<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1999
REGISTRATION NO. 333-_____
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
QWEST COMMUNICATIONS INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813 84-1339282
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
700 QWEST TOWER
555 SEVENTEENTH STREET
DENVER, COLORADO 80202
(303) 992-1400
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ROBERT S. WOODRUFF
EXECUTIVE VICE PRESIDENT--FINANCE
QWEST COMMUNICATIONS INTERNATIONAL INC.
700 QWEST TOWER
555 SEVENTEENTH STREET
DENVER, COLORADO 80202
(303) 992-1400
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE FOR THE REGISTRANT)
---------------
COPIES TO:
NICK NIMMO, ESQ.
HOLME ROBERTS & OWEN LLP
1700 LINCOLN STREET, SUITE 4100
DENVER, COLORADO 80203
(303) 861-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
---------------
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT OFFERING MAXIMUM MAXIMUM
OF SECURITIES TO TO BE PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION
FEE(2)
- ---------------------------------------------------------------------------
7.25% Senior
Notes Due 2008.... $300,000,000 100% $300,000,000 $85,264
-------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the Securities Act of 1933, as amended.
(2) Calculated pursuant to Rule 457(f)(2) based on the book value on
February 22, 1999 of the notes to be received by the Registrant in the
exchange described herein.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933, as amended, or until this registration statement shall
become effective on such date as the Commission, acting pursuant to said section
8(a), may determine.
<PAGE>
This Prospectus, dated _____________, 1999, is subject to
completion and amendment.
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
7.25% NOTES DUE 2008
FOR
7.25% SERIES B NOTES DUE 2008
OF
QWEST COMMUNICATIONS INTERNATIONAL INC.
We are offering, on the terms and conditions described in this prospectus, to
exchange all of our outstanding 7.25% Senior Notes due 2008 for our registered
7.25% Series B Senior Notes due 2008. We issued the notes on November 27, 1998
and a total principal amount of $300.0 million is outstanding. The terms of the
new 7.25% notes are identical to the terms of the old 7.25% notes except that
the new 7.25% notes are registered under federal securities laws and will not
contain any legends restricting their transfer.
Information about the 7.25% Notes:
-----------------------------------------------
* Please consider the following:
- - The 7.25% notes will mature on November 1, 2008.
- - We will pay interest on the 7.25% notes semi-annually on May 1 and November
1 of each year beginning May 1, 1999, at the rate of 7.25% per year.
- - We have the option to redeem all or a portion of the 7.25% notes at any
time at the redemption price set forth on page __ of this prospectus.
- - You should carefully review the Risk Factors beginning on page __ of this
prospectus.
- - Our offer to exchange old 7.25% notes for new 7.25% notes will be open
until 5:00 p.m., New York City time, on _____________, 1999, unless we
extend the offer.
- - You should also carefully review the procedures for tendering the old 7.25%
notes beginning on page __ of this prospectus.
- - The 7.25% notes are senior unsecured obligations and rank equal in right of
payment to our existing future senior debt and senior in right of payment
to our existing and future subordinated debt. As of September 30, 1998, we
had $1,301.2 million of senior debt ranking equal in right of payment to
the 7.25% notes.
- - If you fail to tender your old 7.25% notes, you will continue to hold
unregistered securities and your ability to transfer them could be
adversely affected.
- - No public market currently exists for the 7.25% notes.
We do not intend to list the new 7.25% notes on any securities exchange
and, therefore, no active public market is anticipated.
--------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
Commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
------------------------------
The date of this prospectus is , 1999
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell the 7.25% notes until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to buy the 7.25% notes in any state where the offer or sale is not permitted.
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................... 4
Cautionary Statement Regarding Forward-looking Statements...................18
Risk Factors................................................................20
The Exchange Offer..........................................................30
Use of Proceeds.............................................................39
Capitalization..............................................................40
Description of the 7.25% Notes..............................................41
Description of Certain Indebtedness.........................................82
Certain United States Federal Income Tax Considerations.....................87
Plan of Distribution........................................................93
Legal Matters...............................................................94
Experts.....................................................................94
Where You Can Find More Information.........................................95
Incorporation of Certain Documents by Reference.............................96
------------------------
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
This brief summary highlights selected information from the prospectus. It does
not contain all of the information that is important to you. We urge you to
carefully read and review the entire prospectus and the other documents to which
it refers to fully understand the terms of the new 7.25% notes and the exchange
offer. We sometimes refer to Qwest Communications International Inc. in this
prospectus as "Qwest" and, together with its subsidiaries, including Qwest
Communications Corporation ("QCC"), as the "Company."
THE COMPANY
We offer a full range of voice, data and video communications services through
two core businesses: communications services and construction services.
Through our communications services business we provide internet and multimedia
services, business services, government services, consumer services and
wholesale services. Through our internet and multimedia services businesses we
provide internet access, web hosting, co-location and remote access and future
services, based on internet protocol, or IP, technology. We are developing
internet and multimedia services according to market demand in partnership with
leading information technology companies, including Microsoft Corporation
(business applications and services) and Netscape Communications Corporation
(one-stop access for an array of communications services accessed over the
internet). Through our business services, government services and consumer
services businesses we provide a full range of voice, data, video and related
services to business customers, governmental agencies and residential customers.
Through our wholesale services business we provide high-volume voice and
conventional private line services to other communications providers, as well as
to Internet service providers ("ISPs"), and other data service companies.
Through our construction services business we construct and install fiber optic
systems for other communications providers, as well as for our own use.
Central to our strategies is our Macro Capacity (SM) Fiber Network, a
high-capacity, IP-based fiber optic network designed to allow customers to
exchange images, data and voice information. The network will reach
approximately 18,500 route miles when completed in mid-1999. It employs a
self-healing SONET ring architecture that prevents interruption in service to
the Company's customers by instantaneously re-routing traffic in the event of a
fiber cut. It is equipped with technologically advanced fiber and
state-of-the-art transmission electronics. At full capacity, our network could
transmit two trillion bits of multimedia information per second. Our network
architecture supports IP, ATM (asynchronous transfer mode) and frame relay
services, as well as circuit switched services.
In addition to significant advantages in service, speed and sophistication, our
network's advanced technologies should also provide a cost advantage over older
fiber systems generally in commercial use today. We expect an additional cost
benefit from the sale of dark fiber along the network, which will reduce our net
cost in the network retained for our own use. We believe that the technological
advantages and growing reach of our network will position us to capture market
share and take full advantage of the rapidly growing global demand for voice and
data transmission capacity and services.
Under our current plan, the network will connect over 130 metropolitan areas
coast-to-coast. Leased digital fiber optic facilities and more than 15 switches
<PAGE>
throughout the United States connect our network to metropolitan areas that
account for more than 95 percent of U.S. call volume. In April 1998, we became
the first network service provider to complete a transcontinental IP fiber
network when we activated our network from Los Angeles to San Francisco to New
York.
We are also forming a venture with KPN, the Dutch telecommunications company, to
build and operate a pan-European IP-based fiber optic network linked to our
network in North America for data, video and voice services. KPN will contribute
to the venture two bi-directional, self-healing fiber optic rings (EuroRings 1
and 2), presently under construction in the United Kingdom, Germany, France,
Belgium and the Netherlands, covering more than 2,200 miles. In February 1999,
we completed the acquisition of Xlink Internet Service GmbH ("Xlink"), a leading
ISP headquartered in Karlsruhe, Germany. We purchased the other 50 percent of
Xlink in March 1998 when we acquired EUnet International Limited ("EUnet"). We
will contribute EUnet, including Xlink, to the venture. The venturers will also
contribute cash and transatlantic cable capacity that will connect EuroRings
with our network in North America.
We are also building a 1,400-route-mile extension of the U.S. network into
Mexico. We expect to complete the extension in early 1999. We own capacity on
three undersea systems linking our network to Europe and are part of a
consortium of communications companies that is building a submarine cable system
connecting the U.S. to Japan. The 13,125-mile four-fiber pair cable will be
capable of transmitting information at the rate of 640 gigabits per second. The
consortium expects this project to be completed by the second quarter of 2000.
RECENT DEVELOPMENTS
Fourth Quarter and Year-End Results. We reported unaudited year-end results
including revenue of $865.1 million and $2,242.7 million for the three and
twelve months ended December 31, 1998, respectively, compared to $206.4 million
and $696.7 million for the three and twelve months ended December 31, 1998,
respectively. In addition, we reported a net loss of ($844.0) million, or
($3.02) per basic and diluted share for the year ended December 31, 1998,
compared to net earnings of $14.5 million, or $0.08 per basic and $0.07 per
diluted share for the year ended December 31, 1997. In the fourth quarter of
1998, we reported a net loss of ($21.6) million, or ($0.06) per basic and
diluted share, compared to net earnings of $12.3 million, or $0.06 per basic and
diluted share in the fourth quarter of 1997.
Credit Facility Commitment. In February 1999, we received commitments from
several banks to syndicate an unsecured credit facility in the amount of $1.0
billion. It is a condition to closing that we sign a mututally satisfactory
credit agreement. We expect to close by the end of the first quarter of 1999.
Issuances of Notes. On November 4, 1998, we issued and sold $750.0 million in
principal amount of our 7.50% Senior Notes due 2008. The net proceeds from the
offering was approximately $741.0 million, after deducting offering costs.
Interest on the 7.50% Notes is payable semiannually in arrears on May 1 and
November 1 of each year, commencing May 1, 1999. The 7.50% Notes are subject to
redemption at our option, in whole or in part, at any time at specified
redemption prices.
In connection with the sale of the 7.50% Notes, we agreed to make an offer to
exchange new notes, registered under the Securities Act of 1933 and with terms
identical in all material respects to the original notes, for the original notes
or, alternatively, to file a shelf registration statement under the Securities
Act with respect to the original notes. We filed the registration statement on
February 2, 1999.
Redemption of Notes. On December 31, 1998, we redeemed $87.5 million of our 10
7/8% Senior Notes Due 2007. Bankers Trust Company, the Trustee for the 10 7/8%
notes, issued the required notice to affected noteholders on December 1, 1998.
<PAGE>
Under the terms of the Indenture for the 10 7/8% notes, dated August 28, 1997,
we may redeem up to 35%, or $87.5 million, of the $250 million principal amount
of the 10 7/8% notes.
Equipment Credit Facility. In December 1998, we repaid the outstanding balance
of our equipment credit facility. The balance of the facility was $57.3 million
at September 30, 1998.
Our principal executive offices are located at 700 Qwest Tower, 555 Seventeenth
Street, Denver, Colorado 80202, and our telephone number is (303) 992-1400.
The Exchange Offer
Securities to be Exchanged...
On November 27, 1998, we issued $300.0 million aggregate principal amount
of old 7.25% notes to the initial purchaser in a transaction exempt from
the registration requirements of the Securities Act. The terms of the new
7.25% notes and the old 7.25% notes are substantially identical in all
material respects, except that the new 7.25% notes will be freely
transferable by the holders except as otherwise provided in this
prospectus. See "Description of the 7.25% Notes."
The Exchange Offer...........
$1,000 principal amount of new 7.25% notes in exchange for each $1,000
principal amount of old 7.25% notes. As of the date of this prospectus, old
7.25% notes representing $300.0 million aggregate principal amount are
outstanding.
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to certain third parties unrelated to us, we
believe that new 7.25% notes issued pursuant to the exchange offer in
exchange for old 7.25% notes may be offered for resale, resold or otherwise
transferred by holders (other than any holder which is an "affiliate" of
the Company within the meaning of Rule 405 promulgated under the Securities
Act, or a broker-dealer who purchased old 7.25% notes directly from us to
resell pursuant to Rule 144A or any other available exemption promulgated
under the Securities Act), without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that the
new 7.25% notes are acquired in the ordinary course of the holders'
business and the holders have no arrangement with any person to engage in a
distribution of new 7.25% notes.
However, the Commission has not considered the exchange offer in the
context of a no-action letter and we cannot be sure that the staff of the
Commission would make a similar determination with respect to this exchange
offer. Furthermore, each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of the new 7.25% notes and has no arrangement or understanding
to participate in a distribution of new 7.25% notes. Each broker-dealer
that receives new 7.25% notes for its own account pursuant to the exchange
offer must acknowledge that it will comply with the prospectus delivery
requirements of the Securities Act in connection with any resale of the new
7.25% notes. Broker-dealers who acquired old 7.25% notes directly from us
and not as a result of market-making activities or other trading activities
may not rely on the staff's interpretations discussed above or participate
in the exchange offer and must comply with the prospectus delivery
requirements of the Securities Act in order to resell the old 7.25% notes.
<PAGE>
Registration Rights
Agreement..................
We sold the old 7.25% notes on November 27, 1998, in a private placement
relying on Section 4(2) of the Securities Act. The old 7.25% notes were
immediately resold by the initial purchaser in reliance on Rule 144A under
the Securities Act. In connection with the sale, we entered into a
Registration Rights Agreement with the initial purchaser requiring us to
make the exchange offer. The Registration Rights Agreement also provides
that we must use our reasonable best efforts to (i) cause the registration
statement for the exchange offer to be declared effective within 150 days
of the date on which we issued the old 7.25% notes and (ii) close the
exchange offer on or before the 180th day following the date on which we
issued the old 7.25% notes. See "The Exchange Offer -- Purpose and Effect."
Expiration Date..............
The exchange offer will expire at 5:00 p.m., New York City time,
____________, 1999 or a later date and time to which we extend it.
Withdrawal...................
The tender of the old 7.25% notes pursuant to the exchange offer may be
withdrawn at any time prior to 5:00 p.m., New York City time, on , 1999, or
a later date and time to which we extend the offer. Any old 7.25% notes not
accepted for exchange for any reason will be returned without expense to
the tendering holder as soon as practicable after the exchange offer
expires or terminates.
Interest on the New 7.25% Notes and
the Old 7.25% Notes..............
Interest on the new 7.25% notes will accrue from the date of the original
issuance of the old 7.25% notes or from the date of the last periodic
payment of interest on the old 7.25% notes, whichever is later. No
additional interest will be paid on old 7.25% notes tendered and accepted
for exchange.
Conditions to the Exchange
Offer......................
The exchange offer is subject to certain customary conditions, certain of
which may we may waive. See "The Exchange Offer -- Certain Conditions to
Exchange Offer."
Procedures for Tendering Old 7.25%
Notes......................
Each holder of the old 7.25% notes wishing to accept the exchange offer
must complete, sign and date the letter of transmittal, or a copy, in
accordance with the instructions contained in this prospectus and in the
letter of transmittal, and mail or otherwise deliver the letter of
transmittal, or the copy, together with the old 7.25% notes and any other
required documentation, to the exchange agent at the address set forth in
this prospectus. Persons holding the old 7.25% notes through the Depository
Trust Company ("DTC") and wishing to accept the exchange offer must do so
pursuant to the DTC's Automated Tender Offer Program, by which each
tendering participant will agree to be bound by the letter of transmittal.
By executing or agreeing to be bound by the letter of transmittal, each
holder will represent to us that, among other things, (i) the new 7.25%
notes acquired pursuant to the
<PAGE>
exchange offer are being obtained in the ordinary course of business of the
person receiving the new 7.25% notes, whether or not the person is the
registered holder of the old 7.25% notes, (ii) the holder is not engaging
in and does not intend to engage in a distribution of the new 7.25% notes,
(iii) the holder does not have an arrangement or understanding with any
person to participate in the distribution of the new 7.25% notes, and (iv)
the holder is not an "affiliate," as defined under Rule 405 promulgated
under the Securities Act, of our company.
We will accept for exchange any and all old 7.25% notes which are properly
tendered (and not withdrawn) in the exchange offer prior to 5:00 p.m., New
York City time, on , 1999. The new 7.25% notes issued pursuant to the
exchange offer will be delivered promptly following the expiration date.
See "The Exchange Offer -- Terms of the Exchange Offer."
Exchange Agent...............
The Bank of New York is serving as exchange agent in connection with the
exchange offer.
Federal Income Tax
Considerations.............
In the opinion of our counsel, the exchange of old 7.25% notes for new
7.25% notes in the exchange offer should not be a taxable exchange for
United States federal income tax purposes. See "Certain United States
Federal Income Tax Considerations."
Effect of not Tendering......
Old 7.25% notes that are not tendered or that are tendered but not accepted
will, following the completion of the exchange offer, continue to be
subject to the existing restrictions upon transfer. We will have no further
obligation to provide for the registration under the Securities Act of the
old 7.25% notes.
The New 7.25% Notes
The summary below describes the principal terms of the new 7.25% notes.
Certain of the terms and conditions described below are subject to
important limitations and exceptions. The "Description of the 7.25% Notes"
section of this prospectus beginning on page __ contains a more detailed
description of the terms and conditions of the new 7.25% notes.
Issuer.......................
Qwest Communications International Inc.
Securities Offered...........
$300,000,000 principal amount of 7.25% Series B Senior Notes Due 2008
Maturity.....................
November 1, 2008
Interest Rate................
7.25% per year (calculated using a 360-day year)
Ranking......................
<PAGE>
The new 7.25% notes will be senior unsecured obligations of Qwest and will
rank equal in right of payment to our existing and future senior debt and
senior in right of payment to all of Qwest's existing and future
subordinated debt. The new 7.25% notes are not secured by any assets and
are effectively subordinated to our future secured indebtedness to the
extent of the value of the assets securing the indebtedness. As of
September 30, 1998, on a pro forma basis after giving effect to the
acquisition of Icon CMT Corp., the redemption of $87.5 million of our 10
7/8% notes, the repayment of $57.3 million of our equipment credit
facility, the offering of the old 7.25% notes, the offering of our 7.50%
Notes and the use of the proceeds from these offerings, Qwest would have
had approximately $1,912.0 million of indebtedness outstanding, none of
which was secured. The new 7.25% notes are effectively subordinated to all
of the present and future indebtedness and other liabilities of our
subsidiaries (including trade payables). The total liabilities of our
subsidiaries (after the elimination of loans and advances by us to our
subsidiaries) would have been approximately $1,893.7 million, of which
approximately $32.0 million was secured. Any rights of us and our
creditors, including the holders of new 7.25% notes, to participate in the
assets of any of our subsidiaries upon any liquidation or reorganization of
any the subsidiary will be subject to the prior claims of that subsidiary's
creditors (including trade creditors).
Optional Redemption..........
We can redeem the 7.25% notes at any time at a price of 100% of the
principal amount plus the Applicable Premium (as defined).
Change of Control Offer......
If a "Change of Control" of our Ccmpany occurs (as defined in the indenture
for the 7.25% notes), we must give holders of the 7.25% notes an
opportunity to sell us their 7.25% notes at 101% of their face amount, plus
accrued interest.
We might not be able to pay you the required price for new 7.25% notes you
request us to purchase at the time of a Change of Control because we may
also have to repay our senior credit facility and may not have enough funds
to repay all of our senior debt at that time.
Asset Sale Proceeds..........
If we engage in certain asset sales, we must generally use the
proceeds (1) first, to the repayment of debt then outstanding under
any credit facility, to the extent the agreements would require us to
do so or prohibit note repurchases; (2) second, to offer to purchase
outstanding 7.25% notes at 100% of their face amount, plus accrued
interest; (3) third, to the repayment of other debt; and (4) fourth,
to any other company use.
Certain Indenture
Provisions...................
The indenture governing the 7.25% notes contains covenants limiting our
(and most of our subsidiaries') ability to:
- borrow additional money,
- pay dividends or other distributions to stockholders,
<PAGE>
- allow subsidiaries to guarantee our debt,
- limit the ability of subsidiaries to make payments to us,
- make certain investments,
- create certain liens on our assets,
- sell certain assets,
- enter into transactions with affiliates, and - engage in certain mergers
or consolidations.
These covenants are subject to a number of important limitations and
exceptions and are more fully described under "Description of the 7.25%
Notes" beginning on page __.
Under the terms of the indenture for the 7.25% notes, we have no obligation
to comply with most of the covenants during any period when the 7.25% notes
have been assigned investment grade ratings. If the 7.25% notes later lose
an investment grade rating, the covenants will again apply, but actions
taken during the period generally cannot cause us to be in default if the
covenants again become effective. Consequently, the protection afforded by
the covenants could be weakened if the 7.25% notes are assigned investment
grade ratings and subsequently downgraded to non-investment grade.
Use of Proceeds..............
We will not receive any cash proceeds from the issuance of the new 7.25%
notes pursuant to this prospectus.
RISK FACTORS
We urge you to carefully review the Risk Factors beginning on page __ for a
discussion of factors you should consider before exchanging your old 7.25% notes
for new 7.25% notes.
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The selected unaudited pro forma condensed combined statement of operations data
for the year ended December 31, 1997 and for the nine months ended September 30,
1998 gives effect to the acquisitions of SuperNet, Inc., Phoenix Network, Inc.,
LCI International, Inc. and subsidiary ("LCI") and Icon as if the acquisitions
had occurred on January 1, 1997. The unaudited pro forma condensed combined
balance sheet data as of September 30, 1998 set forth below gives effect to the
proposed acquisition by us of all the issued and outstanding shares of capital
stock of Icon and the assumption of the Icon stock options and warrants as if
the acquisition had occurred on September 30, 1998. The selected unaudited pro
forma condensed combined financial data does not give effect to our acquisition
of EUnet International Ltd. and the joint venture with KPN Telecom B.V. because
the disclosure is not required under Rule 3-05 of Securities and Exchange
Commission Regulation S-X.
The selected unaudited pro forma condensed combined financial data give effect
to the acquisitions described above under the purchase method of accounting and
are based on the assumptions and adjustments described in the notes to the
Unaudited Pro Forma Condensed Combined Financial Statements incorporated by
reference in this prospectus. The fair value of the consideration will be
allocated to the assets and liabilities acquired based upon the fair values of
the assets and liabilities at the date of each respective acquisition and may be
revised for a period of up to one year from the date of each respective
acquisition. The preliminary estimates and assumptions as to the value of the
assets and liabilities of LCI and Icon to the combined company are based upon
information available at the date of preparation of the Unaudited Pro Forma
Condensed Combined Financial Statements, and will be adjusted upon the final
determination of the fair values. The items awaiting final allocation include
LCI network asset valuation and final determination of the costs to sell these
assets. It is anticipated that final allocation of the LCI purchase price will
not differ materially from the preliminary allocation.
We have undertaken a study to determine the allocation of the Icon purchase
price to the various assets acquired, including in-process research and
development projects, and the liabilities assumed. Based on our consideration of
the study's preliminary findings as of this date, we have allocated a portion of
purchase price to certain intangible assets, including in-process R&D. See the
footnotes to the pro forma condensed combined financial statements for further
information on the preliminary allocation of purchase price.
The selected historical financial data as of the end of, and for each of the
years in, the five year period ended December 31, 1997 and as of September 30,
1998 and 1997 and for the nine months ended September 30, 1998 and 1997 have
been taken or derived from the respective historical consolidated financial
statements of Qwest.
<PAGE>
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA (UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................ $2,473 $2,199
Operating expenses................................. 2,211 1,934
Depreciation and amortization...................... 261 231
------ ------
Earnings from operations........................... 1 34
Other expense, net................................. 39 64
------ ------
Earnings before income taxes....................... (38) (30)
Income tax expense................................. 39 35
------ ------
Net loss........................................... $ (77) $ (65)
====== ======
Loss per share--basic and diluted.................. $(0.24) $(0.20)
Shares used in calculating basic and diluted loss
per share......................................... 326 329
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1998
-------------
<S> <C>
BALANCE SHEET DATA:
Current assets.................................................... $1,157
Property and equipment, net....................................... $2,058
Total assets...................................................... $7,126
Debt.............................................................. $1,623
Total liabilities................................................. $3,133
Total stockholders' equity........................................ $3,993
</TABLE>
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ --------------
1993 1994 1995 1996 1997 1997 1998(1)
----- ------ ------ ------ ----- ----- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS AND
OTHER FINANCIAL DATA:
Total revenue............ $ 69 $ 71 $ 125 $ 231 $ 697 $ 490 $1,378
Total operating
expenses................ 80 82 161 243 673 490 2,164
Earnings (loss) from
operations.............. (11) (11) (36) (12) 24 -- (786)
Other (income)
expense(2).............. (123) -- 2 (2) -- (5) 51
Earnings (loss) before
income taxes............ 112 (11) (38) (10) 24 5 (837)
Net earnings (loss)...... $ 69 $ (7) $ (25) $ (7) $ 15 $ 2 $ (823)
===== ====== ====== ====== ===== ===== ======
Earnings (loss) per
share--basic............ $0.40 $(0.04) $(0.15) $(0.04) $0.08 $0.01 $(3.17)
Earnings (loss) per
share--diluted.......... $0.40 $(0.04) $(0.15) $(0.04) $0.07 $0.01 $(3.17)
EBITDA(3)................ $ (1) $ (6) $ (26) $ 7 $ 42 $ 13 $ 214
Net cash provided by
(used in)
operating activities.... $ (7) $ 3 $ (57) $ 33 $ (36) $ (60) $ 106
Net cash provided by
(used in)
investing activities.... $ 107 $ (42) $ (59) $ (53) $(357) $(196) $ (778)
Net cash provided by
(used in)
financing activities.... $ (96) $ 34 $ 114 $ 26 $ 766 $ 436 $ 518
Capital expenditures(4).. $ 4 $ 41 $ 49 $ 86 $ 445 $ 213 $ 751
Ratio of earnings to
fixed charges(5)....... 5.67 -- -- -- 1.15 -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ------ -------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Total assets................... $61 $89 $184 $263 $1,398 $ 908 $ 6,834
Long-term debt................. $ 2 $27 $ 69 $109 $ 630 269 1,387
Total stockholders' equity(6).. $12 $25 $ 26 $ 9 $ 382 369 3,752
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------ -------------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Route miles of
conduit installed....... 3,200 3,650 9,500 7,900 15,979
Route miles of lit
fiber installed......... 580 900 3,400 2,800 9,052
Total minutes....
of use 237,000,000 382,000,000 669,000,000 433,000,000 6,252,000,000
</TABLE>
- --------
(1) On June 5, 1998, we acquired LCI. The acquisition was accounted for as a
purchase and the results of LCI's operations are included with ours for the
period subsequent to the acquisition.
(2) In November 1993, we sold substantially all of the fiber optic network
capacity and related equipment and assets that we owned then to a
third-party purchaser for $185.0 million. After deducting the carrying
value of the assets sold and direct costs associated with the sale, we
recognized a gain of approximately $126.5 million.
(3) EBITDA represents net earnings (loss) before interest, income taxes,
depreciation and amortization, a nonrecurring expense of $2.6 million in
the year ended December 30, 1996 to restructure operations, the gain on
sale of telecommunications agreements of $6.1 million (which is
non-recurring) in the year ended December 31, 1996, the gain on sale of
contract rights of approximately $9.3 million (which is non-recurring) in
the year ended December 31, 1997 and non-recurring expenses of $813 million
in the nine months ended September 30, 1998 related to the LCI merger.
EBITDA includes earnings from the construction contracts for the sale of
dark fiber that we will use to provide cash for the construction cost of
our network. EBITDA does not represent cash flow for the periods presented
and should not be considered as an alternative to net earnings (loss) as an
indicator of our operating performance or as an alternative to cash flows
as a source of liquidity, and may not be comparable with EBITDA as defined
by other companies. Qwest believes that EBITDA is commonly used by
financial analysts and others in the telecommunications industry. Without
the effect of Qwest's growth share plan expense, EBITDA would have been
$115.2 million, $20.0 million, and $1.8 million for the years ended
December 31, 1997, 1996 and 1993, respectively, and $153.4 million and
$80.6 million for the nine months ended September 30, 1998 and 1997,
respectively.
(4) Capital expenditures include expenditures for property and equipment,
accrued capital expenditures, capital expenditures financed with the
equipment credit facility and initial obligations under capital leases.
(5) Earnings were insufficient to cover fixed charges by $864.0 million and
$6.7 million for the nine month periods ended September 30, 1998 and 1997,
respectively, and $12.6 million, $40.4 million and $11.0 million for the
years ended December 31, 1996, 1995 and 1994.
(6) We have not declared or paid cash dividends on our common stock since
becoming a public company in June 1997.
<PAGE>
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference certain "forward-looking
statements" as that term is used in federal securities laws about our financial
condition, results of operations and business. These statements include, among
others:
(i) statements concerning the benefits that we expect will result from our
business activities and certain transactions we have completed, such as
synergies in the form of increased revenues, decreased expenses and avoided
expenses and expenditures,
(ii) our plans to complete our communications network and
(iii) other statements of our expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not historical
facts.
These statements may be made expressly in this document, or may be incorporated
by reference to other documents we have filed with the Commission. You can find
many of these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates," or similar expressions used in this prospectus or
incorporated by reference in this prospectus.
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by us in those statements. The risks and uncertainties
include those risks, uncertainties and risk factors identified, among other
places, under "Risk Factors" in this prospectus, beginning on page __, and under
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the documents incorporated by reference in this
prospectus.
The most important factors that could prevent us from achieving our stated goals
include, but are not limited to, the following:
- - our failure to construct our communications network on schedule and on
budget;
- - operating and financial risks related to managing rapid growth, integrating
acquired businesses and sustaining operating cash flow to meet our debt service
requirements, make capital expenditures and fund operations;
- - potential fluctuation in quarterly results;
- - volatility of stock price;
- - intense competition in the communications services market;
- - dependence on new product development;
- - our ability to achieve year 2000 compliance;
- - rapid and significant changes in technology and markets;
- - adverse changes in the regulatory or legislative environment affecting our
business;
- - failure to maintain necessary rights of way; and
- - satisfactory negotiation and execution of certain definitive documentation.
<PAGE>
Because the statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by the forward-looking
statements. You are cautioned not to place undue reliance on the statements,
which speak only as of the date of this prospectus or, in the case of documents
incorporated by reference, the date of the document.
The cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that we or persons acting on our behalf may issue. We undertake no
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this prospectus or to reflect the
occurrence of unanticipated events.
RISK FACTORS
In addition to the other information in this prospectus, the following risk
factors should be considered carefully in evaluating us and our business before
participating in the exchange offer.
Effect of Not Tendering
Holders of old 7.25% notes who do not exchange their old 7.25% notes for new
7.25% notes will continue to be subject to the restrictions on transfer of the
old 7.25% notes as set forth in the legends on the old 7.25% notes. In general,
the old 7.25% notes may not be offered or sold, unless they are registered under
the Securities Act or are exempt from registration. See "The Exchange
Offer--Consequences of Failure to Exchange."
Holding Company Structure; Subordination of the 7.25% Notes to Indebtedness of
Subsidiaries
The 7.25% notes are obligations only of Qwest, which is a holding company with
no material assets other than the stock of its subsidiaries. Our subsidiaries
conduct substantially all of our operations and own substantially all of our
assets. As a result, our cash flow and our ability to meet our debt service
obligations, including payments on the 7.25% notes, depends on the cash flow of
our subsidiaries and the payment of funds by them to us in the form of loans,
dividends or otherwise. Our subsidiaries generally are not obligated to make
funds available to us for payment on the 7.25% notes or for other purposes.
Existing debt agreements of our subsidiaries impose, and future debt instruments
of our subsidiaries may impose, significant restrictions on the ability of our
subsidiaries to pay dividends or make other distributions or loans and advances
to us. In addition, the ability of our subsidiaries to make any payments to us
will depend on their earnings, business and tax considerations and legal
restrictions.
As a result, the 7.25% notes effectively will rank junior to all existing and
future indebtedness, trade payables and other liabilities of our subsidiaries.
In the event of a bankruptcy or dissolution of a subsidiary, our rights and the
rights of our creditors, including the holders of the 7.25% notes, to share in
the assets of the subsidiary will be subject to the prior claims of the
subsidiary's creditors. After the payment of the subsidiary's liabilities, the
subsidiary may not have enough assets remaining to pay us and our creditors. On
a pro forma basis after giving effect to the acquisition of Icon, the redemption
of $87.5 million of our 10 7/8% notes, the repayment of $57.3 million of our
equipment credit facility, the offering of the old 7.25% notes, the offering of
our 7.50% Notes, and the use of the proceeds from these
<PAGE>
offerings, at September 30, 1998, our subsidiaries would have had approximately
$1,893.7 million of outstanding liabilities. All of these liabilities would
effectively rank senior to the 7.25% notes. We expect that our subsidiaries will
incur additional indebtedness in the future.
The 7.25% Notes are Unsecured; Subordination of the 7.25% Notes to Secured
Indebtedness
The 7.25% notes will be general unsecured obligations of Qwest. As a result, the
7.25% notes will rank junior in right of payment to the claims of all of our
secured creditors to the extent of the value of the secured assets. If a default
or acceleration of our debt occurs, the holders of the debt could seize the
assets securing the debt and sell the assets to satisfy all or a part of what is
owed. On a pro forma basis, after giving effect to the acquisition of Icon, the
redemption of $87.5 million of our 10 7/8% notes, the repayment of $57.3 million
of our equipment credit facility, the offering of our 7.50% notes, the offering
of the old 7.25% notes and the use of the proceeds from these offerings, at
September 30, 1998, we would have had approximately $32.0 million of secured
indebtedness. Future indebtedness incurred by us also may be secured.
The value of a substantial portion of our fixed assets is derived from employing
the assets in a communications business. These assets are highly specialized and
we expect that, taken individually, they would have limited marketability.
Consequently, in the event of a realization by secured creditors on the assets
of our subsidiaries, creditors would likely seek to sell the business as a going
concern in order to maximize the proceeds realized. The price obtained upon a
sale could be adversely affected by the necessity to obtain approval of the sale
from the applicable regulatory authorities and compliance with other applicable
governmental regulations.
Substantial Indebtedness; Ability to Incur Additional Debt
We have a significant amount of debt outstanding. As of September 30, 1998, on a
pro forma basis, after giving effect to the acquisition of Icon, the redemption
of $87.5 million of our 10 7/8% notes, the repayment of $57.3 million of our
equipment credit facility, the offering of our 7.50% notes, the offering of the
old 7.25% notes and the use of proceeds from these offerings, we would have had
approximately $2,295.7 million of long-term debt (including the current
portion), and a debt-to-equity ratio of 0.6 to 1.0. You should be aware that
this significant amount of debt could have important consequences to you as a
holder of the 7.25% notes. For example, a significant portion of our cash flow
from operations must be dedicated to the repayment of the indebtedness, thereby
reducing the amount of cash we have available for other purposes.
The indenture governing the 7.25% notes limits, but does not prohibit, us and
our subsidiaries from incurring additional debt. We expect that we and our
subsidiaries may incur substantial additional debt in the future. In February
1999, we received commitments from several banks to syndicate an unsecured
credit facility in the amount of $1.0 billion. It is a condition to closing that
we sign a mututally satisfactory credit agreement. We expect to close by the end
of the first quarter of 1999.
<PAGE>
Our ability to pay the principal of and interest on our debt will depend upon
our future performance, which is subject to several uncertainties, many of which
are beyond our control. We cannot assure you that we will have enough cash flow
in the future to let us meet our anticipated debt service requirements
(including those with respect to the 7.25% notes). Although we currently
anticipate that we will pay the principal and interest on the 7.25% notes with
cash flow from operations, we cannot assure you in this regard. Failure to
generate sufficient cash flow may impair our ability to obtain additional equity
or debt financing or to meet our debt service requirements, including the
payment of principal and interest on the 7.25% notes. In those circumstances, we
may be required to renegotiate the terms of our long-term debt or to refinance
all or a portion of our long-term debt. We cannot assure you that we would be
able to renegotiate successfully those terms or refinance our debt when required
or that the terms of the refinancing would be acceptable to management. If we
were unable to refinance our debt or obtain new financing under these
circumstances, we would have to consider other options such as the sale of
certain assets to meet our debt service obligations, the sale of equity,
negotiations with our lenders to restructure debt or other options.
Restrictive Debt Covenants
The indentures for the 7.25% notes and our other outstanding senior notes (the
"Senior Note Indentures") and our senior credit facilities impose significant
operating and financial restrictions on us and our subsidiaries. These
restrictions may significantly limit or prohibit us from engaging in certain
transactions, including the following:
o borrowing additional money,
o paying dividends or other distributions to stockholders,
o allowing subsidiaries to guarantee our debt,
o limiting the ability of subsidiaries to make payments to us,
o making certain investments,
o creating certain liens on our assets,
o selling certain assets,
o entering into transactions with affiliates, and
o engaging in certain mergers or consolidations.
These restrictions could limit our ability to obtain future financing, make
needed capital expenditures, withstand a future downturn in our business or in
the economy or otherwise conduct necessary corporate activities. Under the terms
of the indenture for the 7.25% notes, we have no obligation to comply with most
of the covenants during any period when the 7.25% notes have been assigned
investment grade ratings. If the 7.25% notes later lose an investment grade
rating, the covenants will again apply, but actions taken during that period
generally cannot cause us to be in default if the covenants again become
effective. As a result, the protection afforded by the covenants could be
weakened if the 7.25% notes are assigned investment grade ratings and
subsequently downgraded to non-investment grade.
Our failure to comply with the restrictions in our other indentures and credit
facilities could lead to a default under the terms of those documents. Our
senior credit facilities also require us and certain of our subsidiaries to
maintain specified financial ratios and satisfy certain financial tests. Our
ability to meet these financial ratios and tests may be affected by events
<PAGE>
beyond our control and, as a result, there can be no assurance that we will be
able to meet those tests. In the event of a default under any of our senior
credit facilities, the applicable lenders could terminate their commitments to
lend to us or accelerate the loans and declare all amounts borrowed due and
payable. Borrowings under other debt instruments that contain cross-acceleration
or cross-default provisions may also be accelerated and become due and payable.
If any of these events occurs, we cannot assure you that we would be able to
make the necessary payments to the lenders and cannot assure you that we would
be able to find alternate financing. Even if we could obtain alternate
financing, we cannot assure you that it would be on terms that are favorable or
acceptable to us.
Completing the Qwest Network and Increasing Traffic Volume
Our objective is to become a leading facilities-based provider of multi-media
communications services to businesses, consumers and other communications
providers. Our ability to achieve this objective will depend largely on
completion of our 18,450 route-mile fiber optic communications network on
schedule and within budget, on maintaining the rights of way for our network and
on achieving substantial volumes on our network. The construction of our network
will be affected by many factors, such as weather and regulatory approvals, that
are beyond our control. We cannot assure you that our entire network will be
completed on schedule and within budget. Although we believe that our cost
estimates and build-out schedule are reasonable, the actual construction costs
or time required to complete our network could exceed current estimates. In
addition, we must substantially increase our current traffic volume in order to
realize the anticipated cash flow, operating efficiencies and cost benefits of
the network. We cannot assure you that we will be able to achieve this increased
traffic volume.
Operating Losses and Working Capital Deficits
We have had operating losses and have not had enough cash flow from operations
to allow us to meet our debt service requirements, capital expenditures and
other cash needs. We had a net loss of $822.6 million for the nine months ended
September 30, 1998 (or $30.9 million excluding non-recurring costs associated
with recent acquisitions and provisions for in-process research and
development). We had an accumulated deficit of approximately $854.5 million at
September 30, 1998.
We had a working capital deficit of approximately $49.5 million at September 30,
1998 and working capital deficits for each of the four fiscal years before 1998.
We expect total capital expenditures for the year ending December 31, 1999 to be
approximately $1.3 billion to $1.4 billion. Working capital deficits could limit
our cash resources, resulting in reduced liquidity. We cannot assure you that
our operations will be profitable in the future. We may require additional
capital in order to offset operating losses and working capital deficits and to
support our objectives. Certain debt instruments to which we and our
subsidiaries are parties limit but do not prohibit the incurrence of additional
indebtedness, and we expect additional indebtedness to be incurred by us or our
subsidiaries in the future. We cannot assure you that we will be successful in
obtaining additional borrowings when required, or that the terms of future
indebtedness will not impair our ability to develop our business.
Competition
The communications industry is highly competitive. Many of our existing and
potential competitors have financial, personnel, marketing and other resources
that are significantly greater than ours, as well as other competitive
advantages. Increased consolidation and strategic alliances in the
telecommunications industry resulting from the Telecommunications Act of 1996
also could give rise to significant new competitors.
<PAGE>
The success of our business plan depends on our ability to increase
significantly our share of the communications services market in the medium and
long term. Our primary competitors in this market are other communications
service providers, including large and small facilities-based interexchange
carriers. For high-volume capacity services, we compete primarily with other
coast-to-coast and regional fiber optic network providers. AT&T, MCI WorldCom
and Sprint currently are the three principal facilities-based long distance
fiber optic networks. We are aware that others are planning additional networks
that, if constructed, could employ similar advanced technology as our network.
In addition, we have sold dark fiber along major portions of our network to
Frontier Corporation and GTE Corporation. Upon completion of our network,
Frontier and GTE will each have a fiber network smaller than ours in geographic
scope with potential operating capability equal to ours. Another competitor is
constructing, and has already obtained a significant portion of the financing
for, a fiber optic network. As publicly announced, the scope of this
competitor's network is less than ours. Nevertheless, we expect that this
competitor's network will compete directly with ours for many of the same
customers where their and our routes overlap. A carrier's carrier announced in
January 1998 that it plans to sell wholesale capacity on its fiber optic network
and that it has entered into an agreement with one of the local telephone
companies established as a result of the AT&T divestiture in 1984 known as the
regional bell oerating cmpanies to be the primary user of its network. We
believe that this network, although potentially competitive, is different in
operating capability from ours. Another potential competitor, a new
telecommunications company, has announced its intention to create a
telecommunications network based on Internet technology.
In the switched services segment of the communications services market, we sell
switched services to businesses, consumers and other communications carriers. In
this market, we compete with facilities-based carriers such as AT&T, MCI
WorldCom and Sprint, all of which have extensive experience in the long distance
market, and some of the regional carriers. We compete in the switched services
market on the basis of price, transmission quality, network reliability,
customer service and support. Our ability to compete effectively in this market
depends on our ability to maintain high quality services at prices equal to or
below those charged by our major competitors. The Telecommunications Act will
allow the regional bell operating companies and others to enter the long
distance market. We cannot assure you that we will be able to compete
successfully with existing or new competitors in our communications services
markets. Our failure to do so would have a material adverse effect on our
business, financial condition and results of operations.
Dependence on Significant Customers
We have substantial business relationships with a few large customers, primarily
for the sale of dark fiber. Frontier, GTE and WorldCom (prior to its merger with
MCI) accounted for approximately 9%, 10% and 2%, respectively, of total revenues
for the nine months ended September 30, 1998, approximately 31%, 37% and 6%,
respectively, of total revenues in 1997 and approximately 26%, 0% and 28%,
respectively, of total revenues in 1996. Revenues from these large customers
were attributable primarily to construction contracts for the sale of dark fiber
that extend through 1998 or into 1999. In 1997, we entered into two large
construction contracts for the sale of dark fiber to GTE. Our contracts with
Frontier and GTE provide for reduced payments and varying penalties if we make
late deliveries of route segments. These contracts also allow the purchaser,
after grace periods ranging generally from 12 to 18 months, to drop the
non-delivered segments from the system route to be delivered. In those cases,
the purchaser would not pay us for that portion of the contract purchase price
allocated to the non-delivered segments. A failure by any of our dark fiber
<PAGE>
purchasers to pay the full contract purchase price due to either the purchaser's
breach or our failure to deliver certain segments on time would require us to
seek alternative funding sources for capital expenditures. A significant
reduction in the level of services we provide for any of our large customers
could have a material adverse effect on our results of operations or financial
condition.
We have generated substantial revenues from dark fiber sales. However, as our
network is completed, we anticipate that revenues from dark fiber sales will
substantially decrease in the future. Our business plan assumes that we will
increase our revenue from communications services operations to fund the
expansion of our network. We are aware that certain interexchange carriers are
constructing or considering new networks. Accordingly, we cannot assure you that
any of our customers will increase their use of our services, or will not reduce
or cease their use of our services which could have a material adverse effect on
our ability to fund the completion of our network.
Managing Rapid Growth
Part of our strategy is to achieve rapid growth by using our network to exploit
opportunities that we expect will result from regulatory and technological
changes and other industry developments. Our growth strategy also includes
exploring opportunities for strategic acquisitions. We have completed five
acquisitions since our initial public offering, including the acquisition of LCI
in June 1998 for approximately $3,930.5 million and Icon for approximately
$254.1 million in our common stock. As result of our strategy, we are
experiencing rapid expansion that we expect will continue for the foreseeable
future. This growth has increased our operating complexity. To manage our
expansion effectively we must:
o expand, train and manage our employee base, and attract and retain highly
skilled personnel;
o expand and improve our systems for serving and communicating with our
customers;
o continue to develop and market new products and services; o integrate
acquired operations with our existing operations; and
o control expenses related to the expansion of our business.
We cannot assure you that we will be able to satisfy these requirements, or
otherwise manage our growth effectively, and any failure to do so could have a
material adverse effect on our business, financial condition and results of
operations.
Pricing Pressures and Industry Capacity
The long distance transmission industry generally has had overcapacity and
falling prices since shortly after the AT&T divestiture in 1984. We believe that
increasing demand in the last several years has resulted in a shortage of
capacity and slowed the decline in prices. However, we also expect that prices
for communications services will continue to fall over the next several years.
This is due primarily to:
(1) recent technological advances that permit large increases in the
transmission capacity of both new and existing fiber; and
(2) strategic alliances or similar transactions, such as purchasing
alliances for long distance capacity among regional bell operating
companies that increase the parties' purchasing power.
<PAGE>
Also, our existing and future construction contracts for the sale of dark fiber
with other carriers will increase supply of capacity and may lower prices for
traffic on our network. These downward pressures on prices could have a material
adverse effect on our business and on our financial condition and results of
operations, including our ability to fund future operations.
Year 2000 Risks
Many existing computer systems, including hardware and software, use only the
last two digits to identify a year. Consequently, as the year 2000 approaches,
such systems will not recognize the difference in a year that begins with "20"
rather than "19". As a result of the date change in the year 2000, if any of the
Company's computer systems use only two digits to define the year, these
defective systems may cause disruptions in its network operations through which
the Company provides communications services to its customers and in its
internal operations. Additionally, the Company is dependent upon outside sources
to provide communications services to its customers and to bill its customers
for such services. The greatest risk to the Company's ability to provide
communications services is the failure of third-party service providers to be
year 2000 compliant, especially those third-party service providers that provide
local access and certain of the billing systems upon which the provision of long
distance telecommunications service relies.
Rapid Technological Changes
The telecommunications industry is subject to rapid and significant changes in
technology. For instance, recent technological advances permit large increases
in the transmission capacity of both new and existing fiber. The introduction of
new products or emergence of new technologies also may reduce the cost and
increase the supply of certain services similar to those provided by us. We
believe that for the foreseeable future technology changes will neither
materially affect the continued use of fiber optic cable nor materially hinder
our ability to acquire necessary technologies. However, the effect of
technological changes on our operations cannot be predicted and could have a
material adverse effect on our business, financial condition and results of
operations.
Regulation Risks
Our operations are subject to extensive federal and state regulation.
Communications services are subject to the provisions of the Communications Act
of 1934, as amended (the "Communications Act"), including the Telecommunications
Act and the FCC regulations under the Communications Act. Communications
services also are covered by laws and regulations of the states, including
regulation by public utility commissions ("PUCs") and other state agencies.
Generally, we must obtain and maintain certificates of authority from regulatory
bodies in most states where we offer intrastate services. We also must obtain
prior regulatory approval of tariffs for our intrastate services in most of
these jurisdictions.
Regulation of the telecommunications industry is changing rapidly, and the
regulatory environment varies substantially from state to state. As deregulation
at the federal level occurs, some states are reassessing the level and scope of
regulation that may be applicable to us. Some of our operations are also subject
to various environmental, safety, health and other governmental regulations.
Future regulatory, judicial or legislative activities could have a material
adverse effect on us.
The Telecommunications Act may have potentially significant effects on our
operations. The Telecommunications Act allows the regional bell operating
companies to enter the long distance business and enables other entities,
including entities affiliated with power utilities and ventures between local
<PAGE>
exchange carriers and cable television companies, to provide an expanded range
of telecommunications services. Entry of these companies into the long distance
business would result in substantial additional competition in communications
services. This may have a material adverse effect on us and our customers that
are communications services providers themselves. However, we believe that entry
by the regional bell operating companies and other companies into the market
will create opportunities for us to sell fiber or lease long distance
high-volume capacity.
We monitor compliance with federal, state and local regulations governing the
discharge and disposal of hazardous and environmentally sensitive materials,
including the emission of electromagnetic radiation. We believe that we are in
compliance with these regulations; however, any discharge, disposal or emission
could have a material adverse effect on us.
Reliance on Key Personnel
Our operations are managed by key executive officers. The loss of any of these
executive officers could have a material adverse effect on us. We believe that
our growth and future success will depend in large part on our continued ability
to attract and retain highly skilled and qualified personnel. The competition
for qualified personnel in the telecommunications industry is intense. We cannot
assure you that we will be able to hire or retain necessary personnel. The loss
of certain key members of senior management or the failure to recruit additional
qualified personnel in the future could significantly impede our ability to
complete the integration of acquired businesses and to attain our financial,
expansion, marketing and other objectives.
Concentration of Voting Power; Potential Conflicts of Interest
Philip F. Anschutz, a director and Chairman of the Board of Directors of Qwest,
beneficially owned approximately 46.1% of the issued and outstanding shares of
Common Stock at December 31, 1998. Mr. Anschutz continues to have the power to
elect all the directors of Qwest and to control the vote on all other matters,
including significant corporate actions. Also, Mr. Anschutz is a director and
holds approximately 5% of the stock of Union Pacific Railroad Company.
Subsidiaries of that company own railroad rights of way on which a significant
portion of our network has been and will be built.
Liquid Trading Market for the 7.25% Notes May Not Develop
There is no established trading market for the 7.25% notes. The initial
purchaser of the 7.25% notes has informed us that it currently intends to make a
market in the new 7.25% notes. However, the initial purchaser has no obligation
to do so and may discontinue making a market at any time without notice. In
addition, the liquidity of any trading market in the 7.25% notes will depend
upon a number of factors including:
- - the number of holders of the 7.25% notes;
- - the overall market for similar securities;
- - our financial performance and prospects; and
- - prospects for companies in our industry generally.
As a result, we cannot assure you that an active trading market will develop for
the 7.25% notes.
<PAGE>
THE EXCHANGE OFFER
Purpose of the Exchange Offer
The Company originally issued and sold the old 7.25% notes on November 27, 1998
in an offering that was exempt from registration under the Securities Act in
reliance upon the exemptions provided by Section 4(2), Rule 144A and Regulation
S of the Securities Act. Accordingly, the old 7.25% notes may not be transferred
in the United States unless so registered or unless an exemption from the
registration requirements of the Securities Act and applicable state securities
laws is available.
As a condition to the sale of the old 7.25% notes, the Company and the initial
purchaser of the old 7.25% notes entered into the Registration Agreement as of
November 27, 1998. In the Registration Agreement, the Company agreed that it
would (i) file with the Commission a Registration Statement under the Securities
<PAGE>
Act with respect to the new 7.25% notes by February 25, 1999; (ii) use its best
efforts to cause the Registration Statement to be declared effective under the
Securities Act by April 26, 1999; and (iii) close an offer of the new 7.25%
notes in exchange for surrender of the old 7.25% notes by May 26, 1999. We have
filed a copy of the Registration Agreement as an exhibit to the Registration
Statement of which this prospectus is a part. The Registration Statement
satisfies certain of the Company's obligations under the Registration Agreement
and the Purchase Agreement.
Resale of the New Notes
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the new 7.25% notes issued in the exchange
offer in exchange for old 7.25% notes would in general be freely transferable
after the exchange offer without further registration under the Securities Act
if the holder of the new 7.25% notes represents (i) that it is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company, (ii)
that it is acquiring the new 7.25% notes in the ordinary course of its business
and (iii) that it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the new 7.25% notes; provided that, in the case of broker-dealers, a prospectus
meeting the requirements of the Securities Act is delivered if required.
However, the Commission has not considered this exchange offer in the context of
a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to this exchange
offer. Holders of old 7.25% notes wishing to accept this exchange offer must
represent to the Company that the conditions have been met. Each broker-dealer
that receives new 7.25% notes for its own account pursuant to this exchange
offer, where it acquired the old 7.25% notes exchanged for the new 7.25% notes
for its own account as a result of market-making or other trading activities,
may be deemed to be an "underwriter" within the meaning of the Securities Act
and must acknowledge that it will deliver a prospectus in connection with the
resale of the new 7.25% notes. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of new 7.25% notes received
in exchange for old 7.25% notes where the old 7.25% notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of one year after closing
of the exchange offer, it will make this prospectus available to any
broker-dealer for use in connection with any such resale. A broker-dealer that
delivers a prospectus to purchasers in connection with resales will be subject
to certain of the civil liability provisions under the Securities Act, and will
be bound by the provisions of the Registration Agreement (including certain
indemnification and contribution rights and obligations). See "Plan of
Distribution."
Terms of the Exchange Offer; Period for Tendering Old 7.25% Notes
Upon the terms and subject to the conditions set forth in this prospectus and in
the accompanying letter of transmittal (which together make up the exchange
offer), the Company will accept for exchange any and all old 7.25% notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. The Company will issue $1,000 principal amount at maturity of
new 7.25% notes in exchange for each $1,000 principal amount at maturity of
outstanding old 7.25% notes surrendered pursuant to the exchange offer. Old
7.25% notes may be tendered only in integral multiples of $1,000.
The form and terms of the new 7.25% notes are the same as the form and terms of
the old 7.25% notes except that (i) the exchange will be registered under the
<PAGE>
Securities Act and hence the new 7.25% notes will not bear legends restricting
their transfer, (ii) the interest, interest rate step-up, original issue
discount and cash interest provisions will be modified or eliminated as
appropriate and (iii) holders of the new 7.25% notes will not be entitled to
certain rights of holders of old 7.25% notes under the Registration Agreement,
which rights with respect to old 7.25% notes will terminate upon the closing of
the exchange offer. The new 7.25% notes will evidence the same debt as the old
7.25% notes (which they replace) and will be issued under, and be entitled to
the benefits of, the same indenture.
As of the date of this prospectus, an aggregate of $300,000,000 in principal
amount at maturity of the old 7.25% notes is outstanding. This prospectus,
together with the letter of transmittal, is first being sent on or about
February __, 1999, to all holders of old 7.25% notes known to the Company.
Holders of the old 7.25% notes do not have any appraisal or dissenters' rights
under the indenture in connection with the exchange offer. The Company intends
to conduct the exchange offer in accordance with the provisions of the
Registration Agreement and the applicable requirements of the federal securities
laws. See "Description of the 7.25% Notes--Exchange Offer; Registration Rights."
The Company expressly reserves the right, at any time or from time to time, to
extend the period of time during which the exchange offer is open, and thereby
delay acceptance for exchange of any old 7.25% notes, by giving written notice
of the extension to the holders as described below. During the extension, all
old 7.25% notes previously tendered will remain subject to the exchange offer
and may be accepted for exchange by the Company. Any old 7.25% notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder as promptly as practicable after the expiration of the exchange
offer.
The Company reserves the right to amend or terminate the exchange offer if any
of the conditions of the exchange offer specified below under "--Certain
Conditions of the Exchange Offer" occur. The Company will give written notice of
any extension, amendment, nonacceptance or termination to the holders of the old
7.25% notes as promptly as practicable. Any extension to be issued by means of a
press release or other public announcement will be issued no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
Procedures for Tendering Old 7.25% Notes
The tender to the Company of old 7.25% notes by a holder as set forth below and
the acceptance by the Company will create a binding agreement between the
tendering holder and the Company upon the terms and subject to the conditions
set forth in this prospectus and in the accompanying letter of transmittal.
Except as set forth below, a holder who wishes to tender old 7.25% notes for
exchange pursuant to the exchange offer must send a completed and signed letter
of transmittal, including all other documents required by the letter of
transmittal, to the exchange agent at one of the addresses set forth below under
"--Exchange Agent" on or before the Expiration Date. In addition, either (i)
certificates for the old 7.25% notes must be received by the exchange agent
along with the letter of transmittal, or (ii) a timely confirmation of a
book-entry transfer including an Agent's Message (a "Book-Entry Confirmation")
of the old 7.25% notes, if the procedure is available, into the exchange agent's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the exchange agent before the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below.
<PAGE>
The method of delivery of old 7.25% notes, letters of transmittal and all other
required documents is at the election and risk of the holders. If the delivery
is by mail, it is recommended that registered mail, properly insured, with
return receipt requested, be used. In all cases, sufficient time should be
allowed to assure timely delivery. No letters of transmittal or old 7.25% notes
should be sent to the Company.
Any beneficial owner whose old 7.25% notes are registered in the name of a
broker, dealer, commercial bank, trustee or other nominee and who wishes to
tender should contact the registered holder of the old 7.25% notes promptly and
instruct the registered holder to tender on behalf of the beneficial owner. If
the beneficial owner wishes to tender on its own behalf, the beneficial owner
must, prior to completing and executing the letter of transmittal and delivering
its old 7.25% notes, either make appropriate arrangements to register ownership
of the old 7.25% notes in the beneficial owner's name or obtain a properly
completed power of attorney from the registered holder of old 7.25% notes. The
transfer of record ownership may take considerable time. If the letter of
transmittal is signed by a person or persons other than the registered holder of
the old 7.25% notes, the old 7.25% notes must be endorsed or accompanied by
appropriate powers of attorney, in either case signed exactly as the name of the
registered holder that appears on the old 7.25% notes.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the old 7.25% notes surrendered for exchange pursuant thereto
are tendered (i) by a registered holder of the old 7.25% notes who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or (ii) for the account of an
Eligible Institution (as defined below). In the event that signatures on a
letter of transmittal or a notice of withdrawal are required to be guaranteed,
the guarantees must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trustee having an office or
correspondent in the United States (collectively, "Eligible Institutions"). If
old 7.25% notes are registered in the name of a person other than a signer of
the letter of transmittal, the old 7.25% notes surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, signed by the registered holder with the signature guaranteed
by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of receipt)
and acceptance of old 7.25% notes tendered for exchange will be determined by
the Company in its sole discretion, and its determination shall be final and
binding. The Company reserves the absolute right to reject any tenders of any
particular old 7.25% notes not properly tendered or not to accept any particular
old 7.25% notes whose acceptance might, in the judgment of the Company or its
counsel, be unlawful. The Company also reserves the absolute right to waive any
defects or irregularities or conditions of the exchange offer as to any
particular old 7.25% notes either before or after the Expiration Date (including
the right to waive the ineligibility of any holder who seeks to tender old 7.25%
notes in the exchange offer). The interpretation of the terms and conditions of
the exchange offer as to any particular old 7.25% notes either before or after
the Expiration Date (including the letter of transmittal and its instructions)
by the Company shall be binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of old 7.25% notes for exchange must
be cured within a reasonable period of time as the Company shall determine.
Neither the Company, the exchange agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of old 7.25% notes for exchange, nor shall any of them incur any
liability for failure to give the notification.
<PAGE>
If the letter of transmittal or any old 7.25% notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company, among other things, (i)
that it is not an "affiliate," as defined in Rule 405 of the Securities Act, of
the Company, or if it is an affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable,
(ii) that it is acquiring the new 7.25% notes in the ordinary course of its
business and (iii) at the time of the closing of the exchange offer it has no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the new 7.25% notes. If the holder
is a broker-dealer that will receive new 7.25% notes for its own account in
exchange for old 7.25% notes that were acquired as a result of market-making
activities or other trading activities, the holder may be deemed to be an
"underwriter" within the meaning of the Securities Act and is required to
acknowledge in the letter of transmittal that it will deliver a prospectus in
connection with any resale of the new 7.25% notes; however, by so acknowledging
and by delivering a prospectus, the holder will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
Acceptance of Old 7.25% Notes for Exchange; Delivery of New 7.25% Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer, the
Company will accept, promptly after the Expiration Date, all old 7.25% notes
properly tendered and will issue the new 7.25% notes promptly after acceptance
of the old 7.25% notes. See "--Certain Conditions of the Exchange Offer" below.
For purposes of the exchange offer, the Company shall be deemed to have accepted
properly tendered old 7.25% notes for exchange when, as and if the Company has
given oral or written notice to the exchange agent, with written confirmation of
any oral notice to be given promptly after.
The new 7.25% notes will bear interest at the same rate and on the same terms as
the old 7.25% notes. Consequently, cash interest on the new 7.25% notes will
accrue at a rate of 7.25% per annum and will be payable semiannually in arrears
commencing on May 1, 1999 and thereafter on November 1 and May 1 of each year.
Interest, if any, on each new 7.25% note will accrue from the last interest
payment date on which interest was paid on the surrendered old 7.25% note or, if
no interest has been paid on the old 7.25% note, from the date on which cash
interest on the old 7.25% note would begin to accrue. Consequently, holders
whose old 7.25% notes are accepted for exchange will be deemed to have waived
the right to receive any accrued but unpaid interest on the old 7.25% notes.
In all cases, the issuance of new 7.25% notes for old 7.25% notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of certificates for the old 7.25% notes or
a timely Book-Entry Confirmation of the old 7.25% notes into the exchange
agent's account at the Book-Entry Transfer Facility, a completed and signed
letter of transmittal and all other required documents. If any tendered old
7.25% notes are not accepted for any reason set forth in the terms and
conditions of the exchange offer, or if old 7.25% notes are submitted for a
greater amount than the holder desires to exchange, the unaccepted or
non-exchanged old 7.25% notes will be returned without expense to the tendering
holder (or, in the case of old 7.25% notes tendered by book-entry procedures
described below, the non exchanged old 7.25% notes will be credited to an
account maintained with the Book-Entry Transfer Facility) designated by the
tendering holder as promptly as practicable after the exchange offer expires or
terminates.
<PAGE>
Certain Conditions of the Exchange Offer
Notwithstanding any other term of the exchange offer, the Company will not be
required to accept for exchange, or to issue new 7.25% notes in exchange for,
any old 7.25% notes and may terminate or amend the exchange offer prior to the
Expiration Date, if because of any changes in law, or applicable interpretations
by the Commission, or because any action or proceeding is instituted or
threatened in any court or governmental agency with respect to the exchange
offer, the Company determines that it is not permitted to effect the exchange
offer.
Holders may have certain rights and remedies against the Company under the
Registration Agreement should the Company fail to consummate the exchange offer,
notwithstanding a failure of the conditions stated above. These conditions are
not intended to modify those rights or remedies in any respect.
Book-Entry Transfer
The exchange agent will make a request to establish an account for the old 7.25%
notes at the Book-Entry Transfer Facility for the exchange offer within two
business days after the date of this prospectus, and any financial institution
that is a participant in the Book-Entry Transfer Facility's systems may make
book-entry delivery of old 7.25% notes by causing the Book-Entry Transfer
Facility to transfer the old 7.25% notes into the exchange agent's account at
the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of old 7.25%
notes may be effected through book-entry transfer at the Book- Entry Transfer
Facility, the letter of transmittal or facsimile, or an Agent's Message, with
any required signature guarantees and any other required documents, must, in any
case, be received by the exchange agent at one of the addresses set forth below
under "--Exchange Agent" on or before the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
The term "Agent's Message" means a message, transmitted by DTC to, and received
by, the exchange agent and forming a part of a book-entry confirmation, which
states that DTC has received an express acknowledgment from the tendering
participant stating that the participant has received and agrees to be bound by
the terms of the letter of transmittal, and the Company may enforce the letter
of transmittal against the participant.
Guaranteed Delivery Procedures
If a registered holder of the old 7.25% notes wishes to tender the old 7.25%
notes and the old 7.25% notes are not immediately available, or time will not
permit the holder's old 7.25% notes or other required documents to reach the
exchange agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on time, a tender may be effected if (i) the tender
is made through an Eligible Institution, (ii) prior to the Expiration Date, the
exchange agent has received from the Eligible Institution a completed and signed
letter of transmittal (or a facsimile) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of the old 7.25% notes and the amount of old 7.25% notes, stating that
the tender is being made thereby and guaranteeing that within five trading days
(on the Nasdaq National Market after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered old 7.25%
notes, in proper form for transfer, or a Book-Entry Confirmation, and any other
documents required by the letter of transmittal will be deposited by the
Eligible Institution with the exchange agent, and (iii) the certificates for all
physically tendered old 7.25% notes, in proper form for transfer, or a
<PAGE>
Book-Entry Confirmation and all other documents required by the letter of
transmittal, are received by the exchange agent within five Nasdaq National
Market trading days after the date of signing the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of old 7.25% notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses set forth below under
"--Exchange Agent." Any notice of withdrawal must specify the name of the person
who tendered the old 7.25% notes to be withdrawn, identify the old 7.25% notes
to be withdrawn (including the amount of the old 7.25% notes), and (where
certificates for old 7.25% notes have been transmitted) specify the name in
which the old 7.25% notes are registered, if different from that of the
withdrawing holder. If certificates for old 7.25% notes have been delivered or
otherwise identified to the exchange agent, then, prior to the release of the
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless the holder is an
Eligible Institution. If old 7.25% notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn old 7.25% notes and otherwise comply with the
procedures of the facility. All questions as to the validity, form and
eligibility (including time of receipt) of the notices will be determined by the
Company whose determination shall be final and binding on all parties. Any old
7.25% notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any old 7.25% notes that have been
tendered for exchange but that are not exchanged for any reason will be returned
to the holder without cost to the holder (or, in the case of old 7.25% notes
tendered by book-entry transfer into the exchange agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, the old 7.25% notes will be credited to an account with the
Book-Entry Transfer Facility specified by the holder) as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn old 7.25% notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old 7.25% Notes" above at
any time on or before the Expiration Date.
Exchange Agent
Bankers Trust Company has been appointed as the exchange agent for the exchange
offer. All signed letters of transmittal should be directed to the exchange
agent at the addresses set forth below. Questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for Notices of Guaranteed Delivery should be directed
to the exchange Agent addressed as follows:
Delivery To: Bankers Trust Company, Exchange Agent
BY MAIL: BY HAND:
BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust and Agency Group
P.O. Box 292737 Receipt & Delivery Window
Nashville, TN 37229-2737 123 Washington Street, 1st Floor
New York, NY 10006
For information, call:
<PAGE>
(800) 735-7777
Confirm: (615) 835-3572
Fax: (615) 835-3701
BY OVERNIGHT MAIL OR COURIER:
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
Delivery of a letter of transmittal to an address other than as set forth
above or transmission of instructions via facsimile other than as set forth
above does not constitute a valid delivery of the letter of transmittal.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer.
The Company will pay the approximately $245,000 of cash expenses the Company
estimates will be incurred in connection with the exchange offer.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the exchange offer. The expenses of the exchange offer will be
amortized over the term of the new 7.25% notes.
TRANSFER TAXES
Holders who tender their old 7.25% notes for exchange will not be required to
pay any transfer taxes, except that holders who instruct the Company to register
new 7.25% notes in the name of, or request that old 7.25% notes not tendered or
not accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be responsible for paying any applicable
transfer tax.
REGULATORY MATTERS
The Company is not aware of any governmental or regulatory approvals that are
required in order to complete the exchange offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. Holders of the old 7.25% notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take. See "Certain United States Federal Income Tax
Considerations."
The old 7.25% notes that are not exchanged for the new 7.25% notes in the
exchange offer will remain restricted securities. Accordingly, those old 7.25%
notes may only be transferred (A)(i) to a person who the seller reasonably
believes is a qualified institutional buyer under Rule 144A, (ii) in an offshore
transaction under Rule 903 or Rule 904 of Regulation S under the Securities Act,
or (iii) under Rule 144 under the Securities Act (if available) and (B) in
accordance with all applicable securities laws of the states of the United
States. Under certain circumstances, the Company is required to file a Shelf
<PAGE>
Registration Statement. See "Description of the 7.25% Notes--Exchange Offer;
Registration Rights."
PAYMENT OF ADDITIONAL INTEREST UPON REGISTRATION DEFAULT
If a Registration Default (as defined) occurs, additional interest ("Liquidated
Interest") will accrue on the 7.25% notes (in addition to the stated interest on
the 7.25% notes) from and including the date on which any the Registration
Default shall occur and to but excluding the date on which all Registration
Defaults have been cured. Liquidated Interest will be payable in cash
semiannually in arrears each November 1 and May 1, at a rate per year equal to
0.50% of the principal amount at maturity of the 7.25% notes during the 90-day
period immediately following the occurrence of the Registration Default and
shall increase by 0.25% per year of the principal amount at maturity of the
7.25% notes at the end of each subsequent 90-day period, but in no event shall
the rates exceed 2.0% per year in the aggregate regardless of the number of
Registration Defaults. See "Description of the 7.25% Notes--Exchange Offer;
Registration Rights."
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the new 7.25%
notes or the closing of the exchange offer or any sale of new 7.25% notes to any
broker-dealer.
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1998 (i) the historical
consolidated capitalization of the Company, (ii) the pro forma capitalization of
the Company assuming the acquisition of Icon had occurred on September 30, 1998,
and (iii) the pro forma capitalization of the Company, as adjusted to give
effect to the redemption of $87.5 million of our 10 7/8% notes, the repayment of
$57.3 million of our equipment credit facility, the offering of our 7.25% Notes
Due 2008, the offering of the old 7.25% notes and the use of the proceeds from
these offerings. All share and per share information with respect to Qwest
included in the table gives effect to the two-for-one stock split that occurred
in February 1998 in the form of a stock dividend. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Historical Consolidated Financial Statements
and the notes thereto, incorporated by reference into this prospectus.
Sept. 30, 1998
Pro Forma as
Actual Pro Forma Adjusted(1)
(in millions)
Current portion of long-term debt(2) $ 235.9 $ 235.9 $ 3.4
======= ======== ========
10 7/8% Notes $ 250.0 $ 250.0 $ 162.5
9.47% Notes 382.6 382.6 382.6
8.29% Notes 316.9 316.9 316.9
7.25% Notes Due 2007 351.7 351.7 351.7
7.25% Notes - - 750.0
7.25% Notes - - 300.0
Other long-term debt 85.9 85.9 28.6
------- ------- -------
Total long-term debt (excluding current
portion) 1,387.1 1,387.1 2,292.3
------- ------- -------
Stockholders' equity
Preferred stock, $.01 par value; 25.0
million shares authorized; no - - -
shares issued and outstanding. .
Common stock, $.01 par value; 600.0 million
shares authorized; 332.7 3.3 3.4 3.4
million shares issued and outstanding(3)
.
Additional paid-in capital 4,603.2 4,853.8 4,853.8
Accumulated deficit .
(854.5) (864.5) (864.5)
------- ------- -------
Total stockholders' equity .
3,752.0 3,992.7 3,992.7
------- ------- -------
Total capitalization $5,139.1 $5,379.8 $6,285.0
======== ======= =======
(1) The current portion of long-term debt was adjusted for the pay-down of
the Company's existing credit facility and lines of credit from the
proceeds of the 7.25% notes in November 1998.
(2) The existing credit facility which expires December 31, 1998 and the
lines of credit are current liabilities and are included in current
portion of long-term debt.
(3) 35.0 million of the authorized shares of Common Stock are reserved for
issuance under the Equity Incentive Plan, 0.9 million of the authorized
shares of Common Stock are reserved for issuance under the Growth Share
Plan, 2.5 million of the authorized shares of Common Stock are reserved
for issuance under various 401(k) Plans of the Company, 0.8 million of
the authorized shares of Common Stock are reserved for issuance under
the Employee Stock Purchase Plan and 8.6 million of the authorized
shares of Common Stock are reserved for issuance under the warrant
issued to Anschutz Family Investment Company LLC. See
"Management-Equity Incentive Plan," "Management-Growth Share Plan" and
"Certain Transactions" in the documents incorporated by reference in
this prospectus.
<PAGE>
DESCRIPTION OF THE 7.25% NOTES
GENERAL
The new 7.25% notes will be issued under an Indenture (the "Indenture") between
the Company and Bankers Trust Company, as trustee under the Indenture (the
"Trustee"). Copies of the Indenture are available from the Company on request.
For purposes of this description of the 7.25% notes, the term "Company" refers
to Qwest Communications International Inc. and does not include its subsidiaries
except for purposes of financial data determined on a consolidated basis. For
purposes of this description of the 7.25% notes, the term "7.25% Notes" refers
to the new 7.25% notes and the old 7.25% notes together. The new 7.25% notes and
the old 7.25% notes are considered together to be a single class for all
purposes under the Indenture, including waivers, amendments, redemptions and
Offers to Purchase.
The following summary of certain provisions of the Indenture is not complete and
is subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and to all of the
provisions of the Indenture, including the definitions of certain terms in the
Indenture and those terms made a part of the Indenture by reference to the Trust
Indenture Act, as in effect on the date of the Indenture. The definitions of
certain capitalized terms used in the following summary are set forth below
under "--Certain Definitions."
The new 7.25% notes will be senior unsecured obligations of the Company, ranking
equal in right of payment with all existing and future senior unsecured
indebtedness of the Company, including our 10 7/8% notes, our 9.47% notes, our
8.29% notes, our 7.50% Notes and our 7.25% Notes Due 2007, and will be senior in
right of payment to all existing and future indebtedness of the Company
subordinated in right of payment to the 7.25% Notes. As of September 30, 1998,
on a pro forma basis after giving effect to the acquisition of Icon CMT Corp.,
the redemption of $87.5 million of our 10 7/8% notes, the repayment of $57.3
million of our equipment credit facility, the offering of the old 7.25% notes,
the offering of our 7.50% Notes and the use of the proceeds from these
offerings, the Company had $1,912.0 million of indebtedness outstanding, none of
which was secured indebtedness or subordinated indebtedness.
The operations of the Company are conducted through its subsidiaries and,
therefore, the Company depends on cash flow from those entities to meet its
obligations. The Company's subsidiaries will have no direct obligation to pay
amounts due on the 7.25% Notes and currently have no obligation to guarantee the
7.25% Notes. As a result, the 7.25% Notes effectively will be subordinated to
all existing and future third-party indebtedness and other liabilities of the
Company's subsidiaries (including trade payables). As of September 30, 1998, on
a pro forma basis, after giving effect to the acquisition of Icon, the
redemption of $87.5 million of our 10 7/8% Notes, the repayment of $57.3 million
of the equipment credit facility, the offering of our 7.50% Notes, the offering
of the old 7.25% notes and the use of the proceeds from the offerings, the total
liabilities of the Company's subsidiaries (after the elimination of loans and
advances by the Company to its subsidiaries) would have been approximately
$1,893.7 million, of which approximately $32.0 million in indebtedness was
secured by the assets of the borrowing subsidiaries. See "Description of Certain
Indebtedness." The Company expects that it or its subsidiaries will incur
substantial additional debt in the future. Any rights of the Company and its
creditors, including the holders of 7.25% Notes, to participate in the assets of
any of the Company's subsidiaries upon any liquidation or reorganization of any
subsidiary will be subject to the prior claims of that subsidiary's creditors
(including trade creditors). In addition, the Company's operations have
generated operating losses in recent years, and there can be no assurance that
the Company will be able to achieve or sustain operating profitability, or
generate sufficient positive cash flow to pay the principal of and interest on
the 7.25% Notes. See "Risk Factors--Holding Company Structure; Subordination of
the 7.25% Notes to Indebtedness of Subsidiaries," "Risk Factors--Substantial
Indebtedness; Ability to Incur Additional Debt," and "Risk Factors--Operating
Losses and Working Capital Deficits."
Principal, Maturity and Interest
The 7.25% Notes will be limited in aggregate principal amount to $300,000,000
and will mature on November 1, 2008. Interest on the 7.25% Notes will accrue at
a rate of 7.25% per year and will be payable semiannually in arrears on May 1
and November 1 of each year, commencing May 1, 1999, to the holders of record on
the immediately prior April 15 and October 15. Interest will be computed on the
basis of a 360-day year with twelve 30-day months. Principal of, premium, if
any, and interest on the 7.25% Notes will be payable, and the 7.25% Notes may be
exchanged or transferred, at the office or agency of the Company, which, unless
otherwise provided by the Company, will be the offices of the Trustee. At the
option of the Company, interest may be paid by check mailed to the registered
holders at their registered addresses. The 7.25% Notes will be issued without
coupons and in fully registered form only, in minimum denominations of $1,000
and integral multiples. The 7.25% Notes will be issued only against payment in
immediately available funds. No service charge will be made for any registration
of transfer or exchange of the 7.25% Notes, but the Company may require payment
<PAGE>
sufficient to cover any transfer tax or other similar governmental charge
payable. The interest rate on the 7.25% Notes is subject to increase as
described under "Exchange Offer; Registration Rights" ("Liquidated Interest").
All references in this description of the 7.25% Notes to interest on the 7.25%
Notes shall include Liquidated Interest, if appropriate.
Book-Entry System
The new 7.25% notes will initially be issued in the form of Global Securities
(as defined in the Indenture) held in book-entry form. The new 7.25% notes will
be deposited with the Trustee as custodian for the Depository, and the
Depository or its nominee will initially be the sole registered holder of the
new 7.25% notes for all purposes under the Indenture. Except as set forth below,
a Global Security may not be transferred except as a whole by the Depository to
a nominee of the Depository or by a nominee of the Depository to the Depository.
When a Global Security is issued, the Depository or its nominee will credit, on
its internal system, the accounts of persons holding through it with the
respective principal amounts of the individual beneficial interest represented
by the Global Security purchased by those persons in the offering of the new
7.25% notes. The accounts will initially be designated by the initial purchaser
of the new 7.25% notes with respect to new 7.25% notes sold by the initial
purchaser for the Company.
Ownership of beneficial interests in a Global Security will be limited to
persons that have accounts with the Depository ("participants") or persons that
may hold interests through participants. Ownership of beneficial interests by
participants in a Global Security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by the
Depository or its nominee for the Global Security. Ownership of beneficial
interests in the Global Security by persons that hold through participants will
be shown on, and the transfer of that ownership interest within the participant
will occur only through, records maintained by the participant.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of the securities in definitive form. Those limits and
laws may make it more difficult to transfer beneficial interests in a Global
Security. The Company will pay the principal of, premium, if any, and interest
on new 7.25% notes represented by any Global Security to the Depository or its
nominee as the sole registered owner and the sole holder of the new 7.25% notes
represented by the Global Security. None of the Company, the Trustee, any agent
of the Company or the initial purchaser will have any responsibility for any
aspect of the Depository's reports relating to or payments made on account of
beneficial ownership interests in a Global Security representing any new 7.25%
notes or for maintaining, supervising or reviewing any of the Depository's
records relating to the beneficial ownership interests. The Depository has
advised the Company that upon receipt of any payment of principal of, premium,
if any, or interest on any Global Security, the Depository will immediately
credit, on its book-entry registration and transfer system, the accounts of
participants with payments in amounts proportionate to their beneficial
interests in the principal or face amount of the Global Security, as shown on
the records of the Depository. The Company expects that payments by participants
to owners of beneficial interests in a Global Security held through those
participants will be governed by standing instructions and customary practices
as is now the case with securities held for customer accounts registered in
"street name" and will be the sole responsibility of the participants.
So long as the Depository or its nominee is the registered owner or holder of
the Global Security, the Depository or the nominee will be considered the sole
owner or holder of the new 7.25% notes represented by the Global Security for
t3he purposes of receiving payment on the new 7.25% notes, receiving notices and
<PAGE>
for all other purposes under the Indenture and the new 7.25% notes. Beneficial
interests in the new 7.25% notes will be evidenced only by, and transfers will
be effected only through, records maintained by the Depository and its
participants. Except as provided above, owners of beneficial interests in a
Global Security will not be entitled to and will not be considered the holders
of the Global Security for any purposes under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Security must rely on the
procedures of the Depository and, if the person is not a participant, on the
procedures of the participant through which the person owns its interest, to
exercise any rights of a holder under the Indenture. The Company understands
that under existing industry practices, if the Company requests any action of
holders or an owner of a beneficial interest in a Global Security wants to take
any action that a holder is entitled to take under the Indenture, the Depository
would authorize the participants holding the beneficial interest to take that
action, and the participants would authorize beneficial owners owning through
the participants to take the action or would otherwise act on the instructions
of beneficial owners owning through them. The Depository has advised the Company
that it will take any action permitted to be taken by a holder of new 7.25%
notes (including the presentation of new 7.25% notes for exchange as described
below) only at the direction of a participant to whose account with the
Depository interests in the Global Security are credited and only as to the
portion of the aggregate principal amount of the new 7.25% notes as to which the
participant has given that direction.
The Depository has advised the Company that the Depository is a limited-purpose
trust company organized under the Banking Law of the State of New York, a
"banking organization" within the meaning of New York Banking Law, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
New York Uniform Commercial Code and a "clearing agency" registered under the
Exchange Act. The Depository was created to hold the securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in the securities through electronic
book-entry changes in accounts of the participants. This eliminated the need for
physical movement of securities certificates. The Depository's participants
include securities brokers and dealers (including the initial purchaser), banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own the Depository. Access to the
Depository's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Certificated New 7.25% Notes
New 7.25% notes represented by a Global Security are exchangeable for
certificated new 7.25% notes only if:
(i) the Depository notifies the Company that it is unwilling or unable to
continue as a depository for the Global Security or if at any time the
Depository ceases to be a registered clearing agency, and a successor
depository is not appointed by the Company within 90 days;
(ii) the Company signs and delivers to the Trustee a notice that the Global
Security shall be so transferable, registrable and exchangeable, and
the transfer shall be registrable; or
(iii) an Event of Default or an event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default with
respect to the new 7.25% notes represented by the Global Security has
occurred and is continuing.
<PAGE>
Any Global Security that is exchangeable for certificated new 7.25% notes
pursuant to the preceding sentence will be transferred to, and registered and
exchanged for, certificated new 7.25% notes in authorized denominations and
registered in names that the Depository or its nominee holding the Global
Security may direct. Subject to the foregoing, a Global Security is not
exchangeable, except for a Global Security of the same denomination to be
registered in the name of the Depository or its nominee. If a Global Security
becomes exchangeable for certificated new 7.25% notes, (i) certificated new
7.25% notes will be issued only in fully registered form in denominations of
$1,000 or integral multiples, (ii) payment of principal, any repurchase price,
and interest on the certificated new 7.25% notes will be payable, and the
transfer of the certificated new 7.25% notes will be registrable, at the office
or agency of the Company maintained for that purposes and (iii) no service
charge will be made for any issuance of the certificated new 7.25% notes,
although the Company may require payment to cover any tax or governmental charge
imposed. In addition, the certificates will bear the legend referred to under
"Notice to Investors--Rule 144A" (unless the Company determines otherwise in
accordance with applicable law).
Optional Redemption
The 7.25% Notes will be subject to redemption at the option of the Company, in
whole or in part, at any time on not less than 30 and not more than 60 days'
prior notice at a redemption price equal to the principal amount plus accrued
and unpaid interest (if any) to the redemption date plus the Applicable
Make-Whole Premium.
For purposes of this "Optional Redemption" provision, the following definitions
apply:
"Applicable Make-Whole Premium" means, with respect to any 7.25% Note, the
excess of (A) the present value at the redemption date of the required interest
and principal payments due on the 7.25% Note, computed using a discount rate
equal to the Treasury Rate plus 37.5 basis points, over (B) the then outstanding
principal amount of the 7.25% Note.
"Treasury Rate" means, with respect to any redemption date, the rate per annum
equal to the semiannual equivalent yield to maturity of the Comparable Treasury
Issue (as defined below), assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price (as defined below) for the redemption date.
"Comparable Treasury Issue" means the United States Treasury security selected
by a Reference Treasury Dealer (as defined below) appointed by the Company as
having a maturity comparable to the remaining term of the 7.25% Notes to be
redeemed that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of the 7.25% Notes.
"Comparable Treasury Price" means, with respect to any redemption date,
(i) the average of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding the redemption date, as set forth
in the daily statistical release (or any successor release) published
by the Federal Reserve Bank of New York and designated "Composite 3:30
p.m. Quotations for U.S. Government Securities" or
(ii) if the release (or any successor release) is not published or does not
contain the prices on that business day,
(A) the average of the Reference Treasury Dealer Quotations (as
<PAGE>
defined below) for the redemption date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or
(B) if the Company obtains fewer than four such Reference Treasury
Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Company by that Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding that redemption date.
"Reference Treasury Dealer" means each of Salomon Smith Barney Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Donaldson Lufkin & Jenrette
Securities Corporation and Lehman Brothers Inc. and their respective successors;
provided, however, that if any of the foregoing shall cease to be a primary U.S.
Government securities dealer in The City of New York (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer.
Mandatory Redemption
Except as set forth under "--Certain Covenants--Change of Control" and
"--Certain Covenants-- Limitation on Asset Dispositions," the Company is not
required to make mandatory redemption payments or sinking fund payments with
respect to the 7.25% Notes.
Certain Covenants
Suspended Covenants
During any period of time (a "Suspension Period") that
(i) the ratings assigned to the 7.25% Notes by both the Rating Agencies
are Investment Grade Ratings and
(ii) no Default has occurred and is continuing under the Indentures,
the Company and its Restricted Subsidiaries will not be subject to the
provisions of the Indenture described below under:
"--Limitation on Consolidated Debt,"
"--Limitation on Debt and Preferred Stock of Restricted Subsidiaries,"
"--Limitation on Restricted Payments,"
"--Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries,"
"--Limitation on Issuances of Certain Guarantees by, and Debt Securities
of, Restricted Subsidiaries,"
"--Limitation on Asset Dispositions,"
"--Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries,"
<PAGE>
"--Transactions with Affiliates and other Related Persons,"
clause (ii) of "--Limitation on Sale and Leaseback Transactions" and
clause (d) of "--Mergers, Consolidations and Certain Sales of Assets"
(collectively, the "Suspended Covenants"). If the Company and its Restricted
Subsidiaries are not subject to the Suspended Covenants with respect to the
7.25% Notes for any period of time as a result of the preceding sentence and,
subsequently, one or both Rating Agencies withdraws or downgrades the ratings
assigned to the 7.25% Notes below the required Investment Grade Ratings, then
the Company and its Restricted Subsidiaries will again be subject to the
Suspended Covenants and compliance with respect to Restricted Payments made
after the time of such withdrawal or downgrade will be calculated in accordance
with the terms of the covenant described below under "Limitation on Restricted
Payments" as if the covenant had been in effect since the date of the Indenture.
Nevertheless, neither
(a) the continued existence, after the date of such withdrawal or
downgrade, of facts and circumstances or obligations that were
Incurred or otherwise came into existence during a Suspension Period
nor
(b) the performance of any such obligations, shall constitute a breach of
any covenant set forth in the Indenture or cause a Default or Event of
Default thereunder; provided that
(1) the Company and its Restricted Subsidiaries did not Incur or
otherwise cause such facts and circumstances or obligations to exist
in anticipation of a withdrawal or downgrade below investment grade
and
(2) the Company reasonably believed that such Incurrence or actions
would not result in such a withdrawal or downgrade.
For purposes of clauses (1) and (2) in the prior sentence, anticipation and
reasonable belief may be determined by the Company and shall be conclusively
evidenced by a board resolution to that effect adopted in good faith by the
Board of Directors of the Company. In reaching their determination, the Board of
Directors may, but need not, consult with the Rating Agencies.
The Indenture contains, among others, the following covenants:
Limitation on Consolidated Debt. (a) The Company may not, and may not permit any
Restricted Subsidiary to, Incur any Debt, unless, after giving effect to the
application of the proceeds of the Debt, 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 of the Debt, 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
<PAGE>
of the Debt 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 of the Debt, is less than 2.0 to
1.0.
As of September 30, 1998, on a pro forma basis after giving
effect to the acquisition of Icon, the offering of the old 7.25%
notes, the offering of the 7.50% Notes and the use of proceeds
from the offerings, the Company's Consolidated Capital Ratio
would have been approximately 0.6 to 1.0.
(b) Despite the foregoing limitation, the Company and any Restricted
Subsidiary may Incur any and all of the following (each of which
shall be given independent effect):
(i) Debt under the 7.25% Notes, the Indenture and any Restricted
Subsidiary Guarantee;
(ii)(A) Debt Incurred subsequent to March 31, 1997 under Credit
Facilities in an aggregate principal amount at any time
outstanding not to exceed $150 million plus
(B) Debt Incurred subsequent to March 31, 1997 under one or
more Credit Facilities that are revolving credit facilities
in an aggregate principal amount at any time outstanding not
to exceed the greater of
(x) $100 million or
(y) 85% of Eligible Receivables;
(iii)Purchase Money Debt, provided that the amount of such
Purchase Money Debt does not exceed 100% of the cost of the
construction, installation, acquisition or improvement of
the applicable Telecommunications Assets;
(iv) Debt owed by the Company to any Restricted Subsidiary of the
Company or Debt owed by a Restricted Subsidiary of the
Company to the Company or a Restricted Subsidiary of the
Company; provided, however, that upon either
(x) the transfer or other disposition by such Restricted
Subsidiary or the Company of any Debt so permitted to a
Person other than the Company or another Restricted
Subsidiary of the Company or
(y) the issuance (other than directors' qualifying shares),
sale, lease, transfer or other disposition of shares of
Capital Stock (including by consolidation or merger) of such
Restricted Subsidiary to a Person other than the Company or
another such Restricted Subsidiary, the provisions of this
clause (iv) shall no longer be applicable to the Debt and
the Debt shall be deemed to have been Incurred by the issuer
<PAGE>
of the Debt at the time of such transfer or other
disposition;
(v) Debt Incurred to renew, extend, refinance, defease or refund
(each, a "refinancing") the 7.25% Notes, the notes issued
under the Senior Note Indentures 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 of the Company as necessary to accomplish such refinancing by means of
a tender offer or privately negotiated repurchase, plus the expenses of the
Company Incurred in connection with such refinancing; provided, however, that
Debt the proceeds of which are used to refinance the 7.25% Notes or Debt which
is equal to the 7.25% Notes or Debt which is subordinate in right of payment to
the 7.25% Notes shall only be permitted under this clause (v) if
(A) in the case of any refinancing of the 7.25% Notes or
Debt which is equal to the 7.25% Notes, the refinancing Debt
is made equal to the 7.25% Notes or constitutes Subordinated
Debt, and, in the case of any refinancing of Subordinated
Debt, the refinancing Debt constitutes Subordinated Debt and
(B) in any case, the refinancing Debt by its terms, or by
the terms of any agreement or instrument pursuant to which
such Debt is issued,
(x) does not provide for payments of principal of the Debt
at stated maturity or by way of a sinking fund applicable to
the Debt or by way of any mandatory redemption, defeasance,
retirement or repurchase of the Debt 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 of the
Debt prior to the time the same are required by the terms of
the Debt being refinanced, other than a redemption or other
retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase made by the
Company) which is conditioned upon a change of control
pursuant to provisions substantially similar to those
described under "--Change of Control";
(vi) Debt consisting of Permitted Interest Rate and Currency
Protection Agreements;
(vii) Debt secured by Receivables originated by the Company or any
Restricted Subsidiary and related assets, provided that such
Debt is nonrecourse to the Company and any of its other
Restricted Subsidiaries and provided further that
Receivables shall not be available at any time to secure
Debt of the Company under this clause (vii) to the extent
that they are used at such time as the basis for the
<PAGE>
Incurrence of Debt in excess of $100 million pursuant to
clause (ii)(B)(y) of this paragraph (b); and
(viii) Debt not otherwise permitted to be Incurred pursuant to
clauses (i) through (vii) above, which, together with any
other outstanding Debt Incurred pursuant to this clause
(viii), has an aggregate principal amount not in excess of
$25 million at any time outstanding.
Limitation on Debt and Preferred Stock of Restricted Subsidiaries. The Company
may not permit any Restricted Subsidiary that is not a Guarantor to Incur any
Debt or issue any Preferred Stock except any and all of the following (each of
which shall be given independent effect):
(i) Restricted Subsidiary Guarantees;
(ii)Debt of Restricted Subsidiaries under Credit Facilities
permitted to be Incurred pursuant to clause (ii) of
paragraph (b) of "--Limitation on Consolidated Debt";
(iii) Purchase Money Debt of Restricted Subsidiaries permitted to
be Incurred pursuant to clause (iii) of paragraph (b) of
"--Limitation on Consolidated Debt";
(iv)Debt owed by a Restricted Subsidiary of the Company to the
Company or a Restricted Subsidiary of the Company permitted
to be Incurred pursuant to clause (iv) of paragraph (b) of
"--Limitation on Consolidated Debt";
(v) Debt of Restricted Subsidiaries consisting of Permitted
Interest Rate and Currency Protection Agreements permitted
to be Incurred pursuant to clause (vi) of paragraph (b) of
"--Limitation on Consolidated Debt";
(vi)Debt of Restricted Subsidiaries secured by Receivables
originated by the Company or any Restricted Subsidiary and
related assets permitted to be Incurred pursuant to clause
(vii) of paragraph (b) of "--Limitation on Consolidated
Debt";
(vii) Debt of Restricted Subsidiaries permitted to be Incurred
pursuant to clause (viii) of paragraph (b) of "--Limitation
on Consolidated Debt";
(viii) Preferred Stock issued to and held by the Company or a
Restricted Subsidiary;
(ix) Debt Incurred or Preferred Stock issued by a Person prior to
the time
(A) such Person became a Restricted Subsidiary,
(B) such Person merges into or consolidates with a
Restricted Subsidiary or
(C) another Restricted Subsidiary merges into or
consolidates with such Person (in a transaction in which
such Person becomes a Restricted Subsidiary), which Debt or
Preferred Stock was not Incurred or issued in anticipation
of such transaction and was outstanding prior to such
transaction; and
<PAGE>
(x) Debt or Preferred Stock which is exchanged for, or the
proceeds of which are used to renew, extend, refinance,
defease, refund or redeem any Debt of a Restricted
Subsidiary permitted to be Incurred pursuant to clause (iii)
of this paragraph or any Debt or Preferred Stock of a
Restricted Subsidiary permitted to be Incurred pursuant to
clause (ix) (or any extension or renewal) (a "refinancing"),
in an aggregate principal amount, in the case of Debt, or
with an aggregate liquidation preference, in the case of
Preferred Stock, not to exceed the aggregate principal
amount of the Debt so refinanced or the aggregate
liquidation preference of the Preferred Stock so refinanced,
plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of
the Debt or Preferred Stock so refinanced or the amount of
any premium reasonably determined by the Company as
necessary to accomplish such refinancing by means of a
tender offer or privately negotiated repurchase, plus the
amount of expenses of the Company and the applicable
Restricted Subsidiary Incurred in connection therewith and
provided the Debt or Preferred Stock Incurred or issued upon
such refinancing, by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt or
Preferred Stock is Incurred or issued,
(x) does not provide for payments of principal or
liquidation value at the stated maturity of such Debt or
Preferred Stock or by way of a sinking fund applicable to
such Debt or Preferred Stock or by way of any mandatory
redemption, defeasance, retirement or repurchase of such
Debt or Preferred Stock by the Company or any Restricted
Subsidiary (including any redemption, retirement or
repurchase which is contingent upon events or circumstances,
but excluding any retirement required by virtue of
acceleration of such Debt upon an event of default
thereunder), in each case prior to the time the same are
required by the terms of the Debt or Preferred Stock being
refinanced and
(y) does not permit redemption or other retirement
(including pursuant to an offer to purchase made by the
Company or a Restricted Subsidiary) of such Debt or
Preferred Stock at the option of the holder 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 the
Indenture described under "--Change of Control," and
provided further that in the case of any exchange or
redemption of Preferred Stock of a Restricted Subsidiary,
such Preferred Stock may only be exchanged for or redeemed
with Preferred Stock of such Restricted Subsidiary.
Limitation on Restricted Payments. The Company:
(i) may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, declare or pay any dividend, or make
any distribution, in respect of its Capital Stock or to the
<PAGE>
holders, excluding any dividends or distributions which are
made solely to the Company or a Restricted Subsidiary (and,
if such Restricted Subsidiary is not a Wholly Owned
Subsidiary, to the other stockholders of such Restricted
Subsidiary on a pro rata basis) or any dividends or
distributions payable solely in shares of its Capital Stock
(other than Disqualified Stock) or in options, warrants or
other rights to acquire its Capital Stock (other than
Disqualified Stock);
(ii) may not, and may not permit any Restricted Subsidiary to,
purchase, redeem, or otherwise retire or acquire for value
(x) any Capital Stock of the Company, any Restricted
Subsidiary or any Related Person of the Company (other than
a permitted refinancing) or
(y) any options, warrants or rights to purchase or acquire
shares of Capital Stock of the Company, any Restricted
Subsidiary or any Related Person of the Company or any
securities convertible or exchangeable into shares of
Capital Stock of the Company, any Restricted Subsidiary or
any Related Person of the Company (other than a permitted
refinancing), except, in any such case, any such purchase,
redemption or retirement or acquisition for value paid to
the Company or a Restricted Subsidiary (or, in the case of
any such purchase, redemption or other retirement or
acquisition for value with respect to a Restricted
Subsidiary that is not a Wholly Owned Subsidiary, paid to
the Company or a Restricted Subsidiary, or to the other
stockholders of such Restricted Subsidiary that is not a
Wholly Owned Subsidiary, on a pro rata basis);
(iii) may not make, or permit any Restricted Subsidiary to, make,
any Investment in, or payment on a Guarantee of any
obligation of, any Person, other than the Company or a
Restricted Subsidiary; and (iv) may not, and may not permit
any Restricted Subsidiary to, redeem, defease, repurchase,
retire or otherwise acquire or retire for value, prior to
any scheduled maturity, repayment or sinking fund payment,
Debt of the Company which is subordinate in right of payment
to the 7.25% Notes (other than a permitted refinancing)
(each of clauses (i) through (iv) being a "Restricted
Payment") if:
(1) an Event of Default, or an event that with the passing
of time or the giving of notice, or both, would constitute
an Event of Default, shall have occurred and be continuing,
or
(2) upon giving effect to such Restricted Payment, the
Company could not Incur at least $1.00 of additional Debt
pursuant to the terms of the Indenture described in
paragraph (a) of "--Limitation on Consolidated Debt" above,
or
(3) upon giving effect to such Restricted Payment, the
aggregate of all Restricted Payments from March 31, 1997
exceeds the sum of:
(a) 50% of cumulative Consolidated Net Income (or, in the
<PAGE>
case that Consolidated Net Income shall be negative, 100% of
such negative amount) since the end of the last full fiscal
quarter prior to March 31, 1997 through the last day of the
last full fiscal quarter ending at least 45 days prior to
the date of such Restricted Payment,
(b) plus $5 million,
(c) less, in the case of any Designation with respect to a
Restricted Subsidiary that was made after March 31, 1997, an
amount 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.
On November 19, 1998, the Company and KPN Telecom B.V. ("KPN") entered into a
letter of intent to form a joint venture company to create a pan-European
Internet Protocol (IP)-based fiber optic network linked to the Qwest Network in
North America for data, video and voice services. The venture is expected to be
formed in the first quarter of 1999, subject to definitive documentation and
customary regulatory approvals. The Company anticipates that any contributions
that it makes to the joint venture would constitute Restricted Payments which
could be made pursuant to the proviso in the preceding paragraph.
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 of
the dividend 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)
<PAGE>
under "--Limitation on Consolidated Debt" above or clause
(x) under "--Limitation on Debt and Preferred Stock of
Restricted Subsidiaries" above; and
(v) the Company and any Restricted Subsidiary may retire or
repurchase any Capital Stock of the Company or of any
Restricted Subsidiary in exchange for, or out of the
proceeds of the substantially concurrent sale (other than to
a Subsidiary of the Company) of, Capital Stock (other than
Disqualified Stock) of the Company.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. (a) The Company may not, and may not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary:
(i) to pay dividends (in cash or otherwise) or make any other
distributions in respect of its Capital Stock owned by the
Company or any other Restricted Subsidiary or pay any Debt
or other obligation owed to the Company or any other
Restricted Subsidiary;
(ii) to make loans or advances to the Company or any other
Restricted Subsidiary; or
(iii) to transfer any of its property or assets to the Company or
any other Restricted Subsidiary.
(b) Notwithstanding the foregoing limitation, the Company may,
and may permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist any such encumbrance or
restriction:
(i) pursuant to any agreement in effect on March 31, 1997;
(ii) any customary encumbrance or restriction applicable to a
Restricted Subsidiary that is contained in an agreement or
instrument governing or relating to Debt contained in any
Credit Facilities or Purchase Money Debt, provided that the
provisions of such agreement permit the payment of interest
and mandatory payment or prepayment of principal pursuant to
the terms of the Indenture and the 7.25% Notes 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
<PAGE>
this paragraph (b), provided, however, that the provisions
contained in such renewal, refunding or extension agreement
relating to such encumbrance or restriction are no more
restrictive in any material respect than the provisions
contained in the agreement the subject thereof;
(v) in the case of clause (iii) of paragraph (a) above,
restrictions contained in any security agreement (including
a Capital Lease Obligation) securing Debt of the Company or
a Restricted Subsidiary otherwise permitted under the
Indenture, but only to the extent such restrictions restrict
the transfer of the property subject to such security
agreement;
(vi) in the case of clause (iii) of paragraph (a) above,
customary nonassignment provisions entered into in the
ordinary course of business in leases and other agreements
and customary restrictions contained in asset sale
agreements limiting the transfer of such property or assets
pending the closing of such sale;
(vii) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement which has been entered into
for the sale or disposition of all or substantially all of
the Capital Stock or assets of such Restricted Subsidiary,
provided that the closing 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 closing or abandonment of such
transaction occurs within one year of the date such
agreement was entered into;
(viii) pursuant to applicable law; and
(ix) pursuant to the Indenture, the 7.25% Notes, the Senior Note
Indentures and the notes outstanding under the Senior Note
Indentures.
Limitation on Liens. The Company may not, and may not permit any Restricted
Subsidiary to, Incur or suffer to exist any Lien on or with respect to any
property or assets now owned or acquired after March 31, 1997 to secure any Debt
without making, or causing such Restricted Subsidiary to make, effective
provision for securing the 7.25% Notes (x) equally and ratably with such Debt as
to such property for so long as such Debt will be so secured or (y) in the event
such Debt is Debt of the Company which is subordinate in right of payment to the
7.25% Notes, prior to such Debt as to such property for so long as such Debt
will be so secured.
The foregoing restrictions shall not apply to:
(i) Liens existing on March 31, 1997 and securing Debt
outstanding on March 31, 1997;
(ii) Liens in favor of the Company or any Restricted Subsidiary;
(iii) Liens to secure the 7.25% Notes;
(iv) Liens to secure Restricted Subsidiary Guarantees;
(v) Liens to secure Debt under Credit Facilities permitted to be
Incurred pursuant to clause (ii) of paragraph (b) of
<PAGE>
"--Limitation on Consolidated Debt";
(vi) Liens on real or personal property of the Company or a
Restricted Subsidiary constructed, installed, acquired or
constituting improvements made after the date of original
issuance of the 7.25% Notes to secure Purchase Money Debt
permitted to be Incurred pursuant to clause (iii) of
paragraph (b) of "--Limitation on Consolidated Debt";
provided, however, that:
(a) the principal amount of any Debt secured by such a Lien does
not exceed 100% of such purchase price or cost of
construction, installation or improvement of the property
subject to such Lien,
(b) such Lien attaches to such property prior to, at the time of
or within 270 days after the acquisition, the completion of
construction, installation or improvement or the
commencement of operation of such property and
(c) such Lien does not extend to or cover any property other
than the specific item of property (or portion of the
property) acquired, constructed, installed or constituting
the improvements financed by the proceeds of such Purchase
Money Debt;
(vii) Liens to secure Acquired Debt, provided, however, that:
(a) such Lien attaches to the acquired asset prior to the time
of the acquisition of such asset; and
(b) such Lien does not extend to or cover any other asset;
(viii) Liens to secure Debt Incurred to extend, renew, refinance or
refund (or successive extensions, renewals, refinancings or
refundings), in whole or in part, Debt secured by any Lien
referred to in the foregoing clauses (i), (iii), (iv), (v),
(vi) and (vii) so long as such Lien does not extend to any
other property and the principal amount of Debt so secured
is not increased except as otherwise permitted under clause
(v) of paragraph (b) under "--Limitation on Consolidated
Debt" above or clause (x) under "--Limitation on Debt and
Preferred Stock of Restricted Subsidiaries" above;
(ix) Liens to secure debt consisting of Permitted Interest Rate
and Currency Protection Agreements permitted to be Incurred
pursuant to clause (vi) of paragraph (b) under "--Limitation
on Consolidated Debt";
(x) Liens to secure Debt secured by Receivables permitted to be
Incurred pursuant to clause (vii) of paragraph (b) under
"--Limitation on Consolidated Debt";
(xi) Liens to secure Debt of Restricted Subsidiaries permitted to
be Incurred pursuant to clause (viii) of paragraph (b) under
"--Limitation on Consolidated Debt";
(xii) Liens not otherwise permitted by the foregoing clauses (i)
through (xi) in an amount not to exceed 5% of the Company's
Consolidated Tangible Assets; and
<PAGE>
(xiii) Permitted Liens.
Limitation on Issuances of Certain Guarantees by, and Debt Securities of,
Restricted Subsidiaries. The Company may not (i) permit any Restricted
Subsidiary to, directly or indirectly, guarantee any Debt Securities of the
Company or (ii) permit any Restricted Subsidiary to issue any Debt Securities
unless, in either such case, such Restricted Subsidiary simultaneously signs and
delivers Restricted Subsidiary Guarantees providing for a Guarantee of payment
of the 7.25% Notes.
Limitation on Sale and Leaseback Transactions. The Company may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, enter into, assume,
Guarantee or otherwise become liable with respect to any Sale and Leaseback
Transaction, other than a Sale and Leaseback Transaction between the Company or
a Restricted Subsidiary on the one hand and a Restricted Subsidiary or the
Company on the other hand, unless (i) the Company or such Restricted Subsidiary
would be entitled to Incur a Lien to secure Debt by reason of the provisions
described under "--Limitation on Liens" above, equal in amount to the
Attributable Value of the Sale and Leaseback Transaction without equally and
ratably securing the 7.25% Notes and (ii) the Sale and Leaseback Transaction is
treated as an Asset Disposition and all of the conditions of the Indenture
described under "--Limitation on Asset Dispositions" below (including the
provisions concerning the application of Net Available Proceeds) are satisfied
with respect to such Sale and Leaseback Transaction, treating all of the
consideration received in such Sale and Leaseback Transaction as Net Available
Proceeds for purposes of such covenant.
Limitation on Asset Dispositions. The Company may not, and may not permit any
Restricted Subsidiary to, make any Asset Disposition unless:
(i) the Company or the Restricted Subsidiary, as the case may be,
receives consideration for such disposition at least equal to the
Fair Market Value for the assets sold or disposed of as
determined by the board of directors of the Company in good faith
and evidenced by a resolution of the board of directors of the
Company filed with the Trustee; and
(ii) at least 75% of the consideration for such disposition consists
of cash or Cash Equivalents or the assumption of Debt of the
Company (other than Debt that is subordinated to the 7.25% Notes)
or of the Restricted Subsidiary and release from all liability on
the Debt assumed.
If the aggregate amount of Net Available Proceeds within any 12-month period
exceeds $5 million, then all such Net Available Proceeds shall be applied within
360 days of the last such Asset Disposition
(1) first, to the permanent repayment or reduction of Debt then
outstanding under any Credit Facility, to the extent such
agreements would require such application or prohibit
payments pursuant to clause (2) following;
(2) second, to the extent of remaining Net Available Proceeds,
to make an Offer to Purchase outstanding 7.25% Notes at a
price in cash equal to 100% of the principal amount plus
accrued and unpaid interest to the purchase date and, to the
extent required by its terms, any other Debt of the Company
that is equal in ranking with the 7.25% Notes at a price no
greater than 100% of the principal amount plus accrued and
unpaid interest to the purchase date (or 100% of the
accreted value plus accrued and unpaid interest and premium,
<PAGE>
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 of the Debt; and
(4) fourth, to the extent of any remaining Net Available
Proceeds, to any other use as determined by the Company
which is not otherwise prohibited by the Indenture.
Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries.
The Company may not, and may not permit any Restricted Subsidiary to, issue,
transfer, convey, sell or otherwise dispose of any shares of Capital Stock of a
Restricted Subsidiary or securities convertible or exchangeable into, or
options, warrants, rights or any other interest with respect to, Capital Stock
of a Restricted Subsidiary to any Person other than the Company or a Restricted
Subsidiary except
(i) a sale of all of the Capital Stock of such Restricted Subsidiary
owned by the Company and any Restricted Subsidiary that complies
with the provisions described under "--Limitation on Asset
Dispositions" above to the extent such provisions apply,
(ii) in a transaction that results in such Restricted Subsidiary
becoming a Permitted Joint Venture, provided (x) such transaction
complies with the provisions described under "--Limitation on
Asset Dispositions" above to the extent such provisions apply and
(y) the Company's remaining Investment in such Permitted Joint
Venture would have been permitted as a new Investment under the
provisions of "--Limitation on Restricted Payments" above,
(iii) the transfer, conveyance, sale or other disposition of shares
required by applicable law or regulation,
(iv) if required, the issuance, transfer, conveyance, sale or other
disposition of directors' qualifying shares, or (v) Disqualified
Stock issued in exchange for, or upon conversion of, or the
proceeds of the issuance of which are used to redeem, refinance,
replace or refund shares of Disqualified Stock of such Restricted
Subsidiary, provided that the amounts of the redemption
obligations of such Disqualified Stock shall not exceed the
amounts of the redemption obligations of, and such Disqualified
Stock shall have redemption obligations no earlier than those
required by, the Disqualified Stock being exchanged, converted,
redeemed, refinanced, replaced or refunded.
Transactions with Affiliates and Related Persons. The Company may not, and may
not permit any Restricted Subsidiary to, enter into any transaction (or series
of related transactions) with an Affiliate or Related Person of the Company
(other than the Company or a Restricted Subsidiary), including any Investment,
unless such transaction is on terms no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained in a comparable arm's-
length transaction with an entity that is not an Affiliate or Related Person and
is in the best interests of the Company or such Restricted Subsidiary, provided
that the Company or any Restricted Subsidiary may enter into
(i) transactions pursuant to the Company's existing tax sharing
agreement entered into with Anschutz Company described under the
<PAGE>
caption "Certain Relationships and Related Transactions" in the
Company's annual report on Form 10-K for the year ended December
31, 1997, provided that any amendment of, supplement to or
substitute for such agreement is on terms that are no less
favorable to the Company or such Restricted Subsidiary than such
existing agreement,
(ii) transactions pursuant to employee compensation arrangements
approved by the board of directors of the Company, either
directly or indirectly, and
(iii) Receivables Sales between the Company or a Restricted Subsidiary
and an Affiliate of the Company or such Restricted Subsidiary,
provided that such Receivables Sales satisfy the provisions of
clauses (i) and (ii) of "--Limitation on Asset Dispositions." For
any transaction that involves in excess of $10 million but less
than or equal to $15 million, the Company shall deliver to the
Trustee an Officers' Certificate stating that the transaction
satisfies the above criteria. For any transaction that involves
in excess of $15 million, a majority of the disinterested members
of the board of directors of the Company shall determine that the
transaction satisfies the above criteria and shall evidence such
a determination by a board resolution filed with the Trustee or,
in the event that there shall not be disinterested members of the
board of directors with respect to the transaction, the Company
shall file with the Trustee a written opinion stating that the
transaction satisfies the above criteria from an investment
banking firm of national standing in the United States which, in
the good faith judgment of the board of directors of the Company,
is independent with respect to the Company and its Affiliates and
qualified to perform such task.
Change of Control. Within 30 days of the occurrence of a Change of Control, the
Company will be required to make an Offer to Purchase all outstanding 7.25%
Notes at a price in cash equal to 101% of the principal amount of the 7.25%
Notes plus any accrued and unpaid interest thereon, if any, to such purchase
date. A "Change of Control" will be deemed to have occurred at such time as
(x) a Rating Decline shall have occurred and
(y) either
(A) the sale, conveyance, transfer or lease of all or
substantially all of the assets of the Company to any Person or
any Persons acting together that would constitute a "group" (a
"Group") for purposes of Section 13(d) of the Exchange Act,
together with any Affiliates or Related Persons, other than any
Permitted Holder or any Restricted Subsidiary, shall have
occurred;
(B) any Person or Group, together with any Affiliates or Related
Persons, other than any Permitted Holder or any Restricted
Subsidiary, shall beneficially own (within the meaning of Rule
13d-3 under the Exchange Act, except that a Person will be deemed
to have beneficial ownership of all shares that such Person has
the right to acquire, whether such right is exercisable
immediately or only after the passage of time) at least 50% of
the aggregate voting power of all classes of Voting Stock of the
Company at a time when Permitted Holders own less than or equal
to 25% of the aggregate voting power of all classes of Voting
Stock of the Company; or
<PAGE>
(C) during any period of two consecutive years, Continuing
Directors cease for any reason to constitute a majority of the
Company's board of directors then in office. If the Company makes
an Offer to Purchase the 7.25% Notes, the Company intends to
comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and
Rule 14e-1 under, the Exchange Act. The existence of the holders'
right to require, subject to certain conditions, the Company to
repurchase 7.25% Notes upon a Change of Control may deter a third
party from acquiring the Company in a transaction that
constitutes a Change of Control. If an Offer to Purchase is made,
there can be no assurance that the Company will have sufficient
funds to pay the Purchase Price for all 7.25% Notes tendered by
holders seeking to accept the Offer to Purchase. In addition,
instruments governing other Debt of the Company may prohibit the
Company from purchasing any 7.25% Notes prior to their Stated
Maturity, including pursuant to an Offer to Purchase. See
"Description of Certain Indebtedness." If an Offer to Purchase
occurs at a time when the Company does not have sufficient
available funds to pay the Purchase Price for all 7.25% Notes
tendered pursuant to such Offer to Purchase or a time when the
Company is prohibited from purchasing the 7.25% Notes (and the
Company is unable either to obtain the consent of the holders of
the relevant Debt or to repay such Debt), an Event of Default
would occur under the Indenture. In addition, one of the events
that constitutes a Change of Control under the Indenture is a
sale, conveyance, transfer or lease of all or substantially all
of the property of the Company.
The Indenture will be governed by New York law, and there is no established
definition under New York law of "substantially all" of the assets of a
corporation. Accordingly, if the Company were to engage in a transaction in
which it disposed of less than all of its assets, a question of interpretation
could arise as to whether such disposition was of "substantially all" of its
assets and whether the Company was required to make an Offer to Purchase. Except
as described in this prospectus with respect to a Change of Control, the
Indenture does not contain any other provisions that permit holders of 7.25%
Notes to require that the Company repurchase or redeem 7.25% Notes in the event
of a takeover, recapitalization or similar restructuring.
Reports. The Company will file with the Trustee on the date on which it files
them with the Commission copies of the annual and quarterly reports and the
information, documents, and other reports that the Company is required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
Reports"). If the Company shall cease to be required to file SEC Reports
pursuant to the Exchange Act, the Company will nevertheless continue to file
such reports with the Commission (unless the Commission will not accept such a
filing) and the Trustee. The Company will furnish copies of the SEC Reports to
the holders of 7.25% Notes at the time the Company is required to file the same
with the Trustee and will make such information available to investors who
request it in writing.
Limitation on Designations of Unrestricted Subsidiaries. The Indenture will
provide that the Company will not designate any Subsidiary of the Company (other
than a newly created Subsidiary in which no Investment has previously been made)
as an "Unrestricted Subsidiary" under the Indenture (a "Designation") unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such
Designation;
<PAGE>
(b) immediately after giving effect to such Designation, the Company
would be able to Incur $1.00 of Debt under paragraph (a) of
"--Limitation on Consolidated Debt"; and
(c) the Company would not be prohibited under the Indenture from
making an Investment at the time of Designation (assuming the
effectiveness of such Designation) in an amount (the "Designation
Amount") equal to the Fair Market Value of the net Investment of
the Company or any other Restricted Subsidiary in such Restricted
Subsidiary on such date. In the event of any such Designation,
the Company shall be deemed to have made an Investment
constituting a Restricted Payment pursuant to the covenant
"--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount.
The Indenture will further provide that neither the Company nor any Restricted
Subsidiary shall at any time
(x) provide credit support for, or a guarantee of, any Debt of any
Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Debt); provided that the Company or a
Restricted Subsidiary may pledge Capital Stock or Debt of any
Unrestricted Subsidiary on a nonrecourse basis such that the
pledgee has no claim whatsoever against the Company other than to
obtain such pledged property,
(y) be directly or indirectly liable for any Debt of any Unrestricted
Subsidiary or
(z) be directly or indirectly liable for any Debt which provides that
the holder may (upon notice, lapse of time or both) declare a
default thereon or cause the payment to be accelerated or payable
prior to its final scheduled maturity upon the occurrence of a
default with respect to any Debt of any Unrestricted Subsidiary
(including any right to take enforcement action against such
Unrestricted Subsidiary), except in the case of clause (x) or (y)
to the extent permitted under "--Limitation on Restricted
Payments" and "--Transactions with Affiliates and Related
Persons."
The Indenture will further provide that a Designation may be revoked (a
"Revocation") by a resolution of the board of directors of the Company delivered
to the Trustee, provided that the Company will not make any Revocation unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such
Revocation; and
(b) all Liens and Debt of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if Incurred at such
time, have been permitted to be Incurred at such time for all
purposes of the Indenture. All Designations and Revocations must
be evidenced by resolutions of the board of directors of the
Company delivered to the Trustee certifying compliance with the
foregoing provisions.
Mergers, Consolidations and Certain Sales of Assets
The Company may not, in a single transaction or a series of related
transactions,
<PAGE>
(i) consolidate with or merge into any other Person or Persons or
permit any other Person to consolidate with or merge into the
Company (other than a merger of Qwest Corporation into the
Company in which the Company shall be the surviving Person) or
(ii) directly or indirectly, transfer, sell, lease or otherwise
dispose of all or substantially all of its assets to any other
Person or Persons unless:
(a) in a transaction in which the Company is not the surviving
Person or in which the Company sells, leases or otherwise
disposes of all or substantially all of its assets to any other
Person, the resulting surviving or transferee Person (the
"successor entity") is organized under the laws of the United
States of America or any State or the District of Columbia and
shall expressly assume, by a supplemental indenture signed and
delivered to the Trustee in form satisfactory to the Trustee, all
of the Company's respective obligations under the Indenture;
(b) immediately before and after giving effect to such
transaction and treating any Debt which becomes an obligation of
the Company or a Restricted Subsidiary as a result of such
transaction as having been Incurred by the Company or such
Restricted Subsidiary at the time of the transaction, no Default
or Event of Default shall have occurred and be continuing;
(c) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company (or other successor entity
to the Company) is equal to or greater than that of the Company
immediately prior to the transaction;
(d) immediately after giving effect to such transaction and
treating any Debt which becomes an obligation of the Company or a
Restricted Subsidiary as a result of such transaction as having
been Incurred by the Company or such Restricted Subsidiary at the
time of the transaction, the Company (including any successor
entity to the Company) could Incur at least $1.00 of additional
Debt pursuant to the provisions of the Indenture described in
paragraph (a) under "--Limitation on Consolidated Debt" above;
(e) if, as a result of any such transaction, property or assets
of the Company would become subject to a Lien prohibited by the
provisions of the Indenture described under "--Limitation on
Liens" above, the Company or the successor entity to the Company
shall have secured the 7.25% Notes as required by said covenant;
and
(f) certain other conditions are met.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used in this prospectus for which no
definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i) Debt of any
other Person existing at the time such Person merges with or into or
consolidates with or becomes a Subsidiary of such specified Person and (ii) Debt
secured by a Lien encumbering any asset acquired by such specified Person, which
Debt was not incurred in anticipation of, and was outstanding prior to, such
<PAGE>
merger, consolidation or acquisition.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition by the Company or any Restricted Subsidiary in one or more related
transactions occurring within any 12-month period (including a consolidation or
merger or other sale of any such Restricted Subsidiary with, into or to another
Person in a transaction in which such Restricted Subsidiary ceases to be a
Restricted Subsidiary of the Company, but excluding a disposition by a
Restricted Subsidiary to the Company or a Restricted Subsidiary or by the
Company to a Restricted Subsidiary) of
(i) shares of Capital Stock or other ownership interests of a
Restricted Subsidiary (other than as permitted by the provisions
of the Indenture described in clauses (iii), (iv) and (v) under
the caption "--Limitation on Issuances and Sales of Capital Stock
of Restricted Subsidiaries"),
(ii) substantially all of the assets of the Company or any Restricted
Subsidiary representing a division or line of business or
(iii) other assets or rights of the Company or any Restricted
Subsidiary outside of the ordinary course of business (excluding
any transfer, conveyance, sale, lease or other disposition of
equipment that is obsolete or no longer used by or useful to the
Company, provided that the Company has delivered to the Trustee
an Officers' Certificate stating that such criteria are
satisfied); provided in each case that the aggregate
consideration for such transfer, conveyance, sale, lease or other
disposition is equal to $500,000 or more in any 12-month period
and provided further that the following shall not be Asset
Dispositions:
(x) Permitted Telecommunications Capital Asset Dispositions,
(y) exchanges of Telecommunications Assets for other
Telecommunications Assets where the Fair Market Value of the
Telecommunications Assets received is at least equal to the
Fair Market Value of the Telecommunications Assets disposed
of or, if less, the difference is received in cash and such
cash is Net Available Proceeds and
(z) Liens permitted to be Incurred pursuant to the second
paragraph under "--Limitation on Liens."
"Attributable Value" means, as to any particular lease under which any Person is
at the time liable other than a Capital Lease Obligation, and at any date as of
which the amount is to be determined, the total net amount of rent required to
be paid by such Person under such lease during the initial term 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
<PAGE>
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 of the Capital Lease Obligation.
"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 the obligation shall be
the capitalized amount of the obligation 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 of the United States (provided that the
full faith and credit of the United States is pledged in support
thereof or the Debt constitutes a general obligation of the
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
Service, a division of McGraw Hill, Inc. 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 and rated at
least "A-1" by Standard & Poor's Ratings Service, a division of
McGraw Hill, Inc. 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 of the United States and backed by the full faith
and credit of the United States maturing within 365 days from the
date of acquisition.
<PAGE>
"Common Stock" of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Capital Ratio" of any Person as of any date means the ratio of (i)
the aggregate consolidated principal amount of Debt of such Person then
outstanding to (ii) the greater of either (a) the aggregate consolidated paid-in
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
<PAGE>
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,
(e) the cumulative effect of changes in accounting principles,
(f) non-cash gains or losses resulting from fluctuations in currency
exchange rates,
(g) any non-cash expense related to the issuance to employees or
directors of the Company or any Restricted Subsidiary or any
Affiliate of the Company of (i) options to purchase Capital Stock
of the Company or such Restricted Subsidiary or (ii) other
compensatory rights (including under the Company's Growth Share
Plan), provided, in either case, that such options or rights, by
their terms, can be redeemed only for Capital Stock,
(h) with respect to a Restricted Subsidiary that is not a Wholly
Owned Subsidiary, any aggregate net income (or loss) in excess of
the Company's or any Restricted Subsidiary's pro rata share of
the net income (or loss) of such Restricted Subsidiary that is
not a Wholly Owned Subsidiary shall be excluded and
(i) the tax effect of any of the items described in clauses (a)
through (h) above; provided further that for purposes of any
determination pursuant to the provisions described under
"--Limitation on Restricted Payments," there shall further be
excluded therefrom the net income (but not net loss) of any
Restricted Subsidiary that is subject to a restriction which
prevents the payment of dividends or the making of distributions
to the Company or another Restricted Subsidiary to the extent of
such restriction.
"Consolidated Net Worth" of any Person means the stockholders' equity of such
Person, determined on a consolidated basis in accordance with generally accepted
accounting principles, less amounts attributable to Disqualified Stock of such
Person; provided that, with respect to the Company, adjustments following March
<PAGE>
31, 1997 to the accounting books and records of the Company in accordance with
Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions
thereto) or otherwise resulting from the acquisition of control of the Company
by another Person shall not be given effect to.
"Consolidated Tangible Assets" of any Person means the total amount of assets
(less applicable reserves and other properly deductible items) which under
generally accepted accounting principles would be included on a consolidated
balance sheet of such Person and its Subsidiaries after deducting therefrom all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, which in each case under generally accepted
accounting principles would be included on such consolidated balance sheet.
"Continuing Director" means, as of any date of determination, any member of the
board of directors of the Company who (i) was a member of such board of
directors of the Company on March 31, 1997, or (ii) was nominated for election
or elected to the board of directors of the Company with the affirmative vote of
a majority of the Continuing Directors who were members of the board of
directors of the Company at the time of such nomination or election or the
affirmative vote of Permitted Holders.
"Credit Facilities" means one or more credit agreements, loan agreements or
similar facilities, secured or unsecured, entered into from time to time by the
Company and its Restricted Subsidiaries, and including any related notes,
Guarantees, collateral documents, instruments and agreements signed 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
<PAGE>
(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
in this prospectus represented by
(a) any Debt issued at a price that is less than the principal amount
at maturity of the Debt, shall be the amount of the liability
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), 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.
"Debt Securities" means any debt securities (including any guarantee of such
securities) issued by the Company or any Restricted Subsidiary of the Company in
connection with a public offering or a private placement (excluding Debt
permitted to be Incurred under paragraph (b) of "--Limitation on Consolidated
Debt").
"Default" means any event, act or condition the occurrence of which is, or after
notice or the passage of time or both would be, an Event of Default.
"Disqualified Stock" of any Person means any Capital Stock of such Person which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of such Person, any Subsidiary of such Person or the
holder, in whole or in part, on or prior to the final Stated Maturity of the
7.25% Notes; provided, however, that any Preferred Stock which would not
constitute Disqualified Stock but for provisions giving holders the right to
require the Company to repurchase or redeem such Preferred Stock upon the
occurrence of a Change of Control occurring prior to the final Stated Maturity
of the 7.25% Notes 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 7.25%
Notes contained in the covenant described under "--Change of Control" and such
Preferred Stock specifically provides that the Company will not repurchase or
redeem any such stock pursuant to such provisions prior to the Company's
repurchase of such 7.25% Notes as are required to be repurchased pursuant to the
covenant described under "--Change of Control."
"Eligible Institution" means a commercial banking institution that has combined
capital and surplus of not less than $500 million or its equivalent in foreign
currency, whose debt is rated "A" (or higher) according to Standard & Poor's
Ratings Service, a division of McGraw Hill, Inc. (or any successor to its rating
agency business) or Moody's Investors Service, Inc. (or any successor to its
rating agency business) 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,
<PAGE>
less Receivables of the Company or any Restricted Subsidiary employed to secure
Debt Incurred under clause (vii) of paragraph (b) of "--Limitation on
Consolidated Debt."
"Event of Default" has the meaning set forth under "Events of Default" below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act), and the rules and regulations thereunder (or respective
successors thereto).
"Fair Market Value" means, with respect to any asset or property, the price that
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under pressure
or compulsion to complete the transaction. Unless otherwise specified in the
Indenture, Fair Market Value shall be determined by the board of directors of
the Company acting in good faith and shall be evidenced by a resolution of the
board of directors of the Company delivered to the Trustee.
"Government Securities" means direct obligations of, or obligations guaranteed
by, the United States of America for the payment of which guarantee or
obligations the full faith and credit of the United States is pledged and which
have a remaining weighted average life to maturity of not less than one year
from the date of investment therein.
"Guarantee" by any Person means any obligation, contingent or otherwise, of such
Person guaranteeing, or having the economic effect of guaranteeing, any Debt of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including, without limitation, any obligation of such Person,
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Debt, (ii) to purchase property, securities
or services for the purpose of assuring the holder of such Debt of the payment
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 signed a
Restricted Subsidiary Guarantee.
"Incur" means, with respect to any Debt or other obligation of any Person, to
create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee
or otherwise become liable in respect of such Debt or other obligation including
by acquisition of Subsidiaries or the recording, as required pursuant to
generally accepted accounting principles or otherwise, of any such Debt or other
obligation on the balance sheet of such Person (and "Incurrence", "Incurred",
"Incurrable" and "Incurring" shall have meanings correlative to the foregoing);
provided, however, that a change in generally accepted accounting principles
that results in an obligation of such Person that exists at such time becoming
Debt shall not be deemed an Incurrence of such Debt and that neither the accrual
of interest nor the accretion of original issue discount shall be deemed an
Incurrence of Debt.
"Interest Rate or Currency Protection Agreement" of any Person means any forward
contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
<PAGE>
"Investment" by any Person means any direct or indirect loan, advance or other
extension of credit or capital contribution (by means of transfers of cash or
other property to others or payments for property or services for the account or
use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or the
equivalent) and BBB- (or the equivalent) by Moody's Investors Service, Inc. (or
any successor to its rating agency business) and Standard & Poor's Ratings
Service, a division of McGraw Hill, Inc. (or any successor to its rating agency
business), respectively.
"Lien" means, with respect to any property or assets, any mortgage or deed of
trust, pledge, hypothecation, assignment, Receivables Sale, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness), encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including, without limitation,
any conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing). For purposes of this definition
the sale, lease, conveyance or other transfer by the Company or any Subsidiary
of, including the grant of indefeasible rights of use or equivalent arrangements
with respect to, dark or lit communications fiber capacity or communications
conduit shall not constitute a Lien.
"Net Available Proceeds" from any Asset Disposition by any Person means cash or
cash equivalents received (including amounts received by way of sale or
discounting of any note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such properties or assets)
therefrom by such Person, net of
(i) any portion 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 the Person or any
Subsidiary of the Person, 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 the
Person or any Subsidiary of the Person, 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
<PAGE>
Disposition, in each case as determined by the board of directors
of such Person, in its reasonable good faith judgment evidenced
by a resolution of the board of directors filed with the Trustee;
provided, however, that any reduction in such reserve within
twelve months following the closing of such Asset Disposition
will be for all purposes of the Indenture and the 7.25% Notes as
a new Asset Disposition at the time of such reduction with Net
Available Proceeds equal to the amount of such reduction.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company by
first class mail, postage prepaid, to each holder of 7.25% Notes at its address
appearing in the 7.25% Note Register on the date of the Offer offering to
purchase up to the principal amount of 7.25% Notes specified in such Offer at
the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase which shall
be, subject to any contrary requirements of applicable law, not less than 30
days or more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of 7.25% Notes within five Business Days
after the Expiration Date. The Company shall notify the Trustee at least 15
Business Days (or such shorter period as is acceptable to the Trustee) prior to
the mailing of the Offer of the Company's obligation to make an Offer to
Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. The Offer
shall contain information concerning the business of the Company and its
Subsidiaries which the Company in good faith believes will enable such holders
to make an informed decision with respect to the Offer to Purchase (which at a
minimum will include
(i) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the documents required to be
filed with the Trustee pursuant to the Indenture (which
requirements may be satisfied by delivery of such documents
together with the Offer),
(ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements
referred to in clause (i) (including a description of the events
requiring the Company to make the Offer to Purchase),
(iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and
(iv) any other information required by applicable law to be included).
The Offer shall contain all instructions and materials necessary to enable such
holders to tender 7.25% Notes pursuant to the Offer to Purchase. The Offer shall
also state:
a. the Section of the Indenture pursuant to which the Offer to
Purchase is being made;
b. the Expiration Date and the Purchase Date;
c. the aggregate principal amount of the outstanding 7.25% Notes
offered to be purchased by the Company pursuant to the Offer to
Purchase (including, if less than 100%, the manner by which such
has been determined pursuant to the section requiring the Offer
to Purchase) (the "Purchase Amount");
<PAGE>
d. the purchase price to be paid by the Company for each $1,000
aggregate principal amount of 7.25% Notes accepted for payment
(as specified pursuant to the Indenture) (the "Purchase Price");
e. that the holder may tender all or any portion of the 7.25% Notes
registered in the name of such holder and that any portion of a
7.25% Note tendered must be tendered in an integral multiple of
$1,000 principal amount;
f. the place or places where 7.25% Notes are to be surrendered for
tender pursuant to the Offer to Purchase;
g. that any 7.25% Notes not tendered or tendered but not purchased
by the Company will continue to accrue interest;
h. that on the Purchase Date the Purchase Price will become due and
payable upon each 7.25% Note being accepted for payment pursuant
to the Offer to Purchase and that interest thereon, if any, shall
cease to accrue on and after the Purchase Date;
i. that each holder electing to tender a 7.25% Note pursuant to the
Offer to Purchase will be required to surrender such 7.25% Note
at the place or places specified in the Offer prior to the close
of business on the Expiration Date (such 7.25% Note being, if the
Company or the Trustee so requires, duly endorsed by, or
accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly signed by, the
holder or his attorney duly authorized in writing);
j. that holders will be entitled to withdraw all or any portion of
7.25% Notes tendered if the Company (or their Paying Agent)
receives, not later than the close of business on the Expiration
Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the holder, the principal amount of the 7.25%
Note the holder tendered, the certificate number of the 7.25%
Note the holder tendered and a statement that such holder is
withdrawing all or a portion of his tender;
k. that (a) if 7.25% Notes in an aggregate principal amount less
than or equal to the Purchase Amount are duly tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall
purchase all such 7.25% Notes and (b) if 7.25% Notes in an
aggregate principal amount at maturity in excess of the Purchase
Amount are tendered and not withdrawn pursuant to the Offer to
Purchase, the Company shall purchase
7.25% Notes having an aggregate principal amount equal to the
Purchase Amount on a pro rata basis (with such adjustments as may
be deemed appropriate so that only 7.25% Notes in denominations
of $1,000 or integral multiples shall be purchased); and
l. that in the case of any holder whose 7.25% Note is purchased only
in part, the Company shall sign, and the Trustee shall
authenticate and deliver to the holder of such 7.25% Note without
service charge, a new 7.25% Note or 7.25% Notes, of any
authorized denomination as requested by such holder, in an
aggregate principal amount at maturity equal to and in exchange
for the unpurchased portion of the 7.25% Note so tendered. Any
Offer to Purchase shall be governed by and effected in accordance
with the Offer for such Offer to Purchase.
<PAGE>
"Officers' Certificate" means a certificate signed by the Chairman of the board
of directors of the Company, a Vice Chairman of the board of directors of the
Company, the President or a Vice President, and by the Chief Financial Officer,
the Chief Accounting Officer, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company and delivered to the Trustee,
which shall comply with the Indenture.
"Opinion of Counsel" means an opinion of counsel acceptable to the Trustee (who
may be counsel to the Company, including an employee of the Company).
"Permitted Holders" means any Person who was the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of stock of the Company on March
31, 1997 and any Affiliates of such Person (i) who were Affiliates of such
Person on March 31, 1997 or (ii) who were formed, directly or indirectly, by any
such Person after March 31, 1997 provided, however, that Persons who were
beneficial owners (within the meaning of Rule 13d-3 under the Exchange Act) of
such Person on March 31, 1997 continued to be beneficial owners (within the
meaning of Rule 13d-3 under the Exchange Act) at the time of formation of such
Affiliate.
"Permitted Interest Rate or Currency Protection Agreement" of any Person means
any Interest Rate or Currency Protection Agreement entered into with one or more
financial institutions in the ordinary course of business that is designed to
protect such Person against fluctuations in interest rates or currency exchange
rates with respect to Debt Incurred and which shall have a notional amount no
greater than the payments due with respect to the Debt being hedged thereby and
not for purposes of speculation.
"Permitted Investments" means
(a) Cash Equivalents;
(b) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation,
performance and other similar deposits;
(c) loans, advances or extensions of credit to employees and
directors made in the ordinary course of business and consistent
with past practice;
(d) obligations under Interest Rate or Currency Protection
Agreements;
(e) bonds, notes, debentures and other securities received as a
result of Asset Dispositions pursuant to and in compliance with
"--Limitation on Asset Dispositions";
(f) Investments made in the ordinary course of business as partial
payment for constructing a network relating to a
Telecommunications Business;
(g) commercially reasonable extensions of trade credit;
(h) Investments in any Person as a result of which such Person
becomes a Restricted Subsidiary;
(i) Investments in Permitted Joint Ventures in an aggregate amount
not to exceed $25 million;
(j) Investments in Affiliates or Related Persons in an aggregate
amount not to exceed $11 million, provided that the making of
such Investments is permitted under "--Transactions with
<PAGE>
Affiliates and Related Persons"; and
(k) Investments in an aggregate amount not to exceed $15 million
consisting of the contribution by the Company or any Restricted
Subsidiary of assets located in Mexico to joint ventures in which
the Company or a Restricted Subsidiary has an interest.
"Permitted Joint Venture" means a corporation, partnership or other entity other
than a Restricted Subsidiary engaged in one or more Telecommunications
Businesses over which the Company and/or one or more Strategic Investors have,
directly or indirectly, the power to direct the policies, management and
affairs.
"Permitted Liens" means
(a) Liens for taxes, assessments, governmental charges, levies or
claims which are not yet delinquent or which are being contested
in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity
with generally accepted accounting principles shall have been
made therefor;
(b) other Liens incidental to the conduct of the Company's and its
Restricted Subsidiaries' businesses or the ownership of its
property and assets not securing any Debt, and which do not in
the aggregate materially detract from the value of the Company's
and its Restricted Subsidiaries' property or assets when taken as
a whole, or materially impair the use of the property or assets
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.
<PAGE>
"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 or any other entity.
"Preferred Dividends" for any Person means for any period the quotient
determined by dividing the amount of dividends and distributions paid or accrued
(whether or not declared) on Preferred Stock of such Person during such period
calculated in accordance with generally accepted accounting principles, by 1
minus the maximum statutory income tax rate then applicable to the Company
(expressed as a decimal).
"Preferred Stock" of any Person means Capital Stock of such Person of any class
or classes (however designated) that ranks prior, as to the payment of dividends
or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Public Equity Offering" means an underwritten public offering of common stock
made on a primary basis by the Company pursuant to a registration statement
filed with, and declared effective by, the Commission in accordance with the
Securities Act.
"Purchase Money Debt" means Debt Incurred at any time within 270 days of, and
for the purposes of financing all or any part of the cost of, the construction,
installation, acquisition or improvement by the Company or any Restricted
Subsidiary of the Company of any new Telecommunications Assets constructed,
installed, acquired or improved after March 31, 1997, provided that the proceeds
of such Debt are expended for such purposes within such 270-day period.
"Rating Agencies" means Moody's Investors Service, Inc. (or any successor to its
rating agency business) and Standard & Poor's Ratings Service, a division of
McGraw Hill, Inc. (or any successor to its rating agency business).
"Rating Decline" means the 7.25% Notes cease to be rated B+ (or the equivalent)
or better by Standard & Poor's Ratings Service, a division of McGraw Hill, Inc.
or B2 (or the equivalent) 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.
"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>
"Restricted Subsidiary" means a Subsidiary of the Company, or of a Restricted
Subsidiary that is a Wholly Owned Subsidiary of the Company, that has not been
designated by the board of directors of the Company (by a board resolution
delivered to the Trustee) as an Unrestricted Subsidiary pursuant to and in
compliance with "--Limitations on Designations of Unrestricted Subsidiaries."
"Restricted Subsidiary Guarantee" means a supplemental indenture to the
Indenture in form satisfactory to the Trustee, providing for an unconditional
Guarantee of payment in full of the principal of, premium, if any, and interest
on the 7.25% Notes. Any such Restricted Subsidiary Guarantee shall not be
subordinate in right of payment to any Debt of the Restricted Subsidiary
providing the Restricted Subsidiary Guarantee.
"Sale and Leaseback Transaction" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 365 days after the
acquisition or the completion of construction or commencement of operation to
such lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or asset.
The stated maturity of such arrangement shall be the date of the last payment of
rent or any other amount due under such arrangement prior to the first date on
which such arrangement may be terminated by the lessee without payment of a
penalty.
"Senior Note Indentures" means (i) the Indenture dated as of March 31, 1997
between the Company and Bankers Trust Company, as trustee thereunder, relating
to the Company's 10 7/8% Senior Notes Due 2007 (which were subsequently
exchanged for the Company's 10 7/8% Series B Senior Notes Due 2007) and the
Indenture dated as of August 28, 1997, pursuant to which such 10 7/8% Series B
Senior Notes Due 2007 were issued, (ii) the Indenture dated as of October 15,
1997 between the Company and Bankers Trust Company, as trustee thereunder,
relating to the Company's 9.47% Series B Senior Discount Notes Due 2007, (iii)
the Indenture dated as of January 29, 1998 between the Company and Bankers Trust
Company, as trustee thereunder, relating to the Company's 8.29% Series B Senior
Discount Notes Due 2008 and (iv) the Indenture, dated as of November 4, 1998,
between the Company and Bankers Trust Company, as trustee thereunder, relating
to the Company's 7.50% Notes. .
"Stated Maturity," when used with respect to a 7.25% Note or any installment of
interest thereon, means the date specified in such 7.25% Note as the fixed date
on which the principal of such 7.25% Note or such installment of interest is due
and payable.
"Strategic Investor" means a corporation, partnership or other entity engaged in
one or more Telecommunications Businesses that has, or 80% or more of the Voting
Stock of which is owned by a Person that has, an equity market capitalization,
at the time of its initial Investment in the Company or in a Permitted Joint
Venture with the Company, in excess of $2 billion.
"Subordinated Debt" means Debt of the Company as to which the payment of
principal of (and premium, if any) and interest and other payment obligations in
respect of such Debt shall be subordinate to the prior payment in full of the
7.25% Notes to at least the following extent:
(i) no payments of principal of (or premium, if any) or interest on
or otherwise due in respect of such Debt may be permitted for so
long as any default in the payment of principal (or premium, if
any) or interest on the 7.25% Notes exists;
<PAGE>
(ii) if any other Default exists with respect to the 7.25% Notes, upon
notice by 25% or more in principal amount of the 7.25% Notes to
the Trustee, the Trustee shall have the right to give notice to
the Company and the holders of such Debt (or trustees or agents
therefor) of a payment blockage, and thereafter no payments of
principal of (or premium, if any) or interest on or otherwise due
in respect of such Debt may be made for a period of 179 days from
the date of such notice; and
(iii) the Debt may not
(x) provide for payments of principal of such Debt at the stated
maturity or by way of a sinking fund applicable thereto or by way
of any mandatory redemption, defeasance, retirement or repurchase
of the Debt by the Company (including any redemption, retirement
or repurchase which is contingent upon events or circumstances
but excluding any retirement required by virtue of acceleration
of such Debt upon an event of default thereunder), in each case
prior to the final Stated Maturity of the 7.25% Notes or
(y) permit redemption or other retirement (including pursuant to
an offer to purchase made by the Company) of such other Debt at
the option of the holder prior to the final Stated Maturity of
the 7.25% Notes, other than a redemption or other retirement at
the option of the holder of such Debt (including pursuant to an
offer to purchase made by the Company) which is conditioned upon
a change of control of the Company pursuant to provisions
substantially similar to those described under "--Change of
Control" (and which shall provide that such Debt will not be
repurchased pursuant to such provisions prior to the Company's
repurchase of the 7.25% Notes required to be repurchased by the
Company pursuant to the provisions described under "--Change of
Control").
"Subsidiary" of any Person means (i) a corporation more than 50% of the combined
voting power of the outstanding Voting Stock of which is owned, directly or
indirectly, by the Person or by one or more other Subsidiaries of the Person or
by the Person and one or more Subsidiaries of the Person or (ii) any other
Person (other than a corporation) in which the Person, or one or more other
Subsidiaries of such Person or the Person and one or more other Subsidiaries of
the Person, directly or indirectly, has at least a majority ownership and power
to direct the policies, management and affairs of the Person.
"Telecommunications Assets" means all assets, rights (contractual or otherwise)
and properties, whether tangible or intangible, used or intended for use in
connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) constructing, creating, developing
or marketing communications related network equipment, software and other
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 of the Company.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as such
pursuant to and in compliance with "--Limitation on Designations of Unrestricted
Subsidiaries."
<PAGE>
"Voting Stock" of any Person means Capital Stock of such Person which ordinarily
has voting power for the election of directors (or persons performing similar
functions) of such Person, whether at all times or only for so long as no senior
class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of
the outstanding Voting Stock or other ownership interests (other than directors'
qualifying shares) of which shall at the time be owned by such Person or by one
or more Wholly Owned Subsidiaries of such Person or by such Person and one or
more Wholly Owned Subsidiaries of such Person.
Events of Default
The following will be Events of Default under the Indenture:
(a) failure to pay principal of (or premium, if any, on) any 7.25%
Note when due;
(b) failure to pay any interest on any 7.25% Note when due, continued
for 30 days;
(c)default in the payment of principal and interest on 7.25% Notes
required to be purchased pursuant to an Offer to Purchase as
described under "--Change of Control" when due and payable;
(d) failure to perform or comply with the provisions described under
"--Mergers, Consolidations and Certain Sales of Assets" and
"--Limitation on Asset Dispositions";
(e) failure to perform any other covenant or agreement of the Company
under the Indenture or the 7.25% Notes continued for 60 days
after written notice to the Company by the Trustee or holders of
at least 25% in aggregate principal amount of the outstanding
7.25% Notes;
(f) default under the terms of any instrument evidencing or securing
Debt of the Company or any Restricted Subsidiary having an
outstanding principal amount of $10 million individually or in
the aggregate which default results in the acceleration of the
payment of such indebtedness or constitutes the failure to pay
such indebtedness when due (after expiration of any applicable
grace period);
(g) the rendering of a final judgment or judgments (not subject to
appeal) against the Company or any Restricted Subsidiary in an
amount in excess of $10 million which remains undischarged or
unstayed for a period of 45 days after the date on which the
right to appeal has expired; and
(h) certain events of bankruptcy, insolvency or reorganization
affecting the Company or any Restricted Subsidiary.
Subject to the provisions of the Indenture relating to the duties of the Trustee
in case an Event of Default (as defined) shall occur and be continuing, the
Trustee will not be under any obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders of 7.25%
Notes, unless such holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of the Trustee,
the holders of a majority in aggregate principal amount of the outstanding 7.25%
Notes will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
<PAGE>
power conferred on the Trustee.
If any Event of Default (other than an Event of Default described in clause (h)
above) shall occur and be continuing, either the Trustee or the holders of at
least 25% in aggregate principal amount at maturity of the outstanding 7.25%
Notes may accelerate the maturity of all 7.25% Notes; provided, however, that
after such acceleration, but before a judgment or decree based on acceleration,
the holders of a majority in aggregate principal amount of the outstanding 7.25%
Notes may, under certain circumstances, rescind and annul such acceleration if
all Events of Default, other than the non-payment of accelerated principal, have
been cured or waived as provided in the Indenture. If an Event of Default
specified in clause (h) above occurs, the outstanding 7.25% Notes will ipso
facto become immediately due and payable without any declaration or other act on
the part of the Trustee or any holder. For information as to waiver of defaults,
see "--Amendment, Supplement and Waiver."
No holder of any 7.25% Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default (as defined) and unless also the holders of at least 25% in aggregate
principal amount of the outstanding 7.25% Notes shall have made written request
and offered reasonable indemnity to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the holders of a majority
in aggregate principal amount of the outstanding 7.25% Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a 7.25% Note for enforcement of payment of the
principal of and premium, if any, or interest on such 7.25% Note on or after the
respective due dates expressed in such 7.25% Note. The Company will be required
to furnish to the Trustee quarterly a statement as to the performance by the
Company of certain of its obligations under the Indenture and as to any default
in such performance.
Amendment, Supplement and Waiver
The Company and the Trustee may, at any time and from time to time, without
notice to or consent of any holder of 7.25% Notes, enter into one or more
indentures supplemental to the Indenture 75
(1) to evidence the succession of another Person to the Company and
the assumption by such successor of the covenants of the Company
in the Indenture and the 7.25% Notes;
(2) to add to the covenants of the Company, for the benefit of the
holders, or to surrender any right or power conferred upon the
Company by the Indenture;
(3) to add any additional Events of Default;
(4) to provide for uncertificated 7.25% Notes in addition to or in
place of certificated 7.25% Notes;
(5) to evidence and provide for the acceptance of appointment under
the Indenture of a successor Trustee;
(6) to secure the 7.25% Notes; or
(7) to cure any ambiguity in the Indenture to correct or supplement
any provision in the Indenture which may be inconsistent with any
other provision in the Indenture or to add any other provisions
with respect to matters or questions arising under the Indenture;
<PAGE>
provided such actions shall not adversely affect the interests of the holders in
any material respect. With the consent of the holders of not less than a
majority in principal amount of the outstanding 7.25% Notes, the Company and the
Trustee may enter into one or more indentures supplemental to the Indenture for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or modifying in any manner the rights of
the holders, provided that no such supplemental indenture shall, without the
consent of the holder of each outstanding 7.25% Note
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any 7.25% Note, or alter the
redemption provisions of the 7.25% Note, or reduce the principal
amount of the 7.25% Note (or premium, if any), or the interest
thereon that would be due and payable upon maturity of the 7.25%
Note, or change the place of payment where, or the coin or
currency in which, any 7.25% Note or any premium or interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the maturity of the
7.25% Note;
(2) reduce the percentage in principal amount of the outstanding
7.25% Notes, the consent of whose holders is necessary for any
such supplemental indenture or required for any waiver of
compliance with certain provisions of the Indenture or certain
Defaults thereunder;
(3) subordinate in right of payment, or otherwise subordinate,
the 7.25% Notes to any other Debt; or
(4) modify any provision of this paragraph (except to increase
any percentage set forth in this paragraph).
The holders of not less than a majority in principal amount of the outstanding
7.25% Notes may, on behalf of the holders of all the 7.25% Notes, waive any past
Default under the Indenture and its consequences, except Default (1) in the
payment of the principal of (or premium, if any) or interest on any 7.25% Note,
or (2) in respect of a covenant or provision which under the proviso to the
prior paragraph cannot be modified or amended without the consent of the holder
of each outstanding 7.25% Note affected.
Satisfaction and Discharge of the Indenture, Defeasance
The Company may terminate its obligations under the Indenture when
(i) either
(A) all outstanding 7.25% Notes have been delivered to the
Trustee for cancellation or
(B) all such 7.25% Notes not theretofore delivered to the Trustee
for cancellation have become due and payable, will become due and
payable within one year or are to be called for redemption within
one year under irrevocable arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in
the name and at the expense of the Company, and the Company has
irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire
indebtedness on the 7.25% Notes not theretofore delivered to the
Trustee for cancellation, for principal of (or premium, if any,
on) and interest to the date of deposit or maturity or date of
redemption on such 7.25% Notes;
<PAGE>
(ii) the Company has paid or caused to be paid all other sums payable
by the Company under the Indenture; and
(iii) the Company has delivered an Officers' Certificate and an Opinion
of Counsel relating to compliance with the conditions set forth
in the Indenture.
The Company, at its election, shall
(a) be deemed to have paid and discharged its debt on the 7.25% Notes
and the Indenture shall cease to be of further effect as to all
outstanding 7.25% Notes (except as to (i) rights of registration
of transfer, substitution and exchange of 7.25% Notes and the
Company's right of optional redemption, (ii) rights of holders to
receive payments of principal of, premium, if any, and interest
on such 7.25% Notes (but not the Purchase Price referred to under
"--Change of Control") and any rights of the holders with respect
to such amounts, (iii) the rights, obligations and immunities of
the Trustee under the Indenture and (iv) certain other specified
provisions in the Indenture) or
(b) cease to be under any obligation to comply with certain
restrictive covenants including those described under "--Certain
Covenants," after the irrevocable deposit by the Company with the
Trustee, in trust for the benefit of the holders, at any time
prior to the maturity of the 7.25% Notes, of
(A) money in an amount,
(B) Government Securities which through the payment of interest
and principal will provide, not later than one day before the due
date of payment in respect of the 7.25% Notes, money in an
amount, or
(C) a combination, sufficient to pay and discharge the principal
of, and interest on, the 7.25% Notes then outstanding on the
dates on which any such payments are due in accordance with the
terms of the Indenture and of the 7.25% Notes.
Such defeasance or covenant defeasance shall be deemed to occur only if certain
conditions are satisfied, including, among other things, delivery by the Company
to the Trustee of an Opinion of Counsel acceptable to the Trustee to the effect
that (i) such deposit, defeasance and discharge will not be deemed, or result
in, a taxable event for federal income tax purposes with respect to the holders;
and (ii) the Company's deposit will not result in the Trust or the Trustee being
subject to regulation under the Investment Company Act of 1940, as amended.
Governing Law
The Indenture and the 7.25% Notes will be governed by the laws of the State of
New York.
The Trustee
Bankers Trust Company will be the Trustee under the Indenture and the Senior
Note Indentures. The Trustee's current address is Four Albany Street, New York,
New York 10006. The holders of not less than a majority in principal amount of
the outstanding 7.25% Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
<PAGE>
Trustee, subject to certain exceptions. Except during the continuance of an
Event of Default, the Trustee will perform only such duties as are specifically
set forth in the Indenture. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured or waived), the Trustee will be
required, in the exercise of its rights and powers under the Indenture, to use
the degree of care of a prudent person in the conduct of such person's own
affairs.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company, as
such, shall have any liability for any obligations of the Company under the
7.25% Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation, solely by reason of its status as
a director, officer, employee, incorporator or stockholder of the Company. By
accepting a 7.25% Note each holder waives and releases all such liability (but
only such liability). The waiver and release are part of the consideration for
issuance of the 7.25% Notes. Nevertheless, such waiver may not be effective to
waive liabilities under the federal securities laws and it has been the view of
the Commission that such a waiver is against public policy.
Transfer and Exchange
A holder may transfer or exchange 7.25% Notes in accordance with the Indenture.
The Company, the Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company has entered into a registration rights agreement with the initial
purchaser (the "Registration Agreement") pursuant to which the Company agreed,
for the benefit of the holders of the old 7.25% notes, at the Company's cost,
(a) by February 25, 1999, to file a registration statement (a "Registration
Statement") with the Commission with respect to a registered offer to exchange
the old 7.25% notes for the new 7.25% notes, (b) to use its best efforts to
cause such Registration Statement to be declared effective under the Securities
Act by April 26, 1999, and (c) to consummate the Exchange Offer by May 26, 1999.
For each old 7.25% note surrendered to the Company pursuant to the Exchange
Offer, the holder of such old 7.25% note will receive a new 7.25% note having a
principal amount at maturity equal to that of the surrendered old 7.25% note.
Based upon no-action letters issued by the staff of the Commission to third
parties, the Company believes that the new 7.25% notes issued pursuant to the
Exchange Offer in exchange for old 7.25% notes would in general be freely
transferable after the exchange offer without further registration under the
Securities Act if the holder of the new 7.25% notes represents (i) that it is
not an "affiliate," as defined in Rule 405 of the Securities Act, of the
Company, (ii) that it is acquiring the new 7.25% notes in the ordinary course of
its business and (iii) that it has no arrangement or understanding with any
person to participate in the distribution (within the meaning of the Securities
Act) of the new 7.25% notes; provided that, in the case of broker-dealers, a
prospectus meeting the requirements of the Securities Act be delivered as
required. However, the Commission has not considered the exchange offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the exchange
offer as in such other circumstances. Holders of old 7.25% notes wishing to
accept the exchange offer must represent
<PAGE>
to the Company that such conditions have been met. Each broker-dealer that
receives new 7.25% notes for its own account pursuant to the exchange offer,
where it acquired the old 7.25% notes exchanged for such new 7.25% notes for its
own account as a result of market-making or other trading activities, may be
deemed to be an "underwriter" within the meaning of the Securities Act and must
acknowledge that it will deliver a prospectus in connection with the resale of
such new 7.25% notes. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of new 7.25% notes received in
exchange for old 7.25% notes where such old 7.25% notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of one year after closing
of the exchange offer, it will make this prospectus available to any
broker-dealer for use in connection with any such resale. A broker-dealer that
delivers such a prospectus to purchasers in connection with such resales will be
subject to certain of the civil liability provisions under the Securities Act,
and will be bound by the provisions of the Registration Agreement (including
certain indemnification and contribution rights and obligations). See "The
Exchange Offer--Resale of the New 7.25% Notes" and "Plan of Distribution."
Each holder of the old 7.25% notes (other than certain specified holders) who
wishes to exchange old 7.25% notes for new 7.25% notes in the exchange offer
will be required to represent that
(a) it is not an affiliate of the Company,
(b) any new 7.25% notes to be received by it will be acquired in the
ordinary course of its business and
(c) at the time of commencement of the Exchange Offer, it has no
arrangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the new 7.25%
notes. If the holder is a broker-dealer (a "Participating
Broker-Dealer") who acquired the old 7.25% notes for its own
account as a result of market-making or other trading activities,
it may be deemed to be an "underwriter" within the meaning of the
Securities Act and will be required to acknowledge that it must
deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such new 7.25% notes. The
Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the new 7.25% notes (other than a resale of an
unsold allotment from the original sale of the old 7.25% notes)
with the prospectus contained in the exchange offer Registration
Statement. Under the Registration Agreement, the Company is
required to allow Participating Broker-Dealers and other persons,
if any, subject to similar prospectus delivery requirements to
use the prospectus contained in the exchange offer Registration
Statement in connection with the resale of such new 7.25% notes.
If,
(i) because of any change in law or applicable interpretations by the
Commission's staff, the Company determines upon advice of its
outside counsel that it is not permitted to effect the exchange
offer as contemplated by the Registration Agreement, or
(ii) for any other reason the exchange offer is not consummated within
180 days of the closing date of the old 7.25% notes, or
<PAGE>
(iii) the initial purchaser so requests with respect to old 7.25% notes
held by it following closing of the exchange offer, or
(iv) any holder of old 7.25% notes (other than the initial purchaser
of the old 7.25% notes) is not eligible to participate in the
Exchange Offer or
(v) if the initial purchaser participates in the exchange offer or
acquires new 7.25% notes issued and delivered to it by the
Company in exchange for old 7.25% notes, such purchaser does not
receive freely tradeable new 7.25% notes in exchange for old
7.25% notes constituting any portion of an unsold allotment,
the Company will, at its cost,
(a) as promptly as practicable, file a shelf registration
statement (a "Shelf Registration Statement") with the Commission
relating to the offer and sale of the old 7.25% notes or the new
7.25% notes,
(b) cause such Shelf Registration Statement to be declared
effective under the Securities Act and
(c) use its best efforts to keep such Shelf Registration
Statement continuously effective under the Securities Act for a
period of three years or such shorter period that will terminate
when all the old 7.25% notes or new 7.25% notes, as applicable,
covered by such Shelf Registration Statement have been sold.
The Company will, in the event of filing such a Shelf Registration Statement,
provide to each holder of the old 7.25% notes copies of the prospectus that is a
part of such Shelf Registration Statement, notify each such holder when such
Shelf Registration Statement for the old 7.25% notes has been filed with the
Commission and when such Shelf Registration Statement or any post-effective
amendment thereto has become effective and take certain other actions as are
required to permit unrestricted resales of the 7.25% Notes. A holder of 7.25%
Notes that sells such 7.25% Notes pursuant to a Shelf Registration Statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration
Agreement which are applicable to such a holder (including certain
indemnification and contribution rights and obligations).
The old 7.25% notes provide that if
(i) the Registration Statement has not been filed with the Commission
within 90 days after the closing date of the old 7.25% notes or
declared effective within 150 days after the closing date of the
old 7.25% notes, or the exchange offer has not been consummated
within 180 days after the closing date of the old 7.25% notes or
(ii) instead, the Shelf Registration Statement has not been filed with
the Commission and declared effective within 210 days after the
closing date of the old 7.25% notes or
(iii) after either the Registration Statement or the Shelf Registration
Statement has been declared effective, as the case may be, such
Registration Statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with resales
of old 7.25% notes or new 7.25% notes in accordance with and
<PAGE>
during the periods specified in the Registration Agreement (each
such event referred to in clauses (i) through (iii), a
"Registration Default"),
additional interest ("Liquidated Interest") will accrue on the old 7.25% notes
(in addition to the stated interest on the old 7.25% notes) from and including
the date on which any such Registration Default shall occur up to but excluding
the date on which all Registration Defaults have been cured. Liquidated Interest
will be payable in cash semiannually in arrears each November 1 and May 1, at a
rate per annum equal to 0.50% of the principal amount of the old 7.25% notes
during the 90-day period immediately following the occurrence of any
Registration Default and shall increase by 0.25% per annum of the principal
amount of the old 7.25% notes 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.
The summary in this prospectus of certain provisions of the Registration
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Agreement,
a copy of which is filed as an exhibit to the Registration Statement of which
this prospectus is a part.
DESCRIPTION OF CERTAIN INDEBTEDNESS
In March 1997, the Company sold $250.0 million in principal amount of its 10
7/8% Senior Notes Due 2007 (the "10 7/8% Notes") and used the proceeds to repay
certain indebtedness of the Company and also to fund capital expenditures for
the construction and activation of the Company's network. The Company is
amortizing issuance costs totaling approximately $8.0 million over the term of
the 10 7/8% Notes. Interest on the 10 7/8% Notes is payable semi-annually on
April 1 and October 1 of each year, beginning on October 1, 1997, and the
principal amount of the 10 7/8% Notes is due and payable in full on April 1,
2007. The 10 7/8% Note Indenture contains certain covenants that, among other
things, limit the ability of the Company and certain of its subsidiaries (the
"Restricted Subsidiaries") to incur additional indebtedness and issue preferred
stock, pay dividends or make other distributions, repurchase capital stock or
subordinated indebtedness, create certain liens, enter into certain transactions
with affiliates, sell assets of the Company or its Restricted Subsidiaries,
issue or sell capital stock of the Company's Restricted Subsidiaries or enter
into certain mergers and consolidations. In addition, under certain limited
circumstances, the Company will be required to offer to purchase the 10 7/8%
Notes at a price equal to 100% of the principal amount plus accrued and unpaid
interest to the date of purchase with the excess proceeds of certain asset
sales. In the event of a Change of Control (as defined in the 10 7/8% Note
indenture), holders of the 10 7/8% Notes will have the right to require the
Company to purchase all of their 10 7/8% Notes at a price equal to 101% of the
aggregate principal amount plus accrued and unpaid interest. Generally, the 10
7/8% Notes are redeemable, at the option of the Company, in whole or in part at
stated premiums over par on or after April 1, 2002, and up to 35% of the 10 7/8%
Notes may be redeemed at a premium over par prior to April 1, 2000 with the
proceeds of certain public stock offerings.
In August 1997, the Company completed a registered exchange of new 10 7/8%
Notes (with terms identical in all material respects to the originally issued 10
7/8% Notes) for all of the originally issued 10 7/8%. The Company received no
proceeds from and recognized no profit on the exchange transaction, and no
change in the financial condition of the Company occurred as a result of the
exchange transaction. In December 1998, the Company redeemed $87.5 million of
its 10 7/8% Notes.
<PAGE>
In October 1997, the Company sold $555.9 million in principal amount at
maturity of its 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 and
are being amortized to interest expense over the term of the 9.47% Notes. The
Company used the net proceeds to fund capital expenditures for continuing
construction and activation of the Company's network and to fund further growth
in the business. The 9.47% Notes accrete at a rate of 9.47% per annum,
compounded semi-annually, to an aggregate principal amount of $555.9 million by
October 15, 2002. The principal amount of the 9.47% Notes is due and payable in
full on October 15, 2007. The 9.47% Notes are redeemable at the Company's
option, in whole or in part, at any time on or after October 15, 2002, at
specified redemption prices over par. In addition, prior to October 15, 2000,
the Company may use the net cash proceeds from certain specified equity
transactions to redeem up to 35% of the 9.47% Notes at specified redemption
prices over par. Cash interest on the 9.47% Notes will not accrue until October
15, 2002, and thereafter will accrue at a rate of 9.47% per annum, and will be
payable semi-annually in arrears commencing on April 15, 2003 and thereafter on
April 15 and October 15 (each an interest payment date) of each year. The
Company has the option of commencing the accrual of cash interest on an interest
payment date on or after October 15, 2000, in which case the outstanding
principal amount at maturity of the 9.47% Notes will, on such interest payment
date, be reduced to the then accreted value, and cash interest will be payable
on each interest payment date thereafter. The indenture for the 9.47% Notes
contains certain covenants that are substantially identical to the 10 7/8% Notes
described above.
In March 1998, the Company completed a registered exchange of new 9.47% Notes
(with terms identical in all material respects to the originally issued 9.47%
Notes) for all of the originally issued 9.47% Notes. The Company received no
proceeds from and recognized no profit on the exchange transaction, and no
change in the financial condition of the Company occurred as a result of the
exchange transaction.
In January 1998, the Company sold $450.5 million in principal amount at maturity
of its 8.29% Senior Discount Notes Due 2008 (the "8.29% Notes"), generating net
proceeds of approximately $299.2 million, after deducting offering costs which
are included in intangible and other long-term assets and will be amortized to
interest expense over the term of the 8.29% Notes. The Company used the net
proceeds to fund capital expenditures for continuing construction and activation
of the Company's network and to fund further growth in the business. The 8.29%
Notes accrete at a rate of 8.29% per annum, compounded semi-annually, to an
aggregate principal amount of $450.5 million by February 1, 2003. The principal
amount of the 8.29% Notes is due and payable in full on February 1, 2008. The
8.29% Notes are redeemable at the Company's option, in whole or in part, at any
time on or after February 1, 2003, at specified redemption prices over par. In
addition, prior to February 1, 2001, the Company may use the net cash proceeds
from certain specified equity transactions to redeem up to 35% of the 8.29%
Notes at specified redemption prices over par. Cash interest on the 8.29% Notes
will not accrue until February 1, 2003, and thereafter will accrue at a rate of
8.29% per annum, and will be payable semi-annually in arrears commencing on
August 1, 2003 and thereafter on February 1 and August 1 (each an interest
payment date) of each year. The Company has the option of commencing the accrual
of cash interest on an interest payment date on or after February 1, 2001, in
which case the outstanding principal amount at maturity of the 8.29% Notes will,
on such interest payment date, be reduced to the then accreted value, and cash
interest will be payable on each interest payment date thereafter. The indenture
for the 8.29% Notes contains certain covenants that are substantially identical
to the 10 7/8% Notes and the 9.47% Notes described above.
<PAGE>
In July 1998, the Company completed a registered exchange of new 8.29% Notes
(with terms identical in all material respects to the originally issued 8.29%
Notes) for all of the originally issued 8.29% Notes. The Company received no
proceeds from and recognized no profit on the exchange transaction, and no
change in the financial condition of the Company occurred as a result of the
exchange transaction.
In connection with the acquisition of LCI, the Company assumed LCI's existing
debt instruments, including $350.0 million of 7.25% Senior Notes due 2007 (the
"7.25% Notes Due 2007").
In November 1998, the Company sold the 7.50% Notes and used the proceeds to fund
initiatives to further develop and deploy the Company's network, gain additional
market share in the traditional telecommunications market segment, expand the
Qwest data market strategy and to fund general working capital needs. Pending
the application of the net proceeds of the offering of the 7.50% Notes, the
Company applied a portion of the proceeds to pay down the outstanding balances
under the Company's existing credit facilities. Unamortized issuance costs
totaling approximately $9.0 million are being amortized over the term of the
7.50% Notes. Interest on the 7.50% Notes is payable semi-annually on May 1 and
November 1 of each year, commencing on May 1, 1999, and the principal amount of
the 7.50% Notes is due and payable in full on November 1, 2008. The indenture
for the 7.50% Notes contains certain covenants that are substantially identical
to the 10 7/8% Notes, the 9.47% Notes and the 8.29% Notes described above,
except that under the indenture for the 7.50% Notes, the Company has no
obligation to comply with most of the covenants during any period when the 7.50%
Notes have been assigned investment grade ratings. If the 7.50% Notes later lose
an investment grade rating, the covenants will again apply. See "Description of
the 7.50% Notes."
In connection with the sale of the 7.50% Notes, the Company agreed to make an
offer to exchange new notes, registered under the Securities Act and with terms
identical in all material respects to the 7.50% Notes, for the 7.50% Notes or,
alternatively, to file a shelf registration statement under the Act with respect
to the 7.50% Notes. The Company filed the exchange offer registration statement
with the Commission on February 2, 1999.
In late November 1998, the Company sold $300.0 million in principal amount of
its 7.25% Notes and used the proceeds to fund initiatives to further develop and
deploy the Company's network, gain additional market share in the traditional
telecommunications market segment, expand the Qwest data market strategy and to
fund general working capital needs. These initiatives (which may be effected
directly by the Company or through joint venture and similar arrangements) will
include construction, development and lighting of the Company's network,
expansion of the data and other business services offered by the Company,
development of sales channels and other needs. Unamortized issuance costs
totaling approximately $2.3 million are being amortized over the term of the
7.25% Notes.
Credit Facility and Lines of Credit
In connection with the acquisition of LCI, the Company assumed a $250.0
million revolving credit facility (the "Credit Facility") from a syndicate of
banks. The Company also assumed three separate discretionary line of credit
agreements (the "Lines of Credit") with commercial banks providing for total
borrowings of up to $75.0 million.
The Credit Facility bears interest at a rate consisting of two components. The
base rate component is dependent upon a market indicator and the second
component varies from 0.30% to 0.75%, based on the more favorable of the
relationship of borrowings levels to operating cash flow (the "leverage ratio")
<PAGE>
or senior unsecured debt rating. As of September 30, 1998, the Company had
$215.0 million outstanding under the Credit Facility at an interest rate of
6.0%. The Credit Facility contains various financial covenants including a
leverage ratio requirement. As of September 30, 1998, the Company was in
compliance with all Credit Facility covenants. In November 1998, the outstanding
balance under the Credit Facility was repaid with a portion of the proceeds from
the 7.25% Notes. The Credit Facility expired on December 31, 1998.
As of September 30, 1998, $17.5 million was outstanding on the Lines of Credit
at an interest rate of 6.3%. In November 1998, the outstanding balances under
the Lines of Credit were repaid with a portion of the proceeds from the 7.25%
Notes. Two of the Lines of Credit expired on Dec. 31, 1998. As of December 31,
1998 the Company had $25.0 million available on the remaining Line of Credit.
In February 1999, the Company received commitments from several banks to
syndicate an unsecured credit facility in the amount of $1.0 billion. It is a
condition to closing that the Company sign a mututally satisfactory credit
agreement. The Company expects to close by the end of the first quarter of 1999.
Accounts Receivable Securitization
As of September 30, 1998, the Company, through its wholly-owned subsidiary, LCI,
maintained an agreement to sell a percentage ownership interest in a defined
pool of trade accounts receivable (the "Securitization Program"). Under the
Securitization Program, LCI SPC I, Inc. ("SPC"), a single-purpose subsidiary of
the Company, sold accounts receivable. SPC had approximately $150.0 million of
accounts receivable available for sale and had sold a total of approximately
$125.0 million as of September 30, 1998.
In October 1998, the Company borrowed approximately $67.0 million under a demand
note payable to a bank. This demand note was utilized to reacquire the ownership
interest in a portion of the pool of trade accounts receivable that were sold
under the Securitization Program. The remaining portion of such accounts was
reacquired with cash. In November 1998, the outstanding balance under the demand
note was repaid with a portion of the proceeds of the 7.25% Notes.
Certain United States Federal Income Tax Considerations
General
The following is a general discussion of certain of the expected United States
federal income tax consequences applicable to holders of the old 7.25% notes who
purchased the old 7.25% notes from Qwest for cash, exchange the old 7.25% notes
for new 7.25% notes in this exchange offer, and hold the old 7.25% notes and
will hold the new 7.25% notes as capital assets ("Holders"). This discussion is
a descriptive summary only and is not a complete technical analysis or listing
of all potential tax considerations that may be relevant to Holders. Qwest has
received an opinion of its counsel, Holme Roberts & Owen LLP, that the following
describes the material United States federal income tax consequences expected to
result to Holders, subject to the conditions and limitations described in this
discussion. This discussion is based on current provisions of the Internal
<PAGE>
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations
("Regulations"), and public administrative and judicial interpretations of the
Code and Regulations, all of which are subject to change. Any such change could
be applied retroactively. This discussion is also based on the information
contained in this prospectus and the related documents, and on certain
representations from Qwest as to factual matters. This discussion does not cover
all aspects of United States federal taxation that may be relevant to, or the
actual tax effect that any of the matters described in this discussion will have
on, particular Holders and does not address foreign, state, or local tax
consequences.
Qwest has not sought and will not seek any ruling from the Internal Revenue
Service (the "Service") with respect to the 7.25% notes. The Service could take
a different position concerning the tax consequences of the exchange of old
7.25% notes for new 7.25% notes or the ownership or disposition of the new 7.25%
notes, and the Service's position could be sustained by a court.
The United States federal income tax consequences to a Holder may vary depending
on the Holder's particular situation or status. Some of the rules applicable to
Holders that are subject to special rules under the Code are not discussed
below. Examples of these holders include insurance companies, tax-exempt
organizations, mutual funds, retirement plans, financial institutions, dealers
in securities or foreign currency, persons that hold the 7.25% notes as part of
a "straddle" or as a "hedge" against currency risk or in connection with a
conversion transaction, persons that have a functional currency other than the
United States dollar, investors in pass-through entities, traders in securities
that elect to mark to market, and except as expressly addressed in this
discussion, Non-U.S. Holders (as defined below).
As used in this discussion, the term "U.S. Holder" means a Holder that, for
United States federal income tax purposes, is
(1) a citizen or resident of the United States,
(2) a corporation, partnership, or other entity created or organized in
or under the laws of the United States, of the District of Columbia,
or of any State,
(3) an estate the income of which is subject to United States federal
income tax, regardless of its source, or
(4) a trust if
(a) a court within the United States is able to exercise primary
supervision over the administration of the trust and
(b) one or more United States persons have the authority to control
all substantial decisions of the trust.
The term "Non-U.S. Holder" means a Holder that is, for United States federal
income tax purposes, not a U.S. Holder.
This discussion is for general information purposes only. Each holder is urged
to consult its tax advisor as to the particular tax consequences to such person
of exchanging old 7.25% notes for new 7.25% notes and of holding and disposing
of the new 7.25% notes, including the applicability and effect of all foreign,
state, or local tax laws and of any change in federal income tax law or
administrative or judicial interpretation since the date of this prospectus.
<PAGE>
Exchange of Notes
Although there is no direct authority as to whether the exchange of old 7.25%
notes for new 7.25% notes in the exchange offer will be treated as a taxable
exchange for United States federal income tax purposes, it is the opinion of
Holme Roberts & Owen LLP, counsel to Qwest, that based on its analysis of
applicable law, such exchange should not be treated as a taxable exchange for
United States federal income tax purposes. A Holder should not recognize gain or
loss on the exchange of old 7.25% notes for new 7.25% notes in the exchange
offer and, on such exchange, should have the same adjusted tax basis in and
holding period for the new 7.25% notes as it had in the old 7.25% notes
immediately before the exchange.
Original Issue Discount
Qwest was advised by the initial purchaser at the time of the sale of the old
7.25% notes that the initial purchaser intended to sell the old 7.25% notes at a
price equal to 100% of the stated principal amount of the old 7.25% notes, and
Qwest believes that substantially all of the old 7.25% notes were sold to
investors at that price. This discussion is therefore based on the assumption
that the old 7.25% notes were not issued with an amount of original issue
discount in excess of the de minimis exception under the Code, and thus, that
the original issue discount amount will be considered zero for United States
federal income tax purposes. Each U.S. Holder is required to include stated
interest on the 7.25% notes in gross income in accordance with the U.S. Holder's
regular method of tax accounting.
Market Discount
Under the market discount rules of the Code, a U.S. Holder who purchases a 7.25%
note at a "market discount" will generally be required to treat any gain
recognized on the disposition of the 7.25% note as ordinary income to the extent
of the lesser of such gain or the portion of the market discount that accrued
during the period that the U.S. Holder held such 7.25% note. Market discount is
generally defined as the amount by which a U.S. Holder's purchase price for a
7.25% note is less than the stated redemption price at maturity (the stated
principal amount in this case) of the 7.25% note on the date of purchase,
subject to a statutory de minimis exception. A U.S. Holder who acquires a 7.25%
note at a market discount may be required to defer all or a portion of any
interest expense that otherwise may be deductible on any indebtedness incurred
or continued to purchase or carry such 7.25% note until the retirement of the
7.25% note, or if earlier, the U.S. Holder disposes of the 7.25% note in a
taxable transaction. A U.S. Holder who has elected under applicable Code
provisions to include market discount in income annually as such discount
accrues will not, however, be required to treat any gain recognized as ordinary
income or to defer any deductions for interest expense under these rules. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first day of the
taxable year to which the election applies and may not be revoked without the
consent of the Service. Holders should consult their tax advisors as to the
portion of any gain that would be taxable as ordinary income under these
provisions and any other consequences of the market discount rules that may
apply to them in particular.
Amortizable Bond Premium
Generally, if the tax basis of an obligation held as a capital asset exceeds the
amount payable at maturity of the obligation, the excess will constitute
amortizable bond premium that the holder of such debt instrument may elect,
<PAGE>
under section 171 of the Code, to amortize as an offset to interest income under
the constant yield method over the period from its acquisition date to the
obligation's maturity date subject to special rules for early call provisions. A
U.S. Holder who elects to amortize bond premium must reduce its tax basis in the
related 7.25% notes by the amount of the aggregate amortization allowable as
amortizable bond premium. An election to amortize bond premium applies to all
obligations with amortizable bond premium held by the electing U.S. Holder at
the beginning of the first taxable year to which the election applies or
thereafter acquired by the U.S. Holder and is irrevocable without the consent of
the Service.
Sale, Retirement, or Other Taxable Disposition
Upon the sale, retirement, or other taxable disposition of a 7.25% note, a U.S.
Holder will generally recognize gain or loss equal to the difference between (i)
the amount of cash plus the fair market value of property received in exchange
for the 7.25% note (except to the extent attributable to accrued interest not
previously taken into account) and (ii) the U.S. Holder's adjusted tax basis in
the 7.25% note. If the 7.25% note has market discount or amortizable bond
premium, appropriate adjustments may be required in computing the U.S. Holder's
adjusted tax basis for the 7.25% note. Any gain or loss on the sale, retirement,
or other taxable disposition of a 7.25% note, measured as described above, will
generally be capital gain or loss (except as discussed under "-Market
Discount"). In the case of an individual U.S. Holder, such capital gain will be
taxable at various preferential rates, depending on such U.S. Holder's holding
period for the 7.25% note at the time of disposition.
With respect to tax matters related to legal defeasance and covenant defeasance
in certain circumstances, see "Description of the 7.25% Notes-Satisfaction and
Discharge of the Indenture, Defeasance."
Backup Withholding
The backup withholding rules of the Code require a payor to deduct and
withhold a tax amount if
(1) the payee fails to furnish a taxpayer identification number ("TIN") to the
payor,
(2) the Service notifies the payor that the TIN furnished by the payee is
incorrect,
(3) the payee has failed to report properly the receipt of a "reportable
payment" and the Service has notified the payor that withholding is
required, or
(4) there has been a failure on the part of the payee to certify under penalty
of perjury that the payee is not subject to withholding under section 3406
of the Code.
If any one of the events discussed above occurs, Qwest or its paying agent or
other withholding agent will be required to withhold a tax equal to 31 percent
of any "reportable payment" which includes, among other things, interest
actually paid and amounts paid through brokers in retirement of securities. Any
amount withheld from a payment to a U.S. Holder under the backup withholding
rules will be allowed as a refund or credit against the U.S. Holder's United
States federal income tax, provided that the required information is furnished
to the Service. Certain U.S. Holders (including, among others, corporations) are
not subject to the backup withholding or information reporting requirements.
<PAGE>
Certain Tax Consequences to Non-U.S. Holders
General. The following discussion is for general information purposes only and
does not cover all aspects of United States federal taxation that may
apply to, or the actual tax effect that any of the matters described in this
discussion will have on, any particular Non-U.S. Holder. Non-U.S. Holders are
urged to consult their tax advisors as to the particular tax consequences to
them of purchasing, holding, and disposing of the 7.25% notes.
Portfolio Interest Exemption. A Non-U.S. Holder not engaged in any U.S. trade or
business will generally, under the portfolio interest exemption of the Code, not
be subject to United States federal income taxes or United States federal
withholding tax, on payments of principal and interest paid on the 7.25% notes,
provided that
(1) the Non-U.S. Holder does not actually or constructively own 10
percent or more of the total combined voting power of all classes of
stock of Qwest entitled to vote,
(2) the Non-U.S. Holder is not
(a) a bank receiving interest pursuant to a loan agreement entered
into in the ordinary course of its trade or business or
(b) a controlled foreign corporation that is related to Qwest
through stock ownership,
(3) such interest is not effectively connected with a United States trade
or business and
(4) either
(a) the beneficial owner of the 7.25% notes certifies to Qwest or
its agent, under penalties of perjury, that it is not a U.S.
Holder and provides a completed IRS Form W-8 ("Certificate of
Foreign Status") or
(b) a securities clearing organization, bank, or other financial
institution which holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and
which holds the 7.25% notes, certifies to Qwest or its agent,
under penalties of perjury, that it has received Form W-8 from
the beneficial owner or that it has received from another
financial institution a Form W-8 and furnishes the payor with a
copy of the Form W-8 and none of the persons reviewing the
relevant certification or IRS form has actual knowledge that
the certification or any statement on the IRS form is false.
If any of the situations described in proviso (i), (ii), or (iv) of the
preceding sentence does not exist, interest on the 7.25% notes, when paid, is
subject to United States withholding tax at the rate of 30 percent, unless an
income tax treaty between the United States and the country of which the
Non-U.S. Holder is a tax resident provides for the elimination or reduction in
the rate of United States federal withholding tax. Interest for this purpose
includes income, other than capital gains, received from the sale or exchange of
the 7.25% notes or from a payment on the 7.25% notes to the extent of unpaid
interest accrued while the 7.25% notes were held by a Non-U.S. Holder and the
amounts so accrued were not previously subject to United States withholding tax.
Effectively Connected Income. If a Non-U.S. Holder is engaged in a trade or
business in the United States and interest on the 7.25% notes is effectively
<PAGE>
connected with the conduct of such trade or business, such Non-U.S. Holder,
although exempt from United States federal withholding tax as discussed in the
preceding paragraph (or by reason of the delivery of a properly completed IRS
Form 4224), will be subject to United States federal income tax on such interest
and on any gain realized on the sale, exchange, or other disposition of a 7.25%
note in the same manner as if it were a U.S. Holder. In addition, if the
Non-U.S. Holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30 percent of its effectively connected earnings and profits for
that taxable year, subject to certain adjustments, unless it qualifies for a
lower rate under an applicable income tax treaty.
Federal Estate Tax. 7.25% notes owned or treated as owned by an individual who
is neither a United States citizen nor a United States resident (as defined for
United States federal estate tax purposes) at the time of death will be excluded
from the individual's gross estate for United States federal estate tax purposes
and will not be subject to United States federal estate tax if the individual
does not own, actually or constructively, 10% or more of the total combined
voting power of all classes of stock of Qwest entitled to vote and, at the time
of such individual's death, payments with respect to such 7.25% notes would not
have been effectively connected to the conduct by such individual of a trade or
business in the United States.
Disposition of the 7.25% Notes. A Non-U.S. Holder generally will not be subject
to United States federal income tax on any gain realized in connection with the
sale, exchange, or retirement of the 7.25% notes, unless:
(1) (a) the gain is effectively connected with a trade or business carried on
by the Non-U.S. Holder within the United States or
(b) if a tax treaty applies, the gain is generally attributable to the
United States permanent establishment maintained by the Non-U.S.
Holder,
(2) in the case of a Non-U.S. Holder who is an individual, such Non-U.S. Holder
is present in the United States for 183 days or more in the taxable year of
disposition, and certain other conditions are satisfied, or
(3) the Non-U.S. Holder is subject to tax pursuant to provisions of the Code
applicable to United States expatriates.
Information Reporting and Backup Withholding Tax. In general, there is no United
States information reporting requirement or backup withholding tax on payments
to Non-U.S. Holders who provide the appropriate certification described above
regarding qualification for the portfolio interest exemption from United States
federal income tax for payments of interest on the 7.25% notes.
In general, backup withholding and information reporting will not apply to a
payment of the gross proceeds of a sale of the 7.25% notes effected at a foreign
office of a broker. If, however, such broker is, for United States federal
income tax purposes, a United States person, a controlled foreign corporation, a
foreign person 50% or more of whose gross income for certain periods is derived
from activities that are effectively connected with the conduct of a trade or
business in the United States, or (in the case of payments made after December
31, 1999) a foreign partnership with certain connections to the United States,
such payments will not be subject to backup withholding, but will be subject to
information reporting, unless:
(1) such broker has documentary evidence in its records that the
beneficial owner is a Non-U.S. Holder and certain other conditions
are met or
(2) the beneficial owner otherwise establishes an exemption.
<PAGE>
Payment by Qwest of principal on the 7.25% notes or payment by a United States
office of a broker of the proceeds of a sale of the 7.25% notes is subject to
both backup withholding and information reporting unless the beneficial owner
provides a completed IRS Form W-8 which certifies under penalties of perjury
that it is a Non-U.S. Holder who meets all the requirements for exemption from
United States federal income tax on any gain from the sale, exchange, or
retirement of the 7.25% notes. Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules will be allowed as a refund
or a credit against such Non-U.S. Holder's United States federal income tax
liability, provided the required information is furnished to the Service.
Recently promulgated Regulations (the "New Regulations") would modify the
procedures to be followed by Non-U.S. Persons and payors of interest and sale
proceeds in complying with the United States federal withholding, backup
withholding, and information reporting rules, and the availability of any
exemption therefrom. The New Regulations are not currently effective, but will
generally be effective for payments made after December 31, 1999. In general,
the New Regulations do not significantly alter the current substantive
withholding and information requirements, but unify current certification
procedures and forms and clarify reliance standards. The New Regulations impose
more stringent conditions on the ability of financial intermediaries acting for
Non-U.S. Holders to provide certifications on behalf of Non-U.S. Holders. Each
Holder of a 7.25% note is strongly urged to consult its tax advisor regarding
the effect of the New Regulations on the purchase, ownership, and disposition of
the 7.25% notes.
Plan of Distribution
Each broker-dealer that receives new 7.25% notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new 7.25% notes. A broker-dealer may use this
prospectus, as it may be amended or supplemented from time to time, by in
connection with resales of new 7.25% notes received in exchange for old 7.25%
notes where such old 7.25% notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that for a period
of one year after closing of the exchange offer, it will make this prospectus,
as amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
The Company will not receive any proceeds from any sale of new 7.25% notes by
any broker-dealer. New 7.25% notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the new 7.25% notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any 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 7.25% notes. Any
broker-dealer that resells new 7.25% notes that were received by it for its own
account pursuant to the eExchange oOffer and any broker or dealer that
participates in a distribution of such new 7.25% notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of new 7.25% notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
<PAGE>
For a period of one year after closing of the exchange offer, the Company will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. The Company has agreed to pay all expenses
incident to the Company's performance of, or compliance with, the Registration
Agreement and all expenses incident to the exchange offer (including the
expenses of one counsel for the holders of the old 7.25% notes) other than
commissions or concessions of any brokers or dealers, and will indemnify the
holders (including any broker-dealers) and certain parties related to the
holders against certain liabilities, including liabilities under the Securities
Act.
The Company has not entered into any arrangements or understandings with any
person to distribute the new 7.25% notes to be received in the exchange offer.
Legal Matters
Holme Roberts & Owen LLP, Denver, Colorado, is passing on the validity of the
new 7.25% notes and certain United States federal income tax matters in
connection with the new 7.25% notes
Experts
The consolidated financial statements and schedule of Qwest Communications
International Inc. and subsidiaries as of December 31, 1997 and 1996 and for
each of the years in the three-year period ended December 31, 1997 have been
incorporated in this prospectus and in the Registration Statement by reference
in reliance on the report pertaining to such consolidated financial statements,
dated February 24, 1998, except as to note 22, which is as of March 8, 1998, and
the report dated February 24, 1998 pertaining to such schedule, of KPMG LLP,
independent certified public accountants, incorporated in this prospectus and in
the Registration Statement by reference, and on the authority of that firm as
experts in accounting and auditing.
The consolidated financial statements and schedules of LCI International, Inc.
and subsidiaries as of December 31, 1997 and 1996 and for each of the years in
the three-year period ended December 31, 1997 incorporated by reference in this
prospectus have been audited by Arthur Andersen LLP, independent public
accountants as stated in their reports also incorporated by reference in this
prospectus.
The consolidated financial statements of Phoenix Network, Inc. as of December
31, 1997 and 1996 and for each of the years in the three-year period ended
December 31, 1997 have been audited by Grant Thornton LLP, independent certified
public accountants.
The financial statements of SuperNet, Inc. as of and for the year ended June 30,
1997 have been audited by Dollinger, Smith & Co., independent certified public
accountants.
The consolidated financial statements of Icon CMT Corp. as of December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997,
have been incorporated in this prospectus by reference to the Registration
Statement (No. 333-65095) on Form S-4 of Qwest Communications International Inc.
dated September 30, 1998, as amended by Amendment No. 1 to the S-4 dated
December 10, 1998. Such financial statements, except as they relate to Frontier
Media Group, Inc. as of December 31, 1996 and 1997 and for each of the two years
in the period ended December 31, 1997, have been audited by
PricewaterhouseCoopers LLP, independent accountants, and insofar as they relate
to Frontier Media Group, Inc. as of December 31, 1996 and 1997 and for each of
<PAGE>
the two years in the period ended December 31, 1997, by Ernst & Young LLP,
independent accountants.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). You
may read and copy any reports, statements and other information we file at the
Commission's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call 1-800-SEC-0330 for further information on the
public reference rooms. Our filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
Commission at http://www.sec.gov.
We have filed a Registration Statement on Form S-4 to register with the
Commission the new 7.25% notes to be issued in exchange for the old 7.25% notes.
This prospectus is part of that Registration Statement. As allowed by the
Commission's rules, this prospectus does not contain all of the information you
can find in the Registration Statement or the exhibits to the Registration
Statement.
We have not authorized anyone to give you any information or to make any
representations about the transactions we discuss in this prospectus other than
those contained in this prospectus or in the documents we incorporate in this
prospectus by reference. if you are given any information or representations
about these matters that is not discussed or incorporated in this prospectus,
you must not rely on that information. This prospectus is not an offer to sell
or a solicitation of an offer to buy securities anywhere or to anyone where or
to whom we are not permitted to offer or sell securities under applicable law.
The delivery of this prospectus does not, under any circumstances, mean that
there has not been a change in our affairs since the date of this prospectus. It
also does not mean that the information in this prospectus or in the documents
we incorporate in this prospectus by reference is correct after this date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Commission
allows us to "incorporate by reference" information into this prospectus. This
means that we can disclose important information to you by referring you to
another document filed separately with the Commission. The information
incorporated by reference is considered to be part of this prospectus, except
for any information that is superseded by information that is included directly
in this document.
This prospectus includes by reference the documents listed below that we have
previously filed with the Commission and that are not included in or delivered
with this document. They contain important information about our company and its
financial condition.
FILING PERIOD
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarter ended September 30, 1998,
as amended on Form 10-Q/A
filed December 9, 1998
Quarter ended June 30, 1998,
1998, as amended on Form 10-Q/A
filed December 9, 1998
<PAGE>
Quarter ended March 31, 1998, as
amended on Form 10-Q/A filed
May 7, 1998
Current Reports on Form 8-K Filed January 14, 1999
Filed December 16, 1998
Filed December 7, 1998
Filed November 25, 1998
Filed November 19, 1998
Filed October 29, 1998
Filed September 16, 1998
Filed July 8, 1998, as
amended on Form 8-K/A filed
July 10, 1998
Filed June 12, 1998, as
amended on Form 8-K/A filed
October 13, 1998
Filed April 21, 1998 Filed April
3, 1998 Filed March 27, 1998
Filed March 20, 1998 Filed March
9, 1998 Filed January 29, 1998
Filed January 12, 1998
Amendment No. 3 to Registration Statement
on Form S-3 (File No. 333-58617)
filed December 9, 1998;
Amendment No.1 to Registration Statement
on Form S-4 (File No. 333-49915)
filed May 13, 1998;
The historical financial statements
of SuperNet, Inc. at pages F-31 to
F-41 of Registration Statement on
Form S-4 (File No. 333-46145)
filed February 12, 1998;
The description of our common stock set forth in the Form 8-A filed by us on May
28, 1997, including any amendment or report filed with the Commission for
purposes of updating such description.
We incorporate by reference additional documents that we may file with the
Commission between the date of this prospectus and the date of the closing of
this offering. These documents include periodic reports, such as Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
You can obtain any of the documents incorporated by reference in this document
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit to this prospectus. You can
obtain documents incorporated by reference in this prospectus by requesting them
in writing or by telephone from the appropriate company at the following
address:
Investor Relations
Qwest Communications International Inc.
700 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202 TELEPHONE NUMBER 800-567-7296.
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC.
OFFER TO EXCHANGE
7.25% SERIES B SENIOR DISCOUNT NOTES DUE 2008 FOR ANY AND ALL OF ITS
OUTSTANDING 7.25% SENIOR DISCOUNT NOTES DUE 2008
[LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ___DAY,
__________ __, 1999, UNLESS WE EXTEND IT; PROVIDED WE MAY NOT EXTEND THE
EXCHANGE OFFER BEYOND _________ __, 1999.
PROSPECTUS
DATED FEBRUARY __, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, if such
officer or director acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe such officer's or director's conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify such officer or director
against the expenses which such officer or director actually and reasonably
incurred.
In accordance with Section 102(b)(7) of the DGCL, the Company's Certificate of
Incorporation provides that directors shall not be personally liable for
monetary damages for breaches of their fiduciary duty as directors except for
(i) breaches of their duty of loyalty to the Company or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or
knowing violations of law, (iii) certain transactions under Section 174 of the
DGLC (unlawful payment of dividends or unlawful stock purchases or redemptions)
or (iv) transactions from which a director derives an improper personal benefit.
The effect of this provision is to eliminate the personal liability of directors
for monetary damages for actions involving a breach of their fiduciary duty of
care, including any actions involving gross negligence.
The Certificate of Incorporation and the By-laws of the Company provide for
indemnification of the Company's officers and directors to the fullest extent
permitted by applicable law, except that the By-laws provide that the Company is
required to indemnify an officer or director in connection with a proceeding
initiated by such person only if the proceeding was authorized by the Board of
Directors of the Company. In addition, the Company maintains insurance policies
which provide coverage for its officers and directors in certain situations
where the Company cannot directly indemnify such officers or directors.
Pursuant to Section 145 of the DGCL and the Certificate of Incorporation and
the By-laws of the Company, the Company maintains directors' and officers'
liability insurance coverage.
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULES.
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
<PAGE>
EXHIBIT NO.
1.1 Purchase Agreement dated November 19, 1998, between the Company and
Salomon Smith Barney Inc.
3.1** Amended and Restated Certificate of Incorporation of Qwest.
3.2 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Qwest (incorporated by reference to the exhibit of
the same number to Qwest's Registration Statement on Form S-3 (File
No. 333-58617) filed July 7, 1998).
3.3 Bylaws of Qwest (incorporated by reference to exhibit 3 in Qwest's
Form 10-Q for the quarter ended September 30, 1997 (File No. 000-
22609)).
4.1(a)*** Indenture dated as of October 15, 1997 with Bankers Trust Company
(including form of Qwest's 9.47% Senior Discount Notes due 2007 and
9.47% Series B Senior Discount Notes due 2007 as an exhibit thereto).
4.1(b)****Indenture dated as of August 28, 1997 with Bankers Trust Company
(including form of Qwest's 10 7/8% Series B Senior Notes due 2007 as
an exhibit thereto).
4.1(c)****Indenture dated as of January 29, 1998 with Bankers Trust Company
(including form of Qwest's 8.29% Senior Discount Notes due 2008 and
8.29% Series B Senior Discount Notes due 2008 as an exhibit thereto).
4.1(d)*+ Indenture dated as of November 27, 1998 with Bankers Trust Company
(including form of the Company's 7.25% Senior Discount Notes Due
2008 and 7.25% Series B Senior Discount Notes Due as an exhibit
thereto).
4.1(e)*+ Indenture dated as of November 4, 1998 with Bankers Trust Company
(including form of the Company's 7.50% Senior Discount Notes Due 2008
and 7.50% Series B Senior Discount Notes Due 2008 as an exhibit
thereto).
4.2(a)*+ Registration Agreement dated November 4, 1998 with Salomon Brothers
Inc. relating to the Company's 7.50% Senior Discount Notes Due 2008.
4.2(b)*+ Registration Agreement dated November 27, 1998 with Salomon Brothers
Inc. relating to the Company's 7.25% Senior Discount Notes Due 2008.
4.3 Third Amended and Restated Credit Agreement, dated as of September 5,
1997, by and among LCI International Inc., First Union National Bank,
Nationsbank of Texas, N.A., and the Bank of New York (incorporated by
reference to exhibit 4(c)(xv) in LCI's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997).
4.4 Indenture dated as of June 23, 1997 between LCI International, Inc.,
and First Trust National Association, as trustee, Providing for the
Issuance of Senior Debt Securities, including Resolutions of the
Pricing Committee of the Board of Directors establishing the terms of
the 7.25% Senior Notes due June 15, 2007 (incorporated by reference
to exhibit 4(c) in LCI's Current Report on Form 8-K dated June 23,
1997).
5.1 Opinion of Holme Roberts & Owen LLP with respect to the legality of
the securities being registered.
8.1 Opinion of Holme Roberts & Owen LLP with respect to certain tax
matters.
<PAGE>
10.1** Growth Share Plan, as amended, effective October 1, 1996.
10.2** Employment Agreement dated December 21, 1996 with Joseph P. Nacchio.
10.3** Promissory Note dated November 20, 1996 and Severance Agreement
dated December 1, 1996 with Robert S. Woodruff.
10.4**** Equity Compensation Plan for Non-Employee Directors.
10.5**+ IRU Agreement dated as of October 18, 1996 with Frontier
Communications International Inc.
10.6**+ IRU Agreement dated as of February 26, 1996 with WorldCom Network
Services, Inc.
10.7**+ IRU Agreement dated as of May 2, 1997 with GTE.
10.8** Equity Incentive Plan.
10.9**** Employment Agreement dated March 7, 1997 with Stephen M. Jacobsen.
10.10**** Employment Agreement dated October 8, 1997 with Lewis O. Wilks.
10.11**** Employment Agreement dated September 26, 1997 with Brij Khandelwal.
10.12**** Employment Agreement dated September 19, 1997 with Larry Seese.
10.13**** Growth Share Plan Agreement with Joseph P. Nacchio, effective January
1, 1997, and Amendment thereto.
10.14**** Non-Qualified Stock Option Agreement with Joseph P. Nacchio,
effective June 1997.
10.15 Employment Agreement, dated as of October 18, 1993, between LCI
International Management Services, Inc. and Joseph A. Lawrence
(incorporated by reference to LCI's Annual Report on Form 10-K for
the year ended December 31, 1994).*
10.16 LCI International, Inc. 1992 Stock Option Plan (incorporated by
reference to LCI's Registration Statement No. 33-60558).*
10.17 LiTel Communications, Inc. 1993 Stock Option Plan (incorporated by
reference to LCI's Registration Statement No. 33-60558).*
10.18 LCI International, Inc. 1994/1995 Stock Option Plan (incorporated by
reference to LCI's Annual Report on Form 10-K for the year ended
December 31, 1993).*
10.19 LCI International, Inc. and Subsidiaries Nonqualified Stock Option
Plan for Directors (incorporated by reference to LCI's Registration
Statement No. 33-67368).*
10.20 LCI International, Inc. 1995/1996 Stock Option (incorporated by
reference to LCI's Proxy Statement for the 1995 Annual Meeting of
Shareowners).*
10.21 Employment Agreement, dated as of March 20, 1994, between LCI
International, Inc. and H. Brian Thompson (incorporated by reference
to LCI's Annual Report on Form 10-K for the year ended December 31,
<PAGE>
1994).*
10.22 LCI International Management Services, Inc. Supplemental Executive
Retirement Plan (incorporated by reference to LCI's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995).*
10.23 Employment Agreement, dated as of October 1, 1995 between LCI
International Management Services, Inc., and Larry Bouman
(incorporated by reference to exhibit 10(1)(xviii) in LCI's Annual
Report on Form 10-K for the year ended December 31, 1995).*
10.24 1997/1998 LCI International, Inc. Stock Option Plan (incorporated by
reference to exhibit 10(1)(xxi) in LCI's Annual Report on Form 10-K
for the year ended December 31, 1996).*
10.25 LCI International, Inc. and Subsidiaries Executive Incentive
Compensation Plan (incorporated by reference to exhibit 10(1)(xxii)
in LCI's Annual Report on Form 10-K for the year ended December 31,
1996).*
10.26 Contractor Agreement dated January 18, 1993 by and between LCI
International Telecom Corp. and American Communications Network, Inc.
(incorporated by reference to LCI's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995). Portions of this exhibit have
been omitted pursuant to a request for confidential treatment.*
10.27 Transfer and Administrative Agreement among Enterprise Funding
Corporation, LCI SPC I, Inc., LCI International Telecom Corp.,
NationsBank, N.A. and certain other parties thereto, dated August 29,
1996 (incorporated by reference to exhibit 10(r)(i) in LCI's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996).
10.28 Receivables Purchase Agreement dated August 29, 1996, among LCI
International Telecom Corp. and LCI SPC I, Inc. (incorporated by
reference to exhibit 10(r)(ii) in LCI's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996).
10.29 Subordinated Intercompany Revolving Note, dated August 29, 1996,
issued to LCI International Telecom Corp. by LCI SPC I, Inc.
(incorporated by reference to exhibit 10(r)(iii) in LCI's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
10.30 Support Agreement, dated August 29, 1996, by LCI International, Inc.
in favor of LCI SPC I, Inc. (incorporated by reference to exhibit
10(r)(iv) in LCI's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996).
10.31 Participation Agreement dated as of November 1996 among LCI
International, Inc., as the Construction Agent and as the Lessee,
First Security Bank, National Association, as the Owner Trustee under
the Stuart Park Trust the various banks and lending institutions
which are parties thereto from time to time as the Holders, the
various banks and lending institutions which are parties thereto from
time to time as the Lenders and NationsBank of Texas, N.A., as the
Agent for the Lenders (incorporated by reference to exhibit 10(s)(i)
in LCI's Annual Report on Form 10-K for the year ended December 31,
1996).
10.32 Unconditional Guaranty Agreement dated as of November 15, 1996 made
by LCI International, Inc., as Guarantor in favor of NationsBank of
<PAGE>
Texas, N.A., as Agent for the ratable benefit of the Tranche A
Lenders (incorporated by reference to exhibit 10(s)(ii) in LCI's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.33 Agency Agreement between LCI International, Inc., as the Construction
Agent and First Security Bank, National Association, as the Owner
Trustee under the Stuart Park Trust as the Lessor dated as of
November 15, 1996 (incorporated by reference to exhibit 10(s)(iii) in
LCI's Annual Report on Form 10-K for the year ended December 31,
1996).
10.34 Deed of Lease Agreement dated as of November 15, 1996 between First
Security Bank, National Association as the Owner Trustee under the
Stuart Park Trust, as Lessor and LCI International, Inc. as Lessee
(incorporated by reference to exhibit 10(s)(iv) in LCI's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.35* Equity Compensation Plan for Non-Employee Directors.
12.1 Statement re Computation of Ratios.
21.1 Subsidiaries of the Registrant (incorporated by reference to the
exhibit of the same number in Form S-4 (File No. 333-65095)
23.1 Consent of KPMG LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of PricewaterhouseCoopers LLP.
23.5 Consent of Ernst & Young LLP.
23.6 Consent of Dollinger, Smith & Co.
23.7 Consent of Holme Roberts & Owen LLP (contained in Exhibit 5.1).
24.1 Power of Attorney. Included on the signature page hereof.
25 Form T-1, Statement of Eligibility of Bankers Trust Company.
- ----------
*Indicates executive compensation plans and arrangements.
** Incorporated by reference to the exhibit of the same number in Form S-1
as declared effective on June 23, 1997 (File No. 333-25391).
*** Incorporated by reference to exhibit 4.1 in Form S-4 as declared
effective on January 5, 1998 (File No. 333-42847).
**** Incorporated by reference to the exhibit of the same number in Qwest's Form
10-K for the year ended December 31, 1997.
*+ Incorporated by reference to the exhibit of the same number in Form S-4
(File No. 333-71603).
+ Portions have been omitted pursuant to a request for confidential
treatment.
(b) Financial Statement Schedules. The following is a complete list of
financial statement schedules filed as part of this Registration Statement,
<PAGE>
which are incorporated by reference herein from Amendment No. 1 to Registration
Statement on Form S-4 (File No. 333-65095):
Schedule Number
II-A Qwest Communications International Inc.
Valuation and Qualifying Accounts
II-B LCI International Inc.
Valuation and Qualifying Accounts
II-C Icon CMT Corp.
Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS.
(a) The undersigned Company hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) under the Securities Act of 1933, as amended (the
"Securities Act"), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415 under the Securities Act, will be filed as a part
of an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceedings) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Company hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
<PAGE>
(d) The undersigned Company hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of Prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed part of the registration statement as
of the time it was declared effective.
SIGNATURES
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED QWEST
COMMUNICATIONS INTERNATIONAL INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE
CITY OF DENVER, STATE OF COLORADO, ON FEBRUARY 24, 1999.
Qwest Communications International Inc.
By: /s/ ROBERT S. WOODRUFF
NAME: ROBERT S. WOODRUFF
TITLE: Executive Vice President--Finance
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS, ROBERT W. WOODRUFF, HIS ATTORNEY-IN-FACT, WITH
THE POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES, TO SIGN ANY AND
ALL AMENDMENTS TO THIS REGISTRATION STATEMENT (INCLUDING POST-EFFECTIVE
AMENDMENTS), AND TO FILE THE SAME, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, HEREBY
RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT, OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE CAPACITY DATE
Chairman of the
/s/ PHILIP F. ANSCHUTZ Board FEBRUARY 24,
- ---------------------------------- 1999
PHILIP F. ANSCHUTZ
/s/ JOSEPH P. NACCHIO Director, Chairman
- ---------------------------------- and Chief Executive FEBRUARY 24,
JOSEPH P. NACCHIO Officer (Principal 1999
Executive Officer)
Director and
Executive Vice FEBRUARY 24,
/s/ ROBERT S. WOODRUFF President--Finance 1999
- ---------------------------------- and Chief Financial
ROBERT S. WOODRUFF Officer (Principal
Financial Officer
and Principal
Accounting Officer)
/s/ CANNON Y. HARVEY Director FEBRUARY 24,
- ---------------------------------- 1999
CANNON Y. HARVEY
/s/ JORDAN L. HAINES Director FEBRUARY 24,
- ---------------------------------- 1999
JORDAN L. HAINES
Director FEBRUARY __,
- ---------------------------------- 1999
DOUGLAS M. KARP
/s/ VINOD KHOSLA
- ---------------------------------- Director FEBRUARY 24,
VINOD KHOSLA 1999
<PAGE>
/s/ RICHARD T. LIEBHABER Director
- ---------------------------------- FEBRUARY 24,
RICHARD T. LIEBHABER 1999
Director
/s/ DOUGLAS L. POLSON FEBRUARY 24,
- ---------------------------------- 1999
DOUGLAS L. POLSON
Director
/s/ CRAIG D. SLATER FEBRUARY 24,
- ---------------------------------- 1999
CRAIG D. SLATER
Director
/s/ W. THOMAS STEPHENS FEBRUARY 24,
- ---------------------------------- 1999
W. THOMAS STEPHENS
QWEST COMMUNICATIONS INTERNATIONAL INC.
$300,000,000
7.25% Senior Notes Due 2008
PURCHASE AGREEMENT
Dated: November 19, 1998
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC.
$300,000,000
7.25% SENIOR NOTES DUE 2008
PURCHASE AGREEMENT
New York, New York
November 19, 1998
Salomon Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Qwest Communications International Inc., a Delaware
corporation (the "Company"), proposes to issue and sell to Salomon Smith Barney
Inc. (the "Initial Purchaser") $300,000,000 aggregate principal amount of its
7.25% Senior Notes Due 2008 (the terms of which are set forth in Exhibit A
hereto, the "Securities"). The Securities are to be issued under an indenture
(the "Indenture") dated as of the Closing Date (as defined herein) between the
Company and Bankers Trust Company, as trustee.
The sale of the Securities to the Initial Purchaser will be
made without registration of the Securities under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance upon exemptions from the
registration requirements of the Securities Act. The Initial Purchaser has
advised the Company that it will offer and sell the Securities purchased
hereunder in accordance with Section 4 hereof as soon as it deems advisable.
The holders of the Securities will be entitled to the benefits
of a Registration Rights Agreement dated as of the Closing Date (as defined
herein) between the Company and the Initial Purchaser (the "Registration
Agreement"), pursuant to which the Company will file a registration statement
with the Securities and Exchange Commission (the "Commission") registering the
Securities or New Securities (referred to in the Registration Agreement) under
the Securities Act.
In connection with the sale of the Securities, the Company has
prepared a final offering memorandum, dated November 19, 1998 (the "Final
Memorandum"). The Final Memorandum sets forth certain information concerning the
Company and the Securities. The Company hereby confirms that it has authorized
the use of the Final Memorandum, and any amendment or supplement thereto, in
connection with the offer and sale of the Securities by the Initial Purchaser.
Unless stated to the contrary, all references herein to the Final Memorandum are
to the Final Memorandum as of the Execution Time (as defined in Section 6
hereof), including the documents incorporated by reference therein and filed
with the Commission as of the Execution Time, and are not meant to include any
amendment or supplement subsequent to the Execution Time. The terms
"supplement," "amendment" and "amend" as used herein with respect to the Final
Memorandum shall include all documents deemed to be incorporated by reference in
the Final Memorandum that are filed subsequent to the date of the Final
Memorandum with the Commission.
<PAGE>
1. Representations and Warranties. The Company represents and warrants to
the Initial Purchaser as set forth below in this Section 1.
(a) The Final Memorandum, at the date hereof, does not, and at
the Closing Date will not (and any amendment or supplement thereto, at
the date thereof and at the Closing Date, will not), contain any 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; provided,
however, that the Company makes no representation or warranty as to the
information contained in or omitted from the Final Memorandum, or any
amendment or supplement thereto, in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of
the Initial Purchaser specifically for inclusion therein.
(b) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full power
(corporate and other) to own or lease its properties and conduct its
business as described in the Final Memorandum, and is duly qualified to
do business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification wherein it
owns or leases material properties or conducts material business,
except where the failure to be qualified has not had and would not
reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of the Company
and its subsidiaries taken as a whole (a "Material Adverse Effect").
(c) The Company has full power (corporate and other) to enter
into and to perform its obligations under this Agreement, the
Indenture, the Registration Agreement and the Securities.
(d) All the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and, except as otherwise set forth in
the Final Memorandum, are owned beneficially by the Company, directly
or indirectly, through one or more subsidiaries, free and clear of any
security interest, claim, lien, encumbrance, or adverse interest of any
nature (each, a "Lien"), except for such Liens which, singly or in the
aggregate, has not had and would not reasonably be expected to have a
Material Adverse Effect or as described in or contemplated by the Final
Memorandum.
(e) The Company has an authorized, issued and outstanding
capitalization as set forth in the Final Memorandum. All of the issued
shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable.
(f) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Final
Memorandum fairly present the financial position of the Company and its
consolidated subsidiaries and the results of operations and changes in
financial condition as of the dates and for the periods therein
specified, except as described in or contemplated by the Final
Memorandum. Such financial statements and schedules have been prepared
in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as
described in the Final Memorandum. The selected financial data set
forth under the caption "Selected Consolidated Financial Data" in the
Final Memorandum fairly present, on the basis stated in the Final
Memorandum, the information included therein. The pro forma financial
<PAGE>
statements and other pro forma financial information included in the
Final Memorandum, or included in documents filed with the Commission
after the Execution Time and prior to the Closing Date and incorporated
by reference into the Final Memorandum, present fairly the information
shown therein, have been prepared in accordance with the Commission's
rules and guidelines with respect to pro forma financial statements,
have been properly compiled on the pro forma bases described therein,
except in each case as described in the Final Memorandum, and the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
(g) KPMG Peat Marwick LLP, who have certified certain
financial statements of the Company and its consolidated subsidiaries
and delivered their report with respect to the audited consolidated
financial statements and schedules included in the Final Memorandum,
are independent public accountants within the meaning of the Securities
Act and the applicable rules and regulations thereunder. Dollinger
Smith & Co., who have audited certain financial statements of SuperNet,
Inc. included in the Final Memorandum and delivered their report with
respect thereto, are independent public accountants within the meaning
of the Securities Act and the applicable rules and regulations
thereunder. Grant Thornton LLC, who have audited certain financial
statements of Phoenix Network, Inc. included in the Final Memorandum
and delivered their report with respect thereto, are independent public
accountants within the meaning of the Securities Act and the applicable
rules and regulations thereunder. Arthur Andersen LLP, who have audited
certain financial statements of LCI International, Inc. to be included
in the Final Memorandum and delivered their report with respect
thereto, are independent public accountants within the meaning of the
Securities Act and the applicable rules and regulations thereunder.
PriceWaterhouseCoopers LLP, who have audited certain financial
statements of Icon CMT Corp. to be included in the Final Memorandum and
delivered their report with respect thereto, are independent public
accountants within the meaning of the Securities Act and the applicable
rules and regulations thereunder.
(h) This Agreement has been duly authorized, executed, and
delivered by the Company.
(i) The Registration Agreement has been duly authorized by the
Company and, when duly executed and delivered by the Company, will
constitute a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms (subject,
as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting
creditors' rights generally from time to time in effect, general
principles of equity and to the enforcement of the indemnification or
contribution provisions contained therein).
(j) The Indenture has been duly authorized by the Company and,
when duly executed and delivered by the Company and the Trustee, will
constitute a valid and binding instrument enforceable against the
Company in accordance with its terms (subject, as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors' rights generally from
time to time in effect, and general principles of equity); the
Securities have been duly and validly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Initial Purchaser pursuant to this
Agreement, will constitute valid and binding obligations of the Company
<PAGE>
entitled to the benefits of the Indenture; and the statements set forth
under the heading "Description of the Notes" in the Final Memorandum,
insofar as such statements purport to summarize certain provisions of
the Securities and the Indenture, provide a fair summary of such
provisions.
(k) No legal or governmental proceedings are pending to which
the Company or any of its subsidiaries is a party or to which the
property of the Company or any of its subsidiaries is subject that are
not described in the Final Memorandum, and no such proceedings have
been threatened against the Company or any of its subsidiaries or with
respect to any of their respective properties, except in each case for
such proceedings that would not and would not reasonably be expected
to, singly or in the aggregate, have a Material Adverse Effect.
(l) The issuance, offering and sale of the Securities to the
Initial Purchaser by the Company pursuant to this Agreement, the
performance by the Company of its obligations under this Agreement, the
Registration Agreement, the Indenture and the Securities, the
consummation of the transactions herein and therein and the application
of proceeds from the sale of the Securities as described in the Final
Memorandum do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained and such as may be required under
state securities or blue sky laws and except as may be required under
the Securities Act and the rules and regulations thereunder with
respect to the Registration Agreement and transactions contemplated
thereunder or (ii) conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries or any of their
respective properties are bound, or the charter documents or by-laws of
the Company or any of its subsidiaries, or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company or any of its
subsidiaries.
(m) The Company has not (i) taken, directly or indirectly, any
action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities or (ii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any debt
securities of the Company since September 1, 1998 (except for the sale
of Securities by the Initial Purchaser under this Agreement).
(n) Since the respective dates as of which information is
given in the Final Memorandum other than as set forth in or
contemplated by the Final Memorandum (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement) (i) there
has not occurred any material adverse change or any development that
has resulted or would reasonably be expected to result in a material
adverse change in the condition, financial or otherwise, or the
earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material
adverse change or any development that has resulted or would reasonably
be expected to result in a material adverse change in the capital stock
or in the long-term debt of the Company or any of its subsidiaries and
(iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent that has had or
would reasonably be expected to have a Material Adverse Effect.
<PAGE>
(o) The Company and each of its subsidiaries own or hold all
items of property owned or held by each of them free and clear of any
security interests, liens, encumbrances, equities, claims and other
defects, except for such Liens which, singly or in the aggregate, have
not had and would not reasonably be expected to have a Material Adverse
Effect or as described in or contemplated by the Final Memorandum, and
any real property and buildings held under lease by the Company or any
such subsidiary are held under valid, subsisting and enforceable
leases, except for such exceptions which, singly or in the aggregate,
have not had and would not reasonably be expected to have a Material
Adverse Effect or except as described in or contemplated by the Final
Memorandum.
(p) No labor dispute with the employees of the Company or any
of its subsidiaries exists or is threatened or imminent except for such
labor disputes which, singly or in the aggregate, have not had and
would not reasonably be expected to have a Material Adverse Effect or
except as described in or contemplated by the Final Memorandum.
(q) The Company and its subsidiaries own or possess all
material patents, patent applications, trademarks, service marks, trade
names, licenses, copyrights and proprietary or other confidential
information currently employed by them in connection with their
respective businesses, and neither the Company nor any such subsidiary
has received any notice of infringement of or conflict with asserted
rights of any third party with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result and would reasonably be expected to
result in a Material Adverse Effect, except as described in or
contemplated by the Final Memorandum.
(r) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not and would not reasonably be expected
to have a Material Adverse Effect, except as described in or
contemplated by the Final Memorandum.
(s) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from
the Company or from transferring any of such subsidiary's property or
assets to the Company or any other subsidiary of the Company, except as
described in or contemplated by the Final Memorandum.
(t) The Company has all necessary consents, permits,
authorizations, approvals, orders (including exemptive orders),
licenses, franchises and certificates ("Permits") of and from, and has
made all declarations and filings with, all governmental authorities,
self-regulatory organizations and courts and other tribunals, whether
foreign or domestic, to own and use its assets and to conduct its
<PAGE>
business in the manner described in the Final Memorandum, except with
respect to such Permits, the failure to hold which, and such filings,
the failure to make which, singly or in the aggregate, have not had
and would not reasonably be expected to have a Material Adverse Effect
or as described in or contemplated by the Final Memorandum. The
Company has fulfilled and performed all of its obligations with
respect to such Permits; and to the knowledge of the Company, no event
has occurred which allows, or after notice or lapse of time would
allow revocation or termination or could result in any other
impairment of the rights of the Company thereunder, except for such
failures of performance, revocations, terminations or impairments
which, singly or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect or as
described in or contemplated by the Final Memorandum.
(u) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested
extensions thereof and has paid all taxes required to be paid by it and
any other assessment, fine or penalty levied against it, to the extent
that any of the foregoing is due and payable, except for such failures
to file such tax returns or extension requests or such failures to make
payments which, singly or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect, or except for
such failures to pay such taxes, assessments, fines or penalties which
are currently being contested in good faith or, if paid, would not and
would not reasonably be expected to have a Material Adverse Effect or,
in any case, as described in or contemplated by the Final Memorandum.
(v) Neither the Company nor any of its subsidiaries is in
violation of any foreign, federal, state or local law or regulation
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), any provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or any provisions of
the Foreign Corrupt Practices Act or the rules and regulations
promulgated thereunder, except for such violations which, singly or in
the aggregate, have not had and would not reasonably be expected to
have a Material Adverse Effect. There are no costs or liabilities
associated with Environmental Laws (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any authorization,
any related constraints on operating activities and any potential
liabilities to third parties) which have had and would reasonably be
expected to, singly or in the aggregate, have a Material Adverse
Effect.
(w) Each certificate signed by any officer of the Company and
delivered to the Initial Purchaser or Counsel for the Initial Purchaser
shall be deemed to be a representation and warranty by the Company (and
not individually by such officer) to the Initial Purchaser as to the
matters covered thereby.
(x) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded
<PAGE>
accountability for assets is compared with the existing assets at
reasonable and appropriate intervals and appropriate action is taken
with respect to any differences.
(y) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries or any of their
respective properties is bound or may be affected in any material
adverse respect with regard to the property, business or operations of
the Company and its subsidiaries.
(z) Neither the Company, nor any of its Affiliates (as defined
in Rule 501(b) of Regulation D under the Securities Act ("Regulation
D")), nor any person acting on its or their behalf has, directly or
indirectly, made offers or sales of any security, or solicited offers
to buy any security, under circumstances that would require the
registration of the Securities under the Securities Act.
(aa) Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation
D) in connection with any offer or sale of the Securities in the United
States.
(bb) The Securities satisfy the eligibility requirements
of Rule 144A(d)(3) under the Securities Act.
(cc) Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf has engaged in any directed
selling efforts with respect to the Securities, and each of them has
complied with the offering restrictions requirement of Regulation S
("Regulation S") under the Securities Act. Terms used in this paragraph
have the meanings given to them by Regulation S.
(dd) The Company as of the Execution Time expects to be and as
of the Closing Date will have been advised by the National Association
of Securities Dealers, Inc. PORTAL Market that the Securities have been
designated "PORTAL-eligible securities" in accordance with the rules
and regulations of the National Association of Securities Dealers, Inc.
(ee) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Final Memorandum will not be, an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended (the "Investment Company Act"), without taking
account of any exemption arising out of the number of holders of the
Company's securities.
(ff) The Company will conduct its operations in a manner that
will not subject it to registration as an investment company under the
Investment Company Act.
(gg) The information provided by the Company pursuant to
Section 5(h) hereof will not, at the date thereof, contain any 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.
<PAGE>
(hh) There is no franchise, contract or other document of a
character that would be required to be described or referred to in the
Final Memorandum, if it were a prospectus filed as part of a
registration statement on Form S-1 under the Securities Act, that is
not described or referred to as would be so required, and the
description thereof or references thereto are correct in all material
respects.
(ii) Subject to compliance by the Initial Purchaser with the
representations and warranties set forth in Section 4, it is not
necessary in connection with the offer, sale and delivery of the
Securities to the Initial Purchaser and the resale to each subsequent
purchaser in the manner contemplated by this Agreement and the Final
Memorandum to register the Securities under the Securities Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as
amended.
(jj) The documents incorporated or deemed to be incorporated
by reference in the Final Memorandum at the time they were or hereafter
are filed with the Commission, when read together with the other
information in the Final Memorandum, complied and will comply in all
material respects with the requirements of the Securities Act, the
Securities and Exchange Act of 1934, as amend (the "Exchange Act") and
the rule and regulations of the Commission under the Securities Act and
the Exchange Act and, at the Execution Time and at the Closing Date,
did not and will not 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.
2. Purchase and Sale. Subject to the terms and conditions and
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to the Initial Purchaser, and the Initial Purchaser
agrees to purchase from the Company, at a purchase price of 99.250% of the
aggregate principal amount thereof, plus accrued interest, if any, from November
27, 1998 to the Closing Date, $300,000,000 aggregate principal amount of
Securities.
3. Delivery and Payment. Delivery of and payment for the
Securities shall be made at 10:00 AM, New York City time, on November 27, 1998,
or such later date (not later than December 4, 1998) as the Initial Purchaser
shall designate, which date and time may be postponed by agreement between the
Initial Purchaser and the Company (such date and time of delivery and payment
for the Securities being herein called the "Closing Date"). Delivery of the
Securities shall be made to the Initial Purchaser against payment by the Initial
Purchaser of the purchase price thereof to or upon the order of the Company by
wire transfer of federal funds or other immediately available funds or such
other manner of payment as may be agreed by the Company and the Initial
Purchaser. Delivery of the Securities shall be made at such location as the
Initial Purchaser shall reasonably designate at least one business day in
advance of the Closing Date and payment for the Securities shall be made at the
office of Shearman & Sterling ("Counsel for the Initial Purchaser"), 599
Lexington Avenue, New York, New York. Certificates for the Securities shall be
registered in such names and in such denominations as the Representatives may
request not less than three full business days in advance of the Closing Date.
The Company agrees to have the Securities available for
inspection, checking and packaging by the Initial Purchaser in New York, New
York, not later than 1:00 PM on the business day prior to the Closing Date.
4. Offering of Securities. The Initial Purchaser represents and warrants to
and agrees with the Company that:
<PAGE>
(a) It has not offered or sold, and will not offer or sell,
any Securities except (i) to those it reasonably believes to be
qualified institutional buyers (as defined in Rule 144A under the
Securities Act) and that, in connection with each such sale, it has
taken or will take reasonable steps to ensure that the purchaser of
such Securities is aware that such sale is being made in reliance on
Rule 144A, or (ii) in accordance with the restrictions set forth in
Exhibit B hereto.
(b) Neither it nor any person acting on its behalf has made or
will make offers or sales of the Securities by means of any form of
general solicitation or general advertising (within the meaning of
Regulation D) in the United States.
5. Agreements. The Company agrees with the Initial Purchaser that:
(a) The Company will furnish to the Initial Purchaser and to
Counsel for the Initial Purchaser, without charge, during the period
referred to in paragraph (c) below, as many copies of the Final
Memorandum and any amendments and supplements thereto as it may
reasonably request. The Company will pay the expenses of printing or
other production of all documents relating to the offering.
(b) The Company will not amend or supplement the Final
Memorandum without the prior written consent of the Initial Purchaser
as contemplated by paragraph (c) below.
(c) If at any time prior to the completion of the sale of the
Securities by the Initial Purchaser, any event occurs as a result of
which the Final Memorandum, as then amended or supplemented, would
include any 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, or if it
should be necessary to amend or supplement the Final Memorandum to
comply with applicable law, the Company will promptly notify the
Initial Purchaser of the same and, subject to the requirements of
paragraph (b) of this Section 5, will prepare and provide as promptly
as practicable to the Initial Purchaser pursuant to paragraph (a) of
this Section 5 an amendment or supplement which will correct such
statement or omission or effect such compliance.
(d) The Company will arrange for the qualification of the
Securities for sale by the Initial Purchaser under the laws of such
jurisdictions as the Initial Purchaser may reasonably designate and
will maintain such qualifications in effect so long as required for the
sale of the Securities. The Company will promptly advise the Initial
Purchaser of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose.
(e) The Company will not, and will not permit any of its
Affiliates to, resell any Securities that have been acquired by any of
them.
(f) Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf will, directly or indirectly, make
offers or sales of any security, or solicit offers to buy any security,
under circumstances that would require the registration of the
Securities under the Securities Act.
<PAGE>
(g) Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf will engage in any form of general
solicitation or general advertising (within the meaning of Regulation
D) in connection with any offer or sale of the Securities in the United
States.
(h) So long as any of the Securities are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities
Act, the Company will, unless it becomes subject to and complies with
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), provide to each holder of such restricted
securities and to each prospective purchaser (as designated by such
holder) of such restricted securities, upon the request of such holder
or prospective purchaser, any information required to be provided by
Rule 144A(d)(4) under the Securities Act. This covenant is intended to
be for the benefit of the holders, and the prospective purchasers
designated by such holders, from time to time of such restricted
securities.
(i) Neither the Company nor any of its Affiliates nor any
person acting on its or their behalf will engage in any directed
selling efforts with respect to the Securities, and each of them will
comply with the offering restrictions requirement of Regulation S.
Terms used in this paragraph have the meanings given to them by
Regulation S.
(j) The Company will cooperate with the Initial Purchaser and
use its best efforts to permit the Securities to be eligible for
clearance and settlement through The Depository Trust Company.
(k) The Company will not, until 180 days following the Closing
Date, without the prior written consent of the Initial Purchaser,
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce the offering of, any debt securities issued or
guaranteed by the Company (other than the Securities or as otherwise
contemplated by the Registration Agreement).
(l) The Company will use the net proceeds received by it from
the sale of the Securities in the manner specified in the Final
Memorandum under "Use of Proceeds."
6. Conditions to the Obligations of the Initial Purchaser. The
obligations of the Initial Purchaser to purchase the Securities shall be subject
to the accuracy of the representations and warranties on the part of the Company
contained herein at the date and time that this Agreement is executed and
delivered by the parties hereto (the "Execution Time") and the Closing Date, to
the accuracy of the statements of the Company made in any certificates pursuant
to the provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) The Company shall have furnished to the Initial Purchaser
the opinion of Holme Roberts & Owen LLP, counsel for the Company, dated
the Closing Date, in the form set forth in Exhibit C hereto.
(b) The Company shall have furnished to the Initial Purchaser
the opinion of Morrison & Foerster LLP, special federal regulatory
counsel for the Company, dated the Closing Date, in the form set forth
in Exhibit D hereto.
(c) The Company shall have furnished to the Initial Purchaser
the opinions of Kelley Drye & Warren LLP, special regulatory counsel
<PAGE>
for the Company, dated the Closing Date, in form set forth in Exhibit E
hereto.
(d) The Company shall have furnished to the Initial Purchaser
the opinions of Joseph Garity and Lee Weiner, internal counsel for the
Company, dated the Closing Date, in the forms set forth in Exhibit F
hereto.
(e) The Initial Purchaser shall have received from Counsel for
the Initial Purchaser such opinion or opinions, dated the Closing Date,
with respect to the issuance and sale of the Securities, the Final
Memorandum (as amended or supplemented at the Closing Date) and other
related matters as the Initial Purchaser may reasonably require, and
the Company shall have furnished or made available to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters.
(f) The Company shall have furnished to the Initial Purchaser
a certificate of the Company, signed by (1) the President and Chief
Executive Officer and (2) the Executive Vice President -- Finance,
Treasurer and Chief Financial Officer of the Company, dated the Closing
Date, to the effect that the signers of such certificate have carefully
reviewed the Final Memorandum, any amendment or supplement to the Final
Memorandum and this Agreement and that:
(i) the representations and warranties of the Company
in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as
if made on the Closing Date, and the Company has complied with
all the agreements and satisfied all the conditions on its
part to be performed or satisfied hereunder at or prior to the
Closing Date;
(ii) since the date of the most recent financial
statements included in the Final Memorandum, there has been no
material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects
or properties of the Company and its subsidiaries, whether or
not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Final
Memorandum (exclusive of any amendment or supplement thereto);
and
(iii) the agreement of merger dated as of September
13, 1998 between the Company and Icon CMT Corp is in full
force and effect and subsequent to the dates as of which
information is given in the registration statement on Form S-4
filed with the Commission on September 30, 1998, there has
been no material adverse change in the condition (financial or
otherwise), earnings, business, management or operations of
Icon CMT Corp.
(g) (i) At the Closing Date, KPMG Peat Marwick LLP shall have
furnished to the Initial Purchaser a letter dated such date,
in form and substance satisfactory to the Initial Purchaser,
containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information of the Company contained in the Final Memorandum;
<PAGE>
(ii) At the Closing Date, Grant Thornton LLP shall
have furnished to the Initial Purchaser a letter dated such
date, in form and substance satisfactory to the Initial
Purchaser, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and
certain financial information of Phoenix Network, Inc.
contained in the Final Memorandum;
(iii) At the Closing Date, Arthur Andersen LLP shall
have furnished to the Initial Purchaser a letter dated such
date, in form and substance satisfactory to the Initial
Purchaser, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and
certain financial information of LCI International, Inc.
contained in the Final Memorandum;
(iv) At the Closing Date, PriceWaterhouseCoopers LLP
shall have furnished to the Initial Purchaser a letter dated
such date, in form and substance satisfactory to the Initial
Purchaser, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and
certain financial information of Icon CMT Corp. contained in
the Final Memorandum; and
(v) At the Closing Date, Dollinger, Smith & Co. shall
have furnished to the Initial Purchaser a letter dated such
date, in form and substance satisfactory to the Initial
Purchaser, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and
certain financial information of SuperNet, Inc. contained in
the Final Memorandum
(h) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Final Memorandum, there shall
not have been (i) any change or decrease specified in the letters
referred to in paragraph (g) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the
business or properties of the Company and its subsidiaries the effect
of which, in any case referred to in clause (i) or (ii) above, is, in
the judgment of the Initial Purchaser, so material and adverse as to
make it impractical or inadvisable to market the Securities as
contemplated by the Final Memorandum.
(i) Prior to the Closing Date, the Company shall have
furnished to the Initial Purchaser such reasonable further information,
certificates and documents as the Initial Purchaser may reasonably
request.
(j) At the Closing Date, the Securities shall be rated at
least BB+ by Standard & Poor's Corporation with a positive outlook and
Ba1 by Moody's Investors Service Inc. and since the date of this
Agreement there shall not have occurred a downgrading in the rating
assigned to the Securities by any "nationally recognized statistical
rating agency", as that term is defined by the Commission for purposes
of Rule 436(g)(2) under the Securities Act, and no such organization
shall have publicly announced that it has its rating of the Securities
<PAGE>
under surveillance or review.
(k) The information in the Final Memorandum shall not be
materially inconsistent with the information in the documents
incorporated by reference therein on file with the Commission at the
Execution Time.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Initial Purchaser and Counsel for the
Initial Purchaser, this Agreement and all obligations of the Initial Purchaser
hereunder may be cancelled at, or at any time prior to, the Closing Date by the
Initial Purchaser. Notice of such cancellation shall be given to the Company in
writing, by facsimile or by telephone confirmed in writing.
The documents required to be delivered by this Section 6 shall
be delivered at the office of Counsel for the Initial Purchaser, at 599
Lexington Avenue, New York, New York, or such other place as the Initial
Purchaser and the Company shall mutually agree, on the Closing Date.
7. Reimbursement of Expenses. If the sale of the Securities
provided for herein is not consummated because any condition to the obligations
of the Initial Purchaser set forth in Section 6 hereof is not satisfied, because
of any termination pursuant to Section 10 hereof or because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or comply with any provision hereof other than by reason of a default by the
Initial Purchaser in payment for the Securities on the Closing Date, the Company
will reimburse the Initial Purchaser upon demand for all reasonable
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by it in connection with the proposed purchase and
sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless the Initial Purchaser, the directors, officers,
employees and agents of the Initial Purchaser and each person who controls the
Initial Purchaser within the meaning of either the Securities 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 Securities
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 Final
Memorandum or any information provided by the Company to any holder or
prospective purchaser of Securities pursuant to Section 5(h), 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, in the light of the
circumstances under which they were made, 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, however,
that the Company will not be liable in any such 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 in
the Final Memorandum, or in any amendment thereof or supplement thereto, in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Initial Purchaser specifically for inclusion
therein. This indemnity agreement will be in addition to any liability which the
Company may otherwise have.
<PAGE>
(b) The Initial Purchaser agrees to indemnify and hold
harmless the Company, its directors, its officers, and each person who controls
the Company within the meaning of either the Securities Act or the Exchange Act,
to the same extent as the foregoing indemnity from the Company to the Initial
Purchaser, but only with reference to written information relating to the
Initial Purchaser furnished to the Company by or on behalf of the Initial
Purchaser specifically for inclusion in the Final Memorandum (or in any
amendment or supplement thereto). This indemnity agreement will be in addition
to any liability which the Initial Purchaser may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page and under the heading "Plan of Distribution" in the Final Memorandum
constitute the only information furnished in writing by or on behalf of the
Initial Purchaser for inclusion in the Final Memorandum (or in any amendment or
supplement thereto).
(c) Promptly after receipt by an indemnified party under this
Section 8 of 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 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve the indemnifying party from liability under paragraph (a) or
(b) above unless and to the extent the indemnifying party 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 counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate 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 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Initial Purchaser agree to
contribute to the aggregate losses, claims, damages and liabilities (including
<PAGE>
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and the Initial
Purchaser may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company and by the Initial Purchaser from the
offering of the Securities; provided, however, that in no case shall the Initial
Purchaser be responsible for any amount in excess of the purchase discount or
commission applicable to the Securities purchased by the Initial Purchaser
hereunder. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Initial Purchaser shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and of the Initial
Purchaser 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 equal to the total net proceeds from the
offering (before deducting expenses), and benefits received by the Initial
Purchaser shall be deemed to be equal to the total purchase discounts and
commissions received by the Initial Purchaser from the Company in connection
with the purchase of the Securities hereunder. Relative fault shall be
determined by reference to whether any alleged untrue statement or omission
relates to information provided by the Company or the Initial Purchaser. The
Company and the Initial Purchaser 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
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person who controls the Initial Purchaser within the meaning of either the
Securities Act or the Exchange Act and each director, officer, employee and
agent of the Initial Purchaser shall have the same rights to contribution as the
Initial Purchaser, and each person who controls the Company within the meaning
of either the Securities Act or the Exchange Act and each officer and 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).
9. Intentionally Omitted.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Initial Purchaser, by notice given
to the Company prior to delivery of and payment for the Securities, if prior to
such time (i) trading in the Company's Common Stock shall have been suspended by
the Commission or the Nasdaq Stock Market's National Market ("Nasdaq") or
trading in securities generally on the New York Stock Exchange or Nasdaq shall
have been suspended or limited or minimum prices shall have been established on
the New York Stock Exchange or Nasdaq, (ii) a banking moratorium shall have been
declared either by federal or New York state authorities or (iii) there shall
have occurred any outbreak or escalation of hostilities, declaration by the
United States of a national emergency or war or other calamity or crisis the
effect of which on financial markets is such as to make it, in the judgment of
the Initial Purchaser, impracticable or inadvisable to proceed with the offering
or delivery of the Securities as contemplated by the Final Memorandum.
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Initial Purchaser set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Initial Purchaser or the Company
or any of the officers, directors or controlling persons referred to in Section
8 hereof, and will survive delivery of and payment for the Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
<PAGE>
cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Initial Purchaser, will be
mailed, delivered or telecopied and confirmed to them, care of Salomon Brothers
Inc, at Seven World Trade Center, New York, New York 10048, attention: Legal
Department; or, if sent to the Company, will be mailed, delivered or telecopied
and confirmed to it at 555 Seventeenth Street, Suite 1000, Denver, Colorado
80202, attention: Drake Tempest, Esq.
13. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and, except as expressly set forth in Section 5(h) hereof, no other person will
have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
15. Business Day. For purposes of this Agreement, "business day" means each
Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which
banking institutions in The City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this Agreement and your acceptance shall represent a binding agreement
between the Company and you.
Date: November 19, 1998 Very truly yours,
QWEST COMMUNICATIONS
INTERNATIONAL INC.
By /s/ Robert S. Woodruff
Name: Robert S. Woodruff
Title:Chief Financial Officer
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
SALOMON SMITH BARNEY INC.
By /s/
Name:
Title:
<PAGE>
A-1
EXHIBIT A
Term Sheet
<PAGE>
B-1
EXHIBIT B
Selling Restrictions for Offers and
Sales outside the United States
(1) (a) The Securities have not been and will not be
registered under the Securities Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the Securities Act or pursuant to an
exemption from the registration requirements of the Securities Act. The Initial
Purchaser represents and agrees that, except as otherwise permitted by Section
4(a)(i) of the Agreement to which this is an exhibit, it has offered and sold
the Securities, and will offer and sell the Securities, (i) as part of its
distribution at any time and (ii) otherwise until 40 days after the later of the
commencement of the offering and the Closing Date, only in accordance with Rule
903 of Regulation S under the Securities Act. Accordingly, the Initial Purchaser
represents and agrees that neither it, nor any of its affiliates nor any person
acting on its behalf has engaged or will engage in any directed selling efforts
with respect to the Securities, and that it has complied and will comply with
the offering restrictions requirement of Regulation S. The Initial Purchaser
agrees that, at or prior to the confirmation of sale of Securities (other than a
sale of Securities pursuant to Section 4(a)(i) of the Agreement to which this is
an exhibit), it shall have sent to each distributor, dealer or person receiving
a selling concession, fee or other remuneration that purchases Securities from
it during the restricted period a confirmation or notice to substantially the
following effect:
"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933 (the "Securities Act") and may
not be offered or sold within the United States or to, or for
the account or benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until 40 days after
the later of the commencement of the offering and November 27,
1998, except in either case in accordance with Regulation S or
Rule 144A under the Securities Act. Terms used above have the
meanings given to them by Regulation S."
(b) The Initial Purchaser also represents and agrees that it
has not entered and will not enter into any contractual arrangement with any
distributor with respect to the distribution of the Securities, except with its
affiliates or with the prior written consent of the Company.
(c) Terms used in this section have the meanings given to them
by Regulation S.
(2) The Initial Purchaser represents, warrants and agrees that
(i) it has not offered or sold, and will not offer or sell, any Securities to
persons in the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their business or in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulation 1995
(the "Regulations"), (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 of the United Kingdom and the
Regulations with respect to anything done by it in relation to the Securities
in, from or otherwise involving the United Kingdom, and (iii) it has only issued
or passed on, and will only issue or pass on, to any person in the United
Kingdom any
<PAGE>
document received by it in connection with the issue of the Securities if that
person is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to whom
the document may otherwise lawfully be issued or passed on.
Exhibit 5.1
February __, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Qwest Communications International Inc.
Form S-4 Registration Statement Filed February __, 1999
Ladies and Gentlemen:
As counsel for Qwest Communications International Inc., a Delaware
corporation (the "Company"), we have examined the above-referenced Registration
Statement on Form S-4 under the Securities Act of 1933, as amended (the
"Registration Statement"), which the Company has filed covering the exchange of
the Company's 7.25% Series B Senior Discount Notes Due 2008 (the "Exchange
Notes") for its outstanding 7.25% Senior Discount Notes Due 2008 (the "Old
Notes")
We have examined the Company's Amended and Restated Certificate of
Incorporation, By-Laws and the record of its corporate proceedings and have made
such other investigation as we have deemed necessary in order to express the
opinions set forth below.
Based on such investigation, it is our opinion that the Exchange Notes, when
sold as described in the prospectus included in the Registration Statement, will
be legally issued, fully paid and non-assessable.
We hereby consent to all references to us in the Registration Statement and
all amendments to the Registration Statement. We further consent to the use of
this opinion as an exhibit to the Registration Statement.
HOLME ROBERTS & OWEN LLP
By: /s/ Nick Nimmo
------------------------
Nick Nimmo
5.1-1
EXHIBIT 8.1
February __, 1999
Qwest Communications International Inc.
555 Seventeenth Street, Suite 1000
Denver, Colorado 80202
Re: 7.25% Series B Notes Due 2008
Form S-4 Registration Statement
Filed February __, 1999
Ladies and Gentlemen:
This opinion is given in connection with the proposed offering by Qwest
Communications International Inc., a Delaware corporation (the "Company"),
of Senior Discount Notes Due 2008, as described in the registration statement on
Form S-4 to be filed with the Securities and Exchange Commission on February __,
1999 (the "Registration Statement"). Capitalized terms used in this letter that
are not otherwise defined herein have the same meanings given to them in the
Registration Statement.
Our opinion is based on the current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the applicable Treasury regulations
("Regulations"), and public administrative and judicial interpretations of the
Code and Regulations, all of which are subject to change, which changes could be
applied retroactively. Our opinion also is based on the facts set forth in the
Registration Statement, the Note Documents (as that term is defined in the
representation letter, dated February __, 1999, from you), which we assume set
forth the complete agreement among the parties with respect to the 7.25% Notes,
and on certain representations from you with respect to factual matters, which
representations we have not independently verified. We assume that all Note
Documents have been or will be properly executed and will be valid and binding
when executed.
We have prepared the discussion included in the Registration Statement under the
caption "Certain United States Federal Income Tax Considerations." It is our
opinion that the discussion under that caption describes the material United
States federal income tax consequences expected to result to the Holders,
subject to the conditions and limitations described therein.
The discussion does not cover all aspects of United States federal taxation that
may be relevant to, or the actual tax effect that any of the matters described
therein will have on, any particular Holder, and it does not address foreign,
state, or local tax consequences. The discussion does not cover the tax
consequences that might be applicable to Holders that are subject to special
rules under the Code (including insurance companies, tax-exempt organizations,
mutual funds, retirement plans, financial institutions, dealers in securities or
foreign currency, persons that hold the 7.25% Notes as part of a "straddle" or
as a "hedge" against currency risk or in connection with a conversion
transaction, persons that have a functional currency other than the United
States dollar, investors in pass-through entities, traders in securities that
elect to mark to market, and except as expressly addressed therein, Non-U.S.
Holders). The discussion does not address the United States federal income tax
consequences that may result from a modification of the 7.25% Notes.
<PAGE>
Our opinion may change if the applicable law changes, if any of the facts with
respect to the 7.25% Notes (as included in the Registration Statement, the Note
Documents, and the representations made by you) are inaccurate, incomplete, or
change, or if the conduct of the parties is materially inconsistent with the
facts reflected in the Registration Statement, the Note Documents, or the
representations.
Our opinion represents only our legal judgment based on current law and the
facts as described above. Our opinion has no binding effect on the Internal
Revenue Service or the courts. The Service may take a position contrary to our
opinion, and if the matter is litigated, a court may reach a decision contrary
to the opinion.
We hereby consent to the filing of this opinion letter with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of our name therein.
Very truly yours,
HOLME ROBERTS & OWEN LLP
By:/s/Charles B. Bruce, Jr.
-----------------------------
Charles B. Bruce, Jr. Partner
<TABLE>
<CAPTION>
QWEST COMMUNICATIONS INTERNATIONAL INC.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in millions, except ratios)
(unaudited)
Nine Months Ended Year Ended
Sept. 30, December 31,
--------------------- ----------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes (837.0) 4.5 $23.6 $(10.2) $(38.5) $(10.7) $111.7
Add:
Interest on debt, net of
capitalized interest 62.3 8.9 18.9 7.0 4.3 0.2 3.3
Interest expense portion of
rental expense 5.1 1.4 2.1 1.7 1.5 1.0 1.2
------- ----- ----- ----- ------ ----- ------
Earnings available for fixed $(769.6) $14.8 $44.6 $(1.5) $(32.7) $(9.5) $116.2
charges ======= ===== ===== ===== ====== ===== ======
Fixed charges:
Interest on debt $ 89.3 $20.1 $36.6 $ 9.4 $ 6.2 $ 0.5 $ 3.3
Interest expense portion of 5.1 1.4 2.1 1.7 1.5 1.0 1.2
rental expense
Preferred stock dividend - - - - - - 16.0
------- ----- ----- ----- ------ ----- ------
Total fixed charges . $ 94.4 $21.5 $38.7 $11.1 $ 7.7 $ 1.5 $20.5
======= ===== ===== ===== ====== ===== ======
Ratio of earnings to fixed
charges(1) - - 1.15 - - - 5.67
(1) Earnings were insufficient to cover fixed charges by $864.0 and $6.7 million for the nine-month periods
ended September 30, 1998 and 1997, respectively, and $12.6 million, $40.4 million and $11.0 million for
the years ended December 31, 1996, 1995 and 1994.
<PAGE>
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Qwest Communications International Inc.:
We consent to the use 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, incorporated herein by reference, and
of our report, dated February 24, 1998, pertaining to the related consolidated
financial statement schedule incorporated herein by reference, and to the
reference to our firm under the heading "EXPERTS" in the Registration Statement.
KPMG LLP
Denver, Colorado
February 24, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 19, 1998, accompanying the
consolidated financial statements of Phoenix Network Inc. and subsidiaries as of
December 31, 1996 and 1997, and for each of the years in the period ended
December 31, 1997, appearing in the Registration Statement. We hereby consent to
the use of our report on the aforementioned consolidated financial statements in
the Registration Statement and to the use of our name as it appears under the
caption "Experts."
GRANT THORNTON LLP
Denver, Colorado
February 24, 1999.
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our reports dated February 16,
1998 (except with respect to the matter discussed in Note 15, as to which the
date is March 16, 1998) included in Qwest Communications International Inc.'s
Amendment No. 1 to Form S-4 Registration Statement File No. 333-49915 and to all
references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Columbus, Ohio
February 24, 1999
23.3-1
Exhibit 23.4
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Qwest
Communications International Inc. ("Qwest") of our report dated March 6, 1998,
except as to the acquisition and restatement described in Note 2, which is as of
September 30, 1998, relating to the consolidated financial statements of Icon
CMT Corp., which is incorporated by reference in Qwest's Registration Statement
on Form S-3 (No. 333-58617) dated December 9, 1998 from Qwest's Registration
Statement on Form S-4 (No. 333-65095) dated September 30, 1998 (the "Form S-4").
We also consent to the application of such report to the Financial Statement
Schedule of Icon CMT Corp. for the three years ended December 31, 1997 under
item 21(b) of the Form S-4 when such schedule is read in conjunction with the
consolidated financial statements referred to in our report. The audits referred
to in such report also included this schedule. We also consent to the reference
to us under the heading "Experts" in the Form S-4.
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 24, 1999
23.4-1
Exhibit 23.5
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 No. _____) of Qwest Communications
International Inc. and to the incorporation by reference therein of our report
dated February 14, 1998, with respect to the financial statements of Frontier
Media Group, Inc. included in Amendment No. 1 to the Registration Statement of
Qwest Communications International Inc. (Form S-4 No. 333-65095) dated December
10, 1998, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 24, 1999
23.5-1
Exhibit 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to inclusion in the Registration Statement of Qwest Communications
International Inc. on Form S-4 of our report dated September 26, 1997 relating
to the balance sheet of SuperNet, Inc. as of June 30, 1997 and the related
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. We also consent to the reference to us under the heading
"EXPERTS" in such Registration Statement.
Dollinger, Smith & Co.
Englewood, Colorado
February 24, 1999
23.6-1
EXHIBIT 25.1
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) ___________
------------------------------
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
Bankers Trust Company
Legal Department
130 Liberty Street, 31st Floor
New York, New York 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
---------------------------------
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1339282
(State or other jurisdiction of (I.R.S. employer identification
Incorporation or organization) no.)
700 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
(303) 992-1400
(Address, including zip code, and
telephone number of principal executive offices)
$300,000,000 7.25% Senior Notes due 2008
(Title of the indenture securities)
Item 1. General Information.
Furnish the following information as to the trustee.
(a) Name and address of each examining or
supervising authority to which it is subject.
Name Address
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the Trustee, describe each
such affiliation.
None.
Item 3. -15. Not Applicable
Item 16. List of Exhibits.
Exhibit 1 - Restated Organization Certificate of
Bankers Trust Company dated August 7, 1990,
Certificate of Amendment of the Organization
Certificate of Bankers Trust Company dated
June 21, 1995 - Incorporated herein by
reference to Exhibit 1 filed with Form T-1
Statement, Registration No. 33-65171,
Certificate of Amendment of the Organization
Certificate of Bankers Trust Company dated
March 20, 1996, incorporate by referenced to
Exhibit 1 filed with Form T-1 Statement,
Registration No. 333-25843 and Certificate
of Amendment of the Organization Certificate
of Bankers Trust Company dated June 19,
1997, copy attached.
<PAGE>
Exhibit 2 - Certificate of Authority to commence
business - Incorporated herein by reference
to Exhibit 2 filed with Form T-1 Statement,
Registration No. 33-21047.
Exhibit 3 - Authorization of the Trustee to exercise
corporate trust powers Incorporated herein
by reference to Exhibit 2 filed with Form
T-1 Statement, Registration No. 33-21047.
Exhibit 4 - Existing By-Laws of Bankers Trust
Company, as amended on November 18, 1997.
Copy attached.
Exhibit 5 - Not applicable.
Exhibit 6 - Consent of Bankers Trust Company
required by Section 321(b) of the Act.
Incorporated herein by reference to Exhibit
4 filed with Form T-1 Statement,
Registration No. 22-18864.
Exhibit 7 - The latest report of condition of
Bankers Trust Company dated as of September
30, 1998. Copy attached.
Exhibit 8 - Not Applicable.
Exhibit 9 - Not Applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on this 29th day
of January, 1999
BANKERS TRUST COMPANY
By: ___________________
Susan Johnson
Assistant Vice President
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on this 29th day
of January, 1999.
BANKERS TRUST COMPANY
<PAGE>
/s/ Susan Johnson /s/
By: Susan Johnson
Assistant Vice President
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY Under Section
8005 of the Banking Law," dated June 19, 1997, providing for an increase in
authorized capital stock from $1,601,666,670 consisting of 100,166,667 shares
with a par value of $10 each designated as Common Stock and 600 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$2,001,666,670 consisting of 100,166,667 shares with a par value of $10 each
designated as Common Stock and 1,000 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
Witness, my hand and official seal of the Banking Department at the City of New
York, this 27th day of June in the Year of our Lord one thousand nine hundred
and ninety-seven.
Manuel Kursky
Deputy Superintendent of Banks
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing Director
and an Assistant Secretary of Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of march, 1903.
3. The organization certificate as heretofore amended is hereby amended
to increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is One Billion, Six Hundred and One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($1,601,666,670), divided into
One Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred
Sixty-Seven (100,166,667) shares with a par value of $10 each
designated as Common Stock and 600 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Two Billion One Million, Six Hundred Sixty-Six Thousand, Six
Hundred Seventy Dollars ($2,001,666,670), divided into One Hundred
Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(100,166,667) shares with a par value of $10 each designated as Common
Stock and 1000 shares with a par value of One Million Dollars
($1,000,000) each designated as Series Preferred Stock."
5. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
19th day of June, 1997.
James T. Byrne, Jr.
James T. Byrne, Jr.
Managing Director
<PAGE>
Lea Lahtinen
Lea Lahtinen
Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is an
Assistant Secretary of Bankers Trust Company, the corporation described in the
foregoing certificate; that she has read the foregoing certificate and knows the
contents thereof, and that the statements herein contained are true.
Lea Lahtinen
Lea Lahtinen
Sworn to before me this 19th day of June, 1997.
Sandra L. West
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 1998
BY-LAWS
NOVEMBER 18, 1997
Bankers Trust Company
New York
BY-LAWS
of
Bankers Trust Company
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this Company shall be held
<PAGE>
at the office of the Company in the Borough of Manhattan, City of New York, on
the third Tuesday in January of each year, for the election of directors and
such other business as may properly come before said meeting.
SECTION 2. Special meetings of stockholders other than those regulated by
statute may be called at any time by a majority of the directors. It shall be
the duty of the Chairman of the Board, the Chief Executive Officer or the
President to call such meetings whenever requested in writing to do so by
stockholders owning a majority of the capital stock.
SECTION 3. At all meetings of stockholders, there shall be present, either in
person or by proxy, stockholders owning a majority of the capital stock of the
Company, in order to constitute a quorum, except at special elections of
directors, as provided by law, but less than a quorum shall have power to
adjourn any meeting.
SECTION 4. The Chairman of the Board or, in his absence, the Chief Executive
Officer or, in his absence, the President or, in their absence, the senior
officer present, shall preside at meetings of the stockholders and shall direct
the proceedings and the order of business. The Secretary shall act as secretary
of such meetings and record the proceedings.
ARTICLE II
DIRECTORS
SECTION 1. The affairs of the Company shall be managed and its corporate powers
exercised by a Board of Directors consisting of such number of directors, but
not less than ten nor more than twenty-five, as may from time to time be fixed
by resolution adopted by a majority of the directors then in office, or by the
stockholders. In the event of any increase in the number of directors,
additional directors may be elected within the limitations so fixed, either by
the stockholders or within the limitations imposed by law, by a majority of
directors then in office. One-third of the number of directors, as fixed from
time to time, shall constitute a quorum. Any one or more members of the Board of
Directors or any Committee thereof may participate in a meeting of the Board of
Directors or Committee thereof by means of a conference telephone or similar
communications equipment which allows all persons participating in the meeting
to hear each other at the same time. Participation by such means shall
constitute presence in person at such a meeting.
All directors hereafter elected shall hold office until the next annual meeting
of the stockholders and until their successors are elected and have qualified.
No person who shall have attained age 72 shall be eligible to be elected or
re-elected a director. Such director may, however, remain a director of the
Company until the next annual meeting of the stockholders of Bankers Trust New
York Corporation (the Company's parent) so that such director's retirement will
coincide with the retirement date from Bankers Trust New York Corporation.
No Officer-Director who shall have attained age 65, or earlier relinquishes his
responsibilities and title, shall be eligible to serve as a director.
SECTION 2. Vacancies not exceeding one-third of the whole number of the Board of
Directors may be filled by the affirmative vote of a majority of the directors
then in office, and the directors so elected shall hold office for the balance
of the unexpired term.
SECTION 3. The Chairman of the Board shall preside at meetings of the Board of
Directors. In his absence, the Chief Executive Officer or, in his absence, such
<PAGE>
other director as the Board of Directors from time to time may designate shall
preside at such meetings.
SECTION 4. The Board of Directors may adopt such Rules and Regulations for the
conduct of its meetings and the management of the affairs of the Company as it
may deem proper, not inconsistent with the laws of the State of New York, or
these By-Laws, and all officers and employees shall strictly adhere to, and be
bound by, such Rules and Regulations.
SECTION 5. Regular meetings of the Board of Directors shall be held from time to
time on the third Tuesday of the month. If the day appointed for holding such
regular meetings shall be a legal holiday, the regular meeting to be held on
such day shall be held on the next business day thereafter. Special meetings of
the Board of Directors may be called upon at least two day's notice whenever it
may be deemed proper by the Chairman of the Board or, the Chief Executive
Officer or, in their absence, by such other director as the Board of Directors
may have designated pursuant to Section 3 of this Article, and shall be called
upon like notice whenever any three of the directors so request in writing.
SECTION 6. The compensation of directors as such or as members of committees
shall be fixed from time to time by resolution of the Board of Directors.
ARTICLE III
COMMITTEES
SECTION 1. There shall be an Executive Committee of the Board consisting of not
less than five directors who shall be appointed annually by the Board of
Directors. The Chairman of the Board shall preside at meetings of the Executive
Committee. In his absence, the Chief Executive Officer or, in his absence, such
other member of the Committee as the Committee from time to time may designate
shall preside at such meetings.
The Executive Committee shall possess and exercise to the extent permitted by
law all of the powers of the Board of Directors, except when the latter is in
session, and shall keep minutes of its proceedings, which shall be presented to
the Board of Directors at its next subsequent meeting. All acts done and powers
and authority conferred by the Executive Committee from time to time shall be
and be deemed to be, and may be certified as being, the act and under the
authority of the Board of Directors.
A majority of the Committee shall constitute a quorum, but the Committee may act
only by the concurrent vote of not less than one-third of its members, at least
one of whom must be a director other than an officer. Any one or more directors,
even though not members of the Executive Committee, may attend any meeting of
the Committee, and the member or members of the Committee present, even though
less than a quorum, may designate any one or more of such directors as a
substitute or substitutes for any absent member or members of the Committee, and
each such substitute or substitutes shall be counted for quorum, voting, and all
other purposes as a member or members of the Committee.
SECTION 2. There shall be an Audit Committee appointed annually by resolution
adopted by a majority of the entire Board of Directors which shall consist of
such number of directors, who are not also officers of the Company, as may from
time to time be fixed by resolution adopted by the Board of Directors. The
Chairman shall be designated by the Board of Directors, who shall also from time
to time fix a quorum for meetings of the Committee. Such Committee shall conduct
the annual directors' examinations of the Company as required by the New York
State Banking Law; shall review the reports of all examinations made of the
<PAGE>
Company by public authorities and report thereon to the Board of Directors; and
shall report to the Board of Directors such other matters as it deems advisable
with respect to the Company, its various departments and the conduct of its
operations.
In the performance of its duties, the Audit Committee may employ or retain, from
time to time, expert assistants, independent of the officers or personnel of the
Company, to make studies of the Company's assets and liabilities as the
Committee may request and to make an examination of the accounting and auditing
methods of the Company and its system of internal protective controls to the
extent considered necessary or advisable in order to determine that the
operations of the Company, including its fiduciary departments, are being
audited by the General Auditor in such a manner as to provide prudent and
adequate protection. The Committee also may direct the General Auditor to make
such investigation as it deems necessary or advisable with respect to the
Company, its various departments and the conduct of its operations. The
Committee shall hold regular quarterly meetings and during the intervals thereof
shall meet at other times on call of the Chairman.
SECTION 3. The Board of Directors shall have the power to appoint any other
Committees as may seem necessary, and from time to time to suspend or continue
the powers and duties of such Committees. Each Committee appointed pursuant to
this Article shall serve at the pleasure of the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. The Board of Directors shall elect from among their number a Chairman
of the Board and a Chief Executive Officer; and shall also elect a President,
and may also elect a Senior Vice Chairman, one or more Vice Chairmen, one or
more Executive Vice Presidents, one or more Senior Managing Directors, one or
more Managing Directors, one or more Senior Vice Presidents, one or more
Principals, one or more Vice Presidents, one or more General Managers, a
Secretary, a Controller, a Treasurer, a General Counsel, one or more Associate
General Counsels, a General Auditor, a General Credit Auditor, and one or more
Deputy Auditors, who need not be directors. The officers of the corporation may
also include such other officers or assistant officers as shall from time to
time be elected or appointed by the Board. The Chairman of the Board or the
Chief Executive Officer or, in their absence, the President, the Senior Vice
Chairman or any Vice Chairman, may from time to time appoint assistant officers.
All officers elected or appointed by the Board of Directors shall hold their
respective offices during the pleasure of the Board of Directors, and all
assistant officers shall hold office at the pleasure of the Board or the
Chairman of the Board or the Chief Executive Officer or, in their absence, the
President, the Senior Vice Chairman or any Vice Chairman. The Board of Directors
may require any and all officers and employees to give security for the faithful
performance of their duties.
SECTION 2. The Board of Directors shall designate the Chief Executive Officer of
the Company who may also hold the additional title of Chairman of the Board,
President, Senior Vice Chairman or Vice Chairman and such person shall have,
subject to the supervision and direction of the Board of Directors or the
Executive Committee, all of the powers vested in such Chief Executive Officer by
law or by these By-Laws, or which usually attach or pertain to such office. The
other officers shall have, subject to the supervision and direction of the Board
of Directors or the Executive Committee or the Chairman of the Board or, the
Chief Executive Officer, the powers vested by law or by these By-Laws in them as
holders of their respective offices and, in addition, shall perform such other
duties as shall be assigned to them by the Board of Directors or the Executive
Committee or the Chairman of the Board or the Chief Executive Officer.
<PAGE>
The General Auditor shall be responsible, through the Audit Committee, to the
Board of Directors for the determination of the program of the internal audit
function and the evaluation of the adequacy of the system of internal controls.
Subject to the Board of Directors, the General Auditor shall have and may
exercise all the powers and shall perform all the duties usual to such office
and shall have such other powers as may be prescribed or assigned to him from
time to time by the Board of Directors or vested in him by law or by these
By-Laws. He shall perform such other duties and shall make such investigations,
examinations and reports as may be prescribed or required by the Audit
Committee. The General Auditor shall have unrestricted access to all records and
premises of the Company and shall delegate such authority to his subordinates.
He shall have the duty to report to the Audit Committee on all matters
concerning the internal audit program and the adequacy of the system of internal
controls of the Company which he deems advisable or which the Audit Committee
may request. Additionally, the General Auditor shall have the duty of reporting
independently of all officers of the Company to the Audit Committee at least
quarterly on any matters concerning the internal audit program and the adequacy
of the system of internal controls of the Company that should be brought to the
attention of the directors except those matters responsibility for which has
been vested in the General Credit Auditor. Should the General Auditor deem any
matter to be of special immediate importance, he shall report thereon forthwith
to the Audit Committee. The General Auditor shall report to the Chief Financial
Officer only for administrative purposes.
The General Credit Auditor shall be responsible to the Chief Executive Officer
and, through the Audit Committee, to the Board of Directors for the systems of
internal credit audit, shall perform such other duties as the Chief Executive
Officer may prescribe, and shall make such examinations and reports as may be
required by the Audit Committee. The General Credit Auditor shall have
unrestricted access to all records and may delegate such authority to
subordinates.
SECTION 3. The compensation of all officers shall be fixed under such plan or
plans of position evaluation and salary administration as shall be approved from
time to time by resolution of the Board of Directors.
SECTION 4. The Board of Directors, the Executive Committee, the Chairman of the
Board, the Chief Executive Officer or any person authorized for this purpose by
the Chief Executive Officer, shall appoint or engage all other employees and
agents and fix their compensation. The employment of all such employees and
agents shall continue during the pleasure of the Board of Directors or the
Executive Committee or the Chairman of the Board or the Chief Executive Officer
or any such authorized person; and the Board of Directors, the Executive
Committee, the Chairman of the Board, the Chief Executive Officer or any such
authorized person may discharge any such employees and agents at will.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. The Company shall, to the fullest extent permitted by Section 7018 of
the New York Banking Law, indemnify any person who is or was made, or threatened
to be made, a party to an action or proceeding, whether civil or criminal,
whether involving any actual or alleged breach of duty, neglect or error, any
accountability, or any actual or alleged misstatement, misleading statement or
other act or omission and whether brought or threatened in any court or
administrative or legislative body or agency, including an action by or in the
right of the Company to procure a judgment in its favor and an action by or in
the right of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other
<PAGE>
enterprise, which any director or officer of the Company is servicing or served
in any capacity at the request of the Company by reason of the fact that he, his
testator or intestate, is or was a director or officer of the Company, or is
serving or served such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement, and costs, charges and expenses, including
attorneys' fees, or any appeal therein; provided, however, that no
indemnification shall be provided to any such person if a judgment or other
final adjudication adverse to the director or officer establishes that (i) his
acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 2. The Company may indemnify any other person to whom the Company is
permitted to provide indemnification or the advancement of expenses by
applicable law, whether pursuant to rights granted pursuant to, or provided by,
the New York Banking Law or other rights created by (i) a resolution of
stockholders, (ii) a resolution of directors, or (iii) an agreement providing
for such indemnification, it being expressly intended that these By-Laws
authorize the creation of other rights in any such manner.
SECTION 3. The Company shall, from time to time, reimburse or advance to any
person referred to in Section 1 the funds necessary for payment of expenses,
including attorneys' fees, incurred in connection with any action or proceeding
referred to in Section 1, upon receipt of a written undertaking by or on behalf
of such person to repay such amount(s) if a judgment or other final adjudication
adverse to the director or officer establishes that (i) his acts were committed
in bad faith or were the result of active and deliberate dishonesty and, in
either case, were material to the cause of action so adjudicated, or (ii) he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
SECTION 4. Any director or officer of the Company serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the Company, or (ii) any employee benefit plan of
the Company or any corporation referred to in clause (i) in any capacity shall
be deemed to be doing so at the request of the Company. In all other cases, the
provisions of this Article V will apply (i) only if the person serving another
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise so served at the specific request of the Company, evidenced by
a written communication signed by the Chairman of the Board, the Chief Executive
Officer or the President, and (ii) only if and to the extent that, after making
such efforts as the Chairman of the Board, the Chief Executive Officer or the
President shall deem adequate in the circumstances, such person shall be unable
to obtain indemnification from such other enterprise or its insurer.
SECTION 5. Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect at
the time indemnification is sought.
SECTION 6. The right to be indemnified or to the reimbursement or advancement of
expense pursuant to this Article V (i) is a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Company and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
<PAGE>
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 7. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the Company
within thirty days after a written claim has been received by the Company, the
claimant may at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the Company (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstance, nor an actual determination by the Company (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant is
not entitled to indemnification or to the reimbursement or advancement of
expenses, shall be a defense to the action or create a presumption that the
claimant is not so entitled.
SECTION 8. A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in Section 1 shall be entitled to indemnification only as provided in Sections 1
and 3, notwithstanding any provision of the New York Banking Law to the
contrary.
ARTICLE VI
SEAL
SECTION 1. The Board of Directors shall provide a seal for the Company, the
counterpart dies of which shall be in the charge of the Secretary of the Company
and such officers as the Chairman of the Board, the Chief Executive Officer or
the Secretary may from time to time direct in writing, to be affixed to
certificates of stock and other documents in accordance with the directions of
the Board of Directors or the Executive Committee.
SECTION 2. The Board of Directors may provide, in proper cases on a specified
occasion and for a specified transaction or transactions, for the use of a
printed or engraved facsimile seal of the Company.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Registration of transfer of shares shall only be made upon the books
of the Company by the registered holder in person, or by power of attorney, duly
executed, witnessed and filed with the Secretary or other proper officer of the
Company, on the surrender of the certificate or certificates of such shares
properly assigned for transfer.
ARTICLE VIII
CONSTRUCTION
SECTION 1. The masculine gender, when appearing in these By-Laws, shall be
<PAGE>
deemed to include the feminine gender.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or added to by the Board of
Directors at any meeting, or by the stockholders at any annual or special
meeting, provided notice thereof has been given.
<PAGE>
Legal Title of Bank: Bankers Trust Company Call Date: 09/30/98
Address: 130 Liberty Street Vendor ID: D
City, State ZIP: New York, NY 10006 11
ST-BK: 36-4840 FFIEC 031
CERT: 00623 Page RC-1
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for September 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
C400
Dollar Amounts in Thousands RCFD Bil Mil Thou
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
<S> <C> <C>
a. Noninterest-bearing balances and currency and coin(1)................................. 0081 2,291,000
b. Interest bearing balances(2).......................................................... 0071 2,636,000
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)............................ 1754 0
b. Available-for-sale securities (from Schedule RC-B, column D).......................... 1773 6,617,000
3. Federal funds sold and securities purchased under agreements to resell..................... 1350 32,734,000
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C)......................... 2122 20,227,000
b. LESS: Allowance for loan and lease losses............................................. 3123 619,000
c. LESS: Allocated transfer risk reserve................................................. 3128 0
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c).................................... 2125 19,608,000
5. Trading assets (from Schedule RC-D)........................................................ 3545 49,545,000
6. Premises and fixed assets (including capitalized leases)................................... 2145 885,000
7. Other real estate owned (from Schedule RC-M)............................................... 2150 115,000
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule
RC-M)...................................................................................... 2130 391,000
9. Customers' liability to this bank on acceptances outstanding............................... 2155 392,000
<PAGE>
10. Intangible assets (from Schedule RC-M)..................................................... 2143 266,000
11. Other assets (from Schedule RC-F).......................................................... 2160 5,884,000
12. Total assets (sum of items 1 through 11)................................................... 2170 121,364,000
</TABLE>
- --------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
Legal Title of Bank: Bankers Trust Company FFIEC 031
Address: 130 Liberty Street Page RC-2
City, State Zip: New York, NY 10006
Call Date: 09/30/98 ST-BK: 36-4840
Vendor ID: D CERT: 00623
FDIC Certificate Number: 00623
SCHEDULE RC -- CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands Bil Mil Thou
LIABILITIES
<S> <C> <C> <C>
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, Part I)........... RCON 2200 22,231,000
(1) Noninterest-bearing(1)................................................................... RCON 6631 3,040,000
<PAGE>
(2) Interest-bearing......................................................................... RCON 6636 19,191,000
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, Part II). RCFN 2200 21,932,000
(1) Noninterest-bearing...................................................................... RCFN 6631 2,423,000
(2) Interest-bearing......................................................................... RCFN 6636 19,509,000
14. Federal funds purchased and securities sold under agreements to repurchase..................... RCFD 2800 14,360,000
15. a. Demand notes issued to the U.S. Treasury.................................................... RCON 2840 0
b. Trading liabilities (from Schedule RC-D).................................................... RCFD 3548 32,890,000
16. Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases):
a. With a remaining maturity of one year or less............................................... RCFD 2332 7,653,000
b. With a remaining maturity of more than one year through three years......................... A547 3,707,000
c. With a remaining maturity of more than three years.......................................... A548 3,034,000
17. Not Applicable.................................................................................
18. Bank's liability on acceptances executed and outstanding....................................... RCFD 2920 392,000
19. Subordinated notes and debentures (2).......................................................... RCFD 3200 1,533,000
20. Other liabilities (from Schedule RC-G)......................................................... RCFD 2930 6,595,000
21. Total liabilities (sum of items 13 through 20)................................................. RCFD 2948 114,327,000
22. Not Applicable.................................................................................
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.................................. RCFD 3838 1,500,000
24. Common stock................................................................... RCFD 3230 2,002,000
25. Surplus (exclude all surplus related to preferred stock)....................... RCFD 3839 540,000
26. a. Undivided profits and capital reserves...................................... RCFD 3632 3,421,000
b. Net unrealized holding gains (losses) on available-for-sale securities...... RCFD 8434 (46,000)
27. Cumulative foreign currency translation adjustments............................ RCFD3284 (380,000)
28. Total equity capital (sum of items 23 through 27).............................. RCFD3210 5,994,000
29. Total liabilities and equity capital (sum of items 21 and 28).................. RCFD3300 121,364,000
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
auditors as of any date during 1996 ................................................. RCFD 6724 1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit
<PAGE>
work accordance with generally accepted auditing standards by a certified
public accounting firm (may be required by state chartering authority)
</TABLE>
- ----------------------
(1) Including total demand deposits and noninterest-bearing time and
savings deposits.
(2) Includes limited-life preferred stock and related surplus.
