due primarily to increases in Network Construction Services, SG&A and
compensation expenses associated with the Growth Share Plan. Expenses for
telecommunications services decreased $0.8 million or 1%. The sale on July 1,
1996 of the Company's dedicated line services on leased capacity generated a
reduction in expenses, which was partially offset by an increase in
telecommunications services expenses associated with the growth in switched
services and servicing the Qwest Network. Expenses for Network Construction
Services increased $54.8 million or 167%. This increase was due to cost of
construction contracts relating to increased dark fiber sales.
SG&A expenses increased $8.6 million, or 23%. The Company incurred
additional SG&A expenses as a result of growth in the Company's
telecommunications services and the construction of the Qwest Network,
including additional sales commissions on higher revenue, expenses incurred in
the implementation of the Company's direct mail sales channel and expenses for
customer service personnel added to support the Company's expansion of its
commercial customer base. The SG&A expenses in 1996 also included
restructuring
29
<PAGE>
expenses of $1.6 million incurred by the Company as a result of its decision
to close 13 sales offices and the termination of approximately 130 employees
involved in sales, marketing and administrative functions. As a result of this
restructuring, the Company experienced a reduction in payroll, commissions and
rental expense. The Company anticipates that, as it deploys the Qwest Network
and expands its Carrier Services and Commercial Services, SG&A expenses will
continue to increase.
The Company estimated a $13.1 million increase in value of the Growth Shares
at December 31, 1996, due to the Frontier dark fiber sale. No expense was
recognized for the year ended December 31, 1995, as there were no significant
compensatory elements in those periods.
The Company's depreciation and amortization expense increased $6.3 million,
or 63%. This increase was primarily due to the Company's investment in the
Qwest Network. The Company expects that depreciation and amortization expense
will continue to increase in subsequent periods as the Company continues to
activate additional segments of the Qwest Network.
Other Income (Expense). The Company's net interest and other expenses
increased $1.9 million, or 79%. This increase was primarily attributable to
additional debt incurred in 1996 to finance capital expenditures and to
provide working capital. (See discussion of additional indebtedness in
"Liquidity and Capital Resources" below.)
Income Taxes. The Company is included in the consolidated federal income tax
return of the Majority Shareholder. A tax sharing agreement provides for
allocation of tax liabilities and benefits to the Company, in general, as
though it filed a separate tax return. The Company's effective tax rate in
1996 and 1995 approximated the statutory federal rate. The difference between
the income tax benefit of $3.2 million in 1996 as compared to $13.3 million in
1995 resulted from a $28.3 million decrease in loss before income taxes.
Net Loss. The Company experienced a net loss of $7.0 million in 1996
compared to a net loss of $25.1 million in 1995 as a result of the factors
discussed above.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosure About Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the manner in which business
enterprises are to report information about operating segments in its annual
statements and requires those enterprises to report selected information
regarding operating segments in interim financial reports issued to
shareholders. SFAS 131 is effective for fiscal years beginning after December
15, 1997.
LIQUIDITY AND CAPITAL RESOURCES
From January 1, 1995 through March 31, 1997, the Company funded capital
expenditures, debt service and cash used in operations through a combination
of stockholder advances, capital contributions and external borrowings
supported by collateral owned by the Majority Shareholder or affiliates, as
well as external borrowings collateralized by certain of the Company's assets.
During the remainder of 1997, the Company funded capital expenditures and
long-term debt repayments primarily through net proceeds from the issuance of
debt and equity securities aggregating approximately $903.6 million. The
Company also received net proceeds of $299.2 million from the issuance of the
8.29% Notes in January 1998. The Company intends to finance its operations in
the future through internally and externally generated funds without relying
on cash advances, contributions or guarantees from the Majority Shareholder.
Total cash expended during the three years ended December 31, 1997 to fund
capital expenditures, repayments of long-term debt to third parties, repayment
of net advances from the Majority Shareholder, and for acquisitions was $449.2
million, $223.9 million, $9.9 million and $32.6 million, respectively. Total
cash used in operations was $60.6 million during the same period. Total cash
provided during this same period from revolving loans secured by collateral
owned by the Majority Shareholder or an affiliate was $138.0 million, and
capital contributions from the Majority Shareholder were approximately $28.0
million. The loans from the Majority
30
<PAGE>
Shareholder were repaid in 1997. In addition, during this same period, the
Company's net cash provided by secured borrowings under long-term debt
agreements with third parties aggregated $67.6 million. As of December 31,
1997, the Company had positive working capital of $408.5 million resulting
primarily from the issuance of the 9.47% Notes in October 1997. At December
31, 1996 and 1995, the Company had working capital deficits of approximately
$75.7 million and $2.6 million, respectively.
The Company estimates the total cost to construct and activate the Qwest
Network and complete construction of the dark fiber sold to Frontier, WorldCom
and GTE will be approximately $1.9 billion. Of this amount, the Company had
already expended approximately $850.0 million as of December 31, 1997. The
Company anticipates remaining total cash outlays (including capital
expenditures) for these purposes of approximately $881.0 million in 1998 and
$195.0 million in 1999. Estimated total Qwest Network expenditures for 1998
include the Company's commitment to purchase a minimum quantity of fiber for
approximately $399.0 million (subject to quality and performance
specifications), of which approximately $252.0 million had been expended as of
December 31, 1997. Estimated total expenditures for 1998 and 1999 together
also include approximately $92.0 million for the purchase of electronic
equipment. In addition, the Company anticipates approximately $557.0 million
of capital expenditures in 1998 and 1999 to support growth in Carrier Services
and Commercial Services.
As of December, 1997, the Company has obtained the following sources of
funds which are available to complete the build-out: (i) approximately $1.2
billion under the Frontier, WorldCom and GTE contracts and additional smaller
construction contracts for sales of dark fiber, of which approximately $430.0
million had already been received and $770.0 million remained to be paid at
December 31, 1997; (ii) $90.0 million of vendor financing; (iii) $242.0
million in net proceeds from the sale of the 10 7/8% Notes, of which
approximately $124.4 million was used to pay down certain existing debt, (iv)
$342.1 million in net proceeds from the sale of the 9.47% Notes; and (v)
approximately $319.5 million in net proceeds from the IPO. The Company
believes that its available cash and cash equivalent balances at December 31,
1997, the net proceeds from issuance of the 8.29% Notes in January 1998 and
cash flow from operations will satisfy its currently anticipated cash
requirements at least through the end of 1998.
In January 1998, the Company issued its 8.29% Notes, generating net proceeds
of approximately $299.2 million, after deducting offering costs. The 8.29%
Notes will accrete at a rate of 8.29% per annum, compounded semiannually, to
an aggregate principal amount of $450.5 million by February 1, 2003. The 8.29%
Notes mature on February 1, 2008. The 8.29% Notes are redeemable at the
Company's option, in whole or in part, at any time on or after February 1,
2003, at specified redemption prices. Cash interest on the 8.29% Notes will
not accrue until February 1, 2003, and thereafter will accrue at a rate of
8.29% per annum, and will be payable semiannually in arrears commencing on
August 1, 2003 and thereafter on February 1 and August 1 of each year. The
8.29% Notes indenture contains certain covenants that, among other things,
limit the ability of the Company and certain of its subsidiaries (the
"Restricted Subsidiaries") to incur additional indebtedness and issue
preferred stock, pay dividends or make other distributions, repurchase capital
stock or subordinated indebtedness, create certain liens, enter into certain
transactions with affiliates, sell assets of the Company or its Restricted
Subsidiaries, issue or sell capital stock of the Company's Restricted
Subsidiaries or enter into certain mergers and consolidations.
In connection with the sale of the 8.29% Notes, the Company agreed to make
an offer to exchange new notes, registered under the Securities Act of 1933
(the "Act") and with terms identical in all material respects to the 8.29%
Notes, for the 8.29% Notes or, alternatively, to file a shelf registration
statement under the Act with respect to the 8.29% Notes. If the registration
statement for the exchange offer or the shelf registration statement, as
applicable, is not filed or declared effective within specified time periods
or, after being declared effective, ceases to be effective or usable for
resale of the 8.29% Notes during specified time periods (each a "Registration
Default"), additional cash interest will accrue at a rate per annum equal to
0.50% of the principal amount at maturity of the 8.29% Notes during the 90-day
period immediately following the occurrence of a Registration Default and
increasing in increments of 0.25% per annum of the principal amount at
maturity of the 8.29% Notes up to a maximum of 2.0% per annum, at the end of
each subsequent 90-day period until the Registration Default is cured.
31
<PAGE>
In October 1997, the Company issued and sold its 9.47% Notes, generating net
proceeds of approximately $342.1 million, after deducting offering costs. The
9.47% Notes will accrete at a rate of 9.47% per annum, compounded
semiannually, to an aggregate principal amount of $555.9 million by October
15, 2002. The 9.47% Notes mature on October 15, 2007. The 9.47% Notes are
redeemable at the Company's option, in whole or in part, at any time on or
after October 15, 2002, at specified redemption prices. Cash interest on the
9.47% Notes will not accrue until October 15, 2002, and thereafter will accrue
at a rate of 9.47% per annum, and will be payable semiannually in arrears
commencing on April 15, 2003 and thereafter on April 15 and October 15 of each
year. The indenture for the 9.47% Notes contains certain covenants that are
substantially identical to the 8.29% Notes described above. In February 1998,
the Company completed an exchange of identical notes, registered under the
Act, for all of the 9.47% Notes.
In June 1997, the Company received approximately $319.5 million in net
proceeds from the sale of 31,050,000 shares of the Company's Common Stock in
the IPO.
In May 1997, the Company and Nortel, individually and as agent for itself
and other specified lenders, entered into a $90.0 million credit agreement
(the "Equipment Credit Facility") to fund a portion of certain capital
expenditures required to equip the Qwest Network. Under the Equipment Credit
Facility, the Company may borrow funds up to 75% of the purchase price of such
equipment and related engineering and installation services provided by Nortel
as vendor as it purchases the equipment, with the purchased equipment and
related items serving as collateral for the loans of a third party lender. The
Company is committed to purchase from Nortel a minimum of $100.0 million of
such equipment and services under a separate procurement agreement. The
Company's total remaining commitment under the procurement agreement was
approximately $68.4 million as of December 31, 1997. Principal amounts
outstanding under the Equipment Credit Facility will be payable in quarterly
installments commencing on June 30, 2000, with full repayment due on March 31,
2004. Borrowings bear interest at the Company's option at either: (i) a
floating base rate announced by a designated reference bank plus an applicable
margin; or (ii) LIBOR plus an applicable margin.
In March 1997, the Company issued and sold its 10 7/8% Notes, generating net
proceeds of approximately $242.0 million, after deducting offering costs. A
portion of the net proceeds were used to repay amounts due under the then
existing revolving credit facility, the construction term loan, equipment
loans and term notes, described below. Interest on the 10 7/8% Notes is
payable semiannually in arrears on April 1 and October 1 of each year,
commencing October 1, 1997. The 10 7/8% Notes mature on April 1, 2007. The 10
7/8% Notes are subject to redemption at the option of the Company, in whole or
in part, at any time on or after April 1, 2002, at specified redemption
prices. The indenture for the 10 7/8% Notes contains certain covenants that
are substantially identical to the 8.29% and 9.47% Notes described above.
In 1996, the Company entered into and subsequently amended a long-term
$100.0 million revolving credit facility agreement, which was collateralized
by shares of common stock owned and pledged by the Majority Shareholder. In
October 1997, the Company repaid the outstanding balance and terminated this
facility.
In April 1995, the Company entered into a secured construction loan facility
used to fund certain conduit installation projects. The facility converted to
a term loan upon completion of the construction projects in 1996 and 1995 and
became secured by notes receivable issued in connection with the projects. The
term loan bore interest at the Company's option at either (i) the higher of
(a) the bank's base rate of interest, or (b) the Federal Funds Rate plus 1/2%;
or (ii) LIBOR plus 9/16%. The outstanding balance of $10.9 million at December
31, 1997 was repaid subsequent to year end.
The Company also incurred other indebtedness during the three-year period
ended December 31, 1997, including five equipment loans in 1995 and 1996
aggregating $10.0 million and two term notes in January 1995 aggregating $12.0
million, the proceeds of which were used to repay a portion of the prior
advance from the Majority Shareholder. In addition, the Company had other
outstanding indebtedness in 1997 which it had incurred prior to 1995,
including amounts payable under a network credit facility and an additional
equipment loan. Such indebtedness had a weighted average interest rate of
approximately 9% in 1997, and was repaid in the second quarter of 1997 with
proceeds from the 10 7/8% Notes.
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YEAR 2000
The Company has created a project team including internal and external
resources that is in the process of identifying and addressing the impact of
problems and uncertainties related to the year 2000 on its operating and
application software and products. The Company expects to resolve year 2000
compliance issues primarily through replacement and normal upgrades of its
software and products. However, there can be no assurance that such
replacements and upgrades can be completed on schedule and within the
estimated costs.
INFLATION
Inflation has not significantly affected the Company's operations during the
past three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
33
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PAGE:
-----
<S> <C>
Financial Statements:
Independent Auditors' Report........................................... 35
Consolidated Balance Sheets as of December 31, 1997 and 1996........... 36
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995................................................... 38
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995...................................... 39
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995................................................... 40
Notes to Consolidated Financial Statements............................... 41
</TABLE>
34
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
QWEST COMMUNICATIONS INTERNATIONAL INC.:
We have audited the accompanying consolidated balance sheets of Qwest
Communications International Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Qwest
Communications International Inc. and subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 24, 1998,
except as to note 22,
which is as of
March 8, 1998
35
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 379,784 $ 6,905
Accounts receivable, net.................................. 67,395 29,248
Costs and estimated earnings in excess of billings........ 256,566 4,989
Notes and other receivables............................... 10,855 14,934
Other current assets...................................... 9,342 328
---------- --------
Total current assets.................................... 723,942 56,404
Property and equipment, net................................. 614,640 186,535
Deferred income tax asset................................... 17,988 4,593
Notes and other receivables................................. 59 11,052
Intangible and other long-term assets, net.................. 41,476 3,967
---------- --------
Total assets............................................ $1,398,105 $262,551
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--CONTINUED
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................. $ 253,313 $ 80,129
Billings in excess of costs and estimated earnings..... 21,390 5,034
Deferred income tax liability.......................... 22,344 --
Current portion of long-term debt...................... 12,011 25,193
Payable to Majority Shareholder........................ 2,091 19,138
Deferred revenue....................................... 4,273 2,649
---------- --------
Total current liabilities............................ 315,422 132,143
Long-term debt......................................... 630,463 109,268
Other liabilities...................................... 70,476 11,698
---------- --------
Total liabilities.................................... 1,016,361 253,109
---------- --------
Stockholders' equity:
Preferred Stock, $.01 par value. Authorized 25,000,000
shares
No shares issued and outstanding...................... -- --
Common Stock, $.01 par value. Authorized 400,000,000
shares.
206,669,874 shares and 173,000,000 shares issued and
outstanding at December 31, 1997 and December 31,
1996, respectively.................................... 2,066 1,730
Additional paid-in capital............................. 411,605 54,162
Accumulated deficit.................................... (31,927) (46,450)
---------- --------
Total stockholders' equity............................. 381,744 9,442
---------- --------
Commitments and contingencies
Total liabilities and stockholders' equity........... $1,398,105 $262,551
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Revenue:
Carrier services.............................. $ 55,644 $ 57,573 $ 67,789
Commercial services........................... 59,649 34,265 20,412
-------- -------- ---------
115,293 91,838 88,201
Network construction services................. 581,410 139,158 36,901
-------- -------- ---------
696,703 230,996 125,102
-------- -------- ---------
Operating expenses:
Telecommunications services................... 91,166 80,368 81,215
Network construction services................. 397,153 87,542 32,754
Selling, general and administrative........... 91,190 45,755 37,195
Growth share plan............................. 73,451 13,100 --
Depreciation and amortization................. 20,262 16,245 9,994
-------- -------- ---------
673,222 243,010 161,158
Earnings (loss) from operations................. 23,481 (12,014) (36,056)
Other income (expense):
Interest expense, net......................... (18,895) (6,827) (4,248)
Interest income............................... 11,708 2,454 1,782
Other income, net............................. 7,286 6,186 55
-------- -------- ---------
Earnings (loss) before income taxes......... 23,580 (10,201) (38,467)
Income tax expense (benefit).................... 9,057 (3,234) (13,336)
-------- -------- ---------
Net earnings (loss)......................... $ 14,523 $ (6,967) $ (25,131)
======== ======== =========
Earnings (loss) per share--basic................ $ 0.08 $ (0.04) $ (0.15)
======== ======== =========
Earnings (loss) per share--diluted.............. $ 0.07 $ (0.04) $ (0.15)
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- ------ ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1,
1995................... 173,000,000 $1,730 $ 37,203 $(14,352) $ 24,581
Cash contribution from
Majority Shareholder... -- -- 28,000 -- 28,000
Reduction in additional
paid-in capital
attributable to effect
of the tax allocation
agreement with Majority
Shareholder............ -- -- (975) -- (975)
Net loss................ -- -- -- (25,131) (25,131)
----------- ------ -------- -------- --------
BALANCES, DECEMBER 31,
1995................... 173,000,000 1,730 64,228 (39,483) 26,475
Cancellation of income
tax benefit receivable
from Majority
Shareholder............ -- -- (11,088) -- (11,088)
Equity contribution from
Majority Shareholder... -- -- 1,022 -- 1,022
Net loss................ -- -- -- (6,967) (6,967)
----------- ------ -------- -------- --------
BALANCES, DECEMBER 31,
1996................... 173,000,000 1,730 54,162 (46,450) 9,442
Issuance of common stock
in initial public
offering, net.......... 31,050,000 310 319,171 -- 319,481
Issuance of common stock
warrants............... -- -- 2,300 -- 2,300
Issuance of common stock
for Growth Shares...... 2,591,532 26 35,284 -- 35,310
Issuance of common stock
upon exercise of
employee stock
options................ 9,644 -- 132 -- 132
Issuance of common stock
under Equity Incentive
Plan................... 18,698 -- 556 -- 556
Net earnings............ -- -- -- 14,523 14,523
----------- ------ -------- -------- --------
BALANCES, DECEMBER 31,
1997................... 206,669,874 $2,066 $411,605 $(31,927) $381,744
----------- ------ -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................... $ 14,523 $ (6,967) $ (25,131)
Adjustments to reconcile net earnings (loss)
to net cash (used in) provided by operating
activities:
Depreciation and amortization................. 20,262 16,245 9,994
Gain on sale of contract rights............... (9,296) -- --
Gain on sale of telecommunications service
agreements................................... -- (6,126) --
Deferred income tax expense (benefit)......... 8,949 (1,123) (2,839)
Changes in operating assets and liabilities:
Receivables--accounts and notes, net......... (22,397) (25,680) (21,379)
Costs and estimated earnings in excess of
billings, net............................... (235,221) 24,172 (21,650)
Accounts payable and accrued liabilities..... 189,797 34,455 5,852
Payable to related parties, net.............. -- (2,983) 1,263
Other changes................................ (3,105) 531 (2,745)
--------- -------- ---------
Net cash (used in) provided by operating
activities................................. (36,488) 32,524 (56,635)
--------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of contract rights......... 9,000 -- --
Proceeds from sale of telecommunications
service agreements........................... -- 4,500 --
Expenditures for property and equipment....... (345,788) (57,122) (46,313)
Cash paid for acquisitions, net of cash
acquired..................................... (20,036) -- (12,545)
--------- -------- ---------
Net cash used in investing activities....... (356,824) (52,622) (58,858)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock in
initial public offering, net................. 319,481 -- --
Proceeds from issuance of common stock
warrants..................................... 2,300 -- --
Proceeds from exercise of employee stock
options...................................... 132 -- --
Borrowings of long-term debt.................. 678,003 65,000 62,606
Repayments of long-term debt.................. (200,233) (21,322) (2,331)
Debt issuance costs........................... (16,445) (112) (591)
Net (payments to) advances from Majority
Shareholder.................................. (17,047) (19,069) 26,256
Contributions from Majority Shareholder....... -- 1,022 28,000
--------- -------- ---------
Net cash provided by financing activities... 766,191 25,519 113,940
--------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................ 372,879 5,421 (1,553)
Cash and cash equivalents, beginning of
period........................................ 6,905 1,484 3,037
--------- -------- ---------
Cash and cash equivalents, end of period....... $ 379,784 $ 6,905 $ 1,484
========= ======== =========
Supplemental disclosure of cash flow
information:
Cash paid for interest, net................... $ 16,696 $ 8,825 $ 3,972
========= ======== =========
Cash paid for taxes, other than to Majority
Shareholder.................................. $ 244 $ 160 $ 725
========= ======== =========
Supplemental disclosure of significant non-cash
investing and financing activities:
Accrued capital expenditures.................. $ 76,267 $ 28,000 $ --
========= ======== =========
Capital expenditures financed with equipment
credit facility.............................. $ 22,604 $ -- $ --
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(1) ORGANIZATION AND BACKGROUND
Qwest Communications International Inc. (the "Company") was wholly-owned by
Anschutz Company (the "Majority Shareholder") until June 27, 1997, when the
Company issued common stock in an initial public offering (the "IPO"). As of
December 31, 1997, the Majority Shareholder owns approximately 83.7% of the
outstanding common stock of the Company. The Company is the ultimate holding
company for the operations of Qwest Communications Corporation and
subsidiaries ("Qwest").
The Company is a developer and operator of telecommunications networks and
facilities and operates in a single business segment, the telecommunications
industry. It principally provides the following services within that industry:
--Telecommunications Services--the Company provides dedicated line and
switched services to interexchange carriers and competitive access
providers ("Carrier Services") and long distance voice, data and video
services to businesses and consumers ("Commercial Services").
--Network Construction Services--the Company installs fiber optic
communications systems for interexchange carriers, local telephone
companies, cable television companies, competitive access providers and
other communications entities, as well as for its own use.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying audited consolidated financial statements as of December
31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995
include the accounts of the Company and all majority-owned subsidiaries.
Intercompany balances and transactions have been eliminated in consolidation.
(b) Telecommunications Services Revenue
Revenue from telecommunications services is recognized monthly as the
services are provided. Amounts billed in advance of the service month are
recorded as deferred revenue.
(c) Long-Term Construction Contracts
The Company accounts for long-term construction contracts relating to the
development of telecommunications networks using the percentage of completion
method. Under the percentage of completion method, progress is generally
measured on performance milestones relating to the contract where such
milestones fairly reflect progress toward contract completion.
Network construction costs include all direct material and labor costs and
those indirect costs related to contract performance. General and
administrative costs are charged to expense as incurred. When necessary, the
estimated loss on an uncompleted contract is expensed in the period in which
it is identified. Contract costs are estimated using allocations of the total
cost of constructing the Qwest Network, a coast-to-coast, technologically
advanced, fiber optic telecommunications network (the "Qwest Network").
Revisions to estimated profits on contracts are recognized in the period they
become known.
(d) Cash and Cash Equivalents
The Company classifies cash on hand and deposits in banks, including
commercial paper, money market accounts, and any other investments with an
original maturity of three months or less, that the Company may hold from time
to time, as cash and cash equivalents.
41
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(e) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed on a
straight-line basis using the estimated useful lives of the assets, commencing
when they are available for service. Leasehold improvements are amortized over
the lesser of the useful lives of the assets or the lease term. Expenditures
for maintenance and repairs are expensed as incurred. Network construction
costs, including interest during construction, are capitalized. Interest
capitalized in the years ended December 31, 1997, 1996 and 1995 was
approximately $17.7 million, $2.4 million and $1.9 million, respectively.
The useful lives of property and equipment are as follows:
<TABLE>
<S> <C>
Facility and leasehold improvements................ 5--25 years or lease term
Communications and construction equipment.......... 3--10 years
Fiber and conduit systems.......................... 15--25 years
Office equipment and furniture..................... 3--7 years
Capital leases..................................... lease term
</TABLE>
While constructing network systems for customers, the Company may install
additional conduit for its own use. This additional conduit is capitalized at
the incremental cost of construction. Costs of the initial conduit, fiber and
facilities are allocated to the customer and the Company based upon the number
of fibers retained by the Company relative to the total fibers installed, or
square footage in the case of facilities.
(f) Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment when events or
changes in circumstances indicate that the carrying value of such assets may
not be recoverable, in accordance with Statement of Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ("SFAS 121"). This review consists of a comparison of
the carrying value of the asset with the asset's expected future undiscounted
cash flows without interest costs. Estimates of expected future cash flows are
to represent management's best estimate based on reasonable and supportable
assumptions and projections. If the expected future cash flow exceeds the
carrying value of the asset, no impairment is recognized. If the carrying
value of the asset exceeds the expected future cash flows, an impairment
exists and is measured by the excess of the carrying value over the fair value
of the asset. Any impairment provisions recognized are permanent and may not
be restored in the future. No impairment expense was recognized in 1997, 1996
or 1995.
(g) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes, whereby deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
(h) Intangible and Other Long-Term Assets
Intangible and other long-term assets include debt issuance costs, deferred
compensation, goodwill and acquired intangibles such as customer contracts and
non-compete covenants. Such costs are amortized on a straight-line basis over
a period ranging from three to fifteen years.
42
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(i) Earnings Per Share
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which requires the
presentation of basic earnings per share and, for companies with potentially
dilutive securities, such as convertible debt, options and warrants, diluted
earnings per share. Basic earnings per share amounts are determined on the
basis of the weighted average number of common shares outstanding during the
year. Potentially dilutive instruments for the periods prior to the Company's
IPO, as defined by Securities and Exchange Commission Staff Accounting
Bulletin Number 98, Earnings Per Share, were not material and were excluded
from the computation of earnings per share. Diluted earnings per share give
effect to all potential dilutive common shares that were outstanding during
the year.
(j) Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, the Company accounts for compensation
expense under the Growth Share Plan and the Equity Incentive Plan in
accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees.
(k) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(l) Reclassifications
Certain prior year balances have been reclassified to conform with 1997
presentation.
(3) OTHER INCOME (EXPENSE)
On March 10, 1997, the Company entered into an agreement with an unrelated
third party to terminate certain equipment purchase and telecommunications
capacity rights and options of the Company exercisable against the third party
for $9.0 million in cash, which the Company received in 1997 and has recorded
as gain on sale of contract rights.
On July 1, 1996, the Company sold its right, title and interest in certain
telecommunications service agreements to an unrelated third party (the
"Buyer") for $5.5 million. During the transition of service agreements to the
Buyer, the Company incurred certain facilities costs on behalf of the Buyer,
which are reimbursable to the Company. On March 31, 1997, the arrangement
relating to the transition services agreements expired and has not yet been
renegotiated. A dispute has arisen with respect to reimbursement of these
costs and, as a result, the Company made a provision of $2.0 million in the
three months ended March 31, 1997. Negotiations with the Buyer are continuing.
As of December 31, 1997 and 1996, net amounts of approximately $5.0 million
and $2.0 million, respectively, were due to the Company for such costs. The
Company believes that the receivable balance as of December 31, 1997 is
collectible.
(4) ACQUISITIONS
On October 22, 1997, the Company and an unrelated third party consummated an
agreement whereby the Company acquired from the third party all of the issued
and outstanding shares of capital stock of SuperNet, Inc.
43
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
("SNI"), a regional internet service provider, and the capital stock of SNI
issued at the closing of the acquisition, for approximately $20.0 million in
cash, plus acquisition costs. The acquisition was accounted for using the
purchase method of accounting. The purchase price was allocated as follows (in
thousands):
<TABLE>
<S> <C>
Working capital.................................................... $(1,517)
Property and equipment............................................. 2,890
Goodwill........................................................... 19,200
Other.............................................................. ( 423)
-------
$20,150
=======
</TABLE>
The accompanying consolidated statements of operations include the operating
results of SNI since October 22, 1997. The following pro forma operating
results of the Company and SNI for the years ended December 31, 1997 and 1996
have been prepared assuming the acquisition had been consummated as of January
1, 1996 (in thousands, except per share amounts
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenue.................................................. $702,260 $236,538
Net earnings (loss)...................................... $ 10,783 $(14,226)
Earnings (loss) per share -- basic....................... $ 0.06 $ (0.08)
Earnings (loss) per share--diluted....................... $ 0.06 $ (0.08)
</TABLE>
(5) NETWORK CONSTRUCTION SERVICES REVENUE AND EXPENSES
Costs and billings on uncompleted contracts included in the accompanying
consolidated financial statements are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
--------- --------
<S> <C> <C>
Costs incurred on uncompleted contracts............... $ 473,760 $ 82,840
Estimated earnings.................................... 238,191 48,853
--------- --------
711,951 131,693
Less: billings to date 476,775 131,738
--------- --------
$ 235,176 $ (45)
========= ========
Costs and estimated earnings in excess of billings.... $ 256,566 $ 4,989
Billings in excess of costs and estimated earnings.... (21,390) (5,034)
--------- --------
$ 235,176 $ (45)
========= ========
Revenue the Company expects to realize for work to be
performed on the above uncompleted contracts......... $ 506,791 $328,688
========= ========
</TABLE>
The Company has entered into various agreements to provide indefeasible
rights of use of multiple fibers along the Qwest Network. Such agreements
include contracts with three major customers for an aggregate purchase price
of approximately $1.0 billion. The Company obtained construction performance
bonds totaling $175.0 million which have been guaranteed by the Majority
Shareholder. Network Construction Services revenue relating to the contracts
with these major customers was approximately $513.0 million and $121.0 million
in 1997 and 1996, respectively. Progress billings are made upon customers'
acceptance of performance milestones.
44
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The Company expects to bill and collect all costs and estimated earnings in
excess of billings as of December 31, 1997, in 1998.
Although these construction agreements provide for certain penalties if the
Company does not complete construction within the time frames specified within
the agreements, management does not anticipate that the Company will incur any
substantial penalties under these provisions.
(6) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Carrier services........................................... $11,833 $ 9,978
Commercial services........................................ 14,095 5,736
Network construction services.............................. 37,085 13,751
Due from affiliate......................................... 1,804 --
Other...................................................... 7,189 3,452
------- -------
72,006 32,917
Less allowance for doubtful accounts..................... (4,611) (3,669)
------- -------
Accounts receivable, net................................... $67,395 $29,248
======= =======
</TABLE>
(7) NOTES AND OTHER RECEIVABLES
In 1994, an unrelated third party entered into a $45.0 million agreement to
purchase a single conduit from the Company. Contract revenue from this
agreement was approximately $3.1 million and $29.7 million in the years ended
December 31, 1996 and 1995, respectively. The Company may be required to pay
up to $13.0 million to the third party in the event of the sale of the
Company-owned conduits. The balance of the notes receivable related to the
contract was paid subsequent to year end.
(8) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Land...................................................... $ 991 $ 506
Facility and leasehold improvements....................... 17,910 7,951
Communications and construction equipment................. 83,313 52,076
Fiber and conduit systems................................. 118,192 42,446
Office equipment and furniture............................ 16,019 6,360
Capital leases............................................ 3,778 3,197
Work in progress.......................................... 417,042 99,915
-------- --------
657,245 212,451
Less accumulated depreciation and amortization.......... (42,605) (25,916)
-------- --------
Property and equipment, net............................... $614,640 $186,535
======== ========
</TABLE>
45
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(9) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
-------- -------
<S> <C> <C>
Accounts payable........................................... $ 80,862 $41,642
Construction accrual....................................... 75,543 18,071
Property, sales and other taxes............................ 33,926 3,582
Capacity service obligation................................ 8,196 3,658
Accrued interest........................................... 7,704 707
Right-of-way obligations................................... 34,006 3,290
Other...................................................... 13,076 9,179
-------- -------
Accounts payable and accrued expenses...................... $253,313 $80,129
======== =======
</TABLE>
(10) OTHER LIABILITIES
Other liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Right-of-way obligations.................................... $39,014 $ 1,297
Growth share accrual........................................ 17,686 9,291
Equipment to be financed.................................... 10,756 --
Other....................................................... 3,020 1,110
------- -------
Other liabilities........................................... $70,476 $11,698
======= =======
</TABLE>
(11) RIGHT-OF-WAY OBLIGATIONS
The Company has easement agreements with railroads and public transportation
authorities. The following is a schedule by years of future minimum payments
under easement agreements together with the present value of the net minimum
payments as of December 31, 1997.
<TABLE>
<S> <C>
Year ended December 31:
1998............................................................. $ 34,225
1999............................................................. 4,228
2000............................................................. 4,228
2001............................................................. 4,250
2002............................................................. 6,099
Thereafter....................................................... 83,788
--------
Total minimum payments........................................... $136,818
Less amount representing interest................................ (63,798)
--------
Present value of net minimum payments............................ $ 73,020
========
</TABLE>
The present value of net minimum payments is included in accounts payable
and accrued expenses and other liabilities. (See note 9--Accounts Payable and
Accrued Expenses and note 10--Other Liabilities.)
46
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
In certain limited instances the Company may be obligated to pay costs of
relocating certain conduits owned by third parties on approximately 500 miles
of railroad rights-of-way. The majority of such commitments expire in February
2001. The Company has made a provision of approximately $2.9 million for such
costs in 1997.
Pursuant to certain easement agreements, the Company is required to provide
easement grantors with communications capacity for their own internal use.
(12) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
9.47% Notes.............................................. $356,908 $ --
10 7/8% Notes............................................ 250,000 --
Revolving credit facility................................ -- 60,000
Equipment credit facility................................ 22,604 --
Network credit facility.................................. -- 27,077
Equipment loans.......................................... -- 9,820
Term notes............................................... -- 9,416
Capital lease and other obligations...................... 12,962 28,148
-------- --------
Total debt............................................... 642,474 134,461
Less current portion................................... (12,011) (25,193)
-------- --------
Long-term debt........................................... $630,463 $109,268
======== ========
</TABLE>
In October 1997, the Company issued and sold $555.9 million in principal
amount at maturity of 9.47% Senior Discount Notes, due 2007 (the "9.47%
Notes"), generating net proceeds of approximately $342.1 million, after
deducting offering costs which are included in intangible and other long-term
assets. The 9.47% Notes will accrete at a rate of 9.47% per annum, compounded
semiannually, to an aggregate principal amount of $555.9 million by October
15, 2002. The principal amount of the 9.47% Notes is due and payable in full
on October 15, 2007. The 9.47% Notes are redeemable at the Company's option,
in whole or in part, at any time on or after October 15, 2002, at specified
redemption prices. In addition, prior to October 15, 2000, the Company may use
the net cash proceeds from certain equity transactions to redeem up to 35% of
the 9.47% Notes at specified redemption prices. Cash interest on the 9.47%
Notes will not accrue until October 15, 2002, and thereafter will accrue at a
rate of 9.47% per annum, and will be payable semiannually in arrears
commencing on April 15, 2003 and thereafter on April 15 and October 15 of each
year. The Company has the option of commencing the accrual of cash interest on
an interest payment date on or after October 15, 2000, in which case the
outstanding principal amount at maturity of the 9.47% Notes will, on such
interest payment date, be reduced to the then accreted value, and cash
interest will be payable thereafter. In February 1998, the Company completed
an exchange of the 9.47% Series B Senior Discount Notes (the "9.47% Exchange
Notes"), registered under the Securities Act of 1933 (the "Act"), for all of
the 9.47% Notes. The 9.47% Exchange Notes are identical in all material
respects to the originally issued 9.47% Notes.
In May 1997, the Company entered into a $90.0 million credit agreement (the
"Equipment Credit Facility") with an unrelated third party supplier of
transmission electronics equipment (the "Supplier") to fund a portion of
certain capital expenditures required to equip the Qwest Network currently
under construction. The facility subsequently was assigned by the Supplier to
another institution, which assumed the Equipment Credit Facility
47
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
and currently acts as the agent. Under the Equipment Credit Facility, the
Company may borrow up to 75% of the price of purchased equipment and related
engineering and installation services provided by the Supplier, with the
purchased equipment and related items serving as collateral for the loans. The
Company is committed to purchase from the Supplier a minimum of $100.0 million
of such equipment and services under a separate procurement agreement, which
was executed in May 1997. The Company's total remaining commitment under the
procurement agreement was approximately $68.4 million as of December 31, 1997.
Principal amounts outstanding under the Equipment Credit Facility will be
payable in quarterly installments commencing on June 30, 2000, with full
repayment due on March 31, 2004. Borrowings will bear interest at the
Company's option at either (i) a floating base rate offered by a designated
reference bank plus an applicable margin; or (ii) LIBOR plus an applicable
margin.
On March 31, 1997, the Company issued and sold 10 7/8% Senior Notes due 2007
having an aggregate principal amount at maturity of $250.0 million. The net
proceeds of the 10 7/8% Senior Notes were approximately $242.0 million, after
deducting offering costs which are included in intangible and other long-term
assets. Interest on the 10 7/8% Senior Notes is payable semiannually in
arrears on April 1 and October 1 of each year, commencing October 1, 1997. The
10 7/8% Senior Notes are subject to redemption at the option of the Company,
in whole or in part, at any time on or after April 1, 2002, at specified
redemption prices. In addition, prior to April 1, 2000, the Company may use
the net cash proceeds from certain specified equity transactions to redeem up
to 35% of the 10 7/8% Senior Notes at specified redemption prices. In August
1997, the Company completed an exchange of 10 7/8% Series B Senior Notes (the
"10 7/8% Notes"), registered under the Act, for all of the 10 7/8% Senior
Notes. The 10 7/8% Notes are identical in all material respects to the
originally issued 10 7/8% Senior Notes.
In April 1996, the Company entered into a long-term $100.0 million revolving
credit facility agreement as amended in September 1996 (the "Facility") which
was collateralized by shares of common stock owned and pledged by the Majority
Shareholder. In October 1997, the Company repaid the outstanding balance and
terminated the Facility.
In April 1995, the Company entered into a $45.0 million customer contract
credit facility agreement to finance certain construction projects undertaken
at that time. The facility converted to a term loan upon completion of the
construction projects in 1996 and 1995 and is now secured by notes receivable
issued in connection with these construction projects. The facility bears
interest at the Company's option at either (i) the higher of (a) the bank's
base rate of interest, or (b) the Federal Funds Rate plus 1/2%; or (ii) LIBOR
plus 9/16%. The outstanding balance was repaid in February 1998.
The Company also incurred other indebtedness during the three-year period
ended December 31, 1997, including in 1995 and 1996 $10.0 million in aggregate
under five equipment loans and in January 1995 $12.0 million in aggregate
under two term notes, the proceeds of which were used to repay a portion of
the advance from the Majority Shareholder used to purchase Qwest Transmission
Inc. In addition, the Company had other outstanding indebtedness in 1997 which
it had incurred prior to 1995, including amounts payable under a network
credit facility and an additional equipment loan. Such indebtedness had a
weighted average interest rate of approximately 9% in 1997, and was repaid in
the second quarter of 1997 with proceeds from the 10 7/8% Senior Notes.
The indentures for the 10 7/8%, 9.47% and 8.29% Notes (defined below)
contain certain covenants that, among other things, limit the ability of the
Company and certain of its subsidiaries (the "Restricted Subsidiaries") to
incur additional indebtedness and issue preferred stock, pay dividends or make
other
48
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
distributions, repurchase capital stock or subordinated indebtedness, create
certain liens, enter into certain transactions with affiliates, sell assets of
the Company or its Restricted Subsidiaries, issue or sell capital stock of the
Company's Restricted Subsidiaries or enter into certain mergers and
consolidations.
The Company leases certain network construction equipment under capital
lease agreements. The amortization charge applicable to capital leases is
included in depreciation expense. Future minimum payments under capital lease
obligations is included in contractual maturities of long-term debt summarized
below.
Contractual maturities of long-term debt as of December 31, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Year ended December 31:
1998.............................................................. $ 12,011
1999.............................................................. 622
2000.............................................................. 3,671
2001.............................................................. 5,078
2002.............................................................. 5,877
Thereafter........................................................ 615,215
--------
$642,474
========
</TABLE>
The carrying amounts of the Term Loan and the Equipment Credit Facility
approximate fair value since the interest rates are variable and reset
periodically. The estimated fair values of the 9.47% Notes and the 10 7/8%
Notes, each with a carrying value at December 31, 1997 of approximately $356.9
million and $250.0 million, respectively, were approximately $382.2 million
and $283.8 million, respectively, at December 31, 1997, based on current rates
offered for debt of similar terms and maturity.
In January 1998, the Company issued and sold $450.5 million in principal
amount at maturity of 8.29% Senior Discount Notes, due 2008 (the "8.29%
Notes"), generating net proceeds of approximately $299.2 million, after
deducting offering costs. The 8.29% Notes will accrete at a rate of 8.29% per
annum, compounded semiannually. The principal amount of the 8.29% Notes is due
and payable in full on February 1, 2008. The 8.29% Notes are redeemable at the
Company's option, in whole or in part, at any time on or after February 1,
2003 at specified redemption prices. In addition, prior to February 1, 2001,
the Company may use the net cash proceeds from certain equity transactions to
redeem up to 35% of the 8.29% Notes at specified redemption prices. Cash
interest on the 8.29% Notes will not accrue until February 1, 2003, and
thereafter will accrue at a rate of 8.29% per annum, and will be payable
semiannually in arrears commencing on August 1, 2003, and thereafter on
February 1 and August 1 of each year. The Company has the option of commencing
cash interest on an interest payment date on or after February 1, 2001, in
which case the outstanding principal amount at maturity of the 8.29% Notes
will, on such interest payment date, be reduced to the then accreted value,
and cash interest will be payable on each interest payment date thereafter.
In connection with the sale of the 8.29% Notes, the Company agreed to make
an offer to exchange new notes, registered under the Act and with terms
identical in all material respects to the 8.29% Notes, for the 8.29% Notes or,
alternatively, to file a shelf registration statement under the Act with
respect to the 8.29% Notes. If the registration statement for the exchange
offer or the shelf registration statement, as applicable, is not declared
effective within specified time periods or, after being declared effective,
ceases to be effective or usable for resale of the 8.29% Notes during
specified time periods (each a "Registration Default"), additional cash
interest will
49
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
accrue at a rate per annum equal to 0.50% of the principal amount at maturity
of the 8.29% Notes during the 90-day period immediately following the
occurrence of a Registration Default and increasing in increments of 0.25% per
annum of the principal amount at maturity of the Discount Notes up to a
maximum of 2.0% per annum, at the end of each subsequent 90-day period until
the Registration Default is cured.
(13) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1997, 1996 and
1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ -- $(1,673) $(10,497)
State........................................... 108 (438) --
------ ------- --------
Total current income tax expense (benefit).... 108 (2,111) (10,497)
------ ------- --------
Deferred:
Federal......................................... 8,949 (1,123) (2,839)
State........................................... -- -- --
------ ------- --------
Total deferred income tax expense (benefit)... 8,949 (1,123) (2,839)
------ ------- --------
Total income tax expense (benefit)............ $9,057 $(3,234) $(13,336)
====== ======= ========
</TABLE>
Total income tax expense (benefit) differed from the amounts computed by
applying the federal statutory income tax rate (35%) to earnings (loss) before
income tax expense (benefit) as a result of the following items for the years
ended December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- --------
<S> <C> <C> <C>
Expected income tax expense (benefit)........... $8,253 $(3,570) $(13,463)
State income taxes, net of federal income tax
expense (benefit)................................. 70 (279) --
Goodwill amortization........................... 306 568 56
Compensation and growth share expenses.......... 345 -- --
Other, net...................................... 83 47 71
------ ------- --------
Total income tax expense (benefit).......... $9,057 $(3,234) $(13,336)
====== ======= ========
</TABLE>
50
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- -------
<S> <C> <C>
Current deferred tax assets (liabilities):
Allowance for doubtful accounts....................... $ 1,130 $ 1,283
Accrued liabilities................................... 1,219 1,277
Deferred compensation................................. 492 --
-------- -------
2,841 2,560
Network construction contracts........................ (25,185) (2,560)
-------- -------
$(22,344) $ --
======== =======
Long-term deferred tax assets (liabilities):
Deferred compensation................................. $ 6,503 $ 3,252
Depreciation.......................................... 4,337 2,205
Accrued liabilities................................... 1,235 --
Net operating loss carryforward....................... 34,773 --
-------- -------
46,848 5,457
Intangible assets, principally due to differences in
basis and amortization............................... (71) (112)
Property and equipment................................ (28,789) (752)
-------- -------
(28,860) (864)
-------- -------
$ 17,988 $ 4,593
======== =======
</TABLE>
The Company has analyzed the sources and expected reversal periods of its
deferred tax assets. The Company believes that the tax benefits attributable
to deductible temporary differences will be realized by recognition of future
taxable amounts. Accordingly, the Company believes a valuation allowance for
its federal deferred tax assets is not necessary.
At December 31, 1997, the Company has net operating loss carryforwards for
income tax purposes of approximately $99.4 million which, if not utilized to
reduce taxable income in future periods, will expire in 2012.
The Company is included in the consolidated federal income tax return of the
Majority Shareholder, which has a July 31 year-end for income tax purposes.
There is a tax allocation agreement between the Company and the Majority
Shareholder which encompasses U. S. federal tax consequences. The Company is
responsible to the Majority Shareholder to the extent of income taxes for
which the Company and its subsidiaries would have been liable if the Company
had filed a consolidated federal income tax return, giving effect to any loss
or credit carryover belonging to the Company and its subsidiaries from periods
after the Effective Date (defined below). The Majority Shareholder would be
responsible to the Company to the extent an unused loss or credit can be
carried back to an earlier taxable period after the Effective Date.
The tax agreement was amended effective as of January 1, 1997 (the
"Effective Date"). Prior to the amendment, the Company was responsible to the
Majority Shareholder for its share of the current consolidated income tax
liabilities. The Majority Shareholder was responsible to the Company to the
extent that the Company's income tax attributes were utilized by the Majority
Shareholder to reduce its consolidated income
51
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
tax liabilities, subject to certain limitations on net operating loss and
credit carryforwards. At December 31, 1996, the income tax benefit receivable
from Majority Shareholder of approximately $11.1 million was canceled, which
resulted in a reduction of additional paid-in capital.
In certain cases, differences may arise between amounts reported in the
financial statements under generally accepted accounting principles and the
amounts actually payable or receivable under the tax allocation agreement.
Those differences are generally reported as adjustments to capital, as in-
substance dividends.
(14) RELATED PARTY TRANSACTIONS
(a) Transactions with Majority Shareholder
The Majority Shareholder incurs certain costs on the Company's behalf,
including primarily insurance and corporate transportation services, and
allocates such costs to the Company based on actual usage. The cost to the
Company for such services was approximately $4.3 million, $2.1 million and
$2.5 million in the years ended December 31, 1997, 1996 and 1995,
respectively. In addition, accounts receivable from (payable to) the Majority
Shareholder are recognized to reflect federal income tax benefits receivable
(income taxes payable) pursuant to the tax allocation agreement between the
Company and the Majority Shareholder. Advances from Majority Shareholder of
approximately $19.1 million outstanding at December 31, 1996 were repaid in
1997.
The Company has agreed to indemnify the Majority Shareholder and its
subsidiaries against any costs or losses incurred by them as a result of their
providing credit support to the Company (in the form of collateral pledges,
guarantees, performance bonds or otherwise).
(b) Transactions with Other Related Parties
The Company leases its corporate office in Denver, Colorado from an
affiliate of the Majority Shareholder. The cost to the Company for such lease
was approximately $1.4 million, $1.2 million and $1.0 million in the years
ended December 31, 1997, 1996 and 1995, respectively.
The Majority Shareholder owned approximately 25% of Southern Pacific Rail
Corporation and its subsidiaries ("SPRC") at December 31, 1995. In September
1996, SPRC was acquired by Union Pacific Corporation. As a result of this
transaction, the Majority Shareholder's ownership was reduced to approximately
5% of Union Pacific Corporation, and SPRC ceased to be a related party. While
a related party, the Company provided telecommunications services to SPRC and
charged SPRC approximately $1.5 million and $3.6 million in the years ended
December 31, 1996 and 1995, respectively. Additionally, the Company purchased
and has made future commitments relating to right-of-way easements from SPRC
and utilizes specialized SPRC personnel and equipment for its construction
projects. While a related party, SPRC charged the Company approximately $3.3
million and $2.2 million for these services in the years ended December 31,
1996 and 1995, respectively.
(c) Equity Contribution From Majority Shareholder
On November 11, 1996, the former president and chief executive of the
Company resigned his position. Upon his resignation, the Majority Shareholder
forgave a note receivable from him in the amount of approximately $1.0
million. This charge was allocated to the Company in 1996 and is included in
selling, general and administrative expenses and additional paid-in capital in
the Company's consolidated financial statements.
52
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value due to the short-
term maturities of these assets and liabilities. The carrying amounts of notes
and other receivables approximate fair value due to the relatively short
period of time between the origination of these instruments and their expected
realization. The carrying amount of long-term right-of-way obligation
approximates fair value since it is based upon current interest rates of
obligations with similar maturities.
(16) COMMITMENTS AND CONTINGENCIES
(a) Network Construction Project
In 1996, the Company commenced construction of the Qwest Network. The
Company projects its total remaining cost at December 31, 1997 for completing
the construction of the Qwest Network will be approximately $1.1 billion. This
amount includes the Company's remaining commitment through December 31, 1998
to purchase a minimum quantity of materials for approximately $147.0 million
as of December 31, 1997, subject to quality and performance expectations, and
contracts for the construction of conduit systems aggregating approximately
$24.7 million.
(b) Network and Telecommunications Capacity Exchanges
The Company enters into agreements to exchange telecommunications capacity
rights and to exchange network assets. In 1997, the Company entered into
agreements to acquire network assets from unrelated third parties in exchange
for certain of the Company's network assets under construction. Title to the
network assets will pass to the exchange parties upon completion of
construction and consummation of the exchange.
In January 1998, the Company entered into an agreement to acquire long-term
telecommunications capacity rights from an unrelated third party in exchange
for long-term telecommunications capacity rights along segments of the Qwest
Network under construction. The exchange agreement provides for the payment of
cash by either of the parties for any period during the contract term in which
a party provides less than the contracted telecommunications capacity. It is
anticipated that the Company will make cash payments for a portion of the
telecommunications capacity it receives pursuant to the agreement until it
completes construction of the Qwest Network. The exchange agreement provides
for liquidating damages to be levied against the Company in the event the
Company fails to deliver the telecommunications capacity, in accordance with
the agreed-upon timetable.
53
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(c) Leases and Telecommunications Service Commitments
The Company leases certain terminal locations and office space under
operating lease agreements and has committed to use certain telecommunications
capacity services. Future minimum payments under noncancelable operating lease
and service commitments as of December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPACITY
SERVICE OPERATING
COMMITMENTS LEASES TOTAL
----------- --------- -------
<S> <C> <C> <C>
Year ended December 31:
1998........................................ $3,977 $ 6,187 $10,164
1999........................................ 250 5,113 5,363
2000........................................ -- 3,170 3,170
2001........................................ -- 2,280 2,280
2002........................................ -- 1,950 1,950
Thereafter.................................. -- 4,848 4,848
------ ------- -------
Total minimum payments.................... $4,227 $23,548 $27,775
====== ======= =======
</TABLE>
Capacity service expenses are included in telecommunications service
expenses. Amounts expensed related to capacity service commitments in the
years ended December 31, 1997, 1996 and 1995 were approximately $7.3 million,
$19.0 million and $19.6 million, respectively.
Amounts expensed in the years ended December 31, 1997, 1996 and 1995 related
to operating leases were approximately $6.2 million, $5.0 million and $4.6
million, respectively.
(d) Mexico Fiber Purchase Agreement
In July 1997, the Company entered into an agreement with an unrelated third
party whereby the Company will receive (i) four dark fibers along a 2,220
kilometer route to be constructed in Mexico by the third party, and (ii)
certain construction inventory and value-added tax refunds, totaling
approximately $2.9 million. In exchange for these assets, the third party will
receive the stock of the Company's subsidiary, SP Servicios de Mexico S. A. de
C. V., and approximately $6.7 million upon the achievement of certain
milestones.
(17) GROWTH SHARE PLAN
The Company has a Growth Share Plan (the "Plan") for certain of its
employees and directors. A "Growth Share" is a unit of value based on the
increase in value of the Company over a specified measurement period. All
Growth Share grants made through December 31, 1997 have been made based on a
beginning Company value that was greater than or equal to the fair value of
the Company at the grant date. The total number of Growth Shares is set at 10
million and the maximum presently available for grant under the Plan is
850,000. All participants, except those granted Growth Shares under the
October 1996 Plan, vested fully upon completion of the Company's IPO and
settlement was made with 2,591,532 common shares, net of amounts relating to
tax withholdings of approximately $21.9 million. Growth Shares granted under
the October 1996 Plan vest at the rate of 20% for each full year of service
completed after the grant date subject to risk of forfeiture and are to be
settled with the Company's Common Stock. The future compensation expense
associated with the remaining shares has been capped at $11.00 per share, or
approximately $23.4 million, and will be amortized as expense over the
remaining approximately four-year vesting period. At December 31, 1997,
approximately $14.9 million is included in other long-term liabilities related
to outstanding Growth Shares. The Company does not presently
54
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
intend to make any additional Growth Share grants under this plan. Certain
triggering events, such as a change in control of the Company, cause immediate
vesting of the remaining Growth Shares and would result in accelerated expense
recognition of all unamortized compensation. Participants receive their vested
portion of the increase in value of the Growth Shares upon a triggering event,
which includes the end of a Growth Share performance cycle.
The Company has estimated an increase in value of the Growth Shares during
1997 and has recorded approximately $73.5 million of additional compensation
expense for this plan in the year ended December 31, 1997. Had the Company
accounted for compensation under the Growth Share Plan pursuant to the fair
value method in Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, the amount of compensation would not
have been different from what has been reflected in the accompanying
consolidated financial statements.
The following table summarizes Growth Share grants and Growth Shares
outstanding:
<TABLE>
<CAPTION>
OUTSTANDING
GROWTH SHARES
-------------
<S> <C>
December 31, 1994.............................................. 676,000
1995 grants.................................................. 11,000
1995 forfeitures............................................. (42,500)
--------
December 31, 1995.............................................. 644,500
1996 grants.................................................. 67,500
1996 forfeitures and settlements............................. (436,600)
--------
December 31, 1996.............................................. 275,400
1997 grants.................................................. 358,050
1997 settlements............................................. (253,950)
--------
December 31, 1997.............................................. 379,500
========
</TABLE>
The Company estimated an increase in value of the Growth Shares at December
31, 1996 due to the signing of an agreement to provide an indefeasible right
of use to a major customer and recorded approximately $13.1 million of
additional compensation expense in 1996, approximately $6.0 million of which
is payable subsequent to December 31, 1997. No expense was recognized in the
accompanying consolidated financial statements for the year ended December 31,
1995, as there were no significant compensatory elements in that period.
(18) CAPITAL STOCK
On January 20, 1998, the Board of Directors declared a stock dividend of one
share for every share outstanding to stockholders of record as of February 2,
1998, to be distributed on February 24, 1998. This dividend was accounted for
as a two for one stock split. All share and per share information included in
the consolidated financial statements and the notes hereto have been adjusted
to give retroactive effect to the change in capitalization.
On May 23, 1997, the Board of Directors approved a change in the Company's
capital stock to authorize 400 million shares of $.01 par value Common Stock
(of which 20 million shares are reserved for issuance under the Equity
Incentive Plan, 2 million shares are reserved for issuance under the Growth
Share Plan, and 8.6 million shares are reserved for issuance upon exercise of
warrants, as described below), and 25 million shares of $.01 par value
Preferred Stock. On May 23, 1997, the Board of Directors declared a stock
dividend to the existing
55
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
stockholder of 172,980,000 shares of Common Stock, which was paid immediately
prior to the effectiveness of the registration statement on June 23, 1997.
This dividend was accounted for as a stock split. The Company completed the
IPO of 31,050,000 shares of Common Stock on June 27, 1997, raising net
proceeds of approximately $319.5 million.
Effective May 23, 1997, the Company sold to an affiliate of the Majority
Shareholder for $2.3 million in cash, a warrant to acquire 8.6 million shares
of Common Stock at an exercise price of $14.00 per share, exercisable on May
23, 2000. The warrant is not transferable. Stock issued upon exercise of the
warrant will be subject to restrictions on sale or transfer for two years
after exercise.
Effective June 23, 1997, the Company adopted the Equity Incentive Plan. This
plan permits the grant of non-qualified stock options, incentive stock
options, stock appreciation rights, restricted stock, stock units and other
stock grants to key employees of the Company and affiliated companies and key
consultants to the Company and affiliated companies who are responsible for
the Company's growth and profitability. A maximum of 20 million shares of
Common Stock may be subject to awards under the Equity Incentive Plan.
The Company's Compensation Committee (the "Committee") determines the
exercise price for each option; however, stock options must have an exercise
price that is at least equal to the fair market value of the Common Stock on
the date the stock option is granted, subject to certain restrictions.
Stock option awards generally vest in equal increments over a five-year
period, and awards granted under the Equity Incentive Plan will immediately
vest upon any change in control of the Company, as defined, unless provided
otherwise by the Committee at the time of grant. Options granted in 1997 have
terms ranging from six to ten years.
Stock option transactions during 1997 were as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding January 1, 1997..................... -- --
Granted......................................... 13,958,000 $15.88
Exercised....................................... (12,000) $11.00
----------
Outstanding December 31, 1997................... 13,946,000 $15.89
==========
Exercisable December 31, 1997................... 1,340,000 $11.00
==========
</TABLE>
The following table summarizes certain information about the Company's stock
options at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
RANGE OF EXERCISE OPTIONS REMAINING WEIGHTED AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
------------------------------- ----------- ---------------- ----------------
<S> <C> <C> <C>
$ 7.50 - $11.00................ 8,654,000 5.6 $10.80
$14.69 - $18.06................ 535,000 9.6 $15.84
$22.88 - $24.00................ 3,100,000 9.7 $23.15
$25.13 - $30.19................ 1,657,000 9.9 $29.39
----------
$ 7.50 - $30.00................ 13,946,000 7.2 $15.88
==========
</TABLE>
56
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Compensation expense recognized for grants under the Equity Incentive Plan
was not material in 1997. If compensation expense for the Equity Incentive
Plan had been determined using the fair value method described in SFAS 123,
the Company's net earnings and earnings per share for 1997 would have been
reduced to the pro forma amounts shown in the following table (in thousands,
except per share information):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Net earnings
As reported....................................................... $14,523
Pro forma......................................................... 861
Earnings per share--basic
As reported....................................................... 0.08
Pro forma......................................................... --
Earnings per share--diluted
As reported....................................................... 0.07
Pro forma......................................................... --
</TABLE>
The weighted-average fair value of each option grant is estimated as of the
date of grant to be $7.94 using the Black-Scholes option pricing model, with
the following weighted average assumptions: risk-free interest rate of 5.8%,
no expected dividend yields, expected option lives of 7.6 years, and expected
volatility of 31%.
(19) EARNINGS (LOSS) PER SHARE
The following is a reconciliation of the denominators of the basic and
diluted earnings per share computations (in thousands, except per share
information):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net earnings (loss)........................... $ 14,523 $ (6,967) $(25,131)
======== ======== ========
Shares:
Weighted average number of shares outstanding
during the period for computing basic
earnings per share........................... 190,505 173,000 173,000
-------- -------- --------
Incremental common shares attributable to
dilutive securities:
Common shares issuable for warrants.......... 1,635 -- --
Common shares issuable under stock option
plan........................................ 1,621 -- --
Common shares issuable for outstanding growth
shares...................................... 294 -- --
-------- -------- --------
Number of shares as adjusted for purposes of
computing diluted earnings per share......... 194,055 173,000 173,000
======== ======== ========
Earnings per share--basic..................... $ 0.08 $ (0.04) $ (0.15)
======== ======== ========
Earnings per share--diluted................... $ 0.07 $ (0.04) $ (0.15)
======== ======== ========
</TABLE>
The weighted average number of options to purchase common stock that was
excluded from the computation of diluted earnings per share because the
exercise price of the option was greater than the average market price of the
common stock was 800,000 for 1997.
(20) 401(K) PLAN
The Company sponsors a 401(k) Plan (the "Plan") which permits employees to
make contributions to the Plan on a pre-tax salary reduction basis in
accordance with the Internal Revenue Code. All full-time employees
57
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
are eligible to participate after one year of service. The Company contributes
a base percentage and matches a portion of the voluntary employee
contributions. The cost of the Plan charged to expense was not material in the
periods presented in the consolidated financial statements.
(21) SIGNIFICANT CUSTOMERS
During the years ended December 31, 1997, 1996 and 1995, two or more
customers, in aggregate, have accounted for 10% or more of the Company's total
revenue in one or more periods, as follows:
<TABLE>
<CAPTION>
CUSTOMER A CUSTOMER B CUSTOMER C CUSTOMER D
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997............................. 6% 31% 37% --
1996............................. 28% 26% -- 4%
1995............................. 7% -- -- 35%
At December 31, 1997 and 1996, one or more of the customers described above
have accounted for 10% or more of the Company's combined accounts receivable,
net, and costs and estimated earnings in excess of billings, as follows:
<CAPTION>
CUSTOMER A CUSTOMER B CUSTOMER C
---------- ---------- ----------
<S> <C> <C> <C> <C>
1997............................. -- 26% 32%
1996............................. 11% 20% --
</TABLE>
(22) SUBSEQUENT EVENTS
In January 1998, the Company entered into a merger agreement (the "Merger
Agreement") with an unrelated third party non-facilities-based reseller of
long distance services. In the Merger, each outstanding share of the third
party's Common Stock (including shares of the third party's Common Stock
issued upon conversion of its Series I Stock) will be acquired for that many
shares of the Qwest's Common Stock having an aggregate market value equal to
$28.5 million, reduced by certain adjustments and limitations to $26.8
million, and future payments of $4.0 million. The proposed acquisition is
subject to certain closing conditions that include requisite shareholder
approval. If consummated, the proposed acquisition will be accounted for using
the purchase method of accounting.
Also in January 1998, the Company signed a long-term contract to provide an
unrelated third party telecommunications capacity along approximately 10,000
route miles of the Qwest Network (the "Contract"). In consideration, the
Company will receive 19.99% of the third party's common stock and up to $310.0
million in cash over an extended payment term. There are restrictions on the
sale by the Company of the unrelated third party's common stock, and the
unrelated third party has the right to repurchase the common stock until the
Contract's second anniversary. The Company will also receive monthly
operations and maintenance fees over the term of the multi-year Contract.
Prior to delivery of the telecommunications capacity and acceptance by the
unrelated third party, the unrelated third party has the right to purchase
interim capacity from the Company. The total cash consideration under the
Contract will be reduced by 60% of the sums paid by the unrelated third party
for purchases of interim capacity. Pursuant to the terms of the Contract, the
unrelated third party may require the Company to purchase an additional $10.0
million of its common stock. If the Company fails to complete at least 75% of
the unrelated third party's network by the Contract's third anniversary, the
unrelated third party may at its option either: (i) accept the completed
portion and pay for it on a pro rata basis; or (ii) terminate the Contract and
require the Company to return all consideration received.
58
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
On March 8, 1998, the Company signed a definitive merger agreement with an
unrelated third party communications services provider. The boards of
directors of each company have approved the merger. The terms of the merger
agreement call for the acquisition of all of the third party's outstanding
common shares and the assumption of all of the third party's stock options by
the Company. The purchase price of the all-stock transaction is anticipated to
be approximately $4.4 billion. The merger is intended to qualify as a tax-free
reorganization and will be accounted for as a purchase.
(23) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER
SHARE INFORMATION) (UNAUDITED)
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue................. $ 72,693 $228,673 $188,955 $206,382
Earnings (loss) from
operations............. (12,644) (7,098) 19,860 23,363
Net earnings (loss)..... (4,776) (5,612) 12,651 12,260
Earnings (loss) per
share--basic........... (0.03) (0.03) 0.06 0.06
Earnings (loss) per
share--diluted......... (0.03) (0.03) 0.06 0.06
<CAPTION>
1996
---------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue................. $ 34,632 $ 50,871 $ 44,333 $101,160
Earnings (loss) from
operations............. (14,653) (2,262) 571 4,330
Net earnings (loss)..... (9,979) (2,376) 3,454 1,934
Earnings (loss) per
share--basic........... (0.06) (0.01) 0.02 0.01
Earnings (loss) per
share--diluted......... (0.06) (0.01) 0.02 0.01
</TABLE>
The Company adopted SFAS 128 in the fourth quarter of 1997. All per share
information reflected in the selected consolidated quarterly financial data
above has been restated.
59
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
60
<PAGE>
PART III.
The information required by Items 10, 11, 12 and 13 of Part III of this
annual report on Form 10-K is incorporated by reference from and will be
contained in the Company's definitive proxy statement for the Company's annual
meeting of stockholders to be filed with the Commission within 120 days after
December 31, 1997.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
61
<PAGE>
GLOSSARY
Access charges The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on the
LECs' local networks.
ATM (Asynchronous
Transfer Mode) An information transfer standard that is one of a
general class of packet technologies that relay traffic
by way of an address contained within the first five
bytes of a standard fifty-three-byte long packet or
cell. The ATM format can be used by many different
information systems, including local area networks, to
deliver traffic at varying rates, permitting a mix of
voice, data and video (multimedia).
AT&T AT&T Corp.
Bandwidth The relative range of analog frequencies or digital
signals that can be passed through a transmission
medium, such as glass fibers, without distortion. The
greater the bandwidth, the greater the information
carrying capacity. Bandwidth is measured in Hertz
(analog) or Bits Per Second (digital).
Capacity Refers to transmission.
Carrier A provider of communications transmission services by
fiber, wire or radio.
CLEC (Competitive
Local Exchange A company that competes with LECs in the local services
Carrier) market.
Common Carrier A government-defined group of private companies
offering telecommunications services or facilities to
the general public on a non-discriminatory basis.
Dark Fiber Fiber that lacks the requisite electronic and optronic
equipment necessary to use the fiber for transmission.
Digital Describes a method of storing, processing and
transmitting information through the use of distinct
electronic or optical pulses that represent the binary
digits 0 and 1. Digital transmission/switching
technologies employ a sequence of discrete, distinct
pulses to represent information, as opposed to the
continuously variable analog signal.
DS-0, DS-1, DS-3 Standard telecommunications industry digital signal
formats, which are distinguishable by bit rate (the
number of binary digits (0 and 1) transmitted per
second). DS-0 service has a bit rate of 64 kilobits per
second and typically transmits only one voice
conversation at a time. DS-1 service has a bit rate of
1.544 megabits per second and typically transmits 24
simultaneous voice conversations. DS-3 service has a
bit rate of 45 megabits per second and typically
transmits 672 simultaneous voice conversations.
Dense Wave Division
Multiplexing A technique for transmitting 8 or more different light
wave frequencies on a single fiber to increase the
information carrying capacity.
DS-3 miles A measure of the total capacity and length of a
transmission path, calculated as the capacity of the
transmission path in DS-3s multiplied by the length of
the path in miles.
62
<PAGE>
Equal access The basis upon which customers of interexchange
carriers are able to obtain access to their Primary
Interexchange Carriers' (PIC) long distance telephone
network by dialing "1", thus eliminating the need to
dial additional digits and an authorization code to
obtain such access.
FCC Federal Communications Commission.
Frame Relay A high-speed, data-packet switching service used to
transmit data between computers. Frame Relay supports
data units of variable lengths at access speeds ranging
from 56 kilobits per second to 1.5 megabits per second.
This service is well-suited for connecting local area
networks, but is not presently well suited for voice
and video applications due to the variable delays which
can occur. Frame Relay was designed to operate at high
speeds on modern fiber optic networks.
GTE GTE Intelligent Network Services Incorporated.
ISP (Internet
Service Provider) A company that provides businesses and consumers with
access to the Internet.
Interconnect Connection of a telecommunications device or service to
the public switched telephone network ("PSTN").
Interexchange A company providing inter-LATA or long distance
carrier services between LATAs on an intrastate or interstate
basis.
Kbps Kilobits per second, which is a measurement of speed
for digital signal transmission expressed in thousands
of bits per second.
LATAs (Local Access
and Transport The approximately 200 geographic areas that define the
Areas) areas between which the RBOCs currently are prohibited
from providing long distance services.
LEC (Local Exchange
Carrier) A company historically providing local telephone
services.
Lit fiber Fiber activated or equipped with the requisite
electronic and optronic equipment necessary to use the
fiber for transmission.
MCI MCI Communications, Inc.
Multiplexing An electronic or optical process that combines a large
number of lower speed transmission lines into one high
speed line by splitting the total available bandwidth
into narrower bands (frequency division), or by
allotting a common channel to several different
transmitting devices, one at a time in sequence (time
division).
OC-3, OC-48 and OC- OC is a measure of SONET transmission optical carrier
192 level, which is equal to the corresponding number of
DS-3s (e.g., OC-3 is equal to 3 DS-3s and OC-48 is
equal to 48 DS-3s).
RBOCs (Regional Bell
Operating
Companies) The seven local telephone companies (formerly part of
AT&T) established as a result of the AT&T Divestiture
Decree.
63
<PAGE>
Regeneration/amplifier Devices which automatically re-transmit or boost
signals on an out-bound circuit.
Reseller A carrier that does not own transmission facilities,
but obtains communications services from another
carrier for resale to the public.
SONET (Synchronous
Optical Network
Technology)
An electronics and network architecture for variable-
bandwidth products which enables transmission of voice,
data and video (multimedia) at very high speeds.
SONET ring A network architecture which provides for instantaneous
restoration of service in the event of a fiber cut by
automatically rerouting traffic the other direction
around the ring. This occurs so rapidly (in 50
milliseconds), it is virtually undetectable to the
user.
Sprint
Sprint Corporation
Switch A device that selects the paths or circuits to be used
for transmission of information and establishes a
connection. Switching is the process of interconnecting
circuits to form a transmission path between users and
it also captures information for billing purposes.
Trunk A communications channel between two switches.
"Trunking" calls reduces the likelihood of traffic
blockage due to network congestion. A trunked system
combines multiple channels with unrestricted access in
such a manner that user demands for channels are
automatically "queued" and then allocated to the first
available channel.
WorldCom
WorldCom, Inc.
64
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
<TABLE>
<C><S>
1. Financial Statements--Included in Part II of this Form 10-K Consolidated
Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules--Schedule II. Valuation and qualifying
accounts
3. Exhibit Index:
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated March 8, 1998, among the Company,
LCI International, Inc. and a wholly-owned subsidiary of the Company,
incorporated by reference to the same document filed as an exhibit to
the Company's Form 8-K filed on March 9, 1998.
2.2 Amended and Restated Agreement and Plan of Merger dated as of December
31, 1997 among Phoenix Network, Inc., Qwest Communications
International Inc. and Qwest 1997-5 Acquisition Corp., incorporated by
reference to Exhibit A to the Proxy Statement/Prospectus that is part
of the Registration Statement on Form S-4 as declared effective on
February 12, 1998 (File No. 333-46145).
3.1* Amended and restated certificate of incorporation of the Company.
3.2 By-laws of the Company, incorporated by reference to Exhibit 3 in Form
10-Q for the quarter ended September 30, 1997 (File No. 000-22609).
4.1(a) Indenture dated as of October 15, 1997 with Bankers Trust Company
(including form of the Company's 9.47% Senior Discount Notes Due 2007
and 9.47% Series B Senior Discount Notes Due 2007 as an exhibit
thereto), incorporated by reference to Exhibit 4.1 in Form S-4 as
declared effective on January 5, 1998 (File No. 333-42847).
4.1(b) Indenture dated as of August 28, 1997 with Bankers Trust Company
(including form of the Company's 10 7/8% Series B Senior Notes Due
2007 as an exhibit thereto) filed herewith
4.1(c) Indenture dated as of January 29, 1998 with Bankers Trust Company
(including form of the Company's 8.29% Senior Discount Notes Due 2008
and 8.29% Series B Senior Discount Notes Due as an exhibit thereto)
filed herewith
4.2 Registration Agreement dated January 29, 1998 with Salomon Brothers
Inc. relating to the Company's 8.29% Senior Discount Notes Due 2008
filed herewith.
9.1 Voting Agreement dated March 8, 1998, relating to the Agreement and
Plan of Merger referred to in Exhibit 2.1, incorporated by reference
to the same document filed as an exhibit to the Company's Form 8-K
filed on March 9, 1998.
10.1* Growth Share Plan, as amended, effective October 1, 1996.
10.2* Employment Agreement dated December 21, 1996 with Joseph P. Nacchio.
10.3* Promissory Note dated November 20, 1996 and Severance Agreement dated
December 1, 1996 with Robert S. Woodruff.
10.4 Equity Compensation Plan for Non-Employee Directors filed herewith
10.5*+ IRU Agreement dated as of October 18, 1996 with Frontier
Communications International Inc.
10.6*+ IRU Agreement dated as of February 26, 1996 with WorldCom Network
Services, Inc.
10.7*+ IRU Agreement dated as of May 2, 1997 with GTE
10.8* Equity Incentive Plan
10.9 Employment Agreement dated March 7, 1997 with Stephen M. Jacobsen
filed herewith
10.10 Employment Agreement dated October 8, 1997 with Lewis O. Wilks filed
herewith
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.11 Employment Agreement dated September 26, 1997 with Brij Khandelwal
filed herewith
10.12 Employment Agreement dated September 19, 1997 with Larry Seese filed
herewith
10.13 Growth Share Plan Agreement with Joseph P. Nacchio, effective January
1, 1997, and Amendment thereto, filed herewith
10.14 NonQualified Stock Option Agreement with Joseph P. Nacchio, effective
June 1997 filed herewith
21 Subsidiaries of the Registrant, incorporated by reference to Exhibit
21.1 in Form S-4 as declared effective on January 5, 1998 (File No.
333-42847)
23 Consent of KPMG Peat Marwick LLP filed herewith
27 Financial Data Schedule filed herewith
</TABLE>
Executive compensation plans and arrangements required to be filed and
identified as such are filed as exhibits 10.1, 10.2, 10.3, 10.4, 10.8, 10.9,
10.10, 10.11 and 10.12.
- - --------
* Incorporated by reference to the exhibit of the same number in Form S-1 as
declared effective on June 23, 1997 (File No. 333-25391).
+ Portions have been omitted pursuant to a previous request for confidential
treatment that was granted by the Commission.
UPON WRITTEN REQUEST OF ANY SHAREHOLDER, COPIES OF EXHIBITS INCLUDING THOSE
INCORPORATED BY REFERENCE WILL BE SENT TO THE SHAREHOLDER FOR A REASONABLE
CHARGE (THE COST OF MAKING AND SENDING THEM) BY FIRST CLASS MAIL WITHIN TWO
BUSINESS DAYS OF RECEIPT OF SUCH REQUEST. ALL REQUESTS SHOULD BE ADDRESSED TO
THE SECRETARY OF THE COMPANY AT QWEST TOWER, 555 SEVENTEENTH STREET, SUITE
1000, DENVER, CO 80202.
(b) Reports on Form 8-K. On November 6, 1997, the Registrant filed a Current
Report on Form 8-K describing the acquisition from NEWSUPERNET, a not-for-
profit entity, of all of the issued and outstanding shares of capital stock of
SuperNet, Inc., an internet service provider. On December 24, 1997, the
Registrant filed an amended Current Report on Form 8-K providing the financial
statements, pro forma financial information and exhibit required pursuant to
the Form 8-K filed on November 6, 1997.
(c) See Item 14(a)(3), above.
(d) See Item 14(a)(2), above.
66
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Qwest Communications International
Inc., a Delaware corporation
/s/ Robert S. Woodruff
By: _________________________________
ROBERT S. WOODRUFF EXECUTIVE VICE
PRESIDENT--FINANCE AND CHIEF
FINANCIAL OFFICER AND TREASURER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
March 19, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLES DATE
/s/ Philip F. Anschutz Chairman of the March 18, 1998
- - ------------------------------------- Board
PHILIP F. ANSCHUTZ
/s/ Joseph P. Nacchio Director, President March 19, 1998
- - ------------------------------------- and Chief Executive
JOSEPH P. NACCHIO Officer
/s/ Robert S. Woodruff Director, Executive March 19, 1998
- - ------------------------------------- Vice President--
ROBERT S. WOODRUFF Finance, Chief
Financial Officer,
Principal
Accounting Officer
and Treasurer
/s/ Cannon Y. Harvey Director March 18, 1998
- - -------------------------------------
CANNON Y. HARVEY
/s/ Richard T. Liebhaber Director March 18, 1998
- - -------------------------------------
RICHARD T. LIEBHABER
/s/ Douglas L. Polson Director March 18, 1998
- - -------------------------------------
DOUGLAS L. POLSON
/s/ Craig D. Slater Director March 18, 1998
- - -------------------------------------
CRAIG D. SLATER
67
<PAGE>
SIGNATURE TITLE DATE
/s/ Jordon L. Haines Director March 18, 1998
- - -------------------------------------
JORDAN L. HAINES
/s/ W. Thomas Stephens Director March 18, 1998
- - -------------------------------------
W. THOMAS STEPHENS
/s/ Roy A. Wilkens Director March 18, 1998
- - -------------------------------------
ROY A. WILKENS
68
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Qwest Communications International Inc.
Under date of February 24, 1998, except as to note 22, which is as of March
8, 1998, we reported on the consolidated balance sheets of Qwest
Communications International Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997 which are included in the Form 10-K. In connection with our
audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule included in the
Form 10-K. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Denver, Colorado
February 24, 1998
69
<PAGE>
SCHEDULE II
QWEST COMMUNICATIONS INTERNATIONAL INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
BALANCE AT ------------------------- ----------------- BALANCE AT
BEGINNING OF CHARGED TO WRITE-OFFS, END OF
DESCRIPTION PERIOD PROFIT AND LOSS OTHER (1) NET OF RECOVERIES PERIOD
----------- ------------ --------------- --------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997:
Allowance for doubtful
receivables--trade... $3,669 7,768 75 (6,901) $4,611
Year ended December 31,
1996:
Allowance for doubtful
receivables--trade... $2,621 2,841 -- (1,793) $3,669
Year ended December 31,
1995:
Allowance for doubtful
receivables--trade... $1,253 1,758 646 (1,036) $2,621
</TABLE>
- - --------
(1) Represents additions resulting from acquisitions
70
<PAGE>
EXHIBIT 4.1(b)
QWEST COMMUNICATIONS INTERNATIONAL INC.,
Issuer
to
BANKERS TRUST COMPANY,
Trustee
____________________
INDENTURE
Dated as of August 28, 1997
_____________________
$250,000,000
10 7/8% Series B Senior Notes Due 2007
<PAGE>
TABLE OF CONTENTS
PAGE
PARTIES.................................................................. 1
RECITALS OF THE COMPANY.................................................. 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.............................................. 1
Acquired Debt............................................ 2
Act...................................................... 2
Affiliate................................................ 2
Agent Member............................................. 2
Asset Disposition........................................ 2
Attributable Value....................................... 3
Board of Directors....................................... 3
Board Resolution......................................... 3
Business Day............................................. 3
Capital Lease Obligation................................. 3
Capital Stock............................................ 4
Cash Equivalents......................................... 4
Change of Control........................................ 4
Commission............................................... 4
Common Stock............................................. 4
Company.................................................. 5
Company Order............................................ 5
Company Request.......................................... 5
Consolidated Capital Ratio............................... 5
Consolidated Cash Flow Available for Fixed Charges....... 5
Consolidated Income Tax Expense.......................... 5
Consolidated Interest Expense............................ 5
Consolidated Net Income.................................. 6
Consolidated Net Worth................................... 6
Consolidated Tangible Assets............................. 6
Continuing Director...................................... 7
Corporate Trust Office................................... 7
Corporation.............................................. 7
_________________
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
PAGE
Credit Facilities........................................ 7
Debt..................................................... 7
Debt Securities.......................................... 8
Default.................................................. 8
Defaulted Interest....................................... 8
Depository............................................... 8
Designation.............................................. 8
Designation Amount....................................... 8
Disqualified Stock....................................... 8
Eligible Institution..................................... 9
Eligible Receivables..................................... 9
Event of Default......................................... 9
Exchange Act............................................. 9
Exchange Securities...................................... 9
Expiration Date.......................................... 9
Fair Market Value........................................ 9
Federal Bankruptcy Code.................................. 9
Global Security.......................................... 9
Government Securities.................................... 9
Group.................................................... 9
Guarantee................................................ 9
Guarantor................................................10
Holder...................................................10
Incur....................................................10
Indenture................................................10
Indenture Obligations....................................10
Initial Purchasers.......................................10
Interest Payment Date....................................11
Interest Rate or Currency Protection Agreement...........11
Investment...............................................11
Lien.....................................................11
Maturity.................................................11
Net Available Proceeds...................................11
Notice of Default........................................12
Offer....................................................12
Offer to Purchase........................................12
Officers' Certificate....................................14
Old Securities...........................................14
Opinion of Counsel.......................................14
Outstanding..............................................14
Paying Agent.............................................15
Permitted Holders........................................15
ii
<PAGE>
PAGE
Permitted Interest Rate or Currency Protection
Agreement................................................16
Permitted Investments....................................16
Permitted Joint Venture..................................16
Permitted Liens..........................................16
Permitted Telecommunications Capital Asset Disposition...17
Person...................................................17
Physical Security........................................17
Predecessor Security.....................................17
Preferred Dividends......................................17
Preferred Stock..........................................18
Private Placement Legend.................................18
Public Equity Offering...................................18
Purchase Amount..........................................18
Purchase Date............................................18
Purchase Money Debt......................................18
Purchase Price...........................................18
Rating Decline...........................................18
Receivables..............................................18
Receivables Sale.........................................18
Redemption Date..........................................18
Redemption Price.........................................19
Regular Record Date......................................19
Related Person...........................................19
Responsible Officer......................................19
Restricted Payment.......................................19
Restricted Subsidiary....................................19
Restricted Subsidiary Guarantee..........................19
Revocation...............................................19
Sale and Leaseback Transaction...........................20
Securities...............................................20
Securities Act...........................................20
Security Register........................................20
Security Registrar.......................................20
Special Record Date......................................20
Stated Maturity..........................................20
Strategic Investor.......................................20
Subordinated Debt........................................20
Subsidiary...............................................21
Telecommunications Assets................................21
Telecommunications Business..............................21
Trust Indenture Act......................................21
TIA......................................................21
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PAGE
Trustee..................................................22
Unrestricted Subsidiary..................................22
Vice President...........................................22
Voting Stock.............................................22
Wholly Owned Subsidiary..................................22
SECTION 102. Compliance Certificates and Opinions.....................22
SECTION 103. Form of Documents Delivered to Trustee...................23
SECTION 104. Acts of Holders..........................................23
SECTION 105. Notices, etc., to Trustee and Company....................25
SECTION 106. Notice to Holders; Waiver................................25
SECTION 107. Effect of Headings and Table of Contents.................26
SECTION 108. Successors and Assigns...................................26
SECTION 109. Separability Clause......................................26
SECTION 110. Benefits of Indenture....................................26
SECTION 111. Governing Law............................................26
SECTION 112. Conflict with Trust Indenture Act........................26
SECTION 113. Legal Holidays...........................................27
SECTION 114. No Personal Liability of Directors, Officers,
Employees and Stockholders...............................27
SECTION 115. Independence of Covenants................................27
SECTION 116. Exhibits.................................................27
SECTION 117. Counterparts.............................................27
SECTION 118. Duplicate Originals......................................28
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally..........................................28
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms..........................................28
SECTION 302. Denominations............................................29
SECTION 303. Execution, Authentication, Delivery and Dating...........29
SECTION 304. Temporary Securities.....................................31
SECTION 305. Registration, Registration of Transfer and Exchange......32
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.........33
SECTION 307. Payment of Interest; Interest Rights Preserved...........34
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PAGE
SECTION 308. Persons Deemed Owners....................................35
SECTION 309. Cancellation.............................................35
SECTION 310. Computation of Interest..................................36
SECTION 311. CUSIP Number.............................................36
SECTION 312. Book-Entry Provisions for Global Securities..............36
SECTION 313. [omitted]................................................37
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture..................40
SECTION 402. Application of Trust Money...............................41
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default........................................42
SECTION 502. Acceleration of Maturity; Rescission and Annulment.......43
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee...............................................45
SECTION 504. Trustee May File Proofs of Claim.........................45
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities...............................................46
SECTION 506. Application of Money Collected...........................46
SECTION 507. Limitation on Suits......................................47
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.....................................48
SECTION 509. Restoration of Rights and Remedies.......................48
SECTION 510. Rights and Remedies Cumulative...........................48
SECTION 511. Delay or Omission Not Waiver.............................48
SECTION 512. Control by Holders.......................................49
SECTION 513. Waiver of Past Defaults..................................49
SECTION 514. Waiver of Stay or Extension Laws.........................49
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities......................50
SECTION 602. Notice of Default........................................51
SECTION 603. Certain Rights of Trustee................................51
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
Securities...............................................53
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PAGE
SECTION 605. May Hold Securities......................................53
SECTION 606. Money Held in Trust......................................53
SECTION 607. Compensation and Reimbursement...........................53
SECTION 608. Corporate Trustee Required; Eligibility; Conflicting
Interests................................................54
SECTION 609. Resignation and Removal; Appointment of Successor........55
SECTION 610. Acceptance of Appointment by Successor...................56
SECTION 611. Merger, Conversion, Consolidation or Succession to
Business.................................................56
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.............57
SECTION 702. Reports by Trustee.......................................57
SECTION 703. Reports by Company.......................................57
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.....58
SECTION 802. Successor Substituted....................................59
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.......59
SECTION 902. Supplemental Indentures with Consent of Holders..........60
SECTION 903. Execution of Supplemental Indentures.....................61
SECTION 904. Effect of Supplemental Indentures........................61
SECTION 905. Conformity with Trust Indenture Act......................61
SECTION 906. Reference in Securities to Supplemental Indentures.......61
SECTION 907. Notice of Supplemental Indentures........................62
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest......62
SECTION 1002. Maintenance of Office or Agency..........................62
SECTION 1003. Money for Security Payments to Be Held in Trust..........63
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PAGE
SECTION 1004. Corporate Existence......................................64
SECTION 1005. Payment of Taxes and Other Claims........................64
SECTION 1006. Maintenance of Properties................................65
SECTION 1007. Insurance................................................65
SECTION 1008. Provision of Financial Statements........................65
SECTION 1009. Statement by Officers as to Default......................65
SECTION 1010. Purchase of Securities upon Change of Control............66
SECTION 1011. Limitation on Consolidated Debt..........................67
SECTION 1012. Limitation on Debt and Preferred Stock of Restricted
Subsidiaries.............................................69
SECTION 1013. Limitation on Restricted Payments........................71
SECTION 1014. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries........................73
SECTION 1015. Limitation on Liens......................................74
SECTION 1016. Limitation on Issuances of Certain Guarantees by, and
Debt Securities of, Restricted Subsidiaries..............75
SECTION 1017. Limitation on Sale and Leaseback Transactions............75
SECTION 1018. Limitation on Asset Dispositions.........................75
SECTION 1019. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries..................................76
SECTION 1020. Transactions with Affiliates and Related Persons.........77
SECTION 1021. Limitation on Designations of Unrestricted Subsidiaries..77
SECTION 1022. No Repayment of Existing Parent Company Advances with
the Proceeds of the Securities...........................78
SECTION 1023. Waiver of Certain Covenants..............................79
SECTION 1024. Trustee Not to Monitor Performance.......................79
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption......................................79
SECTION 1102. Applicability of Article.................................79
SECTION 1103. Election to Redeem; Notice to Trustee....................79
SECTION 1104. Selection by Trustee of Securities to Be Redeemed........80
SECTION 1105. Notice of Redemption.....................................80
SECTION 1106. Deposit of Redemption Price..............................81
SECTION 1107. Securities Payable on Redemption Date....................81
SECTION 1108. Securities Redeemed in Part..............................81
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
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PAGE
SECTION 1201. Company's Option to Effect Defeasance or Covenant
Defeasance...............................................82
SECTION 1202. Defeasance and Discharge.................................82
SECTION 1203. Covenant Defeasance......................................83
SECTION 1204. Conditions to Defeasance or Covenant Defeasance..........83
SECTION 1205. Deposited Money and Government Securities to Be Held in
Trust; Other Miscellaneous Provisions....................84
SECTION 1206. Reinstatement............................................85
TESTIMONIUM..............................................................86
SIGNATURES AND SEALS.....................................................86
EXHIBIT A - Form of Security
QWEST COMMUNICATIONS INTERNATIONAL INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND THIS INDENTURE
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
(S) 310(a)(1) ......................................... 608
(a)(2) ......................................... 608
(a)(3) ......................................... N/A
(a)(4) ......................................... N/A
(b) ......................................... 608(b)
(S) 311(a) ......................................... 605
(b) ......................................... 605
(S) 312(a) ......................................... 701
(b) ......................................... 701
(c) ......................................... 701
_________________
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
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(S) 313(a) ........................................... 702
(a)(4) ........................................... 702
(b) ........................................... 702
(c) ........................................... 702
(d) ........................................... 702
(S) 314(a) ........................................... 703
(b) ........................................... N/A
(c)(1) ........................................... 102
(c)(2) ........................................... 102
(c)(3) ........................................... N/A
(d) ........................................... N/A
(e) ........................................... 102
(S) 315(a) ........................................... 601
(b) ........................................... 601
(c) ........................................... 601
(d) ........................................... 601
(e) ........................................... 601
(S) 316(a)(last
sentence)........................................... 101 ("Outstanding")
(a)(1)(A)........................................... 502, 512
(a)(1)(B)........................................... 513
(a)(2) ........................................... N/A
(b) ........................................... 508
(c) ........................................... 104(d)
(S) 317(a)(1) ........................................... 503
(a)(2) ........................................... 504
(b) ........................................... 1003
(S) 318(a) ........................................... 111
_________________
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of this Indenture.
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INDENTURE, dated as of August 28, 1997 between Qwest Communications
International Inc., a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), having its principal office
at 555 Seventeenth Street, Denver, Colorado 80202, and Bankers Trust Company, a
New York banking corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 10 7/8%
Series B Senior Notes Due 2007 (herein called the "Exchange Securities"), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture. The Exchange Securities are being issued in connection with an offer
by the Company to exchange its 10 7/8% Senior Notes Due 2007 (herein called the
"Old Securities") for the Exchange Securities. The Exchange Securities and the
Old Securities are considered collectively to be a single class for all
purposes under this Indenture, including, without limitation, waivers,
amendments, redemptions and Offers to Purchase, and are referred to collectively
as the "Securities."
All things necessary have been done to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of each of the Company and the Trustee, in
accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
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(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation;
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section, paragraph or other subdivision; and
(e) unless otherwise indicated, references to Articles, Sections,
paragraphs or other subdivisions are references to such Articles, Sections,
paragraphs or other subdivisions of this Indenture.
"Acquired Debt" means, with respect to any specified Person, (i) Debt
of any other Person existing at the time such Person merges with or into or
consolidates with or becomes a Subsidiary of such specified Person and (ii) Debt
secured by a Lien encumbering any asset acquired by such specified Person, which
Debt was not incurred in anticipation of, and was outstanding prior to, such
merger, consolidation or acquisition.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" has the meaning specified in Section 312.
"Asset Disposition" means any transfer, conveyance, sale, lease or
other disposition by the Company or any Restricted Subsidiary in one or more
related transactions occurring within any 12-month period (including a
consolidation or merger or other sale of any such Restricted Subsidiary with,
into or to another Person in a transaction in which such Restricted Subsidiary
ceases to be a Restricted Subsidiary of the Company, but excluding a disposition
by a Restricted Subsidiary to the Company or a Restricted Subsidiary or by the
Company to a Restricted Subsidiary) of (i) shares of Capital Stock or other
ownership interests of
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a Restricted Subsidiary (other than as permitted by clauses (iii), (iv) and (v)
of Section 1019), (ii) substantially all of the assets of the Company or any
Restricted Subsidiary representing a division or line of business or (iii) other
assets or rights of the Company or any Restricted Subsidiary outside of the
ordinary course of business (excluding any transfer, conveyance, sale, lease or
other disposition of equipment that is obsolete or no longer used by or useful
to the Company, provided that the Company has delivered to the Trustee an
Officers' Certificate stating that such criteria are satisfied); provided in
each case that the aggregate consideration for such transfer, conveyance, sale,
lease or other disposition is equal to $500,000 or more in any 12-month period
and provided further that the following shall not be Asset Dispositions: (x)
Permitted Telecommunications Capital Asset Dispositions, (y) exchanges of
Telecommunications Assets for other Telecommunications Assets where the Fair
Market Value of the Telecommunications Assets received is at least equal to the
Fair Market Value of the Telecommunications Assets disposed of or, if less, the
difference is received in cash and such cash is Net Available Proceeds and (z)
Liens permitted to be Incurred pursuant to the second paragraph of Section 1015.
"Attributable Value" means, as to any particular lease under which
any Person is at the time liable other than a Capital Lease Obligation, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such Person under such lease during the
initial term thereof as determined in accordance with generally accepted
accounting principles, discounted from the last date of such initial term to the
date of determination at a rate per annum equal to the discount rate which would
be applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which
is terminable by the lessee upon the payment of penalty, such net amount shall
also include the lesser of the amount of such penalty (in which case no rent
shall be considered as required to be paid under such lease subsequent to the
first date upon which it may be so terminated) or the rent which would otherwise
be required to be paid if such lease is not so terminated. "Attributable Value"
means, as to a Capital Lease Obligation, the principal amount thereof.
"Board of Directors" means the board of directors of the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
"Capital Lease Obligation" of any Person means the obligation to pay
rent or other payment amounts under a lease of (or other Debt arrangements
conveying the right to use) real or
3
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personal property of such Person which is required to be classified and
accounted for as a capital lease or a liability on the face of a balance sheet
of such Person in accordance with generally accepted accounting principles (a
"Capital Lease"). The stated maturity of such obligation shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without payment
of a penalty. The principal amount of such obligation shall be the capitalized
amount thereof that would appear on the face of a balance sheet of such Person
in accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Cash Equivalents" means (i) any Debt with a maturity of 365 days or
less issued or directly and fully guaranteed as insured by the United States or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof or such Debt constitutes a
general obligation of such country); (ii) deposits, certificates of deposit or
acceptances with a maturity of 365 days or less of any financial institution
that is a member of the Federal Reserve System, in each case having combined
capital and surplus and undivided profits (or any similar capital concept) of
not less than $500 million and whose senior unsecured debt is rated at least "A-
1" by Standard & Poor's Ratings Services or "P-1" by Moody's Investors Service,
Inc.; (iii) commercial paper with a maturity of 365 days or less issued by a
Corporation (other than an Affiliate of the Company) organized under the laws of
the United States or any state thereof and rated at least "A-1" by Standard &
Poor's Ratings Services or "P-1" by Moody's Investors Service, Inc.; and (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States or
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States maturing within 365 days from the date of
acquisition.
"Change of Control" has the meaning specified in Section 1010.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after March 31, 1997 such Commission is not existing and performing the duties
now assigned to it under the Trust Indenture Act, then the body performing such
duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
4
<PAGE>
"Company Order" or "Company Request" means a written request or
order signed in the name of the Company by the Chairman of the Board of
Directors, a Vice Chairman of the Board of Directors, the President or a Vice
President, and by the Chief Financial Officer, the Chief Accounting Officer, the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
the Company and delivered to the Trustee.
"Consolidated Capital Ratio" of any Person as of any date means the
ratio of (i) the aggregate consolidated principal amount of Debt of such Person
then outstanding to (ii) the greater of either (a) the aggregate consolidated
paid-in capital of such Person as of such date or (b) the stockholders' equity
as of such date as shown on the consolidated balance sheet of such Person in
accordance with generally accepted accounting principles.
"Consolidated Cash Flow Available for Fixed Charges" for any period
means the Consolidated Net Income of the Company and its Restricted Subsidiaries
for such period increased by the sum of (i) Consolidated Interest Expense of the
Company and its Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of the Company and its Subsidiaries for such period, plus
(iii) the consolidated depreciation and amortization expense or other non-cash
write-offs of assets included in the income statement of the Company and its
Restricted Subsidiaries for such period, plus (iv) any charge related to any
premium or penalty paid in connection with redeeming or retiring any Debt prior
to its stated maturity; provided, however, that there shall be excluded
therefrom the Consolidated Cash Flow Available for Fixed Charges (if positive)
of any Restricted Subsidiary (calculated separately for such Restricted
Subsidiary in the same manner as provided above for the Company) that is subject
to a restriction which prevents the payment of dividends or the making of
distributions to the Company or another Restricted Subsidiary to the extent of
such restriction.
"Consolidated Income Tax Expense" for any period means the aggregate
amounts of the provisions for income taxes of the Company and its Subsidiaries
for such period calculated on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Interest Expense" means for any period the interest
expense included in a consolidated income statement (excluding interest income)
of the Company and its Restricted Subsidiaries for such period in accordance
with generally accepted accounting principles, including without limitation or
duplication (or, to the extent not so included, with the addition of), (i) the
amortization of Debt discounts; (ii) any payments or fees with respect to
letters of credit, bankers' acceptances or similar facilities; (iii) fees with
respect to interest rate swap or similar agreements or foreign currency hedge,
exchange or similar agreements; (iv) Preferred Stock dividends of the Company
and its Subsidiaries (other than dividends paid in shares of Preferred Stock
that is not Disqualified Stock) declared and paid or payable; (v) accrued
Disqualified Stock dividends of the Company and its Restricted Subsidiaries,
whether or not declared or paid; (vi) interest on Debt guaranteed by the Company
and its Restricted Subsidiaries; and (vii) the portion of any Capital Lease
Obligation paid during such period that is allocable to interest expense.
5
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"Consolidated Net Income" for any period means the net income (or
loss) of the Company and its Restricted Subsidiaries for such period determined
on a consolidated basis in accordance with generally accepted accounting
principles; provided that there shall be excluded therefrom (a) the net income
(or loss) of any Person acquired by the Company or a Restricted Subsidiary in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (b) the net income (or loss) of any Person that is not a Restricted
Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to the Company or a Restricted Subsidiary by such
Person during such period, (c) gains or losses on Asset Dispositions by the
Company or its Restricted Subsidiaries, (d) all extraordinary gains and
extraordinary losses, determined in accordance with generally accepted
accounting principles, (e) the cumulative effect of changes in accounting
principles, (f) non-cash gains or losses resulting from fluctuations in currency
exchange rates, (g) any non-cash expense related to the issuance to employees or
directors of the Company or any Restricted Subsidiary or any Affiliate of the
Company of (i) options to purchase Capital Stock of the Company or such
Restricted Subsidiary or (ii) other compensatory rights (including under the
Company's Growth Share Plan), provided, in either case, that such options or
rights, by their terms, can be redeemed only for Capital Stock, (h) with respect
to a Restricted Subsidiary that is not a Wholly Owned Subsidiary, any aggregate
net income (or loss) in excess of the Company's or any Restricted Subsidiary's
pro rata share of the net income (or loss) of such Restricted Subsidiary that is
not a Wholly Owned Subsidiary shall be excluded and (i) the tax effect of any of
the items described in clauses (a) through (h) above; provided further that for
purposes of any determination pursuant to Section 1013, there shall further be
excluded therefrom the net income (but not net loss) of any Restricted
Subsidiary that is subject to a restriction which prevents the payment of
dividends or the making of distributions to the Company or another Restricted
Subsidiary to the extent of such restriction.
"Consolidated Net Worth" of any Person means the stockholders' equity
of such Person, determined on a consolidated basis in accordance with generally
accepted accounting principles, less amounts attributable to Disqualified Stock
of such Person; provided that, with respect to the Company, adjustments
following March 31, 1997 to the accounting books and records of the Company in
accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or
successor opinions thereto) or otherwise resulting from the acquisition of
control of the Company by another Person shall not be given effect to.
"Consolidated Tangible Assets" of any Person means the total amount
of assets (less applicable reserves and other properly deductible items) which
under generally accepted accounting principles would be included on a
consolidated balance sheet of such Person and its Subsidiaries after deducting
therefrom all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, which in each case under
generally accepted accounting principles would be included on such consolidated
balance sheet.
"Continuing Director" means, as of any date of determination, any
member of the Board of Directors who (i) was a member of such Board of Directors
on March 31, 1997 or (ii) was nominated for election or elected to the Board of
Directors with the affirmative vote of a majority of the Continuing Directors
who were members of the Board of Directors at the time of such nomination or
election or the affirmative vote of Permitted Holders.
6
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"Corporate Trust Office" means the principal corporate trust office
of the Trustee, at which at any particular time its corporate trust business
shall be administered, which office at the date of execution of this Indenture
is located at Four Albany Street, New York, New York 10006, except that, with
respect to presentation of Securities for payment or for registration of
transfer or exchange, such term shall mean the office or agency of the Trustee
at which, at any particular time, its corporate agency business shall be
conducted.
"Corporation" includes corporations, associations, companies and
business trusts.
"Credit Facilities" means one or more credit agreements, loan
agreements or similar facilities, secured or unsecured, entered into from time
to time by the Company and its Restricted Subsidiaries, and including any
related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified, restated or replaced from time to time.
"Debt" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (including securities repurchase agreements but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business), (v) every Capital Lease Obligation of such Person, (vi) all
Receivables Sales of such Person, together with any obligation of such Person to
pay any discount, interest, fees, indemnities, penalties, recourse, expenses or
other amounts in connection therewith, (vii) all obligations to redeem
Disqualified Stock issued by such Person, (viii) every obligation under Interest
Rate and Currency Protection Agreements of such Person and (ix) every obligation
of the type referred to in clauses (i) through (viii) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has Guaranteed. The "amount" or "principal amount" of Debt at any time of
determination as used herein represented by (a) any Debt issued at a price that
is less than the principal amount at maturity thereof shall be the amount of the
liability in respect thereof determined in accordance with generally accepted
accounting principles, (b) any Receivables Sale shall be the amount of the
unrecovered capital or principal investment of the purchaser (other than the
Company or a Wholly Owned Subsidiary of the Company) thereof, excluding amounts
representative of yield or interest earned on such investment, or (c) any
Disqualified Stock shall be the maximum fixed redemption or repurchase price in
respect thereof.
"Debt Securities" means any debt securities (including any guarantee
of such securities) issued by the Company or any Restricted Subsidiary of the
Company in connection with a public offering or a private placement (excluding
Debt permitted to be Incurred pursuant to paragraph (b) of Section 1011).
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"Default" means any event, act or condition the occurrence of which
is, or after notice or the passage of time or both would be, an Event of
Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Designation" and "Designation Amount" have the respective meanings
specified in Section 1021.
"Disqualified Stock" of any Person means any Capital Stock of such
Person which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of such Person, any
Subsidiary of such Person or the holder thereof, in whole or in part, on or
prior to the final Stated Maturity of the Securities, provided, however, that
any Preferred Stock which would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require the Company to
repurchase or redeem such Preferred Stock upon the occurrence of a Change of
Control occurring prior to the final Stated Maturity of the Securities shall not
constitute Disqualified Stock if the change of control provisions applicable to
such Preferred Stock are no more favorable to the holders of such Preferred
Stock than the provisions applicable to the Securities contained in Section 1010
and such Preferred Stock specifically provides that the Company shall not
repurchase or redeem any such stock pursuant to such provisions prior to the
Company's repurchase of such Securities as are required to be repurchased
pursuant to Section 1010.
"Eligible Institution" means a commercial banking institution that
has combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "A" (or higher) according to Standard &
Poor's Ratings Services or Moody's Investors Service, Inc. at the time as of
which any investment or rollover therein is made.
"Eligible Receivables" means, at any time, Receivables of the Company
and its Restricted Subsidiaries, as evidenced on the most recent quarterly
consolidated balance sheet of the Company as at a date at least 45 days prior to
such time, less Receivables of the Company or any Restricted Subsidiary employed
to secure Debt Incurred pursuant to clause (vii) of paragraph (b) of Section
1011.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any successor act), and the rules and regulations thereunder (or respective
successors thereto).
"Exchange Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.
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"Expiration Date" has the meaning specified in "Offer to Purchase"
below.
"Fair Market Value" means, with respect to any asset or property, the
price that could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined by the Board of Directors acting in good faith and shall be evidenced
by a Board Resolution.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"Global Security" has the meaning specified in Section 303.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged and
which have a remaining weighted average life to maturity of not less than one
year from the date of investment therein.
"Group" has the meaning specified in Section 1010.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing, or having the economic effect of
guaranteeing, any Debt of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Debt or to purchase (or to advance or supply
funds for the purchase of) any security for the payment of such Debt, (ii) to
purchase property, securities or services for the purpose of assuring the holder
of such Debt of the payment of such Debt or (iii) to maintain working capital,
equity capital or other financial statement condition or liquidity of the
primary obligor so as to enable the primary obligor to pay such Debt (and
"Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings correlative to
the foregoing); provided, however, that the Guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Guarantor" means a Restricted Subsidiary of the Company that has
executed a Restricted Subsidiary Guarantee.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including by acquisition of Subsidiaries or the recording, as required pursuant
to generally accepted accounting principles or otherwise, of any such Debt or
other obligation on the balance sheet of such Person (and "Incurrence",
"Incurred", "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing);
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provided, however, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such time
becoming Debt shall not be deemed an Incurrence of such Debt and that neither
the accrual of interest nor the accretion of original issue discount shall be
deemed an Incurrence of Debt.
"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor under this Indenture or under the Securities to pay principal of,
premium, if any, and interest on the Securities when due and payable, whether at
maturity, by acceleration, call for redemption or repurchase or otherwise, and
all other amounts due or to become due under or in connection with this
Indenture or the Securities and the performance of all other obligations to the
Trustee (including, but not limited to, payment of all amounts due the Trustee
under Section 607), Paying Agent, Security Registrar and the Holders of the
Securities under this Indenture and the Securities according to the terms
thereof.
"Initial Purchasers" means Salomon Brothers Inc, Donaldson, Lufkin &
Jenrette Securities Corporation and Goldman, Sachs & Co.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Securities.
"Interest Rate or Currency Protection Agreement" of any Person means
any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance
or other extension of credit or capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) to, or purchase or acquisition of
Capital Stock, bonds, notes, debentures or other securities or evidence of Debt
issued by, any other Person, including any payment on a Guarantee of any
obligation of such other Person.
"Lien" means, with respect to any property or assets, any mortgage or
deed of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness), encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including, without limitation,
any conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing). For purposes of this definition
the sale, lease, conveyance or other transfer by the Company or any Subsidiary
of, including the grant of
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indefeasible rights of use or equivalent arrangements with respect to, dark or
lit communications fiber capacity or communications conduit shall not constitute
a Lien.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Net Available Proceeds" from any Asset Disposition by any Person
means cash or cash equivalents received (including amounts received by way of
sale or discounting of any note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such properties or assets)
therefrom by such Person, net of (i) any portion thereof invested within 360
days of such Asset Disposition in Telecommunications Assets, (ii) all legal,
title and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability as a consequence of such Asset Disposition, (iii) all
payments made by such Person or its Subsidiaries on any Debt which is secured by
such assets in accordance with the terms of any Lien upon or with respect to
such assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (iv) all distributions and other
payments made to minority interest holders in Subsidiaries of such Person or
Permitted Joint Ventures as a result of such Asset Disposition and (v)
appropriate amounts to be provided by such Person or any Subsidiary thereof, as
the case may be, as a reserve in accordance with generally accepted accounting
principles against any liabilities associated with such assets and retained by
such Person or any Subsidiary thereof, as the case may be, after such Asset
Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, in each case as determined by the Board
of Directors of such Person, in its reasonable good faith judgment evidenced by
Board Resolution; provided, however, that any reduction in such reserve within
twelve months following the consummation of such Asset Disposition shall be for
all purposes of this Indenture and the Securities treated as a new Asset
Disposition at the time of such reduction with Net Available Proceeds equal to
the amount of such reduction.
"Notice of Default" has the meaning specified in Section 501.
"Offer" has the meaning specified in "Offer to Purchase" below.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company by first class mail, postage prepaid, to each Holder of Securities at
his address appearing in the Security Register on the date of the Offer offering
to purchase up to the total aggregate principal amount of Securities specified
in such Offer at the purchase price specified in such Offer (as determined
pursuant to Section 1010). Unless otherwise required by applicable law, the
Offer shall specify an expiration date (the "Expiration Date") of the Offer to
Purchase which shall be, subject to any contrary requirements of applicable law,
not less than 30 days or more than 60 days after the date of such Offer and a
settlement date (the "Purchase Date") for purchase of
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Securities within five Business Days after the Expiration Date. The Company
shall notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such Holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to Section 1008 (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein). The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(a) the Section of this Indenture pursuant to which the Offer to
Purchase is being made;
(b) the Expiration Date and the Purchase Date;
(c) the aggregate principal amount of the Outstanding Securities
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such has been determined
pursuant to the Section hereof requiring the Offer to Purchase) (the
"Purchase Amount");
(d) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Securities accepted for payment (as specified
pursuant to Section 1010) (the "Purchase Price");
(e) that the Holder may tender all or any portion of the Securities
registered in the name of such Holder and that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(f) the place or places where Securities are to be surrendered for
tender pursuant to the Offer to Purchase;
(g) that any Securities not tendered or tendered but not purchased by
the Company will continue to accrue interest, as the case may be;
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<PAGE>
(h) that on the Purchase Date the Purchase Price will become due and
payable upon each Security being accepted for payment pursuant to the Offer
to Purchase and that interest thereon, if any, shall cease to accrue on and
after the Purchase Date;
(i) that each Holder electing to tender a Security pursuant to the
Offer to Purchase will be required to surrender such Security at the place
or places specified in the Offer prior to the close of business on the
Expiration Date (such Security being, if the Company or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or its attorney duly authorized in writing);
(j) that Holders will be entitled to withdraw all or any portion of
Securities tendered if the Company (or their Paying Agent) receives, not
later than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security the Holder tendered, the certificate
number of the Security the Holder tendered and a statement that such Holder
is withdrawing all or a portion of its tender;
(k) that (i) if Securities in an aggregate principal amount less than
or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all such
Securities and (ii) if Securities in an aggregate principal amount in
excess of the Purchase Amount are tendered and not withdrawn pursuant to
the Offer to Purchase, the Company shall purchase Securities having an
aggregate principal amount equal to the Purchase Amount on a pro rata basis
(with such adjustments as may be deemed appropriate so that only Securities
in denominations of $1,000 or integral multiples thereof shall be
purchased); and
(l) that in the case of any Holder whose Security is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Security so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board of Directors, a Vice Chairman of the Board of Directors, the President
or a Vice President, and by the Chief Financial Officer, the Chief Accounting
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company and delivered to the Trustee.
"Opinion of Counsel" means an opinion of counsel acceptable to the
Trustee (who may be counsel to the Company, including an employee of the
Company).
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"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture;
(iii) Securities, except to the extent provided in Sections 1202 and
1203, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article Twelve; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands the Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which any
Responsible Officer of the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or such other obligor.
"Old Securities" has the meaning stated in the first recital of this
Indenture.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Securities on behalf of the Company.
"Permitted Holders" means any Person who was the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of stock of the
Company on March 31, 1997, and any Affiliates of such Person (i) who were
Affiliates of such Person on March 31, 1997 or
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(ii) who were formed, directly or indirectly, by any such Person after March 31,
1997; provided, however, that Persons who were beneficial owners (within the
meaning of Rule 13d-3 under the Exchange Act) of such Person on March 31, 1997
continued to be beneficial owners (within the meaning of Rule 13d-3 under the
Exchange Act) at the time of formation of such Affiliate.
"Permitted Interest Rate or Currency Protection Agreement" of any
Person means any Interest Rate or Currency Protection Agreement entered into
with one or more financial institutions in the ordinary course of business that
is designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments
in prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits; (c)
loans, advances or extensions of credit to employees and directors made in the
ordinary course of business and consistent with past practice; (d) obligations
under Interest Rate or Currency Protection Agreements; (e) bonds, notes,
debentures and other securities received as a result of Asset Dispositions
pursuant to and in compliance with Section 1018; (f) Investments made in the
ordinary course of business as partial payment for constructing a network
relating to a Telecommunications Business; (g) commercially reasonable
extensions of trade credit; (h) Investments in any Person as a result of which
such Person becomes a Restricted Subsidiary; (i) Investments in Permitted Joint
Ventures in an aggregate amount not to exceed $25 million; (j) Investments in
Affiliates or Related Persons in an aggregate amount not to exceed $11 million,
provided that the making of such Investments is permitted pursuant to Section
1020; and (k) Investments in an aggregate amount not to exceed $15 million
consisting of the contribution by the Company or any Restricted Subsidiary of
assets located in Mexico to joint ventures in which the Company or a Restricted
Subsidiary has an interest.
"Permitted Joint Venture" means a Corporation, partnership or other
entity other than a Restricted Subsidiary engaged in one or more
Telecommunications Businesses over which the Company and/or one or more
Strategic Investors have, directly or indirectly, the power to direct the
policies, management and affairs.
"Permitted Liens" means (a) Liens for taxes, assessments,
governmental charges, levies or claims which are not yet delinquent or which are
being contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with generally
accepted accounting principles shall have been made therefor; (b) other Liens
incidental to the conduct of the Company's and its Restricted Subsidiaries'
business or the ownership of its property and assets not securing any Debt, and
which do not in the aggregate materially detract from the value of the Company's
and its Restricted Subsidiaries' property or assets when taken as a whole, or
materially impair the use thereof in the operation of its business; (c) Liens
with respect to assets of a Restricted Subsidiary granted by such Restricted
Subsidiary to the Company or a Restricted Subsidiary to secure Debt owing to the
Company or such Restricted Subsidiary; (d) Liens, pledges and deposits made in
the ordinary course of
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business in connection with workers' compensation, unemployment insurance and
other types of statutory obligations; (e) Liens, pledges or deposits made to
secure the performance of tenders, bids, leases, public or statutory
obligations, sureties, stays, appeals, indemnities, performance or other similar
bonds and other obligations of like nature Incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (f)
zoning restrictions, servitudes, easements, rights-of-way, restrictions and
other similar charges or encumbrances Incurred in the ordinary course of
business which, in the aggregate, do not materially detract from the value of
the property subject thereto or materially interfere with the ordinary conduct
of the business of the Company or its Restricted Subsidiaries; (g) Liens arising
out of judgments or awards against or other court proceedings concerning the
Company or any Restricted Subsidiary with respect to which the Company or such
Restricted Subsidiary is prosecuting an appeal or proceeding for review and the
Company or such Restricted Subsidiary is maintaining adequate reserves in
accordance with generally accepted accounting principles; and (h) any interest
or title of a lessor in the property subject to any lease other than a Capital
Lease.
"Permitted Telecommunications Capital Asset Disposition" means the
transfer, conveyance, sale, lease or other disposition of a capital asset that
is a Telecommunications Asset (including fiber, conduit and related equipment)
(i) the proceeds of which are treated as revenues by the Company in accordance
with generally accepted accounting principles and (ii) that, in the case of the
sale of fiber, would not result in the Company retaining less than 24 fibers per
route mile on any segment of the Company's network.
"Person" means any individual, Corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or agency or political subdivision thereof or any other entity.
"Physical Security" has the meaning specified in Section 303.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"Preferred Dividends" for any Person means for any period the
quotient determined by dividing the amount of dividends and distributions paid
or accrued (whether or not declared) on Preferred Stock of such Person during
such period calculated in accordance with generally accepted accounting
principles, by 1 minus the maximum statutory income tax rate then applicable to
the Company (expressed as a decimal).
"Preferred Stock" of any Person means Capital Stock of such Person of
any class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
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"Private Placement Legend" means the third paragraph of the legend
set forth in the Securities in the form set forth in Exhibit A.
"Public Equity Offering" means an underwritten public offering of
common stock made on a primary basis by the Company pursuant to a registration
statement filed with, and declared effective by, the Commission in accordance
with the Securities Act.
"Purchase Amount" has the meaning specified in "Offer to Purchase"
above.
"Purchase Date" has the meaning specified in "Offer to Purchase"
above.
"Purchase Money Debt" means Debt Incurred at any time within 270 days
of, and for the purposes of financing all or any part of the cost of, the
construction, installation, acquisition or improvement by the Company or any
Restricted Subsidiary of the Company of any new Telecommunications Assets
constructed, installed, acquired or improved after March 31, 1997, provided that
the proceeds of such Debt are expended for such purposes within such 270-day
period.
"Purchase Price" has the meaning specified in "Offer to Purchase"
above.
"Rating Decline" means the Securities cease to be rated B+ (or the
equivalent thereof) or better by Standard & Poor's Ratings Services or B2 (or
the equivalent thereof) or better by Moody's Investors Service, Inc.
"Receivables" means receivables, chattel paper, instruments,
documents or intangibles evidencing or relating to the right to payment of
money, excluding allowances for doubtful accounts.
"Receivables Sale" of any Person means any sale of Receivables of
such Person (pursuant to a purchase facility or otherwise), other than in
connection with a disposition of the business operations of such Person relating
thereto or a disposition of defaulted Receivables for purposes of collection and
not as a financing arrangement.
"Redemption Date", when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the September 15 or March 15 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Common Stock of such Person
(or, in the case of a
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Person that is not a Corporation, 5% or more of the outstanding equity interest
in such Person) or (b) 5% or more of the combined outstanding voting power of
the Voting Stock of such Person.
"Responsible Officer", when used with respect to the Trustee, means
any officer within the Trustee's Corporate Trust Office, including any vice
president, the Managing Director, the secretary, any assistant secretary, any
assistant treasurer, or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers,
and also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Payment" has the meaning specified in Section 1013.
"Restricted Subsidiary" means a Subsidiary of the Company, or of a
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company, that has
not been designated by the Board of Directors (by a Board Resolution) as an
Unrestricted Subsidiary pursuant to and in compliance with Section 1021.
"Restricted Subsidiary Guarantee" means a supplemental indenture to
this Indenture, in form satisfactory to the Trustee, executed in accordance with
Article Nine, providing for an unconditional Guarantee of payment in full of the
principal of, premium, if any, and interest on the Securities. Any such
Restricted Subsidiary Guarantee shall not be subordinate in right of payment to
any Debt of the Restricted Subsidiary providing the Restricted Subsidiary
Guarantee.
"Revocation" has the meaning specified in Section 1021.
"Sale and Leaseback Transaction" of any Person means an arrangement
with any lender or investor or to which such lender or investor is a party
providing for the leasing by such Person of any property or asset of such Person
which has been or is being sold or transferred by such Person more than 365 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
"Securities" has the meaning stated in the first recital of this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
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"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Strategic Investor" means a Corporation, partnership or other entity
engaged in one or more Telecommunications Businesses that has, or 80% or more of
the Voting Stock of which is owned by a Person that has, an equity market
capitalization, at the time of its initial Investment in the Company or in a
Permitted Joint Venture with the Company, in excess of $2 billion.
"Subordinated Debt" means Debt of the Company as to which the payment
of principal of (and premium, if any) and interest and other payment obligations
in respect of such Debt shall be subordinate to the prior payment in full of the
Securities to at least the following extent: (i) no payments of principal of
(or premium, if any) or interest on or otherwise due in respect of such Debt may
be permitted for so long as any default in the payment of principal (or premium,
if any) or interest on the Securities exists; (ii) in the event that any other
Default exists with respect to the Securities, upon notice by 25% or more in
principal amount of the Securities, to the Trustee, the Trustee shall have the
right to give notice to the Company and the holders of such Debt (or trustees or
agents therefor) of a payment blockage, and thereafter no payments of principal
of (or premium, if any) or interest on or otherwise due in respect of such Debt
may be made for a period of 179 days from the date of such notice; and (iii)
such Debt may not (x) provide for payments of principal of such Debt at the
stated maturity thereof or by way of a sinking fund applicable thereto or by way
of any mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is contingent
upon events or circumstances but excluding any retirement required by virtue of
acceleration of such Debt upon an event of default thereunder), in each case
prior to the final Stated Maturity of the Securities or (y) permit redemption or
other retirement (including pursuant to an offer to purchase made by the
Company) of such other Debt at the option of the holder thereof prior to the
final Stated Maturity of the Securities, other than a redemption or other
retirement at the option of the holder of such Debt (including pursuant to an
offer to purchase made by the Company) which is conditioned upon a change of
control of the Company pursuant to provisions substantially similar to those
described in Section 1010 (and which shall provide that such Debt shall not be
repurchased pursuant to such provisions prior to the Company's repurchase of the
Securities required to be repurchased by the Company pursuant to the provisions
of Section 1010).
"Subsidiary" of any Person means (i) a Corporation more than 50% of
the combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a Corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
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Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting,
or providing services relating to the transmission of, voice, data or video
through owned or leased transmission facilities, (ii) constructing, creating,
developing or marketing communications related network equipment, software and
other devices for use in a telecommunications business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in (i) or (ii) above, provided that the
determination of what constitutes a Telecommunications Business shall be made in
good faith by the Board of Directors.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 1021.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only for so long as
no senior class of securities has such voting power by reason of any
contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Voting Stock or other ownership interests (other
than directors' qualifying shares) of which shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including
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any covenant compliance with which constitutes a condition precedent) relating
to the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1009(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
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Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated (with
proper identification of each matter covered therein) and form one instrument.
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held by any
Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed
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as of such record date; provided that no such authorization, agreement or
consent by the Holders on such record date shall be deemed effective unless it
shall become effective pursuant to the provisions of this Indenture not later
than eleven months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 105. Notices, etc., to Trustee and Company.
-------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Market Services, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at the address of such
Holder as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice mailed to a Holder in the manner herein prescribed
shall be conclusively deemed to have been received by such Holder, whether or
not such Holder actually receives such notice. Where this Indenture provides
for notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
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In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Security Registrar and their successors hereunder and the Holders any legal or
equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
-------------
This Indenture and the Securities shall be governed by and construed
in accordance with the law of the State of New York.
SECTION 112. Conflict with Trust Indenture Act.
---------------------------------
The Trust Indenture Act shall apply as a matter of contract to this
Indenture for purposes of interpretation, construction and defining the rights
and obligations hereunder. If any provision hereof limits, qualifies or
conflicts with any provision of the Trust Indenture Act or another provision
which is required or deemed to be included in this Indenture by any of the
provisions of the Trust Indenture Act, such provision or requirement of the
Trust Indenture Act shall control.
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If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or excluded,
as the case may be.
SECTION 113. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, or
Stated Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity or Maturity; provided that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.
SECTION 114. No Personal Liability of Directors, Officers, Employees
-------------------------------------------------------
and Stockholders.
- - ----------------
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities or this Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation, solely by reason of its
status as a director, officer, employee, incorporator or stockholder of the
Company. By accepting a Security, each Holder waives and releases all such
liability (but only such liability). The waiver and release are part of the
consideration for issuance of the Securities.
SECTION 115. Independence of Covenants.
-------------------------
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default if such action is taken or condition exists.
SECTION 116. Exhibits.
--------
All exhibits attached hereto are by this reference made a part hereof
with the same effect as if herein set forth in full.
SECTION 117. Counterparts.
------------
This Indenture may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.
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SECTION 118. Duplicate Originals.
-------------------
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
---------------
The Securities and the Trustee's certificate of authentication with
respect thereto shall be in substantially the form set forth in Exhibit A
hereto, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or system on which the Securities may be listed or eligible
for trading or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution of the Securities.
Any portion of the text of any Security may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner permitted by
the rules of any securities exchange or system on which the Securities may be
listed or eligible for trading, all as determined by the officers of the Company
executing such Securities, as evidenced by their execution of such Securities.
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $250,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906, 1010, 1018 or 1108.
The Securities shall be known and designated as the "10 7/8% Series B
Senior Notes Due 2007" of the Company. Their Stated Maturity shall be April 1,
2007, and they shall bear interest at the rate of 10 7/8% per annum from March
31, 1997, or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, payable on October 1, 1997 and semiannually
thereafter on April 1 and October 1, in each year and at said Stated
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Maturity, until the principal thereof is paid or duly provided for. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
Principal of, premium, if any, and interest on the Securities will be
payable, and the Securities may be exchanged or transferred, at the office or
agency of the Company in The City of New York, which, unless otherwise provided
by the Company, will be the offices of the Trustee. At the option of the
Company, interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Security Register.
The Securities shall be redeemable as provided in Article Eleven.
At the election of the Company, the entire Debt on the Securities or
certain of the Company's obligations and covenants and certain Events of Default
thereunder may be defeased as provided in Article Twelve.
The Securities will be senior unsecured obligations of the Company,
ranking pari passu in right of payment with all existing and future senior
unsecured Debt of the Company, and will be senior in right of payment to all
existing and future Subordinated Debt of the Company.
SECTION 302. Denominations.
-------------
The Securities will be issued without coupons and in fully registered
form only, in minimum denominations of $1,000 principal amount and integral
multiples thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its
Chairman, its President or a Vice President, under its corporate seal reproduced
thereon and attested by its Secretary or an Assistant Secretary. The signature
of any of these officers on the Securities may be manual or facsimile signatures
of the present or any future such authorized officer and may be imprinted or
otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
27
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No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
The Trustee shall authenticate Securities for original issue in an
aggregate principal amount not to exceed $250,000,000 upon receipt of a Company
Order, which shall, specify the amount of Securities to be authenticated, the
names of the persons in which such Securities shall be registered and the date
on which such Securities are to be authenticated and direct the Trustee to
authenticate such Securities together with an Officers' Certificate certifying
that all conditions precedent to the issuance of such Securities contained
herein have been complied with. The aggregate principal amount of Securities
Outstanding at any time shall not exceed $250,000,000, except as provided in
Section 304.
Except as described below, the Securities will be deposited with, or
on behalf of, the Depository, and registered in the name of Cede & Co. as the
Depository's nominee in the form of a global note certificate substantially in
the form of Exhibit A (the "Global Security"), for credit to the respective
accounts of the beneficial owners of the Securities represented thereby.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Securities executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Securities surrendered for such
exchange and of like principal amount; and the Trustee, upon Company Request of
the successor Person, shall authenticate and deliver Securities as specified in
such request for the purpose of such exchange. If Securities shall at any time
be authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Securities, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Securities at the time
Outstanding for Securities authenticated and delivered in such new name.
SECTION 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized
28
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denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Security Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Security Registrar") for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
29
<PAGE>
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Security Registrar)
be duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906, 1010, 1018 or 1108 not involving
any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of business on the day of such mailing of the relevant
notice of redemption or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If (i) any mutilated Security is surrendered to the Trustee or (ii)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
30
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The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
1002; provided, however, that each installment of interest may at the Company's
option be paid by mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 308, to the
address of such Person as it appears in the Security Register.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Securities (such defaulted
interest and interest thereon herein collectively called "Defaulted Interest")
may be paid by the Company, at its election in each case, as provided in
paragraph (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date, and in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be given in the manner provided for in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so given, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following paragraph (2).
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(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange or system on which the Securities may be listed or
eligible for trading, and upon such notice as may be required by such
exchange or system, if, after notice given by the Company to the Trustee of
the proposed payment pursuant to this clause, such manner of payment shall
be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 307) interest on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company Order the Company shall direct that cancelled Securities be returned
to it.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
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SECTION 311. CUSIP Number.
------------
The Company in issuing the Securities may use a "CUSIP" number (if
then generally in use), and if so, the Trustee may use the CUSIP numbers in
notices of redemption or exchange as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice or on the
Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities. The Company shall promptly notify the
Trustee in writing of any change in the CUSIP number of the Securities.
SECTION 312. Book-Entry Provisions for Global Securities.
-------------------------------------------
(a) The Global Securities initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Exhibit A.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Global Security may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository. In addition, Physical Securities shall be
transferred to all beneficial owners in exchange for their beneficial interests
in a Global Security if (i) the Depository notifies the Company that it is
unwilling or unable to continue as a depository for such Global Security or if
at any time the Depository ceases to be a clearing agency registered under the
Exchange Act, and a successor depository is not appointed by the Company within
90 days, (ii) the Company executes and delivers to the Trustee a notice that
such Global Security shall be so transferable, registrable and exchangeable, and
such transfer shall be registrable, or (iii) there shall have occurred and be
continuing a Default or Event of Default with respect to the Securities
represented by such Global Security.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Security to beneficial owners pursuant to
paragraph (b), the Security Registrar shall (if one or more Physical Securities
are to be issued) reflect on its books and records the date and a decrease in
the principal amount of the Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the
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Company shall execute, and the Trustee shall authenticate and deliver, one
or more Physical Securities of like tenor and principal amount of authorized
denominations.
(d) In connection with the transfer of the Global Securities as an
entirety to beneficial owners pursuant to paragraph (b), the Global Securities
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the Global Securities, an equal aggregate principal amount of
Physical Securities of like tenor of authorized denominations.
(e) The Holder of any Global Security may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
SECTION 313. [omitted]
---------
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities expressly provided for herein or pursuant hereto) and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii) Securities
for whose payment money has theretofore been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by the Company
and thereafter repaid to the Company or discharged from such trust as
provided in Section 1003) have been delivered to the Trustee for
cancellation; or
(b) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
34
<PAGE>
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to clause (1)(b) of this Section
401, the obligations of the Trustee under Section 402 and the last paragraph of
Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
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<PAGE>
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of the principal of (or premium, if any,
on) any Security at its Maturity; or
(2) default in the payment of any interest on any Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(3) default in the payment of principal and interest on any Security
required to be purchased pursuant to an Offer to Purchase pursuant to
Section 1010 or 1018; or
(4) default in the performance, or breach, of Section 801 or 1018; or
(5) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture or in any Security (other than a covenant
or warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default or
breach for a period of 60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(6) a default or defaults under any bond(s), debenture(s), note(s) or
other evidence(s) of indebtedness by the Company or any Restricted
Subsidiary or under any mortgage(s), indenture(s) or instrument(s) under
which there may be issued or by which there may be secured or evidenced any
indebtedness of such type by the Company or any such Restricted Subsidiary
with a principal amount then outstanding, individually or in the aggregate,
in excess of $10 million, whether such indebtedness now exists or shall
hereafter be created, which default or defaults shall result in the
acceleration of the payment of such indebtedness or shall constitute a
failure to pay the principal of such indebtedness when due at the final
maturity thereof, or shall have resulted in excess of $10 million of
indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable (after expiration
of any applicable grace period); or
36
<PAGE>
(7) a final judgment or final judgments for the payment of money are
entered against the Company or any Restricted Subsidiary in an aggregate
amount in excess of $10 million by a court or courts of competent
jurisdiction, which judgment or judgments remain undischarged or unbonded
for a period (during which execution shall not be effectively stayed) of 45
days after the right to appeal all such judgments has expired; or
(8) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Restricted Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Restricted Subsidiary under the Federal Bankruptcy Code
or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of the Company or any Restricted Subsidiary or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(9) the institution by the Company or any Restricted Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other applicable federal
or state law, or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Company or any Restricted
Subsidiary or of any substantial part of its property, or the making by it
of an assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 501(8) or 501(9)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal amount of all the Securities to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), and upon any such declaration such principal
amount shall become immediately due and payable. If an Event of Default
specified in Section 501(8) or 501(9) occurs and is continuing, then the
principal amount of all the Securities shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article Five, the Holders of a
majority in principal amount of the Outstanding Securities, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
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(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Outstanding Securities,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal at
the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the nonpayment of amounts of
principal of (or premium, if any, on) Securities which have become due
solely by such declaration of acceleration, have been cured or waived as
provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event that a
declaration of acceleration in respect of the Securities due to an Event of
Default specified in Section 501(6) shall have occurred and be continuing, such
declaration of acceleration shall be automatically annulled if the Debt that is
the subject of such Event of Default has been discharged or the holders thereof
have rescinded their declaration of acceleration in respect of such Debt, and
written notice of such discharge or rescission, as the case may be, shall have
been given to the Trustee by the Company and countersigned by the holders of
such Debt or a trustee, fiduciary or agent for such holders, within 30 days
after such declaration of acceleration in respect of the Securities, and no
other Event of Default has occurred during such 30-day period which has not been
cured or waived during such period.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- - -------
The Company covenants that if
(a) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
38
<PAGE>
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as herein expressed or by declaration or otherwise
and irrespective of whether the Trustee shall have made any demand on the
Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee and its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator or sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder to make such payments to
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the Trustee and, in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the Trustee
and its agents and counsel, and any other amounts due the Trustee under Section
607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities.
- - ----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article Five shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal (or
premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal (and premium, if
any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
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(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to it against the costs, expenses and liabilities
to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in aggregate principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- - --------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment as provided herein (including, if applicable, Article Twelve)
and in such Security of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
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SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article Five or
by law to the Trustee or to the Holders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the Holders, as the
case may be.
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities may on behalf of the Holders of all the Securities
waive any past default hereunder and its consequences, except a default
(1) in respect of the payment of the principal of (or premium, if any)
or interest on any Security, or
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<PAGE>
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it shall not hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but, in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
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(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the effect of
paragraph (a) of this Section 601;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a majority in principal amount of the Outstanding
Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or indemnity reasonably satisfactory to it
against such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 601.
SECTION 602. Notice of Default.
-----------------
Within 60 days after the occurrence of any Default hereunder, the
Trustee shall transmit, in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to any Responsible Officer of the
Trustee, unless such Default shall have been cured or waived; provided, however,
that, except in the case of a Default in the payment of the principal of (or
premium, if any) or interest on any Security, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders; and provided further that in the case of any Default of
the character specified in Section 501(5) no such notice to Holders shall be
given until at least 30 days after the occurrence thereof.
SECTION 603. Certain Rights of Trustee.
-------------------------
Subject to Section 601 and to the provisions of TIA Sections 315(a)
through 315(d):
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(1) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, receive and rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee security or indemnity reasonably satisfactory
to it against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture; and
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(9) the Trustee shall have no duties, obligations or liability in
connection with any Event of Default hereunder unless a Responsible Officer
of the Trustee has knowledge thereof.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Securities.
- - ----------
The recitals contained herein and in the Securities, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder. The Trustee shall not be
accountable for the use or application by the Company of Securities or the
proceeds thereof.
SECTION 605. May Hold Securities.
-------------------
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Securities and, subject to TIA Sections
310(b) and 311, may otherwise deal with the Company with the same rights it
would have if it were not Trustee, Paying Agent, Security Registrar or such
other agent. If and when the Trustee shall be or become a creditor of the
Company (or any other obligor upon the Securities), the Trustee shall be subject
to the provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
SECTION 606. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
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(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to the Trustee's negligence
or bad faith; and
(3) to indemnify the Trustee and its directors, officers, employees
and agents for, and to hold them harmless against, any loss, liability or
expense incurred without negligence or bad faith on the part of any of
them, arising out of or in connection with the acceptance or administration
of this trust, including the costs and expenses of defending itself or
themselves against any claim or liability in connection with the exercise
or performance of any of its or their powers or duties hereunder.
The obligations of the Company under this Section 607 to compensate
the Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture or the earlier resignation or removal of the
Trustee. As security for the performance of such obligations of the Company,
the Trustee shall have a claim prior to the Securities upon all property and
funds held or collected by the Trustee as such, except funds held in trust for
the payment of principal of (and premium, if any) or interest on particular
Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or (9), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section 607 shall survive the termination of
this Indenture or the earlier resignation or removal of the Trustee.
SECTION 608. Corporate Trustee Required; Eligibility; Conflicting
----------------------------------------------------
Interests.
- - ---------
(a) There shall be at all times a Trustee hereunder which shall be
subject to and comply with the provisions of Section 310(a)(1) of the Trust
Indenture Act and shall have a combined capital and surplus of at least
$50,000,000. If such Corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of federal, state, territorial
or District of Columbia supervising or examining authority, then, for the
purposes of this Section 608, the combined capital and surplus of such
Corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
608, it shall resign immediately in the manner and with the effect hereinafter
specified in this Article Six.
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(b) The Trustee shall be subject to and comply with Section 310(b) of
the Trust Indenture Act.
SECTION 609. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 610.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 610 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in aggregate principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(2) the Trustee shall cease to be eligible under Section 608(a) and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
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the Holders of a majority in aggregate principal amount of the Outstanding
Securities delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment,
become the successor Trustee and supersede the successor Trustee appointed by
the Company. If no successor Trustee shall have been so appointed by the Company
or the Holders and accepted appointment in the manner hereinafter provided, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 106. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
(g) The retiring Trustee shall not be liable for any of the acts or
omissions of any successor Trustee appointed hereunder.
SECTION 610. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 611. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- - --------
Any Corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any Corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such Corporation shall be otherwise qualified and eligible under
this Article Six, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated
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with the same effect as if such successor Trustee had itself authenticated such
Securities. In case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee.
In all such cases such certificates shall have the full force and effect which
this Indenture provides that the certificate of authentication of the Trustee
shall have; provided, however, that the right to adopt the certificate of
authentication of any predecessor Trustee or to authenticate Securities in the
name of any predecessor Trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
------------------
Within 60 days after May 15 of each year commencing with the first May
15 after the first issuance of Securities, the Trustee shall transmit to the
Holders, each stock exchange upon which the Securities are listed, and the
Commission, in the manner and to the extent provided in TIA Section 313, a brief
report dated as of such May 15 if required by TIA Section 313.
SECTION 703. Reports by Company.
------------------
The Company shall file with the Trustee and deliver to the Holders of
Securities the reports and other information required to be provided by it
pursuant to Section 1008.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into any other Person or Persons or
permit any other Person to
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consolidate with or merge into the Company (other than a merger of Qwest
Corporation into the Company in which the Company shall be the surviving Person)
or (ii) directly or indirectly, transfer, sell, lease or otherwise dispose of
all or substantially all of its assets to any other Person or Persons, unless,
in any such transaction specified in clause (i) or (ii):
(1) in a transaction in which the Company is not the surviving Person
or in which the Company sells, leases or otherwise disposes of all or
substantially all of its assets to any other Person, the resulting,
surviving or transferee Person (the "successor entity") is organized under
the laws of the United States of America or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental
indenture executed and delivered to the Trustee in form satisfactory to the
Trustee, all of the Company's obligations under this Indenture;
(2) immediately before and after giving effect to such transaction and
treating any Debt which becomes an obligation of the Company or a
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Company or such Restricted Subsidiary at the time of the
transaction, no Default or Event of Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company (or other successor entity to the
Company) is equal to or greater than that of the Company immediately prior
to the transaction;
(4) immediately after giving effect to such transaction and treating
any Debt which becomes an obligation of the Company or a Restricted
Subsidiary as a result of such transaction as having been Incurred by the
Company or such Restricted Subsidiary at the time of the transaction, the
Company (including any successor entity to the Company) could Incur at
least $1.00 of additional Debt pursuant to the provisions of paragraph (a)
of Section 1011;
(5) if, as a result of any such transaction, property or assets of the
Company would become subject to a Lien prohibited by the provisions of
Section 1015, the Company or the successor entity to the Company shall have
secured the Securities as required by such Section 1015; and
(6) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each in form and substance reasonably
satisfactory to the Trustee, stating that such consolidation, merger,
conveyance, transfer, lease or acquisition and, if a supplemental indenture
is required in connection with such transaction, such supplemental
indenture, complies with this Article and that all conditions precedent
herein provided for relating to such transaction have been complied with,
and, with respect to such Officers' Certificate, setting forth the manner
of determination of the Consolidated Net Worth, in accordance with clause
(3) of this Section 801, of the Company or, if applicable, of the successor
entity as required pursuant to the foregoing.
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SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with or merger of the Company
with or into any other Corporation or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety to any Person
or Persons in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and, in the event of any such conveyance or transfer, the Company (which term
shall for this purpose mean the Person named as the "Company" in the first
paragraph of this Indenture or any successor Person which shall have become such
in the manner described in Section 801), except in the case of a lease, shall be
discharged of all obligations and covenants under this Indenture and the
Securities and may be dissolved and liquidated.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form and substance
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
contained herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
610; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture; provided that such action shall not adversely affect
the interests of the Holders in any material respect; or
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(6) to secure the Securities pursuant to the requirements of Section
1016.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of or any installment
of interest on any Security, or reduce the principal amount thereof (or
premium, if any) or the rate of interest thereon or reduce the amount of
the principal of the Securities that would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502
or the amount thereof provable in bankruptcy pursuant to Section 504, or
change the coin or currency in which any Security or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date); or
(2) reduce the percentage in aggregate principal amount of the
Outstanding Securities the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture; or
(3) modify any of the provisions of this Section 902 or Sections 513
and 1023, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this Section
902 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture and an Officers' Certificate stating that all
conditions precedent to the
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execution of such supplemental indenture have been fulfilled. The Trustee may,
but shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article
Nine, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article Nine
shall conform as a matter of contract or law to the requirements of the Trust
Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may bear a notation in form
approved by the Trustee and the Company as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Securities so
modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that
it shall duly and punctually pay the principal of (and premium, if any) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
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SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in The City of New York an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Corporate Trust Office of the Trustee shall be
such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company shall give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
-----------------------------------------------
If the Company shall at any time act as its own Paying Agent, it
shall, on or before each due date of the principal of (or premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and shall promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it shall, on or before each due date of the principal of (or
premium, if any) or interest on any Securities, deposit with a Paying Agent a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 1003,
that such Paying Agent shall:
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(1) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal, premium, if any, or interest;
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
(4) indemnify the Trustee and its officers, directors, employees and
agents against any loss, cost or liability caused by, or incurred as a
result of, such Paying Agent's acts or omissions.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
preserve, with respect to the Company, any such right or franchise or, with
respect to any Subsidiary (subject to all the other covenants in this
Indenture),
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any such corporate existence, right or franchise, if the Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Subsidiaries as a whole and that
the loss thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (b) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Restricted Subsidiary; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 1006. Maintenance of Properties.
-------------------------
The Company shall cause all properties owned by the Company or any
Restricted Subsidiary or used or held for use in the conduct of its business or
the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and shall cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 1006 shall prevent the Company from discontinuing the
maintenance of any of such properties if such discontinuance is, in the judgment
of the Company, desirable in the conduct of its business or the business of any
Subsidiary and not disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
---------
The Company shall at all times keep all of its and its Restricted
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by Corporations
similarly situated and owning like properties.
SECTION 1008. Provision of Financial Statements.
---------------------------------
The Company shall provide the Trustee, the Initial Purchasers, the
Holders of the Securities and (upon request) prospective holders of the
Securities without cost with annual and quarterly reports and such other
information as is specified under Sections 13 and 15(d) of the Securities Act on
the date on which the Company is required to file the same with the Commission.
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SECTION 1009. Statement by Officers as to Default.
-----------------------------------
(a) The Company shall deliver to the Trustee, on the date of delivery
of each quarterly report to be delivered pursuant to Section 1008, a brief
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants under this Indenture. For purposes
of this Section 1009(a), such compliance shall be determined without regard to
any period of grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of Debt of
the Company or any Restricted Subsidiary gives any notice or takes any other
action with respect to a claimed default (other than with respect to Debt in the
principal amount of less than $5,000,000), the Company shall deliver to the
Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an Officers' Certificate specifying such event, notice or other
action within five Business Days of its occurrence.
SECTION 1010. Purchase of Securities upon Change of Control.
---------------------------------------------
(a) Upon the occurrence of a Change of Control, each Holder shall have
the right to require that the Company repurchase such Holder's Securities in
whole or in part in integral multiples of $1,000, in accordance with the
procedures set forth in this Section 1010 and this Indenture.
(b) Within 30 days of the occurrence of a Change of Control, the
Company shall mail an Offer with respect to an Offer to Purchase all Outstanding
Securities at a price in cash equal to 101% of the principal amount of the
Securities plus accrued and unpaid interest thereon and premium, if any, to the
purchase date. Installments of interest whose Stated Maturity is on or prior to
the Purchase Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307. Each Holder shall be entitled to tender all or any portion of the
Securities owned by such Holder pursuant to the Offer to Purchase, subject to
the requirement that any portion of a Security tendered must be tendered in an
integral multiple of $1,000 principal amount.
(c) The Company and the Trustee shall perform their respective
obligations for the Offer to Purchase as specified in the Offer. Prior to the
Purchase Date, the Company shall (i) accept for payment Securities or portions
thereof tendered pursuant to the Offer, (ii) deposit with the Paying Agent (or,
if the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) money sufficient to pay the purchase price of all
Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee all Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the Purchase Price, and the
Trustee shall promptly authenticate and mail or deliver to such Holders a new
Security or
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Securities equal in principal amount to any unpurchased portion of the Security
surrendered as requested by the Holder. Any Security not accepted for payment
shall be promptly mailed or delivered by the Company to the Holder thereof.
(d) A "Change of Control" shall be deemed to have occurred at such
time as (i) a Rating Decline shall have occurred and (ii) either (A) the sale,
conveyance, transfer or lease of all or substantially all of the assets of the
Company to any Person or any Persons acting together that would constitute a
"group" (a "Group") for purposes of Section 13(d) of the Exchange Act, together
with any Affiliates or Related Persons thereof, other than any Permitted Holder
or any Restricted Subsidiary, shall have occurred; (B) any Person or Group,
together with any Affiliates or Related Persons thereof, other than any
Permitted Holder or any Restricted Subsidiary, shall beneficially own (within
the meaning of Rule 13d-3 under the Exchange Act, except that a Person shall be
deemed to have beneficial ownership of all shares that such Person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time) at least 50% of the aggregate voting power of all classes of
Voting Stock of the Company at a time when Permitted Holders own less than or
equal to 25% of the aggregate voting power of all classes of Voting Stock of the
Company; or (C) during any period of two consecutive years, Continuing Directors
cease for any reason to constitute a majority of the Board of Directors then in
office.
(e) In the event that the Company makes an Offer to Purchase the
Securities, the Company shall comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act.
SECTION 1011. Limitation on Consolidated Debt.
-------------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, Incur any Debt, unless, after giving effect to the application of
the proceeds thereof, no Default or Event of Default would occur as a
consequence of such Incurrence or be continuing following such Incurrence and
either (i) the ratio of (A) the aggregate consolidated principal amount of Debt
of the Company outstanding as of the most recent available quarterly or annual
balance sheet, after giving pro forma effect to the Incurrence of such Debt and
any other Debt Incurred or repaid since such balance sheet date and the receipt
and application of the proceeds thereof, to (B) Consolidated Cash Flow Available
for Fixed Charges for the four full fiscal quarters next preceding the
Incurrence of such Debt for which consolidated financial statements are
available, determined on a pro forma basis as if any such Debt had been Incurred
and the proceeds thereof had been applied at the beginning of such four fiscal
quarters, would be less than 5.5 to 1.0 for Debt Incurred on or prior to April
1, 2000 and 5.0 to 1.0 for Debt Incurred thereafter, or (ii) the Company's
Consolidated Capital Ratio as of the most recent available quarterly or annual
balance sheet, after giving pro forma effect to the Incurrence of such Debt and
any other Debt Incurred or repaid since such balance sheet date and the receipt
and application of the proceeds thereof, is less than 2.0 to 1.0.
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(b) Notwithstanding the foregoing limitation, the Company and any
Restricted Subsidiary may Incur any and all of the following (each of which
shall be given independent effect):
(i) Debt under the Securities, this Indenture and any Restricted
Subsidiary Guarantee;
(ii) (A) Debt Incurred subsequent to March 31, 1997 under Credit
Facilities in an aggregate principal amount at any time outstanding not to
exceed $150 million plus (B) Debt Incurred subsequent to March 31, 1997
under one or more Credit Facilities that are revolving credit facilities in
an aggregate principal amount at any time outstanding not to exceed the
greater of (x) $100 million or (y) 85% of Eligible Receivables;
(iii) Purchase Money Debt, provided that the amount of such Purchase
Money Debt does not exceed 100% of the cost of the construction,
installation, acquisition or improvement of the applicable
Telecommunications Assets;
(iv) Debt owed by the Company to any Restricted Subsidiary of the
Company or Debt owed by a Restricted Subsidiary of the Company to the
Company or a Restricted Subsidiary of the Company; provided, however, that
upon either (x) the transfer or other disposition by such Restricted
Subsidiary or the Company of any Debt so permitted to a Person other than
the Company or another Restricted Subsidiary of the Company or (y) the
issuance (other than directors' qualifying shares), sale, lease, transfer
or other disposition of shares of Capital Stock (including by consolidation
or merger) of such Restricted Subsidiary to a Person other than the Company
or another such Restricted Subsidiary, the provisions of this clause (iv)
shall no longer be applicable to such Debt and such Debt shall be deemed to
have been Incurred by the issuer thereof at the time of such transfer or
other disposition;
(v) Debt Incurred to renew, extend, refinance, defease or refund
(each, a "refinancing") the Securities or Debt of the Company Incurred
pursuant to clause (iii) of this paragraph (b), in an aggregate principal
amount not to exceed the aggregate principal amount of and accrued interest
on the Debt so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the Debt
so refinanced or the amount of any premium reasonably determined by the
Board of Directors as necessary to accomplish such refinancing by means of
a tender offer or privately negotiated repurchase, plus the expenses of the
Company Incurred in connection with such refinancing; provided, however,
that Debt the proceeds of which are used to refinance the Securities or
Debt which is pari passu to the Securities or Debt which is subordinate in
right of payment to the Securities shall only be permitted under this
clause (v) if (A) in the case of any refinancing of the Securities or Debt
which is pari passu to the Securities, the refinancing Debt is made pari
passu to the Securities or constitutes Subordinated Debt, and, in the case
of any refinancing of Subordinated Debt, the refinancing Debt constitutes
Subordinated Debt, and (B) in any case, the refinancing Debt by its terms,
or by the terms of any agreement or instrument pursuant to which such
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Debt is issued, (x) does not provide for payments of principal of such Debt
at Stated Maturity or by way of a sinking fund applicable thereto or by way
of any mandatory redemption, defeasance, retirement or repurchase thereof
by the Company (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement
required by virtue of the acceleration of any payment with respect to such
Debt upon any event of default thereunder), in each case prior to the time
the same are required by the terms of the Debt being refinanced, and (y)
does not permit redemption or other retirement (including pursuant to an
offer to purchase made by the Company) of such Debt at the option of the
holder thereof prior to the time the same are required by the terms of the
Debt being refinanced, other than a redemption or other retirement at the
option of the holder of such Debt (including pursuant to an offer to
purchase made by the Company) which is conditioned upon a change of control
pursuant to provisions substantially similar to those described under
Section 1010;
(vi) Debt consisting of Permitted Interest Rate and Currency
Protection Agreements;
(vii) Debt secured by Receivables originated by the Company or any
Restricted Subsidiary and related assets, provided that such Debt is
nonrecourse to the Company and any of its other Restricted Subsidiaries and
provided further that Receivables shall not be available at any time to
secure Debt of the Company under this clause (vii) to the extent that they
are used at such time as the basis for the Incurrence of Debt in excess of
$100 million pursuant to clause (ii)(B)(y) of this paragraph (b); and
(viii) Debt not otherwise permitted to be Incurred pursuant to
clauses (i) through (vii) above, which, together with any other outstanding
Debt Incurred pursuant to this clause (viii), has an aggregate principal
amount not in excess of $25 million at any time outstanding.
SECTION 1012. Limitation on Debt and Preferred Stock of Restricted
----------------------------------------------------
Subsidiaries.
- - ------------
The Company shall not permit any Restricted Subsidiary that is not a
Guarantor to Incur any Debt or issue any Preferred Stock except any and all of
the following (each of which shall be given independent effect):
(i) Restricted Subsidiary Guarantees;
(ii) Debt of Restricted Subsidiaries under Credit Facilities
permitted to be Incurred pursuant to clause (ii) of paragraph (b) of
Section 1011;
(iii) Purchase Money Debt of Restricted Subsidiaries permitted to be
Incurred pursuant to clause (iii) of paragraph (b) of Section 1011;
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(iv) Debt owed by a Restricted Subsidiary of the Company to the
Company or a Restricted Subsidiary of the Company permitted to be Incurred
pursuant to clause (iv) of paragraph (b) of Section 1011;
(v) Debt of Restricted Subsidiaries consisting of Permitted
Interest Rate and Currency Protection Agreements permitted to be Incurred
pursuant to clause (vi) of paragraph (b) of Section 1011;
(vi) Debt of Restricted Subsidiaries secured by Receivables
originated by the Company or any Restricted Subsidiary and related assets
permitted to be Incurred pursuant to clause (vii) of paragraph (b) of
Section 1011;
(vii) Debt of Restricted Subsidiaries permitted to be Incurred
pursuant to clause (viii) of paragraph (b) of Section 1011;
(viii) Preferred Stock issued to and held by the Company or a
Restricted Subsidiary;
(ix) Debt Incurred or Preferred Stock issued by a Person prior to
the time (A) such Person became a Restricted Subsidiary, (B) such Person
merges into or consolidates with a Restricted Subsidiary or (C) another
Restricted Subsidiary merges into or consolidates with such Person (in a
transaction in which such Person becomes a Restricted Subsidiary), which
Debt or Preferred Stock was not Incurred or issued in anticipation of such
transaction and was outstanding prior to such transaction; and
(x) Debt or Preferred Stock which is exchanged for, or the proceeds
of which are used to renew, extend, refinance, defease, refund or redeem,
any Debt of a Restricted Subsidiary permitted to be Incurred pursuant to
clause (iii) of this Section 1012 or any Debt or Preferred Stock of a
Restricted Subsidiary permitted to be Incurred pursuant to clause (ix) of
this Section 1012 (or any extension or renewal thereof) (for purposes
hereof, a "refinancing"), in an aggregate principal amount, in the case of
Debt, or with an aggregate liquidation preference, in the case of Preferred
Stock, not to exceed the aggregate principal amount of the Debt so
refinanced or the aggregate liquidation preference of the Preferred Stock
so refinanced, plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Debt or
Preferred Stock so refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing by
means of a tender offer or privately negotiated repurchase, plus the amount
of expenses of the Company and the applicable Restricted Subsidiary
Incurred in connection therewith, and provided the Debt or Preferred Stock
Incurred or issued upon such refinancing, by its terms, or by the terms of
any agreement or instrument pursuant to which such Debt or Preferred Stock
is Incurred or issued, (x) does not provide for payments of principal or
liquidation value at the Stated Maturity of such Debt or Preferred Stock or
by way of a sinking fund applicable to such Debt or Preferred Stock or by
way of any mandatory redemption, defeasance, retirement or repurchase of
such Debt or Preferred Stock by the Company or
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any Restricted Subsidiary (including any redemption, retirement or
repurchase which is contingent upon events or circumstances, but excluding
any retirement required by virtue of acceleration of such Debt upon an
event of default thereunder), in each case prior to the time the same are
required by the terms of the Debt or Preferred Stock being refinanced and
(y) does not permit redemption or other retirement (including pursuant to
an offer to purchase made by the Company or a Restricted Subsidiary) of
such Debt or Preferred Stock at the option of the holder thereof prior to
the Stated Maturity of the Debt or Preferred Stock being refinanced, other
than a redemption or other retirement at the option of the holder of such
Debt or Preferred Stock (including pursuant to an Offer to Purchase made by
the Company or a Restricted Subsidiary) which is conditioned upon the
change of control of the Company pursuant to provisions substantially
similar to those contained in Section 1010, and provided further that, in
the case of any exchange or redemption of Preferred Stock of a Restricted
Subsidiary, such Preferred Stock may only be exchanged for or redeemed with
Preferred Stock of such Restricted Subsidiary.
SECTION 1013. Limitation on Restricted Payments.
---------------------------------
The Company (i) shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, declare or pay any dividend, or make any
distribution, in respect of its Capital Stock or to the holders thereof,
excluding any dividends or distributions which are made solely to the Company or
a Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly
Owned Subsidiary, to the other stockholders of such Restricted Subsidiary on a
pro rata basis) or any dividends or distributions payable solely in shares of
its Capital Stock (other than Disqualified Stock) or in options, warrants or
other rights to acquire its Capital Stock (other than Disqualified Stock); (ii)
shall not, and shall not permit any Restricted Subsidiary to, purchase, redeem
or otherwise retire or acquire for value (x) any Capital Stock of the Company,
any Restricted Subsidiary or any Related Person of the Company (other than a
permitted refinancing) or (y) any options, warrants or rights to purchase or
acquire shares of Capital Stock of the Company, any Restricted Subsidiary or any
Related Person of the Company or any securities convertible or exchangeable into
shares of Capital Stock of the Company, any Restricted Subsidiary or any Related
Person of the Company (other than a permitted refinancing), except, in any such
case, any such purchase, redemption or retirement or acquisition for value paid
to the Company or a Restricted Subsidiary (or, in the event of any such
purchase, redemption or other retirement or acquisition for value with respect
to a Restricted Subsidiary that is not a Wholly Owned Subsidiary, paid to the
Company or a Restricted Subsidiary, or to the other stockholders of such
Restricted Subsidiary that is not a Wholly Owned Subsidiary, on a pro rata
basis); (iii) shall not make, or permit any Restricted Subsidiary to make, any
Investment in, or payment on a Guarantee of any obligation of, any Person, other
than the Company or a Restricted Subsidiary; and (iv) shall not, and shall not
permit any Restricted Subsidiary to, redeem, defease, repurchase, retire or
otherwise acquire or retire for value, prior to any scheduled maturity,
repayment or sinking fund payment, Debt of the Company which is subordinate in
right of payment to the Securities (other than a permitted refinancing) (each of
clauses (i) through (iv) being a "Restricted Payment") if: (1) an Event of
Default, or an event that with the passing of time or the giving of notice, or
both, would constitute an Event of Default, shall have occurred and be
continuing, or (2) upon giving effect to such Restricted Payment, the Company
could not Incur at
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least $1.00 of additional Debt pursuant to the terms of paragraph (a) of Section
1011, or (3) upon giving effect to such Restricted Payment, the aggregate of all
Restricted Payments from March 31, 1997 exceeds the sum of: (a) 50% of
cumulative Consolidated Net Income (or, in the event that Consolidated Net
Income shall be negative, 100% of such negative amount) since the end of the
last full fiscal quarter prior to March 31, 1997 through the last day of the
last full fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment, (b) plus $5 million, (c) less, in the case of any
Designation with respect to a Restricted Subsidiary that was made after March
31, 1997, an amount equal to the Designation Amount with respect to such
Restricted Subsidiary, (d) plus, in the case of any Revocation made after March
31, 1997, an amount equal to the lesser of the Designation Amount with respect
to the Subsidiary with respect to which such Designation was made or the Fair
Market Value of the Investment of the Company and its Restricted Subsidiaries in
such Subsidiary at the time of Revocation; provided, however, that the Company
or a Restricted Subsidiary of the Company may make any Restricted Payment with
the aggregate net cash proceeds received after March 31, 1997 as capital
contributions to the Company or from the issuance (other than to a Subsidiary)
of Capital Stock (other than Disqualified Stock) of the Company and warrants,
rights or options on Capital Stock (other than Disqualified Stock) of the
Company and the principal amount of Debt of the Company that has been converted
into Capital Stock (other than Disqualified Stock and other than by a
Subsidiary) of the Company after March 31, 1997.
Notwithstanding the foregoing limitation, (i) the Company and any
Restricted Subsidiary may make Permitted Investments; (ii) the Company may pay
any dividend on Capital Stock of any class of the Company within 60 days after
the declaration thereof if, on the date when the dividend was declared, the
Company could have paid such dividend in accordance with the foregoing
provisions; (iii) the Company may repurchase any shares of its Common Stock or
options to acquire its Common Stock from Persons who were formerly directors,
officers or employees of the Company or any of its Subsidiaries or Affiliates,
provided that the aggregate amount of all such repurchases made pursuant to this
clause (iii) shall not exceed $1 million in any twelve-month period; (iv) the
Company and any Restricted Subsidiary may refinance any Debt otherwise permitted
by clause (v) of paragraph (b) of Section 1011 or clause (x) of Section 1012;
and (v) the Company and any Restricted Subsidiary may retire or repurchase any
Capital Stock of the Company or of any Restricted Subsidiary in exchange for, or
out of the proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of, Capital Stock (other than Disqualified Stock) of
the Company.
SECTION 1014. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries.
- - ---------------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary (i) to pay dividends (in cash or otherwise)
or make any other distributions in respect of its Capital Stock owned by the
Company or any other Restricted Subsidiary or to pay any Debt or other
obligation owed to the Company or any other Restricted Subsidiary; (ii) to make
loans or advances to the
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Company or any other Restricted Subsidiary; or (iii) to transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
(b) Notwithstanding the foregoing limitation, the Company may, and may
permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist any such encumbrance or restriction (i) pursuant to any agreement in
effect on March 31, 1997; (ii) any customary encumbrance or restriction
applicable to a Restricted Subsidiary that is contained in an agreement or
instrument governing or relating to Debt contained in any Credit Facilities or
Purchase Money Debt, provided that the provisions of such agreement permit the
payment of interest and mandatory payment or prepayment of principal pursuant to
the terms of this Indenture and the Securities and other Debt that is solely an
obligation of the Company, but provided further that such agreement may
nevertheless contain customary net worth, leverage, invested capital and other
financial covenants, customary covenants regarding the merger of or sale of all
or any substantial part of the assets of the Company or any Restricted
Subsidiary, customary restrictions on transactions with Affiliates, and
customary subordination provisions governing Debt owed to the Company or any
Restricted Subsidiary; (iii) pursuant to an agreement relating to any Acquired
Debt, which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person so acquired; (iv)
pursuant to an agreement effecting a renewal, refunding, permitted refinancing
or extension of Debt Incurred pursuant to an agreement referred to in clause
(i), (ii) or (iii) of this paragraph (b), provided, however, that the provisions
contained in such renewal, refunding, permitted refinancing or extension
agreement relating to such encumbrance or restriction are no more restrictive in
any material respect than the provisions contained in the agreement the subject
thereof; (v) in the case of clause (iii) of paragraph (a) of this Section 1014,
restrictions contained in any security agreement (including a Capital Lease
Obligation) securing Debt of the Company or a Restricted Subsidiary otherwise
permitted under this Indenture, but only to the extent such restrictions
restrict the transfer of the property subject to such security agreement; (vi)
in the case of clause (iii) of paragraph (a) of this Section 1014, customary
nonassignment provisions entered into in the ordinary course of business in
leases and other agreements and customary restrictions contained in asset sale
agreements limiting the transfer of such property or assets pending the closing
of such sale; (vii) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary, provided that the consummation of such transaction would
not result in a Default or an Event of Default, that such restriction terminates
if such transaction is not consummated and that the consummation or abandonment
of such transaction occurs within one year of the date such agreement was
entered into; (viii) pursuant to applicable law; and (ix) pursuant to this
Indenture and the Securities.
SECTION 1015. Limitation on Liens.
-------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, Incur or suffer to exist any Lien on or with respect to any property or
assets now owned or acquired after March 31, 1997 to secure any Debt without
making, or causing such Restricted Subsidiary to make, effective provision for
securing the Securities (x) equally and ratably with such Debt as to such
property for so long as such Debt will be so secured or (y) in the event such
Debt is Debt of
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the Company which is subordinate in right of payment to the Securities, prior to
such Debt as to such property for so long as such Debt will be so secured.
The foregoing restrictions shall not apply to: (i) Liens existing on
March 31, 1997 and securing Debt outstanding on March 31, 1997; (ii) Liens in
favor of the Company or any Restricted Subsidiary; (iii) Liens to secure the
Securities; (iv) Liens to secure Restricted Subsidiary Guarantees; (v) Liens to
secure Debt under Credit Facilities permitted to be Incurred pursuant to clause
(ii) of paragraph (b) of Section 1011; (vi) Liens on real or personal property
of the Company or a Restricted Subsidiary constructed, installed, acquired or
constituting improvements made after the date of original issuance of the
Securities to secure Purchase Money Debt permitted to be Incurred pursuant to
clause (iii) of paragraph (b) of Section 1011, provided, however, that (a) the
principal amount of any Debt secured by such a Lien does not exceed 100% of such
purchase price or cost of construction, installation or improvement of the
property subject to such Lien, (b) such Lien attaches to such property prior to,
at the time of or within 270 days after the acquisition, the completion of
construction, installation or improvement or the commencement of operation of
such property and (c) such Lien does not extend to or cover any property other
than the specific item of property (or portion thereof) acquired, constructed,
installed or constituting the improvements financed by the proceeds of such
Purchase Money Debt; (vii) Liens to secure Acquired Debt, provided, however,
that (a) such Lien attaches to the acquired asset prior to the time of the
acquisition of such asset and (b) such Lien does not extend to or cover any
other asset; (viii) Liens to secure Debt Incurred to extend, renew, refinance or
refund (or successive extensions renewals, refinancings or refundings), in whole
or in part, Debt secured by any Lien referred to in the foregoing clauses (i),
(iii), (iv), (v), (vi) and (vii) of this Section 1015 so long as such Lien does
not extend to any other property and the principal amount of Debt so secured is
not increased except as otherwise permitted under clause (v) of paragraph (b) of
Section 1011 or clause (x) of Section 1012; (ix) Liens to secure debt consisting
of Permitted Interest Rate and Currency Protection Agreements permitted to be
Incurred pursuant to clause (vi) of paragraph (b) of Section 1011; (x) Liens to
secure Debt secured by Receivables permitted to be Incurred pursuant to clause
(vii) of paragraph (b) of Section 1011; (xi) Liens to secure Debt of Restricted
Subsidiaries permitted to be Incurred pursuant to clause (viii) of paragraph (b)
of Section 1011; (xii) Liens not otherwise permitted by the foregoing clauses
(i) through (xi) in an amount not to exceed 5% of the Company's Consolidated
Tangible Assets; and (xiii) Permitted Liens.
SECTION 1016. Limitation on Issuances of Certain Guarantees by, and
-----------------------------------------------------
Debt Securities of, Restricted Subsidiaries.
- - -------------------------------------------
The Company shall not (i) permit any Restricted Subsidiary to,
directly or indirectly, guarantee any Debt Securities of the Company or (ii)
permit any Restricted Subsidiary to issue any Debt Securities unless, in either
such case, such Restricted Subsidiary simultaneously executes and delivers a
Restricted Subsidiary Guarantee providing for a Guarantee of payment of the
Securities.
SECTION 1017. Limitation on Sale and Leaseback Transactions.
---------------------------------------------
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The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into, assume, Guarantee or otherwise become
liable with respect to any Sale and Leaseback Transaction, other than a Sale and
Leaseback Transaction between the Company or a Restricted Subsidiary on the one
hand and a Restricted Subsidiary or the Company on the other hand, unless (i)
the Company or such Restricted Subsidiary would be entitled to Incur a Lien to
secure Debt by reason of the provisions of Section 1015, equal in amount to the
Attributable Value of the Sale and Leaseback Transaction, without equally and
ratably securing the Securities and (ii) the Sale and Leaseback Transaction is
treated as an Asset Disposition and all of the conditions of Section 1018
(including the provisions concerning the application of Net Available Proceeds)
are satisfied with respect to such Sale and Leaseback Transaction, treating all
of the consideration received in such Sale and Leaseback Transaction as Net
Available Proceeds for purposes of such Section 1018.
SECTION 1018. Limitation on Asset Dispositions.
--------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, make any Asset Disposition unless: (i) the Company or the Restricted
Subsidiary, as the case may be, receives consideration for such disposition at
least equal to the Fair Market Value for the assets sold or disposed of as
determined by the Board of Directors in good faith and evidenced by a Board
Resolution; and (ii) at least 75% of the consideration for such disposition
consists of cash or cash equivalents or the assumption of Debt of the Company
(other than Debt that is subordinated to the Securities) or of the Restricted
Subsidiary and release from all liability on the Debt assumed. If the aggregate
of Net Available Proceeds within any twelve-month period exceeds $5 million,
then all such Net Available Proceeds shall be applied within 360 days of the
last such Asset Disposition (1) first, to the permanent repayment or reduction
of Debt then outstanding under any Credit Facility, to the extent such
agreements would require such application or prohibit payments pursuant to
clause (2) following; (2) second, to the extent of remaining Net Available
Proceeds, to make an Offer to Purchase Outstanding Securities at a price in cash
equal to 100% of the principal amount of the Securities plus accrued and unpaid
interest thereon and premium, if any, to the purchase date and, to the extent
required by the terms thereof, any other Debt of the Company that is pari passu
with the Securities at a price no greater than 100% of the principal amount
thereof plus accrued and unpaid interest to the purchase date (or 100% of the
accreted value plus accrued and unpaid interest and premium, if any, to the
purchase date in the case of original issue discount Debt); (3) third, to the
extent of any remaining Net Available Proceeds following the completion of the
Offer to Purchase, to the repayment of other Debt of the Company or Debt of a
Restricted Subsidiary, to the extent permitted under the terms thereof; and (4)
fourth, to the extent of any remaining Net Available Proceeds, to any other use
as determined by the Company which is not otherwise prohibited by this
Indenture.
SECTION 1019. Limitation on Issuances and Sales of Capital Stock of
-----------------------------------------------------
Restricted Subsidiaries.
- - -----------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, issue, transfer, convey, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary or securities convertible or exchangeable into,
or options, warrants, rights or any other interest with respect to, Capital
Stock of a Restricted
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Subsidiary to any Person other than the Company or a Restricted Subsidiary
except: (i) a sale of all of the Capital Stock of such Restricted Subsidiary
owned by the Company and any Restricted Subsidiary that complies with the
provisions of Section 1018 to the extent such provisions apply; (ii) in a
transaction that results in such Restricted Subsidiary becoming a Permitted
Joint Venture, provided (x) such transaction complies with the provisions of
Section 1018 to the extent such provisions apply and (y) the Company's remaining
Investment in such Permitted Joint Venture would have been permitted as a new
Investment under the provisions of Section 1013; (iii) the transfer, conveyance,
sale or other disposition of shares required by applicable law or regulation;
(iv) if required, the issuance, transfer, conveyance, sale or other disposition
of directors' qualifying shares; or (v) Disqualified Stock issued in exchange
for, or upon conversion of, or the proceeds of the issuance of which are used to
redeem, refinance, replace or refund, shares of Disqualified Stock of such
Restricted Subsidiary, provided that the amounts of the redemption obligations
of such Disqualified Stock shall not exceed the amounts of the redemption
obligations of, and such Disqualified Stock shall have redemption obligations no
earlier than those required by, the Disqualified Stock being exchanged,
converted, redeemed, refinanced, replaced or refunded.
SECTION 1020. Transactions with Affiliates and Related Persons.
------------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, enter into any transaction (or series of related transactions) with an
Affiliate or Related Person of the Company (other than the Company or a
Restricted Subsidiary), including any Investment, unless such transaction is on
terms no less favorable to the Company or such Restricted Subsidiary than those
that could be obtained in a comparable arm's-length transaction with an entity
that is not an Affiliate or Related Person and is in the best interests of the
Company or such Restricted Subsidiary, provided that the Company or any
Restricted Subsidiary may enter into: (i) transactions pursuant to the
Company's tax sharing agreement entered into with Anschutz Company existing at
March 31, 1997, provided that any amendment of, supplement to or substitute for
such agreement is on terms that are no less favorable to the Company or such
Restricted Subsidiary than such existing agreement; (ii) transactions pursuant
to employee compensation arrangements approved by the Board of Directors, either
directly or indirectly; and (iii) Receivables Sales between the Company or a
Restricted Subsidiary and an Affiliate of the Company or such Restricted
Subsidiary, provided that such Receivables Sales satisfy the provisions of
clauses (i) and (ii) of Section 1018. For any transaction that involves in
excess of $10 million but less than or equal to $15 million, the Company shall
deliver to the Trustee an Officers' Certificate stating that the transaction
satisfies the above criteria. For any transaction that involves in excess of
$15 million, a majority of the disinterested members of the Board of Directors
shall determine that the transaction satisfies the above criteria and shall
evidence such a determination by a Board Resolution or, in the event that there
shall not be disinterested members of the Board of Directors with respect to the
transaction, the Company shall file with the Trustee a written opinion stating
that the transaction satisfies the above criteria from an investment banking
firm of national standing in the United States which, in the good faith judgment
of the Board of Directors, is independent with respect to the Company and its
Affiliates and qualified to perform such task.
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SECTION 1021. Limitation on Designations of Unrestricted
------------------------------------------
Subsidiaries.
- - ------------
The Company shall not designate any Subsidiary of the Company (other
than a newly created Subsidiary in which no Investment has previously been made)
as an Unrestricted Subsidiary (a "Designation") unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(b) immediately after giving effect to such Designation, the Company
would be able to Incur $1.00 of Debt under paragraph (a) of Section 1011;
and
(c) the Company would not be prohibited under any provision of this
Indenture from making an Investment at the time of Designation (assuming
the effectiveness of such Designation) in an amount (the "Designation
Amount") equal to the Fair Market Value of the net Investment of the
Company or any other Restricted Subsidiary in such Restricted Subsidiary on
such date.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
1013 for all purposes of this Indenture in the Designation Amount. In addition,
neither the Company nor any Restricted Subsidiary shall at any time (x) provide
credit support for, or a guarantee of, any Debt of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such Debt),
provided that the Company or a Restricted Subsidiary may pledge Capital Stock or
Debt of any Unrestricted Subsidiary on a nonrecourse basis such that the pledgee
has no claim whatsoever against the Company other than to obtain such pledged
property, (y) be directly or indirectly liable for any Debt of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Debt which provides
that the holder thereof may (upon notice, lapse of time or both) declare a
default thereon or cause the payment thereof to be accelerated or payable prior
to its final scheduled maturity upon the occurrence of a default with respect to
any Debt of any Unrestricted Subsidiary (including any right to take enforcement
action against such Unrestricted Subsidiary), except in the case of clause (x)
or (y) to the extent permitted under Section 1013 or 1020.
A Designation may be revoked (a "Revocation") by a Board Resolution,
provided that the Company shall not make any Revocation unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(b) all Liens and Debt of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if Incurred at such time, have
been permitted to be Incurred at such time for all purposes of this
Indenture.
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All Designations and Revocations must be evidenced by Board
Resolutions certifying compliance with the foregoing provisions.
SECTION 1022. No Repayment of Existing Parent Company Advances with
-----------------------------------------------------
the Proceeds of the Securities.
- - ------------------------------
The Company shall not apply any portion of the proceeds of the
offering of the Securities toward the repayment of advances made to the Company
or any of its subsidiaries by any parent company of the Company outstanding at
March 31, 1997.
SECTION 1023. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 1007 through 1022, inclusive,
if before or after the time for such compliance the Holders of at least a
majority in principal amount of the Outstanding Securities, by Act of such
Holders, waive such compliance in such instance with such term, provision or
condition, but no such waiver shall extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such term, provision or condition shall remain in full force
and effect.
SECTION 1024. Trustee Not to Monitor Performance.
----------------------------------
The Trustee shall have no duty to confirm or monitor the performance
by the Company of its duties pursuant to the covenants set forth in this Article
Ten.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
-------------------
The Securities will be subject to redemption at the option of the
Company, in whole or in part, at any time or from time to time on or after April
1, 2002, upon not less than 30 nor more than 60 days' prior notice, subject to
the conditions and at the redemption prices (expressed as percentages of
principal amount) set forth in the form of Security, plus accrued and unpaid
interest thereon (if any) to the Redemption Date.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
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SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
-------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
of the principal of Securities; provided, however, that no such partial
redemption shall reduce the portion of the principal amount of a Security not
redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed.
Each notice of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Securities to be redeemed,
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(4) in case any Security is to be redeemed in part only, that on and
after the Redemption Date, upon surrender of such Security, the Holder will
receive, without charge, a new Security or Securities of authorized
denominations for the principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Security, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue on
and after said date, and
(6) the place or places where such Securities are to be presented and
surrendered for payment of the Redemption Price and accrued interest, if
any.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security
for redemption in accordance with said notice, such Security shall be paid by
the Company at the Redemption Price, together with accrued interest, if any, to
the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
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SECTION 1108. Securities Redeemed in Part.
---------------------------
Any Security which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- - ----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 1202 or Section 1203 be
applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article Twelve.
SECTION 1202. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 1204 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Securities, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1205 and the other Sections of this Indenture
referred to in clauses (A) and (B) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Securities to receive, solely from the trust fund
described in Section 1204 and as more fully set forth in such Section, payments
in respect of the principal of, premium, if any, and interest on such Securities
when such payments are due, (B) the Company's obligations with respect to such
Securities under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (D) this Article
Twelve. Subject to compliance with this Article Twelve, the Company may
exercise its option under this Section 1202 notwithstanding the prior exercise
of its option under Section 1203 with respect to the Securities.
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SECTION 1203. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company shall be released from its
obligations under any covenant contained in Section 801(4) and in Sections 1007
through 1021 with respect to the Outstanding Securities on and after the date
the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 501(3), 501(4) or 501(5), but, except as specified above, the remainder
of this Indenture and such Securities shall be unaffected thereby.
SECTION 1204. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
1202 or Section 1203 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 608 who shall agree to comply with the provisions of this
Article Twelve applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities: (A)
money in an amount, or (B) Government Securities which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment in respect of the Securities, money in an amount,
or (C) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and
which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the principal of (and premium, if any) and interest on the
Outstanding Securities on the Stated Maturity (or Redemption Date, if
applicable) of such principal (and premium, if any) or installment of
interest; provided that the Trustee shall have been irrevocably instructed
in writing to apply such money or the proceeds of such Government
Securities to said payments with respect to the Securities. Before such a
deposit, the Company may give to the Trustee, in accordance with Section
1103, a notice of its election to redeem all of the Outstanding Securities
at a future date in accordance with Article Eleven, which notice shall be
irrevocable. Such irrevocable redemption notice, if given, shall be given
effect in applying the foregoing.
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(2) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or,
insofar as paragraphs (8) and (9) of Section 501 are concerned, at any time
during the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until
the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
(4) In the case of an election under Section 1202, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since March 25, 1997 there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred.
(5) In the case of an election under Section 1203, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred.
(6) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1202
or the covenant defeasance under Section 1203 (as the case may be) have
been complied with.
SECTION 1205. Deposited Money and Government Securities to Be Held
----------------------------------------------------
in Trust; Other Miscellaneous Provisions.
- - ----------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and Government Securities (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal, premium, if any, and interest, but such money need not be segregated
from other funds except to the extent required by law.
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The Company shall pay and indemnify the Trustee and (if applicable)
its officers, directors, employees and agents against any tax, fee or other
charge imposed on or assessed against the Government Securities deposited
pursuant to Section 1204 or the principal and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of the Outstanding Securities.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or Government Securities held by it as provided in Section
1204 which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent defeasance or covenant defeasance, as
applicable, in accordance with this Article Twelve.
SECTION 1206. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1205 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1202 or 1203, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1205; provided, however, that if the Company makes any payment of
principal of, premium, if any, or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
QWEST COMMUNICATIONS INTERNATIONAL INC.
By: /s/________________________________
Title:
Attest: /s/_________________________
Title:
BANKERS TRUST COMPANY, as Trustee
By: /s/________________________________
Title:
Attest: /s/_________________________
Title:
<PAGE>
EXHIBIT A
Form of Face of Security
------------------------
[If a Global Security, then insert:] THIS SECURITY IS A GLOBAL
SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS
REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A
SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER
OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
[If a Global Security, then insert:] UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW
YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
QWEST COMMUNICATIONS
INTERNATIONAL INC.
10 7/8% Series B Senior Note Due 2007
No. __________ $ __________
Qwest Communications International Inc., a Delaware corporation
(herein called the "Company", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to _________________, or registered assigns, the principal sum of ____________
Dollars [if a Global Security, then insert: (which principal amount may from
time to time be increased or decreased to such other principal amounts which,
taken together with the principal amounts of all other Outstanding Securities,
shall not exceed $__________ in the aggregate at any time, by adjustments made
on the records of the Trustee hereinafter referred to in accordance with the
Indenture)] on April 1, 2007, at the office or agency of the Company referred to
below, and to pay interest thereon, semiannually on
<PAGE>
April 1 and October 1 in each year, commencing on October 1, 1997, accruing from
March 31, 1997 or from the most recent Interest Payment Date to which interest
has been paid or duly provided for under this Security or any Old Securities
exchanged for this Security, at the rate of 10 7/8% per annum, until the
principal hereof is paid or duly provided for, and (to the extent lawful) to pay
on demand interest on any overdue interest at the rate borne by the Securities
from the date on which such overdue interest becomes payable to the date payment
of such interest has been made or duly provided for.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the March 15 or September 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date, and such defaulted interest,
and (to the extent lawful) interest on such defaulted interest at the rate borne
by the Securities, may be paid to the Person in whose name this Security (or one
or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner, all as more fully provided in said Indenture. Payment
of the principal of (and premium, if any, on) and interest on this Security will
be made at the office or agency of the Company maintained for that purpose in
The City of New York, or at such other office or agency of the Company as may be
maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the address of the Person entitled
thereto as such address shall appear on the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:_____________________ QWEST COMMUNICATIONS
INTERNATIONAL INC.
By: ____________________________
Authorized Signatory
Attest: ___________________
A-3
<PAGE>
Form of Reverse of Security
---------------------------
This Security is one of a duly authorized issue of securities of the
Company designated as its 10 7/8% Series B Senior Notes Due 2007 (herein called
the "Securities"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate principal amount to $250,000,000, which may be
issued under an indenture (herein called the "Indenture") dated as of ________,
1997 between the Company and Bankers Trust Company, trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The Securities are subject to redemption at the option of the Company,
in whole or in part, at any time or from time to time on or after April 1, 2002,
upon not less than 30 nor more than 60 days' prior notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest thereon (if any) to the redemption date, if redeemed
during the twelve months beginning April 1 of the years indicated below:
YEAR REDEMPTION PRICE
---- ----------------
2002 105.438%
2003 103.625%
2004 101.813%
2005 and thereafter 100.000%
In addition, prior to April 1, 2000, the Company may redeem up to 35%
of the originally issued principal amount of Securities at a redemption price
equal to 110.875% of the principal amount of the Securities so redeemed, plus
accrued and unpaid interest thereon (if any) to the redemption date, with the
net proceeds of one or more Public Equity Offerings resulting in gross proceeds
of at least $100 million in the aggregate; provided that at least 65% of the
originally issued principal amount of the Securities would remain outstanding
immediately after giving effect to such redemption.
Upon the occurrence of a Change of Control, the Holder of this
Security may require the Company, subject to certain limitations provided in the
Indenture, to repurchase this Security at a purchase price in cash in an amount
equal to 101% of the principal amount thereof plus accrued and unpaid interest.
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Securities, or one or more Predecessor Securities, of record
at the close of business on the relevant Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date.
A-4
<PAGE>
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Security and (b) certain
restrictive covenants and the related Defaults and Events of Default, upon
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Security.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by or on behalf of the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof whether or not notation of such consent or waiver is made upon
this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registerable on the Security
Register of the Company, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
A-5
<PAGE>
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Security for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is registered as the
owner hereof for all purposes, whether or not this Security be overdue, and
neither the Company, the Trustee nor any agent shall be affected by notice to
the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
A-6
<PAGE>
Form of Trustee's Certificate of Authentication
-----------------------------------------------
The Trustee's certificate of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: ____________________
This is one of the Securities referred to in the within-mentioned
Indenture.
[NAME OF TRUSTEE]
as Trustee
By:_________________________
Authorized Signatory
A-7
<PAGE>
Assignment Form
---------------
If you, the holder, want to assign this Security, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Security to ___________________________________
________________________________________________________________________________
(Insert assignee's social security or tax ID number) ___________________________
(Print or type assignee's name, address and zip code) __________________________
__________________________
__________________________
and irrevocably appoint ________________________________
of ________________________________
________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for such agent.
________________________________________________________________________________
Dated: _________________ Your signature: __________________________________
(Sign exactly as your name appears on the other
side of this Security)
By: ______________________________________________
NOTICE: To be executed by an executive officer
Signature Guarantee: __________________________
A-8
<PAGE>
Option of Holder to Elect Purchase
----------------------------------
If you wish to have this Security purchased by the Company pursuant to
Section 1010 or 1018 of the Indenture, check the box: [_]
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1010 or 1018 of the Indenture, state the amount:
$_____________
Dated: ________________ Your Signature: ____________________________
(Sign exactly as your name
appears on the other side
of this Security)
<PAGE>
EXHIBIT 4.1(c)
================================================================================
QWEST COMMUNICATIONS INTERNATIONAL INC.,
Issuer
to
BANKERS TRUST COMPANY,
Trustee
____________________
INDENTURE
Dated as of January 29, 1998
_____________________
$450,505,000 Principal Amount at Maturity
8.29% Senior Discount Notes Due 2008
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
PARTIES..................................................... 1
RECITALS OF THE COMPANY..................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.............................. 1
Accreted Value.................................... 2
Acquired Debt..................................... 2
Act............................................... 2
Affiliate......................................... 3
Agent Member...................................... 3
Asset Disposition................................. 3
Attributable Value................................ 3
Board of Directors................................ 4
Board Resolution.................................. 4
Business Day...................................... 4
Capital Lease Obligation.......................... 4
Capital Stock..................................... 4
Cash Equivalents.................................. 4
Change of Control................................. 5
Commission........................................ 5
Common Stock...................................... 5
Company........................................... 5
Company Order..................................... 5
Company Request................................... 5
Consolidated Capital Ratio........................ 5
Consolidated Cash Flow Available for Fixed
Charges.......................................... 5
Consolidated Income Tax Expense................... 6
Consolidated Interest Expense..................... 6
Consolidated Net Income........................... 6
- - ------------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
ii
PAGE
Consolidated Net Worth........................... 7
Consolidated Tangible Assets..................... 7
Continuing Director.............................. 7
Corporate Trust Office........................... 7
Corporation...................................... 8
Credit Facilities................................ 8
Debt............................................. 8
Debt Securities.................................. 8
Default.......................................... 9
Defaulted Interest............................... 9
Depository....................................... 9
Designation...................................... 9
Designation Amount............................... 9
Disqualified Stock............................... 9
Eligible Institution............................. 9
Eligible Receivables............................. 9
Event of Default................................. 9
Exchange Act..................................... 10
Exchange Offer................................... 10
Exchange Offer Registration Statement............ 10
Exchange Securities.............................. 10
Expiration Date.................................. 10
Fair Market Value................................ 10
Federal Bankruptcy Code.......................... 10
Global Security.................................. 10
Government Securities............................ 10
Group............................................ 10
Guarantee........................................ 10
Guarantor........................................ 11
Holder........................................... 11
Incur............................................ 11
Indenture........................................ 11
Indenture Obligations............................ 11
Initial Purchaser................................ 11
Initial Securities............................... 12
Interest Payment Date............................ 12
Interest Rate or Currency Protection Agreement... 12
Investment....................................... 12
Lien............................................. 12
<PAGE>
iii
PAGE
Liquidated Interest.............................. 12
Maturity......................................... 12
Net Available Proceeds........................... 12
Notice of Default................................ 13
Offer............................................ 13
Offer to Purchase................................ 13
Offering Memorandum.............................. 15
Officers' Certificate............................ 15
Opinion of Counsel............................... 15
Outstanding...................................... 16
Paying Agent..................................... 16
Permitted Holders................................ 17
Permitted Interest Rate or Currency Protection
Agreement....................................... 17
Permitted Investments............................ 17
Permitted Joint Venture.......................... 17
Permitted Liens.................................. 17
Permitted Telecommunications Capital Asset
Disposition..................................... 18
Person........................................... 18
Physical Security................................ 18
Predecessor Security............................. 18
Preferred Dividends.............................. 19
Preferred Stock.................................. 19
Private Placement Legend......................... 19
Public Equity Offering........................... 19
Purchase Amount.................................. 19
Purchase Date.................................... 19
Purchase Money Debt.............................. 19
Purchase Price................................... 19
Qualified Institutional Buyer.................... 19
QIB.............................................. 19
Rating Decline................................... 19
Receivables...................................... 20
Receivables Sale................................. 20
Redemption Date.................................. 20
Redemption Price................................. 20
Registration Agreement........................... 20
Registration Statement........................... 20
Regular Record Date.............................. 20
Regulation S..................................... 20
<PAGE>
iv
PAGE
Regulation S Global Security............................ 20
Related Person.......................................... 20
Responsible Officer..................................... 20
Restricted Payment...................................... 21
Restricted Subsidiary................................... 21
Restricted Subsidiary Guarantee......................... 21
Revocation.............................................. 21
Rule 144A............................................... 21
Rule 144A Global Security............................... 21
Sale and Leaseback Transaction.......................... 21
Securities.............................................. 21
Securities Act.......................................... 22
Security Register....................................... 22
Security Registrar...................................... 22
Senior Notes............................................ 22
Senior Note Indentures.................................. 22
Shelf Registration Statement............................ 22
Special Record Date..................................... 22
Stated Maturity......................................... 22
Strategic Investor...................................... 22
Subordinated Debt....................................... 22
Subsidiary.............................................. 23
Telecommunications Assets............................... 23
Telecommunications Business............................. 23
Trust Indenture Act..................................... 23
TIA..................................................... 23
Trustee................................................. 24
Unrestricted Subsidiary................................. 24
Vice President.......................................... 24
Voting Stock............................................ 24
Wholly Owned Subsidiary................................. 24
SECTION 102. Compliance Certificates and Opinions............ 24
SECTION 103. Form of Documents Delivered to Trustee.......... 25
SECTION 104. Acts of Holders................................. 25
SECTION 105. Notices, Etc., to Trustee and Company........... 27
SECTION 106. Notice to Holders; Waiver....................... 27
SECTION 107. Effect of Headings and Table of Contents........ 28
SECTION 108. Successors and Assigns.......................... 28
SECTION 109. Separability Clause............................. 28
<PAGE>
v
PAGE
SECTION 110. Benefits of Indenture.................................. 28
SECTION 111. Governing Law.......................................... 28
SECTION 112. Conflict with Trust Indenture Act...................... 28
SECTION 113. Legal Holidays......................................... 29
SECTION 114. No Personal Liability of Directors,
Officers, Employees and Stockholders.............. 29
SECTION 115. Independence of Covenants.............................. 29
SECTION 116. Exhibits............................................... 29
SECTION 117. Counterparts........................................... 30
SECTION 118. Duplicate Originals.................................... 30
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally........................................ 30
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms........................................ 31
SECTION 302. Denominations.......................................... 32
SECTION 303. Execution, Authentication, Delivery and Dating......... 32
SECTION 304. Temporary Securities................................... 34
SECTION 305. Registration, Registration of Transfer and Exchange.... 34
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities....... 36
SECTION 307. Payment of Interest; Interest Rights Preserved......... 36
SECTION 308. Persons Deemed Owners.................................. 38
SECTION 309. Cancellation........................................... 38
SECTION 310. Computation of Interest................................ 38
SECTION 311. CUSIP Number........................................... 39
SECTION 312. Book-Entry Provisions for Global Securities............ 39
SECTION 313. Special Transfer Provisions............................ 40
<PAGE>
vi
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.................. 42
SECTION 402. Application of Trust Money............................... 43
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default........................................ 43
SECTION 502. Acceleration of Maturity; Rescission and
Annulment................................................ 45
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee............................................. 46
SECTION 504. Trustee May File Proofs of Claim......................... 47
SECTION 505. Trustee May Enforce Claims Without
Possession of Securities............................... 48
SECTION 506. Application of Money Collected........................... 48
SECTION 507. Limitation on Suits...................................... 49
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest................................... 49
SECTION 509. Restoration of Rights and Remedies....................... 50
SECTION 510. Rights and Remedies Cumulative........................... 50
SECTION 511. Delay or Omission Not Waiver............................. 50
SECTION 512. Control by Holders....................................... 50
SECTION 513. Waiver of Past Defaults.................................. 51
SECTION 514. Waiver of Stay or Extension Laws......................... 51
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities...................... 52
SECTION 602. Notice of Default........................................ 53
SECTION 603. Certain Rights of Trustee................................ 53
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
Securities............................................. 55
SECTION 605. May Hold Securities...................................... 55
SECTION 606. Money Held in Trust...................................... 55
SECTION 607. Compensation and Reimbursement........................... 55
SECTION 608. Corporate Trustee Required; Eligibility; Conflicting
Interests.............................................. 56
SECTION 609. Resignation and Removal; Appointment of Successor........ 57
SECTION 610. Acceptance of Appointment by Successor................... 58
SECTION 611. Merger, Conversion, Consolidation or Succession to
Business............................................... 58
<PAGE>
vii
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
PAGE
SECTION 701. Disclosure of Names and Addresses of Holders............ 59
SECTION 702. Reports by Trustee...................................... 59
SECTION 703. Reports by Company...................................... 60
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.... 60
SECTION 802. Successor Substituted................................... 61
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders...... 62
SECTION 902. Supplemental Indentures with Consent of Holders......... 62
SECTION 903. Execution of Supplemental Indentures.................... 63
SECTION 904. Effect of Supplemental Indentures....................... 64
SECTION 905. Conformity with Trust Indenture Act..................... 64
SECTION 906. Reference in Securities to Supplemental Indentures...... 64
SECTION 907. Notice of Supplemental Indentures....................... 64
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.... 64
SECTION 1002. Maintenance of Office or Agency........................ 65
SECTION 1003. Money for Security Payments to Be Held in Trust........ 65
SECTION 1004. Corporate Existence.................................... 67
SECTION 1005. Payment of Taxes and Other Claims...................... 67
SECTION 1006. Maintenance of Properties.............................. 67
SECTION 1007. Insurance.............................................. 68
SECTION 1008. Provision of Financial Statements...................... 68
<PAGE>
viii
PAGE
SECTION 1009. Statement by Officers as to Default.................... 68
SECTION 1010. Purchase of Securities upon Change of Control.......... 68
SECTION 1011. Limitation on Consolidated Debt........................ 70
SECTION 1012. Limitation on Debt and Preferred Stock of Restricted
Subsidiaries......................................... 72
SECTION 1013. Limitation on Restricted Payments...................... 74
SECTION 1014. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.................... 76
SECTION 1015. Limitation on Liens.................................... 77
SECTION 1016. Limitation on Issuances of Certain Guarantees by, and
Debt Securities of, Restricted Subsidiaries.......... 78
SECTION 1017. Limitation on Sale and Leaseback Transactions.......... 78
SECTION 1018. Limitation on Asset Dispositions....................... 78
SECTION 1019. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries.............................. 79
SECTION 1020. Transactions with Affiliates and Related Persons....... 80
SECTION 1021. Limitation on Designations of Unrestricted
Subsidiaries......................................... 80
SECTION 1022. No Repayment of Existing Parent Company Advances with
the Proceeds of the Securities....................... 81
SECTION 1023. Waiver of Certain Covenants............................ 82
SECTION 1024. Trustee Not to Monitor Performance..................... 82
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.................................... 82
SECTION 1102. Applicability of Article............................... 82
SECTION 1103. Election to Redeem; Notice to Trustee.................. 82
SECTION 1104. Selection by Trustee of Securities to Be Redeemed...... 83
SECTION 1105. Notice of Redemption................................... 83
SECTION 1106. Deposit of Redemption Price............................ 84
SECTION 1107. Securities Payable on Redemption Date.................. 84
SECTION 1108. Securities Redeemed in Part............................ 85
<PAGE>
ix
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
PAGE
SECTION 1201. Company's Option to Effect Defeasance or Covenant
Defeasance........................................... 85
SECTION 1202. Defeasance and Discharge............................... 85
SECTION 1203. Covenant Defeasance.................................... 86
SECTION 1204. Conditions to Defeasance or Covenant Defeasance........ 86
SECTION 1205. Deposited Money and Government Securities to Be Held in
Trust; Other Miscellaneous Provisions................ 88
SECTION 1206. Reinstatement.......................................... 88
TESTIMONIUM........................................................... 87
SIGNATURES AND SEALS.................................................. 87
EXHIBIT A - Form of Security
EXHIBIT B - Form of Certificate to Be Delivered in Connection with Transfers
Pursuant to Regulation S
<PAGE>
INDENTURE, dated as of January 29, 1998 between Qwest Communications
International Inc., a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), having its principal office
at 555 Seventeenth Street, Denver, Colorado 80202, and Bankers Trust Company, a
New York banking corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 8.29% Senior
Discount Notes Due 2008 (herein called the "Initial Securities") and 8.29%
Series B Senior Discount Notes Due 2008 (the "Exchange Securities" and, together
with the Initial Securities, the "Securities"), of substantially the tenor and
amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
All things necessary have been done to make the Securities, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of each of the Company and the Trustee, in accordance with their and
its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311,
<PAGE>
2
shall have the meanings assigned to them in the rules of the Commission
adopted under the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation;
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section, paragraph or other subdivision; and
(e) unless otherwise indicated, references to Articles, Sections,
paragraphs or other subdivisions are references to such Articles, Sections,
paragraphs or other subdivisions of this Indenture.
"Accreted Value" means, with respect to any Note, (i) as of any date
prior to February 1, 2003, an amount per $1,000 principal amount at maturity of
Notes that is equal to the sum of (a) the offering price ($665.92 per $1,000
principal amount at maturity of Notes) of such Notes and (b) the portion of the
excess of the principal amount at maturity of such Notes over such offering
price which shall have been amortized through such date, such amount to be so
amortized on a daily basis and compounded semiannually on each February 1 and
August 1 at a rate of 8.29% per annum from the date of original issue of the
Notes through the date of determination computed on the basis of a 360-day year
of twelve 30-day months, and (ii) as of any date on or after February 1, 2003,
the principal amount at maturity of each Note; provided, however, that if the
Company elects to commence the accrual of cash interest on the Notes on or after
February 1, 2001 and prior to February 1, 2003, the Notes shall cease to
accrete, and the Accreted Value and the principal amount at maturity thereof
shall be the Accreted Value on the date of commencement of such accrual as
calculated in accordance with the foregoing.
"Acquired Debt" means, with respect to any specified Person, (i) Debt
of any other Person existing at the time such Person merges with or into or
consolidates with or becomes a Subsidiary of such specified Person and (ii) Debt
secured by a Lien encumbering any asset acquired by such specified Person, which
Debt was not incurred in anticipation of, and was outstanding prior to, such
merger, consolidation or acquisition.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
<PAGE>
3
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" has the meaning specified in Section 312.
"Asset Disposition" means any transfer, conveyance, sale, lease or
other disposition by the Company or any Restricted Subsidiary in one or more
related transactions occurring within any 12-month period (including a
consolidation or merger or other sale of any such Restricted Subsidiary with,
into or to another Person in a transaction in which such Restricted Subsidiary
ceases to be a Restricted Subsidiary of the Company, but excluding a disposition
by a Restricted Subsidiary to the Company or a Restricted Subsidiary or by the
Company to a Restricted Subsidiary) of (i) shares of Capital Stock or other
ownership interests of a Restricted Subsidiary (other than as permitted by
clauses (iii), (iv) and (v) of Section 1019), (ii) substantially all of the
assets of the Company or any Restricted Subsidiary representing a division or
line of business or (iii) other assets or rights of the Company or any
Restricted Subsidiary outside of the ordinary course of business (excluding any
transfer, conveyance, sale, lease or other disposition of equipment that is
obsolete or no longer used by or useful to the Company, provided that the
Company has delivered to the Trustee an Officers' Certificate stating that such
criteria are satisfied); provided in each case that the aggregate consideration
for such transfer, conveyance, sale, lease or other disposition is equal to
$500,000 or more in any 12-month period and provided further that the following
shall not be Asset Dispositions: (x) Permitted Telecommunications Capital Asset
Dispositions, (y) exchanges of Telecommunications Assets for other
Telecommunications Assets where the Fair Market Value of the Telecommunications
Assets received is at least equal to the Fair Market Value of the
Telecommunications Assets disposed of or, if less, the difference is received in
cash and such cash is Net Available Proceeds and (z) Liens permitted to be
Incurred pursuant to the second paragraph of Section 1015.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such
<PAGE>
4
period after excluding amounts required to be paid on account of insurance,
taxes, assessments, utility, operating and labor costs and similar charges. In
the case of any lease which is terminable by the lessee upon the payment of
penalty, such net amount shall also include the lesser of the amount of such
penalty (in which case no rent shall be considered as required to be paid under
such lease subsequent to the first date upon which it may be so terminated) or
the rent which would otherwise be required to be paid if such lease is not so
terminated. "Attributable Value" means, as to a Capital Lease Obligation, the
principal amount thereof.
"Board of Directors" means the board of directors of the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
"Capital Lease Obligation" of any Person means the obligation to pay
rent or other payment amounts under a lease of (or other Debt arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with generally accepted
accounting principles (a "Capital Lease"). The stated maturity of such
obligation shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty. The principal amount of such
obligation shall be the capitalized amount thereof that would appear on the face
of a balance sheet of such Person in accordance with generally accepted
accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Cash Equivalents" means (i) any Debt with a maturity of 365 days or
less issued or directly and fully guaranteed as insured by the United States or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof or such Debt constitutes a
general obligation of such country); (ii) deposits, certificates of deposit or
acceptances with a maturity of 365 days or less of any financial institution
that is a member of the Federal Reserve System, in each case having combined
capital and surplus and undivided profits (or any similar capital concept) of
not less than $500
<PAGE>
5
million and whose senior unsecured debt is rated at least "A-1" by Standard &
Poor's Ratings Services or "P-1" by Moody's Investors Service, Inc.; (iii)
commercial paper with a maturity of 365 days or less issued by a Corporation
(other than an Affiliate of the Company) organized under the laws of the United
States or any state thereof and rated at least "A-1" by Standard & Poor's
Ratings Services or "P-1" by Moody's Investors Service, Inc.; and (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States or
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States maturing within 365 days from the date of
acquisition.
"Change of Control" has the meaning specified in Section 1010.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Order" or "Company Request" means a written request or order
signed in the name of the Company by the Chief Executive Officer, the President
or a Vice President, and by the Chief Financial Officer, the Chief Accounting
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company and delivered to the Trustee.
"Consolidated Capital Ratio" of any Person as of any date means the
ratio of (i) the aggregate consolidated principal amount of Debt of such Person
then outstanding to (ii) the greater of either (a) the aggregate consolidated
paid-in capital of such Person as of such date or (b) the stockholders' equity
as of such date as shown on the consolidated balance sheet of such Person in
accordance with generally accepted accounting principles.
"Consolidated Cash Flow Available for Fixed Charges" for any period
means the Consolidated Net Income of the Company and its Restricted Subsidiaries
for such period increased by the sum of (i) Consolidated Interest Expense of the
Company and its Restricted
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6
Subsidiaries for such period, plus (ii) Consolidated Income Tax Expense of the
Company and its Subsidiaries for such period, plus (iii) the consolidated
depreciation and amortization expense or other non-cash write-offs of assets
included in the income statement of the Company and its Restricted Subsidiaries
for such period, plus (iv) any charge related to any premium or penalty paid in
connection with redeeming or retiring any Debt prior to its stated maturity;
provided, however, that there shall be excluded therefrom the Consolidated Cash
Flow Available for Fixed Charges (if positive) of any Restricted Subsidiary
(calculated separately for such Restricted Subsidiary in the same manner as
provided above for the Company) that is subject to a restriction which prevents
the payment of dividends or the making of distributions to the Company or
another Restricted Subsidiary to the extent of such restriction.
"Consolidated Income Tax Expense" for any period means the aggregate
amounts of the provisions for income taxes of the Company and its Subsidiaries
for such period calculated on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Interest Expense" means for any period the interest
expense included in a consolidated income statement (excluding interest income)
of the Company and its Restricted Subsidiaries for such period in accordance
with generally accepted accounting principles, including without limitation or
duplication (or, to the extent not so included, with the addition of), (i) the
amortization of Debt discounts; (ii) any payments or fees with respect to
letters of credit, bankers' acceptances or similar facilities; (iii) fees with
respect to interest rate swap or similar agreements or foreign currency hedge,
exchange or similar agreements; (iv) Preferred Stock dividends of the Company
and its Subsidiaries (other than dividends paid in shares of Preferred Stock
that is not Disqualified Stock) declared and paid or payable; (v) accrued
Disqualified Stock dividends of the Company and its Restricted Subsidiaries,
whether or not declared or paid; (vi) interest on Debt guaranteed by the Company
and its Restricted Subsidiaries; and (vii) the portion of any Capital Lease
Obligation paid during such period that is allocable to interest expense.
"Consolidated Net Income" for any period means the net income (or
loss) of the Company and its Restricted Subsidiaries for such period determined
on a consolidated basis in accordance with generally accepted accounting
principles; provided that there shall be excluded therefrom (a) the net income
(or loss) of any Person acquired by the Company or a Restricted Subsidiary in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (b) the net income (or loss) of any Person that is not a Restricted
Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to the Company or a Restricted Subsidiary by such
Person during such period, (c) gains or losses on Asset Dispositions by the
Company or its Restricted Subsidiaries, (d) all extraordinary gains and
extraordinary losses, determined in accordance with generally accepted
accounting principles,
<PAGE>
7
(e) the cumulative effect of changes in accounting principles, (f) non-cash
gains or losses resulting from fluctuations in currency exchange rates, (g) any
non-cash expense related to the issuance to employees or directors of the
Company or any Restricted Subsidiary or any Affiliate of the Company of (i)
options to purchase Capital Stock of the Company or such Restricted Subsidiary
or (ii) other compensatory rights (including under the Company's Growth Share
Plan), provided, in either case, that such options or rights, by their terms,
can be redeemed only for Capital Stock, (h) with respect to a Restricted
Subsidiary that is not a Wholly Owned Subsidiary, any aggregate net income (or
loss) in excess of the Company's or any Restricted Subsidiary's pro rata share
of the net income (or loss) of such Restricted Subsidiary that is not a Wholly
Owned Subsidiary shall be excluded and (i) the tax effect of any of the items
described in clauses (a) through (h) above; provided further that for purposes
of any determination pursuant to Section 1013, there shall further be excluded
therefrom the net income (but not net loss) of any Restricted Subsidiary that is
subject to a restriction which prevents the payment of dividends or the making
of distributions to the Company or another Restricted Subsidiary to the extent
of such restriction.
"Consolidated Net Worth" of any Person means the stockholders' equity
of such Person, determined on a consolidated basis in accordance with generally
accepted accounting principles, less amounts attributable to Disqualified Stock
of such Person; provided that, with respect to the Company, adjustments
following March 31, 1997 to the accounting books and records of the Company in
accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or
successor opinions thereto) or otherwise resulting from the acquisition of
control of the Company by another Person shall not be given effect to.
"Consolidated Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under generally accepted accounting principles would be included on a
consolidated balance sheet of such Person and its Subsidiaries after deducting
therefrom all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, which in each case under
generally accepted accounting principles would be included on such consolidated
balance sheet.
"Continuing Director" means, as of any date of determination, any
member of the Board of Directors who (i) was a member of such Board of Directors
on March 31, 1997 or (ii) was nominated for election or elected to the Board of
Directors with the affirmative vote of a majority of the Continuing Directors
who were members of the Board of Directors at the time of such nomination or
election or the affirmative vote of Permitted Holders.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at Four Albany Street, New York, New York 10006, except that, with
respect to presentation of Securities for payment or
<PAGE>
8
for registration of transfer or exchange, such term shall mean the office or
agency of the Trustee at which, at any particular time, its corporate agency
business shall be conducted.
"Corporation" includes corporations, associations, companies and
business trusts.
"Credit Facilities" means one or more credit agreements, loan
agreements or similar facilities, secured or unsecured, entered into from time
to time by the Company and its Restricted Subsidiaries, and including any
related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, as the same may be amended, supplemented,
modified, restated or replaced from time to time.
"Debt" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (including securities repurchase agreements but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business), (v) every Capital Lease Obligation of such Person, (vi) all
Receivables Sales of such Person, together with any obligation of such Person to
pay any discount, interest, fees, indemnities, penalties, recourse, expenses or
other amounts in connection therewith, (vii) all obligations to redeem
Disqualified Stock issued by such Person, (viii) every obligation under Interest
Rate and Currency Protection Agreements of such Person and (ix) every obligation
of the type referred to in clauses (i) through (viii) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has Guaranteed. The "amount" or "principal amount" of Debt at any time of
determination as used herein represented by (a) any Debt issued at a price that
is less than the principal amount at maturity thereof shall be the amount of the
liability in respect thereof determined in accordance with generally accepted
accounting principles, (b) any Receivables Sale shall be the amount of the
unrecovered capital or principal investment of the purchaser (other than the
Company or a Wholly Owned Subsidiary of the Company) thereof, excluding amounts
representative of yield or interest earned on such investment, or (c) any
Disqualified Stock shall be the maximum fixed redemption or repurchase price in
respect thereof.
"Debt Securities" means any debt securities (including any guarantee
of such securities) issued by the Company or any Restricted Subsidiary of the
Company in connection with a public offering or a private placement (excluding
Debt permitted to be Incurred pursuant to paragraph (b) of Section 1011).
<PAGE>
9
"Default" means any event, act or condition the occurrence of which
is, or after notice or the passage of time or both would be, an Event of
Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Designation" and "Designation Amount" have the respective meanings
specified in Section 1021.
"Disqualified Stock" of any Person means any Capital Stock of such
Person which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of such Person, any
Subsidiary of such Person or the holder thereof, in whole or in part, on or
prior to the final Stated Maturity of the Securities, provided, however, that
any Preferred Stock which would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require the Company to
repurchase or redeem such Preferred Stock upon the occurrence of a Change of
Control occurring prior to the final Stated Maturity of the Securities shall not
constitute Disqualified Stock if the change of control provisions applicable to
such Preferred Stock are no more favorable to the holders of such Preferred
Stock than the provisions applicable to the Securities contained in Section 1010
and such Preferred Stock specifically provides that the Company shall not
repurchase or redeem any such stock pursuant to such provisions prior to the
Company's repurchase of such Securities as are required to be repurchased
pursuant to Section 1010.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A" (or higher) according to Standard &
Poor's Ratings Services or Moody's Investors Service, Inc. at the time as of
which any investment or rollover therein is made.
"Eligible Receivables" means, at any time, Receivables of the Company
and its Restricted Subsidiaries, as evidenced on the most recent quarterly
consolidated balance sheet of the Company as at a date at least 45 days prior to
such time, less Receivables of the Company or any Restricted Subsidiary employed
to secure Debt Incurred pursuant to clause (vii) of paragraph (b) of Section
1011.
"Event of Default" has the meaning specified in Section 501.
<PAGE>
10
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any successor act), and the rules and regulations thereunder (or respective
successors thereto).
"Exchange Offer" means the exchange offer that may be effected
pursuant to the Registration Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Agreement.
"Exchange Securities" has the meaning stated in the first recital of
this Indenture and refers to any Exchange Securities containing terms
substantially identical to the Initial Securities (except that such Exchange
Securities shall not contain terms with respect to transfer restrictions) that
are issued and exchanged for the Initial Securities pursuant to the Registration
Agreement and this Indenture.
"Expiration Date" has the meaning specified in "Offer to Purchase"
below.
"Fair Market Value" means, with respect to any asset or property, the
price that could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined by the Board of Directors acting in good faith and shall be evidenced
by a Board Resolution delivered to the Trustee.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"Global Security" means a Rule 144A Global Security or a Regulation S
Global Security, as the case may be.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged and
which have a remaining weighted average life to maturity of not less than one
year from the date of investment therein.
"Group" has the meaning specified in Section 1010.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing, or having the economic effect of
guaranteeing, any Debt of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Debt or to purchase (or to advance or
<PAGE>
11
supply funds for the purchase of) any security for the payment of such Debt,
(ii) to purchase property, securities or services for the purpose of assuring
the holder of such Debt of the payment of such Debt or (iii) to maintain working
capital, equity capital or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such Debt (and
"Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings correlative to
the foregoing); provided, however, that the Guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Guarantor" means a Restricted Subsidiary of the Company that has
executed a Restricted Subsidiary Guarantee.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including by acquisition of Subsidiaries or the recording, as required pursuant
to generally accepted accounting principles or otherwise, of any such Debt or
other obligation on the balance sheet of such Person (and "Incurrence",
"Incurred", "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); provided, however, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such time
becoming Debt shall not be deemed an Incurrence of such Debt and that neither
the accrual of interest nor the accretion of original issue discount shall be
deemed an Incurrence of Debt.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor under this Indenture or under the Securities to pay principal of,
premium, if any, and interest on the Securities when due and payable, whether at
maturity, by acceleration, call for redemption or repurchase or otherwise, and
all other amounts due or to become due under or in connection with this
Indenture or the Securities and the performance of all other obligations to the
Trustee (including, but not limited to, payment of all amounts due the Trustee
under Section 607), Paying Agent, Security Registrar and the Holders of the
Securities under this Indenture and the Securities according to the terms
thereof.
"Initial Purchaser" means Salomon Brothers Inc.
<PAGE>
12
"Initial Securities" has the meaning provided in the recitals to this
Indenture.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate or Currency Protection Agreement" of any Person means
any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance
or other extension of credit or capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) to, or purchase or acquisition of
Capital Stock, bonds, notes, debentures or other securities or evidence of Debt
issued by, any other Person, including any payment on a Guarantee of any
obligation of such other Person.
"Lien" means, with respect to any property or assets, any mortgage or
deed of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness), encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including, without limitation,
any conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing). For purposes of this definition
the sale, lease, conveyance or other transfer by the Company or any Subsidiary
of, including the grant of indefeasible rights of use or equivalent arrangements
with respect to, dark or lit communications fiber capacity or communications
conduit shall not constitute a Lien.
"Liquidated Interest" has the meaning specified in Exhibit A.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Net Available Proceeds" from any Asset Disposition by any Person
means cash or cash equivalents received (including amounts received by way of
sale or discounting of any note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such properties or assets)
therefrom by such Person, net of (i) any portion thereof invested within 360
days of such Asset Disposition in Telecommunications Assets, (ii) all legal,
title and
<PAGE>
13
recording tax expenses, commissions and other fees and expenses Incurred and all
federal, state, provincial, foreign and local taxes required to be accrued as a
liability as a consequence of such Asset Disposition, (iii) all payments made by
such Person or its Subsidiaries on any Debt which is secured by such assets in
accordance with the terms of any Lien upon or with respect to such assets or
which must by the terms of such Lien, or in order to obtain a necessary consent
to such Asset Disposition or by applicable law, be repaid out of the proceeds
from such Asset Disposition, (iv) all distributions and other payments made to
minority interest holders in Subsidiaries of such Person or Permitted Joint
Ventures as a result of such Asset Disposition and (v) appropriate amounts to be
provided by such Person or any Subsidiary thereof, as the case may be, as a
reserve in accordance with generally accepted accounting principles against any
liabilities associated with such assets and retained by such Person or any
Subsidiary thereof, as the case may be, after such Asset Disposition, including,
without limitation, liabilities under any indemnification obligations and
severance and other employee termination costs associated with such Asset
Disposition, in each case as determined by the Board of Directors of such
Person, in its reasonable good faith judgment evidenced by Board Resolution
filed with the Trustee; provided, however, that any reduction in such reserve
within twelve months following the consummation of such Asset Disposition shall
be for all purposes of this Indenture and the Securities treated as a new Asset
Disposition at the time of such reduction with Net Available Proceeds equal to
the amount of such reduction.
"Notice of Default" has the meaning specified in Section 501.
"Offer" has the meaning specified in "Offer to Purchase" below.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company by first class mail, postage prepaid, to each Holder of Securities at
his address appearing in the Security Register on the date of the Offer offering
to purchase up to the principal amount of Securities specified in such Offer at
the purchase price specified in such Offer (as determined pursuant to Section
1010). Unless otherwise required by applicable law, the Offer shall specify an
expiration date (the "Expiration Date") of the Offer to Purchase which shall be,
subject to any contrary requirements of applicable law, not less than 30 days or
more than 60 days after the date of such Offer and a settlement date (the
"Purchase Date") for purchase of Securities within five Business Days after the
Expiration Date. The Company shall notify the Trustee at least 15 Business Days
(or such shorter period as is acceptable to the Trustee) prior to the mailing of
the Offer of the Company's obligation to make an Offer to Purchase, and the
Offer shall be mailed by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. The Offer shall contain
information concerning the business of the Company and its Subsidiaries which
the Company in good faith believes will enable such Holders to make an informed
decision with respect to the Offer to Purchase (which at a minimum will include
(i) the most recent annual and quarterly financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
<PAGE>
14
contained in the documents required to be filed with the Trustee pursuant to
Section 1008 (which requirements may be satisfied by delivery of such documents
together with the Offer), (ii) a description of material developments in the
Company's business subsequent to the date of the latest of such financial
statements referred to in clause (i) (including a description of the events
requiring the Company to make the Offer to Purchase), (iii) if applicable,
appropriate pro forma financial information concerning the Offer to Purchase and
the events requiring the Company to make the Offer to Purchase and (iv) any
other information required by applicable law to be included therein). The Offer
shall contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Offer to Purchase. The Offer shall also state:
(a) the Section of this Indenture pursuant to which the Offer to
Purchase is being made;
(b) the Expiration Date and the Purchase Date;
(c) the aggregate principal amount at maturity of the Outstanding
Securities offered to be purchased by the Company pursuant to the Offer to
Purchase (including, if less than 100%, the manner by which such has been
determined pursuant to the Section hereof requiring the Offer to Purchase)
(the "Purchase Amount");
(d) the purchase price to be paid by the Company for each $1,000
aggregate principal amount at maturity of Securities accepted for payment
(as specified pursuant to Section 1010) (the "Purchase Price");
(e) that the Holder may tender all or any portion of the Securities
registered in the name of such Holder and that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal
amount at maturity;
(f) the place or places where Securities are to be surrendered for
tender pursuant to the Offer to Purchase;
(g) that any Securities not tendered or tendered but not purchased by
the Company will continue to accrete or accrue interest, as the case may
be;
(h) that on the Purchase Date the Purchase Price will become due and
payable upon each Security being accepted for payment pursuant to the Offer
to Purchase and that interest thereon, if any, shall cease to accrue on and
after the Purchase Date;
<PAGE>
15
(i) that each Holder electing to tender a Security pursuant to the
Offer to Purchase will be required to surrender such Security at the place
or places specified in the Offer prior to the close of business on the
Expiration Date (such Security being, if the Company or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or its attorney duly authorized in writing);
(j) that Holders will be entitled to withdraw all or any portion of
Securities tendered if the Company (or their Paying Agent) receives, not
later than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount at maturity of the Security the Holder tendered, the
certificate number of the Security the Holder tendered and a statement that
such Holder is withdrawing all or a portion of its tender;
(k) that (i) if Securities in an aggregate principal amount at
maturity less than or equal to the Purchase Amount are duly tendered and
not withdrawn pursuant to the Offer to Purchase, the Company shall purchase
all such Securities and (ii) if Securities in an aggregate principal amount
at maturity in excess of the Purchase Amount are tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase Securities
having an aggregate principal amount at maturity equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Securities in denominations of $1,000 or integral
multiples thereof shall be purchased); and
(l) that in the case of any Holder whose Security is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in an aggregate principal amount at maturity equal to and in
exchange for the unpurchased portion of the Security so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Offering Memorandum" means the Offering Memorandum dated January 22,
1998 pursuant to which the Securities were offered, and any supplement thereto.
"Officers' Certificate" means a certificate signed by the Chairman of
the board of directors of the Company, a Vice Chairman of the board of directors
of the Company, the President or a Vice President, and by the Chief Financial
Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company and delivered to the
Trustee, which shall comply with the Indenture.
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16
"Opinion of Counsel" means an opinion of counsel acceptable to the
Trustee (who may be counsel to the Company, including an employee of the
Company).
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust or
set aside and segregated in trust by the Company (if the Company shall act
as its own Paying Agent) for the Holders of such Securities; provided that,
if such Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture;
(iii) Securities, except to the extent provided in Sections 1202 and
1203, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article Twelve; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands the Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount at maturity of Outstanding Securities have given any request,
demand, authorization, direction, consent, notice or waiver hereunder, and for
the purpose of making the calculations required by TIA Section 313, Securities
owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which any
Responsible Officer of the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or such other obligor.
<PAGE>
17
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal or Accreted Value
of (and premium, if any) or interest on any Securities on behalf of the Company.
"Permitted Holders" means any Person who was the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of stock of the
Company on March 31, 1997, and any Affiliates of such Person (i) who were
Affiliates of such Person on March 31, 1997 or (ii) who were formed, directly or
indirectly, by any such Person after March 31, 1997; provided, however, that
Persons who were beneficial owners (within the meaning of Rule 13d-3 under the
Exchange Act) of such Person on March 31, 1997 continued to be beneficial owners
(within the meaning of Rule 13d-3 under the Exchange Act) at the time of
formation of such Affiliate.
"Permitted Interest Rate or Currency Protection Agreement" of any
Person means any Interest Rate or Currency Protection Agreement entered into
with one or more financial institutions in the ordinary course of business that
is designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans,
advances or extensions of credit to employees and directors made in the ordinary
course of business and consistent with past practice; (d) obligations under
Interest Rate or Currency Protection Agreements; (e) bonds, notes, debentures
and other securities received as a result of Asset Dispositions pursuant to and
in compliance with Section 1018; (f) Investments made in the ordinary course of
business as partial payment for constructing a network relating to a
Telecommunications Business; (g) commercially reasonable extensions of trade
credit; (h) Investments in any Person as a result of which such Person becomes a
Restricted Subsidiary; (i) Investments in Permitted Joint Ventures in an
aggregate amount not to exceed $25 million; (j) Investments in Affiliates or
Related Persons in an aggregate amount not to exceed $11 million, provided that
the making of such Investments is permitted pursuant to Section 1020; and (k)
Investments in an aggregate amount not to exceed $15 million consisting of the
contribution by the Company or any Restricted Subsidiary of assets located in
Mexico to joint ventures in which the Company or a Restricted Subsidiary has an
interest.
"Permitted Joint Venture" means a Corporation, partnership or other
entity other than a Restricted Subsidiary engaged in one or more
Telecommunications Businesses over which the Company and/or one or more
Strategic Investors have, directly or indirectly, the power to direct the
policies, management and affairs.
<PAGE>
18
"Permitted Liens" means (a) Liens for taxes, assessments, governmental
charges, levies or claims which are not yet delinquent or which are being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with generally
accepted accounting principles shall have been made therefor; (b) other Liens
incidental to the conduct of the Company's and its Restricted Subsidiaries'
business or the ownership of its property and assets not securing any Debt, and
which do not in the aggregate materially detract from the value of the Company's
and its Restricted Subsidiaries' property or assets when taken as a whole, or
materially impair the use thereof in the operation of its business; (c) Liens
with respect to assets of a Restricted Subsidiary granted by such Restricted
Subsidiary to the Company or a Restricted Subsidiary to secure Debt owing to the
Company or such Restricted Subsidiary; (d) Liens, pledges and deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of statutory obligations; (e) Liens,
pledges or deposits made to secure the performance of tenders, bids, leases,
public or statutory obligations, sureties, stays, appeals, indemnities,
performance or other similar bonds and other obligations of like nature Incurred
in the ordinary course of business (exclusive of obligations for the payment of
borrowed money); (f) zoning restrictions, servitudes, easements, rights-of-way,
restrictions and other similar charges or encumbrances Incurred in the ordinary
course of business which, in the aggregate, do not materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Company or its Restricted Subsidiaries; (g) Liens
arising out of judgments or awards against or other court proceedings concerning
the Company or any Restricted Subsidiary with respect to which the Company or
such Restricted Subsidiary is prosecuting an appeal or proceeding for review and
the Company or such Restricted Subsidiary is maintaining adequate reserves in
accordance with generally accepted accounting principles; and (h) any interest
or title of a lessor in the property subject to any lease other than a Capital
Lease.
"Permitted Telecommunications Capital Asset Disposition" means the
transfer, conveyance, sale, lease or other disposition of a capital asset that
is a Telecommunications Asset (including fiber, conduit and related equipment)
(i) the proceeds of which are treated as revenues by the Company in accordance
with generally accepted accounting principles and (ii) that, in the case of the
sale of fiber, would not result in the Company retaining less than 24 fibers per
route mile on any segment of the Company's network.
"Person" means any individual, Corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or agency or political subdivision thereof or any other entity.
"Physical Security" means Securities issued in registered definitive
form without coupons substantially in the form of Exhibit A.
<PAGE>
19
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Dividends" for any Person means for any period the quotient
determined by dividing the amount of dividends and distributions paid or accrued
(whether or not declared) on Preferred Stock of such Person during such period
calculated in accordance with generally accepted accounting principles, by 1
minus the maximum statutory income tax rate then applicable to the Company
(expressed as a decimal).
"Preferred Stock" of any Person means Capital Stock of such Person of
any class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Private Placement Legend" means the third paragraph of the legend set
forth in the Securities in the form set forth in Exhibit A.
"Public Equity Offering" means an underwritten public offering of
common stock made on a primary basis by the Company pursuant to a registration
statement filed with, and declared effective by, the Commission in accordance
with the Securities Act.
"Purchase Amount" has the meaning specified in "Offer to Purchase"
above.
"Purchase Date" has the meaning specified in "Offer to Purchase"
above.
"Purchase Money Debt" means Debt Incurred at any time within 270 days
of, and for the purposes of financing all or any part of the cost of, the
construction, installation, acquisition or improvement by the Company or any
Restricted Subsidiary of the Company of any new Telecommunications Assets
constructed, installed, acquired or improved after March 31, 1997, provided that
the proceeds of such Debt are expended for such purposes within such 270-day
period.
"Purchase Price" has the meaning specified in "Offer to Purchase"
above.
"Qualified Institutional Buyer" or "QIB" has the meaning specified in
Rule 144A.
<PAGE>
20
"Rating Decline" means the Securities cease to be rated B+ (or the
equivalent thereof) or better by Standard & Poor's Ratings Services or B2 (or
the equivalent thereof) or better by Moody's Investors Service, Inc.
"Receivables" means receivables, chattel paper, instruments, documents
or intangibles evidencing or relating to the right to payment of money,
excluding allowances for doubtful accounts.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purposes of collection and not as a
financing arrangement.
"Redemption Date", when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Agreement" means the Registration Agreement between the
Company and the Initial Purchaser named therein, dated as of January 29, 1998,
relating to the Securities.
"Registration Statement" means the Registration Statement as defined
in the Registration Agreement.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the January 15 or July 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Security" has the meaning specified in Section
303.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a Corporation, 5% or more of the
outstanding equity interest in such Person) or (b) 5% or more of the combined
outstanding voting power of the Voting Stock of such Person.
<PAGE>
21
"Responsible Officer", when used with respect to the Trustee, means
any officer within the Trustee's Corporate Trust Office, including any vice
president, the Managing Director, the secretary, any assistant secretary, any
assistant treasurer, or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers,
and also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Payment" has the meaning specified in Section 1013.
"Restricted Subsidiary" means a Subsidiary of the Company, or of a
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company, that has
not been designated by the Board of Directors (by a Board Resolution delivered
to the Trustee) as an Unrestricted Subsidiary pursuant to and in compliance with
Section 1021.
"Restricted Subsidiary Guarantee" means a supplemental indenture to
this Indenture, in form satisfactory to the Trustee, executed in accordance with
Article Nine, providing for an unconditional Guarantee of payment in full of the
principal of, premium, if any, and interest on the Securities. Any such
Restricted Subsidiary Guarantee shall not be subordinate in right of payment to
any Debt of the Restricted Subsidiary providing the Restricted Subsidiary
Guarantee.
"Revocation" has the meaning specified in Section 1021.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Global Security" has the meaning specified in Section 303.
"Sale and Leaseback Transaction" of any Person means an arrangement
with any lender or investor or to which such lender or investor is a party
providing for the leasing by such Person of any property or asset of such Person
which has been or is being sold or transferred by such Person more than 365 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
"Securities" means any of the Securities, as defined in the recitals
of this Indenture, that are authenticated and delivered under this Indenture.
For all purposes of this Indenture, the "Securities" shall include the Initial
Securities initially issued on January 29, 1998 and any Exchange Securities to
be issued and exchanged for any Initial Securities pursuant to the Registration
Agreement and this Indenture and any other Notes issued after January 29,
<PAGE>
22
1998 under this Indenture. For purposes of this Indenture, all Securities shall
vote together as one series of Securities under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Notes" means the Company's 10 7/8% Series B Senior Notes Due
2007 which were issued on August 28, 1997 to exchange the Company's 10 7/8%
Senior Notes Due 2007, issued on March 31, 1997, and 9.47% Senior Discount Notes
Due 2007 which were issued on October 15, 1997.
"Senior Note Indentures" means (i) the Indenture dated March 31, 1997
between the Company and Bankers Trust Company, as trustee thereunder, relating
to the Company's 10 7/8% Senior Notes Due 2007 (which were subsequently
exchanged for the Company's 10 7/8% Series B Senior Notes Due 2007) and (ii) the
Indenture dated October 15, 1997 between the Company and Bankers Trust Company,
as trustee thereunder, relating to the Company's 9.47% Senior Discount Notes due
2007.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Agreement.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal amount at maturity of such Security or
such installment of interest is due and payable.
"Strategic Investor" means a Corporation, partnership or other entity
engaged in one or more Telecommunications Businesses that has, or 80% or more of
the Voting Stock of which is owned by a Person that has, an equity market
capitalization, at the time of its initial Investment in the Company or in a
Permitted Joint Venture with the Company, in excess of $2 billion.
"Subordinated Debt" means Debt of the Company as to which the payment
of principal of (and premium, if any) and interest and other payment obligations
in respect of such Debt shall be subordinate to the prior payment in full of the
Securities to at least the
<PAGE>
23
following extent: (i) no payments of principal of (or premium, if any) or
interest on or otherwise due in respect of such Debt may be permitted for so
long as any default in the payment of principal or Accreted Value (or premium,
if any) or interest on the Securities exists; (ii) in the event that any other
Default exists with respect to the Securities, upon notice by 25% or more in
principal amount at maturity of the Securities, to the Trustee, the Trustee
shall have the right to give notice to the Company and the holders of such Debt
(or trustees or agents therefor) of a payment blockage, and thereafter no
payments of principal of (or premium, if any) or interest on or otherwise due in
respect of such Debt may be made for a period of 179 days from the date of such
notice; and (iii) such Debt may not (x) provide for payments of principal of
such Debt at the stated maturity thereof or by way of a sinking fund applicable
thereto or by way of any mandatory redemption, defeasance, retirement or
repurchase thereof by the Company (including any redemption, retirement or
repurchase which is contingent upon events or circumstances but excluding any
retirement required by virtue of acceleration of such Debt upon an event of
default thereunder), in each case prior to the final Stated Maturity of the
Securities or (y) permit redemption or other retirement (including pursuant to
an offer to purchase made by the Company) of such other Debt at the option of
the holder thereof prior to the final Stated Maturity of the Securities, other
than a redemption or other retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase made by the Company) which is
conditioned upon a change of control of the Company pursuant to provisions
substantially similar to those described in Section 1010 (and which shall
provide that such Debt shall not be repurchased pursuant to such provisions
prior to the Company's repurchase of the Securities required to be repurchased
by the Company pursuant to the provisions of Section 1010).
"Subsidiary" of any Person means (i) a Corporation more than 50% of
the combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a Corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting,
or providing services relating to the transmission of, voice, data or video
through owned or leased transmission facilities, (ii) constructing, creating,
developing or marketing communications related network equipment, software and
other devices for use in a telecommunications business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is
<PAGE>
24
primarily related to those identified in (i) or (ii) above, provided that the
determination of what constitutes a Telecommunications Business shall be made in
good faith by the Board of Directors.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 1021.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only for so long as
no senior class of securities has such voting power by reason of any
contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Voting Stock or other ownership interests (other
than directors' qualifying shares) of which shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
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25
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1009(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated (with
proper identification of each matter covered therein) and form one instrument.
<PAGE>
26
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount at maturity and serial numbers of Securities
held by any Person, and the date of holding the same, shall be proved by the
Security Register.
(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such
<PAGE>
27
authorization, agreement or consent by the Holders on such record date shall be
deemed effective unless it shall become effective pursuant to the provisions of
this Indenture not later than eleven months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 105. Notices, Etc., to Trustee and Company.
-------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Market Services, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at the address of such
Holder as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice mailed to a Holder in the manner herein prescribed
shall be conclusively deemed to have been received by such Holder, whether or
not such Holder actually receives such notice. Where this Indenture provides
for notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such
<PAGE>
28
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Security Registrar and their successors hereunder and the Holders any legal or
equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
-------------
This Indenture and the Securities shall be governed by and construed
in accordance with the law of the State of New York.
SECTION 112. Conflict with Trust Indenture Act.
---------------------------------
Prior to the issuance of the Exchange Securities or the effectiveness
of the Shelf Registration Statement, the Trust Indenture Act shall apply as a
matter of contract to this
<PAGE>
29
Indenture for purposes of interpretation, construction and defining the rights
and obligations hereunder. Upon the issuance of the Exchange Securities or the
effectiveness of the Shelf Registration Statement, this Indenture shall be
subject to the provisions of the Trust Indenture Act that are required to be
part of this Indenture and shall, to the extent applicable, be governed by such
provisions. If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such provision or requirement of the Trust Indenture Act shall
control.
If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or excluded,
as the case may be.
SECTION 113. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, or
Stated Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal or Accreted Value (or premium, if any) or interest need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the Interest Payment Date or Redemption
Date or at the Stated Maturity or Maturity; provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption
Date, Stated Maturity or Maturity, as the case may be.
SECTION 114. No Personal Liability of Directors, Officers, Employees
-------------------------------------------------------
and Stockholders.
- - ----------------
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities or this Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation, solely by reason of its
status as a director, officer, employee, incorporator or stockholder of the
Company. By accepting a Security, each Holder waives and releases all such
liability (but only such liability). The waiver and release are part of the
consideration for issuance of the Securities.
SECTION 115. Independence of Covenants.
-------------------------
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default if such action is taken or condition exists.
<PAGE>
30
SECTION 116. Exhibits.
--------
All exhibits attached hereto are by this reference made a part hereof
with the same effect as if herein set forth in full.
SECTION 117. Counterparts.
------------
This Indenture may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.
SECTION 118. Duplicate Originals.
-------------------
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
---------------
The Securities and the Trustee's certificate of authentication with
respect thereto shall be in substantially the form set forth in Exhibit A
hereto, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or system on which the Securities may be listed or eligible
for trading or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution of the Securities.
Any portion of the text of any Security may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner permitted by
the rules of any securities exchange or system on which the Securities may be
listed or eligible for trading, all
<PAGE>
31
as determined by the officers of the Company executing such Securities, as
evidenced by their execution of such Securities.
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
---------------
The aggregate principal amount at maturity of Securities which may be
authenticated and delivered under this Indenture is limited to $450,505,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906, 1010, 1018 or 1108.
The Initial Securities shall be known and designated as the "8.29%
Senior Discount Notes Due 2008" and the Exchange Securities shall be known as
the "8.29% Series B Senior Discount Notes". The Stated Maturity of the
Securities shall be February 1, 2008. The Securities shall accrete at the rate
of 8.29% per annum, compounded semiannually, to an aggregate principal amount of
$450,505,000 by February 1, 2003, and shall bear cash interest at the rate of
8.29% per annum accruing from February 1, 2003 or from the most recent Interest
Payment Date to which cash interest has been paid or duly provided for, payable
initially on August 1, 2003 and semiannually thereafter on February 1 and August
1, in each year and at said Stated Maturity, until the principal amount at
maturity thereof is paid or duly provided for; provided, however, that the
Company may elect, upon not less than 60 days' prior notice to the Holders and
the Trustee in accordance with Section 105 and Section 106 hereof, to commence
the accrual of cash interest on all Outstanding Securities on any August 1 or
February 1 on or after February 1, 2001 and prior to February 1, 2003, in which
case the Outstanding principal amount at Stated Maturity of each Security will
on such commencement date be reduced to the Accreted Value of such Security as
of such date and cash interest shall be payable with respect to such Security on
each August 1 and February 1 thereafter. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months.
Principal or Accreted Value of, premium, if any, and interest on the
Securities will be payable, and the Securities may be exchanged or transferred,
at the office or agency of the Company in The City of New York, which, unless
otherwise provided by the Company, will be the offices of the Trustee. At the
option of the Company, interest may be paid by check mailed to addresses of the
Persons entitled thereto as such addresses shall appear on the Security
Register.
<PAGE>
32
The interest rate on the Securities is subject to increase by the
addition of Liquidated Interest and otherwise, all as set forth or referred to
in the text of the Securities appearing in Exhibit A hereto.
The Securities shall be redeemable as provided in Article Eleven.
At the election of the Company, the entire Debt on the Securities or
certain of the Company's obligations and covenants and certain Events of Default
thereunder may be defeased as provided in Article Twelve.
The Securities will be senior unsecured obligations of the Company,
ranking pari passu in right of payment with all existing and future senior
unsecured Debt of the Company, and will be senior in right of payment to all
existing and future Subordinated Debt of the Company.
SECTION 302. Denominations.
-------------
The Securities will be issued without coupons and in fully registered
form only, in minimum denominations of $1,000 principal amount at maturity and
integral multiples thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its Chief
Executive Officer, its President or a Vice President under its corporate seal
reproduced thereon. The signature of any of these officers on the Securities
may be manual or facsimile signatures of the present or any future such
authorized officer and may be imprinted or otherwise reproduced on the
Securities. The seal of the Company may be in the form of a facsimile thereof
and may be impressed, affixed, imprinted or otherwise reproduced on the
Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities. In addition, any Security may
be signed on behalf of the Company by such Persons as, at the actual date of the
execution of such Security, shall be the proper officers of the Company,
although at the date of such Security or of the execution of this Indenture any
such Person was not such officer.
<PAGE>
33
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
The Trustee shall authenticate Securities for original issue in an
aggregate principal amount at maturity not to exceed $450,505,000 upon receipt
of a Company Order, which shall, specify the amount of Securities to be
authenticated, the names of the persons in which such Securities shall be
registered and the date on which such Securities are to be authenticated and
direct the Trustee to authenticate such Securities together with an Officers'
Certificate certifying that all conditions precedent to the issuance of such
Securities contained herein have been complied with. The aggregate principal
amount at maturity of Securities Outstanding at any time shall not exceed
$450,505,000, except as provided in Section 304.
Except as described below, the Securities will be deposited with, or
on behalf of, the Depository, and registered in the name of Cede & Co. as the
Depository's nominee in the form of a global note certificate substantially in
the form of Exhibit A (the "Rule 144A Global Security"), for credit to the
respective accounts of the beneficial owners of the Securities represented
thereby.
Securities purchased by persons outside the United States pursuant to
sales in accordance with Regulation S under the Securities Act shall be
deposited with, or on behalf of, the Depository, and registered in the name of
Cede & Co. as the Depository's nominee in the form of one or more global note
certificates substantially in the form of Exhibit A (each a "Regulation S Global
Security"), for credit to the respective accounts of the beneficial owners of
the Securities represented thereby (or such other accounts as they may direct),
provided that upon such deposit all such Securities shall be credited to or
through accounts maintained at the Depository by or on behalf of the Euroclear
System or Cedel Bank, societe anonyme. Securities represented by a Regulation S
Global Security will not be exchangeable for Physical Securities until the
expiration of the "40-day restricted period" within the meaning of Rule
903(c)(3) of Regulation S under the Securities Act.
<PAGE>
34
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Securities executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Securities surrendered for such
exchange and of like principal amount; and the Trustee, upon Company Request of
the successor Person, shall authenticate and deliver Securities as specified in
such request for the purpose of such exchange. If Securities shall at any time
be authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Securities, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Securities at the time
Outstanding for Securities authenticated and delivered in such new name.
SECTION 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount at
maturity of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
<PAGE>
35
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers and exchange of Securities. The Security
Register shall be in written form or any other form capable of being converted
into written form within a reasonable time. At all reasonable times, the
Security Register shall be open to inspection by the Trustee. The Trustee is
hereby initially appointed as security registrar (the "Security Registrar") for
the purpose of registering Securities and transfers and exchanges of Securities
as herein provided.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, the Trustee shall authenticate and deliver, and the Security
Registrar shall register, if the requirements, of such transfer are met, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denomination or denominations of a like aggregate principal
amount at maturity.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount at maturity (including an exchange of Initial Securities for Exchange
Securities), upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, the Trustee shall authenticate and deliver, and the Security
Registrar shall register, the Securities which the Holder making the exchange is
entitled to receive, provided that no exchange of Initial Securities for
Exchange Securities shall occur until an Exchange Offer Registration Statement
shall have been declared effective by the Commission (confirmed in an Officer's
Certificate) and that the Initial Securities to be exchanged for the Exchange
Securities shall be cancelled by the Trustee.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Security Registrar)
be duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
<PAGE>
36
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906, 1010, 1018 or 1108 not involving
any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of business on the day of such mailing of the relevant
notice of redemption or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If (i) any mutilated Security is surrendered to the Trustee or (ii)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount at maturity, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
<PAGE>
37
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
1002; provided, however, that each installment of interest may at the Company's
option be paid by mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 308, to the
address of such Person as it appears in the Security Register.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Securities (such defaulted
interest and interest thereon herein collectively called "Defaulted Interest")
may be paid by the Company, at its election in each case, as provided in
paragraph (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date, and in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be given in the manner provided for in
Section 106, not less than 10 days prior to such Special
<PAGE>
38
Record Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor having been so given, such Defaulted
Interest shall be paid to the Persons in whose names the Securities (or
their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following paragraph (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange or system on which the Securities may be listed or
eligible for trading, and upon such notice as may be required by such
exchange or system, if, after notice given by the Company to the Trustee of
the proposed payment pursuant to this clause, such manner of payment shall
be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal or Accreted
Value of (and premium, if any) and (subject to Sections 305 and 307) interest on
such Security and for all other purposes whatsoever, whether or not such
Security be overdue, and none of the Company, the Trustee or any agent of the
Company or the Trustee shall be affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any
<PAGE>
39
Securities cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Securities held by the Trustee shall be
disposed of by the Trustee in accordance with its customary procedures and
certification of their disposal delivered to the Company unless by Company Order
the Company shall direct that cancelled Securities be returned to it.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
SECTION 311. CUSIP Number.
------------
The Company in issuing the Securities may use a "CUSIP" number (if
then generally in use), and if so, the Trustee may use the CUSIP numbers in
notices of redemption or exchange as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice or on the
Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities. The Company shall promptly notify the
Trustee in writing of any change in the CUSIP number of the Securities.
SECTION 312. Book-Entry Provisions for Global Securities.
-------------------------------------------
(a) The Global Securities initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Exhibit A.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a beneficial owner of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Rule 144A Global Security may be
transferred or exchanged for
<PAGE>
40
interests in a Regulation S Global Security, and interests of beneficial owners
in a Regulation S Global Security may be transferred or exchanged for interests
in a Rule 144A Global Security, in each case in accordance with the rules and
procedures of the Depository and the provisions of Section 313. In addition,
Physical Securities shall be transferred to all beneficial owners in exchange
for their beneficial interests in a Global Security if (i) the Depository
notifies the Company that it is unwilling or unable to continue as a depository
for such Global Security or if at any time the Depository ceases to be a
clearing agency registered under the Exchange Act, and a successor depository is
not appointed by the Company within 90 days, (ii) the Company executes and
delivers to the Trustee a notice that such Global Security shall be so
transferable, registrable and exchangeable, and such transfer shall be
registrable, or (iii) there shall have occurred and be continuing a Default or
Event of Default with respect to the Securities represented by such Global
Security.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b), the Global Securities
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the Global Securities, an equal aggregate principal amount at
maturity of Physical Securities of like tenor of authorized denominations.
(d) Any Physical Security delivered in exchange for an interest in a
Global Security pursuant to paragraph (c) of this Section 312 shall, except as
otherwise provided by (b)(1)(x) and paragraph (d) of Section 313, bear the
legend regarding transfer restrictions applicable to the Physical Securities set
forth in Exhibit A.
(e) The Holder of any Global Security may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
SECTION 313. Special Transfer Provisions.
---------------------------
(a) Transfers to Non-QIB Institutional Accredited Investors. The
-------------------------------------------------------
Initial Securities shall not be transferred to any Person that is not a QIB or a
non-U.S. Person.
(b) Transfers to Non-U.S. Persons. The following provisions shall
-----------------------------
apply with respect to the registration of any proposed transfer of an Initial
Security to any non-U.S. person:
(1) the Security Registrar shall register the transfer of any Initial
Security if (x) the requested transfer is not prior to the date which is
two years (or such shorter
<PAGE>
41
period as may be prescribed by Rule 144(k) under the Securities Act or any
successor provision thereunder) after the later of the original issue date
of such Initial Security (or of any Predecessor Security) or the last day
on which the Company or any Affiliate of the Company was the owner of such
Initial Security or any Predecessor Security or (y) the proposed transferee
has delivered to the Security Registrar a certificate substantially in the
form of Exhibit B hereto; and
(2) the Security Registrar shall register the transfer of any Initial
Security if the proposed transferor is an Agent Member holding a beneficial
interest in a Rule 144A Global Security, upon receipt by the Security
Registrar of (x) the certificate, if any, required by paragraph (1) above
and (y) instructions given in accordance with the Depository's and the
Security Registrar's procedures;
whereupon the Security Registrar shall reflect on its books and records the date
of such transfer and (A) (if the transfer involves a transfer of a beneficial
interest in a Rule 144A Global Security) a decrease in the principal amount of
such Rule 144A Global Security in an amount equal to the principal amount to be
transferred and (B) an increase in the principal amount of a Regulation S Global
Security in an amount equal to the principal amount to be transferred.
(c) Private Placement Legend. Upon the registration of transfer,
------------------------
exchange or replacement of Initial Securities, the Security Registrar shall
deliver only Initial Securities that bear the Private Placement Legend unless
(i) (x) the circumstances contemplated by clause (b)(1)(x) of this Section 313
exist or (y) such Security has been sold pursuant to an effective registration
statement under the Securities Act and (ii) there is delivered to the Security
Registrar and the Trustee an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(d) Other Transfers. If a Holder proposes to transfer an Initial
---------------
Security pursuant to any exemption from the registration requirements of the
Securities Act other than as provided for by Section 313(a) and 313(b), the
Security Registrar shall only register such transfer or exchange if such
transferor delivers to the Security Registrar and the Trustee an Opinion of
Counsel satisfactory to the Company and the Security Registrar that such
transfer is in compliance with the Securities Act and the terms of this
Indenture; provided that the Company may, based upon the opinion of its counsel,
instruct the Security Registrar by a Company Order not to register such transfer
in any case where the proposed transferee is not a QIB or a non-U.S. person.
(e) General. By its acceptance of any Security bearing the Private
-------
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of
<PAGE>
42
such Security set forth in this Indenture and in the Private Placement Legend
and agrees that it will transfer such Security only as provided in this
Indenture.
The Security Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 312 or this Section
313 for a period of two years, after which time such letters, notices and other
written communications shall at the written request of the Company be delivered
to the Company. The Company shall have the right to inspect and make copies of
all such letters, notices or other written communications at any reasonable time
upon the giving of reasonable prior written notice to the Security Registrar.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of
-----------------------------
Indenture.
- - ---------
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities expressly provided for herein or pursuant hereto) and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(b) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
<PAGE>
43
(iii) are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name, and at
the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to clause (1)(b) of this Section
401, the obligations of the Trustee under Section 402 and the last paragraph of
Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
<PAGE>
44
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of the principal or Accreted Value of (or
premium, if any, on) any Security at its Maturity; or
(2) default in the payment of any interest on any Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(3) default in the payment of principal or Accreted Value and interest
on any Security required to be purchased pursuant to an Offer to Purchase
pursuant to Section 1010 or 1018; or
(4) default in the performance, or breach, of Section 801 or 1018; or
(5) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture or in any Security (other than a covenant
or warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default or
breach for a period of 60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount at
maturity of the Outstanding Securities a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(6) a default or defaults under any bond(s), debenture(s), note(s) or
other evidence(s) of indebtedness by the Company or any Restricted
Subsidiary or under any mortgage(s), indenture(s) or instrument(s) under
which there may be issued or by which there may be secured or evidenced any
indebtedness of such type by the Company or any such Restricted Subsidiary
with a principal amount then outstanding, individually or in the aggregate,
in excess of $10 million, whether such indebtedness now exists or shall
hereafter be created, which default or defaults shall result in the
acceleration of the payment of such indebtedness or shall constitute a
failure to pay the principal of
<PAGE>
45
such indebtedness when due at the final maturity thereof, or shall have
resulted in excess of $10 million of indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable (after expiration of any applicable grace period);
or
(7) a final judgment or final judgments for the payment of money are
entered against the Company or any Restricted Subsidiary in an aggregate
amount in excess of $10 million by a court or courts of competent
jurisdiction, which judgment or judgments remain undischarged or unbonded
for a period (during which execution shall not be effectively stayed) of 45
days after the right to appeal all such judgments has expired; or
(8) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Restricted Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Restricted Subsidiary under the Federal Bankruptcy Code
or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of the Company or any Restricted Subsidiary or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(9) the institution by the Company or any Restricted Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other applicable federal
or state law, or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Company or any Restricted
Subsidiary or of any substantial part of its property, or the making by it
of an assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 501(8) or (9)) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount at maturity of
the Outstanding Securities may declare the principal of all the Securities to be
due and payable immediately in an amount equal to the Accreted Value of the
Securities as of the date on which the Securities first become due and payable
(plus any accrued and unpaid interest and premium, if any, not otherwise
included in the Accreted Value to such date), by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal shall become immediately due and payable. If an Event of Default
specified in Section 501(8) or (9) occurs and is continuing, then the principal
of all the Securities shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder in
an amount equal to the Accreted Value of the Securities as of the date on which
the Securities first become due and payable (plus any accrued and unpaid
interest and premium, if any, not otherwise
<PAGE>
46
included in the Accreted Value to such date). At any time after a declaration of
acceleration has been made and before a judgment or decree for payment of the
money due has been obtained by the Trustee as hereinafter provided in this
Article Five, the Holders of a majority in principal amount at maturity of the
Outstanding Securities, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Outstanding Securities,
(B) all unpaid principal at maturity of (and premium, if any, on)
any Outstanding Securities which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal at
maturity at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the nonpayment of amounts of
principal or Accreted Value of (or premium, if any, on) Securities which
have become due solely by such declaration of acceleration, have been cured
or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event that a
declaration of acceleration in respect of the Securities due to an Event of
Default specified in Section 501(6)
<PAGE>
47
shall have occurred and be continuing, such declaration of acceleration shall be
automatically annulled if the Debt that is the subject of such Event of Default
has been discharged or the holders thereof have rescinded their declaration of
acceleration in respect of such Debt, and written notice of such discharge or
rescission, as the case may be, shall have been given to the Trustee by the
Company and countersigned by the holders of such Debt or a trustee, fiduciary or
agent for such holders, within 30 days after such declaration of acceleration in
respect of the Securities, and no other Event of Default has occurred during
such 30-day period which has not been cured or waived during such period.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- - -------
The Company covenants that if
(a) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal or Accreted Value
of (or premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities the whole amount then due and payable on such
Securities for principal or Accreted Value (and premium, if any) and interest,
and interest on any overdue principal or Accreted Value (and premium, if any)
and, to the extent that payment of such interest shall be legally enforceable,
upon any overdue installment of interest, at the rate borne by the Securities,
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such
<PAGE>
48
rights, whether for the specific enforcement of any covenant or agreement in
this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as herein expressed or by declaration or otherwise
and irrespective of whether the Trustee shall have made any demand on the
Company for the payment of overdue principal, Accreted Value, premium, if any,
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(i) to file and prove a claim for the whole amount of principal at
maturity (and premium, if any) and interest owing and unpaid in respect of
the Securities and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator or sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, and any
other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
<PAGE>
49
SECTION 505. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities.
- - ----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article Five shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal or
Accreted Value (or premium, if any) or interest, upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid for
principal or Accreted Value of (and premium, if any) and interest on the
Securities in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for principal
or Accreted Value (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount at
maturity of the Outstanding Securities shall have made written request to
the Trustee to
<PAGE>
50
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to it against the costs, expenses and liabilities
to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in aggregate principal amount at maturity of the Outstanding
Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- - --------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment as provided herein (including, if applicable, Article Twelve)
and in such Security of the principal and Accreted Value of (and premium, if
any) and (subject to Section 307) interest on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date) and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder
<PAGE>
51
and thereafter all rights and remedies of the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article Five or
by law to the Trustee or to the Holders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the Holders, as the
case may be.
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in aggregate principal amount
at maturity of the Outstanding Securities shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, provided
that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
<PAGE>
52
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in aggregate principal amount
at maturity of the Outstanding Securities may on behalf of the Holders of all
the Securities waive any past default hereunder and its consequences, except a
default
(1) in respect of the payment of the principal or Accreted Value of
(or premium, if any) or interest on any Security, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it shall not hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
<PAGE>
53
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but, in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the effect of
paragraph (a) of this Section 601;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a majority in principal amount at maturity of the
Outstanding Securities relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or indemnity reasonably satisfactory to it
against such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 601.
<PAGE>
54
SECTION 602. Notice of Default.
-----------------
Within 60 days after the occurrence of any Default hereunder, the
Trustee shall transmit, in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to any Responsible Officer of the
Trustee, unless such Default shall have been cured or waived; provided, however,
that, except in the case of a Default in the payment of the principal or
Accreted Value of (or premium, if any) or interest on any Security, the Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders; and provided
further that in the case of any Default of the character specified in Section
501(5) no such notice to Holders shall be given until at least 30 days after the
occurrence thereof.
SECTION 603. Certain Rights of Trustee.
-------------------------
Subject to Section 601 and to the provisions of TIA Sections 315(a)
through 315(d):
(1) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, receive and rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
<PAGE>
55
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee security or indemnity reasonably satisfactory
to it against the costs, expenses and liabilities which might be incurred
by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture; and
(9) the Trustee shall have no duties, obligations or liability in
connection with any Event of Default hereunder unless a Responsible Officer
of the Trustee has knowledge thereof.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Securities.
- - ----------
The recitals contained herein and in the Securities, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and
<PAGE>
56
perform its obligations hereunder. The Trustee shall not be accountable for the
use or application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
-------------------
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Securities and, subject to TIA Sections
310(b) and 311, may otherwise deal with the Company with the same rights it
would have if it were not Trustee, Paying Agent, Security Registrar or such
other agent.
SECTION 606. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to the Trustee's negligence
or bad faith; and
(3) to indemnify the Trustee and its directors, officers, employees
and agents for, and to hold them harmless against, any loss, liability or
expense incurred without negligence or bad faith on the part of any of
them, arising out of or in connection with the acceptance or administration
of this trust, including the costs and expenses of defending itself or
themselves against any claim or liability in connection with the exercise
or performance of any of its or their powers or duties hereunder.
The obligations of the Company under this Section 607 to compensate
the Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to
<PAGE>
57
indemnify and hold harmless the Trustee shall constitute additional indebtedness
hereunder and shall survive the satisfaction and discharge of this Indenture or
the earlier resignation or removal of the Trustee. As security for the
performance of such obligations of the Company, the Trustee shall have a claim
prior to the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the payment of principal or
Accreted Value of (and premium, if any) or interest on particular Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or (9), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section 607 shall survive the termination of
this Indenture or the earlier resignation or removal of the Trustee.
SECTION 608. Corporate Trustee Required; Eligibility; Conflicting
----------------------------------------------------
Interests.
- - ---------
(a) There shall be at all times a Trustee hereunder which shall be
subject to and comply with the provisions of Section 310(a)(1) of the Trust
Indenture Act and shall have a combined capital and surplus of at least
$50,000,000. If such Corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of federal, state, territorial
or District of Columbia supervising or examining authority, then, for the
purposes of this Section 608, the combined capital and surplus of such
Corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
608, it shall resign immediately in the manner and with the effect hereinafter
specified in this Article Six.
(b) The Trustee shall be subject to and comply with Section 310(b) of
the Trust Indenture Act.
SECTION 609. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 610.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 610
<PAGE>
58
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in aggregate principal amount at maturity of the
Outstanding Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(2) the Trustee shall cease to be eligible under Section 608(a) and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in aggregate principal amount at maturity of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly
<PAGE>
59
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 106. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
(g) The retiring Trustee shall not be liable for any of the acts or
omissions of any successor Trustee appointed hereunder.
SECTION 610. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 611. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- - --------
Any Corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any Corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such Corporation shall be otherwise qualified and eligible under
this Article Six, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
<PAGE>
60
Securities. In case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee.
In all such cases such certificates shall have the full force and effect which
this Indenture provides that the certificate of authentication of the Trustee
shall have; provided, however, that the right to adopt the certificate of
authentication of any predecessor Trustee or to authenticate Securities in the
name of any predecessor Trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
------------------
Within 60 days after May 15 of each year commencing with the first May
15 after the first issuance of Securities, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such May 15 if required by TIA Section 313(a).
SECTION 703. Reports by Company.
------------------
The Company shall file with the Trustee and deliver to the Holders of
Securities the reports and other information required to be provided by it
pursuant to Section 1008.
<PAGE>
61
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into any other Person or Persons or
permit any other Person to consolidate with or merge into the Company (other
than a merger of Qwest Corporation into the Company in which the Company shall
be the surviving Person) or (ii) directly or indirectly, transfer, sell, lease
or otherwise dispose of all or substantially all of its assets to any other
Person or Persons, unless, in any such transaction specified in clause (i) or
(ii):
(1) in a transaction in which the Company is not the surviving Person
or in which the Company sells, leases or otherwise disposes of all or
substantially all of its assets to any other Person, the resulting,
surviving or transferee Person (the "successor entity") is organized under
the laws of the United States of America or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental
indenture executed and delivered to the Trustee in form satisfactory to the
Trustee, all of the Company's obligations under this Indenture;
(2) immediately before and after giving effect to such transaction and
treating any Debt which becomes an obligation of the Company or a
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Company or such Restricted Subsidiary at the time of the
transaction, no Default or Event of Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company (or other successor entity to the
Company) is equal to or greater than that of the Company immediately prior
to the transaction;
(4) immediately after giving effect to such transaction and treating
any Debt which becomes an obligation of the Company or a Restricted
Subsidiary as a result of such transaction as having been Incurred by the
Company or such Restricted Subsidiary at the time of the transaction, the
Company (including any successor entity to the Company) could Incur at
least $1.00 of additional Debt pursuant to the provisions of paragraph (a)
of Section 1011;
(5) if, as a result of any such transaction, property or assets of the
Company would become subject to a Lien prohibited by the provisions of
Section 1015, the
<PAGE>
62
Company or the successor entity to the Company shall have secured the
Securities as required by such Section 1015; and
(6) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each in form and substance reasonably
satisfactory to the Trustee, stating that such consolidation, merger,
conveyance, transfer, lease or acquisition and, if a supplemental indenture
is required in connection with such transaction, such supplemental
indenture, complies with this Article and that all conditions precedent
herein provided for relating to such transaction have been complied with,
and, with respect to such Officers' Certificate, setting forth the manner
of determination of the Consolidated Net Worth, in accordance with clause
(3) of this Section 801, of the Company or, if applicable, of the successor
entity as required pursuant to the foregoing.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with or merger of the Company
with or into any other Corporation or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety to any Person
or Persons in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and, in the event of any such conveyance or transfer, the Company (which term
shall for this purpose mean the Person named as the "Company" in the first
paragraph of this Indenture or any successor Person which shall have become such
in the manner described in Section 801), except in the case of a lease, shall be
discharged of all obligations and covenants under this Indenture and the
Securities and may be dissolved and liquidated.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form and substance
satisfactory to the Trustee, for any of the following purposes:
<PAGE>
63
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
contained herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default; or
(4) to provide for uncertificated Notes in addition to or in place of
certificated Notes; or
(5) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
610; or
(6) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture; provided that such action shall not adversely affect
the interests of the Holders in any material respect; or
(7) to secure the Securities pursuant to the requirements of Section
1016.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
aggregate principal amount at maturity of the Outstanding Securities, by Act of
said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal or Accreted Value of
or any installment of interest on any Security, or alter the redemption
provisions thereof, or reduce the principal amount or Accreted Value
thereof (or premium, if any) or the rate of interest thereon or reduce the
amount of the principal at maturity of the Securities that would be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant
to Section 502 or the amount thereof provable in bankruptcy pursuant to
Section 504, or change the place of payment where, or the coin or currency
in which
<PAGE>
64
any Security or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or
after the Redemption Date); or
(2) reduce the percentage in aggregate principal amount at maturity of
the Outstanding Securities the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture; or
(3) subordinate in right of payment, or otherwise subordinate, the
Notes to any other Debt; or
(4) modify any provision of the Indenture relating to the calculation
of Accreted Value; or
(5) modify any of the provisions of this Section 902, except to
increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this Section
902 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture and an Officers' Certificate stating that all
conditions precedent to the execution of such supplemental indenture have been
fulfilled. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article
Nine, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall
<PAGE>
65
form a part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article Nine
shall conform as a matter of contract or law to the requirements of the Trust
Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may bear a notation in form
approved by the Trustee and the Company as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Securities so
modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that
it shall duly and punctually pay the principal or Accreted Value of (and
premium, if any) and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
<PAGE>
66
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in The City of New York an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Corporate Trust Office of the Trustee shall be
such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company shall give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
-----------------------------------------------
If the Company shall at any time act as its own Paying Agent, it
shall, on or before each due date of the principal or Accreted Value of (or
premium, if any) or interest on any of the Securities, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal or Accreted Value of (or premium, if any) or interest so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided and shall promptly notify the Trustee of its action or failure
so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it shall, on or before each due date of the principal or Accreted
Value of (or premium, if any) or interest on any Securities, deposit with a
Paying Agent a sum sufficient to pay the principal or Accreted Value (and
premium, if any) or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal or Accreted Value, premium
or interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of such action or any failure so to act.
<PAGE>
67
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 1003,
that such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal or
Accreted Value of, premium, if any, or interest on Securities in trust for
the benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal or Accreted Value, premium, if any, or interest;
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
(4) indemnify the Trustee and its officers, directors, employees and
agents against any loss, cost or liability caused by, or incurred as a
result of, such Paying Agent's acts or omissions.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal or Accreted Value of,
premium, if any, or interest on any Security and remaining unclaimed for two
years after such principal, Accreted Value, premium or interest has become due
and payable shall be paid to the Company on Company Request, or (if then held by
the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
<PAGE>
68
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
preserve, with respect to the Company, any such right or franchise or, with
respect to any Subsidiary (subject to all the other covenants in this
Indenture), any such corporate existence, right or franchise, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries as a whole
and that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (b) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Restricted Subsidiary; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 1006. Maintenance of Properties.
-------------------------
The Company shall cause all properties owned by the Company or any
Restricted Subsidiary or used or held for use in the conduct of its business or
the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and shall cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 1006 shall prevent the Company from discontinuing the
maintenance of any of such properties if such discontinuance is, in the judgment
of the Company, desirable in the conduct of its business or the business of any
Subsidiary and not disadvantageous in any material respect to the Holders.
<PAGE>
69
SECTION 1007. Insurance.
---------
The Company shall at all times keep all of its and its Restricted
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by Corporations
similarly situated and owning like properties.
SECTION 1008. Provision of Financial Statements.
---------------------------------
The Company will file with the Trustee on the date on which it files
them with the Commission copies of the annual and quarterly reports and the
information, documents, and other reports that the Company is required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
Reports"). In the event the Company shall cease to be required to file SEC
Reports pursuant to the Exchange Act, the Company will nevertheless continue to
file such reports with the Commission (unless the Commission will not accept
such a filing) and the Trustee. The Company will furnish copies of the SEC
Reports to the holders of Notes at the time the Company is required to file the
same with the Trustee and will make such information available to investors who
request it in writing.
SECTION 1009. Statement by Officers as to Default.
-----------------------------------
(a) The Company shall deliver to the Trustee, on the date of delivery
of each quarterly report to be delivered pursuant to Section 1008, a brief
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants under this Indenture. For purposes
of this Section 1009(a), such compliance shall be determined without regard to
any period of grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of Debt of
the Company or any Restricted Subsidiary gives any notice or takes any other
action with respect to a claimed default (other than with respect to Debt in the
principal amount of less than $5,000,000), the Company shall deliver to the
Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an Officers' Certificate specifying such event, notice or other
action within five Business Days of its occurrence.
SECTION 1010. Purchase of Securities upon Change of Control.
---------------------------------------------
(a) Upon the occurrence of a Change of Control, each Holder shall have
the right to require that the Company repurchase such Holder's Securities in
whole or in part in
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70
integral multiples of $1,000 principal amount at maturity, in accordance with
the procedures set forth in this Section 1010 and this Indenture.
(b) Within 30 days of the occurrence of a Change of Control, the
Company shall mail an Offer with respect to an Offer to Purchase all Outstanding
Securities at a price in cash equal to 101% of the Accreted Value of the
Securities on the purchase date plus any accrued and unpaid interest thereon and
premium, if any, not otherwise included in the Accreted Value to such purchase
date. Installments of interest (including Liquidated Interest) whose Stated
Maturity is on or prior to the Purchase Date shall be payable to the Holders of
such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 307. Each Holder shall be entitled to tender all or
any portion of the Securities owned by such Holder pursuant to the Offer to
Purchase, subject to the requirement that any portion of a Security tendered
must be tendered in an integral multiple of $1,000 principal amount at maturity.
(c) The Company and the Trustee shall perform their respective
obligations for the Offer to Purchase as specified in the Offer. Prior to the
Purchase Date, the Company shall (i) accept for payment Securities or portions
thereof tendered pursuant to the Offer, (ii) deposit with the Paying Agent (or,
if the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) money sufficient to pay the purchase price of all
Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee all Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the Purchase Price, and the
Trustee shall promptly authenticate and mail or deliver to such Holders a new
Security or Securities equal in principal amount at maturity to any unpurchased
portion of the Security surrendered as requested by the Holder. Any Security
not accepted for payment shall be promptly mailed or delivered by the Company to
the Holder thereof.
(d) A "Change of Control" shall be deemed to have occurred at such
time as (i) a Rating Decline shall have occurred and (ii) either (A) the sale,
conveyance, transfer or lease of all or substantially all of the assets of the
Company to any Person or any Persons acting together that would constitute a
"group" (a "Group") for purposes of Section 13(d) of the Exchange Act, together
with any Affiliates or Related Persons thereof, other than any Permitted Holder
or any Restricted Subsidiary, shall have occurred; (B) any Person or Group,
together with any Affiliates or Related Persons thereof, other than any
Permitted Holder or any Restricted Subsidiary, shall beneficially own (within
the meaning of Rule 13d-3 under the Exchange Act, except that a Person shall be
deemed to have beneficial ownership of all shares that such Person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time) at least 50% of the aggregate voting power of all classes of
Voting
<PAGE>
71
Stock of the Company at a time when Permitted Holders own less than or
equal to 25% of the aggregate voting power of all classes of Voting Stock of the
Company; or (C) during any period of two consecutive years, Continuing Directors
cease for any reason to constitute a majority of the Board of Directors then in
office.
(e) In the event that the Company makes an Offer to Purchase the
Securities, the Company shall comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act.
SECTION 1011. Limitation on Consolidated Debt.
-------------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, Incur any Debt, unless, after giving effect to the application of
the proceeds thereof, no Default or Event of Default would occur as a
consequence of such Incurrence or be continuing following such Incurrence and
either (i) the ratio of (A) the aggregate consolidated principal amount of Debt
of the Company outstanding as of the most recent available quarterly or annual
balance sheet, after giving pro forma effect to the Incurrence of such Debt and
any other Debt Incurred or repaid since such balance sheet date and the receipt
and application of the proceeds thereof, to (B) Consolidated Cash Flow Available
for Fixed Charges for the four full fiscal quarters next preceding the
Incurrence of such Debt for which consolidated financial statements are
available, determined on a pro forma basis as if any such Debt had been Incurred
and the proceeds thereof had been applied at the beginning of such four fiscal
quarters, would be less than 5.5 to 1.0 for Debt Incurred on or prior to April
1, 2000 and 5.0 to 1.0 for Debt Incurred thereafter, or (ii) the Company's
Consolidated Capital Ratio as of the most recent available quarterly or annual
balance sheet, after giving pro forma effect to the Incurrence of such Debt and
any other Debt Incurred or repaid since such balance sheet date and the receipt
and application of the proceeds thereof, is less than 2.0 to 1.0.
(b) Notwithstanding the foregoing limitation, the Company and any
Restricted Subsidiary may Incur any and all of the following (each of which
shall be given independent effect):
(i) Debt under the Securities, this Indenture and any Restricted
Subsidiary Guarantee;
(ii) (A) Debt Incurred subsequent to March 31, 1997 under Credit
Facilities in an aggregate principal amount at any time outstanding not to
exceed $150 million plus (B) Debt Incurred subsequent to March 31, 1997
under one or more Credit Facilities that are revolving credit facilities in
an aggregate principal amount at any time outstanding not to exceed the
greater of (x) $100 million or (y) 85% of Eligible Receivables;
<PAGE>
72
(iii) Purchase Money Debt, provided that the amount of such Purchase
Money Debt does not exceed 100% of the cost of the construction,
installation, acquisition or improvement of the applicable
Telecommunications Assets;
(iv) Debt owed by the Company to any Restricted Subsidiary of the
Company or Debt owed by a Restricted Subsidiary of the Company to the
Company or a Restricted Subsidiary of the Company; provided, however, that
upon either (x) the transfer or other disposition by such Restricted
Subsidiary or the Company of any Debt so permitted to a Person other than
the Company or another Restricted Subsidiary of the Company or (y) the
issuance (other than directors' qualifying shares), sale, lease, transfer
or other disposition of shares of Capital Stock (including by consolidation
or merger) of such Restricted Subsidiary to a Person other than the Company
or another such Restricted Subsidiary, the provisions of this clause (iv)
shall no longer be applicable to such Debt and such Debt shall be deemed to
have been Incurred by the issuer thereof at the time of such transfer or
other disposition;
(v) Debt Incurred to renew, extend, refinance, defease or refund
(each, a "refinancing") the Securities, the Senior Notes or Debt of the
Company Incurred pursuant to clause (iii) of this paragraph (b), in an
aggregate principal amount not to exceed the aggregate principal amount of
and accrued interest on the Debt so refinanced plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of the Debt so refinanced or the amount of any premium reasonably
determined by the Board of Directors as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated repurchase,
plus the expenses of the Company Incurred in connection with such
refinancing; provided, however, that Debt the proceeds of which are used to
refinance the Securities or Debt which is pari passu to the Securities or
Debt which is subordinate in right of payment to the Securities shall only
be permitted under this clause (v) if (A) in the case of any refinancing of
the Securities or Debt which is pari passu to the Securities, the
refinancing Debt is made pari passu to the Securities or constitutes
Subordinated Debt, and, in the case of any refinancing of Subordinated
Debt, the refinancing Debt constitutes Subordinated Debt, and (B) in any
case, the refinancing Debt by its terms, or by the terms of any agreement
or instrument pursuant to which such Debt is issued, (x) does not provide
for payments of principal of such Debt at Stated Maturity or by way of a
sinking fund applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof by the Company (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of the
acceleration of any payment with respect to such Debt upon any event of
default thereunder), in each case prior to the time the same are required
by the terms of the Debt being refinanced, and (y) does not permit
redemption or other retirement (including pursuant to an offer to purchase
made
<PAGE>
73
by the Company) of such Debt at the option of the holder thereof prior
to the time the same are required by the terms of the Debt being
refinanced, other than a redemption or other retirement at the option of
the holder of such Debt (including pursuant to an offer to purchase made by
the Company) which is conditioned upon a change of control pursuant to
provisions substantially similar to those described under Section 1010;
(vi) Debt consisting of Permitted Interest Rate and Currency
Protection Agreements;
(vii) Debt secured by Receivables originated by the Company or any
Restricted Subsidiary and related assets, provided that such Debt is
nonrecourse to the Company and any of its other Restricted Subsidiaries and
provided further that Receivables shall not be available at any time to
secure Debt of the Company under this clause (vii) to the extent that they
are used at such time as the basis for the Incurrence of Debt in excess of
$100 million pursuant to clause (ii)(B)(y) of this paragraph (b); and
(viii) Debt not otherwise permitted to be Incurred pursuant to
clauses (i) through (vii) above, which, together with any other outstanding
Debt Incurred pursuant to this clause (viii), has an aggregate principal
amount not in excess of $25 million at any time outstanding.
SECTION 1012. Limitation on Debt and Preferred Stock of Restricted
----------------------------------------------------
Subsidiaries.
- - ------------
The Company shall not permit any Restricted Subsidiary that is not a
Guarantor to Incur any Debt or issue any Preferred Stock except any and all of
the following (each of which shall be given independent effect):
(i) Restricted Subsidiary Guarantees;
(ii) Debt of Restricted Subsidiaries under Credit Facilities
permitted to be Incurred pursuant to clause (ii) of paragraph (b) of
Section 1011;
(iii) Purchase Money Debt of Restricted Subsidiaries permitted to be
Incurred pursuant to clause (iii) of paragraph (b) of Section 1011;
(iv) Debt owed by a Restricted Subsidiary of the Company to the
Company or a Restricted Subsidiary of the Company permitted to be Incurred
pursuant to clause (iv) of paragraph (b) of Section 1011;
<PAGE>
74
(v) Debt of Restricted Subsidiaries consisting of Permitted
Interest Rate and Currency Protection Agreements permitted to be Incurred
pursuant to clause (vi) of paragraph (b) of Section 1011;
(vi) Debt of Restricted Subsidiaries secured by Receivables
originated by the Company or any Restricted Subsidiary and related assets
permitted to be Incurred pursuant to clause (vii) of paragraph (b) of
Section 1011;
(vii) Debt of Restricted Subsidiaries permitted to be Incurred
pursuant to clause (viii) of paragraph (b) of Section 1011;
(viii) Preferred Stock issued to and held by the Company or a
Restricted Subsidiary;
(ix) Debt Incurred or Preferred Stock issued by a Person prior to
the time (A) such Person became a Restricted Subsidiary, (B) such Person
merges into or consolidates with a Restricted Subsidiary or (C) another
Restricted Subsidiary merges into or consolidates with such Person (in a
transaction in which such Person becomes a Restricted Subsidiary), which
Debt or Preferred Stock was not Incurred or issued in anticipation of such
transaction and was outstanding prior to such transaction; and
(x) Debt or Preferred Stock which is exchanged for, or the
proceeds of which are used to renew, extend, refinance, defease, refund or
redeem, any Debt of a Restricted Subsidiary permitted to be Incurred
pursuant to clause (iii) of this Section 1012 or any Debt or Preferred
Stock of a Restricted Subsidiary permitted to be Incurred pursuant to
clause (ix) of this Section 1012 (or any extension or renewal thereof) (for
purposes hereof, a "refinancing"), in an aggregate principal amount, in the
case of Debt, or with an aggregate liquidation preference, in the case of
Preferred Stock, not to exceed the aggregate principal amount of the Debt
so refinanced or the aggregate liquidation preference of the Preferred
Stock so refinanced, plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Debt or
Preferred Stock so refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing by
means of a tender offer or privately negotiated repurchase, plus the amount
of expenses of the Company and the applicable Restricted Subsidiary
Incurred in connection therewith, and provided the Debt or Preferred Stock
Incurred or issued upon such refinancing, by its terms, or by the terms of
any agreement or instrument pursuant to which such Debt or Preferred Stock
is Incurred or issued, (x) does not provide for payments of principal or
liquidation value at the Stated Maturity of such Debt or Preferred Stock or
by way of a sinking fund applicable to such Debt or Preferred Stock or by
way of any mandatory redemption, defeasance, retirement or repurchase of
such Debt or Preferred Stock by
<PAGE>
75
the Company or any Restricted Subsidiary (including any redemption,
retirement or repurchase which is contingent upon events or circumstances,
but excluding any retirement required by virtue of acceleration of such
Debt upon an event of default thereunder), in each case prior to the time
the same are required by the terms of the Debt or Preferred Stock being
refinanced and (y) does not permit redemption or other retirement
(including pursuant to an offer to purchase made by the Company or a
Restricted Subsidiary) of such Debt or Preferred Stock at the option of the
holder thereof prior to the Stated Maturity of the Debt or Preferred Stock
being refinanced, other than a redemption or other retirement at the option
of the holder of such Debt or Preferred Stock (including pursuant to an
Offer to Purchase made by the Company or a Restricted Subsidiary) which is
conditioned upon the change of control of the Company pursuant to
provisions substantially similar to those contained in Section 1010, and
provided further that, in the case of any exchange or redemption of
Preferred Stock of a Restricted Subsidiary, such Preferred Stock may only
be exchanged for or redeemed with Preferred Stock of such Restricted
Subsidiary.
SECTION 1013. Limitation on Restricted Payments.
---------------------------------
The Company (i) shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, declare or pay any dividend, or make any
distribution, in respect of its Capital Stock or to the holders thereof,
excluding any dividends or distributions which are made solely to the Company or
a Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly
Owned Subsidiary, to the other stockholders of such Restricted Subsidiary on a
pro rata basis) or any dividends or distributions payable solely in shares of
its Capital Stock (other than Disqualified Stock) or in options, warrants or
other rights to acquire its Capital Stock (other than Disqualified Stock); (ii)
shall not, and shall not permit any Restricted Subsidiary to, purchase, redeem
or otherwise retire or acquire for value (x) any Capital Stock of the Company,
any Restricted Subsidiary or any Related Person of the Company (other than a
permitted refinancing) or (y) any options, warrants or rights to purchase or
acquire shares of Capital Stock of the Company, any Restricted Subsidiary or any
Related Person of the Company or any securities convertible or exchangeable into
shares of Capital Stock of the Company, any Restricted Subsidiary or any Related
Person of the Company (other than a permitted refinancing), except, in any such
case, any such purchase, redemption or retirement or acquisition for value paid
to the Company or a Restricted Subsidiary (or, in the event of any such
purchase, redemption or other retirement or acquisition for value with
respect to a Restricted Subsidiary that is not a Wholly Owned Subsidiary, paid
to the Company or a Restricted Subsidiary, or to the other stockholders of such
Restricted Subsidiary that is not a Wholly Owned Subsidiary, on a pro rata
basis); (iii) shall not make, or permit any Restricted Subsidiary to make, any
Investment in, or payment on a Guarantee of any obligation of, any Person, other
than the Company or a Restricted Subsidiary; and (iv) shall not, and shall not
permit any Restricted Subsidiary to, redeem, defease, repurchase, retire or
otherwise acquire
<PAGE>
76
or retire for value, prior to any scheduled maturity, repayment or sinking fund
payment, Debt of the Company which is subordinate in right of payment to the
Securities (other than a permitted refinancing) (each of clauses (i) through
(iv) being a "Restricted Payment") if: (1) an Event of Default, or an event that
with the passing of time or the giving of notice, or both, would constitute an
Event of Default, shall have occurred and be continuing, or (2) upon giving
effect to such Restricted Payment, the Company could not Incur at least $1.00 of
additional Debt pursuant to the terms of paragraph (a) of Section 1011, or (3)
upon giving effect to such Restricted Payment, the aggregate of all Restricted
Payments from March 31, 1997 exceeds the sum of: (a) 50% of cumulative
Consolidated Net Income (or, in the event that Consolidated Net Income shall be
negative, 100% of such negative amount) since the end of the last full fiscal
quarter prior to March 31, 1997 through the last day of the last full fiscal
quarter ending at least 45 days prior to the date of such Restricted Payment,
(b) plus $5 million, (c) less, in the case of any Designation with respect to a
Restricted Subsidiary that was made after March 31, 1997, an amount equal to the
Designation Amount with respect to such Restricted Subsidiary, (d) plus, in the
case of any Revocation made after March 31, 1997, an amount equal to the lesser
of the Designation Amount with respect to the Subsidiary with respect to which
such Designation was made or the Fair Market Value of the Investment of the
Company and its Restricted Subsidiaries in such Subsidiary at the time of
Revocation; provided, however, that the Company or a Restricted Subsidiary of
the Company may make any Restricted Payment with the aggregate net cash proceeds
received after March 31, 1997 as capital contributions to the Company or from
the issuance (other than to a Subsidiary) of Capital Stock (other than
Disqualified Stock) of the Company and warrants, rights or options on Capital
Stock (other than Disqualified Stock) of the Company and the principal amount of
Debt of the Company that has been converted into Capital Stock (other than
Disqualified Stock and other than by a Subsidiary) of the Company after March
31, 1997.
Notwithstanding the foregoing limitation, (i) the Company and any
Restricted Subsidiary may make Permitted Investments; (ii) the Company may pay
any dividend on Capital Stock of any class of the Company within 60 days after
the declaration thereof if, on the date when the dividend was declared, the
Company could have paid such dividend in accordance with the foregoing
provisions; (iii) the Company may repurchase any shares of its Common Stock or
options to acquire its Common Stock from Persons who were formerly directors,
officers or employees of the Company or any of its Subsidiaries or Affiliates,
provided that the aggregate amount of all such repurchases made pursuant to this
clause (iii) shall not exceed $1 million in any twelve-month period; (iv) the
Company and any Restricted Subsidiary may refinance any Debt otherwise permitted
by clause (v) of paragraph (b) of Section 1011 or clause (x) of Section 1012;
and (v) the Company and any Restricted Subsidiary may retire or repurchase any
Capital Stock of the Company or of any Restricted Subsidiary in exchange for, or
out of the proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of, Capital Stock (other than Disqualified Stock) of
the Company.
<PAGE>
77
SECTION 1014. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries.
- - ---------------------------------
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary (i) to pay dividends (in cash or otherwise)
or make any other distributions in respect of its Capital Stock owned by the
Company or any other Restricted Subsidiary or to pay any Debt or other
obligation owed to the Company or any other Restricted Subsidiary; (ii) to make
loans or advances to the Company or any other Restricted Subsidiary; or (iii) to
transfer any of its property or assets to the Company or any other Restricted
Subsidiary.
(b) Notwithstanding the foregoing limitation, the Company may, and may
permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist any such encumbrance or restriction (i) pursuant to any agreement in
effect on March 31, 1997; (ii) any customary encumbrance or restriction
applicable to a Restricted Subsidiary that is contained in an agreement or
instrument governing or relating to Debt contained in any Credit Facilities or
Purchase Money Debt, provided that the provisions of such agreement permit the
payment of interest and mandatory payment or prepayment of principal pursuant to
the terms of this Indenture and the Securities and other Debt that is solely an
obligation of the Company, but provided further that such agreement may
nevertheless contain customary net worth, leverage, invested capital and other
financial covenants, customary covenants regarding the merger of or sale of all
or any substantial part of the assets of the Company or any Restricted
Subsidiary, customary restrictions on transactions with Affiliates, and
customary subordination provisions governing Debt owed to the Company or any
Restricted Subsidiary; (iii) pursuant to an agreement relating to any Acquired
Debt, which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person so acquired; (iv)
pursuant to an agreement effecting a renewal, refunding, permitted refinancing
or extension of Debt Incurred pursuant to an agreement referred to in clause
(i), (ii) or (iii) of this paragraph (b), provided, however, that the provisions
contained in such renewal, refunding, permitted refinancing or extension
agreement relating to such encumbrance or restriction are no more restrictive in
any material respect than the provisions contained in the agreement the subject
thereof; (v) in the case of clause (iii) of paragraph (a) of this Section 1014,
restrictions contained in any security agreement (including a Capital Lease
Obligation) securing Debt of the Company or a Restricted Subsidiary otherwise
permitted under this Indenture, but only to the extent such restrictions
restrict the transfer of the property subject to such security agreement; (vi)
in the case of clause (iii) of paragraph (a) of this Section 1014, customary
nonassignment provisions entered into in the ordinary course of business in
leases and other agreements and customary restrictions contained in asset sale
agreements limiting the transfer of such property or assets pending the closing
of such sale; (vii) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement which has been entered into for the
<PAGE>
78
sale or disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary, provided that the consummation of such
transaction would not result in a Default or an Event of Default, that such
restriction terminates if such transaction is not consummated and that the
consummation or abandonment of such transaction occurs within one year of the
date such agreement was entered into; (viii) pursuant to applicable law; and
(ix) pursuant to this Indenture, the Securities, the Senior Notes and the Senior
Note Indentures.
SECTION 1015. Limitation on Liens.
-------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, Incur or suffer to exist any Lien on or with respect to any property or
assets now owned or acquired after March 31, 1997 to secure any Debt without
making, or causing such Restricted Subsidiary to make, effective provision for
securing the Securities (x) equally and ratably with such Debt as to such
property for so long as such Debt will be so secured or (y) in the event such
Debt is Debt of the Company which is subordinate in right of payment to the
Securities, prior to such Debt as to such property for so long as such Debt will
be so secured.
The foregoing restrictions shall not apply to: (i) Liens existing on
March 31, 1997 and securing Debt outstanding on March 31, 1997; (ii) Liens in
favor of the Company or any Restricted Subsidiary; (iii) Liens to secure the
Securities; (iv) Liens to secure Restricted Subsidiary Guarantees; (v) Liens to
secure Debt under Credit Facilities permitted to be Incurred pursuant to clause
(ii) of paragraph (b) of Section 1011; (vi) Liens on real or personal property
of the Company or a Restricted Subsidiary constructed, installed, acquired or
constituting improvements made after the date of original issuance of the
Securities to secure Purchase Money Debt permitted to be Incurred pursuant to
clause (iii) of paragraph (b) of Section 1011, provided, however, that (a) the
principal amount of any Debt secured by such a Lien does not exceed 100% of such
purchase price or cost of construction, installation or improvement of the
property subject to such Lien, (b) such Lien attaches to such property prior to,
at the time of or within 270 days after the acquisition, the completion of
construction, installation or improvement or the commencement of operation of
such property and (c) such Lien does not extend to or cover any property other
than the specific item of property (or portion thereof) acquired, constructed,
installed or constituting the improvements financed by the proceeds of such
Purchase Money Debt; (vii) Liens to secure Acquired Debt, provided, however,
that (a) such Lien attaches to the acquired asset prior to the time of the
acquisition of such asset and (b) such Lien does not extend to or cover any
other asset; (viii) Liens to secure Debt Incurred to extend, renew, refinance or
refund (or successive extensions renewals, refinancings or refundings), in whole
or in part, Debt secured by any Lien referred to in the foregoing clauses (i),
(iii), (iv), (v), (vi) and (vii) of this Section 1015 so long as such Lien does
not extend to any other property and the principal amount of Debt so secured is
not increased except as otherwise permitted under clause (v) of paragraph (b) of
Section 1011 or clause (x) of Section 1012; (ix) Liens to secure debt consisting
of Permitted Interest Rate and
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79
Currency Protection Agreements permitted to be Incurred pursuant to clause (vi)
of paragraph (b) of Section 1011; (x) Liens to secure Debt secured by
Receivables permitted to be Incurred pursuant to clause (vii) of paragraph (b)
of Section 1011; (xi) Liens to secure Debt of Restricted Subsidiaries permitted
to be Incurred pursuant to clause (viii) of paragraph (b) of Section 1011; (xii)
Liens not otherwise permitted by the foregoing clauses (i) through (xi) in an
amount not to exceed 5% of the Company's Consolidated Tangible Assets; and
(xiii) Permitted Liens.
SECTION 1016. Limitation on Issuances of Certain Guarantees by, and
-----------------------------------------------------
Debt Securities of, Restricted Subsidiaries.
- - -------------------------------------------
The Company shall not (i) permit any Restricted Subsidiary to,
directly or indirectly, guarantee any Debt Securities of the Company or (ii)
permit any Restricted Subsidiary to issue any Debt Securities unless, in either
such case, such Restricted Subsidiary simultaneously executes and delivers a
Restricted Subsidiary Guarantee providing for a Guarantee of payment of the
Securities.
SECTION 1017. Limitation on Sale and Leaseback Transactions.
---------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into, assume, Guarantee or otherwise become
liable with respect to any Sale and Leaseback Transaction, other than a Sale and
Leaseback Transaction between the Company or a Restricted Subsidiary on the one
hand and a Restricted Subsidiary or the Company on the other hand, unless (i)
the Company or such Restricted Subsidiary would be entitled to Incur a Lien to
secure Debt by reason of the provisions of Section 1015, equal in amount to the
Attributable Value of the Sale and Leaseback Transaction, without equally and
ratably securing the Securities and (ii) the Sale and Leaseback Transaction is
treated as an Asset Disposition and all of the conditions of Section 1018
(including the provisions concerning the application of Net Available Proceeds)
are satisfied with respect to such Sale and Leaseback Transaction, treating all
of the consideration received in such Sale and Leaseback Transaction as Net
Available Proceeds for purposes of such Section 1018.
SECTION 1018. Limitation on Asset Dispositions.
--------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, make any Asset Disposition unless: (i) the Company or the Restricted
Subsidiary, as the case may be, receives consideration for such disposition at
least equal to the Fair Market Value for the assets sold or disposed of as
determined by the Board of Directors in good faith and evidenced
<PAGE>
80
by a Board Resolution; and (ii) at least 75% of the consideration for such
disposition consists of cash or Cash Equivalents or the assumption of Debt of
the Company (other than Debt that is subordinated to the Securities) or of the
Restricted Subsidiary and release from all liability on the Debt assumed. If the
aggregate of Net Available Proceeds within any twelve-month period exceeds $5
million, then all such Net Available Proceeds shall be applied within 360 days
of the last such Asset Disposition (1) first, to the permanent repayment or
reduction of Debt then outstanding under any Credit Facility, to the extent such
agreements would require such application or prohibit payments pursuant to
clause (2) following; (2) second, to the extent of remaining Net Available
Proceeds, to make an Offer to Purchase Outstanding Securities at a price in cash
equal to 100% of the Accreted Value of the Securities on the purchase date plus
accrued and unpaid interest thereon and premium, if any, not otherwise included
in the Accreted Value to such purchase date and, to the extent required by the
terms thereof, any other Debt of the Company that is pari passu with the
Securities at a price no greater than 100% of the principal amount thereof plus
accrued and unpaid interest to the purchase date (or 100% of the accreted value
plus accrued and unpaid interest and premium, if any, to the purchase date in
the case of original issue discount Debt); (3) third, to the extent of any
remaining Net Available Proceeds following the completion of the Offer to
Purchase, to the repayment of other Debt of the Company or Debt of a Restricted
Subsidiary, to the extent permitted under the terms thereof; and (4) fourth, to
the extent of any remaining Net Available Proceeds, to any other use as
determined by the Company which is not otherwise prohibited by this Indenture.
SECTION 1019. Limitation on Issuances and Sales of Capital Stock of
-----------------------------------------------------
Restricted Subsidiaries.
- - -----------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, issue, transfer, convey, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary or securities convertible or exchangeable into,
or options, warrants, rights or any other interest with respect to, Capital
Stock of a Restricted Subsidiary to any Person other than the Company or a
Restricted Subsidiary except: (i) a sale of all of the Capital Stock of such
Restricted Subsidiary owned by the Company and any Restricted Subsidiary that
complies with the provisions of Section 1018 to the extent such provisions
apply; (ii) in a transaction that results in such Restricted Subsidiary becoming
a Permitted Joint Venture, provided (x) such transaction complies with the
provisions of Section 1018 to the extent such provisions apply and (y) the
Company's remaining Investment in such Permitted Joint Venture would have been
permitted as a new Investment under the provisions of Section 1013; (iii) the
transfer, conveyance, sale or other disposition of shares required by applicable
law or regulation; (iv) if required, the issuance, transfer, conveyance, sale or
other disposition of directors' qualifying shares; or (v) Disqualified Stock
issued in exchange for, or upon conversion of, or the proceeds of the issuance
of which are used to redeem, refinance, replace or refund, shares of
Disqualified Stock of such Restricted Subsidiary, provided that the amounts of
the redemption
<PAGE>
81
obligations of such Disqualified Stock shall not exceed the amounts of the
redemption obligations of, and such Disqualified Stock shall have redemption
obligations no earlier than those required by, the Disqualified Stock being
exchanged, converted, redeemed, refinanced, replaced or refunded.
SECTION 1020. Transactions with Affiliates and Related Persons.
------------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
to, enter into any transaction (or series of related transactions) with an
Affiliate or Related Person of the Company (other than the Company or a
Restricted Subsidiary), including any Investment, unless such transaction is on
terms no less favorable to the Company or such Restricted Subsidiary than those
that could be obtained in a comparable arm's-length transaction with an entity
that is not an Affiliate or Related Person and is in the best interests of the
Company or such Restricted Subsidiary, provided that the Company or any
Restricted Subsidiary may enter into: (i) transactions pursuant to the
Company's tax sharing agreement entered into with Anschutz Company existing at
the date of execution of this Indenture described under the caption "Certain
Transactions" in the Offering Memorandum, provided that any amendment of,
supplement to or substitute for such agreement is on terms that are no less
favorable to the Company or such Restricted Subsidiary than such existing
agreement; (ii) transactions pursuant to employee compensation arrangements
approved by the Board of Directors, either directly or indirectly; and (iii)
Receivables Sales between the Company or a Restricted Subsidiary and an
Affiliate of the Company or such Restricted Subsidiary, provided that such
Receivables Sales satisfy the provisions of clauses (i) and (ii) of Section
1018. For any transaction that involves in excess of $10 million but less than
or equal to $15 million, the Company shall deliver to the Trustee an Officers'
Certificate stating that the transaction satisfies the above criteria. For any
transaction that involves in excess of $15 million, a majority of the
disinterested members of the Board of Directors shall determine that the
transaction satisfies the above criteria and shall evidence such a determination
by a Board Resolution or, in the event that there shall not be disinterested
members of the Board of Directors with respect to the transaction, the Company
shall file with the Trustee a written opinion stating that the transaction
satisfies the above criteria from an investment banking firm of national
standing in the United States which, in the good faith judgment of the Board of
Directors, is independent with respect to the Company and its Affiliates and
qualified to perform such task.
SECTION 1021. Limitation on Designations of Unrestricted
------------------------------------------
Subsidiaries.
The Company shall not designate any Subsidiary of the Company (other
than a newly created Subsidiary in which no Investment has previously been made)
as an Unrestricted Subsidiary (a "Designation") unless:
<PAGE>
82
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(b) immediately after giving effect to such Designation, the Company
would be able to Incur $1.00 of Debt under paragraph (a) of Section 1011;
and
(c) the Company would not be prohibited under any provision of this
Indenture from making an Investment at the time of Designation (assuming
the effectiveness of such Designation) in an amount (the "Designation
Amount") equal to the Fair Market Value of the net Investment of the
Company or any other Restricted Subsidiary in such Restricted Subsidiary on
such date.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
1013 for all purposes of this Indenture in the Designation Amount. In addition,
neither the Company nor any Restricted Subsidiary shall at any time (x) provide
credit support for, or a guarantee of, any Debt of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such Debt),
provided that the Company or a Restricted Subsidiary may pledge Capital Stock or
Debt of any Unrestricted Subsidiary on a nonrecourse basis such that the pledgee
has no claim whatsoever against the Company other than to obtain such pledged
property, (y) be directly or indirectly liable for any Debt of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Debt which provides
that the holder thereof may (upon notice, lapse of time or both) declare a
default thereon or cause the payment thereof to be accelerated or payable prior
to its final scheduled maturity upon the occurrence of a default with respect to
any Debt of any Unrestricted Subsidiary (including any right to take enforcement
action against such Unrestricted Subsidiary), except in the case of clause (x)
or (y) to the extent permitted under Section 1013 or 1020.
A Designation may be revoked (a "Revocation") by a Board Resolution,
provided that the Company shall not make any Revocation unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(b) all Liens and Debt of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if Incurred at such time, have
been permitted to be Incurred at such time for all purposes of this
Indenture.
All Designations and Revocations must be evidenced by Board
Resolutions certifying compliance with the foregoing provisions.
<PAGE>
83
SECTION 1022. No Repayment of Existing Parent Company Advances with
-----------------------------------------------------
the Proceeds of the Securities.
- - ------------------------------
The Company shall not apply any portion of the proceeds of the
offering of the Securities toward the repayment of advances made to the Company
or any of its subsidiaries by any parent company of the Company outstanding at
the date of execution of this Indenture.
SECTION 1023. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 1007 through 1022, inclusive,
if before or after the time for such compliance the Holders of at least a
majority in principal amount of the Outstanding Securities, by Act of such
Holders, waive such compliance in such instance with such term, provision or
condition, but no such waiver shall extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such term, provision or condition shall remain in full force
and effect.
SECTION 1024. Trustee Not to Monitor Performance.
----------------------------------
The Trustee shall have no duty to confirm or monitor the performance
by the Company of its duties pursuant to the covenants set forth in this Article
Ten.
<PAGE>
84
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
-------------------
The Securities will be subject to redemption at the option of the
Company, in whole or in part, at any time or from time to time on or after
February 1, 2003, upon not less than 30 nor more than 60 days' prior notice,
subject to the conditions and at the redemption prices (expressed as percentages
of Accreted Value) set forth in the form of Security, plus accrued and unpaid
interest thereon (if any) to the Redemption Date. In addition, prior to
February 1, 2001, the Company may redeem the Securities subject to the
conditions set forth in the form of Security.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount at maturity of Securities to be redeemed and shall
deliver to the Trustee such documentation and records as shall enable the
Trustee to select the Securities to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
-------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
of the principal amount at maturity of Securities; provided, however, that no
such partial redemption shall reduce the portion of the principal amount at
maturity of a Security not redeemed to less than $1,000.
<PAGE>
85
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount at maturity thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the Accreted Value of such Security which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed.
Each notice of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amount at maturity) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, that on and
after the Redemption Date, upon surrender of such Security, the Holder will
receive, without charge, a new Security or Securities of authorized
denominations for the principal amount at maturity thereof remaining
unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Security, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue on
and after said date, and
(6) the place or places where such Securities are to be presented and
surrendered for payment of the Redemption Price and accrued interest, if
any.
<PAGE>
86
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security
for redemption in accordance with said notice, such Security shall be paid by
the Company at the Redemption Price, together with accrued interest, if any, to
the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal or Accreted Value (and premium,
if any) shall, until paid, accrete or bear interest from the Redemption Date at
the rate of accretion of and interest rate borne by the Securities.
SECTION 1108. Securities Redeemed in Part.
---------------------------
Any Security which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount at maturity equal to and in exchange
for the unredeemed portion of the principal amount at maturity of the Security
so surrendered.
<PAGE>
87
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- - ----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 1202 or Section 1203 be
applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article Twelve.
SECTION 1202. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 1204 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Securities, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1205 and the other Sections of this Indenture
referred to in clauses (A) and (B) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Securities to receive, solely from the trust fund
described in Section 1204 and as more fully set forth in such Section, payments
in respect of the principal or Accreted Value of, premium, if any, and interest
on such Securities when such payments are due (but not the Purchase Price
referred to in Section 1010) and any rights of the Holders with respect to such
amounts, (B) the Company's obligations with respect to such Securities under
Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and (D) this Article Twelve. Subject to
compliance with this Article Twelve, the Company may exercise its option under
this Section 1202 notwithstanding the prior exercise of its option under Section
1203 with respect to the Securities.
SECTION 1203. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company shall be released from its
obligations under any covenant contained in Section 801(4) and in Sections 1007
through 1021 with respect to the Outstanding
<PAGE>
88
Securities on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"), and the Securities shall thereafter be
deemed not to be "Outstanding" for the purposes of any direction, waiver,
consent or declaration or Act of Holders (and the consequences of any thereof)
in connection with such covenants, but shall continue to be deemed "Outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to the Outstanding Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 501(3), 501(4) or 501(5), but, except as specified
above, the remainder of this Indenture and such Securities shall be unaffected
thereby.
SECTION 1204. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
1202 or Section 1203 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 608 who shall agree to comply with the provisions of this
Article Twelve applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities: (A)
money in an amount, or (B) Government Securities which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment in respect of the Securities, money in an amount,
or (C) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and
which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the principal or Accreted Value of (and premium, if any) and
interest on the Outstanding Securities on the Stated Maturity (or
Redemption Date, if applicable) of such principal or Accreted Value (and
premium, if any) or installment of interest; provided that the Trustee
shall have been irrevocably instructed in writing to apply such money or
the proceeds of such Government Securities to said payments with respect to
the Securities. Before such a deposit, the Company may give to the
Trustee, in accordance with Section 1103, a notice of its election to
redeem all of the Outstanding Securities at a future date in accordance
with Article Eleven, which notice shall be irrevocable. Such irrevocable
redemption notice, if given, shall be given effect in applying the
foregoing.
<PAGE>
89
(2) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or,
insofar as paragraphs (8) and (9) of Section 501 are concerned, at any time
during the period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until
the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
(4) In the case of an election under Section 1202, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since January 22, 1998 there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred.
(5) In the case of an election under Section 1203, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that (i)
the Holders of the Outstanding Securities will not recognize income, gain
or loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred and (ii) the Company's deposit
will not result in the Trust or the Trustee being subject to regulation
under the Investment Company Act of 1940.
(6) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1202
or the covenant defeasance under Section 1203 (as the case may be) have
been complied with.
SECTION 1205. Deposited Money and Government Securities to Be Held in
-------------------------------------------------------
Trust; Other Miscellaneous Provisions.
- - -------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and Government Securities (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Outstanding Securities shall be held in trust and applied by the
<PAGE>
90
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal or Accreted Value, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee and (if applicable)
its officers, directors, employees and agents against any tax, fee or other
charge imposed on or assessed against the Government Securities deposited
pursuant to Section 1204 or the principal and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of the Outstanding Securities.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or Government Securities held by it as provided in Section
1204 which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent defeasance or covenant defeasance, as
applicable, in accordance with this Article Twelve.
SECTION 1206. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1205 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1202 or 1203, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1205; provided, however, that if the Company makes any payment of
principal or Accreted Value of, premium, if any, or interest on any Security
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money held by the Trustee or Paying Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
QWEST COMMUNICATIONS
INTERNATIONAL INC.
/s/
By:__________________________________
Title:
/s/
Attest:___________________________
Title:
BANKERS TRUST COMPANY, as Trustee
/s/
By:______________________________________
Title:
<PAGE>
EXHIBIT A
Form of Face of Security
------------------------
[If a Global Security, then insert:] THIS SECURITY IS A GLOBAL
SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS
REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A
SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER
OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
[If a Global Security, then insert:] UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW
YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
[If a Rule 144A Security, then insert:] THIS SECURITY HAS NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES
LAWS OF THE STATES OF THE UNITED STATES.
<PAGE>
A-2
[If a Regulation S Security, then insert:] THIS SECURITY HAS NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD
(DEFINED AS 40 DAYS AFTER THE ISSUE DATE WITH RESPECT TO THE SECURITIES), MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S OR
(2) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, AND (B) IN ACCORDANCE WITH
ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES.
QWEST COMMUNICATIONS
INTERNATIONAL INC.
8.29% [Series B]* Senior Discount Note Due 2008
CUSIP: ________
No. __________ $_____________
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, THIS
SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT; FOR EACH $1,000 OF
PRINCIPAL AMOUNT (1) THE "ISSUE PRICE" IS $665.92; (2) THE "STATED REDEMPTION
PRICE AT MATURITY" IS $1,414.50; (3) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT (THE
EXCESS OF THE "STATED REDEMPTION PRICE AT MATURITY" OVER THE "ISSUE PRICE") IS
$748.58; (4) THE ISSUE DATE IS JANUARY 29, 1998; (5) THE YIELD TO MATURITY
(COMPOUNDED SEMI-ANNUALLY) IS 8.29%; AND (6) THE METHOD USED TO DETERMINE YIELD
TO MATURITY IS THE EXACT METHOD.
Qwest Communications International Inc., a Delaware corporation
(herein called the "Company", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to _________________ or registered
- - -----------------------
* Include only for Exchange Securities.
<PAGE>
A-3
assigns, the principal sum of ____________________ Dollars [if a Global
Security, then insert: (which principal amount may from time to time be
increased or decreased to such other principal amounts which, taken together
with the principal amounts of all other Outstanding Securities, shall not exceed
$450,505,000 in the aggregate at any time, by adjustments made on the records of
the Trustee hereinafter referred to in accordance with the Indenture)] on
February 1, 2008, at the office or agency of the Company referred to below and
to pay cash interest thereon, semi-annually on February 1 and August 1 in each
year, initially on August 1, 2003, accruing from February 1, 2003 or from the
most recent Interest Payment Date to which cash interest has been paid or duly
provided for; provided, however, that the Company may elect, upon not less than
60 days' prior notice, to commence the accrual of cash interest on all
outstanding Securities on any February 1 or August 1 on or after February 1,
2001 and prior to February 1, 2003, in which case the outstanding principal
amount at maturity of each Security will on such commencement date be reduced to
the Accreted Value of this Security as of such date and cash interest shall be
payable with respect to this Security on each August 1 and February 1
thereafter. Except as otherwise described in this paragraph, interest on the
Securities will accrue at the rate of 8.29% per annum, until the principal
amount at maturity hereof is paid or duly provided for, and (to the extent
lawful) to pay on demand interest on any overdue interest at the rate borne by
the Securities from the date on which such overdue interest becomes payable to
the date payment of such interest has been made or duly provided for [provided,
however, that if (i) (a) Company has not filed a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") within 90 days after January 29, 1998, with respect to a
registered offer (the "Exchange Offer") to exchange this Security for a security
(an "Exchange Security") with terms identical in all material respects to this
Security (except that such security will not contain terms with respect to
registration rights or transfer restrictions, and provisions regarding interest
and Liquidated Interest (described below) will be modified or eliminated, as
appropriate), or (b) the Registration Statement has not been declared effective
within 150 days after January 29, 1998, or (c) the Exchange Offer has not been
consummated within 180 days after January 29, 1998; or (ii) in lieu thereof, the
Company has not filed a shelf registration statement (the "Shelf Registration
Statement") under the Securities Act within 210 days after January 29, 1998,
covering resales of this Security and such Shelf Registration Statement has not
been declared effective; or (iii) either the Registration Statement or, if
applicable, the Shelf Registration Statement is filed and declared effective but
shall thereafter cease to be effective or usable (subject to certain exceptions)
in connection with resales of this Security or Exchange Securities in accordance
with and during the periods specified in the Registration Agreement without
being succeeded promptly by an additional registration statement filed and
declared effective, in each case (i) through (iii) upon the terms and conditions
set forth in the Registration Agreement (each such event referred to in clauses
(i) through (iii), a "Registration Default"), then additional interest
("Liquidated Interest") will accrue (in addition to the accretion of principal
and any stated interest on the Securities) from and including the date on which
any such Registration Default shall occur to but excluding the date on which all
<PAGE>
A-4
Registration Defaults have been cured. Liquidated Interest will be payable at a
rate per annum equal to 0.5% on the principal amount at maturity of the
Securities during the 90-day period immediately following the occurrence of any
Registration Default and shall increase by 0.25% per annum of the principal
amount at maturity of the Securities at the end of each subsequent 90-day
period, but in no event shall such rates exceed 2.00% per annum in the aggregate
regardless of the number of Registration Defaults. Accrued Liquidated Interest,
if any, shall be paid in cash semiannually on February 1 and August 1 in each
year; and the amount of accrued Liquidated Interest shall be determined on the
basis of the number of days actually elapsed. Any accrued and unpaid interest
(including Liquidated Interest) on this Security upon the issuance of an
Exchange Security in exchange for this Security shall cease to be payable to the
Holder hereof but such accrued and unpaid interest (including Liquidated
Interest) shall be payable on the next Interest Payment Date for such Exchange
Security to the Holder thereof on the related Regular Record Date.]**
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the January 15 or July 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date, and such defaulted interest,
and (to the extent lawful) interest on such defaulted interest at the rate borne
by the Securities, may be paid to the Person in whose name this Security (or one
or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner, all as more fully provided in said Indenture. Payment
of the principal of (and premium, if any, on) and interest on this Security will
be made at the office or agency of the Company maintained for that purpose in
The City of New York, or at such other office or agency of the Company as may be
maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the address of the Person entitled
thereto as such address shall appear on the Security Register.
- - ---------------
** Include for Initial Securities and, if there has occurred a Registration
Default, include for Exchange Securities.
<PAGE>
A-5
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: __________________ QWEST COMMUNICATIONS
INTERNATIONAL INC.
By: _______________________
Authorized Signatory
<PAGE>
A-6
Form of Reverse of Security
---------------------------
This Security is one of a duly authorized issue of securities of the
Company designated as its 8.29% [Series B]* Senior Discount Notes Due 2008
(herein called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount at maturity to
$450,505,000, which may be issued under an indenture (herein called the
"Indenture") dated as of January 29, 1998 between the Company and Bankers Trust
Company, trustee (herein called the "Trustee", which term includes any successor
trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties, obligations and immunities thereunder of the
Company, the Trustee and the Holders of the Securities, and of the terms upon
which the Securities are, and are to be, authenticated and delivered. The
Securities were issued at a discount to their aggregate principal amount at
maturity and accrete at a rate of 8.29% per annum, compounded semiannually, to
an aggregate principal amount of $450,505,000 by February 1, 2003.
The Securities are subject to redemption at the option of the Company,
in whole or in part, at any time or from time to time on or after February 1,
2003, upon not less than 30 nor more than 60 days' prior notice, at the
redemption prices (expressed as percentages of Accreted Value) set forth below,
plus accrued and unpaid interest thereon (if any) to the redemption date, if
redeemed during the twelve months beginning February 1 of the years indicated
below:
YEAR REDEMPTION PRICE
---- ----------------
2003......................... 104.145%
2004......................... 102.763%
2005......................... 101.382%
2006 and thereafter.......... 100.000%
In addition, prior to February 1, 2001, the Company may redeem up to
35% of the Accreted Value at the redemption date of the Securities at a
redemption price equal to 108.29% of the Accreted Value of the Securities so
redeemed, plus accrued and unpaid interest thereon (if any) to the redemption
date, with the net proceeds of one or more Public Equity Offerings resulting in
gross proceeds of at least $100 million in the aggregate; provided that at least
65% of the Accreted Value of the originally issued Securities would remain
outstanding immediately after giving effect to such redemption.
- - ------------------
* Include for Exchange Securities only.
<PAGE>
A-7
Within 30 days of the occurrence of a Change of Control, the Company
will be required, subject to certain limitations provided in the Indenture, to
make an Offer to Purchase all Outstanding Securities at a purchase price in cash
in an amount equal to 101% of the Accreted Value of the Securities on the
purchase date plus any accrued and unpaid interest and premium, if any, not
otherwise included in the Accreted Value to such purchase date.
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Securities, or one or more Predecessor Securities, of record
at the close of business on the relevant Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount at maturity of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture and in an amount equal to
the Accreted Value of the Securities as of the date on which the Securities
first become due and payable, plus any accrued and unpaid interest and premium,
if any, not otherwise included in the Accreted Value to such date.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Security and (b) certain
restrictive covenants and the related Defaults and Events of Default, upon
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Security.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount at maturity of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount at maturity of the
Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by or on behalf of the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange
<PAGE>
A-8
herefor or in lieu hereof whether or not notation of such consent or waiver is
made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal or Accreted Value of (and
premium, if any) and interest on this Security at the times, place, and rate,
and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registerable on the Security
Register of the Company, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Security for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is registered as the
owner hereof for all purposes, whether or not this Security be overdue, and
neither the Company, the Trustee nor any agent shall be affected by notice to
the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
<PAGE>
A-9
Form of Trustee's Certificate of Authentication
-----------------------------------------------
The Trustee's certificate of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: ____________________
This is one of the Securities referred to in the within-mentioned
Indenture.
[NAME OF TRUSTEE]
as Trustee
By:_________________________
Authorized Signatory
<PAGE>
A-10
Assignment Form
---------------
If you, the holder, want to assign this Security, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Security to ___________________________________
________________________________________________________________________________
(Insert assignee's social security or tax ID number) ___________________________
(Print or type assignee's name, address and zip code)___________________________
___________________________
___________________________
and irrevocably appoint ________________________________
of ________________________________
________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), covering resales of this
Security (which effectiveness shall not have been suspended or terminated at the
date of the transfer) and (ii) the date two years (or such shorter period of
time as may be permitted by Rule 144(k) under the Securities Act or any
successor provision thereunder) after the later of the original issuance date
appearing on the face of this Security (or any Predecessor Security) or the last
date on which the Company or any Affiliate of the Company was the owner of this
Security (or any Predecessor Security), the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that this Security is being transferred in compliance with the
exemption from registration under the Securities Act provided by Rule 144A
thereunder.
<PAGE>
A-11
If the above is not correct, the Trustee or Security Registrar shall not be
obligated to register this Security in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer or
registration set forth herein and in Section 313 of the Indenture shall have
been satisfied.
________________________________________________________________________________
Dated:_________________ Your signature: _______________________________________
(Sign exactly as your name appears on the other side of
this Security)
By: ___________________________________________________
NOTICE: To be executed by an executive officer
Signature Guarantee:__________________________
TO BE COMPLETED BY PURCHASER:
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such information
and that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated:____________________ ________________________________________________
NOTICE: To be executed by an executive officer
[The Transferee Certificates (Exhibit B to the Indenture) will be attached to
the Security]
<PAGE>
A-12
Option of Holder to Elect Purchase
----------------------------------
If you wish to have this Security purchased by the Company pursuant to
Section 1010 or 1018 of the Indenture, check the box: [ ]
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1010 or 1018 of the Indenture, state the amount:
$_____________
Dated:______________________ Your Signature:__________________________
(Sign exactly as your name appears on the
other side of this Security)
<PAGE>
EXHIBIT B
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
----------------------------------------
[Date]
Bankers Trust Company
Four Albany Street
New York, NY 10006
Attention: Corporate Market Services
Re: Qwest Communications International Inc. (the "Company") 8.29% Senior
Discount Notes Due 2008 (the "Securities")
--------------------------------------------------------------------
Dear Sirs:
In connection with our proposed sale of $___________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been pre-
arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities; and
<PAGE>
B-2
(6) if the circumstances set forth in Rule 904(c) under the Securities
Act are applicable, we have complied with the additional conditions
therein, including (if applicable) sending a confirmation or other notice
stating that the Securities may be offered and sold: during the restricted
period specified in Rule 903(c)(2) or (3), as applicable; in accordance
with the provisions of Regulation S; pursuant to registration of the
Securities under the Securities Act; or pursuant to an available exemption
from the registration requirements under the Securities Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:__________________________
Authorized Signatory
<PAGE>
Exhibit 4.2
================================================================================
QWEST COMMUNICATIONS INTERNATIONAL INC.
$450,505,000
8.29% Senior Discount Notes Due 2008
REGISTRATION AGREEMENT
Dated: January 29, 1998
================================================================================
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC.
$450,505,000 8.29% SENIOR DISCOUNT NOTES DUE 2008
REGISTRATION AGREEMENT
New York, New York
January 29, 1998
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Qwest Communications International Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to Salomon Brothers Inc (the "Initial
Purchaser"), upon the terms set forth in a purchase agreement dated January 22,
1998 (the "Purchase Agreement"), its $450,505,000 8.29% Senior Discount Notes
Due 2008 (the "Securities") (the "Initial Placement"). As an inducement to the
Initial Purchaser to enter into the Purchase Agreement, the Company agrees with
you, (i) for your benefit and (ii) for the benefit of the holders from time to
time of the Securities (including you), as follows:
1. Definitions. Capitalized terms used herein without definition shall
-----------
have their respective meanings set forth in the Purchase Agreement. As used in
this Agreement, the following capitalized defined terms shall have the following
meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
---
regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person which, directly
---------
or indirectly, is in control of, is controlled by, or is under common control
with, such specified person. For purposes of this definition, control of a
person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such person whether by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
<PAGE>
2
"Closing Date" has the meaning set forth in the Purchase Agreement.
------------
"Commission" means the Securities and Exchange Commission.
----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" means the 1-year period following the
----------------------------------
consummation of the Registered Exchange Offer, exclusive of any period during
which any stop order shall be in effect suspending the effectiveness of the
Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration statement of
-------------------------------------
the Company on an appropriate form under the Act with respect to the Registered
Exchange Offer, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Exchanging Dealer" means any Holder (which may include the Initial
-----------------
Purchaser) that is a broker-dealer, electing to exchange Securities acquired for
its own account as a result of market-making activities or other trading
activities, for New Securities.
"Expiration Date" means the date of consummation of the Registered Exchange
---------------
Offer which shall be not less than 30 days and not more than 50 days after the
date on which notice of the Registered Exchange Offer is mailed to the Holders
pursuant to clause 2(c)(ii) of this Agreement.
"Final Memorandum" has the meaning set forth in the Purchase Agreement.
----------------
"Holder" means a holder from time to time of Securities (including the
------
Initial Purchaser) or of New Securities.
"Indenture" means the Indenture relating to the Securities dated as of
---------
January 29, 1998, between the Company and Bankers Trust Company, as trustee, as
the same may be amended from time to time in accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
-----------------
"Majority Holders" means the Holders of a majority of the aggregate
----------------
principal amount of securities registered under a Registration Statement.
<PAGE>
3
"Managing Underwriters" means the investment banker or investment bankers
---------------------
and manager or managers that shall administer an underwritten offering.
"New Securities" means debt securities of the Company identical in all
--------------
material respects to the Securities (except that the New Securities will not
contain terms with respect to registration rights or transfer restrictions, and
interest rate and interest rate step-up provisions will be modified or
eliminated, as appropriate), to be issued under the Indenture or the New
Securities Indenture.
"New Securities Indenture" means an indenture between the Company and the
------------------------
New Securities Trustee, identical in all material respects with the Indenture
(except that the interest rate and interest rate step-up provisions and the
transfer restrictions will be modified or eliminated, as appropriate).
"New Securities Trustee" means the Trustee or a bank or trust company
----------------------
reasonably satisfactory to the Initial Purchaser, as trustee with respect to the
New Securities under the New Securities Indenture.
"Prospectus" means the prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A under the Act), as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of any
portion of the Securities or the New Securities, covered by such Registration
Statement, and all amendments and supplements to the Prospectus, including post-
effective amendments.
"Registered Exchange Offer" means the proposed offer to the Holders to
-------------------------
issue and deliver to such Holders, in exchange for the Securities, a like
principal amount of the New Securities.
"Registration Statement" means any Exchange Offer Registration Statement or
----------------------
Shelf Registration Statement that covers any of the Securities or the New
Securities pursuant to the provisions of this Agreement, amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Securities" has the meaning set forth in the preamble hereto.
----------
"Shelf Registration" means a registration effected pursuant to Section 3
------------------
hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
-------------------------
hereof.
<PAGE>
4
"Shelf Registration Statement" means a "shelf" registration statement of
----------------------------
the Company pursuant to the provisions of Section 3 hereof which covers some or
all of the Securities or New Securities, as applicable, on an appropriate form
under Rule 415 under the Act, or any similar rule that may be adopted by the
Commission, amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Trustee" means the trustee with respect to the Securities under the
-------
Indenture.
"Underwriter" means any underwriter of securities in connection with an
-----------
offering thereof under an Exchange Offer Registration Statement or a Shelf
Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by Exchanging
------------------------------------------------------------------
Dealers; Private Exchange. (a) The Company shall prepare and, within 90 days
- - -------------------------
following the Closing Date, shall file with the Commission the Exchange Offer
Registration Statement with respect to the Registered Exchange Offer. The
Company shall use its best efforts to cause the Exchange Offer Registration
Statement to become effective under the Act within 150 days of the Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for New Securities (assuming (i) that such Holder is not an
affiliate, as defined in Rule 405 of the Act, of the Company, (ii) that such
Holder is acquiring the New Securities in the ordinary course of such Holder's
business and (iii) that such Holder has no arrangement or undertaking with any
person to participate in the distribution (within the meaning of the Act) of the
New Securities) to trade such New Securities from and after their receipt
without any limitations or restrictions under the Act and without material
restrictions under the securities laws of a substantial proportion of the
several states of the United States.
(c) In connection with the Registered Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal (which shall include deemed representations by the Holders
to the effect set forth under (i), (ii) and (iii) in paragraph (b) above)
and related documents;
<PAGE>
5
(ii) keep the Registered Exchange Offer open for not less than 30
days and not more than 50 days after the date notice thereof is mailed to
the Holders (or longer if required by applicable law);
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York; and
(iv) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(iii) cause the Trustee or the New Securities Trustee, as the case
may be, promptly to authenticate and deliver to each Holder of Securities a
principal amount of New Securities equal in principal amount to the
Securities of such Holder so accepted for exchange.
(e) The Initial Purchaser and the Company acknowledge that, pursuant
to interpretations by the Commission's staff of Section 5 of the Act, and in the
absence of an applicable exemption therefrom, each Exchanging Dealer is required
to deliver a Prospectus in connection with a sale of any New Securities received
by such Exchanging Dealer pursuant to the Registered Exchange Offer in exchange
for Securities acquired for its own account as a result of market-making
activities or other trading activities. Accordingly, the Company shall:
(i) include the information set forth in Annex A hereto on the cover
of the Exchange Offer Registration Statement, in Annex B hereto in the
forepart of the Exchange Offer Registration Statement in a section setting
forth details of the Exchange Offer, and in Annex C hereto in the
"Underwriting" or "Plan of Distribution" section of the Prospectus forming
a part of the Exchange Offer Registration Statement, and include the
information set forth in Annex D hereto in the letter of transmittal
delivered pursuant to the Registered Exchange Offer; and
(ii) keep the Exchange Offer Registration Statement continuously
effective under the Act during the Exchange Offer Registration Period for
delivery by
<PAGE>
6
Exchanging Dealers in connection with sales of New Securities received
pursuant to the Registered Exchange Offer, as contemplated by Section 4(h)
below.
(f) In the event that the Initial Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Securities constituting any portion of an unsold allotment, at the
request of the Initial Purchaser, the Company shall issue and deliver to the
Initial Purchaser or the party purchasing New Securities registered under a
Shelf Registration Statement as contemplated by Section 3 hereof from the
Initial Purchaser, in exchange for such Securities, a like principal amount of
New Securities. The Company shall seek to cause the CUSIP Service Bureau to
issue the same CUSIP number for such New Securities as for New Securities issued
pursuant to the Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
------------------
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof, or (ii) for
any other reason the Registered Exchange Offer is not consummated within 180
days of the date hereof, or (iii) the Initial Purchaser so requests with respect
to Securities held by it following consummation of the Registered Exchange
Offer, or (iv) any Holder (other than the Initial Purchaser) is not eligible to
participate in the Registered Exchange Offer and so notifies the Company as soon
as practicable, but in any event not later than 30 days following consummation
of the Registered Exchange Offer, or (v) in the case of the Initial Purchaser
that participates in the Registered Exchange Offer or acquires New Securities
pursuant to Section 2(f) hereof, such Initial Purchaser does not receive freely
tradeable New Securities in exchange for Securities constituting any portion of
an unsold allotment (it being understood that, for purposes of this Section 3,
(x) the requirement that an Initial Purchaser deliver a Prospectus containing
the information required by Items 507 and/or 508 of Regulation S-K under the Act
in connection with sales of New Securities acquired in exchange for such
Securities shall result in such New Securities being not "freely tradeable" but
(y) the requirement that an Exchanging Dealer deliver a Prospectus in connection
with sales of New Securities acquired in the Registered Exchange Offer in
exchange for Securities acquired as a result of market-making activities or
other trading activities shall not result in such New Securities being not
"freely tradeable"), the following provisions shall apply:
(a) The Company shall, as promptly as practicable (but in no event
more than 30 days after so required or requested pursuant to this Section
3), file with the Commission, and thereafter shall cause to be declared
effective under the Act, a Shelf Registration Statement relating to the
offer and sale of the Securities or the New Securities, as applicable, by
the Holders from time to time in accordance with the methods of
distribution elected by such Holders and set forth in such Shelf
Registration Statement; provided that, with respect to New Securities
--------
received by the Initial
<PAGE>
7
Purchaser in exchange for Securities constituting any portion of an unsold
allotment, the Company may, if permitted by current interpretations by the
Commission's staff, file a post-effective amendment to the Exchange Offer
Registration Statement containing the information required by Regulation S-
K Items 507 and/or 508, as applicable, in satisfaction of its obligations
under this paragraph (a) with respect thereto, and any such Exchange Offer
Registration Statement, as so amended, shall be referred to herein as, and
governed by the provisions herein applicable to, a Shelf Registration
Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of
three years from the date the Shelf Registration Statement is declared
effective by the Commission or such shorter period that will terminate when
all the Securities or New Securities, as applicable, covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement (in any such case, such period being called the "Shelf
Registration Period"). The Company shall be deemed not to have used its
best efforts to keep the Shelf Registration Statement effective during the
requisite period if it voluntarily takes any action that would result in
Holders of securities covered thereby not being able to offer and sell such
securities during that period, unless (i) such action is required by
applicable law, or (ii) such action is taken by the Company in good faith
and for valid business reasons (not including avoidance of the Company's
obligations hereunder), including the acquisition or divestiture of assets,
so long as the Company as promptly as practicable thereafter complies with
the requirements of Section 4(k) hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
-----------------------
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you, prior to the filing thereof with
the Commission, a copy of any Shelf Registration Statement and any Exchange
Offer Registration Statement, and each amendment thereof and each amendment
or supplement, if any, to the Prospectus included therein, and shall
reflect in each such document, when so filed with the Commission, such
comments as you reasonably may propose.
(b) The Company shall ensure that (i) any Registration Statement and
any amendment thereto and any Prospectus forming part thereof and any
amendment or supplement thereto complies in all material respects with the
Act and the rules and regulations thereunder, (ii) any Registration
Statement and any amendment thereto does
<PAGE>
8
not, when it becomes effective, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
Prospectus forming part of any Registration Statement, and any amendment or
supplement to such Prospectus, does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they were
made, not misleading.
(c) (1) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby, and, if
requested by you or any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby, and, in
the case of an Exchange Offer Registration Statement, any Exchanging Dealer
which has provided in writing to the Company a telephone or facsimile
number and address for notices, and, if requested by you or any such Holder
or Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included therein for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making of
any changes in the Registration Statement or the Prospectus so that,
as of such date, the statements therein are not misleading and do not
omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were
<PAGE>
9
made) not misleading (which advice shall be accompanied by an
instruction to suspend the use of the Prospectus until the requisite
changes have been made).
(d) The Company shall obtain the withdrawal of any order suspending
the effectiveness of any Registration Statement at the earliest possible
time.
(e) The Company shall furnish to each Holder of securities included
within the coverage of any Shelf Registration Statement, without charge, at
least one copy of such Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if
the Holder so requests in writing, all exhibits (including those
incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf Registration
Statement and any amendment or supplement thereto as such Holder may
reasonably request; and the Company consents to the use of the Prospectus
or any amendment or supplement thereto by each of the selling Holders of
securities in connection with the offering and sale of the securities
covered by the Prospectus or any amendment or supplement thereto.
(g) The Company shall furnish to each Exchanging Dealer which so
requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, any documents incorporated by reference
therein, and, if the Exchanging Dealer so requests in writing, all exhibits
(including those incorporated by reference).
(h) The Company shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies
of the Prospectus included in such Exchange Offer Registration Statement
and any amendment or supplement thereto as such Exchanging Dealer may
reasonably request for delivery by such Exchanging Dealer in connection
with a sale of New Securities received by it pursuant to the Registered
Exchange Offer; and the Company consents to the use of the Prospectus or
any amendment or supplement thereto by any such Exchanging Dealer, as
aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering of
securities pursuant to any Registration Statement, the Company shall use
its best efforts to register or qualify or cooperate with the Holders of
securities included therein and their respective counsel in connection with
the registration or qualification of such securities for offer and sale
under the securities or blue sky laws of such jurisdictions as
<PAGE>
10
any such Holders reasonably request in writing and do any and all other
acts or things necessary or advisable to enable the offer and sale in such
jurisdictions of the securities covered by such Registration Statement;
provided, however, that the Company will not be required to qualify
-------- -------
generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service
of process or to taxation in any such jurisdiction where it is not then so
subject.
(j) The Company shall cooperate with the Holders of securities to
facilitate the timely preparation and delivery of certificates representing
securities to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in such names
as Holders may request prior to sales of securities pursuant to such
Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall as promptly as practicable prepare a
post-effective amendment to any Registration Statement or an amendment or
supplement to the related Prospectus or file any other required document so
that, as thereafter delivered to purchasers of the securities included
therein, the Prospectus will not include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Securities or New Securities, as the case may be, registered under such
Registration Statement, and provide the trustee with printed certificates
for such Securities or New Securities, in a form eligible for deposit with
The Depository Trust Company.
(m) The Company shall comply with all applicable rules and regulations
of the Commission and shall make generally available to its security
holders as soon as practicable after the effective date of the applicable
Registration Statement an earnings statement satisfying the provisions of
Section 11(a) of the Act.
(n) The Company shall cause the Indenture or the New Securities
Indenture, as the case may be, to be qualified under the Trust Indenture
Act in a timely manner.
(o) The Company may require each Holder of securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of such securities as
the Company may from time to time reasonably require for inclusion in such
Registration Statement.
<PAGE>
11
(p) The Company shall, if requested, as promptly as practicable
incorporate in a Prospectus supplement or post-effective amendment to a
Shelf Registration Statement, such information as the Managing Underwriters
and Majority Holders reasonably determine and agree should be included
therein and shall make all required filings of such Prospectus supplement
or post-effective amendment as soon as notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company shall
enter into such agreements (including underwriting agreements) and take all
other appropriate actions in order to expedite or facilitate the
registration or the disposition of the Securities, and in connection
therewith, if an underwriting agreement is entered into, cause the same to
contain indemnification provisions and procedures no less favorable than
those set forth in Section 6 (or such other provisions and procedures
acceptable to the Majority Holders and the Managing Underwriters, if any),
with respect to all parties to be indemnified pursuant to Section 6 from
Holders of Securities to the Company.
(r) In the case of any Shelf Registration Statement, the Company shall
(i) make reasonably available for inspection by the Holders of securities
to be registered thereunder, any Underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by the Holders or any such Underwriter
all relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries; (ii) cause the Company's
officers, directors and employees to supply all relevant information
reasonably requested by the Holders or any such Underwriter, attorney,
accountant or agent in connection with any such Registration Statement as
is customary for similar due diligence examinations; provided, however,
-------- -------
that any information that is designated in writing by the Company, in good
faith, as confidential at the time of delivery of such information shall be
kept confidential by the Holders or any such Underwriter, attorney,
accountant or agent, unless such disclosure is made in connection with a
court proceeding or required by law, or such information becomes available
to the public generally or through a third party without an accompanying
obligation of confidentiality; (iii) make such representations and
warranties to the Holders of securities registered thereunder and the
Underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in the Purchase
Agreement; (iv) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the Managing Underwriters, if any) addressed to
each selling Holder and the Underwriters, if any, covering such matters as
are customarily covered in opinions
<PAGE>
12
requested in underwritten offerings and such other matters as may be
reasonably requested by such Holders and Underwriters; (v) obtain "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to each selling Holder of securities registered
thereunder and the Underwriters, if any, in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with primary underwritten offerings; and (vi) deliver such
documents and certificates as may be reasonably requested by the Majority
Holders and the Managing Underwriters, if any, including those to evidence
compliance with Section 4(k) and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company.
The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of
this Section 4(r) shall be performed at (A) the effectiveness of such
Registration Statement and each post-effective amendment thereto and (B)
each closing under any underwriting or similar agreement as and to the
extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company shall (i) make reasonably available for inspection by such Initial
Purchaser, and any attorney, accountant or other agent retained by such
Initial Purchaser, all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries;
(ii) cause the Company's officers, directors and employees to supply all
relevant information reasonably requested by such Initial Purchaser or any
such attorney, accountant or agent in connection with any such Registration
Statement as is customary for similar due diligence examinations; provided,
--------
however, that any information that is designated in writing by the Company,
-------
in good faith, as confidential at the time of delivery of such information
shall be kept confidential by such Initial Purchaser or any such attorney,
accountant or agent, unless such disclosure is made in connection with a
court proceeding or required by law, or such information becomes available
to the public generally or through a third party without an accompanying
obligation of confidentiality; (iii) make such representations and
warranties to such Initial Purchaser, in form, substance and scope as are
customarily made by issuers to underwriters in primary underwritten
offerings and covering matters including, but not limited to, those set
forth in the Purchase Agreement; (iv) obtain opinions of counsel to the
Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to such Initial Purchaser and
its counsel), addressed to such Initial Purchaser, covering such matters as
are customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such Initial Purchaser
or its counsel; (v) obtain "cold comfort" letters and updates thereof from
the independent
<PAGE>
13
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the Registration
Statement), addressed to such Initial Purchaser, in customary form and
covering matters of the type customarily covered in "cold comfort" letters
in connection with primary underwritten offerings, or if requested by such
Initial Purchaser or its counsel in lieu of a "cold comfort" letter, an
agreed-upon procedures letter under Statement on Auditing Standards No. 35,
covering matters requested by such Initial Purchaser or its counsel; and
(vi) deliver such documents and certificates as may be reasonably requested
by such Initial Purchaser or its counsel, including those to evidence
compliance with Section 4(k) and with conditions customarily contained in
underwriting agreements. The foregoing actions set forth in clauses (iii),
(iv), (v), and (vi) of this Section 4(s) shall be performed at the close of
the Registered Exchange Offer and the effective date of any post-effective
amendment to the Exchange Offer Registration Statement.
5. Registration Expenses. The Company shall bear all expenses
---------------------
incurred in connection with the performance of its obligations under Sections 2,
3 and 4 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the Holders in
connection therewith, and, in the case of any Exchange Offer Registration
Statement, will reimburse the Initial Purchaser for the reasonable fees and
disbursements of counsel acting in connection therewith.
6. Indemnification and Contribution. (a) In connection with any
--------------------------------
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of securities covered thereby (including the Initial Purchaser and, with
respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each
Exchanging Dealer), the directors, officers, employees and agents of each such
Holder and each person who controls any such Holder within the meaning of either
the Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement as originally filed or in any amendment thereof, or
in any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided,
--------
<PAGE>
14
however, that the Company will not be liable in any case to the extent that any
- - -------
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any such Holder specifically for
inclusion therein. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses of, as
provided in Section 6(d), any Underwriters of Securities registered under a
Shelf Registration Statement, their officers and directors and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Initial Purchaser and the selling Holders provided in
this Section 6(a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in Section 4(q)
hereof.
(b) Each Holder of securities covered by a Registration Statement
(including the Initial Purchaser and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer) severally agrees to
indemnify and hold harmless (i) the Company, (ii) each of its directors, (iii)
each of its officers who signs such Registration Statement and (iv) each person
who controls the Company within the meaning of either the Act or the Exchange
Act to the same extent as the foregoing indemnity from the Company to each such
Holder, but only with reference to written information relating to such Holder
furnished to the Company by or on behalf of such Holder specifically for
inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which any such Holder
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 or notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
-------- -------
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate
<PAGE>
15
counsel (including local counsel), and the indemnifying party shall bear the
reasonable fees, costs and expenses of such separate counsel (and local counsel)
if (i) the use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest, (ii)
the actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which resulted in such Losses; provided, however, that in
-------- -------
no case shall the Initial Purchaser or any subsequent Holder of any Security or
New Security be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Security, or in the case of a
New Security, applicable to the Security which was exchangeable into such New
Security, as set forth on the cover page of the Final Memorandum, nor shall any
Underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the securities purchased by such Underwriter under
the Registration Statement which resulted in such Losses. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be
<PAGE>
16
equal to the sum of (x) the total net proceeds from the Initial Placement
(before deducting expenses) as set forth on the cover page of the Final
Memorandum and (y) the total amount of additional interest which the Company was
not required to pay as a result of registering the securities covered by the
Registration Statement which resulted in such Losses. Benefits received by the
Initial Purchaser shall be deemed to be equal to the total purchase discounts
and commissions as set forth on the cover page of the Final Memorandum, and
benefits received by any other Holders shall be deemed to be equal to the value
of receiving Securities or New Securities, as applicable, registered under the
Act. Benefits received by any Underwriter shall be deemed to be equal to the
total underwriting discounts and commissions, as set forth on the cover page of
the Prospectus forming a part of the Registration Statement which resulted in
such Losses. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
indemnifying party, on the one hand, or by the indemnified party, on the other
hand. The parties agree that it would not be just and equitable if contribution
were determined by pro rata allocation or any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 6, each person who
controls a Holder within the meaning of either the Act or the Exchange Act and
each director, officer, employee and agent of such Holder shall have the same
rights to contribution as such Holder, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder or
the Company or any of the officers, directors or controlling persons referred to
in Section 6 hereof, and will survive the sale by a Holder of securities covered
by a Registration Statement.
7. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company has not, as of the date
--------------------------
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the
<PAGE>
17
Company has obtained the written consent of the Holders of at least a majority
of the then outstanding aggregate principal amount of Securities (or, after the
consummation of any Exchange Offer in accordance with Section 2 hereof, of New
Securities); provided that, with respect to any matter that directly or
indirectly affects the rights of the Initial Purchaser hereunder, the Company
shall obtain the written consent of the Initial Purchaser against which such
amendment, qualification, supplement, waiver or consent is to be effective.
Notwithstanding the foregoing (except the foregoing proviso), a waiver or
consent to departure from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect the rights of other Holders may be given by the Majority Holders,
determined on the basis of securities being sold rather than registered under
such Registration Statement.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 7(c),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy in
like manner to Salomon Brothers Inc;
(2) if to you, initially at the respective addresses set forth in the
Purchase Agreement; and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given when received.
The Initial Purchaser or the Company by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including, without the need for an express assignment or any consent by the
Company thereto, subsequent Holders of Securities and/or New Securities. The
Company hereby agrees to extend the benefits of this Agreement to any Holder of
Securities and/or New Securities and any such Holder may specifically enforce
the provisions of this Agreement as if an original party hereto.
<PAGE>
18
(e) Counterparts. This agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of New York applicable to
agreements made and to be performed in said State.
(h) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
(i) Securities Held by the Company, Etc. Whenever the consent or
-----------------------------------
approval of Holders of a specified percentage of principal amount of Securities
or New Securities is required hereunder, Securities or New Securities, as
applicable, held by the Company or its Affiliates (other than subsequent Holders
of Securities or New Securities if such subsequent Holders are deemed to be
Affiliates solely by reason of their holdings of such Securities or New
Securities) shall not be counted in determining whether such consent or approval
was given by the Holders of such required percentage.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
QWEST COMMUNICATIONS INTERNATIONAL INC.
/s/
By: _________________________
Name:
Title:
Accepted in New York, New York
January 29, 1998
SALOMON BROTHERS INC
/s/
By:_____________________
Name: D.S. Miller
Title: Director
<PAGE>
ANNEX A
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Securities received in exchange for Securities where such
New Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting
on the Expiration Date (as defined herein) and ending on the close of business
on the first anniversary of the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution" in the Exchange Offer Registration Statement.
<PAGE>
ANNEX B
Each broker-dealer who holds Securities for its own account acquired
as a result of marketmaking activities or other trading activities and who
receives New Securities pursuant to a Registered Exchange Offer may be deemed to
be an "underwriter" within the meaning of the Securities Act of 1933, as
amended, and must acknowledge that it will deliver a Prospectus meeting the
requirements of the Securities Act in connection with any sale or transfer of
the New Securities covered by the Prospectus or any amendment or supplement
thereto. See "Plan of Distribution" in the Exchange Offer Registration
Statement.
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
--------------------
Each broker-dealer that receives New Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such New Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on the
first anniversary of the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until ______, 19__, all dealers effecting
transactions in the New Securities may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New
Securities by broker-dealers. New Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Securities. Any broker-dealer that resells New Securities that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Securities may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Securities and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 1 year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the letter of transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE>
The Company has not entered into any arrangements or understandings
with any person to distribute the New Securities to be received in the Exchange
Offer.
<PAGE>
ANNEX D
Rider A
-------
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE ADDITIONAL
COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:_______________________________________________________
Address:____________________________________________________
____________________________________________________
Number of copies: _________________________________________
Rider B
-------
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities, it represents that
the Securities to be exchanged for New Securities were acquired by it as a
result of market-making activities or other trading activities and acknowledges
that it will deliver a Prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Securities; however, by so
acknowledging and by delivering a Prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
<PAGE>
EXHIBIT 10.4
================================================================================
QWEST COMMUNICATIONS INTERNATIONAL INC.
EQUITY COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS
EFFECTIVE DECEMBER 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 - INTRODUCTION................................................... 1
1.1 Establishment................................................... 1
1.2 Purposes........................................................ 1
SECTION 2 - DEFINITIONS.................................................... 1
2.1 Definitions..................................................... 1
2.2 Gender and Number............................................... 2
SECTION 3 - PLAN ADMINISTRATION............................................ 2
SECTION 4 - STOCK SUBJECT TO THE PLAN...................................... 2
4.1 Number of Shares................................................ 2
4.2 Other Shares of Stock........................................... 2
4.3 Adjustments for Stock Split, Stock Dividend, Etc. .............. 2
4.4 Other Changes in Stock.......................................... 3
4.5 General Adjustment Rules........................................ 3
4.6 Determination by the Committee, Etc. ........................... 3
SECTION 5 - STOCK AWARDS................................................... 3
5.1 Elective Grant of Stock......................................... 3
5.2 Date of Grant, Number of Shares................................. 3
5.3 Award in the Event of Death..................................... 4
SECTION 6 - RIGHTS OF DIRECTORS............................................ 4
6.1 Retention as Director........................................... 4
6.2 Nontransferability.............................................. 4
SECTION 7 - GENERAL RESTRICTIONS........................................... 4
7.1 Compliance with Securities Laws................................. 4
7.2 Changes in Accounting Rules..................................... 4
7.3 Withholding of Tax.............................................. 4
SECTION 8 - PLAN AMENDMENT, MODIFICATION AND TERMINATION................... 5
SECTION 9 - REQUIREMENTS OF LAW............................................ 5
9.1 Requirements of Law............................................. 5
9.2 Federal Securities Law Requirements............................. 5
9.3 Governing Law................................................... 5
SECTION 10 - DURATION OF THE PLAN.......................................... 5
i
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC.
EQUITY COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS
EFFECTIVE DECEMBER 1, 1997
SECTION 1
INTRODUCTION
------------
1.1 Establishment. Qwest Communications International Inc., a Delaware
-------------
corporation (the "Company"), hereby establishes the Qwest Communications
International Inc. Equity Compensation Plan for Non-Employee Directors (the
"Plan") effective December 1, 1997, for those Directors (as defined herein) of
the Company who are neither officers nor employees of the Company and who are
selected for participation in the Plan by the Board (as defined herein).
1.2 Purposes. The purposes of the Plan are to encourage the Directors to
--------
own shares of the Company's stock and thereby to align their interests more
closely with the interests of the other shareholders of the Company, to
encourage the highest level of Director performance by providing the Directors
with a direct interest in the Company's attainment of its financial goals, and
to provide a financial incentive that will help attract and retain the most
qualified Directors.
SECTION 2
DEFINITIONS
-----------
2.1 Definitions. The following terms shall have the meanings set forth
-----------
below:
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Committee" means a committee consisting of members of the Board
---------
who are empowered hereunder to take actions in the administration of the Plan.
The Committee shall be so constituted at all times as to permit the Plan to
comply with Rule 16b-3. Members of the Committee shall be appointed from time
to time by the Board, shall serve at the pleasure of the Board and may resign at
any time upon written notice to the Board. If the Board does not appoint a
separate committee to serve as the Committee hereunder, the full Board shall
constitute the Committee.
(c) "Director" means a member of the Board who is neither an officer
--------
nor an employee of the Company and who has been selected for participation in
this Plan by the Committee. For purposes of the Plan, an employee is an
individual whose wages are subject to the withholding of federal income tax
under section 3401 of the Internal Revenue Code, and an officer is an individual
elected or appointed by the Board or chosen in such other manner as may be
prescribed in the bylaws of the Company to serve as such.
<PAGE>
(d) "Fair Market Value" means the average of the highest and lowest
-----------------
prices of the Stock as reported on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") on a particular date. If there
are no Stock transactions on such date, the Fair Market Value shall be
determined as of the immediately preceding date on which there were Stock
transactions. If the price of the Stock is not reported on NASDAQ, the Fair
Market Value of the Stock on the particular date shall be as determined by the
Committee using a reference comparable to the NASDAQ system.
(e) "Internal Revenue Code" means the Internal Revenue Code of 1986,
---------------------
as it may be amended from time to time.
(f) "Stock Award" means an award of Stock granted to a Director
-----------
pursuant to Section 6.
(g) "Stock" means the $0.01 par value common stock of the Company.
-----
2.2 Gender and Number. Except when otherwise indicated by the context,
-----------------
the masculine gender shall also include the feminine gender, and the definition
of any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
-------------------
The Committee shall be responsible for the administration of the Plan. The
Committee shall select the Directors who will be eligible to receive Stock
Awards. The Committee, by majority action thereof, is authorized to interpret
the Plan, prescribe, amend and rescind rules and regulations relating to the
Plan, provide for conditions and assurances deemed necessary or advisable to
protect the interests of the Company and make all other determinations necessary
or advisable for the administration of the Plan, but only to the extent not
contrary to the express provisions of the Plan. No member of the Committee
shall be liable for any action or determination made in good faith. The
determinations, interpretations and other actions of the Committee pursuant to
the provisions of the Plan shall be binding and conclusive for all purposes and
on all persons.
SECTION 4
STOCK SUBJECT TO THE PLAN
-------------------------
4.1 Number of Shares. Twenty-five thousand (25,000) shares of Stock are
----------------
authorized for issuance under the Plan in accordance with the provisions of the
Plan and subject to such restrictions or other provisions as the Committee may
from time to time deem necessary. This authorization may be increased from time
to time by approval of the Board and by the shareholders of the Company if, in
the opinion of counsel for the Company, such shareholder approval is required.
Shares of Stock which are issued as Stock Awards shall be applied to reduce the
maximum number of shares of Stock remaining available for use under the Plan.
The Company shall at all times during the term of the Plan retain as authorized
and unissued Stock at least the number of shares from time to time required
under the provisions of the Plan, or otherwise assure itself of its ability to
perform its obligations hereunder.
2
<PAGE>
4.2 Other Shares of Stock. Any shares of Stock that for any other reason
---------------------
are not issued to a Director shall automatically become available for use under
the Plan.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company
------------------------------------------------
shall at any time increase or decrease the number of its outstanding shares of
Stock or change in any way the rights and privileges of such shares by means of
the payment of a stock dividend or any other distribution upon such shares
payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, then in
relation to the Stock that is affected by one or more of the above events, the
numbers, rights and privileges of the following shall be increased, decreased or
changed in like manner as if they had been issued and outstanding, fully paid
and nonassessable at the time of such occurrence: (i) the shares of Stock as to
which Stock Awards may be granted under the Plan; and (ii) the shares of the
Stock then included in each outstanding Stock Award granted hereunder.
4.4 Other Changes in Stock. In the event there shall be any change, other
----------------------
than as specified in Section 4.3, in the number or kind of outstanding shares of
Stock or of any stock or other securities into which the Stock shall be changed
or for which it shall have been exchanged, and if the Committee shall in its
discretion determine that such change equitably requires an adjustment in the
number or kind of shares subject to outstanding Stock Awards or which have been
reserved for issuance pursuant to the Plan but are not then subject to a Stock
Award, then such adjustments shall be made by the Committee and shall be
effective for all purposes of the Plan and on each outstanding Stock Award that
involves the particular type of stock for which a change was effected.
4.5 General Adjustment Rules. No adjustment or substitution provided for
------------------------
in this Section 4 shall require the Company to issue a fractional share of
Stock, and the total substitution or adjustment with respect to each Stock Award
shall be limited by deleting any fractional share. In the case of any such
substitution or adjustment appropriate adjustments shall be made to Stock Awards
to reflect any such substitution or adjustment.
4.6 Determination by the Committee, Etc. Adjustments under this Section 4
-----------------------------------
shall be made by the Committee, whose determinations with regard thereto shall
be final and binding upon all parties thereto.
SECTION 5
STOCK AWARDS
------------
5.1 Elective Grant of Stock. Each Director may make an election (the
------------------------
"Quarterly Election") to receive any or all of the amount of annual director's
fees and meeting fees payable with respect to a calendar quarter in the form of
a Stock Award (the "Grant"). A Director may make an election pursuant to this
Section with respect to each calendar quarter during his or her term as a
Director. The Quarterly Election must be in writing and must be delivered to the
Secretary of the Company no later than the seventh day following the last day of
the last month of each calendar quarter, provided, however, that a Director may
make an election on or before January 7, 1998 with respect to all annual
director's fees and meeting fees payable for 1997. Any Quarterly Election made
by a Director pursuant to this Section 5.1 shall be irrevocable. If a Director
does not make a Quarterly Election with respect to a calendar quarter, all
annual director's fees and meeting
3
<PAGE>
fees attributable to such calendar quarter shall be paid to the Director in cash
immediately after the end of such calendar quarter.
5.2 Date of Grant, Number of Shares. The Grant with respect to each
-------------------------------
calendar quarter pursuant to Quarterly Elections made by Directors in accordance
with Section 5.1 shall occur as soon as practicable after the end of each
calendar quarter. The total number of shares of Stock included in each Stock
Award shall be determined by dividing the amount of the Director's annual fees
and meeting fees with respect to a calendar quarter that is to be paid in Stock
by the Fair Market Value of a share of Stock on the last business day of such
calendar quarter. In no event shall the Company be required to issue fractional
shares. Whenever under the terms of this Section 5 a fractional share of Stock
would otherwise be required to be issued, an amount in lieu thereof shall be
paid in cash.
5.3 Award in the Event of Death. If a Director has made a Quarterly
---------------------------
Election to receive Stock and dies prior to the receipt of such Stock, the Stock
shall be issued to the estate of the Director or to such person or persons who
may have been designated by the Director in a writing acceptable to the
Committee prior to the death of the Director.
SECTION 6
RIGHTS OF DIRECTORS
-------------------
6.1 Retention as Director. Nothing contained in the Plan or in any Stock
---------------------
Award granted under the Plan shall interfere with or limit in any way the right
of the shareholders of the Company to remove any Director from the Board
pursuant to the bylaws of the Company, nor confer upon any Director any right to
continue in the service of the Company.
6.2 Nontransferability. No right or interest of any Director in a Stock
------------------
Award (prior to the issuance of Stock pursuant to a Director's Election),
granted pursuant to the Plan, shall be assignable or transferable during the
lifetime of the Director, either voluntarily or involuntarily, or subjected to
any lien, directly or indirectly, by operation of law, or otherwise, including
execution, levy, garnishment, attachment, pledge or bankruptcy. If in the
opinion of the Committee a person entitled to payments or to exercise rights
with respect to the Plan is disabled from caring for his affairs because of
mental condition, physical condition or age, payment due such person may be made
to, and such rights shall be exercised by, such person's guardian, conservator
or other legal personal representative upon furnishing the Committee with
evidence satisfactory to the Committee of such status.
SECTION 7
GENERAL RESTRICTIONS
--------------------
7.1 Compliance with Securities Laws. Each Stock Award shall be subject
-------------------------------
to the requirement that, if at any time counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
Stock Award upon any securities exchange or under any state or federal law, or
the consent or approval of any governmental or regulatory body, is necessary as
a condition of, or in connection with, the issuance of shares thereunder, such
Stock Award may not be granted in whole or in part unless such listing,
registration, qualification, consent
4
<PAGE>
or approval shall have been effected or obtained on conditions acceptable to the
Committee. Nothing herein shall be deemed to require the Company to apply for or
to obtain such listing, registration or qualification.
7.2 Changes in Accounting Rules. Notwithstanding any other provision of
---------------------------
the Plan to the contrary, if, during the term of the Plan, any changes in the
financial or tax accounting rules applicable to Stock Awards shall occur which,
in the sole judgment of the Committee, may have a material adverse effect on the
reported earnings, assets or liabilities of the Company, the Committee shall
have the right and power to modify as necessary any then outstanding Stock
Awards as to which the applicable restrictions have not been satisfied.
7.3 Withholding of Tax. To the extent required by applicable law and
------------------
regulation, each Director must arrange with the Company for the payment of any
federal, state or local income or other tax applicable to the Stock Award
granted hereunder before the Company shall be required to deliver to the
Director a certificate for such Stock.
SECTION 8
PLAN AMENDMENT, MODIFICATION AND TERMINATION
--------------------------------------------
The Board may at any time terminate, and from time to time may amend or
modify the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the shareholders
if shareholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if the Company, on the advice of
counsel, determines that shareholder approval is otherwise necessary or
desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Stock Awards theretofore granted under the Plan without the
consent of the Director holding such Stock Awards.
SECTION 9
REQUIREMENTS OF LAW
-------------------
9.1 Requirements of Law. The issuance of stock and the payment of cash
-------------------
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
9.2 Federal Securities Law Requirements. Awards granted hereunder shall
-----------------------------------
be subject to all conditions required under Rule 16b-3 to qualify the Stock
Award for any exception from the provisions of Section 16(b) of the 1934 Act
available under that Rule.
9.3 Governing Law. The Plan and all agreements hereunder shall be
-------------
construed in accordance with and governed by the laws of the State of Delaware.
5
<PAGE>
SECTION 10
DURATION OF THE PLAN
--------------------
The Plan shall terminate at such time as may be determined by the Board of
Directors, and no Stock Award shall be granted after such termination.
Dated: February 20, 1998
QWEST COMMUNICATIONS
ATTEST: INTERNATIONAL INC.
/s/ /s/
_____________________________ By:__________________________________________
6
<PAGE>
EXHIBIT 10.9
JOSEPH P. NACCHIO
President & Chief Executive Officer
[LETTERHEAD OF QWEST COMMUNICATIONS]
March 7, 1997
Stephen M. Jacobsen
4 Bethany
Laguna Miguel, CA 92677
Dear Steve:
I am delighted to be able to offer you the position of Senior Vice President -
Consumer Markets at Qwest Communications. This letter is intended to set forth
the terms and conditions of your employment with Qwest. Your annual base salary
will be $185,000. You will be entitled to participate in Qwest's long-term
incentive plan (The Share Growth Plan). Your grant will be for 30,000 shares
and the beginning value of the company, as contemplated by the Plan, has been
set at one billion dollars. A copy of the full plan will be forwarded to you
from Tom Matthews under a separate letter.
Qwest is in the process of establishing an annual bonus plan for senior
executives. You will be eligible to participate on the same basis as other
senior officers. In addition, you are entitled to the other benefits described
in the materials included with this letter.
You are also eligible to be reimbursed for all relocation expenses including the
selling and purchasing of a home, household moving, etc. up to a maximum
reimbursement of $150,000. Your reimbursement includes any gross up necessary
to offset any tax impact this reimbursement may have, however, any gross up
would be considered as part of the amount that is calculated for determining the
maximum reimbursement.
If you are terminated for any reason other than cause, you will be entitled to a
lump sum payment of one year's base salary.
Steve, given my schedule with the road show, I would like to suggest that you
begin at Qwest Monday, March 24. I plan to be back in Denver on Tuesday, March
25 and will spend the day with you reviewing our consumer business. However, I
can be flexible with the date if it better meets your needs.
Finally, I am really looking forward to your joining me at Qwest and working
together to make this a great company. If you agree with the above terms and
conditions, please sign below and return this
<PAGE>
Stephen M. Jacobsen
March 7, 1997
Page 2
letter to me. If you have any questions or need more information, please let me
know or feel free to contact Tom Matthews (303-670-5040) who is working with me
to help build our senior management team.
Sincerely,
/s/
Joseph P. Nacchio
I accept the above offer:
/s/ 3/16/97
___________________ ______________
Stephen M. Jacobsen Date
<PAGE>
EXHIBIT 10.10
JOSEPH P. NACCHIO
President & Chief Executive Officer
[LETTERHEAD OF QWEST COMMUNICATIONS]
October 8, 1997
Lewis O. Wilks
4404 Meandering Way
Colleyville, TX 76034
Dear Lew:
I am delighted to be able to offer you the position of President - Business
Markets at Qwest Communications. This letter is intended to set forth the terms
and conditions of your employment with Qwest.
1. Your annual base salary will be $273,000.
2. You will be eligible to participate in Qwest's long-term incentive plan
(Equity Incentive Plan). Your grant will be 350,000 shares. The options
will vest according to the following schedule and the exercise price will
be 47 1/2, the market price of the stock on the date that we substantially
come to an agreement on the terms of your employment.
<TABLE>
<CAPTION>
SHARES VESTING
-------------------------------------
<S> <C>
70,000 Shares At End of 1 Year
-------------------------------------
70,000 Shares At End of 2/nd/ Year
-------------------------------------
70,000 Shares At End of 3/rd/ Year
-------------------------------------
70,000 Shares At End of 4/th/ Year
-------------------------------------
35,000 Shares At End of 5/th/ Year
-------------------------------------
35,000 Shares At End of 6/th/ Year
-------------------------------------
</TABLE>
1. You will be eligible to participate in the executive bonus plan which is
currently under development. In your case, at the end of the first year of
your employment, you are entitled to a guaranteed bonus of $100,000.
2. You are also eligible to be reimbursed for all relocation expenses
including the selling and purchasing of a home, household moving, etc. with
a reimbursement of $200,000. Your
<PAGE>
Lewis O. Wilks
October 8, 1997
Page 2
reimbursement includes any gross up necessary to offset any tax impact this
reimbursement may have, however, any gross up would be considered as part
of the amount that is calculated for determining the maximum reimbursement.
See relocation agreement enclosed.
3. You will receive a one-time transition payment of $200,000. This will be
paid in $50,000 increments each calendar quarter beginning in January 1998.
4. If you are terminated for any reason other than cause during your first
year of employment, you will be entitled to a lump sum payment of one
year's base salary.
5. Paid time off and disability plan information is attached.
6. This offer of employment is contingent upon your statement that you are not
subject to any non-compete clause or similar restrictions which would in
any way prevent you from exerting all your efforts toward the goals and
objectives of Qwest.
7. This offer is contingent upon your decision by Friday, October 10, 1997.
Lew, I would like you to begin work at Qwest at the earliest possible date.
Finally, I am really looking forward to your joining me at Qwest and working
together to make this a great company. If you agree with the above terms and
conditions, please sign below and return this letter to me. If you have any
questions or need more information, I can be reached at 303/291-1410 or feel
free to contact Ray Lee (303-291-1688) who is working with me to help build our
senior management team.
Sincerely,
/s/
Joseph P. Nacchio
President
Chief Executive Officer
I accept the above offer:
/s/ 10/10/97
______________ _____________
Lewis O. Wilks Date
<PAGE>
EXHIBIT 10.11
JOSEPH P. NACCHIO
President & Chief Executive Officer
[LETTERHEAD OF QWEST COMMUNICATIONS]
September 26, 1997
Brij Khandelwal
7 Ammerman Way
Chester, NJ 07930
Dear Brij:
I am delighted to be able to offer you the position of Executive Vice President
and CIO at Qwest Communications. This letter is intended to set forth the terms
and conditions of your employment with Qwest.
1. Your annual base salary will be $225,000.
2. You will be eligible to participate in Qwest's long-term incentive plan
(Equity Incentive Plan). Your grant will be 350,000 shares. The options
will vest according to the following schedule and the exercise price will
be the market price on the date of your signing the letter of acceptance.
<TABLE>
<CAPTION>
SHARES VESTING
-------------------------------------
<S> <C>
70,000 Shares At End of 1 Year
-------------------------------------
70,000 Shares At End of 2/nd/ Year
-------------------------------------
70,000 Shares At End of 3/rd/ Year
-------------------------------------
70,000 Shares At End of 4/th/ Year
-------------------------------------
70,000 Shares At End of 5/th/ Year
-------------------------------------
</TABLE>
3. You will be eligible to participate in the executive bonus plan which is
currently under development. In your case, at the end of the first year of
your employment, you are entitled to a guaranteed bonus of $112,500.
4. You are also eligible to be reimbursed for all relocation expenses
including the selling and purchasing of a home, household moving, etc. up
to a reimbursement of $150,000. Your reimbursement includes any gross up
necessary to offset any tax impact this reimbursement may
<PAGE>
Brij Khandelwal
September 26, 1997
Page 2
have, however, any gross up would be considered as part of the amount that
is calculated for determining the maximum reimbursement. See relocation
agreement enclosed.
5. If you are terminated for any reason other than cause during your first
year of employment, you will be entitled to a lump sum payment of one
year's base salary.
6. Paid time off and disability plan information is attached.
7. This offer of employment is contingent upon your statement that you are not
subject to any non-compete clause or similar restrictions which would in
any way prevent you from exerting all your efforts toward the goals and
objectives of Qwest.
Brij, I would like you to begin work at Qwest at the earliest possible date.
Finally, I am really looking forward to your joining me at Qwest and working
together to make this a great company. If you agree with the above terms and
conditions, please sign below and return this letter to me. If you have any
questions or need more information, I can be reached at 303/291-1410 or feel
free to contact Ray Lee (303-291-1688) who is working with me to help build our
senior management team.
Sincerely,
/s/
Joseph P. Nacchio
President
Chief Executive Officer
I accept the above offer:
/s/ 9/27/97
_______________ _____________
Brij Khandelwal Date
<PAGE>
EXHIBIT 10.12
JOSEPH P. NACCHIO
President & Chief Executive Officer
[LETTERHEAD OF QWEST COMMUNICATIONS]
September 19, 1997
Larry Seese
204 Klinesville Road
Flemington, NJ 08822
Dear Larry:
I am delighted to be able to offer you the position of Executive Vice President,
Network and Engineering at Qwest Communications. This letter is intended to set
forth the terms and conditions of your employment with Qwest.
1. Your annual base salary will be $230,000.
2. You will be eligible to participate in Qwest's long-term incentive plan
(Equity Incentive Plan). Your grant will be 375,000 shares at a price of 45
3/4, the price of the stock on the date that we substantially come to
agreement on the terms of your employment. The shares vest according to
the following schedule:
<TABLE>
<CAPTION>
SHARES VESTING
--------------------------------------
<S> <C>
100,000 Shares At End of 1 Year
--------------------------------------
100,000 Shares At End of 2/nd/ Year
--------------------------------------
50,000 Shares At End of 3/rd/ Year
--------------------------------------
50,000 Shares At End of 4/th/ Year
--------------------------------------
50,000 Shares At End of 5/th/ Year
--------------------------------------
25,000 Shares At End of 6/th/ Year
--------------------------------------
</TABLE>
In addition, we guarantee that at the 6/th/ anniversary of your
commencement of employment, your interest in stock options plan will be
worth at least $1,000,000. In the event such interest is worth less than
$1 million we will pay you the shortfall at that time.
In the event of a change in control of the corporation, all awarded shares
will vest immediately.
<PAGE>
Larry Seese
September 19, 1997
Page 2
1. Qwest is in the process of establishing an annual bonus plan for senior
executives. You will be eligible to participate on the same basis as other
senior officers. However, in your case, at the end of the first year of
your employment, you are entitled to a guaranteed bonus of $92,000.
2. You are also eligible to be reimbursed for all relocation expenses
including the selling and purchasing of a home, household moving, etc. up
to a reimbursement of $200,000. Your reimbursement includes any gross up
necessary to offset any tax impact this reimbursement may have, however,
any gross up would be considered as part of the amount that is calculated
for determining the maximum reimbursement. See relocation agreement
enclosed.
3. If you are terminated for any reason other than cause during your first two
years of employment, you will be entitled to a lump sum payment of one
year's base salary.
4. Paid time off and disability plan information is attached.
5. This offer of employment is contingent upon your statement that you are not
subject to any non-compete clause or similar restrictions which would in
any way prevent you from exerting all your efforts toward the goals and
objectives of Qwest.
6. This offer is contingent upon your decision by Friday, September 26, 1997.
Larry, I would like you to be available to begin work at Qwest on October 6,
1997 or on a later date to be specified by me.
<PAGE>
Larry Seese
September 19, 1997
Page 3
Finally, I am really looking forward to your joining me at Qwest and working
together to make this a great company. If you agree with the above terms and
conditions, please sign below and return this letter to me. If you have any
questions or need more information, I can be reached at 303/291-1410 or feel
free to contact Ray Lee (303-291-1688) who is working with me to help build our
senior management team.
Sincerely,
/s/
Joseph P. Nacchio
President
Chief Executive Officer
I accept the above offer:
/s/ 7/26/97
___________ _____________
Larry Seese Date
<PAGE>
JOSEPH P. NACCHIO
President & Chief Executive Officer
[LETTERHEAD OF QWEST COMMUNICATIONS]
RELOCATION AGREEMENT
September 19, 1997
Larry Seese
204 Klinesville Road
Flemington, NJ 08822
Dear Larry:
This letter will serve as the complete agreement between you and Qwest
Communications with regard to the relocation benefits which you will be paid to
assist you in your move.
The Company agrees to pay you $200,000 to cover relocation expenses that you may
incur. Appropriate payroll taxes will be withheld from this amount, since this
sum is considered income.
In consideration of this payment, you agree to repay the Company a pro-rated
portion of this amount should you voluntarily terminate your employment prior to
one year service at your new location. If repayment is necessary, the repayment
amount shall be the $200,000 less 1/12 for each completed month of employment.
You further authorize the Company to withhold any amount of repayment provided
for above from salary or other accrued compensation.
By executing this agreement, you acknowledge that you are accepting the
relocation benefits indicated above as the complete relocation package to which
you are entitled.
You further acknowledge that no coercion or undue influence has been exerted to
obtain this voluntary release. Nothing contained herein constitutes a contract
of employment or creates any expectation of continued employment, and it does
not modify the Company's employment at-will policy.
/s/
__________________
Employee Signature
9/26/97
Date:_____________
<PAGE>
EXHIBIT 10.13
QWEST HOLDING CORPORATION
GROWTH SHARE PLAN AGREEMENT
THIS AGREEMENT is made and entered into as of January 1, 1997, by and
between Qwest Holding Corporation (the "Company") and Joseph P. Nacchio (the
"Participant").
WHEREAS, the Company has adopted the Qwest Holding Corporation Growth Share
Plan, as amended effective October 1, 1996 (the "Plan"), and
WHEREAS, the Plan requires that an Agreement be entered into between the
Company and the Participant setting out certain terms and benefits of the Plan
as they apply to the Participant;
NOW, THEREFORE, the Company and the Participant hereby agree as follows:
1. The Plan is hereby incorporated into and made a part of this Agreement
as though set forth in full herein. Capitalized terms that are used herein
shall have the meanings assigned to such terms by the Plan, unless another
definition is specified in this Agreement. The parties shall be bound by, and
have the benefit of, each and every provision of the Plan, including but not
limited to the provisions relating to amendment and termination of the Plan
which are set forth in the Plan. Certain provisions contained in the Plan are
modified by the terms and provisions of this Agreement. In the event of any
conflict between the terms of this Agreement and the Plan, the provisions of
this Agreement shall prevail. The Plan and this Agreement are intended to
provide to the Participant the benefits of a stock appreciation right with
respect to the Growth Shares granted hereunder.
2. The beginning of the Performance Cycle for Growth Shares granted under
this Agreement will be January 1, 1997.
3. The end of the Performance Cycle for Growth Shares granted under this
Agreement will be December 31, 2001.
4. The Participant is hereby granted 300,000 Growth Shares under this
Agreement. The total number of Growth Shares available for issuance shall at no
time exceed 10,000,000 Growth Shares.
5. The Beginning Company Value for the purpose of determining the value
of the grant, determined as of January 1, 1997, is $1,000,000,000 (one billion
dollars) The parties agree that neither party has made any representations or
warranties to the other party with respect to the amount of the Beginning
Company Value or the Ending Company Value, respectively. The parties also
acknowledge that the actual value of the Company, or that the value of the
assets of the Company less its liabilities, in each case as of January 1, 1997,
may be more or less than the Beginning Company Value stated above.
<PAGE>
6. (a) Except as set forth below in subparagraphs (b) and (c) below,
Growth Shares granted under this Agreement will vest according to the following
schedule:
Period of Time (Years)
Since January 1, 1997 Annual Vesting Cumulative Vesting
- - ------------------------ --------------- -------------------
1 20% 20%
2 20% 40%
3 20% 60%
4 20% 80%
5 20% 100%
(b) If the Participant's employment with the Company is terminated by
the Company for any reason other than "Cause" (as defined in the Employment
Agreement between the Company and the Participant dated as of December 21, 1996
(the "Employment Agreement")), or if the Participant terminates his employment
for "Good Reason" (as defined in the Employment Agreement), the Participant
shall Vest in one-twelfth of the 20% of the Growth Shares subject to annual
vesting for the calendar year of termination for each full month of employment
by the Company during such calendar year. The definition of "Cause" contained
in the Plan shall be replaced by the definition of "Cause" contained in
Paragraph 4(b) of the Employment Agreement.
(c) If the Participant's employment with the Company terminates
because of the Participant's death, "Disability" (as defined in the Employment
Agreement) or Retirement, the Participant shall be 100% Vested with respect to
his Growth Shares. The definition of "Permanent Disability" in the Plan shall
be replaced by the foregoing definition of "Disability".
(d) Sections 7.3 and 7.4 and the third sentence of Section 8.2 of the
Plan shall not apply to the Participant with respect to his Growth Shares. The
Growth Shares of the Participant shall not be subject to forfeiture pursuant to
such provisions.
(e) Notwithstanding the provisions of Section 7.2 of the Plan, the
Participant shall not become 100% Vested in his Growth Shares upon the
occurrence of a Change of Control unless, following the Change of Control, the
Participant's employment with the Company is terminated by the Company without
"Cause" or the Participant terminates his employment for "Good Reason" (as
defined in the Employment Agreement, provided that the occurrence of a "Change
of Control" shall not constitute "Good Reason" for purposes of this subparagraph
6(e)). Upon the occurrence of a Change of Control, the Growth Shares of the
Participant will remain subject to the Vesting provisions of Section 7 of the
Plan, as amended or modified by this Paragraph 6.
7. If the Participant's employment with the Company is terminated for
"Cause," the Participant shall forfeit the Growth Shares that are not vested in
accordance with the provisions of paragraph 6 above and shall become entitled to
payment with respect to his Vested Growth Shares based upon the Ending Company
Value determined as of the end of the immediately preceding calendar year.
Ending Company Value shall be determined in accordance with Section
2
<PAGE>
8.1 of the Plan and payment shall be made in accordance with the remaining
provisions of Section 8, as modified by this Agreement. Ending Company Value
shall be determined as soon as practicable following the date of the
Participant's termination of employment, but in no event later than 90 days
after the date of termination.
8. The definition of "Change of Control" contained in the Plan shall be
replaced by the definition of Change of Control contained in Paragraph 4(d)(4)
of the Employment Agreement.
9. The provisions of clauses (ii) and (iii) of Section 2.1(x) of the
Plan, whereby a termination of the Plan or a Change of Control constitutes a
Triggering Event, shall not apply with respect to the Participant's Growth
Shares.
10. In addition to the events set forth in Section 2.1(x) of the Plan, the
following shall also constitute a "Triggering Event": The payment of dividends
or other distributions with respect to the outstanding stock of the Company
(other than such dividends or distributions with respect to the outstanding
stock of the Company that are not, in the aggregate, in excess of the amount of
equity contributions to the capital of the Company, whether in the form of
capital contributions, purchases of stock, or otherwise, made by Anschutz
Company, its affiliates or another equity investor in the Company subsequent to
the Effective Date) subsequent to the date as of which Beginning Company Value
is determined for a grant of Growth Shares that exceed, in the aggregate, the
greater of (a) $200,000,000 or (b) 50% or more of the sum of (i) the greater of
the Beginning Company Value with respect to that grant of Growth Shares or the
Appraised Value of the Company pursuant to subsection 2.1(c), if any, subsequent
to the grant of such Growth Shares, plus (ii) the increase in the Company's
retained earnings since the date of grant of the Growth Shares or the date as of
which Appraised Value was calculated if Appraised Value is the greater amount
under (i) above. The Board may cause a determination of Appraised Value to be
made for purposes of this provision at any time.
11. In the case of a Triggering Event described above in Paragraph 10 of
this Agreement, the Ending Company Value will be the Appraised Value of the
Company as of the last day of the month immediately prior to or coincident with
the date on which such dividend is paid, provided, however, that if all classes
of the Company's outstanding common equity securities are traded on an
established securities market as of the time Ending Company Value is to be
determined and the Company is subject to the reporting and disclosure
requirements of the Exchange Act, the Ending Company Value will be determined by
multiplying the per share Market Value of such outstanding equity securities on
the date of the Triggering Event by the total number of such securities
outstanding at the time of the Triggering Event.
12. The following provision shall be added to Section 6 of the Plan and
shall apply to the Participant's Growth Shares:
6.4 Adjustment of Number of Growth Shares. Upon changes in the
-------------------------------------
outstanding common stock of the Company by reason of a merger,
consolidation (whether or not the Company is the surviving corporation), a
combination or exchange of shares, separation, reorganization or
liquidation, the aggregate number of Growth Shares available under the Plan
for awards and the outstanding
3
<PAGE>
Growth Share grants shall, in each case, be correspondingly adjusted by the
Board in order to equitably reflect any such changes.
13. The following provisions shall be added to Section 7.2 of the Plan and
shall apply to the Participant's Growth Shares:
Upon the occurrence of a Triggering Event described above in Paragraph 10
of this Agreement, the Participant shall become 100% Vested in a percentage
of his Growth Shares equal to the percentage of Ending Company Value
distributed to the shareholders of the Company in the form of dividends, as
described in Paragraph 10 of this Agreement. The remaining Growth Shares
of the Participant, in such an event, shall remain subject to the other
Vesting provisions of the Plan, as modified by this Agreement.
14. The next to the last sentence of Section 8.1 of the Plan shall be
replaced by the following sentence with respect to the Participant's Growth
Shares:
For purposes of clause (C) above, a merger or other reorganization where
the shareholders of the Company immediately prior to the transaction own
more than 50% of the surviving entity in approximately the same proportions
as they owned of the Company immediately prior to the transaction shall be
treated as the acquisition of assets for Company stock.
15. Notwithstanding the other provisions of Section 8 of the Plan, in the
case of a Triggering Event described above in Paragraph 10 of this Agreement,
the amount payable initially with respect to Vested Growth Shares shall be a
percentage of the value determined in accordance with Section 8.1 of the Plan,
with such percentage being equal to the percentage of the Ending Company Value
distributed to the shareholders of the Company in the form of dividends or
otherwise that serves as the Triggering Event. In such a case, the
Participant's Growth Shares shall remain subject to the provisions of the Plan
and this Agreement and any further payment with respect to such Growth Shares,
if any, shall be made in accordance with the applicable provisions of the Plan
and this Agreement.
16. Notwithstanding the provisions of Section 8.3 of the Plan, payment to
the Participant with respect to his Growth Shares shall be made in cash (unless
the Participant agrees otherwise) unless, at the time of the Triggering Event,
the shares of the Company's common stock satisfy the requirements of Section
8.4(b) of the Plan, in which case the provisions of Section 8.4(b) of the Plan
shall apply with respect to the payment for the Participant's Growth Shares.
Payment to the Participant, in cash or in shares of the Company's Common Stock,
as applicable, shall be made no later than thirty (30) days after the final
determination of the value of the Participant's Growth Shares.
17. The provisions of Section 13 of the Plan shall be replaced in their
entirety by the following:
The Board may at any time terminate, and from time to time may amend
or modify the Plan. Upon termination of the Plan, no further Growth Shares
shall be
4
<PAGE>
issued, but the provisions of the Plan shall remain applicable to all
Growth Shares then outstanding at the time of Plan termination. No
amendment, modification or termination of the Plan shall in any manner
adversely affect any Growth Shares theretofore granted under the Plan,
without the consent of the Participant holding such Growth Shares.
18. Notwithstanding the provisions of Section 3 of the Plan, if any
dispute arises between the Participant and the Company with respect to the
meaning or interpretation of the Plan or this Agreement, such dispute shall be
resolved on a de novo basis pursuant to the arbitration provisions contained in
-- ----
Section 9 of the Employment Agreement.
19. If the shares of the Company's common stock are actively traded on an
established securities market and the Company is subject to the reporting and
disclosure requirements of the Securities Exchange Act of 1934, as amended, as
provided in Section 8.4(b) of the Plan, the Participant may elect to receive
payment for up to 20% of his Vested Growth Shares in shares of the Company's
common stock in accordance with the provisions of this Paragraph. The
Participant may exercise his election to receive payment for up to 20% of his
Vested Growth Shares (taking into account any prior payments made pursuant to
this Paragraph) by delivering written notice of such election to the Board
during the period beginning on the third business day following the date of
release of the Company's quarterly financial data and ending on the twelfth
business day following such date (the "Window Period"). The election shall
specify the number of Growth Shares with respect to which the Participant has
elected to receive payment. The amount of payment to be received by the
Participant with respect to such Growth Shares shall be based upon the
provisions of Section 8.1 of the Plan, with the Ending Company Value determined
by taking the average of the mean between the bid and the asked prices of the
Company's common stock, or the closing price, as applicable, on the principal
stock exchange on which such common stock is traded, over the trading days
included within the Window Period. The Company shall cause a certificate
covering the nearest whole number of shares of the Company's common stock with a
value so determined to be issued and delivered to the Participant as soon as
reasonably practicable following the determination of the value of the
Participant's Growth Shares in accordance with the provisions of this Paragraph.
The Vested Growth Shares for which the Participant receives payment under this
Paragraph shall be canceled and the Participant shall be entitled to no further
payments under the Plan with respect to such canceled Growth Shares.
20. The provisions of Section 11 of the Plan shall not apply with respect
to the Participant's Growth Shares.
21. This Agreement shall inure to the benefit of, and be binding upon, the
Company, its successors and assigns, and the Participant and his Beneficiaries.
22. This Agreement may be modified or amended only by means of a written
instrument executed by the parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first above written.
QWEST HOLDING CORPORATION
By: /s/
---------------------------------
PARTICIPANT
/s/
------------------------------------
Joseph P. Nacchio
6
<PAGE>
DESIGNATION OF BENEFICIARY FOR PAYMENTS
DUE UNDER QWEST HOLDING CORPORATION
GROWTH SHARE PLAN
The undersigned is a Participant in the Qwest Holding Corporation Growth
Share Plan, as amended effective October 1, 1996 (the "Plan") established by
Qwest Holding Corporation (the "Company").
Pursuant to Section 10 of the Plan, the undersigned hereby designates the
following persons or entities as primary and secondary beneficiaries and primary
and secondary appointees as my legal representative of any amount due to me
under the Plan with respect to the grant of Growth Shares effective as of
January 1, 1997 and payable by reason of my death or disability, respectively:
DEATH
-----
Primary Beneficiary:
- - --------------------
Name: Address: Relationship:
____________________ __________________ ____________________
__________________
Secondary (Contingent) Beneficiary:
- - -----------------------------------
Name: Address: Relationship:
____________________ __________________ ____________________
__________________
DISABILITY
----------
Primary Appointee:
- - ------------------
Name: Address: Relationship:
____________________ __________________ ____________________
__________________
Secondary (Contingent) Appointee:
- - ---------------------------------
Name: Address: Relationship:
____________________ __________________ ____________________
__________________
7
<PAGE>
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY OR APPOINTEE DESIGNATION IS HEREBY
RESERVED. ALL PRIOR DESIGNATIONS (IF ANY) OF BENEFICIARIES AND APPOINTEES, OF
ANY KIND, ARE HEREBY REVOKED.
The Company shall pay all sums payable under the Plan by reason of my death
to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Company shall pay all amounts in accordance
with Section 10 of the Plan. In the event that a named beneficiary survives me
and dies prior to receiving the entire amount payable under the Plan, then and
in that event, the remaining unpaid amount, payable according to the terms of
the Plan, shall be payable to the personal representative of the estate of said
deceased beneficiary, who survives me, but dies prior to receiving the total
amount due under the Plan. This same payment scheme shall apply to Primary and
Secondary Appointees except that no amount payable under the Plan shall be paid
to the estate of a Primary or Secondary Appointee. Should the Secondary
Appointee not survive me and not receive the full amount payable under the Plan,
then such remaining amount shall be payable to my guardian or conservator as
appointed by a court of competent jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this document on the day
and year hereinafter indicated, in the presence of the witnesses indicated below
who each signed as witnesses in the presence of the undersigned and each other.
________________________________
Name
________________________________
Signature
________________________________
Date
WITNESSES:
______________________________
Name
______________________________
Signature
______________________________
Name
______________________________
Signature
NOTE: In preparing this Designation of Beneficiary, you should consult with your
- - ---- attorney to determine the appropriate method of designation consistent
with your personal estate plan.
8
<PAGE>
AMENDMENT
TO
GROWTH SHARE PLAN AGREEMENT
THIS AMENDMENT is made and entered into effective as of June ___, 1997 (the
"Effective Date"), by and between Qwest Communications International Inc., a
Delaware corporation (the "Company") and Joseph P. Nacchio (the "Participant").
WHEREAS, the Company and the Participant entered into a Growth Share Plan
Agreement as of January 1, 1997 (the "Agreement") pursuant to the Qwest Holding
Corporation Growth Share Plan, executed April 7, 1997 and effective as of
October 1, 1996 (the "Growth Share Plan"); and
WHEREAS, the Agreement and the Growth Share Plan replaced any prior
versions of such documents and constitute the currently operative documents with
respect to the grant of "Growth Shares" to the Participant, as contemplated by
the Employment Agreement between the Company and the Participant dated as of
December 21, 1996, as amended; and
WHEREAS, the Agreement provides that it may be amended by means of a
written instrument executed by the parties thereto; and
WHEREAS, the Company and the Participant wish to amend the Agreement;
NOW, THEREFORE, the Company and the Participant hereby agree as follows:
A. The Agreement shall be and hereby is amended, effective as of the
Effective Date, in the following respects:
1. Paragraph 3 of the Agreement is hereby amended in its entirety to
provide as follows:
"The end of the Performance Cycle for Growth Shares granted under this
Agreement will be such date occurring on or after January 1, 2001, and
before December 31, 2001, as may be determined by the Company and
communicated to the Participant in writing. Notwithstanding the
provisions of the last sentence of Section 7.2 of the Growth Share Plan,
the Participant shall become 100% vested with respect to his Growth Shares
on the date determined by the Company pursuant to the immediately preceding
sentence to be the end of the Performance Cycle."
2. A new Paragraph 21 is added to the Agreement, to provide as set forth
below, and Paragraph 21 of the Agreement is hereby renumbered as Paragraph 22:
"21. Section 8.1 of the Growth Share Plan is hereby amended with
respect to the Participant's Growth Shares by the addition thereto, at the
end, of the following:
<PAGE>
Notwithstanding the foregoing provisions of this Section 8.1, if the
pricing meeting (the "Pricing Meeting") at which shares of the common stock
of the Company are priced for sale to the public pursuant to an initial
underwritten public offering (the "IPO") of the common stock of the Company
that is registered under the Securities Act of 1933, as amended, on
Registration Statement No. 333-25391 occurs before a Triggering Event with
respect to the Participant's Growth Shares, the value of the Participant's
Growth Shares shall not exceed the value of such Growth Shares calculated
as of the date of the Pricing Meeting as if the Pricing Meeting were a
Triggering Event and Ending Company Value were determined by multiplying
the per share "market value" (which for this purpose shall mean the per
share value at which shares of the Company's common stock are priced at the
Pricing Meeting) of such outstanding equity securities by the total number
of such securities outstanding immediately following the IPO, provided,
however, that the foregoing provision shall become effective at the time
that the registration statement for the IPO becomes effective."
3. Paragraph 19 of the Agreement is hereby amended by amending the second
sentence thereof in its entirety to provide as follows:
"The Participant may exercise his election to receive payment for up to 20%
of his Vested Growth Shares (taking into account any prior payments made
pursuant to this Paragraph) on and after the fifteenth day following the
date on which the Growth Shares Vest by delivering written notice of such
election to the Board during the period beginning on the third business day
following the date of release of the Company's quarterly financial data and
ending on the twelfth business day following such date (the "Window
Period")."
Except as set forth above, the Agreement remains in full force and effect.
IN WITNESS WHEREOF, the parties hereto have entered into this Amendment
effective as of the date first above written.
QWEST COMMUNICATIONS
INTERNATIONAL INC.
/s/
By_________________________________
PARTICIPANT:
/s/
____________________________________
Joseph P. Nacchio
2
<PAGE>
EXHIBIT 10.14
QWEST COMMUNICATIONS INTERNATIONAL INC.
EQUITY INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
THIS AGREEMENT made as of this _____ day of June, 1997, between QWEST
COMMUNICATIONS INTERNATIONAL INC., a Delaware corporation (together with its
Affiliated Corporations, except where the context otherwise requires, the
"Company"), and Joseph P. Nacchio (the "Option Holder").
1. GRANT OF OPTION. Pursuant to the Qwest Communications International
---------------
Inc. Equity Incentive Plan (the "Plan") and subject to the terms and conditions
of this Agreement, the Company hereby grants to the Option Holder an option (the
"Option") to purchase three million (3,000,000) shares of the $0.01 par value
common stock of the Company (the "Stock") at an exercise price per share equal
to the per share price at which shares of the Stock are priced at the pricing
meeting (the "Pricing Meeting") for sale to the public pursuant to the IPO (as
defined below), which price shall be the "Option Price". The Option shall be
effective (the "Effective Date") at the time that Registration Statement No.
333-25391 under the Securities Act of 1933, as amended, for the Company's
initial public offering of the Stock (the "IPO") becomes effective. The Option
is not intended to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. REQUIREMENTS FOR EXERCISE; VESTING. (a) IN GENERAL. Except as
---------------------------------- ----------
otherwise provided herein, the Option shall become vested and exercisable in
increments, if the Option Holder is still in the employ of the Company on the
dates indicated in the following schedule:
Percentage of Option That Shall
Employment Vesting Date Become Exercisable on Each Date
----------------------- -------------------------------
December 31, 1997 20%
December 31, 1998 20%
December 31, 1999 20%
December 31, 2000 20%
December 31, 2001 20%
Notwithstanding the foregoing, if the Option Holder's employment with the
Company is terminated by the Company for any reason other than "cause" (as
defined in the Employment Agreement between the Company and the Option Holder
dated as of December 21, 1996, as amended (the "Employment Agreement")), or if
the Option Holder terminates his employment for "good reason" (as defined in the
Employment Agreement), the Option Holder shall vest in one-twelfth (1/12) of the
number of shares of Stock covered by the Option that would otherwise vest for
the calendar year of termination for each full month of employment by the
Company during such calendar year. If at any time the number of shares of Stock
that are covered by the vested portion of the Option includes a
<PAGE>
fractional share, the number of shares of Stock as to which the Option shall be
actually vested shall be rounded down to the next whole share of Stock.
Except as set forth in Section 5 hereof, the Option shall not be
exercisable as to any shares of Stock as to which the vesting requirement of
this Section 2 shall not be satisfied, regardless of the circumstances under
which the Option Holder's employment by the Company shall be terminated. The
number of shares of Stock as to which the Option may be exercised shall be
cumulative, so that once the Option shall become vested and exercisable as to
any shares of Stock it shall continue to be vested and exercisable as to such
shares, until expiration or termination of the Option as provided in Section 6
hereof.
(b) ACCELERATED VESTING IN CERTAIN CIRCUMSTANCES.
--------------------------------------------
(i) The Option Holder shall become 100% vested with respect to
the entire Option, and the entire Option shall become exercisable, in the
event of the Option Holder's death, "Disability" (as defined in the
Employment Agreement) or "retirement." For purposes of this Agreement, the
term "retirement" means the termination of employment with the Company on
or after reaching the normal retirement age of 65.
(ii) Notwithstanding the provisions of Section 5.4 of the Plan,
the Option Holder shall not become 100% vested with respect to the entire
Option upon the occurrence of a "change in control" (as defined in Section
5.4(b) of the Plan). However, if the Option Holder's employment with the
Company is terminated by the Company without "cause" (as defined in the
Employment Agreement) or the Option Holder terminates his employment for
"Good Reason" (as defined in the Employment Agreement), provided that the
occurrence of a "change in control" shall not constitute "Good Reason" for
purposes of this subsection 2(b)(ii), in each case following a "change in
control", the Option Holder shall become 100% vested with respect to the
entire Option on the date of his termination of employment with the
Company.
3. METHOD FOR EXERCISING THE OPTION. The Option may be exercised only by
--------------------------------
delivery of written notice of exercise, together with payment of the Option
Price as provided below, in person or through certified or registered mail, fax
or overnight delivery to the Company at the following address: Qwest
Communications International Inc., Attention: Chief Financial Officer, 555
Seventeenth Street, Suite 1000, Denver, Colorado 80202, or such other address as
shall be furnished in writing to the Option Holder by the Company. Such written
notice shall specify that the Option is being exercised, and the number of
shares of Stock with respect to which the Option is exercised, and shall be
accompanied by payment of the Option Price.
The shares of Stock subject to this Option and this Option have been
registered on a Form S-8 Registration Statement. Notwithstanding the provisions
of Section 14.2 of the Plan, prior to the issuance of shares of Stock pursuant
to this Option, the Company shall file a Registration Statement (on such form as
may be selected by the Company) and take such other actions as may be reasonably
required to permit the Option Holder to sell immediately such shares.
2
<PAGE>
The purchase of such Stock shall take place at the address of the Company
set forth above upon delivery of the notice of exercise, at which time the
Option Price for the Stock shall be paid in full (i) by certified or cashier's
check payable to the Company's order, or (ii) by wire transfer to such account
as may be specified by the Company for this purpose, or (iii) by delivery to the
Company of certificates representing the number of shares of Stock then owned by
the Option Holder, the Fair Market Value of which equals the Option Price of the
Stock to be purchased pursuant to the Option, properly endorsed for transfer to
the Company; provided, however, that no Option may be exercised by delivery to
the Company of certificates representing Stock, unless such Stock has been held
by the Option Holder for more than six months, or (iv) by delivery to the
Company of a properly executed notice of exercise together with irrevocable
instructions to a broker to deliver to the Company promptly the amount of the
proceeds of the sale of all or a portion of the Stock or of a loan from the
broker to the Option Holder required to pay the Option Price. For purposes of
this Option, the Fair Market Value of any shares of Stock delivered in payment
of the Option Price upon exercise of the Option shall be the Fair Market Value
as of the exercise date; the exercise date shall be the day of delivery of the
certificates for the Stock used as payment of the Option Price.
Upon such notice to the Company and payment of the Option Price, the
exercise of the Option shall be deemed to be effective, and a properly executed
certificate or certificates representing the Stock so purchased shall be issued
by the Company and delivered to the Option Holder.
4. ADJUSTMENT OF THE OPTION.
------------------------
(a) ADJUSTMENT BY STOCK SPLIT, STOCK DIVIDEND, ETC. If at any time
----------------------------------------------
the Company increases or decreases the number of its outstanding shares of
Stock, or changes in any way the rights and privileges of such shares, by means
of the payment of a stock dividend or the making of any other distribution on
such shares payable in Stock, or through a Stock split or subdivision of shares,
or a consolidation or combination of shares, or through a reclassification or
recapitalization involving the Stock, the numbers, rights and privileges of the
shares of Stock included in the Option shall be increased, decreased or changed
in like manner as if such shares had been issued and outstanding, fully paid and
non-assessable at the time of such occurrence.
(b) OTHER DISTRIBUTIONS AND CHANGES IN THE STOCK. If the Company
--------------------------------------------
shall at any time distribute with respect to the Stock assets or securities of
persons other than the Company (excluding cash or distributions referred to in
subsection (a)) or grant to the holders of its Stock rights to subscribe pro
rata for additional shares thereof or for any other securities of the Company or
there shall be any other change (except as described in subsection (a)) in the
kind of outstanding shares of Stock or of any stock or other securities into
which the Stock shall be changed or for which it shall have been exchanged, and
if the Committee shall in its good faith discretion determine that the event
equitably requires an adjustment in the number or kind of shares subject to an
Option, an adjustment to the Option Price, or the taking of any other action by
the Committee, including without limitation, the setting aside of any property
for delivery to the Option Holder upon the exercise of the Option, then such
adjustment shall be made, or other actions taken, by the Committee and shall be
effective for all purposes of this Agreement.
3
<PAGE>
(c) APPORTIONMENT OF OPTION PRICE. Upon any occurrence described in
-----------------------------
the preceding subsections (a) and (b), the aggregate Option Price for the shares
of Stock then subject to the Option shall remain unchanged and shall be
apportioned ratably over the increased or decreased number or changed kinds of
securities or other properties subject to the Option. Any fractional shares
resulting from any of the foregoing adjustments shall be disregarded and
eliminated from this Option.
5. REORGANIZATION.
---------------
(a) REORGANIZATION. Subject to the provisions of subsection 5(b),
--------------
upon the occurrence of any of the following events, if the notice required by
subsection 5(b) shall have first been given, the Option shall automatically
terminate and be of no further force and effect whatsoever, without the
necessity for any additional notice or other action by the Board or the Company:
(i) the merger or consolidation of the Company with or into another corporation
or other reorganization (other than a reorganization under the United States
Bankruptcy Code) of the Company (other than a consolidation or merger in which
the Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Stock); or (ii) the sale or
conveyance of the property of the Company as an entirety or substantially as an
entirety (other than a sale or conveyance in which the Company continues as a
holding company of an entity or entities that conduct the business or businesses
formerly conducted by the Company); or (iii) the dissolution or liquidation of
the Company.
(b) REQUIRED NOTICE. At least 30 days' prior written notice of any
---------------
event described in subsection 5(a) shall be given by the Company to the Option
Holder, unless in the case of the events described in clauses (i) or (ii) of
subsection 5(a), the Company, or the successor or purchaser, as the case may be,
shall make adequate provision for the assumption of the Option or the
substitution of new options for the Option on terms comparable to the Option
except that the Option Holder shall have the right thereafter to purchase the
kind and amount of shares of stock or other securities or property or cash
receivable upon such merger, consolidation, sale or conveyance by a holder of
the number of shares of Stock that would have been receivable upon exercise of
the Option immediately prior to such merger, consolidation, sale or conveyance
(assuming such holder of Stock failed to exercise any rights of election and
received per share the kind and amount received per share by a majority of the
non-electing shares). Notwithstanding the provisions of this Section 5 to the
contrary, the Company shall give the notice provided by this subsection 5(b) in
the case of the events described in subsection 5(a)(i) or (ii) only if the
consideration to be received by the stockholders of the Company upon such event
consists solely of cash or non-equity securities. In the event of any other
transaction described in subsection 5(a)(i) or (ii), the Company shall arrange
for the substitution or assumption of the Option in accordance with the
provisions of this subsection 5(b). The provisions of this Section 5 shall
similarly apply to successive mergers, consolidations, sales or conveyances.
Such notice shall be deemed to have been given when delivered personally to the
Option Holder or when mailed to the Option Holder by registered or certified
mail, postage prepaid, at the Option Holder's address last known to the Company.
(c) ACCELERATION OF EXERCISABILITY. If the Option Holder is notified,
------------------------------
in accordance with subsection 5(b), of a transaction described in subsection
5(a), the entire Option shall become 100% vested and exercisable, and he may
exercise his Option at any time before the
4
<PAGE>
occurrence of the event requiring the giving of notice (but subject to
occurrence of such event), regardless of whether all conditions of exercise
relating to length of service or otherwise have been satisfied.
6. EXPIRATION AND TERMINATION OF THE OPTION. The Option shall expire on
----------------------------------------
June 30, 2003 (the period from the Effective Date to the expiration date is the
"Option Period") or prior to such time as follows:
(a) If the employment of the Option Holder by the Company is
terminated for "cause" (as defined in the Employment Agreement) within the
Option Period, the unvested portion of the Option shall terminate in its
entirety immediately upon the termination of employment of the Option Holder.
The vested portion of the Option may be exercised by the Option Holder during
the six (6) month period beginning upon the day immediately following the date
of the Option Holder's termination of employment for "cause."
(b) If the employment of the Option Holder by the Company terminates
for any reason other than "cause," the Option may be exercised by the Option
Holder (or in the event of his death, by those entitled to do so under his will
or by the laws of descent and distribution) until the end of the Option Period.
In any such case, the Option may be exercised only as to the shares of Stock as
to which the Option had become vested on or before the date of the Option
Holder's termination of employment, including those that vest as a result of
such termination.
7. TRANSFERABILITY. Except to the extent permitted by the Committee in
---------------
accordance with the provisions of the Plan, the Option may not be transferred
except by will or pursuant to the laws of descent and distribution, and it shall
be exercisable during the Option Holder's life only by him, or in the event of
Disability or incapacity, by his guardian or legal representative, and after his
death, only by those entitled to do so under his will or the applicable laws of
descent and distribution. Except as specifically provided herein, upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the
Option or any right or privilege granted hereunder, or upon the levy of any
attachment or similar process upon the rights and privileges herein conferred,
the Option and the rights and privileges hereunder shall become immediately null
and void.
8. LIMITATION OF RIGHTS. The Option Holder or his successor shall have
--------------------
no rights as a stockholder with respect to the shares of Stock covered by this
Option until the Option Holder or his successors become the holder of record of
such shares.
9. STOCK RESERVE. The Company shall at all times during the term of this
-------------
Agreement reserve and keep available such number of shares of Stock as will be
sufficient to satisfy the requirements of this Agreement, and the Company shall
pay all original issue taxes (if any) on the exercise of the Option, and all
other fees and expenses necessarily incurred by the Company in connection
therewith.
5
<PAGE>
10. WITHHOLDING. The issuance of Stock pursuant to the exercise of this
-----------
Option shall be subject to the requirement that the Option Holder shall make
appropriate arrangements with the Company to provide for the amount of
additional income and other tax withholding applicable to the exercise of the
Option. The Option Holder shall have the right to elect to pay any or all such
amounts of tax withholding by electing to transfer to the Company, or to have
the Company withhold from shares of Stock otherwise issuable to the Option
Holder, shares of Stock having a value equal to the amount required to be
withheld, or such lesser amount as may be elected by the Option Holder. If such
an election is made by the Option Holder, the value of shares of Stock to be
withheld shall be based upon the Fair Market Value of the Stock on the date that
the amount of tax to be withheld is to be determined.
11. MISCELLANEOUS.
-------------
(a) NOTICES. Any notice required or permitted to be given under this
-------
Agreement shall be in writing and shall be given by first class registered or
certified mail, postage prepaid, or by personal delivery to the appropriate
party, addressed:
(i) If to the Company, to Qwest Communications International
Inc., Attention: Chief Financial Officer, 555 Seventeenth Street, Suite
1000, Denver, Colorado 80202, or at such other address as may have been
furnished to the Option Holder in writing by the Company; or
(ii) If to the Option Holder, to the Option Holder at #1 Manor
Hill Drive, Mendham, New Jersey 07945, or at such other address as may
have been furnished to the Company by the Option Holder.
Any such notice shall be deemed to have been given as of the second day after
deposit in the United States mails, postage prepaid, properly addressed as set
forth above, in the case of mailed notice, or as of the date delivered in the
case of personal delivery.
(b) AMENDMENT. Except as provided herein, this Agreement may not be
---------
amended or otherwise modified unless evidenced in writing and signed by the
Company and the Option Holder.
(c) DEFINED TERMS. Capitalized terms shall have the meaning set forth
-------------
in the Plan or herein, as the case may be.
(d) DISPUTES. Notwithstanding the provisions of Article III of the
--------
Plan, if any dispute arises between the Option Holder and the Company with
respect to the meaning or interpretation of the Plan or this Agreement, such
dispute shall be resolved on a de novo basis pursuant to the arbitration
-------
provisions contained in Section 9 of the Employment Agreement.
(e) CONSTRUCTION; SEVERABILITY. The section headings contained herein
--------------------------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. The invalidity or unenforceability of any
provision of this Agreement shall not affect
6
<PAGE>
the validity or enforceability of any other provision of this Agreement, and
each other provision of this Agreement shall be severable and enforceable to the
extent permitted by law.
(f) WAIVER. Any provision contained in this Agreement may be waived,
------
either generally or in any particular instance, by the Committee appointed under
the Plan, but only to the extent permitted under the Plan.
(g) BINDING EFFECT. This Agreement shall be binding upon and inure to
--------------
the benefit of the Company and the Option Holder and their respective heirs,
executors, administrators, legal representatives, successors and assigns.
(h) RIGHTS TO EMPLOYMENT. Nothing contained in this Agreement shall
--------------------
be construed as giving the Option Holder any right to be retained in the employ
of the Company and this Agreement is limited solely to governing the rights and
obligations of the Option Holder with respect to the Stock and the Option.
(i) NON-APPLICABILITY OF SECTION 14.3. The provisions of Section
---------------------------------
14.3 of the Plan shall not apply to the Option granted to the Option Holder
hereunder.
(j) GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
QWEST COMMUNICATIONS INTERNATIONAL INC.
By /s/
--------------------------------------------
------------------------------
OPTION HOLDER
/s/
-----------------------------------------------
Joseph P. Nacchio
7
<PAGE>
Exhibit 23
The Board of Directors and Stockholders
Qwest Communications International Inc.
We consent to incorporation by reference in the registration statements Nos.
333-30123 and 333-47349 on Form S-8 of Qwest Communications International Inc.
of our report dated February 24, 1998, except as to note 22, which is as of
March 8, 1998, relating to the consolidated balance sheets of Qwest
Communications International Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, and our report dated February 24, 1998 pertaining to the
related financial statement schedule, which reports appear in the December 31,
1997 annual report on Form 10-K of Qwest Communications International Inc.
KPMG Peat Marwick LLP
Denver, Colorado
March 17, 1998
80
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 INCLUDED IN THE COMPANY'S FORM
10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 379,784
<SECURITIES> 0
<RECEIVABLES> 72,006
<ALLOWANCES> 4,611
<INVENTORY> 0
<CURRENT-ASSETS> 723,942
<PP&E> 657,245
<DEPRECIATION> 42,605
<TOTAL-ASSETS> 1,398,105
<CURRENT-LIABILITIES> 315,422
<BONDS> 606,908
0
0
<COMMON> 2,066
<OTHER-SE> 411,605
<TOTAL-LIABILITY-AND-EQUITY> 1,398,105
<SALES> 696,703
<TOTAL-REVENUES> 696,703
<CGS> 0
<TOTAL-COSTS> 673,222
<OTHER-EXPENSES> (18,994)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,895
<INCOME-PRETAX> 23,580
<INCOME-TAX> 9,057
<INCOME-CONTINUING> 14,523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,523
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.07
</TABLE>
