<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WILLIAMS COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 73-1462856
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 573-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BOB F. MCCOY, ESQ.
SENIOR VICE PRESIDENT -- LAW
WILLIAMS COMMUNICATIONS GROUP, INC.
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(918) 573-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
ROBERT A. CURRY, ESQ.
CONNER & WINTERS
3700 FIRST PLACE TOWER
15 EAST 5TH STREET
TULSA, OKLAHOMA 74103-4344
(918) 586-5711
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be 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. [ ]
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
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11.70% senior redeemable notes due 2008....... $575,000,000 100% $575,000,000 $151,800
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11.875% senior redeemable notes due 2010...... $425,000,000 99.29% $421,983,000 $111,404
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
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 SPECIFICALLY STATING 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.
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--------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS
$1,000,000,000
[WILLIAMS COMM. LOGO]
WILLIAMS COMMUNICATIONS GROUP, INC.
OFFER TO EXCHANGE
11.70% SENIOR REDEEMABLE NOTES DUE 2008
FOR
ALL OUTSTANDING 11.70% SENIOR REDEEMABLE NOTES DUE 2008
AND
11.875% SENIOR REDEEMABLE NOTES DUE 2010
FOR
ALL OUTSTANDING 11.875% SENIOR REDEEMABLE NOTES DUE 2010
---------------------
TERMS OF EXCHANGE OFFER
- We are offering to exchange new registered exchange notes for the notes we
sold in a private offering.
- All outstanding notes that are validly tendered and not validly withdrawn will
be exchanged.
- We believe that the exchange of notes will not be a taxable exchange for U.S.
federal income tax purposes.
- The terms of the notes to be issued are substantially identical to the
outstanding notes, except for transfer restrictions and registration rights
relating to the outstanding notes.
- THE EXCHANGE OFFER EXPIRES AT 5:00 P.M., NEW YORK CITY TIME, ,
2000, UNLESS WE EXTEND IT.
- The notes to be issued in the exchange offer will not trade on any established
exchange.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF MATTERS THAT
PARTICIPANTS IN THE EXCHANGE OFFER SHOULD CONSIDER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
------------------
TABLE OF CONTENTS
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PAGE
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<S> <C>
Summary............................. 1
Risk Factors........................ 13
This Prospectus Contains Forward-
Looking Statements................ 28
Use of Proceeds..................... 29
Capitalization...................... 30
The Exchange Offer.................. 31
Industry Overview................... 40
Business............................ 45
Regulation.......................... 73
Management.......................... 81
Security Ownership of Certain
Beneficial Owners and
Management........................ 94
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Relationships and Related Party
Transactions...................... 97
Relationship Between Our Company and
Williams.......................... 100
Description of the Notes............ 108
Description of Other Indebtedness
and Other Financing
Arrangements...................... 162
Certain United States Federal Tax
Consequences...................... 167
Plan of Distribution................ 172
Legal Matters....................... 172
Experts............................. 173
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
JURISDICTION WHERE AN OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION PROVIDED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT COVER OF THIS PROSPECTUS.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments, supplements, schedules and exhibits to the
registration statement, referred to as the registration statement) that we have
filed with the Securities and Exchange Commission under the Securities Act with
respect to the securities offered in this prospectus. This prospectus does not
contain all the information which is in the registration statement. Certain
parts of the registration statement are omitted as allowed by the rules and
regulations of the Commission. We refer you to the registration statement for
further information about our company and the securities offered in this
prospectus. Statements contained in this prospectus concerning the provisions of
documents are not necessarily summaries of the material provisions of those
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission. We also file annual,
quarterly and special reports, proxy statements and other information with the
Commission. You can inspect and copy the registration statement and the reports
and other information we file with the Commission under the Securities Exchange
Act at the public reference room maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain
information on the operation of the public reference room by calling the
Commission at 1-800-SEC-0330. The same information will be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, N.Y. 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. You can also obtain
copies of this material from the public reference room of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
also maintains a Web site which provides online access to reports, proxy and
i
<PAGE> 4
information statements and other information regarding registrants that file
electronically with the Commission at the address http://www.sec.gov.
The Commission allows us to "incorporate by reference" the information we
file with them, which means we can disclose important business and financial
information about us to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this prospectus, and
information that we file later with the Commission will automatically update and
supersede the information in this prospectus. We incorporate by reference the
documents listed below and any future filings we make with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
the termination of the offering made under this prospectus:
- Our Annual Report on Form 10-K/A for the fiscal year ended December 31,
1999;
- Our Quarterly Reports on Form 10-Q for the quarters ended March 31, and
June 30, 2000; and
- Our Current Reports on Form 8-K filed on March 6, 2000, July 17, 2000,
August 2, 2000 and September 14, 2000.
These filings have not been included in or delivered with this prospectus.
You may request a copy of these filings at no cost, by writing or telephoning us
at the following address:
Corporate Secretary
Williams Communications Group, Inc.
One Williams Center
Tulsa, Oklahoma 74172
(918) 573-2000
To ensure timely delivery, you should request these filings no later than
, 2000.
Our common stock is listed and traded on the New York Stock Exchange under
the trading symbol "WCG." The reports, proxy statements and other information we
file with the Commission can also be inspected and copied at the New York Stock
Exchange, 20 Broad Street, New York, New York.
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<PAGE> 5
SUMMARY
This is only a summary and does not contain all of the information that may
be important to you. You should read the entire prospectus, including the
section entitled "Risk Factors," and our consolidated financial statements and
related notes, incorporated by reference in this prospectus, before tendering
notes in the exchange offer. Except when used in the section below entitled
"Description of the Notes," and unless the context otherwise requires,
references in this prospectus to "we," "us," "our" and similar terms mean
Williams Communications Group, Inc. and all of its subsidiaries, collectively.
This prospectus and the letters of transmittal that accompany it collectively
constitute the exchange offer.
WILLIAMS COMMUNICATIONS GROUP, INC.
We own or lease, operate and are completing a nationwide intercity
fiber-optic network, which we are extending locally and globally. We operate
through four business units. Our network unit provides Internet, data, voice and
video services exclusively to communications service providers. Through our
broadband media unit, we transmit live and non-live media content worldwide,
including broadcast news, sports, advertising and special events. Our solutions
unit provides professional communications services, and sells and installs
communications equipment, to address the comprehensive voice and data needs of
organizations of all sizes. Through our strategic investments unit, we make
investments in companies that we believe will, directly or indirectly, increase
revenue opportunities for our other business units. We have formed strategic
alliances with communications companies to secure long-term, high-capacity
commitments for traffic on our network and to enhance our service offerings.
For the six months ended June 30, 2000, the percentage of revenue, before
intercompany eliminations, attributable to our business units was 26% for
network, 8% for broadband media and 68% for solutions. No revenue was
attributable to our strategic investments unit, which, as of June 30, 2000, only
held investments accounted for on a cost or equity basis. As a result of the
development and expansion of our network, we expect a significant change in our
revenue mix over the next year. Throughout 2000, we expect our network unit to
contribute an increasing percentage of our total revenues. By the end of 2001,
we expect our network unit to contribute the largest percentage of our total
revenues.
Prior to the initial public offering of our common stock in October 1999,
our company was a wholly owned subsidiary of The Williams Companies, Inc.
Williams currently owns 85% of the outstanding shares of our common stock. On
July 24, 2000, Williams announced that its board of directors had authorized its
management to pursue a course of action that, if successful, would lead to a
complete separation of our business from Williams' energy business.
Our principal executive offices are located at One Williams Center, Tulsa,
Oklahoma 74172, and our telephone number is (918) 573-2000.
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<PAGE> 6
OUR BUSINESS UNITS
OUR NETWORK UNIT
We intend to make our network unit the most efficient U.S.-based provider
of advanced Internet, data, voice and video services to companies that use
high-capacity communications services as an integral part of their service
offerings. These companies include long distance carriers, local service
providers, Internet service providers, application service providers, digital
subscriber line service providers, utilities and international carriers. We also
offer rights of use in dark fiber, which is fiber that we install but for which
we do not provide communications transmission services. Through our network
unit, we invest in companies that assist us in improving, or create demand for
capacity on, our network. Based on currently announced plans, our global network
will include ownership interests in or rights to use:
- 33,000 miles of fiber-optic cable connecting 125 U.S. cities, which we
expect to complete by the end of 2000, and an additional 1,000 miles,
which we expect to complete by the end of the first quarter of 2001
- fiber-optic cable networks within 50 of the largest U.S. cities
- approximately 150 data centers located in 125 U.S. cities
- 31,100 miles of fiber-optic cables installed in Europe, Asia and
Australia
- undersea fiber-optic cables connecting U.S. cities with major Asian and
European cities
OUR BROADBAND MEDIA UNIT
In the first quarter of 2000, we formed our broadband media unit.
Currently, substantially all of the operations of this unit are conducted by
Vyvx(R) Services. Vyvx Services has provided worldwide transmission of live and
non-live media content since 1989. Through Vyvx Services, we transmit broadcast
news, sports, advertising and special events, including approximately 80% of
live televised major league sporting events. Over its integrated fiber-optic,
satellite and teleport network, Vyvx Services serves the unique video needs of
major broadcast networks and their affiliate stations, professional sports
leagues, media production companies and global advertising agencies. We have
established high-speed connections to major news and sports venues and
television stations throughout the United States. Through this unit, we also
have investments in companies that provide media content products and services.
OUR SOLUTIONS UNIT
Our solutions unit provides professional communications services, including
call center design, network management and maintenance services. This unit also
sells and installs communications equipment from leading vendors for the voice
and data communications needs of businesses of all sizes as well as for
governmental, educational and non-profit institutions. Our solutions unit
provides planning, design, implementation, management, maintenance and
optimization services for the full life cycle of the equipment. We also sell the
communications services of select network customers and other carriers to our
solutions unit customers.
OUR STRATEGIC INVESTMENTS UNIT
Through our strategic investments unit, we invest in communications
companies that we believe will, directly or indirectly, increase revenue
opportunities for our network and other business units. Our strategic
investments currently include ownership interests in communications companies
with operations in Brazil, Chile and Argentina.
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<PAGE> 7
RECENT DEVELOPMENTS
- In September 2000, we acquired the long distance network assets of
Ameritech Communications, Inc., a subsidiary of SBC, for $145 million.
These assets are located in the states of Illinois, Indiana, Michigan,
Ohio and Wisconsin and include a 2,200 mile fiber-optic network over four
routes, indefeasible rights of use in dark fiber and 15 data centers.
- In June 2000, the Federal Communications Commission authorized SBC
Communications Inc. to provide long-distance service in Texas. Under the
terms of our strategic alliance with SBC, we are the preferred provider
of SBC's nationwide long distance voice and data services. We began
providing service in Texas in July 2000. In June 2000, we also announced
an agreement under which we will provide SBC with local telephone service
in six cities and colocation services in three cities.
- In June 2000, we announced plans to spend almost $1 billion over the next
several years to build data centers, expand network colocation facilities
and for transport and switching equipment for our Internet protocol
network and optical wave capacity.
- In June 2000, we bought SBC's initial party interests in undersea cables
connecting the United States with China and Japan. The China-U.S. cable
is currently in service, and we expect the Japan-U.S. cable to be ready
for commercial service by the end of this year.
- In June 2000, we announced an agreement with KDD America, Inc., a
subsidiary of KDD Corporation, the largest international
telecommunications company in Japan. The five-year agreement includes a
reciprocal provider relationship under which each company will first seek
to obtain select telecommunications services from the other.
OUR OWNERSHIP STRUCTURE
On July 24, 2000, Williams announced that its board of directors had
authorized its management to pursue a course of action that, if successful,
would lead to a complete separation of our business from Williams' energy
business. On August 8, 2000, Williams announced that the Internal Revenue
Service had issued a favorable ruling on a proposed tax-free distribution of our
Class B common stock to Williams' stockholders. In order for Williams and its
stockholders to receive the benefit of the ruling, a spin-off must be completed
by August 2001, unless the IRS consents to an extension of time. Although
rulings such as the one Williams received generally are binding on the IRS,
Williams will not be able to rely on the ruling if any factual representations
or assumptions that Williams made in connection with its request for the ruling
are incorrect or untrue in any material respect. We are not aware of any facts
or circumstances, including the completion of or failure to complete the
exchange offer, that would cause its representations or assumptions to be
incorrect or untrue in any material respect. Williams has informed us that it
also is not aware of any such facts or circumstances. Williams has not yet
determined a specific course of action regarding the separation of its energy
business from our business.
As a result of the announcement by Williams of its intention to separate
its businesses, Standard & Poor's downgraded our corporate credit and bank loan
rating from "BB" to "BB-minus" and our senior unsecured debt rating from
"BB-minus" to "B-plus" on July 25, 2000. In addition, on July 27, 2000, Moody's
Investors Service announced that, due to our intention to increase our capital
expenditure program and our expectation that we will turn EBITDA positive in
2001, rather than in 2000, combined with the heightened leverage associated with
the sale of our senior redeemable notes in August 2000, it has revised its
outlook for us to stable from positive.
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<PAGE> 8
SALE OF SENIOR REDEEMABLE NOTES
On August 8, 2000, we sold $575,000,000 aggregate principal amount of our
11.70% senior redeemable notes due 2008 and $425,000,000 aggregate principal
amount of our 11.875% senior redeemable notes due 2010 in a private placement.
We intend to use the net proceeds of approximately $970.6 million from the sale
of the senior redeemable notes to continue the enhancement and expansion of our
network and for working capital and general corporate purposes. These senior
redeemable notes are the notes which may be exchanged for the new registered
senior redeemable notes we are offering under this prospectus. You should read
the discussion in the section of this prospectus entitled "The Exchange Offer"
for information concerning the terms of the exchange.
CREDIT FACILITY
We have a $1.05 billion commitment under our credit facility. Our credit
facility consists of a $525 million seven-year multi-draw amortizing term loan
facility and $525 million six-year reducing revolving credit facility. In
September 2000, we borrowed the $525 million term loan which otherwise would
have expired on September 7, 2000. We may also borrow under the revolving credit
facility throughout its six-year term. However, our ability to borrow under our
credit facility is dependent upon our compliance with specified covenants and
conditions. Although our credit facility provides for a total commitment of
$1.05 billion, based on our ratio of total debt, net of excess cash, to
contributed capital as of June 30, 2000, after giving effect to the borrowing of
the term loan and the proceeds we received from the sale of the senior
redeemable notes in August 2000, and the preferred stock referred to below under
"Sale of preferred stock," in September 2000, we could borrow and utilize
approximately $130 million of the revolving portion of our credit facility
without issuing additional equity or amending the credit facility.
SALE OF PREFERRED STOCK
On September 19, 2000, we sold 5,000,000 shares of our 6.75% Redeemable
Cumulative Convertible Preferred Stock, which we refer to as preferred stock, in
a private placement. We intend to use the net proceeds of approximately $240.5
million from the sale of the preferred stock to continue the enhancement and
expansion of our network and for working capital and general corporate purposes.
RISK FACTORS
You should consider carefully the risks of an investment in the notes. See
the section of this prospectus entitled "Risk Factors" for more information.
4
<PAGE> 9
THE EXCHANGE OFFER
On August 8, 2000, we sold $575,000,000 aggregate principal amount of our
11.70% senior redeemable notes due 2008 and $425,000,000 aggregate principal
amount of our 11.875% senior redeemable notes due 2010, which we refer to
collectively as the original notes, in a transaction exempt from registration
under the Securities Act of 1933. When we sold the original notes, we entered
into a registration rights agreement, dated August 8, 2000, with the initial
purchasers of the original notes. In the registration rights agreement, we
agreed to register under the Securities Act an offer of our new 11.70% senior
redeemable notes due 2008 and our new 11.875% senior redeemable notes due 2010,
which we refer to collectively as the exchange notes, in exchange for the
original notes. We also agreed to use reasonable best efforts to deliver this
prospectus to holders of the original notes and complete the exchange offer
within 210 days of the issuance of the original notes. In this prospectus, we
refer to the original 2008 senior notes and the new 2008 senior notes together
as the 2008 senior notes, and the original 2010 senior notes and the new 2010
senior notes together as the 2010 senior notes, and the original notes and the
exchange notes together as the notes. You should read the discussion in the
section of this prospectus entitled "Description of the Notes" for information
regarding the notes.
The exchange offer......... This is an offer to exchange $1,000 in principal
amount of exchange notes for each $1,000 in
principal amount of original notes. The exchange
notes are substantially identical to the original
notes, except that:
- the exchange notes will be freely transferable,
other than as described in this prospectus;
- the exchange notes will not contain any legend
restricting their transfer;
- holders of the exchange notes will not be
entitled to certain rights of the holders of the
original notes under the registration rights
agreement; and
- the exchange notes will not contain any
provisions regarding the payment of additional
interest.
Based on interpretations by the staff of the
Securities and Exchange Commission in no-action
letters issued to other parties, we believe that
you can transfer the exchange notes without
complying with the registration and prospectus
delivery provisions of the Securities Act if you:
- acquire the exchange notes in the ordinary course
of your business;
- are not and do not intend to become engaged in a
distribution of the exchange notes;
- are not an affiliate of ours;
- are not a broker-dealer that acquired original
notes directly from us; and
- are not a broker-dealer that acquired original
notes as a result of market-making or other
trading activities.
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<PAGE> 10
If any of these conditions are not satisfied and
you transfer any exchange note without delivering a
proper prospectus or without qualifying for a
registration exemption, you may incur liability
under the Securities Act.
If you are a broker-dealer and receive exchange
notes for your own account in exchange for original
notes that you acquired as a result of market
making or other trading activities, you must
acknowledge that you will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of the exchange notes. A
broker-dealer may use this prospectus for an offer
to resell, resale or other transfer of the exchange
notes. For a more complete description see the
section of this prospectus entitled "Plan of
Distribution."
Registration rights........ Under the registration rights agreement, we agreed
to use our reasonable best efforts to commence the
exchange offer or to cause the original notes to be
registered under the Securities Act so as to permit
resales. If we are not in compliance with our
obligations under the registration rights
agreement, additional interest will accrue to each
holder of the notes. If the exchange offer is
completed on the terms and within the period
contemplated by this prospectus, no additional
interest will be payable on the principal amount.
The exchange notes will not contain any provisions
regarding the payment of additional interest. For a
more complete description, see the section of this
prospectus entitled "The Exchange
Offer -- Additional interest."
Minimum amount............. The exchange offer is not conditioned on any
minimum aggregate principal amount of original
notes being tendered for exchange.
Offer termination date..... The exchange offer will expire at 5:00 p.m., New
York City time, on , 2000, unless we
extend it. We refer to this date as the "offer
termination date." Original notes will be accepted
for exchange beginning on the first business day
following the offer termination date, upon
surrender of the original notes.
Withdrawal rights.......... You may withdraw the tender of your original notes
at any time before the offer termination date. Any
original notes not accepted for any reason will be
returned to you without expense as promptly as
practicable after the expiration or termination of
the exchange offer.
Procedures for tendering
original notes......... See the section of this prospectus entitled "The
Exchange Offer -- How to tender."
Certain United States
federal income tax
considerations......... The exchange of exchange notes for original notes
by U.S. holders will not be a taxable exchange for
U.S. federal
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<PAGE> 11
income tax purposes, and U.S. holders will not
recognize any taxable gain or loss as a result of
the exchange.
Effect on holders of
original notes........... If the exchange offer is completed on the terms and
within the period contemplated by this prospectus,
holders of the original notes will have no further
registration or other rights under the registration
rights agreement, except under limited
circumstances.
Holders of the original notes who do not tender
their original notes will continue to hold those
original notes. All untendered, and tendered but
unaccepted, original notes will continue to be
subject to the restrictions on transfer provided
for in the original notes and the indenture under
which the original notes were and the exchange
notes are being issued. To the extent that original
notes are tendered and accepted in the exchange
offer, the trading market, if any, for the original
notes could be adversely affected. For a more
complete description, see the section of this
prospectus entitled "The Exchange Offer -- Other."
Use of proceeds............ We will not receive any proceeds from the issuance
of exchange notes in the exchange offer.
Exchange agent............. The Bank of New York is serving as exchange agent
in connection with the exchange offer.
THE NOTES
The exchange notes are substantially identical to the original notes,
except for the transfer restrictions and registration rights relating to the
original notes. The exchange notes will evidence the same debt as the original
notes and will be entitled to the benefits of the same indenture. For a more
complete description of the terms of the notes, see the section of this
prospectus entitled "Description of the Notes."
Issuer..................... Williams Communications Group, Inc.
Notes offered.............. $575 million aggregate principal amount of 11.70%
senior redeemable notes due 2008.
$425 million aggregate principal amount of 11.875%
senior redeemable notes due 2010.
Maturity................... The 2008 notes mature on August 1, 2008.
The 2010 notes mature on August 1, 2010.
Interest payment dates..... February 1 and August 1 of each year beginning
February 1, 2001.
Ranking.................... The notes will be senior unsecured obligations of
our company, ranking equally with all of our
existing and future senior unsecured debt. The
notes will be senior to all of our subordinated
debt and junior to any secured debt we may incur as
to the assets securing such debt. We are a holding
company with substantially all of our operations
conducted through
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<PAGE> 12
subsidiaries. We are dependent upon cash flow from
those entities to meet our obligations, including
obligations under the notes. Accordingly, the notes
effectively will rank junior to all liabilities of
our subsidiaries. The term "subordinated debt" is
defined in the section of this prospectus entitled
"Description of the Notes -- Certain definitions."
As of June 30, 2000:
- we had outstanding approximately $2.0 billion of
debt ranking equally with the notes and no debt
ranking senior to the notes; and
- our consolidated subsidiaries had approximately
$2.5 billion of liabilities, excluding
intercompany debt but including $988.1 million of
debt owed to Williams, which would effectively
rank senior to the notes.
In addition, in September 2000, we borrowed the
$525 million term loan under our credit facility.
See the section of this summary entitled "Recent
developments -- Credit facility." The term loan and
any additional amounts that we may borrow under our
credit facility will effectively rank senior to the
notes.
Optional redemption........ Senior redeemable notes due 2008:
We may redeem the 2008 notes, in whole or in part,
at any time at a make-whole price. The make-whole
price will represent a premium based upon the
present value of the remaining payments to be made
with respect to the 2008 notes to be redeemed.
Senior redeemable notes due 2010:
Prior to August 1, 2005, we may redeem the 2010
notes, in whole or in part, at any time at a
make-whole price. The make-whole price will
represent a premium based upon the present value of
the remaining payments to be made with respect to
the 2010 notes to be redeemed.
On or after August 1, 2005, we may redeem the 2010
notes, in whole or in part, at any time at the
redemption prices (expressed as percentages of
principal amount at maturity) set forth below, plus
accrued and unpaid interest, if any, to the
redemption date, if redeemed during the 12-month
period beginning on August 1 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2005...................................... 105.938%
2006...................................... 103.958%
2007...................................... 101.979%
2008 and thereafter....................... 100.000%
</TABLE>
Equity offering optional
redemption............... Before August 1, 2003, we may redeem up to 35% of
the aggregate principal amount of the 2008 notes or
the 2010 notes with the net proceeds of one or more
specified offerings at 111.70% and 111.875% of the
principal amounts thereof,
8
<PAGE> 13
respectively, plus accrued and unpaid interest, if
any, to the redemption date, if at least 65% of the
aggregate principal amount of such notes originally
issued remains outstanding after such redemption.
See the section of this prospectus entitled
"Description of the Notes -- Optional redemption."
Change of control.......... Upon specified change of control events, each
holder of notes may require us to repurchase all or
a portion of its notes at a purchase price in cash
equal to 101% of the principal amount of the notes,
plus accrued and unpaid interest, if any, to the
date of repurchase. We cannot guarantee that we
will have sufficient funds to pay the purchase
price for all of the notes that holders might
deliver upon a change of control. For more
information, see the sections of this prospectus
entitled "Risk Factors" and "Description of the
Notes -- Certain covenants -- Change of control
triggering event."
Covenants.................. The indenture governing the notes will contain
covenants that, among other things, will limit our
ability and the ability of our restricted
subsidiaries to:
- incur additional debt;
- pay dividends on, redeem or repurchase our
capital stock;
- make investments;
- issue or sell capital stock of restricted
subsidiaries;
- create certain liens;
- sell assets;
- enter into sale and leaseback transactions;
- enter into restrictions on dividends or other
payments to us;
- in the case of our restricted subsidiaries,
guarantee debt;
- engage in transactions with affiliates; and
- consolidate, merge or transfer all or
substantially all of our assets and the assets of
our subsidiaries on a consolidated basis.
These covenants are subject to important exceptions
and qualifications, which are described in the
section of this prospectus entitled "Description of
the Notes."
Absence of a public market
for the notes............ The exchange notes are a new issue of securities
and there is currently no established market for
them. Accordingly, there can be no assurance as to
the development or liquidity of any market for the
notes.
9
<PAGE> 14
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below for the years ended
December 31, 1999, 1998 and 1997, have been derived from our consolidated
financial statements and the related notes incorporated by reference in this
prospectus. Our consolidated financial statements for the years ended December
31, 1999, 1998 and 1997, and as of December 31, 1999 and 1998, have been audited
by Ernst & Young LLP, independent auditors. The summary consolidated financial
data presented below as of and for the six months ended June 30, 2000 and for
the six months ended June 30, 1999 have been derived from our unaudited
consolidated financial statements, which we believe include all adjustments
necessary for a fair presentation of our financial condition and results of
operations at that date and for those periods. The results of operations for
interim periods are not necessarily indicative of the results for a full year's
operations.
Our historical consolidated financial information prior to our initial
public offering in October 1999 was prepared as if we had operated as a
stand-alone business throughout the periods presented and does not necessarily
reflect what our financial position and results of operations would have been
had we in fact operated as a stand-alone entity during the periods covered. The
historical financial information may not be indicative of our future
performance.
The statement of operations data reflect items and events that affect
comparability with other years as described in our consolidated financial
statements and the related notes, which are incorporated by reference in this
prospectus.
Included in other financial data are EBITDA amounts. EBITDA represents
earnings before interest, income taxes, depreciation and amortization, lease
costs attributable to our operating lease agreement covering a portion of our
fiber-optic network ($25.1 million for the six months ended June 30, 2000) and
other unusual, non-recurring or non-cash items, such as equity earnings or
losses and minority interest. The cumulative effect of a change in accounting
principle is excluded from the computation of EBITDA. Included in the
computation of EBITDA is income from investments resulting from the cash
realization of equity instruments ($93.1 million in 2000). Excluded from the
computation of EBITDA are charges in 1999, 1998 and 1997 included in other
expense of $33.9 million, $23.2 million and $29.0 million, respectively, a gain
recognized for the six months ended June 30, 2000 included in other expense of
$1.3 million, charges in 1999 included in selling, general and administrative
expenses of $2.6 million, a gain recognized for the six months ended June 30,
2000 included in income from investments of $214.7 million and a gain recognized
in 1997 of $44.5 million. EBITDA is used by management and investors as an
indicator of a company's historical ability to service existing debt. Management
believes that an increase in EBITDA is an indicator of improved ability to
service existing debt, to sustain potential future increases in debt and to
satisfy capital requirements. However, EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to either
operating income, as determined by generally accepted accounting principles, or
as an indicator of operating performance or cash flows from operating, financing
and investing activities, as determined by generally accepted accounting
principles, and is thus susceptible to varying calculations. EBITDA as presented
may not be comparable to other similarly titled measures of other companies.
Under our credit facility, the discretionary use of funds reflected by EBITDA is
limited in order to conserve funds for capital expenditures and debt service.
The balance sheet data, as adjusted, give effect to the sale, net of
expenses and discounts, of the original notes in August 2000 and the preferred
stock in September 2000, and the borrowing of the $525 million term loan under
our credit facility in September 2000.
10
<PAGE> 15
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Network....................... $ 275,909 $ 216,712 $ 438,509 $ 206,184 $ 43,013
Broadband media............... 82,678 80,264 162,849 161,192 162,009
Solutions..................... 712,512 699,934 1,431,655 1,367,404 1,189,798
Strategic investments......... -- 28,067 35,435 52,499 55,957
Eliminations.................. (22,603) (23,838) (45,452) (53,810) (22,264)
---------- ---------- ----------- ---------- ----------
Total revenues........ 1,048,496 1,001,139 2,022,996 1,733,469 1,428,513
Operating expenses:
Cost of sales................. 903,082 765,742 1,572,744 1,294,583 1,043,932
Selling, general and
administrative............. 291,195 264,852 558,652 489,173 329,513
Provision for doubtful
accounts................... 20,785 11,810 28,390 21,591 7,837
Depreciation and
amortization............... 95,862 62,112 132,437 87,081 71,863
Other......................... (1,520) 26,913 35,143 34,245 32,269
---------- ---------- ----------- ---------- ----------
Total operating
expenses........... 1,309,404 1,131,429 2,327,366 1,926,673 1,485,414
---------- ---------- ----------- ---------- ----------
Loss from operations............ $ (260,908) $ (130,290) $ (304,370) $ (193,204) $ (56,901)
========== ========== =========== ========== ==========
Loss before cumulative effect of
change in accounting
principle..................... $ (100,150) $ (199,765) $ (359,701) $ (185,729) $ (30,043)
Cumulative effect of change in
accounting principle.......... (25,377) -- -- -- --
---------- ---------- ----------- ---------- ----------
Net loss........................ $ (125,527) $ (199,765) $ (359,701) $ (185,729) $ (30,043)
========== ========== =========== ========== ==========
Basic and diluted loss per
share:
Loss before cumulative effect
of change in accounting
principle.................. $ (.22) $ (.51) $ (.87) $ (.47) $ (.08)
Cumulative effect of change in
accounting principle....... (.05) -- -- -- --
---------- ---------- ----------- ---------- ----------
Net loss...................... $ (.27) $ (.51) $ (.87) $ (.47) $ (.08)
========== ========== =========== ========== ==========
Weighted average shares
outstanding................ 464,019 395,435 412,620 395,435 395,435
OTHER FINANCIAL DATA:
EBITDA.......................... $ (48,163) $ (41,524) $ (126,082) $ (82,973) $ 44,005
Net cash provided by (used in)
operating activities.......... (173,118) (36,932) 86,704 (300,810) 147,858
Net cash provided by financing
activities.................... 1,371 898,926 3,681,603 890,623 225,953
Net cash used in investing
activities.................... (27,280) (830,292) (3,316,010) (559,099) (363,494)
Capital expenditures............ 1,446,442 572,387 1,632,852 401,004 276,249
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
AT JUNE 30, 2000
---------------------------
ACTUAL AS ADJUSTED
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital:
Cash and cash equivalents................................ $ 295,274 $ 2,031,382
Short-term investments................................... 32,535 32,535
Other.................................................... (115,504) (115,504)
Property, plant and equipment, net......................... 3,510,504 3,510,504
Total assets............................................... 6,513,662 8,276,145
Long-term debt............................................. 2,957,836 4,479,819
Total liabilities.......................................... 4,503,701 6,025,684
Redeemable cumulative convertible preferred stock.......... -- 240,500
Total stockholders' equity................................. 2,009,961 2,009,961
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table presents our consolidated ratio of earnings to fixed
charges and (deficiency) excess of earnings to cover fixed charges for the
periods shown.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- --------- --------- --------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges......... -- -- -- -- -- -- 1.43
(Deficiency) excess of
earnings to cover
fixed charges......... $(78,731) $(155,319) $(402,053) $(209,745) $(19,897) $(1,545) $6,835
</TABLE>
12
<PAGE> 17
RISK FACTORS
You should carefully consider the risks described below before deciding
whether to tender your original notes in the exchange offer. The exchange notes,
like the original notes, entail the following risks:
RISKS RELATING TO OUR OPERATIONS
WE NEED TO INCREASE THE VOLUME OF TRAFFIC ON OUR NETWORK OR OUR NETWORK WILL NOT
GENERATE PROFITS
We must substantially increase the current volume of Internet, data, voice
and video transmission on our network in order to realize the anticipated cash
flow, operating efficiencies and cost benefits of our network. If we do not
develop long-term commitments with new large-volume customers as well as
maintain our relationships with current customers, we will be unable to increase
traffic on our network, which would adversely affect our profitability.
We believe that an important source of increased traffic will be the
introduction by regional telephone companies of long distance services within
their historical service areas once they satisfy the applicable requirements
under the Telecommunications Act of 1996. Accordingly, delays in the
introduction of these services have had, and will continue to have, an adverse
effect on our traffic. See the section of this prospectus entitled
"Regulation -- General regulatory environment."
DELAYS IN PROVISIONING AND DELIVERING NETWORK SERVICES WILL ADVERSELY AFFECT OUR
OPERATIONS THROUGH 2001
We have experienced significant delays in provisioning and delivering
network services, primarily due to delays in obtaining capacity from other
providers, inadequate local connectivity, inadequate colocation space and delays
in receiving equipment from vendors. In many cases, we depend on third parties
to provide certain aspects of these services. As a result, we have experienced
corresponding delays in our ability to convert backlog orders into revenue. We
expect that these difficulties will continue to have an adverse impact on our
results of operations through 2001.
OUR NEED TO OBTAIN ADDITIONAL CAPACITY FOR OUR NETWORK FROM OTHER PROVIDERS
INCREASES OUR COSTS
We lease telecommunications capacity and obtain rights to use dark fiber
from both long distance and local telecommunications carriers in order to extend
the scope of our network. Any failure by these companies to provide timely
service to us would adversely affect our ability to serve our customers or
increase our costs of doing so. Some of our agreements with other providers
require us to pay amounts for services whether or not we use those services. We
enter into interconnection agreements with many domestic and foreign local
telephone companies but we are not always able to do so on favorable terms. In
some cases, we have to obtain service from other carriers at costs that exceed
our revenues for providing that service. Primarily as a result of these costs,
for the six months ended June 30, 2000, our network unit's cost of sales
exceeded revenues by $41.0 million.
Costs of obtaining local service from other carriers comprise a significant
proportion of the operating expenses of long distance carriers, including our
network unit. Similarly, a large proportion of the costs of providing
international service consists of payments to other carriers. Changes in
regulation, particularly the regulation of local and international
telecommunications carriers, could indirectly but significantly affect our
network unit's competitive position. These
13
<PAGE> 18
changes could increase or decrease our costs, relative to those of our
competitors, of providing services.
DURING OUR LIMITED OPERATING HISTORY, WE HAVE GENERATED LOSSES WHICH WE EXPECT
WILL CONTINUE
In connection with the operation of our business, including the build-out
of our network, we have experienced significant operating and net losses and
working capital deficits. We expect to continue to experience losses through
2001, and may not be able to achieve or sustain operating profitability in the
future. Our network unit experienced operating losses of $157.4 million in 1999
and $184.5 million for the six months ended June 30, 2000. In our solutions
unit, operating losses were $73.6 million in 1999 and $61.5 million for the six
months ended June 30, 2000. Operating losses in our broadband media unit were
$26.3 million in 1999 and $11.8 million for the six months ended June 30, 2000,
giving effect to the realignment of our business units in the first quarter of
2000. Continued operating losses could limit our ability to obtain the cash
needed to expand our network, make interest and principal payments on our debt
or fund our other business needs.
WE ARE INCURRING OPERATING LOSSES IN OUR SOLUTIONS UNIT PRIMARILY AS A RESULT OF
DIFFICULTIES INTEGRATING AN ACQUISITION
Operating losses attributable to our solutions unit were largely due to
difficulties we have had in integrating our equipment distribution business with
Nortel's equipment distribution business, which we purchased in April 1997, and
in managing the increased complexity of our business. We expect that our
financial results in 2000 will continue to be adversely affected by these
difficulties. These difficulties have included an inability to operate and
manage our business effectively with multiple information systems, internal
control deficiencies, lost sales, customer dissatisfaction and increased
selling, general and administrative costs, including increased bad debt expense.
OUR CURRENT REVENUES COULD BE SIGNIFICANTLY REDUCED IF WE TAKE ACTION ON CERTAIN
STRATEGIC ALTERNATIVES WE ARE CONSIDERING RELATING TO OUR SOLUTIONS UNIT
We continue to evaluate our options for maximizing the total return from
our investment in our solutions unit, including:
- implementing cost reduction measures
- increasing our focus on professional services and managed services, which
we believe are more profitable than some of our existing products and
services
- eliminating unprofitable product lines, customers or markets
- alliances or combinations with other providers of communications products
or services
- other strategic alternatives which may include a restructuring of the
business
A substantial amount of our current revenues is derived from our solutions
unit. If we implement some or all of the options being considered, we could have
a substantial decrease in our consolidated revenues.
14
<PAGE> 19
WE NEED TO CONTINUE TO EXPAND AND ADAPT OUR NETWORK IN THE FUTURE IN ORDER TO
REMAIN COMPETITIVE, WHICH COULD BE VERY COSTLY
The planned expansion of our network will require substantial additional
financial, operational and managerial resources, which may not be available to
us. We likely will need to continue to expand our network or adapt its
components to respond to the following:
- an increasing number of customers
- demand for greater transmission capacity
- changes in our customers' service requirements
- technological advances
- government regulation
SBC COULD TERMINATE OUR STRATEGIC ALLIANCE, WHICH COULD HARM OUR BUSINESS
If SBC terminates our strategic alliance, there could be a material adverse
effect on our business, financial condition and results of operations. Because
SBC is a major customer of ours, termination of our agreements with SBC would
result in decreased revenues and increased marginal costs. Our alliance
agreements with SBC are material to us, and SBC may terminate these agreements
in certain cases, including the following:
- if we begin to offer retail long distance or retail local services on our
network under some circumstances
- if the action or failure to act of any regulatory authority materially
frustrates or hinders the purpose of any of our agreements with SBC, the
affected agreement may be terminated
- if we materially breach our agreements with SBC causing a material
adverse effect on the commercial value of the relationship to SBC
- if we have a change of control without SBC's consent, including a change
of control that may result from the separation of our business from
Williams' energy business
- if SBC acquires an entity that owns a nationwide fiber-optic network in
the United States and determines not to sell us long distance assets
In the event of termination due to our actions, we could be required to pay
SBC's transition costs of up to $200 million. Similarly, in the event of
termination due to SBC's actions, SBC could be required to pay our transition
costs of up to $200 million, even though our costs may be higher. See the
section of this prospectus entitled "Business -- Strategic alliances -- SBC
Communications Inc." for more information on our strategic alliance with SBC.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT WILL BE DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND FUTURE PROSPECTS
Because of our limited operating history, you have limited operating and
financial data about us upon which to assess our business, performance and
prospects or an investment in the notes. In addition, we have insufficient
results for investors and securities analysts to use to identify historical
trends or even to make quarter to quarter comparisons of our operating results.
15
<PAGE> 20
WE MUST CONSTRUCT OUR NETWORK EFFICIENTLY AND ON TIME TO INCREASE OUR REVENUES,
BUT FACTORS OUTSIDE OUR CONTROL MAY PREVENT US FROM DOING SO, WHICH WOULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS
We cannot guarantee that we will be successful in completing our network in
the time planned. Our ability to become a leading provider of communications
services to other communications service providers and our ability to increase
our revenues will depend in large part upon the successful, timely and
cost-effective construction of our network. Difficulties in constructing our
network could increase its estimated costs and delay its scheduled completion,
either of which could have a material adverse effect on our business. We have
already sold capacity on the portion of our network that is currently under
construction. A failure to complete construction on time could result in
penalties, order cancellations or the loss of customers that could have a
material adverse effect on our business.
In addition to factors described elsewhere in "Risk Factors," factors
beyond our control include:
- costs related to construction of route segments
- timely performance by contractors
- the technical performance and availability of the fiber and equipment
used in our network
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY WITH PARTICIPANTS THAT HAVE GREATER
RESOURCES AND MORE EXISTING CUSTOMERS THAN WE HAVE, WHICH COULD LIMIT OUR
ABILITY TO INCREASE OUR MARKET SHARE
Our network unit's success depends upon our ability to increase our share
of the carrier services market by providing high quality services at prices
equal to or below those of our competitors. Increased competition could lead to
price reductions, fewer large-volume sales, under-utilization of resources,
reduced operating margins and loss of market share. Many of our network unit's
competitors have, and some potential competitors are likely to enjoy,
substantial competitive advantages, including the following:
- greater name recognition
- greater financial, technical, marketing and other resources
- a larger installed base of customers
- well-established relationships with current and potential customers
- more extensive knowledge of the high-volume long distance services
industry
- a greater international presence
- a greater local presence
Our network unit's major competitors include Qwest Communications
International, Inc., Level 3 Communications, Inc., Broadwing Communications,
Inc., and Global Crossing Communications, Inc., as well as the three U.S. long
distance fiber-optic networks that are owned by AT&T Corp., WorldCom, Inc. and
Sprint Corp. Other companies have announced plans to construct significant
fiber-optic networks. Our network unit's services in the United States face
additional competitors, including the regional telephone companies and other
local telephone companies. Foreign carriers may also compete in the U.S. market.
Our network unit's services outside the United States face additional
competitors, including national telephone companies in foreign countries and
other owners of submarine and regional fiber-optic capacity.
16
<PAGE> 21
Our solutions unit faces competition from communications equipment
manufacturers and distributors, as well as from other companies that offer
services to integrate systems and equipment of different types. Increased
competition could lead to price reductions, fewer sales and client projects,
under-utilization of employees, reduced operating margins and loss of market
share. Many of our solutions unit's competitors have significantly greater
financial, technical and marketing resources or greater name recognition than we
currently have. Our solutions unit also faces competition from lower cost
providers and from new entrants to the market.
CONSOLIDATION WITHIN THE TELECOMMUNICATIONS INDUSTRY COULD REDUCE OUR MARKET
SHARE AND HARM OUR FINANCIAL PERFORMANCE
Consolidation of some of the major service providers and strategic
alliances in the communications industry have occurred in response to the
passage of the Telecommunications Act of 1996 and the World Trade Organization's
Basic Telecommunications Agreement. Further consolidation could lead to fewer
large-volume sales, reduced operating margins and loss of market share.
Strategic investments and alliances, such as BellSouth's equity interest in
Qwest, Qwest's acquisition of US West, Intermedia's alliance with Global One and
WorldCom's proposed acquisition of Intermedia, may reduce our opportunities and
increase the competition we face.
PRICES FOR NETWORK SERVICES MAY DECLINE, WHICH MAY REDUCE OUR REVENUES
The prices we charge our customers for network services could decline for
the following reasons:
- installation by us and our competitors, some of which are expanding
capacity on their existing networks or developing new networks, of fiber
and related equipment that provides substantially more transmission
capacity than needed
- recent and future technological advances that enable substantial
increases in, or better usage of, the transmission capacity of both new
and existing fiber
- strategic alliances or similar transactions that increase the parties'
purchasing power, such as purchasing alliances among regional telephone
companies for long distance capacity
If prices for network services decline, we may experience a decline in
revenues that would have a material adverse effect on our operations.
SERVICE INTERRUPTIONS ON OUR NETWORK COULD EXPOSE US TO LIABILITY OR CAUSE US TO
LOSE CUSTOMERS
Our operations depend on our ability to avoid and mitigate any damages from
power losses, excessive sustained or peak user demand, telecommunications
failures, network software flaws, transmission cable cuts or natural disasters.
The failure of any equipment or facility on our network could result in the
interruption of customer service until we make necessary repairs or install
replacement equipment. Additionally, if a carrier or other service provider
fails to provide the communications capacity that we have leased in order to
provide service to our customers, service to our customers would be interrupted.
If service is not restored in a timely manner, agreements with our customers may
obligate us to provide credits or other remedies to them, which would reduce our
revenues. Service disruptions could also damage our reputation with customers,
causing us to lose existing customers or have difficulty attracting new ones.
Many of our customers' communications needs will be extremely time sensitive,
and delays in service delivery may cause significant losses to a customer using
our network. Our network may also contain undetected design faults and software
"bugs" that, despite our testing, may be discovered only after our network has
been completed and is in use.
17
<PAGE> 22
WE NEED TO OBTAIN AND MAINTAIN THE NECESSARY RIGHTS OF WAY FOR OUR NETWORK IN
ORDER TO OPERATE THE NETWORK; IF WE ARE UNABLE TO OBTAIN AND MAINTAIN RIGHTS OF
WAY OVER DESIRED ROUTES ON COMMERCIALLY REASONABLE TERMS, OUR PROFITABILITY MAY
BE ADVERSELY AFFECTED
If we are unable to maintain all of our existing rights and permits or
obtain and maintain the additional rights and permits needed to implement our
business plan on acceptable terms, we may incur additional costs that could have
a material adverse effect on our business. We are a defendant in several
lawsuits that the plaintiffs seek to have certified as class actions which
challenge, among other things, our right to use our rights of way. It is likely
that we will be subject to additional suits challenging use of our rights of way
and that those plaintiffs also will seek class certification. This litigation
may increase our costs and adversely affect our profitability. See the section
of this prospectus entitled "Business -- Legal proceedings."
COMMUNICATIONS TECHNOLOGY CHANGES VERY RAPIDLY, AND OUR TECHNOLOGY COULD BE
RENDERED OBSOLETE
We expect that new products and technologies will emerge and that existing
products and technologies, including voice transmission over the Internet and
high speed transmission of packets of data, will further develop. These new
products and technologies may reduce the prices for our services or they may be
superior to, and render obsolete, the products and services we offer and the
technologies we use. As a result, our most significant competitors in the future
may be new entrants to our markets which would not be burdened by an installed
base of older equipment. It may be very expensive for us to upgrade our products
and technology in order to continue to compete effectively. Our future success
depends, in part, on our ability to anticipate and adapt in a timely manner to
technological changes, including wider acceptance and usage of voice
transmission over the Internet.
WE HAVE LIMITED OPPORTUNITIES FOR GROWTH IN THE MARKETS CURRENTLY SERVED BY OUR
BROADBAND MEDIA UNIT
Our broadband media unit's primary business is the transmission of video
and audio signals from live events to television networks and of advertisements
to local television stations. We have significant market share in this area.
However, these markets are growing slowly and are subject to increased
competition as technology improves. We must successfully develop and deliver new
service offerings to grow this area of the business.
TERMINATION OF RELATIONSHIPS WITH KEY VENDORS COULD RESULT IN DELAYS OR
INCREASED COSTS
Our solutions unit has a series of agreements that authorize us to act as a
distributor of communications products for a variety of vendors, most
significantly Nortel, as well as Cisco Systems, Inc., NEC Corp. and others. We
cannot assure you that any vendor with which we do business will elect to
continue its relationship with us on terms and conditions acceptable to us. We
believe that an interruption, or substantial modification, of our distribution
relationships, particularly with Nortel, could have a material adverse effect on
our solutions unit's business, operating results and financial condition, in
that we may no longer be able to provide services and products to our customers,
or the cost of doing so may be more expensive. Periodically, our distribution
agreements expire and we must negotiate new agreements if we desire to continue
distributing the vendor's products at competitive prices. In addition, under our
distribution agreement with Nortel, if we do not purchase a minimum percentage
of our total product mix from Nortel, we each have the option to change the
ownership structure of Williams Communications Solutions, LLC. If Nortel is no
longer an owner of Solutions LLC, there is no guarantee that Nortel would
continue its distribution agreement with our solutions unit once it is
18
<PAGE> 23
no longer required to do so under the terms of the agreement. See the section of
this prospectus entitled "Business -- Our solutions unit -- LLC agreement with
Nortel" for more information.
WE ARE DEPENDENT ON A SMALL NUMBER OF CUSTOMERS, AS A RESULT OF WHICH THE LOSS
OF EVEN A SINGLE CUSTOMER OR A FEW CUSTOMERS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS
We currently derive a large percentage of the revenue generated by our
network and broadband media units from a small number of customers, as a result
of which the loss of even a single customer or a few customers could have a
material adverse effect on our business. There is no guarantee that these
customers will continue to do business with us after the expiration of their
existing commitments with us.
WE MUST DEVELOP EFFECTIVE BUSINESS SUPPORT SYSTEMS TO IMPLEMENT CUSTOMER ORDERS
AND BILL FOR SERVICES
Developing effective business support systems is a complicated undertaking
requiring significant resources and expertise and support from third-party
vendors. Business support systems are needed for implementing customer orders
for services and monthly billing for these services. Because we have grown
rapidly and expect to continue increasing the number and volume of products and
services we offer, we need to develop these business support systems in a timely
manner to meet our customers' current requirements and proposed new product and
service offerings. Our failure to develop effective business support systems in
a timely manner could have a material adverse effect on our business.
OUR INTERNATIONAL OPERATIONS AND INVESTMENTS EXPOSE US TO RISKS THAT COULD HARM
OUR BUSINESS
We have or expect to have operations and investments in many different
countries throughout the world, including Argentina, Australia, Brazil, Canada,
Chile, China, Japan and Mexico, as well as rights to undersea cable capacity
extending to other countries. We are exposed to risks inherent in international
operations. These include:
- general economic, social and political conditions
- the difficulty of enforcing agreements and collecting receivables through
certain foreign legal systems
- tax rates in some foreign countries may exceed those in the United States
- foreign earnings may be subject to withholding requirements or the
imposition of tariffs, exchange controls or other restrictions
- difficulties and costs of compliance with foreign laws and regulations
that impose restrictions on our investments and operations, with
penalties for noncompliance, including loss of license and monetary fines
- difficulties in obtaining licenses or interconnection arrangements on
acceptable terms or at all
- changes in U.S. laws and regulations relating to foreign trade and
investment
CURRENCY EXCHANGE RATE FLUCTUATIONS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS
Our international operations will cause our results of operations and the
value of our assets to be affected by exchange rates between the U.S. dollar and
the currencies of other countries in which we have operations and assets.
Fluctuations in foreign currency rates may adversely affect reported earnings
and the comparability of period-to-period results of operations. On January 13,
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1999, the Brazilian Central Bank removed the limits on the valuation of the
Brazilian real compared to the U.S. dollar, allowing free market fluctuation of
the exchange rate. As a result, the value of the Brazilian real in U.S. dollars
had declined approximately 33% from December 31, 1998, to December 31, 1999. The
Brazilian real did not experience a significant exchange rate decline in the
first six months of 2000. The ultimate duration and severity of the conditions
in Brazil may have a material adverse effect on our investments there. In
addition, Mexico and Chile have historically experienced exchange rate
volatility. Changes in currency exchange rates may affect the relative prices at
which we and our foreign competitors sell products in the same market. In
addition, changes in the values of the relevant currencies may affect the costs
of items required in our operations.
RISKS RELATING TO OUR COMPANY
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING, OUR ABILITY TO EXPAND AND
ENHANCE OUR NETWORK AND TO CONDUCT OUR BUSINESS GENERALLY WOULD BE ADVERSELY
AFFECTED
We will need additional capital to expand and enhance our network and meet
our business strategies. We estimate that capital expenditures for our network
in 2000 and 2001 will total $5.4 billion. Our inability to raise funds would
have an adverse effect on our operations. If we decide to raise funds through
the incurrence of additional debt, we may become subject to additional or more
restrictive financial covenants and ratios, and the risks discussed below
associated with maintaining substantial debt will increase. The actual amount
and timing of our future capital requirements may differ materially from our
estimates as a result of financial, business and other factors, many of which
are beyond our control. Our ability to arrange financing and the costs of
financing depend upon many factors, including:
- general economic and capital markets conditions
- conditions in the communications market
- regulatory developments
- credit availability from banks or other lenders
- investor confidence in the telecommunications industry and our company
- the success of our network
- provisions of tax and securities laws that are conducive to raising
capital
In addition, Standard & Poor's downgraded our corporate credit and bank
loan rating from "BB" to "BB-minus" and our senior unsecured debt rating from
"BB-minus" to "B-plus" on July 25, 2000, and, on July 27, 2000, Moody's Investor
Service revised its outlook for us to stable from positive. These downgrades
could negatively affect our ability to arrange additional financing and could
increase the costs of any financing that we obtain.
WE HAVE SUBSTANTIAL DEBT, WHICH MAY HINDER OUR GROWTH AND PUT US AT A
COMPETITIVE DISADVANTAGE
Our substantial debt may have important consequences for us, including the
following:
- our ability to obtain additional financing for acquisitions, working
capital, investments and capital or other expenditures could be impaired
or financing may not be available on terms acceptable to us
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- a substantial portion of our cash flow will be used to make principal and
interest payments on our debt, reducing the funds that would otherwise be
available to us for our operations and future business opportunities
- a substantial decrease in our net operating cash flows or an increase in
our expenses could make it difficult for us to meet our debt service
requirements and force us to modify our operations
- we may have more debt than our competitors, which may place us at a
competitive disadvantage
- our substantial debt may make us more vulnerable to a downturn in our
business or the economy generally
We had substantial deficiencies of earnings to cover fixed charges of $78.7
million for the six months ended June 30, 2000, $402.1 million in 1999, $209.7
million in 1998, and $19.9 million in 1997.
WE MAY NOT BE ABLE TO REPAY OUR EXISTING DEBT; FAILURE TO DO SO OR TO REFINANCE
OUR DEBT COULD PREVENT US FROM IMPLEMENTING OUR BUSINESS PLANS AND REALIZING
ANTICIPATED PROFITS
If we are unable to refinance our debt or to raise additional capital on
acceptable terms, our ability to expand and enhance our network and to implement
our other business plans would be impaired. As of June 30, 2000, as adjusted to
give effect to the sale of the original notes in August 2000 and the borrowing
of the $525 million term loan under our credit facility, which otherwise would
have expired on September 7, 2000, we would have had approximately $4.5 billion
of long-term debt, approximately $2.0 billion of stockholders' equity and a
ratio of debt to equity of approximately 2.24 to 1.00. Our ability to make
interest and principal payments on our debt and borrow additional funds on
favorable terms depends on the future performance of our business. If we do not
have enough cash flow in the future to make interest or principal payments on
our debt, we may be required to refinance all or a part of our debt or to raise
additional capital. We cannot assure you that we will be able to refinance our
debt or raise additional capital on terms acceptable to us.
RESTRICTIONS AND COVENANTS IN OUR DEBT AGREEMENTS LIMIT OUR ABILITY TO CONDUCT
OUR BUSINESS AND COULD PREVENT US FROM OBTAINING FUNDS WHEN WE NEED THEM IN THE
FUTURE
Our debt and financing arrangements contain a number of significant
limitations that restrict our ability to, among other things:
- borrow additional money or issue guarantees
- pay dividends or other distributions to our stockholders
- make capital expenditures and investments
- create liens on our assets
- sell assets
- enter into sale-leaseback transactions
- enter into transactions with affiliates
- engage in mergers or consolidations
- materially change our lines of business
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In addition, our credit facility currently requires us to maintain
specified financial ratios, as defined therein, including a ratio of total debt,
net of excess cash, to contributed capital of not more than 0.65 to 1.00.
Although our credit facility provides for a total commitment of $1.05 billion,
based on our ratio of net debt to contributed capital as of June 30, 2000, after
giving effect to the sale of the original notes and the preferred stock, and the
borrowing of the $525 million term loan under our credit facility, we could not
borrow the full amount of the revolving portion of our credit facility without
issuing additional equity or amending our credit facility. These restrictions
may limit our ability to obtain future financing, fund needed capital
expenditures or withstand a future downturn in our business or the economy. See
the section of this prospectus entitled "Description of Other Indebtedness and
Other Financing Arrangements" for more information.
IF WE ARE UNABLE TO COMPLY WITH THE RESTRICTIONS AND COVENANTS IN OUR DEBT
AGREEMENTS, THERE WOULD BE A DEFAULT UNDER THE TERMS OF THESE AGREEMENTS, WHICH
COULD RESULT IN AN ACCELERATION OF PAYMENT OF FUNDS THAT WE HAVE BORROWED
If we are unable to comply with the restrictions and covenants in our debt
agreements, there would be a default under the terms of our agreements. Some of
our debt agreements also require us, and certain of our subsidiaries, to
maintain specified financial ratios and satisfy financial tests. Our ability to
meet these financial ratios and tests may be affected by events beyond our
control. As a result, we cannot assure you that we will be able to meet such
tests. In the event of a default under these agreements, our 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 occur, we cannot
assure you that we would be able to make the necessary payments to the lenders
or that we would be able to find alternative financing. Even if we could obtain
alternative financing, we cannot assure you that it would be on terms that are
acceptable to us. See the section of this prospectus entitled "Description of
Other Indebtedness and Other Financing Arrangements" for more information.
WE MUST ATTRACT AND RETAIN QUALIFIED EMPLOYEES TO ENSURE OUR GROWTH AND SUCCESS
We believe that our growth and future success will depend in large part on
our ability to attract and retain highly skilled and qualified personnel. Any
inability of ours in the future to hire, train and retain a sufficient number of
qualified employees could impair our ability to manage and maintain our business
and our customers' communications infrastructures. Some of the problems
experienced by our solutions unit in 1998 and 1999 were due to high turnover of
managerial, technical and sales personnel, as well as insufficient management
resources to run our solutions unit. The competition for qualified personnel in
the communications industry is intense.
WE MAY BE UNABLE TO SUCCESSFULLY IDENTIFY, MANAGE AND ASSIMILATE FUTURE
ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES, WHICH COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS
We are continually evaluating potential investments and strategic
opportunities to expand our network, enhance our connectivity and add traffic to
our network. In the future, we may seek additional investments, strategic
alliances or similar arrangements, which may expose us to risks such as:
- the difficulty of identifying appropriate investments, strategic allies
or opportunities
- the possibility that our senior management may be required to spend
considerable time negotiating agreements and monitoring these
arrangements
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- the possibility that we may not be able to finalize definitive agreements
- potential regulatory issues applicable to telecommunications businesses
- the loss or reduction in value of our capital investment
- the inability of management to capitalize on the opportunities presented
by these arrangements
- the possibility of insolvency of a strategic ally
- the possibility of restrictions on our ability to make some acquisitions
and dispositions in the event that Williams completes a tax-free spin-off
of our company.
We cannot assure you that we would successfully overcome these risks or any
other problems encountered with these investments, strategic alliances or
similar arrangements.
OUR BUSINESS IS SUBJECT TO REGULATION THAT COULD CHANGE IN AN ADVERSE MANNER
The communications business is subject to federal, state, local and foreign
regulation. Regulation of the telecommunications industry is changing rapidly,
with ongoing effects on our opportunities, competition and other aspects of our
business. Future regulatory, judicial or legislative activities could have a
material adverse effect on us. Our failure to obtain required approvals in time
to deliver our services to customers could also have a material adverse effect
on us. The regulatory environment varies substantially from state to state and
from country to country. Generally, we must obtain and maintain certificates of
authority from regulatory bodies in most states where we offer intrastate
services or, in some cases, in order to use eminent domain powers to obtain
rights of way. We must obtain prior regulatory approval of the services,
equipment and pricing for our intrastate services in most of these
jurisdictions. We also must obtain prior approval from the Federal
Communications Commission for cable landings and some other facilities and
services to be provided. Similarly, to provide services or operate
infrastructure in many countries, we must obtain prior approval. Foreign
regulations may affect our ability to originate or terminate services in a
country, our ownership interest in a carrier, and the facilities ownership,
services, rates, costs, interconnection arrangements, and other conditions for a
carrier operating in that country. In addition, some of our alliance partners
are subject to extensive regulation, which could adversely affect the expected
benefits of our arrangements with them by preventing us or them from selling
each other's products and services as planned. For example, while the terms of
our agreements with SBC are intended to comply with restrictions on SBC's
provision of long distance services, various aspects of these arrangements have
not been tested under the Telecommunications Act. See the section of this
prospectus entitled "Regulation" for more information.
FAILURE TO DEVELOP THE "WILLIAMS COMMUNICATIONS" BRAND COULD ADVERSELY AFFECT
OUR BUSINESS
We believe that brand recognition is very important in the communications
industry. If the "Williams Communications" brand awareness does not increase or
is weakened, it could decrease the attractiveness of our company's product and
service offerings to potential customers, which could result in decreased
revenues. We have licensed the use of the Williams trademark from Williams for
so long as Williams owns at least 50% of our outstanding capital stock. The loss
of this license would require us to establish a new brand and build new brand
recognition. See the section of this prospectus entitled "Relationship Between
Our Company and Williams" for more information.
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RISKS RELATING TO OUR RELATIONSHIP WITH WILLIAMS
WILLIAMS' PROPOSAL TO SEPARATE OUR COMMUNICATIONS BUSINESS FROM ITS ENERGY
BUSINESS COULD RESULT IN A CHANGE OF CONTROL THAT COULD HAVE AN ADVERSE EFFECT
ON US
On July 24, 2000, Williams announced that its Board of directors had
authorized its management to pursue a course of action that, if successful,
would lead to a complete separation of our business from Williams' energy
business.
An event of default under our credit facility will occur if Williams holds
less than 75% of the voting power of our outstanding voting stock or less than
65% of our issued and outstanding capital stock. Accordingly, we likely will be
required to seek the consent of our lenders under our credit facility if
Williams' completes the separation of our business from its energy business. We
may not be able to obtain this consent, which would result in an event of
default. An event of default resulting in the acceleration of amounts
outstanding under the credit facility would also constitute an event of default
under the Williams note and the indentures governing the notes and the senior
redeemable notes that we sold in October 1999 and August 2000. Any of these
events of default could result in acceleration of our debt.
In addition, our strategic alliance agreements with SBC and Telefonos de
Mexico are subject to termination upon a change of control of our company, which
may be triggered by a separation of our business from Williams' energy business.
If we are unable to obtain the consents of SBC and Telefonos de Mexico if
Williams completes the separation of our business from its energy business in a
manner that results in a change of control under the terms of the respective
alliance agreements, SBC and Telefonos de Mexico may terminate these agreements.
Furthermore, SBC, Telefonos de Mexico and Intel have agreed not to sell their
shares of our common stock to anyone except their respective affiliates for a
specified period of time. These restrictions will lapse upon a change of control
of our company. Also upon a change of control of our company, Nortel may require
us to buy its 30% ownership interest in Solutions LLC.
Upon Williams' distribution of its shares of Class B common stock, a third
party could acquire a significant interest in our stock. We cannot assure you
that a third party with control or influence over us would take actions in the
best interests of our other stockholders. In addition, a change of control may
occur under our preferred stock and our existing notes, including the original
notes and the exchange notes, if any other person or group acquires 35% or more
of the voting power of our stock and the rating of our senior redeemable notes
declines. Upon such occurrence, we will be required to make an offer to purchase
the preferred stock at a cash price equal to 100% of the liquidation preference,
plus accumulated and unpaid dividends, including special dividends, if any, and
all of our existing notes at a cash price equal to 101% of the principal amount
plus accrued and unpaid interest. We cannot assure you that we will have
adequate financial resources to purchase the preferred stock and the senior
redeemable notes in the event of a change of control, particularly if we have to
refinance other indebtedness. If we are unable to complete the repurchases of
the tendered notes upon a change of control, our failure to do so would
constitute an event of default under the indenture for such notes. This and
other events of default can cause acceleration of our other debt.
A TAX-FREE SPIN-OFF OF OUR COMPANY BY WILLIAMS COULD RESTRICT OUR ABILITY TO
UNDERTAKE CERTAIN TRANSACTIONS
On August 8, 2000, Williams announced that the IRS has issued a favorable
ruling on a proposed tax-free distribution of our Class B common stock to
Williams' stockholders. In order to preserve the benefit of the ruling, we may
be restricted in our ability to undertake some transactions following a
spin-off, including a disposition of a material portion of our assets outside
the ordinary course of business; a merger or liquidation; some issuances of our
capital stock; and,
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acquisitions or strategic combinations that would, individually or in the
aggregate, result in a significant change in our ownership.
POTENTIAL FOR CONTINGENT TAX LIABILITY RELATED TO A SPIN-OFF OF OUR COMPANY BY
WILLIAMS
If we are spun-off by Williams, we may agree not to take any action that
would cause the spin-off to be taxable to Williams under section 355 of the
Internal Revenue Code of 1986, as amended. We may also agree to indemnify
Williams for any liability suffered by it if we were to take any such action.
For example, a spin-off could be taxable to Williams if one or more persons,
acting independently or in concert, acquire 50% or more of our stock within two
years before or after such a spin-off. If the spin-off were taxable to Williams
and we agreed to indemnify Williams, our payment to Williams under such an
indemnity agreement would have a material adverse effect on our financial
condition.
WILLIAMS CURRENTLY HAS SIGNIFICANT CONTROL OVER OUR COMPANY, WHICH COULD
ADVERSELY AFFECT YOU
Williams holds 100% of our Class B common stock and approximately 98% of
the voting power of our company. As a result, Williams is in a position to cause
our company to take actions that benefit only Williams. As long as Williams
continues to beneficially own shares of capital stock representing more than 50%
of the combined voting power of our outstanding capital stock, Williams will be
able to exercise a controlling influence over our company, including:
- composition of our board of directors and, through it, the direction and
policies of our company, including the appointment and removal of
officers
- mergers or other business combinations involving our company
- acquisition or disposition of assets by our company
- future issuances of common stock or other securities of our company
- incurrence of additional debt by our company
- amendments, waivers and modifications of the agreements between us and
Williams
- payment of dividends on our common stock
- amendments to our certificate of incorporation
- treatment of items in our tax returns that are consolidated or combined
with Williams' tax returns
CONFLICTS OF INTEREST MAY ARISE BETWEEN US AND WILLIAMS THAT COULD BE RESOLVED
IN A MANNER UNFAVORABLE TO OUR COMPANY
Conflicts of interest could arise relating to the nature, quality and
pricing of services or products provided by us to Williams or by Williams to us,
any payment of dividends by us to Williams, any prepayment of the borrowings by
us from Williams and general issues relating to maintaining or increasing our
profitability. In addition, one of our directors is both a senior officer and
director, and six of our directors are also senior officers, of Williams, and
some of these individuals and a number of our executive officers own substantial
amounts of Williams stock and options for shares of Williams stock. There could
be conflicts of interest when these directors and officers are faced with
decisions that could have different implications for our company and Williams.
Our directors who are also directors or executive officers of Williams will
have obligations to both companies and may have conflicts of interest with
respect to matters potentially or actually involving or affecting us, such as
acquisitions, financings and other corporate opportunities that may be suitable
for both us and Williams. As a result, it is possible that these directors and
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executive officers could place the interests of Williams ahead of our interests
when the two are incompatible. Our restated certificate of incorporation
contains provisions designed to facilitate resolution of these potential
conflicts which we believe will assist the directors of our company in
fulfilling their fiduciary duties to our stockholders. Although these provisions
are designed to resolve conflicts between us and Williams fairly, we cannot
assure you that this will occur. See the section of this prospectus entitled
"Relationship Between Our Company and Williams -- Conflicts of interest" for
more information.
WE RELY ON WILLIAMS FOR ADMINISTRATIVE SERVICES, WHICH WILLIAMS COULD CEASE TO
PROVIDE TO US AT ANY TIME; WE MAY BE UNABLE TO REPLACE THESE SERVICES IN A
TIMELY MANNER OR ON ACCEPTABLE TERMS
Prior to our initial public offering, we had never operated as a
stand-alone company and had relied on Williams for administrative and other
services. We continue to rely on Williams for these services pursuant to the
terms of an administrative services agreement. We cannot assure you, however,
that these services will continue to be sustained at the same level or that we
will obtain the same benefits. We also lease and sub-lease office and
manufacturing facilities from Williams. We cannot assure you that, after the
expiration of these arrangements, we will be able to replace the administrative
services or enter into appropriate leases in a timely manner or on terms and
conditions, including cost, as favorable as those we receive from Williams.
These agreements were made in the context of a parent-subsidiary relationship.
The prices charged to us under these agreements may be higher or lower than the
prices that may be charged by unaffiliated third parties for similar services.
For more information about these arrangements, see the section of this
prospectus entitled "Relationship Between Our Company and Williams --
Administrative services agreement."
WILLIAMS MAY NOT PROVIDE ADDITIONAL CAPITAL OR CREDIT SUPPORT TO US, WHICH MAY
ADVERSELY AFFECT OUR ABILITY TO MAKE FUTURE BORROWINGS
A significant portion of our capital needs prior to our initial public
offering were funded through borrowings or capital contributions from Williams
or through external financings guaranteed by Williams. Williams may not provide
us with additional funding or credit support. Without Williams' funding and
credit support, we may have less borrowing capacity and funds may only be
available to us on less favorable terms.
RISKS RELATING TO OUR NOTES
WE DEPEND ON OUR SUBSIDIARIES TO PROVIDE US WITH FUNDS TO MEET OUR OBLIGATIONS,
BUT THEY ARE NOT OBLIGATED TO REPAY THE NOTES -- IF OUR SUBSIDIARIES ARE UNABLE
TO DIVIDEND CASH TO US WHEN WE NEED IT, WE MAY BE UNABLE TO SATISFY OUR
OBLIGATIONS UNDER THE NOTES, INCLUDING MAKING INTEREST AND PRINCIPAL PAYMENTS
We are a holding company with limited direct operations and few assets
other than the stock of our subsidiaries. We are dependent on the cash flows of
our subsidiaries to meet our obligations, including the payment of principal of
and interest on the notes. If our subsidiaries are unable to dividend cash to us
when we need it, we may be unable to meet these obligations. Our subsidiaries
are separate legal entities that will have no obligation to pay any amounts due
under the notes or to make any funds available for payment of amounts due under
the notes, whether by dividends, loans or other payments, unless they are
required to become guarantors of the notes. Initially, none of our subsidiaries
will guarantee the payment of the notes. In addition, our subsidiaries will be
prohibited from making any payments or advances to us at any time that we are in
default under our credit facility. The ability of our subsidiaries to make any
payments or advances to us is limited by the laws of the relevant jurisdictions
in which our subsidiaries are organized or located. In some cases, prior or
subsequent approval of any such payments or
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advances may be required from applicable regulatory bodies or other governmental
entities. See the sections of this prospectus entitled "Business" and
"Description of the Notes" for more information.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS EFFECTIVELY JUNIOR TO EXISTING
AND FUTURE DEBT OF OUR SUBSIDIARIES -- THE RIGHTS OF HOLDERS OF NOTES TO
PARTICIPATE IN THE ASSETS OF ANY OF OUR SUBSIDIARIES UPON ANY LIQUIDATION OR
REORGANIZATION OF ANY SUBSIDIARY WILL BE SUBJECT TO THE PRIOR CLAIMS OF THAT
SUBSIDIARY'S CREDITORS
The notes will effectively rank junior to all existing and future
liabilities of our subsidiaries, including trade payables. The rights of holders
of notes to participate in the assets of our subsidiaries upon any liquidation
or reorganization of any subsidiary will rank junior to the prior claims of that
subsidiary's creditors. At June 30, 2000, our consolidated subsidiaries had
approximately $2.5 billion of outstanding liabilities, excluding intercompany
debt but including $988.1 million of debt owed to Williams. The terms of the
indenture for the notes will permit us and our subsidiaries to incur substantial
amounts of additional debt, including under our credit facility and the Williams
note.
WE MAY INCUR DEBT IN THE FUTURE THAT IS SECURED BY OUR ASSETS AND THAT WOULD
EFFECTIVELY RANK SENIOR TO THE NOTES -- THE RIGHTS OF HOLDERS OF NOTES TO
RECEIVE PAYMENTS ON THE NOTES WILL BE JUNIOR TO THE RIGHTS OF HOLDERS OF OUR
SECURED DEBT
The rights of holders of notes will effectively rank junior to the rights
of the holders of all of our secured debt to the extent of the value of the
assets securing our secured debt. The terms of the indenture for the notes
permit us to, and our other debt agreements will permit us and our subsidiaries
to, incur secured debt.
WE MAY NOT BE PERMITTED TO REPURCHASE THE NOTES AS REQUIRED BY THE INDENTURE OR
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO PAY FOR THE NOTES
-- IF WE FAIL TO COMPLY WITH THE INDENTURE OUR DEBT CAN BE ACCELERATED
If there is a change of control of our company and the rating of our
existing notes or the notes offered hereby declines, unless we have given a
notice of redemption, each holder of such notes will have the right to require
us to repurchase all or any part of that holder's notes at a purchase price in
cash equal to 101% of the principal amount, plus accrued and unpaid interest, if
any. Our ability to repurchase notes may be limited by the terms of
then-existing contractual obligations of our company and of our subsidiaries. If
this is the case, then in order to repurchase notes upon a change of control, we
would have to repay all of our obligations under these agreements or would have
to obtain the consent of holders of this debt. We cannot assure you that we will
have adequate financial resources to repurchase the notes in the event of a
change of control, particularly if we have to refinance other indebtedness. If
we are unable to repurchase the notes upon a change of control, our failure to
purchase tendered notes would constitute an event of default under the indenture
for such notes. This and other events of default can cause acceleration of our
other debt.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NOTES
The notes are new securities for which there is currently no market. We
cannot assure you that a liquid market will develop for the notes, that holders
of the notes will be able to sell their notes, or at what price holders will be
able to sell their notes. The liquidity of the trading market in the notes and
the market price quoted for the notes may be affected adversely by fluctuations
in the market for notes, changes in the overall markets for high yield
securities or by changes in our financial performance or prospects or the
prospects for companies in our industry generally.
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THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are principally contained in the sections of this prospectus entitled
"Summary" and "Business." These statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performances
or achievements expressed or implied by the forward-looking statements.
Forward-looking statements include but are not limited to:
- our expectations and estimates as to completion dates, construction costs
and subsequent maintenance, expansion and enhancement of our network
- our ability to implement successfully our operating strategy and attract
sufficient traffic on our network
- our ability to provision, install and deliver services
- our future financial performance, including growth in net sales and
earnings
- our continuing relationship with Williams, SBC, Intel, Telefonos de
Mexico and other companies with which we have entered strategic alliances
In addition to factors that may be described in this prospectus, the
following factors, among others, could cause our actual results to differ
materially from those expressed in any forward-looking statements we make:
- the effects of and changes in political and/or economic conditions,
including inflation, interest rates and monetary conditions, and in
communications, trade, monetary, fiscal and tax policies in the United
States and in foreign markets, including Argentina, Australia, Brazil,
Canada, Chile, China, Japan and Mexico
- changes in external competitive market factors or in our internal
budgeting process which might affect our results of operations
- competition from other communications companies
- changes in the technological, regulatory or business environment
applicable to us or the communications industry generally
- changes in the prices of equipment, supplies, rights of way or
construction expenses necessary to complete, expand and enhance our
network
You should carefully review our consolidated financial statements and
related notes incorporated by reference in this prospectus, as well as the risk
factors described in this prospectus, before deciding to tender the original
notes.
Statements that use the terms "believe," "do not believe," "expect,"
"plan," "intend," "estimate," "anticipate" and similar expressions are intended
to identify forward-looking statements. These statements reflect our current
views with respect to future events and are based on assumptions and subject to
risks and uncertainties.
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USE OF PROCEEDS
We will not receive any proceeds from the issuance of the exchange notes in
the exchange offer. The exchange notes will evidence the same debt as the
original notes surrendered in exchange for the exchange notes. Accordingly, the
issuance of the exchange notes will not result in any change in our
indebtedness. The net proceeds we received from the sale of the original notes
was approximately $970.6 million after deducting discounts, commissions and
estimated expenses payable by us of $29.4 million. The net proceeds of $3.41
billion from the sale of senior redeemable notes and shares of our common stock
in October 1999, together with the borrowing of the $525 million term loan under
our credit facility, provide sufficient funds for us to complete the development
and lighting of our 34,000 mile nationwide intercity network. We intend to use
the net proceeds from the sale of the original notes and the preferred stock to
continue the enhancement and expansion of our network and for working capital
and general corporate purposes. Pending the above uses, we plan to invest the
net proceeds in investment grade, interest-bearing securities. For more
information about our anticipated funding sources and our uses of these funds,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and capital resources," incorporated by reference in
this prospectus.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000. Our
capitalization is presented:
- on an actual basis
- on an as adjusted basis, after giving effect to the issuance of the
original notes in August 2000 and the preferred stock in September 2000
and the borrowing of the $525 million term loan under our credit facility
in September 2000.
The information included in this table excludes 14,981,431 shares of our
common stock issuable upon exercise of stock options and deferred share awards
outstanding as of June 30, 2000, which were issued under our stock incentive
plans. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our financial
statements and notes thereto, both of which are incorporated by reference in
this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 295,274 $2,031,382
========== ==========
Short-term investments...................................... $ 32,535 $ 32,535
========== ==========
Long-term debt due within one year:
Affiliates................................................ $ 27,163 $ 27,163
Other..................................................... -- --
---------- ----------
Total long-term debt due within one year................ $ 27,163 $ 27,163
========== ==========
Long-term debt:
Affiliates................................................ $ 968,131 $ 968,131
10.70% senior redeemable notes due 2007................... 500,000 500,000
10.875% senior redeemable notes due 2009.................. 1,489,207 1,489,207
11.70% senior redeemable notes due 2008................... -- 575,000
11.875% senior redeemable notes due 2010.................. -- 421,983
Credit facility........................................... -- 525,000
Other..................................................... 498 498
---------- ----------
Total long-term debt.................................... 2,957,836 4,479,819
6.75% redeemable cumulative convertible preferred stock,
$0.01 par value per share; no shares and 5,000,000 shares
issued and outstanding at June 30, 2000 and as adjusted at
June 30, 2000, respectively; aggregate liquidation
preference of $250,000,000................................ -- 240,500
Stockholders' equity:
Class A common stock, $0.01 par value per share:
1,000,000,000 shares authorized; and 68.2 million shares
issued and outstanding................................. 682 682
Class B common stock, $0.01 par value per share:
500,000,000 shares authorized; and 395.4 million shares
issued and outstanding................................. 3,954 3,954
Capital in excess of par value............................ 2,662,900 2,662,900
Accumulated deficit....................................... (802,388) (802,388)
Accumulated other comprehensive income.................... 144,813 144,813
---------- ----------
Total stockholders' equity............................ 2,009,961 2,009,961
---------- ----------
Total capitalization............................... $4,967,797 $6,730,280
========== ==========
</TABLE>
30
<PAGE> 35
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
On August 8, 2000, we sold the original notes in a transaction exempt from
registration under the Securities Act. Accordingly, the original notes may not
be reoffered, resold or otherwise transferred in the United States unless so
registered or unless an exemption from the Securities Act registration
requirements is available. In the registration rights agreement, we agreed with
the initial purchasers of the original notes to use our reasonable best efforts
to:
- file a registration statement with the SEC relating to the exchange offer
within 90 days after August 8, 2000;
- cause the exchange offer registration statement to be declared effective
by the Securities and Exchange Commission within 180 days after August 8,
2000; and
- consummate the offer of exchange notes in exchange for surrender of
original notes within 210 days after August 8, 2000.
In addition, we have agreed to keep the exchange offer open for at least 30 days
after the date notice of the exchange offer is mailed to the holders of the
original notes. The exchange notes are being offered under this prospectus to
satisfy these obligations under the registration rights agreement.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions contained in this prospectus
and in the letters of transmittal that accompany this prospectus, we are
offering to exchange $1,000 in principal amount of exchange notes for each
$1,000 in principal amount of original notes. The terms of the exchange notes
are substantially identical to the terms of the original notes for which they
may be exchanged in the exchange offer, except that:
- the exchange notes will be freely transferable, other than as described
in this prospectus;
- the exchange notes will not contain any legend restricting their
transfer;
- holders of the exchange notes will not be entitled to certain rights of
the holders of the original notes under the registration rights
agreement, which rights will terminate upon completion of the exchange
offer; and
- the exchange notes will not contain any provisions regarding the payment
of additional interest.
The exchange notes will evidence the same debt as the original notes and will be
entitled to the benefits of the same indenture. See the section of this
prospectus entitled "Description of the Notes."
The exchange offer is not conditioned on any minimum aggregate principal
amount of original notes being tendered for exchange.
Based on interpretations by the SEC's staff in no-action letters issued to
other parties, we believe that holders of exchange notes issued in the exchange
offer may transfer the exchange
31
<PAGE> 36
notes without complying with the registration and prospectus delivery
requirements of the Securities Act if the holders:
- acquire the exchange notes in the ordinary course of the holders'
business;
- are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes;
- are not affiliates of ours within the meaning of Rule 405 under the
Securities Act;
- are not broker-dealers who acquired original notes directly from us; and
- are not broker-dealers who acquired original notes as a result of
market-making or other trading activities.
See the section of this prospectus entitled "Plan of Distribution."
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those exchange notes. Each of the letters of transmittal that
accompany this prospectus 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. A participating
broker-dealer may use this prospectus, as it may be amended or supplemented from
time to time, in connection with resales of exchange notes received in exchange
for original notes where those exchange notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities. We have
agreed that, starting on the date of this prospectus and ending on the close of
business on the day that is 180 days following the offer termination date, we
will make this prospectus available to any broker-dealer for use in connection
with any resale of this kind.
Tendering holders of original notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the applicable letter of
transmittal, transfer taxes relating to the exchange of original notes for
exchange notes in the exchange offer.
SHELF REGISTRATION STATEMENT
If:
- applicable law or interpretations of the staff of the SEC do not permit
us to effect an exchange offer,
- for any other reason the exchange offer is not completed within 210 days
after August 8, 2000, or
- prior to the date that is 45 business days following the consummation of
the exchange offer, the initial purchasers of the original notes notify
us that, in the opinion of counsel for the initial purchasers, a
registration statement must be filed and a prospectus delivered by the
initial purchasers in connection with any offering or sale of the
original notes because they represent an unsold allotment from the
original offering,
we will, at our cost, use our reasonable best efforts to:
- as promptly as practicable, file a shelf registration statement covering
resales of the original notes or the exchange notes, as the case may be,
- cause the shelf registration statement to be declared effective under the
Securities Act, and
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<PAGE> 37
- keep the shelf registration statement effective until two years after its
effective date or for a shorter period that will terminate when all of
the securities covered by the registration statement have been sold.
If we file a shelf registration statement, we will, among other things:
- provide to each holder for whom the shelf registration statement was
filed copies of the prospectus which is a part of the shelf registration
statement;
- notify each of those holders when the shelf registration statement has
become effective; and
- take other actions as are required to permit unrestricted resales of the
original notes or the exchange notes, as the case may be.
A holder selling original notes or exchange notes under the shelf registration
statement generally must be named as a selling security holder in the related
prospectus and must deliver a prospectus to purchasers. Consequently, the holder
will be subject to the civil liability provisions under the Securities Act in
connection with those sales and will be bound by any applicable provisions of
the registration rights agreement, including specified indemnification
obligations.
ADDITIONAL INTEREST
Additional interest will accrue on the principal amount on the original
notes, in addition to the stated interest on the original notes, during any
period in which a registration default occurs.
The occurrence of any of the following is a registration default:
- the exchange offer registration statement is not filed with the SEC on or
before the 90th day following August 8, 2000,
- the exchange offer registration statement is not declared effective on or
before the 180th day following August 8, 2000, or
- neither the exchange offer has been completed nor the shelf registration
statement has been declared effective on or before the 210th day
following August 8, 2000.
Additional interest will accrue at a rate of 0.50% per annum on the
principal amount of the original notes during the first 90-day period after the
occurrence of the registration default and will increase by 0.50% per annum at
the end of each subsequent 90-day period. In no event will the additional
interest rate exceed 1.50% per annum. If the exchange offer is completed on the
terms and within the period contemplated by this prospectus, no additional
interest will be payable.
This summary of the provisions of the registration rights agreement does
not purport to be complete. This summary is subject to and is qualified in its
entirety by reference to all the provisions of the registration rights
agreement, a copy of which has been filed as an exhibit to the registration
statement of which this prospectus is a part.
OFFER TERMINATION DATE; EXTENSIONS
The exchange offer will expire on the offer termination date, which is 5:00
p.m., New York City time, on , 2000, unless we in our sole discretion
extend the period during which the exchange offer is open. In that case, the
offer termination date will be the latest time and date to which the exchange
offer is extended. We reserve the right to extend the exchange offer
33
<PAGE> 38
at any time and from time to time before the offer termination date by giving
written notice to the exchange agent, The Bank of New York, and by timely public
announcement.
This prospectus and the letters of transmittal and other relevant materials
will be mailed to record holders of original notes. In addition, these materials
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of original notes.
HOW TO TENDER
The tender to us of original notes according to one of the procedures
described below will constitute an agreement between that holder of original
notes and us in accordance with the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal.
General procedures. A holder of an original note may tender the note by:
- properly completing and signing the applicable letter of transmittal
or a facsimile of the letter of transmittal and delivering it,
together with the certificate or certificates representing the
original note being tendered and any required signature guarantees, or
a timely confirmation of a book-entry transfer according to the
procedure described below, to the exchange agent at its address set
forth below under "-- Exchange agent" on or before the offer
termination date; or
- complying with the guaranteed delivery procedures described below.
All references in this prospectus to a letter of transmittal include a facsimile
of the letter of transmittal.
If tendered original notes are registered in the name of the signer of the
applicable letter of transmittal and the exchange notes to be issued in exchange
for accepted original notes are to be issued, and any untendered original notes
are to be reissued, in the name of the registered holder, the signature of the
signer need not be guaranteed. In any other case, the tendered original notes
must be endorsed or accompanied by written instruments of transfer in form
satisfactory to us. They must also be duly executed by the registered holder. In
addition, the signature on the endorsement or instrument of transfer must be
guaranteed by an "eligible institution." The term "eligible institution" means:
- a member firm of a registered national security exchange or of the
National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or correspondent in
the United States; or
- an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934.
If the exchange notes and/or original notes not exchanged are to be delivered to
an address other than that of the registered holder appearing on the note
register for the original notes, an eligible institution must guarantee the
signature on the applicable letter of transmittal.
Any beneficial owner whose original notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender original notes should contact the holder promptly and instruct it to
tender on the beneficial owner's behalf. If the beneficial owner wishes to
tender the original notes itself, the beneficial owner must either make
appropriate arrangements to register ownership of the original notes in its name
or follow the procedures described in the immediately preceding paragraph. The
beneficial owner must
34
<PAGE> 39
make these arrangements or follow these procedures before completing and
executing the applicable letter of transmittal and delivering the original
notes. The transfer of record ownership may take considerable time.
Book-entry transfer. The exchange agent will make a request to establish
an account for the original notes at the book-entry transfer facility, The
Depository Trust Company, or DTC, for purposes of the exchange offer within two
business days after receipt of this prospectus. Subject to the establishment of
the account, any financial institution that is a participant in the book-entry
transfer facility's systems may make book-entry delivery of original notes by
causing the book-entry transfer facility to transfer the original notes into the
exchange agent's account at the book-entry transfer facility in accordance with
the facility's procedures. However, although delivery of original notes may be
effected through book-entry transfer, the applicable letter of transmittal or an
"agent's message," together with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
exchange agent at the address set forth below under "-- Exchange agent" before
the offer termination date, or the guaranteed delivery procedures described
below must be complied with.
The method of delivery of original notes and all other documents is at the
election and risk of the holder. If sent by mail, it is recommended that the
holder use registered mail, return receipt requested, obtain proper insurance,
and make the mailing sufficiently in advance of the offer termination date to
permit delivery to the exchange agent on or before the offer termination date.
The term "agent's message" means a message transmitted by DTC to, and
received by the exchange agent, which states that DTC has received an express
acknowledgement from the participant tendering original notes that the
participant has received and agrees to be bound by the terms of the letter of
transmittal and that we may enforce this agreement against the participant.
Unless an exemption applies under the applicable law and regulations
concerning backup withholding of federal income tax, the exchange agent will be
required to withhold 31% of the gross proceeds otherwise payable to a holder in
the exchange offer if the holder does not provide the holder's taxpayer
identification number and certify that the number is correct. Each tendering
holder should complete and sign the main signature form and the Substitute Form
W-9 included as part of the letter of transmittal, so as to provide the
information and certification necessary to avoid backup withholding. This will
not be required, however, if an applicable exemption exists and is proved in a
manner satisfactory to the exchange agent and us.
Guaranteed delivery procedures. If a holder of original notes desires to
tender the original notes, and the original notes are not immediately available,
or time will not permit the holder's original notes or other required documents
to reach the exchange agent before the offer termination date, or the procedures
for book-entry transfer cannot be completed on a timely basis and an agent's
message delivered, a tender may be effected if:
- the tender is made through an eligible institution;
- prior to the offer termination date, the exchange agent receives from
such eligible institution a notice of guaranteed delivery by facsimile
transmission, mail or hand delivery:
- setting forth the name and address of the holder of the original notes
and the amount of original notes tendered,
- stating that the tender is being made thereby, and
- guaranteeing that, within three business days after the offer
termination date, the certificates for all physically tendered original
notes, in proper form for transfer, or a
35
<PAGE> 40
book-entry confirmation, as the case may be, the letter of transmittal
or an agent's message in lieu thereof and any other documents required
by the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
- the certificates for all physically tendered outstanding notes, in proper
form for transfer, or a book-entry confirmation, as the case may be, the
letter of transmittal or an agent's message in lieu thereof and all other
documents required by the letter of transmittal are received by the
exchange agent within three business days after the offer termination
date.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed letter of transmittal
accompanied by the original notes or a timely confirmation of a book-entry
transfer is received by the exchange agent. Issuances of exchange notes in
exchange for original notes tendered by an eligible institution as described
above will be made only against deposit of the applicable letter of transmittal
or agent's message in lieu thereof and any other required documents and the
tendered original notes or a timely confirmation of a book-entry transfer.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance for exchange of any tender of original notes will be
determined by us. Our determination will be final and binding. We reserve the
absolute right to reject any or all tenders not in proper form or the
acceptances for exchange of which may, in the opinion of counsel to us, be
unlawful. We also reserve the absolute right to waive any of the conditions of
the exchange offer or any defect or irregularity in the tender of any particular
holder whether or not similar defects or irregularities are waived in the case
of other holders. None of us, the exchange agent or any other person will incur
any liability for failure to give notification of any defects or irregularities
in tenders. Our interpretation of the terms and conditions of the exchange
offer, including the letters of transmittal and the instructions to the letters
of transmittal, will be final and binding.
TERMS AND CONDITIONS OF THE LETTERS OF TRANSMITTAL
Each letter of transmittal contains, among other things, the following
terms and conditions, which are part of the exchange offer.
The party tendering original notes for exchange, or the transferor,
exchanges, assigns and transfers the original notes to us and irrevocably
constitutes and appoints the exchange agent as its agent and attorney-in-fact to
cause the original notes to be assigned, transferred and exchanged. The
transferor represents and warrants that:
- it has full power and authority to tender, exchange, assign and transfer
the original notes and to acquire exchange notes issuable upon the
exchange of the tendered original notes; and
- when the same are accepted for exchange, we will acquire good and
unencumbered title to the tendered original notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any
adverse claim.
The transferor also warrants that it will, upon request, execute and deliver any
additional documents that we deem necessary or desirable to complete the
exchange, assignment and transfer of tendered original notes. The transferor
further agrees that acceptance of any tendered original notes by us and the
issuance of exchange notes in exchange shall constitute performance in full by
us of our obligations under the registration rights agreement and that we shall
have no further obligations or liabilities under the registration rights
agreement, except in certain limited circumstances. All authority conferred by
the transferor will survive the death or incapacity of
36
<PAGE> 41
the transferor and every obligation of the transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of the transferor.
By tendering original notes, the transferor certifies that:
- it is not our affiliate within the meaning of Rule 405 under the
Securities Act, that it is acquiring the exchange notes offered hereby in
the ordinary course of its business and that it has no arrangement with
any person to participate in the distribution of the exchange notes; or
- it is an affiliate, and that it will comply with applicable registration
and prospectus delivery requirements of the Securities Act.
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those exchange 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. See the section of this prospectus entitled "Plan of Distribution."
WITHDRAWAL RIGHTS
Original notes tendered in the exchange offer may be withdrawn at any time
before the offer termination date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the exchange agent at its
address set forth below under "-- Exchange agent." Any notice of withdrawal
must:
- specify the person who tendered original notes to be withdrawn;
- if certificates for original notes have been tendered, specify the
certificate numbers of original notes to be withdrawn;
- specify the aggregate principal amount of original notes to be withdrawn,
which must be an authorized denomination;
- state the name of the registered holder of those original notes; and
- be signed by the holder in the same manner as the original signature on
the applicable letter of transmittal, including any required signature
guarantees, or be accompanied by evidence satisfactory to us that the
person withdrawing the tender has succeeded to the beneficial ownership
of the original notes being withdrawn.
If original notes have been tendered pursuant to the procedure for book-entry
transfer described above, the executed notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn original notes and otherwise comply with the
procedures of that facility. All questions as to the validity, form and
eligibility, including time of receipt, of those notices will be determined by
us, and our determination will be final and binding on all parties. Any original
notes which have been tendered for exchange but which are not exchanged for any
reason will be either:
- returned to the holder without cost to the holder, or
- in the case of original notes tendered by book-entry transfer into the
exchange agent's account at the book-entry transfer facility pursuant to
the book-entry procedures described above, those original notes will be
credited to an account maintained with the book-entry transfer facility
for the original notes, in either case as soon as practicable after
37
<PAGE> 42
withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn original notes may be retendered by following one of
the procedures described under "-- How to tender" above at any time prior
to the offer termination date.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the exchange offer, the
acceptance for exchange of original notes validly tendered and not withdrawn and
the issuance of the exchange notes will be made as soon as practicable after the
offer termination date.
The exchange agent will act as agent for the tendering holders of original
notes for the purposes of receiving exchange notes from us and causing the
original notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the exchange offer, delivery of exchange notes to
be issued in exchange for accepted original notes will be made by the exchange
agent promptly after acceptance of the tendered original notes.
CONDITIONS TO THE EXCHANGE OFFER
We will not accept for exchange any original notes tendered and no exchange
notes will be issued in exchange for any original notes, if at that time we
determine that the exchange offer will violate applicable law or any applicable
interpretations of the staff of the SEC.
EXCHANGE AGENT
The Bank of New York has been appointed as the exchange agent for the
exchange offer. Letters of transmittal must be addressed to the exchange agent
at its address set forth below.
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier or By Hand:
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, NY 10286 Corporate Trust Services Window
Attention: Kin Lau Ground Level
New York, New York 10286
Attention: Enrique Lopez
</TABLE>
By Facsimile:
(212) 815-6339
Confirm by Telephone: (212) 815-3750
Delivery to an address other than as set forth in this prospectus, or
transmissions of instructions via a facsimile or telex number other than the
ones set forth herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
We have not retained any dealer-manager or similar agent in connection with
the exchange offer and will not make any payments to brokers, dealers or others
for soliciting acceptances of the exchange offer. However, we will pay the
exchange agent reasonable and customary fees for its services and will reimburse
it for reasonable out-of-pocket expenses in connection with its services. We
will also pay brokerage houses and other custodians, nominees and fiduciaries
the reasonable out-of-pocket expenses incurred by them in forwarding tenders for
their customers. The expenses to be incurred in connection with the exchange
offer, including the fees and
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<PAGE> 43
expenses of the exchange agent and printing, accounting and legal fees, will be
paid by us and are estimated at approximately $600,000.
APPRAISAL RIGHTS
Holders of original notes will not have dissenters' rights or appraisal
rights in connection with the exchange offer.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The exchange of original notes for new notes by U.S. holders will not be a
taxable exchange for U.S. federal income tax purposes, and U.S. holders will not
recognize any taxable gain or loss or any interest income as a result of the
exchange.
OTHER
Participation in the exchange offer is voluntary, and holders should
carefully consider whether to accept the terms and conditions of this offer.
Holders of the original notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take.
As a result of the making of this exchange offer, and upon acceptance for
exchange of all validly tendered original notes according to the terms of this
exchange offer, we will have fulfilled a covenant contained in the terms of the
original notes and the registration rights agreement. Holders of the original
notes who do not tender their certificates in the exchange offer will continue
to hold those certificates and will be entitled to all the rights, and
limitations applicable to the original notes under the indenture, except for any
rights under the registration rights agreement which by their terms terminate or
cease to have further effect as a result of the making of this exchange offer.
See the section of this prospectus entitled "Description of the Notes."
All untendered original notes will continue to be subject to the
restrictions on transfer set forth in the indenture. In general, the original
notes may not be reoffered, resold or otherwise transferred in the United States
unless registered under the Securities Act or unless an exemption from the
Securities Act registration requirements is available. Except under certain
limited circumstances, we do not intend to register the original notes under the
Securities Act. To the extent that original notes are tendered and accepted in
the exchange offer, the trading market, if any, for any remaining untendered
original notes could be adversely affected.
We may in the future seek to acquire untendered original notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plan to acquire any original notes that are not
tendered in the exchange offer.
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<PAGE> 44
INDUSTRY OVERVIEW
Telecommunications is the transmission of data, voice or video signals
across a distance. Traditionally, data signals link computers in networks such
as the Internet, and voice signals connect telephone conversations. Video
signals deliver television and multimedia, including video, music, and photos.
The telecommunications industry includes transmission services, equipment
and technical services for creating and operating telecommunications networks.
Rapid changes in technology and telecommunications industry structure are
changing cost structures and rapidly increasing demand for all types of signals
and services -- especially for high-speed data services, including the Internet.
Many of the largest equipment and service providers have grown through
acquisitions and mergers. Despite this consolidation, the number of new entrants
is increasing and small new entrants are gaining market share.
INDUSTRY TRENDS
Data, voice and video signals are transmitted over coaxial, copper and
fiber-optic cables, or over satellites or microwave systems. Fiber-optic cables
use light to rapidly, accurately and reliably transmit information in digital
format through ultra-thin strands of glass. Technological advances have
increased the amount of capacity, or bandwidth, of telecommunications networks.
These technological advances include the following:
- packet switching is replacing circuit switching, so network capacity is
used more efficiently
- dense wavelength division multiplexing, or DWDM, allows multiple light
signals to be transmitted through a single optical fiber, which increases
the bandwidth of a cable by up to 128 times
- the evolution from analog to digital technologies -- which converts voice
and other signals into a stream of "1's" and "0's" -- eliminates the
traditional distinctions between voice, data and video transmission
services
- high bandwidth networks use advanced packet-switching technology to
transmit mixed digital voice, data, and video signals over the same
network
RECENT DEVELOPMENTS IN THE TELECOMMUNICATIONS INDUSTRY
Competition has significantly increased within the telecommunications
industry since the breakup of AT&T in 1984. MCI (now WorldCom), Sprint and
Williams created nationwide fiber-optic networks to compete with AT&T. Other
providers purchased services from these networks and from AT&T to compete for
U.S. long distance market share. According to the Federal Communications
Commission, or FCC, AT&T's long distance market share fell from about 90% in
1984 to about 43% in 1998. WorldCom's market share in 1998 was 26% as a result
of its acquisition of MCI and other carriers and the original network built by
Williams. Sprint's market share in 1998 was about 10%, while all other providers
combined for the remaining 21% market share.
Competition also sharpened in the telecommunications equipment market,
resulting in innovation in equipment features. AT&T's former equipment division
(divested as Lucent Technologies Inc., which subsequently divested its
enterprise equipment division as Avaya Inc.) has lost market share to Nortel,
Siemens AG and Alcatel S.A. Avaya and Nortel increasingly use independent
vendors to sell their products.
40
<PAGE> 45
The Telecommunications Act of 1996 sought to increase competition. State
and local governments were prohibited from enforcing barriers to entry into
local access markets. The regional Bell operating companies, or RBOCs, were
required to interconnect with competing carriers on non-discriminatory terms,
lease parts of their networks to competing carriers at cost-based prices, and
provide services at wholesale rates to competing carriers for resale to end
users. The Telecommunications Act allowed RBOCs to provide long distance
services originating from wireless equipment or from non-wireless equipment
outside of their historical local service areas. By allowing providers to offer
additional services, the Telecommunications Act also stimulated competition for
virtually all communications services. See the section of this prospectus
entitled "Regulation -- General regulatory environment" for more information.
A new industry model in the telecommunications market is replacing that of
a single, regulated monopolist building and operating end-to-end assets and
providing all products and services. In this new model:
- carriers that do not operate their own networks account for an increasing
percentage of the market
- providers offer end-to-end services without having to own and operate the
end-to-end assets
- other companies focus on operating assets as efficiently and effectively
as possible
- independent network integrators provide a growing share of products in
the equipment market.
RELEVANT MARKET SEGMENTS
THE MARKET FOR INTEREXCHANGE INTERNET, DATA, VOICE AND VIDEO SERVICES
Interexchange carriers, or IXCs, provide telecommunications services
between exchanges, which are geographic areas in which a telephone call is
considered a local call. Many IXCs offer services to end users and to other
carriers. They provide their services using their own facilities, those of other
carriers, or both.
The IXC market has grown rapidly because of lower rates and increased
transmissions of data. According to the National Exchange Carrier Association,
U.S. long distance usage was 553 billion minutes in 1999, up from the 371
billion the FCC reported in 1993. FCC statistics show that total operating
revenues for U.S. IXCs doubled to about $95 billion in 1998 from less than $45
billion in 1987.
Demand for Internet traffic requires increased capacity in long distance
networks. The FCC Chairman stated in February 2000 that Internet traffic doubles
every 100 days. The number of U.S. Internet host computers was estimated at 35
million in early 1998, up from 20 million only six months earlier, and from
fewer than 3 million in 1993, according to the President's Council of Economic
Advisors.
High-speed, high-capacity IXC services are almost exclusively provided by
carriers, such as AT&T, WorldCom and Sprint, that operate their own networks
primarily using their own transmission facilities and equipment. IXCs, such as
Qwest, Level 3, Broadwing, Genuity, Inc., which has been spun-off from GTE as
part of GTE's merger with Bell Atlantic, Global Crossing and us, have recently
built networks to provide their own facilities-based services. All major IXCs
lease some of their transmission facilities from other carriers, and their
dependence upon one another varies widely. In addition, companies and consortia
are building undersea cables and landline fiber-optic systems, and regional and
local telephone companies are building new fiber-optic and broadband wireless
systems.
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The types of services purchased by carriers also vary widely. Services can
be priced based on minutes of usage or amount of capacity leased. Also, carriers
can lease dark fiber and install their own transmission equipment, or lease
conduit and install their own fiber-optic cable and transmission equipment.
Capacity leases may vary in duration from one day to many years.
THE MARKET FOR EQUIPMENT MANUFACTURING AND DISTRIBUTION
Two factors have fueled substantial growth in the U.S. telecommunications
equipment industry in the last several years. One factor is new technologies,
including those that allow systems to deliver both voice and data services. A
second factor is increased demand that requires carriers to increase network
capacity by upgrading and expanding their facilities. According to the
President's Council of Economic Advisors, total sales of telecommunications
equipment reached $70 billion in 1997, up from $40 billion in 1993.
Telecommunications equipment is distributed through manufacturers' sales forces
and through agents.
THE MARKET FOR COMMUNICATIONS AND DATA SOLUTIONS
Rapid technological advances have spurred continued demand for systems
integration and communications network consulting services. Our solutions unit
and other companies such as Norstan and International Network Services, which
was acquired by Lucent, assess customers' communications and information
technology needs, evaluate equipment and service options, procure equipment and
services, implement efficient network solutions and manage the combination of
technologies.
THE MARKET FOR LOCAL SERVICES
RBOCs provide the majority of local telephone services within their markets
today, but they face increasing competition from a number of competitive local
exchange carriers, or CLECs, that have entered the market due to regulatory and
technological changes. In addition to local services, they provide interexchange
and other services, including mobile telecommunications, video and Internet.
Cable television systems also provide telecommunications services, and cellular
and other wireless service providers also provide local service.
Local service revenues totaled about $112 billion in 1998, according to the
FCC, with over 400 local service competitors accounting for about $4 billion in
revenues. Local service competitors' market share has grown rapidly -- from 0.9%
in 1996 to 2.3% in 1997 and 3.6% in 1998, according to the FCC.
THE MARKET FOR INTERNATIONAL LONG DISTANCE SERVICES
The international long distance market is growing due to increased
competition, deregulation, price decreases and new services. Total international
services revenues of U.S. carriers exceeded $15 billion in 1998, up from about
$5 billion in 1987, according to the FCC. AT&T, WorldCom and Sprint were the
largest U.S. international carriers by market share in 1998. Fifty other
carriers, using their own facilities or lines leased from other carriers,
collectively accounted for a total market share of 7%.
RELEVANT FOREIGN TELECOMMUNICATIONS MARKETS
Countries around the world have deregulated and privatized
telecommunications markets, triggering unprecedented competition, innovation and
demand for services. As a result, most major interexchange carriers have
invested in telecommunications operations in foreign markets. We have
significant investments and operations in Argentina, Australia, Brazil, Canada
and Chile, as explained in the sections of this prospectus entitled
"Business -- Our network unit --
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<PAGE> 47
Global network expansion" and "Business -- Our strategic investments unit." We
also have acquired significant interests in undersea fiber-optic cables
connecting the United States with overseas markets. We have rights to acquire
dark fiber and capacity in Europe and plan to enter selected European markets.
Asia. Asia lacks a regional regulatory body, but governments and
regulators in markets such as Japan, Hong Kong and Singapore have allowed
competition in virtually all segments of the telecommunications industry and
imposed safeguards to obligate incumbent carriers to interconnect with other
carriers. Liberalization in other Asian countries is proceeding, but at a slower
pace. According to the International Telecommunications Union, or ITU, in 1998
the Asian countries of Hong Kong, Japan and Singapore had nearly 70 million main
telephone lines in operation and over $93 billion in total telecommunications
services revenues. The FCC reports that, in 1998, U.S. carriers had $437 million
in retained revenues from originating and terminating international switched
telecommunications services between the United States and these Asian countries.
Europe. The European Union, or EU, has adopted several directives since
1990 that have opened telecommunications services to competition in the fifteen
member states, including Germany, the United Kingdom, France and Italy. The
directives have obligated telecommunications operators to interconnect their
networks and have allowed the licensing of new telecommunications operators and
networks. According to the ITU, in 1998, the EU member states had 198 million
main telephone lines and over $185 billion in total telecommunications services
revenues. The FCC reports that, in 1998, U.S. carriers had $2.5 billion in
retained revenues from originating and terminating international switched
telecommunications services between the United States and Western Europe.
Argentina. Landline telephone services in Argentina were privatized in two
geographic regions in 1990. Exclusivity for the incumbent operators ended in
1999, and domestic and international services are planned to be fully open to
competition from additional licensees in November 2000. The ITU reports that, in
1998, Argentina had 7.1 million main telephone lines and 2.5 million cellular
subscribers, or 19.74 main telephone lines and 7.00 cellular subscribers per 100
inhabitants, with total telecommunications services revenues of $6.6 billion.
Australia. The Australian telecommunications market evolved through a
staged transition from a government-owned monopoly to open competition. Between
1991 and 1997, the Australian government established a duopoly to provide fixed
telecommunications infrastructure and an oligopoly to provide mobile telephony
services. The entire telecommunications industry was opened to competition on
July 1, 1997. Telstra continues to be the dominant non-wireless carrier. The ITU
reports that, in 1998, Australia had approximately 9.5 million main telephone
lines and, measured per 100 inhabitants, 50.93 telephone lines and 28.52
cellular subscribers, with total telecommunications services revenues of $13
billion.
Brazil. A dozen government-owned monopoly carriers provided Brazil's
telecommunications services when demand exceeded the country's network capacity
in the 1990s. To increase capacity and take advantage of technological advances,
the government privatized the incumbent carriers in 1998. Buyers paid about $19
billion to purchase these twelve carriers that provide local, long distance and
cellular services to separate geographic regions. Private Brazilian and foreign
companies also compete in Brazil through competitive wireless and non-wireless
licenses. The Brazilian government auctioned regional licenses in 1997 for
cellular service, and has indicated it would sell additional licenses for
wireless voice and data services in late 2000. In 1998, Brazil had 4.68 cellular
subscribers per 100 inhabitants, and 12.05 non-wireless main telephone access
lines per 100 inhabitants, for a total of 7.8 million cellular subscribers and
20 million main telephone lines, according to the ITU. The ITU reported total
telecommunica-
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tions services revenues of $15 billion in Brazil in 1997. The mobile
telecommunications market in Brazil is expected to grow rapidly as private
carriers expand their networks, improve service quality and lower prices.
Canada. The Canadian national regulatory agency, CRTC, opened the local
telecommunications market to competition in 1997 and allowed competition in the
international services market in 1998. Leaders in Canada's communications
equipment market include our solutions unit, Bell Canada, BCT, Telus
Communications Inc., Lucent Technologies Canada Inc. and Mitel Corporation.
Chile. In 1982, Chile was the first South American country to privatize
its telecommunications industry. Competition has existed in non-wireless
services in Chile since 1994. According to the ITU, in 1998, Chile had about 2.7
million main telephone lines for a penetration rate of about 18.57 telephone
lines for every 100 inhabitants. The ITU also reported that Chile had a cellular
penetration rate of 6.50 subscribers per 100 inhabitants and total
telecommunications services revenues of $2 billion in 1998.
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<PAGE> 49
BUSINESS
We own or lease, operate and are completing a nationwide intercity
fiber-optic network, which we are extending locally and globally. We operate
through four business units. Our network unit provides Internet, data, voice and
video services exclusively to communications service providers. Through our
newly-formed broadband media unit, we transmit live and non-live media content
worldwide, including broadcast news, sports, advertising and special events. Our
solutions unit provides professional communications services, and sells and
installs communications equipment, to address the comprehensive voice and data
needs of organizations of all sizes. Through our strategic investments unit, we
make investments in companies that we believe will, directly or indirectly,
increase revenue opportunities for our other business units. We have formed
strategic alliances with communications companies to secure long-term, high-
capacity commitments for traffic on our network and to enhance our service
offerings.
We intend to make our network unit the most efficient U.S.-based provider
of advanced Internet, data, voice and video services to companies that use
high-capacity communications services as an integral part of their service
offerings. These companies include long distance carriers, local service
providers, Internet service providers, application service providers, digital
subscriber line service providers, utilities and international carriers. We also
offer rights of use in dark fiber, which is fiber that we install but for which
we do not provide communications transmission services. Through our network
unit, we invest in companies that assist us in improving, or create demand for
capacity on, our network. Based on currently announced plans, our global network
will include ownership interests in or rights to use:
- 33,000 miles of fiber-optic cable connecting 125 U.S. cities, which we
expect to complete by the end of 2000, and an additional 1,000 miles,
which we expect to complete by the end of the first quarter of 2001
- fiber-optic cable networks within 50 of the largest U.S. cities
- approximately 150 data centers located in 125 U.S. cities
- 31,100 miles of fiber-optic cables installed in Europe, Asia and
Australia
- undersea fiber-optic cable connecting U.S. cities with major Asian and
European cities
In the first quarter of 2000, we formed our broadband media unit.
Currently, substantially all of the operations of this unit are conducted by
Vyvx Services. Since 1989, Vyvx Services has provided worldwide transmission of
live and non-live media content. Through Vyvx Services, we transmit broadcast
news, sports, advertising and special events, including approximately 80% of
live televised major league sporting events. Over its integrated fiber-optic,
satellite and teleport network, Vyvx Services serves the unique video needs of
major broadcast networks and their affiliate stations, professional sports
leagues, media production companies and global advertising agencies. We have
established high-speed connections to major news and sports venues and
television stations throughout the United States. Through this unit, we also
have investments in companies that provide media content products and services.
Our solutions unit provides professional communications services, including
call center design, network management and maintenance services. This unit also
sells and installs communications equipment from leading vendors for the voice
and data communications needs of businesses of all sizes as well as for
governmental, educational and non-profit institutions. Our solutions unit
provides planning, design, implementation, management, maintenance and
optimization services for the full life cycle of the equipment. We also sell the
communications services of select network customers and other carriers to our
solutions unit's customers. Our solutions unit serves an installed base of
approximately 100,000 customer sites in the United
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States, Canada and Mexico with approximately 2,400 technicians and 800
engineers. Our sales organization consists of approximately 1,000 sales
personnel and 110 sales and service offices.
Through our strategic investments unit, we invest in communications
companies that we believe will, directly or indirectly, increase revenue
opportunities for our network and other business units. Our strategic
investments currently include ownership interests in communications companies
with operations in Argentina, Brazil and Chile.
We enter into strategic alliances with communications companies to secure
long-term, high-capacity commitments for traffic on our network and to enhance
our service offerings. We currently have strategic relationships with SBC,
Intel, Telefonos de Mexico, KDD, Telia, Teleglobe, Metromedia Fiber Network,
Winstar and Intermedia. We will continue to pursue additional strategic
alliances.
INDUSTRY AND MARKET OPPORTUNITIES
We believe we are uniquely positioned to take advantage of changes and
developments in the communications industry. These anticipated changes and
developments include:
- Increasing specialization within the communications industry. We believe
industry specialization will continue to occur as communications
companies focus on their core competencies and outsource non-core
activities. We expect that many communications providers, such as
Internet infrastructure and service providers, application service
providers, media service providers and long distance service providers
will focus on developing value-added services and will outsource
long-haul transmission services. As a result, we anticipate that there
will be significant demand for a provider of advanced, high-quality,
low-cost communications services to other communications companies. Our
network is well positioned to benefit from this market opportunity.
- Increasing demand for communications services. We believe that there is
and will continue to be significant growth in demand for Internet, data,
voice and video services. The increase in computing power, number of
computers networked over the Internet and connection speeds of networked
computers are driving tremendous increases in communications use for
Internet and data services. Prices for all communications services have
decreased, resulting in increased demand for these services. We believe
video conferencing, digital television and other multimedia applications
being developed will continue to increase demand for transmission
capacity. We believe our network is well positioned to capitalize on this
growing demand.
- Innovations in technology. Technological innovations are increasing both
the supply of and demand for telecommunications transmission capacity
while also driving increased integration in voice and data networks.
Innovations in optical transmission and switching technologies,
consisting of both higher quality fiber-optic cable and improved
transmission electronics, have increased the capacity and speed of
advanced fiber-optic networks while decreasing the unit cost of
transmission. This increased capacity and speed, combined with continuing
advancements in the power of microprocessors, have resulted in the
development of bandwidth-intensive applications, growth in Internet usage
and increases in the number of network users. We are continually
improving our advanced fiber-optic network to meet the increasing demand
for transmission capacity and the needs of the next-generation
communications service providers.
- Deregulation within the communications industry. Around the world, the
communications industry is experiencing liberalization. In the United
States, the long distance market became highly competitive in the 1980s
following the break up of AT&T. The
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Telecommunications Act of 1996 has increased competition in local
markets. Internationally, many countries are allowing competition. Many
new companies have formed to compete for markets that have been
traditionally dominated by a very small number of providers. Our
full-service platform enables both new entrants to compete in this market
and existing service providers to expand into new markets. Our network
will offer an attractive alternative to network ownership for these
carriers.
OUR NETWORK UNIT
We own or lease, operate and are completing a nationwide intercity
fiber-optic network, which we are extending locally and globally. We offer
Internet, data, voice and video services to companies that use high-capacity
communications services as an integral part of their service offerings. These
companies include long distance carriers, local service providers, Internet
service providers, application service providers, digital subscriber line
service providers, utilities and international carriers. We are building
networks, or seeking strategic relationships to provide services, in U.S. cities
and in Asia, Australia, South America and Europe. We also invest in technology
and communications companies that assist us in improving, or create demand for
capacity on, our network.
STRATEGY
Our objective is to be the most efficient U.S.-based provider of advanced
high-capacity Internet, data, voice and video services to national and
international communications service providers. To achieve this objective, we
are pursuing the following strategies:
- Become the leading provider to communications carriers. We focus on
providing an expanding array of high-quality communications services to
other carriers as they seek to benefit from the growth in communications
demand. We also offer our customers the flexibility to control their own
service platforms so that they choose to buy services from us rather than
build these capabilities themselves. Because our network unit targets
selling only to communications service providers, we do not compete with
our customers for retail end-users. By not competing with our customers,
we believe we can become the provider of choice to other carriers. This
also enables us to maintain small and focused marketing and customer
service departments, thereby reducing our operating costs.
- Deploy a technologically advanced network. We are combining advanced
optical and electronic transmission and switching equipment with our
innovative network design to offer highly flexible, efficient and
reliable network services to our customers. Our innovative network design
provides high-quality network services to support Internet, data, voice
and video traffic with a smaller investment than other currently deployed
network designs due to the elimination of several layers of costly
equipment.
- Expand local access services. We are installing or otherwise acquiring
interests in fiber-optic cable or other facilities within 50 of the
largest U.S. cities. We are installing high-speed SONET transport and
DWDM equipment to offer a broad range of high-capacity, or broadband,
services. This will allow us to extend the high-capacity services of our
network to virtually every major carrier hotel and network peering point
within those cities and enable us to reduce the time to deliver new
service to our customers.
- Establish global connectivity. We have or are pursuing ownership
interests in, or rights to capacity on, various undersea and foreign
fiber-optic cables. These cables will connect our U.S. network to Europe,
South America, Asia and Australia. Additionally, we pursue strategic
relationships that allow us to exchange dark fiber and/or capacity on our
network for cost-effective access, dark fiber and/or capacity on
international networks or that allow
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us to use our network construction and management experience to construct
or manage international networks. We also intend to establish alliances
with international carriers that will expand our capabilities throughout
Europe and other key markets.
- Pursue strategic alliances. We pursue strategic alliances with
communications providers that offer the potential for long-term,
high-capacity commitments for traffic on our network, resulting in
increased revenues and decreased unit costs. To date, we have entered
into strategic alliances with SBC, Intel, Telefonos de Mexico, KDD,
Telia, Teleglobe, Metromedia Fiber Network, Winstar, Intermedia and
others to provide network services. Our strategic alliances also allow us
to combine our capabilities with those of our alliance partners and
thereby offer our customers a more complete product set, including local
and international capacity and Internet access services.
- Invest in technology and communications companies. We invest in and work
with companies that increase our access to new technologies that can
result in substantial increases in the capacity, accessibility or
efficiency of our network. We also invest in companies that can
facilitate our ability to offer complementary products or services to our
customers.
- Become a leader in bandwidth trading. We are taking a leading role in
developing technical standards, delivery infrastructure and standardized
contract terms to allow the exchange, purchase and sale of capacity of a
communications channel, sometimes referred to as "bandwidth trading." We
expect that bandwidth trading will encourage greater utilization of our
network and our customers' networks by facilitating an active market for
short-term capacity requirements.
U.S. INTERCITY NETWORK
We anticipate that our U.S. intercity network will total approximately
33,000 route miles connecting 125 cities by the end of 2000, with an additional
1,000 miles to be completed by the end of the first quarter of 2001. We
currently have approximately 30,500 route miles of fiber-optic cable installed,
with approximately 26,800 of those miles currently in operation. The following
table describes our U.S. intercity network infrastructure (numbers are
approximate):
<TABLE>
<CAPTION>
AVERAGE AVERAGE
PLANNED MILES IN NUMBER NUMBER OF AVERAGE NUMBER
ROUTE MILES OPERATION OF FIBERS FIBERS RETAINED* OF SPARE CONDUITS
----------- --------- --------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Single fiber network(1).......... 9,700 9,700 1 1 N/A
Other fiber builds wholly
owned.......................... 12,800 6,900 106 28 1.8
Fiber builds constructed under
our asset defeasance program... 3,200 3,200 127 24 1.9
Fiber builds jointly owned(2).... 1,500 1,500 43 12 0
Routes through dark fiber
rights(3)...................... 6,800 5,500 13 10 0.3
------ ------
Total....................... 34,000 26,800
====== ======
</TABLE>
---------------
* This is the average number of fibers in each category that we expect to
retain for our own use and not grant rights in dark fiber to others.
(1) As part of the agreements relating to the sale of the WilTel network
business to LDDS (now WorldCom) in January 1995, Williams retained a
9,700-mile single fiber network. In 1998, we entered into an agreement with
WorldCom whereby we received an option to purchase one fiber-optic strand
over approximately 7,700 miles of selected WorldCom routes. We have
exercised our right to purchase 4,000 miles of these routes, 100 miles of
which we are now operating. The 9,700 mile single fiber network, and all
fiber-optic strands we purchase
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pursuant to the option, may only be used to transmit video or multimedia
services, including Internet services, until July 1, 2001. After this date,
these fiber-optic strands may be used for any purpose, including voice and data
services.
(2) This category consists of our fiber rights in builds which have been jointly
constructed, or rights in dark fiber obtained by us, Enron Communications,
Inc. and Touch America, Inc. through a limited liability company, or LLC, in
which we share equal ownership and control. The LLC constructed the portion
of the route between Portland and Las Vegas and obtained rights in dark
fiber in the portion of the route between Las Vegas and Los Angeles and in
the Detroit-Cleveland route. The LLC owns the right of way over some of the
route it constructed, with each of us, Enron and Touch America also
contributing rights of way. The LLC will grant rights in dark fibers to each
of us, Enron, Touch America and others. We provide operational services to
the LLC.
(3) This category consists of rights in dark fiber and conduits that we have
obtained or intend to obtain. We have already obtained approximately 6,800
route miles from Broadwing and other carriers, all of which have had
fiber-optic cable installed. We obtained rights in six dark fibers between
Los Angeles and New York City from Broadwing for 20 years. Broadwing
obtained rights in 24 dark fibers between Houston and Washington, D.C. from
us for 20 years. We manage the transmission equipment on the routes we
acquired, and we typically pay for the maintenance of fiber-optic strands
and rights of way.
We are currently installing new transmission equipment on our single fiber
network to increase its transmission capacity and ensure its compatibility with
the newer portions of our network. Due to advances in transmission electronics,
it is now possible to carry as much traffic on this single fiber-optic strand as
on 128 fiber-optic strands four years ago. In addition, the single fiber network
will provide additional routes for our network into select major markets.
We lease capacity from both long distance and local telecommunications
carriers, including our competitors, in order to meet the needs of our
customers. Leases of capacity are distinguished from rights in dark fiber in
that capacity leases are for only a portion of the fiber capacity and the lessor
supplies and operates the equipment to transmit over the fiber. Capacity leases
are generally for terms of one month up to five years, but can be longer. We
lease approximately 24% of our network capacity currently in use. However, since
we have more capacity available on our network than we currently are using, the
leased capacity we currently use constitutes approximately 11% of the total
capacity currently available on our network. These leases are for areas where we
do not have on-network portions, or our on-network is not currently sufficient
to meet the expected capacity. This includes capacity to provide service from
our facility to another provider's facility. These leases of capacity may
contain minimum commitments that we will make in order to obtain better pricing.
In some cases, we have to obtain service from other carriers at costs that
exceed our revenues for providing the required service. We attempt to balance
our off-network commitments with the expected requirements of our customers.
In September 2000, we acquired the long distance network assets of
Ameritech Communications, Inc., a subsidiary of SBC. The assets acquired are
located in the states of Illinois, Indiana, Michigan, Ohio and Wisconsin, and
include a 2,200 mile fiber-optic network over four routes, indefeasible rights
of use in dark fiber and 15 data centers. We anticipate that some of the
acquired network assets will be utilized in lieu of constructing portions of our
planned fiber builds, and other acquired network assets will add incremental
capacity to our planned network build.
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City-by-city buildout. The following table sets forth our current and
future plans for our network build. This table does not include the routes of
the single fiber network or the September 2000 purchase of long distance network
assets of Ameritech Communications, Inc.
<TABLE>
<CAPTION>
APPROXIMATE
ESTIMATED APPROXIMATE MILES IN
ROUTES COMPLETION DATE ROUTE MILES OPERATION
------ ---------------- ----------- -----------
<S> <C> <C> <C>
Albany -- Boston Completed 190 190
Atlanta -- Jacksonville(1) Completed 360 360
Bandon, Oregon -- Eugene, Oregon Completed 290 290
Dallas -- Houston(2) Completed 250 250
Daytona -- Orlando -- Tampa Completed 150 150
Denver -- Salt Lake City(1) Completed 540 540
Detroit -- Cleveland(3) Completed 180 180
Houston -- Atlanta -- Washington, D.C. Completed 1,830 1,830
Houston -- Corpus Christi -- Laredo -- San
Antonio(2) Completed 710 710
Jacksonville -- Miami(1) Completed 330 330
Kansas City -- Denver(1) Completed 640 640
Los Angeles -- New York City(2) Completed 4,370 4,370
Los Angeles -- Sacramento -- Oakland -- San
Jose(4) Completed 800 800
Los Angeles -- San Diego(2) Completed 150 150
Miami -- Tampa -- Tallahassee(1) Completed 550 550
Minneapolis -- Kansas City(1) Completed 450 450
New Orleans -- Tallahassee Completed 490 490
Portland -- Salt Lake City -- Los Angeles(3) Completed 1,320 1,320
Washington, D.C. -- New York City(1) Completed 370 370
Atlanta -- Nashville -- Cincinnati -- Chicago 4th quarter 2000 900 --
Bakersfield -- San Luis Obispo -- Fresno 4th quarter 2000 450 230
Chicago -- Detroit(2) 4th quarter 2000 280 --
Denver -- Dallas(2) 4th quarter 2000 750 --
Houston -- Kansas City -- St. Louis -- Chicago 4th quarter 2000 1,400 530
Los Angeles -- Phoenix -- San Antonio -- Houston 4th quarter 2000 1,900 1,240
Minneapolis -- Milwaukee -- Chicago(5) 4th quarter 2000 890 --
New York -- Boston(5) 4th quarter 2000 520 290
Portland -- Seattle(5) 4th quarter 2000 400 220
Riverside -- San Diego -- Colton, California 4th quarter 2000 220 --
Sacramento -- Portland(4) 4th quarter 2000 690 150
Salt Lake City -- Sacramento -- San Francisco 4th quarter 2000 850 550
Chicago -- Cleveland -- Pittsburgh -- Washington,
D.C. 1st quarter 2001 880 --
Sacramento -- Pt. Arena -- Robbins, California 1st quarter 2001 200 --
------ ------
Total: 24,300 17,180
====== ======
</TABLE>
---------------
(1) These routes have been constructed under our asset defeasance program.
(2) We have rights in dark fiber with no spare conduits along these routes.
(3) These routes were jointly constructed or obtained by us, Enron and Touch
America with no spare conduits.
(4) We have obtained rights in 12 dark fibers on these routes along with two
spare conduits. We will install, wholly own, and operate a fiber-optic cable
within one of these conduits.
(5) In addition to constructing one route with 2 spare conduits, we have
obtained rights in 12 dark fibers along a different route between these
cities.
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Network design and technology. We are combining advanced optical and
electronic transmission equipment with our innovative network design to offer
more flexible and efficient network services to our customers. Some
characteristics of our network that we are constructing are as follows:
- Multi-service platform. A multi-service operating system allows
Internet, data, voice and video services to be provided on a single
asynchronous transfer mode, or ATM, operating system. Most other carriers
use multiple platforms, or operating systems, which create distinct
networks and organizations for each service provided. Due to our unified
platform approach, we have greater efficiency and lower costs.
- ATM core switching. ATM core switching is a packet switching and
transmission technology based on sending various types of information,
including voice, data and video, in fixed-size cells. Packet-based
networks transport information compressed as "packets" over circuits
shared simultaneously by several users. Newly developed equipment based
on advanced communications standards enable packet-based networks to
carry voice and data more efficiently, with greater predictability and at
a lower cost than other networks.
- Internet protocol network. By November 30, 2000, we intend to upgrade
our Internet protocol, or IP, network to operate at OC-48 capacity over
SONET technology. We are developing a separate next-generation IP
network, which we expect to complete in 2001. This new IP network will
operate at OC-192 capacity and have hubs in several U.S. cities, London
and Tokyo. These upgrades will allow us to expand our packet-based
service offerings to include voice over IP and other real-time voice and
video applications.
- Advanced fiber-optic cable. Newer fiber-optic cable, including Corning's
Enhanced LEAF(TM) fiber and Lucent's TruWave(TM) fiber, has a wider range
of spectrum than previously deployed fibers over which to send
wavelengths of light, enabling a greater number of wavelengths to be sent
over long distances.
- DWDM. Dense wave division multiplexing is a technology which allows
transmission of multiple waves of light over a single fiber-optic strand,
thereby increasing network capacity. By using DWDM, we are able to derive
16 bi-directional wavelengths, at OC-192 capacity per wavelength, which
is a capacity of 9.953 gigabits per second, over a single fiber-optic
strand with current technology. Corvis Corporation is developing next
generation DWDM equipment. We expect this equipment to increase capacity
per fiber by 250% over the existing technology, while reducing the cost
of transmission.
- Use of optically meshed SONET instead of SONET rings. The use of
optically meshed SONET allows every location on our network to be
connected to multiple locations. Optically meshed SONET provides for more
recovery options in the case of a network failure, permits rapid
provisioning of customer services and allows for full utilization of
capacity. Most other networks use SONET rings, which automatically
reverse signals at a specific point along a network in the event of a
network failure, providing for only one recovery option. A SONET ring
design also requires installation of up to twice as much capacity for the
same amount of traffic as compared to our optically meshed SONET design.
- Closer spacing of transmission electronics. Our spacing of transmission
electronics at 40-mile intervals allows us to take advantage of the
latest advances in DWDM and other advances in optical technology by
reducing the distance over which light has to travel. Most other fiber
networks space their electronics at 60-mile intervals.
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- Elimination of digital cross-connect system. The ATM packet technologies
we employ eliminate the need for a high-cost, high-maintenance digital
cross-connect system. Circuit-based systems are the predecessor to the
ATM packet technologies we employ. The elimination of unnecessary
equipment also reduces our operating and maintenance expenses.
- Nortel DMS 250 switches. We use the latest Nortel switching technology
to efficiently carry traditional voice services on our ATM core network.
Nortel DMS 250 voice switches have been installed in the metropolitan
areas of Anaheim, San Francisco, Kansas City, Houston, Boston, Atlanta
and New York City. We intend to install switches in the metropolitan
areas of Chicago, San Antonio and Washington, D.C. this year and Dallas
in 2001.
Data centers. As of August 31, 2000, we had 93 data centers across our
network, which generally range in size from approximately 5,000 square feet to
approximately 70,000 square feet. Data centers are environmentally-controlled,
secure sites designed to house our transmission, routing and switching equipment
and local operational staff, as well as space and power for colocation
customers. There are 17 data centers under construction in various stages of
completion, the majority of which will be completed this year. We are designing
new data centers of 75,000 square feet, with growth potential in the largest
markets of up to 500,000 square feet of data center space over the next several
years. By colocating their own equipment in our facilities, our customers are
able to minimize the use of expensive local loops from local telephone companies
to reach our backbone. The customer also foregoes the capital and operating
expense required to build and maintain its own data centers. By expanding our
network to include multiple data centers within select major metropolitan areas,
we will provide an end-to-end solution for our carrier customers.
We intend to design approximately 10 of our data centers to be hosting
centers in order to support and enhance connections to the Internet. Hosting
centers are typically constructed in major metropolitan service areas where a
significant number of Internet service providers, applications service
providers, media service providers, and Internet backbone providers can
interconnect with one another, thereby facilitating peering. Hosting centers
differ from communications data centers in that they provide greater levels of
external security, power and air conditioning, and an on-site staff to provide a
variety of managed services.
Conduit and fiber-optic cable. The newer portions of our network are
designed for expandability and flexibility and will contain multiple conduits
along approximately 70% of our routes. To construct our fiber-optic cable,
fiber-optic strands are placed inside small plastic tubes and bundles of these
tubes are wrapped with plastic and strengthened with metal. We then place these
bundles inside the conduit, which is high-density polyethylene hollow tubing
1 1/2 to 2 inches in diameter. Our conduit is generally buried approximately 42
inches underground along pipeline or other rights of way. We also use steel
casing in high-risk areas, including railroad crossings and high-population
areas, thereby providing for greater protection. The first conduit contains a
cable generally housing between 96 and 144 fibers, and the second conduit, or
third where constructed, serves as a spare. The spare conduits allow for future
technology upgrades, potential conduit sales and expansion of capacity at costs
significantly below the cost of new construction. After existing and anticipated
leases of dark fiber, we generally plan to retain approximately 24 fibers for
our own use on the constructed portions of our network.
Rights of way. Our network is primarily constructed by digging trenches
along rights of way, or rights to use the property of others, which we obtain
throughout the United States from various landowners. Where feasible, we
construct along Williams' pipeline rights of way and the
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rights of way of other pipeline companies. We believe that use of pipeline
rights of way gives us inherent advantages over other systems built over more
public rights of way, such as railroads, highways, telephone poles or overhead
power transmission lines. These advantages include greater physical protection
of the fiber system and lower construction and operational costs. Approximately
21% of our rights of way are along Williams' pipeline rights of way and the
remainder are along the rights of way of third parties. Rights of way from
unaffiliated parties are generally for terms of at least 20 years and most cover
distances of less than one mile. Where necessary or economically preferable, we
have other right of way agreements in place with highway commissions, utilities,
political subdivisions and others. We have the rights of way needed to complete
substantially all of our nationwide intercity network. Almost all of our rights
of way extend through at least 2018.
Monitoring. We monitor our network 24 hours a day, seven days a week, from
our network management centers in Tulsa, Oklahoma and St. Louis, Missouri. Each
network management center provides centralized network surveillance,
troubleshooting and customer service. The system currently allows our
technicians to detect a component malfunction in our network, quickly reroute
the customer's traffic to an available alternate path and effect an expedited
repair. Upon completion of our network, the rerouting function will be fully
automated and nearly instantaneous so that customers will not experience any
disruptions in service quality. We expect this will reduce service costs and
customer downtime. We have also implemented a program that encourages people to
phone a toll-free number prior to breaking ground, backed up by our "call before
you dig" group to reduce the risk of damage to our conduit or fiber system.
Additionally, we place above-ground markers at frequent intervals along the
route of our network.
LOCAL NETWORK EXPANSION
In February 2000, we announced plans to spend $421 million over the next
three years to extend the local reach of our network. We intend to have in
operation local services over our network in 50 of the largest U.S. cities by
March 31, 2001. We will add fiber and computer equipment to extend the high
capacity services of our nationwide intercity network to virtually every major
carrier hotel and network peering point within those cities. We expect
construction to begin this year in 10 cities, including Atlanta, Boston, Dallas,
Los Angeles and New York. In addition to the local network builds that we will
perform, we will use 86,000 local fiber miles over 3,200 route miles that we
obtained in a fiber swap with Metromedia Fiber Network. We expect this to
provide us with connections to an additional 250 points of presence in 18
cities. Currently, we have accepted significant builds completed in Boston,
Chicago, Dallas, New York, Philadelphia, San Francisco and Washington, D.C.
We will utilize wireless local loops obtained from Winstar. Currently we
have accepted 72 hubs in 40 cities. We are also pursuing interconnection
agreements with certain local service providers to obtain, among other things,
access to unbundled network elements that we can use to provide enhanced local
services to our customers.
GLOBAL NETWORK EXPANSION
Europe. We have 20-year reciprocal buy/sell agreements with Telia, the
national communications service provider in Sweden, pursuant to which we will
receive rights to use dark fiber on Telia's planned 28,000-mile fiber-optic
network in Europe. We have the ability to accept between 2 and 36 fiber strands,
depending on the route, across Telia's network. This network is scheduled to
connect approximately 35 of the largest European cities, with completion of
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significant portions scheduled by the end of 2000 and the remainder by the end
of 2001. Telia's network will consist of existing fiber, fiber currently being
installed and fiber leased from others.
In addition, in February 2000, we announced an agreement with Teleglobe, a
leading supplier of global broadband and data services, that grants us two OC-48
wavelengths on Teleglobe's pan-European network. The Teleglobe network includes
London, Brussels, Amsterdam and major markets in France and Germany. We will
also obtain colocation facilities and network maintenance throughout the
Teleglobe network.
Australia. PowerTel, Ltd. has built, owns, and operates communications
networks connecting and serving the three Australian cities of Brisbane,
Melbourne, and Sydney with long distance and local services in the central
business districts of these cities. Each of the three Australian utilities
serving these cities has entered into a 20-year agreement with PowerTel that
allows PowerTel to use the utilities' ducts and to lay fiber-optic cable
alongside their rights of way between the cities. PowerTel's strategy is to
provide high-quality, low-cost local voice, data and Internet services to the
commercial and carrier markets. Our total investment currently represents a 43%
economic interest in PowerTel. We consolidate PowerTel's results of operations
with our own because we are entitled to appoint a majority of the members of
PowerTel's board of directors, and thereby exercise significant control over its
operations.
China-U.S. cable and Japan-U.S. cable. We acquired SBC's interests in
these two cables in June 2000. One interconnection point for the China-U.S.
cable is fully operational, and the other is expected to become fully
operational by the end of this year. The China-U.S. cable is a 16,000-mile loop
system, with capacity of 80 gigabits per second. The Japan-U.S. cable will
operate initially at 80 gigabits per second, and eventually, the cable can be
expanded to 640 gigabits per second. The Japan-U.S. cable is expected to be
operational by the end of this year.
Asia-Pacific Cable Network (APCN-2). A consortium of carriers is building
APCN-2, an intra-Asia 11,500-mile undersea cable project that will connect
China, Hong Kong, Japan, South Korea, Malaysia, the Philippines, Singapore and
Taiwan. As an initial participant in the network build, we will acquire
significant capacity on APCN-2, which is scheduled to be in operation by
September 2001. The cable will operate initially at 80 gigabits per second and
can be expanded to 2,560 gigabits per second. APCN-2 will intersect with the
China-U.S. and Japan-U.S. cables described above.
TAT-14 cable system. In connection with our strategic alliance with Telia,
we obtained additional capacity on the TAT-14 cable system, which will connect
the United States with the United Kingdom, The Netherlands, Denmark, Germany and
France. TAT-14 is scheduled to become operational by the end of this year and
will operate at 640 gigabits per second.
Southern Cross Cable Network. We acquired capacity on this network in
April 2000. Southern Cross is an undersea cable network linking Australia and
New Zealand with Hawaii and the West Coast of the United States. This cable is
scheduled for completion in November 2000 and will operate at 200 gigabits per
second.
PRODUCTS AND SERVICES
Our network products and services fall into seven categories:
- packet-based data services
- private line services
- voice services
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- optical wave services
- dark fiber and conduit rights
- colocation and hosting services
- network design and operational support.
Packet-based data services. These services provide efficient connectivity
for Internet, data, voice and video networks at variable capacities to connect
two or more points. Specific packet-based data services include ATM, frame relay
and Internet transport services. These services are provided over our network
and enable us to bill based on service features and usage. In addition, we will
be introducing new services such as virtual private network, wholesale dial and
wholesale digital subscriber line services over our network.
Private line services. We provide customers with fixed amounts of
point-to-point capacity. These services are billed on fixed monthly fees,
regardless of usage.
Voice services. We have deployed voice switching capability, allowing
customers to originate and terminate long distance traffic. In addition, we have
entered into service agreements with a number of other domestic and
international carriers ensuring complete service beyond the cities served
directly by our network. We currently offer our customers wholesale origination,
termination and complete long distance services, as well as calling card,
directory assistance, operator assistance, international and toll-free services.
Optical wave services. In November 1999, we became one of the first
communications providers to begin offering optical wave services to our
customers. These services allow a customer exclusive long-term use of a portion
of the transmission capacity of a fiber-optic strand rather than the entire
fiber strand. The capacity we use to provide optical wave services is in
addition to the capacity used by us to provide our other services. We are able
to derive 16 bi-directional wavelengths from a single fiber strand with current
technology and plan to derive up to 80 bi-directional wavelengths from a single
fiber strand by the end of 2000. A purchaser of optical wave services installs
its own electrical interface, switching and routing equipment. Optical wave
services allow a customer to purchase capacity in smaller increments while
retaining the control advantages of dark fiber.
Dark fiber and conduit rights. We sell rights to use dark fiber and
related services. In addition, from time to time, we sell rights to conduit and
install conduit for our customers. Purchasers of dark fiber rights typically
install their own electrical and optical transmission equipment. Substantially
all of our current and planned builds include laying two spare conduits, and we
may sell rights to use at least one of them. A purchaser of conduit rights
typically lays its own cable inside the conduit. Related services for both sales
of rights for dark fiber and conduits include colocation of customer equipment
at our data centers and other network equipment locations and maintenance of the
purchased fiber or conduit. Payment for dark fiber rights is generally made at
the time of delivery and acceptance of the fiber, although other payment options
may be available. In addition, ongoing payments for maintenance services are
required.
Colocation and hosting services. We provide our customers with access to
and space in our data centers to install their own equipment necessary to
connect to our network. We believe that providing colocation services on our
network increases the sales of our other services by attracting Internet and
applications service providers. Our colocation services offer potential
customers reduced costs for capacity, reduced expenses compared to building and
operating their own facilities, rapid turn-up of circuits for additional
capacity, interconnection with our network and other networks and improved
network performance.
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We also intend to provide hosting services, which include a web site on the
Internet, and storage of, and access to, data and other media content. This will
be provided on large computer servers owned by us and located in our data
centers that can be used by our customers on a dedicated or shared basis.
Network design and operational support. We help our customers design and
operate their networks. We use our network management centers to monitor and
operate portions of their networks and use our solutions unit's resources to
expand and support our customers' networks. We are deploying new management
tools, including our customer network management system, which will give our
customers the ability to monitor network performance and reconfigure their
capacity from their own network management centers on an essentially real-time
basis and the ability to increase or reduce bandwidth rapidly to better match
their needs. Our customer network management system features equipment inventory
management, bandwidth inventory management, configuration management, fault
isolation management and alarm monitoring.
CUSTOMERS
Our customers currently include regional Bell operating companies, Internet
service providers, application service providers, digital subscriber line
service providers, long distance carriers, utilities, international carriers,
and other communications services providers who desire high-speed connectivity
on a carrier services basis. Sales to Intermedia, including its subsidiary,
Digex Incorporated, accounted for 23% of our network unit's 1999 revenues and
sales to Winstar accounted for 20% of our network unit's 1999 revenues. In
September 2000, WorldCom announced an agreement to purchase Intermedia. The
network unit's next four largest customers combined for a total of 26% of our
network unit's 1999 revenues. We anticipate that, at least through the end of
2000, SBC, Intermedia, Winstar and WorldCom will be among our top customers.
We have entered into strategic alliances with SBC, Intel, Telefonos de
Mexico, KDD, Telia, Teleglobe, Metromedia Fiber Network, Winstar, Intermedia and
others. We also have investments in Lightyear, NEXTLINK, and UtiliCom and
communications companies with operations in Australia, Brazil, Chile and
Argentina. These alliances and investments help to increase our volume of
business and provide additional customers for our network and solutions units.
We anticipate that over the next several years the distribution of our revenues
will shift in part as a result of increased usage of our services by the
companies with whom we have entered into strategic alliances. We do not believe
these alliances and investments will adversely impact our relationships with our
other customers. For more information about our strategic alliances, see the
section of this prospectus entitled "-- Strategic alliances" below.
SALES AND MARKETING
Our sales and marketing department is small and focused, resulting in
strong customer relationships and lower operating costs. This organization
consists of senior level management personnel and experienced sales
representatives with extensive knowledge of the industry and our products and
key contacts within the industry at various levels in the carrier organizations.
COMPETITION
The communications industry is highly competitive. Some competitors in the
markets of carrier services and fiber-optic network providers may have
personnel, financial and other competitive advantages. In the market for carrier
services, we compete primarily with the three traditional nationwide carriers,
AT&T, WorldCom and Sprint, and other coast-to-coast and regional fiber-optic
network providers, such as Qwest, Level 3, Global Crossing and Broadwing.
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Other companies have announced plans to construct significant fiber-optic
networks. We also compete with numerous other service providers that focus
either on a specific product or set of products or within a geographic region.
We compete primarily on the basis of pricing, transmission quality, network
reliability and customer service and support. We have only recently begun to
offer some of our services and products and, as a result, we may have fewer and
less well-established customer relationships than some of our competitors. Our
services within local markets in the United States face additional competitors,
including the regional telephone companies and other local telephone companies.
Our services outside the United States also face additional competitors,
including national telephone companies in foreign countries and carriers that
own capacity on other submarine and regional fiber-optic systems.
Some of our competitors are expanding capacity on their existing networks
or developing new networks. The prices we charge our customers for transmission
capacity on our network could decline due to installation by us and our
competitors of fiber and related equipment that provides substantially more
transmission capacity than currently needed. If prices for network services
decline, we may experience a decline in revenues which would have a material
adverse effect on our operations.
INVESTMENTS
We believe that our investments in and work with technology companies in
their development stages facilitates improvements in our network through the
rapid adoption and deployment of those technologies that offer the ability to
lower our costs and substantially increase our transmission speeds. We also
invest in companies that can facilitate our ability to offer complementary
products or services to our customers. We also invest in communications
companies in order to solidify commercial relationships, which may increase
business on our network. We have investments in several public companies,
including the following:
Accelerated Networks. Accelerated Networks, Inc. focuses on developing
integrated access devices. Their products support network carriers in
efficiently connecting many different types of customer services ranging from
Internet access, voice over Internet protocol, corporate remote access, virtual
private networks and telephone service. We own 897,666 shares of Accelerated's
preferred stock, or approximately 1.8% of Accelerated's outstanding equity.
Avici Systems. Avici Systems, Inc. is a manufacturer of terabit routers.
We currently own 761,291 shares, or approximately 1.5%, of Avici's outstanding
common stock.
Corvis. Corvis Corporation is a manufacturer of long-haul optical
transmission equipment. We currently own 5,162,913 shares, or approximately
1.5%, of Corvis' outstanding common stock.
NEXTLINK Communications. NEXTLINK Communications, Inc. provides a variety
of high-quality telecommunications services and high-speed Internet access to
business customers. We currently own 6,472,376 shares, or approximately 2.4%, of
NEXTLINK's Class A common stock. We acquired these shares of NEXTLINK through
its recent merger with Concentric Network Corporation. We previously owned
shares of Concentric, which were converted into NEXTLINK Class A common stock in
the merger.
ONI Systems. ONI Systems is a manufacturer of optical networking DWDM
systems for local service providers. We currently own 1,602,904 shares, or
approximately 1.3%, of ONI's outstanding common stock.
Sonus Networks. Sonus Networks is a manufacturer of advanced open services
switch equipment, including equipment that delivers voice over Internet protocol
services. We currently own 909,453 shares, or less than 1%, of Sonus Networks'
outstanding common stock.
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TMNG. The Management Network Group, Inc. is a provider of strategic,
management, operational and e-business consulting services to the
telecommunications industry. We currently own warrants to purchase 500,000
shares of TMNG's common stock at an exercise price of $2.00 per share.
Ziplink. Ziplink, Inc. is a provider of wholesale Internet access services
to developers and vendors of Internet appliances and local, regional and
national Internet service providers. We currently own 216,964 shares, or
approximately 1.7%, of Ziplink's outstanding common stock.
We also have investments in several private companies, including the
following:
- Amber Networks, Inc.
- Axient Communications, Inc.
- Charlotte's Networks, Inc.
- ClearData Communications, Inc.
- Compass Telecommunications, Inc.
- Hostcentric, Inc.
- ipVerse, Inc.
- Lightyear Communications, Inc.
- Tenor Networks, Inc.
- UtiliCom Networks, LLC
- Zaffire, Inc.
OUR BROADBAND MEDIA UNIT
Through our broadband media unit, we provide worldwide transmission of live
and non-live media content through integrated fiber-optic, satellite and
teleport services. Currently, substantially all of the operations of our
broadband media unit are conducted through Vyvx Services. We transmit the
signals used in broadcast news, sports, advertising and special events. We
currently transmit video and audio signals from events to television networks
for approximately 80% of live televised major league sporting events and
approximately 55% of scheduled live news events. In addition, we transmit
approximately 30% of advertisements to local television stations.
Through Vyvx Services, we have gained experience in broadband multimedia
networks and established high-speed connections to major news and sports venues
throughout the United States. We provide services throughout the United States,
South America and Asia using our network, four satellite earth stations that we
own, and leased transmission capacity on satellites. We own approximately 550
servers that are located in television and radio stations throughout the United
States, which allow for online, real-time selection and distribution of media
content.
PRODUCTS AND SERVICES
Our broadband media unit's current products and services fall into two
primary categories:
- video transmission services, which include broadcast quality transmission
of live and non-live video content for the news, entertainment and sports
markets
- media distribution services, which include distribution of video and
audio spot advertisements and programs to television and radio stations
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STRATEGY
Our objective is to provide a wide variety of media-centric products and
services primarily to the media and entertainment industries, which we expect
will drive traffic on our network. We intend to use our long-standing customer
relationships to provide high-quality communications services to broadcast
networks, cinematic production houses and other carriers as they seek to benefit
from the growing demand for high capacity media and entertainment products and
services. In addition, we are considering development of an application
infrastructure called MediaXtranet(SM) that would provide services to facilitate
the transmission and storage of media content for business-to-business
applications, including hosting and navigation services. We expect that
MediaXtranet would enable the collection, gathering, hosting, management,
transacting, and edge distribution of media content, regardless of its format or
source. We expect that the development of MediaXtranet, if undertaken, would
likely require substantial capital expenditures which are currently not
accounted for in our business plan.
We intend to utilize MediaXtranet to capitalize on our broadband media
experience and existing customer relationships to expand our products and
services to include the following:
- media and entertainment content logging, storage and portal-type access
and distribution
- media streaming for both audio and video services
- optical distribution of cinematic and television broadcasts and
advertisements
- media and entertainment eCommerce transactional activities
- Internet-based distribution of advertisements
CUSTOMERS
Our broadband media unit sells only to media content service providers. We
do not compete with our media customers for retail end-users. We have
approximately 2,000 customers, including major broadcast and cable television
networks, news services, professional and collegiate sports organizations, such
as the National Football League and the National Basketball Association, and
advertising agencies, television and movie production companies. Approximately
44% of our broadband media unit's total revenue in 1999 was derived from its top
10 customers. The unit's largest customer, Fox Entertainment Group, Inc.,
accounted for approximately 13% of the broadband media unit's 1999 total
revenues. Contracts with the largest customers are for terms that extend up to
10 years. Most contracts with smaller customers are for one-year terms.
SALES AND MARKETING
We have 39 sales personnel located in offices in 12 cities throughout the
United States. Our office in Miami serves markets in South America. We also have
an office in Singapore that serves markets in Asia. Twenty-eight of our sales
people are focused on selling to those customers who use video and media
transmission services and 11 of our sales people are focused on selling to those
customers who use advertising distribution services.
COMPETITION
Vyvx Services is currently a market leader in transmission services for
major league and other sporting and live events and has a significant market
share of the advertising distribution services market. Competitors in
traditional video transmission and advertising distribution services include
Teleglobe, Triumph Communications, Inc. and Digital Generation Systems, Inc.
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INVESTMENTS
We believe that our investing in companies which are developing new
products and services utilizing broadband media technology will help us better
serve our customers. Our investments include the following businesses:
ChoiceSeat(TM). CSI, Inc. deploys ChoiceSeat touch-screen display units
installed on stadium seats that provide access to statistics, different camera
angles, player- and venue-related information and access to current information
from other sports events. We own 100% of the outstanding common stock and 28% of
the outstanding preferred stock of CSI, which together represent slightly less
than a 50% economic and voting interest in CSI. Other investors in CSI include
Intel, Microsoft Corporation and Axalon (Offshore) I, L.P.
Others. Through our broadband media unit, we have also made investments in
other domestic companies, including SporTVision Systems, Inc., Xstream Sports,
Inc. and Pinnacle Systems, Inc.
OUR SOLUTIONS UNIT
We provide professional communications services, including call center
design, network management and maintenance services, and sell and install
communications equipment from leading vendors for the voice and data
communications needs of businesses of all sizes as well as for governmental,
educational and non-profit institutions. We also distribute the products and
services of select communications service providers, including some of our
network unit's customers. In April 1997, we purchased Nortel's equipment
distribution business, which we then combined with our equipment distribution
business to create Williams Communications Solutions, LLC. After the
combination, we owned 70% of Solutions LLC and Nortel owned the remaining 30%.
Our solutions unit consists primarily of Solutions LLC. We also own Intersys
Mexico, S.A. de C.V., which provides a wide range of enterprise network design,
engineering, implementation and operational support for businesses throughout
Mexico.
Our broad range of voice and data solutions allows us to serve as a
single-source provider for our customers' communications needs. We distribute
the products and services of a number of communications suppliers, primarily
Nortel, as well as Cisco, Octel (a division of Lucent), NEC, 3COM, SBC and
Winstar, and are therefore able to provide our customers with multiple options.
By offering equipment from a variety of vendors, we help businesses optimize the
productivity and reduce the cost of their communications systems. We have
expertise in the most complex network technologies to ensure that products from
various suppliers operate together effectively.
STRATEGY
Our objective is to be the premier provider of advanced, integrated
communications solutions to businesses throughout North America. To achieve this
objective, we intend to:
- Provide advanced professional services. We provide comprehensive
professional services to assist customers in the design, engineering and
operation of their communications networks. We intend to continue to
expand the professional services portion of our business as customer
demand for advanced communications and data network solutions continues
to grow.
- Capitalize on new technology developments. We capitalize on the
increased demand for new technologies, such as multi-media, video
streaming, and e-commerce as businesses replace and upgrade their
existing communications infrastructure. We are also capitalizing on the
growing demand for convergence equipment. We believe that our strong
customer
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relationships, product portfolio and technical experience provide us with
an ideal platform to capitalize on these developments.
- Leverage our engineering and technical resources. We have an experienced
staff of approximately 2,450 technicians and approximately 800
engineering personnel to design, install, manage and maintain our
customers' communications infrastructure. Our employees are trained to
address our customers' converged and complex communications needs, such
as Internet-connected call centers and voice over Internet protocol,
which should provide us with a competitive advantage in offering these
services.
- Utilize our nationwide presence and large, installed customer base. We
have approximately 110 sales and service locations throughout the United
States and Canada and approximately 100,000 customer sites. Our
nationwide presence allows us to better serve multi-location customers
and makes us a very attractive partner for leading communications
equipment and service providers. Our large, installed customer base
provides us and leading communications equipment and service providers
with an existing market to sell higher-value products and services such
as professional services.
- Extend the reach of our network unit's carrier customers. We are able to
distribute the products and services of our network unit's customers to
our solutions unit's customer base, such as Concentric's Internet
services, Lightyear's long distance services and Winstar's local
services. In addition, we have agreed to offer SBC's network services as
they are made available to us. We believe that our ability to extend the
reach of our network unit's carrier customers provides our network unit
with a valuable point of differentiation.
PRODUCTS AND SERVICES
We provide a comprehensive array of communications products and services.
Our products and services fall into four categories:
- professional services
- equipment sales and installation
- managed services
- sale of carrier services
Equipment sales and services provided approximately 69% of total
consolidated revenues for our solutions unit for 1999, 78% of total consolidated
revenues for 1998, and 83% of total consolidated revenues for 1997. We expect
professional services will account for a larger percentage of our revenues in
the future.
Professional services. Our professional services offerings include
advanced call center applications, network engineering and network consulting.
- Advanced call center applications. Our call center applications team
consists of approximately 50 software applications developers and
engineers who design and implement customized call center solutions for
customers with complex requirements. We also maintain a computer
telecommunications integration lab with 30 specialists to test and
develop custom call center solutions.
- Network engineering. We have approximately 175 network engineers with
expertise in data as well as integrated voice and data networking. This
group designs networking solutions, implements those solutions and
provides ongoing operational support utilizing
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standard technologies. We also provide engineers on a fee-for-service
basis for customers who seek to augment their own resources.
- Network consulting. Our network consultants coordinate the operational
plans of our customers with their existing network capacity and
capability in order to determine the communications environment necessary
to meet their business needs. Our consultants provide a complete analysis
of existing network status and predict the impact of future changes on a
network and also develop sophisticated Internet applications.
Equipment sales and installation. We sell and install data, voice and
convergence communications equipment, providing the customer access to more than
40 leading manufacturers.
- Data equipment. We design, build and operate data networks as well as
integrated voice and data networks. To meet our customers' needs, we
evaluate technologies such as Internet protocol, frame relay and ATM, and
then we select, integrate and deploy the appropriate routers, switches,
access devices and other required equipment. The networks we build range
from small local area networks, which are communications networks over
small areas supporting fewer than 50 users, to wide area networks
supporting thousands of users and multiple technologies.
- Voice and video equipment. We offer our customers a variety of voice and
video equipment, which enables our customers to communicate more
effectively. We also install, configure and integrate all of the
equipment they purchase. The voice systems we sell range from systems for
small businesses to systems for large enterprise sites, requiring
anywhere between 15 and 50,000 internal telephone lines. This equipment
includes private branch exchange systems, key systems, building wiring,
call centers, voice mail systems and fixed wireless systems.
- Convergence equipment. The voice and data networks of our customers are
converging. Newer designs of equipment are able to provide both voice and
data services so that customers only have one network to manage. This
will allow voice services to be provided over Internet protocol networks,
allowing users to reduce their communications expenses. Our experience
with both data and voice equipment provides us an advantage in selling
and installing this new generation of equipment.
Managed Services. We provide service, maintenance and support for our
customers' communications networks.
- Outsourcing. We have approximately 360 engineers and on-site technicians
to support several large U.S. corporations which have elected to turn
over to us the management and operation of all or substantial portions of
their communications environments. Increasingly, these clients are
outsourcing their data networking requirements in addition to their
traditional voice communications requirements to expand network
capability, improve productivity and decrease costs.
- Service and maintenance. We maintain and service our customers' networks
primarily through annual maintenance plans or through job-specific plans
based on time and materials. We remotely monitor and manage the voice and
data equipment and network connectivity of our customers 365 days a year,
24 hours a day through our advanced network management center.
Sale of carrier services. Our customers are increasingly demanding
"one-stop shopping" for communications services. We sell long distance, local
and Internet services offered by other
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carriers who are generally customers of our network unit. This enables us to
provide a complete communications solution for our customers.
ISSUES RELATING TO OUR SOLUTIONS UNIT'S PERFORMANCE
In 1997, Nortel and we combined our equipment distribution businesses to
create what is now Solutions LLC. The rationale for the combination was to
achieve the benefits of increasing the scale and national reach of our sales,
engineering and technical support staffs and our installed customer base and to
strengthen our relationship with our primary vendor. The combination was also
expected to provide the cost benefits of eliminating redundant operating and
overhead expenses. However, we have experienced difficulties in integrating
Nortel's equipment distribution business with ours and in managing the increased
complexity of our business. These difficulties have prevented us from realizing
the expected benefits of the combination and have adversely impacted our
financial results. We are undertaking initiatives to address outstanding
operating issues in our solutions unit.
VENDOR RELATIONSHIPS
We have agreements with the suppliers of the products and providers of the
services we sell to our customers. These agreements provide for our
distribution, resale or integration of products or our acting as agents for the
provider of services. Normally, we receive volume discounts off the list price
of the product or service we purchase from our vendors. We estimate that sales
of Nortel's products, consisting primarily of voice equipment, accounted for
approximately 42% of our solutions unit's revenues in 1999. We estimate that
product sales from the next three largest vendors accounted for approximately 6%
of our solutions unit's revenues in 1999.
Nortel. We distribute Nortel's voice, data and video products. We are the
largest U.S. distributor of Nortel's end-user voice products. The discounts we
receive vary based on our volume of purchases of a particular product line up to
a maximum discount. We have a commitment from Nortel that we may remain a
distributor of Nortel's products through at least 2002. While we have no
commitment to purchase a minimum number of products from Nortel, if we do not
maintain a minimum percentage of Nortel's products in our product mix, each
party has the option to change the ownership structure of Solutions LLC. See the
section below entitled "-- LLC agreement with Nortel" for more information.
Cisco. We are a large U.S. distributor of Cisco's full line of data
networking products. We also distribute Cisco's voice over Internet protocol
products, and we provide network planning, design, implementation and operations
for Cisco customers under a professional services agreement. Intersys is one of
only three Mexican Cisco distributors to have attained Cisco's highest level of
certification, which our solutions unit also has attained in the United States.
Avaya. We are one of the largest U.S. distributors of the voicemail
products of Avaya Inc.'s Octel messaging division.
NEC. We are one of the largest non-affiliated U.S. distributors of NEC
voice equipment. We have an agreement with NEC that requires us to purchase,
from April 1, 2000 through March 31, 2001, a minimum of $25 million of their
products. If we do not fulfill our commitment to NEC, we are required to pay 30%
of any amounts we do not purchase.
CUSTOMERS
We have approximately 100,000 customer sites across a broad range of
industries, including businesses as well as educational, governmental and
non-profit institutions. These customers consist of small businesses (10 or more
employees), small sites of larger companies and large enterprise campus sites
(e.g., AT&T and the University of Dayton). We are one of the largest
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providers in the United States of installation and maintenance services of
communications systems to business sites of over 10,000 telephone lines. We
believe that our customer service will enable us to capture an increasing
portion of each customer's communications budget in the future. We are not
dependent on any one customer or group of customers to achieve our desired
results. Our top 25 customers combined accounted for less than 25% of revenue
during 1999, with no one customer accounting for more than 1%. Our customers
include: AT&T, Bankers Trust Corporation, BP Amoco P.L.C., Countrywide Credit
Industries, Inc., Deutsche Bank, Hewlett Packard Company, Johnson & Johnson,
Kaiser Permanente, Lockheed Martin Corporation, Merrill Lynch & Co., Pfizer,
Inc., Prudential Individual Insurance Group, Shell Exploration and Production
Technology Company, Staples, Inc., T. Rowe Price International Technologies,
Inc., and Texaco Inc.
SALES
We operate approximately 110 sales and service offices in the United
States, Canada and Mexico staffed with approximately 1,000 sales personnel.
Approximately 100 of our sales personnel focus on large, national and government
accounts. In addition, we have representatives dedicated to making regular
telephone contact with our existing customers, providing enhanced customer
service and a channel for merchandise sales.
COMPETITION
Our competition comes from communications equipment distributors, network
integrators and manufacturers of equipment (including in some instances those
manufacturers whose products we also sell). Our competitors include Norstan,
Inc., Anixter Inc., Avaya Inc., Siemens, Cisco Systems and Genuity, Inc. (which
has been spun-off from GTE), Sprint and the regional Bell operating companies.
Most equipment distributors tend to be regionally focused and do not have our
capability to service a nationwide customer base. We believe our expertise in
voice technologies and our ability to provide comprehensive solutions give us an
advantage over network integrators. We realize that we operate in a highly
competitive industry and face competition from companies that may have
significantly greater financial, technical and marketing resources. Some of our
competitors have strong existing relationships with our customers and potential
customers resulting in a competitive disadvantage for us. We are also at a
disadvantage in that our costs exceed those of manufacturers, limiting our
ability to engage in price competition with such manufacturers. However, most
manufacturers of equipment are focused on selling their own equipment and do not
provide converged solutions.
LLC AGREEMENT WITH NORTEL
In April 1997, we purchased Nortel's equipment distribution business, which
we then combined with ours to create Solutions LLC. Nortel's equipment
distribution business included the combined net assets of Nortel's direct sales
subsidiary, Nortel Communications Systems, Inc., which includes Bell Atlantic
Meridian Systems and TTS Meridian Systems, Inc.
As of June 30, 2000, we owned a 70% interest and Nortel owned a 30%
interest in Solutions LLC. In the event of a change of control of either us or
Nortel, Nortel may require us to buy, or we may require Nortel to sell to us,
Nortel's entire interest in Solutions LLC at market value. If for two
consecutive years the percentage of Nortel products purchased by Solutions LLC,
compared with all Nortel and similar products purchased by Solutions LLC, falls
below approximately 78%, and the rate of growth of the purchase of Nortel
products by Solutions LLC during the two-year period is below that of other
Nortel distributors, Nortel may require us to buy, or we may require Nortel to
sell to us, Nortel's entire interest in Solutions LLC at market value.
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In addition, Nortel may at any time require us to purchase up to one-third
of its interest in Solutions LLC. Nortel must retain a 20% interest in Solutions
LLC for a period of five years after the date on which Nortel's ownership
interest is reduced to 20%. As long as Nortel retains a 20% interest in
Solutions LLC, we must retain at least a 50% interest in Solutions LLC. Each
party has a right of first refusal to purchase the other party's interest in the
event of a sale to a third party of all or any part of the party's interest. For
more information about our relationship with Nortel, see the section above
entitled "-- Vendor relationships."
Nortel and we have representation in proportion to our respective ownership
interests on the management committee of Solutions LLC. Currently, we appoint
seven representatives and Nortel appoints three representatives to this
committee. As long as Nortel's interest in Solutions LLC is at least 20%, Nortel
must approve, among other things:
- any changes to the scope of Solutions LLC's business
- any non-budgeted capital expenditure over $5 million and any non-budgeted
acquisition, divestiture or any other obligation over $20 million
- the incurrence of long-term debt in excess of equity.
OUR STRATEGIC INVESTMENTS UNIT
Through our strategic investments unit, we invest in communications
businesses which we believe will increase revenue opportunities for our network
and other business units. Our strategic investments currently include ownership
interests in the following communications companies located in Brazil, Chile and
Argentina:
ATL. ATL was formed in March 1998 to acquire the concession for B-band
cellular licenses in the Brazilian states of Rio de Janeiro and Espirito Santo.
At June 30, 2000, we owned 19% of the outstanding common stock and 66% of the
outstanding preferred stock of ATL through our ownership of Johi Representacoes
Limitada and Williams International ATL Ltd. Other investors in ATL include SBC,
Algar Telecom, S.A. and Telefonos de Mexico.
ATL provides digital cellular services in the Brazilian states of Rio de
Janeiro and Espirito Santo, covering a population of approximately 16.1 million
inhabitants. ATL started commercial operations on January 15, 1999, and had
approximately 1.2 million subscribers as of June 30, 2000. ATL's only cellular
competitor in these areas is Tele Sudeste Celular Participacoes S.A., a former
subsidiary of Telebras currently controlled by a consortium led by Telefonica de
Espana. We believe these areas to be particularly attractive because of the high
unsatisfied demand for cellular services, large population base and relatively
high level of income per capita when compared to other Brazilian regions. ATL's
strategy is based on rapidly deploying a high-quality, 100% digital cellular
network, offering a broad range of enhanced services and providing excellent
customer service.
Telefonica Manquehue. Telefonica Manquehue, S.A. is a high-capacity
communications services provider within the Santiago, Chile, metropolitan area.
It provides Internet, data and voice services for its 67,000 business and
residential customers as of February 2000. Telefonica Manquehue was formed as a
result of the merger of Metrocom S.A. with Telefonica Manquehue in January 2000.
Telefonica Manquehue is installing an extensive telecommunications duct
infrastructure throughout Santiago, which is expected to pass by more than
250,000 homes and businesses by the end of 2000. We owned a 19.9% equity
interest in Metrocom S.A. until the merger. As a result of the merger and
subsequent investments by us and other shareholders, we now own 16.5% of
Telefonica Manquehue.
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Southern Cone. In May 2000, we acquired a 19.9% direct interest in
Southern Cone Communications Company, S.A. Telefonica Manquehue also acquired a
30.1% interest in Southern Cone. The 4,300-kilometer (2,660-mile) Southern Cone
network initially will link the major Argentine cities of Buenos Aires, Las
Toninas, Rosario, Cordoba, Mendoza and Neuquen with the Chilean cities of
Santiago and Valparaiso. When complete, the system will link Argentina and Chile
with cables to Peru, Colombia, Panama, Venezuela, Brazil and the Caribbean, and
ultimately to our U.S. network.
STRATEGIC ALLIANCES
We have entered into, and will continue to enter into, strategic alliances
and strategic relationships with communications companies to secure long-term,
high-capacity commitments for traffic on our network and to enhance our service
offerings. The most significant of these alliances are described below.
SBC Communications Inc. SBC is a major communications provider in the
United States. SBC currently provides local services in the south central and
Midwest regions of the United States and in California, Nevada and Connecticut.
Concurrently with our initial public offering, on October 6, 1999, SBC acquired
20,226,812 shares of our common stock, representing approximately 4.4% of the
shares of our capital stock outstanding as of June 30, 2000. In connection with
its purchase of our common stock at the time of our initial public offering, SBC
agreed to certain restrictions and will receive certain privileges, including
the following:
- SBC has a right to acquire additional shares of our common stock which
cannot exceed a total ownership interest of 10% of all classes of our
common stock outstanding on a combined basis until at least 2009.
- SBC has agreed not to transfer to anyone except affiliates any of its
shares of our common stock until April 2003, unless we have a change of
control.
- SBC has the right to nominate a member of our board of directors at such
time as SBC has more than a 5% equity interest in us and is allowed to
offer long distance services in a state in its traditional exchange
service area. Although SBC currently is not entitled to exercise this
right, a director designated by SBC has been elected to, and is currently
a member of, our board.
- SBC has a right to maintain its equity interest in our common stock,
which will be forfeited if SBC fails to exercise this right twice.
Following a second failure to exercise, SBC has a right to maintain its
newly diluted position so long as it maintains at least a 3% equity
interest.
- SBC has the right to require us to register under the Securities Act its
shares of our common stock.
We have an option to purchase all the shares of our common stock acquired
by SBC in the event of the termination of certain agreements with SBC. Williams,
so long as it has a 50% equity interest in us, has a right of first purchase
with respect to any shares of our common stock that SBC should decide to offer.
We have a right of first purchase with respect to any shares not purchased by
Williams.
We have entered into agreements with SBC which provide that:
- Until 2019, SBC must first seek to obtain from us domestic voice and data
long distance services and select international wholesale services.
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- Until 2019, we must first seek to obtain from SBC select international
wholesale services and various other services, including switched voice
services such as toll-free, operator, calling card and directory
assistance services.
- SBC and we will sell each other's products to our respective customers
and provide installation and maintenance of communications equipment and
other services.
For the services each must seek to obtain from the other, the prices
generally will be equal to the cost of the product or service plus a specified
rate of return. However, these prices cannot be higher than prices charged to
other customers and in some circumstances cannot be higher than specific rates.
If either party can secure lower prices for comparable services which the other
party will not match, then that party is free to utilize the lowest cost
provider.
Both we and SBC can provide services or products to other persons. Each
party may also sell or utilize the products or services purchased from the other
to provide products or services to other persons. However, if SBC establishes a
wholesale distribution channel to resell the network capacity purchased from us
to another provider of carrier services, we have the right to increase the price
we charge SBC for the services SBC resells in this manner. While the terms of
our agreements with SBC are intended to comply with restrictions on SBC's
provision of long distance services, various aspects of these arrangements have
not been tested under the Telecommunications Act.
We and SBC have agreed on a mechanism for the development of projects which
would allow the interconnection of the SBC network with our network based on the
unanimous decision of committees composed of an equal number of representatives
from our company and SBC. If a committee does not approve a project, both we and
SBC have the right, subject to certain exceptions, to require the other party to
develop a project in exchange for payment of the direct costs and cost of
capital required to complete the project or pursue it on its own. In addition,
upon SBC receiving authorization from the FCC to provide long distance services
in any state in its traditional telephone exchange service region, SBC has the
option to purchase from us at net book value all voice or data switching assets
that are physically located in that state and of which SBC has been the primary
user. The option must be exercised within one year of the receipt of
authorization. We then have one year after SBC's exercise of the option to
migrate traffic, install replacement assets and complete other transition
activities. This purchase option would not permit SBC to acquire any rights of
way we use for our network or other transport facilities which we maintain.
Upon termination of the alliance agreements with SBC, SBC has the right in
certain circumstances to purchase voice or data switching assets, including
transport facilities, of which SBC's usage represents 75% or more of the total
usage of these assets.
SBC may terminate the provider agreements if any of the following occurs:
- we begin to offer retail long distance voice transport or local exchange
services on our network except in limited circumstances
- we materially breach our agreements with SBC causing a material adverse
effect on the commercial value of the relationship to SBC
- we have a change of control without SBC's consent, including a change of
control resulting from the separation of our business from Williams'
energy business
- SBC acquires an entity that owns a nationwide fiber-optic network in the
United States and determines not to sell us long distance assets
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For a discussion of the separation of Williams' businesses, see the risk
factor entitled "Risks relating to our relationship with Williams -- Williams'
proposal to separate our communications business from its energy business could
result in a change of control that could have an adverse effect on us."
We may terminate the provider agreements if any of the following occurs:
- SBC has a change of control
- there is a material breach by SBC of the agreements, causing a material
adverse effect on the commercial value of the relationship to us
Either party may terminate a particular provider agreement if the action or
failure to act of any regulatory authority materially frustrates or hinders the
purpose of that agreement. There is no monetary remedy for such a termination.
In the event of termination due to our actions, we could be required to pay
SBC's transition costs of up to $200 million. Similarly, in the event of
termination due to SBC's actions, SBC could be required to pay our transition
costs of up to $200 million, even though our costs may be higher.
In June 2000, the FCC authorized SBC to provide long distance service in
Texas, though this order is being challenged in the federal courts. Under the
terms of our strategic alliance with SBC, we are the preferred provider of SBC's
nationwide long distance voice and data services. We began providing services in
Texas in July 2000.
In June 2000, we acquired SBC's initial party interests in two undersea
communications cables between the United States and China and Japan,
respectively. In March 2000, we announced an agreement to acquire the long
distance network assets of Ameritech Communications, Inc., a subsidiary of SBC.
The assets are located in the states of Illinois, Indiana, Michigan, Ohio and
Wisconsin, and include a fiber-optic network, data centers, indefeasible rights
of use in dark fiber, and switches. The transaction was completed in September
2000. In connection with our purchase of the Ameritech assets, our services
agreement with SBC will be amended to require Ameritech to buy services from us.
We have entered into a services agreement with SBC by which we will provide
local transport services to SBC in six markets: New York, Boston, Seattle,
Phoenix, Atlanta and Denver. This agreement will contemplate expansion of the
services in these markets and further expansion into additional markets.
Intel Corporation. Intel is a manufacturer of chips and other computer,
networking and communications products. The Intel(R) Internet Media Services
business provides Internet web-hosting services by building and managing data
centers around the world that will support the web sites of third parties. At
the time of our initial public offering, Intel acquired 9,225,093 shares of our
common stock, representing approximately 2% of the shares of our capital stock
outstanding as of June 30, 2000.
On May 24, 1999, we entered into a 10-year master alliance agreement with
Intel. We and Intel Internet Media Services will purchase services from one
another pursuant to a services agreement entered into on July 13, 1999. On the
same date we also entered into a sales representative agreement. Both agreements
are for a three-year term renewable for one-year terms thereafter. We are
currently providing domestic transport services to Intel and anticipate that
Intel will provide web-hosting services to us. Subject to our meeting price,
quality of service and other specifications, Intel Internet Media Services will
purchase a significant portion of its yearly domestic transport requirements
from us. In addition, in May 2000, Intel Internet Media
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Services agreed to use our network to deliver high-performance streaming media
to its Internet users. In connection with its purchase of our common stock,
Intel has agreed not to transfer any of its shares of our common stock to anyone
except affiliates until April 2001, but this restriction will terminate if we
have a change of control. The transfer restriction does not prohibit Intel from
selling shares in future registered offerings initiated by us or from engaging
in hedging transactions. Intel also has the right to require us to register
under the Securities Act its shares of our common stock.
Telefonos de Mexico, S.A. de C.V. Telefonos de Mexico, S.A. de C.V., the
largest communications provider in Mexico, currently provides long distance and
local services primarily in Mexico. At the time of our initial public offering,
on October 6, 1999, Telefonos de Mexico acquired 4,612,546 shares of our common
stock, representing approximately 1% of the shares of our capital stock
outstanding as of June 30, 2000. In connection with its purchase of our common
stock, Telefonos de Mexico has agreed to certain restrictions and will receive
certain privileges, including the following:
- Telefonos de Mexico has a right to be notified and given an opportunity
to acquire additional shares of our common stock which cannot exceed a
total ownership interest of 10% of all classes of our common stock
outstanding on a combined basis until at least 2009.
- Telefonos de Mexico has agreed not to transfer to anyone, except
affiliates, any of its shares of our common stock until April 2003,
unless we have a change of control.
- Telefonos de Mexico has agreed that we have the right, until April 2003,
to repurchase our stock at market value less the underwriter's discount
if the alliance agreement is terminated for any reason other than a
breach by us.
- Telefonos de Mexico also has the right to require us to register under
the Securities Act its shares of our common stock.
In addition, Williams, so long as it has a 50% equity interest in us, has a
right of first purchase with respect to any shares of our common stock that
Telefonos de Mexico should decide to offer. We also have a right of first
purchase with respect to any shares of common stock not purchased by Williams.
On May 25, 1999, we entered into an alliance agreement with Telefonos de
Mexico under which, subject to any necessary U.S. and Mexican regulatory
requirements:
- Until 2019, Telefonos de Mexico must first seek to obtain select
international wholesale services and various other services from us.
- Until 2019, we must first seek to obtain select international wholesale
services and various other services from Telefonos de Mexico.
- We and Telefonos de Mexico will sell each other's products to our
respective customers and will negotiate the terms under which both
parties will provide installation and maintenance of communications
equipment and other services for the other.
For the services each must seek to obtain from the other, the prices
generally will be established to reflect the strategic relationship and
commitments made to each other, subject to any applicable law or regulations
establishing the prices. If either party can secure lower prices for comparable
services which the other party will not match, then that party is free to
utilize the lowest cost provider. Both we and Telefonos de Mexico can provide
services or products to other persons. Each party may also sell or utilize the
products or services purchased from the other to provide products or services to
other persons.
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Certain of the provisions relating to the preferred provider relationship
and competitive pricing requirements will not be implemented until changes to
the international settlement system currently in place pursuant to U.S. and
Mexican regulations occur. Due to Telefonos de Mexico's dominant position in
Mexico, the international settlement system requires that Telefonos de Mexico
split its switched traffic terminating in the United States on a basis
proportionate to that of U.S. carriers terminating switched traffic in Mexico.
See the section of this prospectus entitled "Regulation -- Settlement costs for
international traffic."
We and Telefonos de Mexico have agreed on a mechanism for the development
of mutually beneficial projects intended to interconnect our network with the
Telefonos de Mexico network to provide seamless voice and data on both a
nationwide and international basis. Project decisions will be based on the
unanimous decision of committees composed of an equal number of representatives
from our company and Telefonos de Mexico.
Either party may terminate the alliance agreement if any of the following
occurs:
- the action, or failure to act, of any regulatory authority or the passage
of a law or regulation materially frustrates or hinders the purpose of
any of our agreements
- either party experiences a change of control
One party may terminate the agreements if the other party materially
breaches them or is no longer able to deliver the products and services for a
period of 30 days.
In addition, we have entered into an interconnection agreement with
Telefonos de Mexico and are negotiating additional agreements for the purchase
and sale of telecommunications services. Under the proposed agreements,
subsidiaries of Telefonos de Mexico will purchase internet transit services and
voice services from us. We also intend to negotiate broader services and
marketing agreements.
KDD America. KDD America, Inc. is a wholly-owned subsidiary of KDD
Corporation, the largest international telecommunications company in Japan. In
June 2000, we entered into a comprehensive services agreement under which we
will interconnect our network with KDD America. In addition, KDD America will
first seek to obtain U.S. offered telecommunicating services from us, and we
will first seek to obtain Japan-terminating telecommunications services from KDD
America or KDD Corporation. We also agreed to collaborate with KDD on a number
of other matters, including colocation services, e-business applications and
customer solutions.
Telia. Telia is the national communications service provider in Sweden. In
February 2000, we agreed to acquire dark fiber on Telia's 28,000 mile
fiber-optic network throughout Europe which is expected to be substantially
complete by the end of this year. This network will serve approximately 35
cities in Sweden, Norway and Finland to the north; Lithuania to the east; and
the central and western European markets of Austria, Belgium, the Czech
Republic, France, Germany, Italy, Spain, Switzerland and the United Kingdom. We
have the ability to accept between 2 and 36 fiber strands, depending upon the
route, across Telia's network. Under the agreement, we also obtain significant
additional capacity on the TAT-14 trans-Atlantic cable system scheduled for
operation by the end of this year. Telia will purchase 11,000 route miles of
fiber on our U.S. network. The companies will provide each other with colocation
services and ongoing network maintenance services on their respective networks.
Teleglobe. Teleglobe, Inc. is a leading supplier of global broadband and
data services. In December 1999, Teleglobe agreed to purchase dark fiber on
14,000 route miles of our network as well as other ongoing services. The fiber
will connect 30 key markets across the United States, including Atlanta, Boston,
Chicago, Dallas, Denver, Houston, Los Angeles, Miami, New York,
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San Diego and Washington, D.C. In addition, we will provide Teleglobe with
long-term backhaul services from international cable landing sites on the West
Coast to our network. As part of the 20-year agreement, we will provide
Teleglobe with ongoing network maintenance and colocation services.
We agreed to purchase two OC-48 wavelengths on Teleglobe's European
network, which includes London, Brussels, Amsterdam and major markets in France
and Germany including Strasbourg and Paris and Dusseldorf and Frankfurt,
respectively. We will also acquire significant long-term capacity into Canada,
interconnecting our U.S. network with Teleglobe's Canadian network in Vancouver,
British Columbia. Additionally, we obtain colocation facilities and network
maintenance throughout the Teleglobe network.
Winstar. Winstar Communications, Inc. uses wireless technology to provide
high-capacity local exchange and Internet access services to companies located
generally in buildings not served by fiber-optic cable. We have entered into
agreements with Winstar under which:
- Until 2023, we have a right to use approximately 2% of Winstar's wireless
local capacity, which is planned to cover the top 50 U.S. markets, in
exchange for payments equal to $400 million over a period of four years.
- Until 2023, Winstar has a right to use four strands of our fiber-optic
cable over 15,000 route miles on our network.
- Winstar has an obligation to lease specified circuits from us for at
least 20-year terms.
- We have agreed to provide Winstar with colocation and maintenance
services.
- Winstar will pay us $644 million in equal monthly installments over a
period of seven years ending in 2006, for providing the services noted
above.
Metromedia Fiber Network. Metromedia Fiber Network is currently
constructing local fiber-optic networks in 11 U.S. cities: New York, Boston,
Philadelphia, Chicago, Washington, D.C., Dallas, Houston, Atlanta, Seattle, Los
Angeles and San Francisco. On September 17, 1999, we signed two agreements with
Metromedia that provide for the following 20-year lease arrangements:
- Metromedia will lease to us dark fiber of up to 3,200 route miles on its
local networks, with six to 96 fibers per segment, and will provide us
with maintenance services and dark fiber connectivity to approximately
250 points of presence and data centers in exchange for approximately
$317 million payable by us over the duration of the agreement.
- We will lease to Metromedia six dark fibers over substantially all of our
network and provide colocation and maintenance services in exchange for
approximately $317 million payable by Metromedia over the duration of the
agreement.
Lease and maintenance payments will be based on the number of fiber miles
leased. We will lease fiber from Metromedia in all 11 of its current
metropolitan areas. In addition, we will have the right to select future
Metromedia market areas where we will lease fiber, when and if such cities are
announced. In 1999, we began leasing fiber on constructed segments of the
Metromedia network, and Metromedia began leasing fiber on constructed segments
of our network. Leases of fiber on additional segments will begin following
construction and acceptance.
Intermedia. Intermedia Communications, Inc. provides a wide range of
local, long distance and Internet services. In April 1998, we entered into an
agreement with Intermedia providing Intermedia with a 20-year right to use our
nationwide transmission capacity.
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PROPERTIES
Our network and its component assets are the principal properties that we
currently operate. We lease portions of the network and related equipment
pursuant to our asset defeasance program, which supplied funds to construct a
portion of our network and purchase equipment. The lease term is for five years
with possible renewal for two additional one-year terms. We have the rights to
purchase or exchange the leased property during the lease term as well as to
purchase the property at the end of the lease term. The price at which we may
purchase the property approximates its original cost. In the event we do not
purchase the property at the end of the lease term, we are obligated to pay
89.9% of the original purchase cost of the property, reduced by payments made
throughout the lease term. For more information regarding the operating lease
agreement, see the section of this prospectus entitled "Description of Other
Indebtedness and Other Financing Arrangements -- Asset defeasance program."
Our installed fiber-optic cable is laid under various rights of way. We
have agreements in place for substantially all of the rights of way needed to
complete our network. Almost all of our rights of way extend through at least
2018. A significant portion of our rights of way are along Williams' pipeline
easements.
We own or lease sites in approximately 100 U.S. cities on which we locate
or plan to locate transmission, routing and switching equipment. These sites
range in size from 2,000 square feet to 50,000 square feet and total
approximately 1,700,000 square feet. We also lease office space in various
locations, including from Williams. We lease from Williams approximately
1,200,000 square feet of office space in Tulsa, Oklahoma, and have entered into
a lease with Williams for an additional 350,000 square feet of office space to
be constructed. Our solutions unit occupies approximately 192,000 square feet of
office space in Houston, Texas, which it subleases from Williams.
EMPLOYEES
As of August 1, 2000, we had a total of approximately 10,415 employees,
1,005 of whom were covered by collective bargaining agreements. The following
shows the number of our employees broken down by unit:
<TABLE>
<S> <C>
Network............................................. 2,445
Broadband media..................................... 430
Solutions........................................... 5,926
Strategic investments............................... 25
Corporate........................................... 1,589
------
Total.................................... 10,415
======
</TABLE>
LEGAL PROCEEDINGS
We are named as a defendant in various lawsuits brought on behalf of all
landowners on whose property the plaintiffs have alleged we installed
fiber-optic cable without the permission of the landowner. In each lawsuit, the
plaintiff seeks to bring a nationwide class action on behalf of all landowners
on whose property we have installed fiber-optic cable without the permission of
the landowner. We believe that installation of the cable containing the single
fiber network that crosses over or near the putative class members' land does
not infringe on their property rights. We also do not believe that the
plaintiffs have sufficient basis for certification of a nationwide class action.
It is likely that we will be subject to other putative class action suits
challenging our rights of way. We cannot quantify the impact of all such claims
at this time. Thus, we cannot be
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certain that the plaintiffs' putative class actions or other putative class
actions, if successful, will not have a material adverse effect on our business.
On September 7, 2000, All-Phase Utility Corp. amended its complaint in a
matter originally filed June 28, 1999 against us in the United States District
Court for Oregon. In the amended complaint, All-Phase alleges actual damages of
at least $236.5 million plus punitive damages of an additional amount equal to
double the amount of actual damages. All-Phase alleges that a portion of our
Eugene, Oregon to Bandon, Oregon route is based on confidential information
developed by All-Phase and that we breached our non-disclosure agreement with
All-Phase and violated the Oregon Trade Secrets Act by using it. All-Phase also
alleges that we misrepresented our plans for the route and that, as a result,
All-Phase lost the opportunity to build its own line along the same route.
All-Phase alleges that its damages include loss of profit from the construction
it believes it would have performed for us and lost revenue from leases of
fiber-optic cable and conduits. We intend to refute the allegations and
vigorously defend this lawsuit. We do not believe that the ultimate resolution
of this matter will have a material adverse effect upon our future financial
position, results of operations or cash flows.
We are a party to various other claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
ultimate resolution of all claims, legal actions and complaints after
consideration of amounts accrued, insurance coverage, or other indemnification
arrangements will not have a material adverse effect upon our future financial
position, results of operations or cash flows.
REGULATION
GENERAL REGULATORY ENVIRONMENT
We are subject to federal, state, local, and foreign regulations that
affect our product offerings, competition, demand, costs and other aspects of
our operations. U.S. federal laws and regulations generally apply to interstate
telecommunications, including international telecommunications that originate or
terminate in the United States, while state laws and regulations apply to
telecommunications terminating within the state of origination. A foreign
country's laws and regulations apply to telecommunications that originate or
terminate in that country. The regulation of the telecommunications industry is
changing rapidly and varies from state to state and from country to country. Our
operations are also subject to a variety of environmental, safety, health and
other governmental regulations. We cannot guarantee that future regulatory,
judicial, or legislative activities will not have a material adverse effect on
us, or that domestic or international regulators or third parties will not raise
material issues with regard to our compliance or noncompliance with applicable
regulations.
The Telecommunications Act seeks to promote competition in local and long
distance telecommunications services, including by allowing entities affiliated
with power utilities entry into providing telecommunications services and by
allowing, subject to specified limitations and conditions, the regional Bell
operating companies to enter the long distance market. We believe that the
regional Bell operating companies' and other companies' entry into this market
will provide opportunities for us to sell dark fiber or lease high-volume long
distance capacity.
The Telecommunications Act allows a regional Bell operating company to
provide long distance services originating outside its traditional exchange
service area or from mobile services, and to own 10% or less of the equity of a
long distance carrier operating in its traditional service area. In addition,
Section 271 of the Telecommunications Act allows a regional Bell operating
company to provide long distance services originating in a state in its
traditional exchange service area if it satisfies several procedural and
substantive requirements. These include obtaining FCC
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approval upon a showing that the regional Bell operating company has entered
into, or under some circumstances has offered to enter into, interconnection
agreements which satisfy a 14-point "checklist" of competitive requirements. On
February 22, 1999, the United States Supreme Court issued an order confirming
the FCC's authority to adopt requirements for compliance with the checklist. On
December 29, 1999, the FCC granted Bell Atlantic's petition to provide long
distance service in New York State. On August 1, 2000, the U.S. Court of Appeals
for the District of Columbia Circuit affirmed the FCC's decision. In addition,
on June 30, 2000, the FCC granted SBC's petition to provide long distance
service in Texas, which became effective July 10, 2000. AT&T filed notice of its
intent to appeal this order in the U.S. Court of Appeals for the District of
Columbia Circuit on July 5, 2000. We expect that additional petitions for entry
will be filed and that the regional Bell operating companies will obtain
approval to provide long distance services in several other states within the
next two years. Bills have been introduced in Congress to allow the regional
Bell operating companies to provide high-speed data and Internet access long
distance services.
Common carrier services to end-users, including enhanced services
providers, are subject to assessment for the FCC's Universal Service Fund, which
assists in ensuring the universal availability of basic telecommunications
services at affordable prices and other goals. The FCC announced assessments for
the third quarter of 2000 of approximately 5.5% of gross interstate and
international end-user revenues, and the FCC has proposed increasing the
assessment rate for the fourth quarter to approximately 5.7%. On July 30, 1999,
the U.S. Court of Appeals for the Fifth Circuit upheld in part the FCC's
Universal Service Order, but determined that the agency could not assess
contributions on intrastate revenues. The court also reversed and remanded for
further consideration the FCC's decision to assess contributions based on the
international revenues of contributors having interstate revenues for certain
universal service support funds. In response to the court's ruling, the FCC
issued an order on October 8, 1999, which, among other changes, exempted from
the contribution base the international revenues of interstate carriers whose
interstate revenues account for a small percentage of their combined interstate
and international revenues. In addition, on May 31, 2000, the FCC adopted a plan
that will create a new universal service support mechanism in connection with
its reform of interstate access charges. Some of our services may be subject to
those assessments, which would increase our costs, and we may also be liable for
assessments by state commissions for state universal service programs.
FEDERAL REGULATION
Under the FCC's rules, we are a non-dominant carrier. Generally, the FCC
has chosen not to closely regulate the charges or practices of non-dominant
carriers. Although the FCC has the power to impose more stringent regulatory
requirements on us, we believe that the FCC is unlikely to do so. We are subject
to the regulatory requirements applicable to all common carriers, such as
providing services without unreasonable discrimination and charging reasonable
rates.
Federal regulation affects the cost and thus the demand for long distance
services through regulation of interstate access charges, which are the local
telephone companies' charges for use of their exchange facilities in originating
or terminating interstate transmissions. The FCC, on May 31, 2000, ordered a
multi-year transition in the structure of interstate access charges, leading to
lower per-minute charges. Among some of the changes in that order, the FCC
increased non-usage sensitive charges on local lines, eliminated non-usage
sensitive charges on interexchange carriers, modified the productivity factor
used in part to determine price caps on access charges for some local telephone
companies, and created a new universal service component to recover some
implicit subsidies in access charges that were effectively eliminated
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by the order. Some aspects of the FCC's access charge rules are subject to
periodic review and the agency may adopt further changes in the structure and
levels of interstate access charges in the future.
The FCC has adopted interconnection rules, including rules relating to
pricing, for the provision of unbundled network elements and wholesale services
by incumbent local telephone companies to competitive local telephone companies.
On July 18, 2000, the U.S. Court of Appeals for the Eighth Circuit reversed
certain FCC rules relating to network element pricing, and, as a result, the FCC
may revise these rules. On August 30, 2000, the FCC and the Department of
Justice filed for a stay that would allow the network element pricing rules to
remain in effect pending an appeal of the Eighth Circuit's decision to the
Supreme Court. The agency also adopted rules governing the physical colocation
of competitive local telephone company equipment in certain of the incumbent
local telephone companies' buildings to access unbundled network elements.
Pursuant to interconnection agreements entered into with incumbent local
telephone companies, competitive carriers may use these network elements,
services, and colocation space to offer local services. In January 1999, the
United States Supreme Court upheld the FCC's authority to adopt pricing rules
for unbundled network elements and resale by competitive local telephone
companies. However, the Supreme Court instructed the FCC to reconsider an
earlier determination regarding the extent to which local telephone companies
are required to unbundle elements of their networks and provide those unbundled
networks to competitive local telephone companies. On September 15, 1999, the
FCC adopted revised rules on unbundling of network elements. Additionally, on
March 17, 2000, the U.S. Court of Appeals for the District of Columbia Circuit
ordered the FCC to reconsider portions of its colocation rules, including those
relating to the types of equipment that may be colocated on the premises of
incumbent local telephone companies. On August 9, 2000, the FCC issued an Order
on Reconsideration and Second Further Notice of Proposed Rulemaking which
extended the rules affirmed by the Court of Appeals and invited comments on
those issues which the Court of Appeals remanded for reconsideration. These
regulations affect the growth opportunities for some of our customers and thus
demand for our services.
The FCC has to date treated Internet service providers as enhanced service
providers rather than common carriers. As such, Internet service providers have
been exempt from various federal and state regulations, including the obligation
to pay access charges and contribute to universal service funds. Congress is
also considering legislation that would affect the charges applicable to such
calls.
The FCC has adopted rules for a multi-year transition to lower
international settlement payments by U.S. common carriers, leading to lower
rates for some international services and increased demand for these services
provided by some of our customers. The result is likely to be increased demand
for capacity on the U.S. facilities, including our network, which provide these
services.
Rules adopted by the FCC in 1996 and 1997, which an appeals court upheld on
April 28, 2000, impose significant limits on the ability of carriers to maintain
tariffs for interstate long distance services and to rely on tariffs to state
the prices, terms and conditions under which they offer interstate services.
Additional rules, adopted by the FCC on March 18, 1999, will require long
distance carriers to make specified public disclosures of their rates, terms and
conditions for domestic interstate services. The FCC ordered a transition ending
with cancellation of all tariffs by January 31, 2001. These regulations affect
how some of our customers provide services and the demand for their offerings.
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STATE REGULATION
The Telecommunications Act generally prohibits state and local governments
from enforcing any law, rule or legal requirement that prohibits or has the
effect of prohibiting any person from providing any interstate or intrastate
telecommunications service. However, states retain jurisdiction to adopt
regulations necessary to preserve universal service, protect public safety and
welfare, ensure the continued quality of communications services and safeguard
the rights of consumers.
Generally, we must obtain and maintain certificates of authority from
regulatory bodies in states in which we offer intrastate services. In most
states, we must also file and obtain prior regulatory approval of tariffs for
our regulated intrastate services. Certificates of authority can generally be
conditioned, modified or revoked by state regulatory authorities for failure to
comply with state law or regulations. Fines and other penalties also may be
imposed for such violations. We are currently authorized to provide intrastate
services, at least to some extent, in 50 states. In a number of states, we have
pending applications for additional authority or are awaiting tariff approval.
We believe that most states do not regulate our provision of dark fiber. If a
state did regulate our provision of dark fiber, we could be required to provide
dark fiber in that state pursuant to tariffs and at regulated rates.
State regulatory commissions generally regulate the rates incumbent local
telephone companies charge for intrastate services, including intrastate access
services paid by providers of intrastate long distance services. Our local and
other intrastate services compete against the regulated rates of these carriers,
and also use some of these services in providing our services. Under the
Telecommunications Act, state commissions have jurisdiction to arbitrate and
review negotiations between local telephone companies and competitive local
exchange carriers regarding the prices local telephone companies charge for
interconnection of network elements with, and resale of, services by competitive
local exchange carriers; however, the Supreme Court has upheld the FCC's
authority to adopt rules which the states must apply when setting these prices.
We are entering into interconnection agreements with various incumbent local
telephone companies and are considering others. To date, none of the agreements
we have agreed to has been approved by all necessary state governmental
authorities. These regulations, therefore, also affect our plans to offer such
services. A state may also impose telecommunications taxes, and fees related to
the support for universal service, on providers of services within that state.
LOCAL REGULATION
We are occasionally required to obtain street use and construction permits
and licenses and/or franchises to install and expand our fiber-optic network
using municipal rights of way. Termination or failure to renew our existing
franchise or license agreements could have a material adverse effect on us. In
some municipalities where we have installed or anticipate constructing networks,
we are required to pay license or franchise fees based on a percentage of gross
revenue or on a per linear foot basis. We cannot guarantee that fees will remain
at their current levels following the expiration of existing franchises. In
addition, we could be at a competitive disadvantage if our competitors do not
pay the same level of fees as we do. However, the Telecommunications Act
requires municipalities to manage public rights of way in a competitively
neutral and non-discriminatory manner.
OTHER
Our operations are subject to a variety of federal, state, local and
foreign environmental, safety and health laws, and governmental regulations.
These laws and regulations govern matters such as the generation, storage,
handling, use and transportation of hazardous materials, the
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emission and discharge of hazardous materials into the atmosphere, the emission
of electromagnetic radiation, the protection of wetlands, historic sites and
endangered species and the health and safety of our employees.
Although we monitor compliance with environmental, safety and health laws
and regulations, we cannot assure you that we have been or will be in complete
compliance with these laws and regulations. We may be subject to fines or other
sanctions imposed by governmental authorities if we fail to obtain certain
permits or violate the laws and regulations. We do not expect any capital or
other expenditures for compliance with laws, regulations or permits relating to
the environment, safety and health to be material in 2000.
In addition, we may be subject to environmental laws requiring the
investigation and cleanup of contamination at sites we own or operate or at
third-party waste disposal sites. These laws often impose liability even if the
owner or operator did not know of, or was not responsible for, the
contamination. Although we own or operate numerous sites in connection with our
operations, we are not aware of any liability relating to contamination at these
sites or third-party waste disposal sites that could have a material adverse
effect on our company.
FOREIGN REGULATION
The provision of telecommunications services in the countries in which we
operate and intend to operate is regulated. Telecommunications carriers are
generally required to obtain permits, licenses, or authorizations to initiate or
terminate communications in a country. The regulatory requirements vary from
country to country, although in some significant respects regulation in the
Western European markets is harmonized under the regulatory structure of the
European Union. Many regulatory systems have only recently faced the issues
raised by competition and are still in the process of development.
Telecommunications laws and regulations are changing generally to promote
competition and new offerings. However, future regulatory, judicial, or
legislative activities may have a material adverse effect on us, and
international regulators or third parties may raise material issues with regard
to our compliance or noncompliance with applicable regulations.
Generally, we must obtain and maintain authorizations from regulatory
bodies in the countries in which we will offer telecommunications services. We
may need different authorizations or no authorizations, depending on whether we
construct or lease our facilities, and whether we offer dark fiber, switched
voice, private line, data, video or enhanced services in many of the countries
in which we plan to operate. We must also comply with environmental, planning
and property laws in those countries where we construct and/or operate
fiber-optic systems. In many countries, we must also file and obtain prior
regulatory approval of the rates, terms and conditions for our services.
Authorizations can generally be conditioned, modified or revoked by regulators
for failure to comply with applicable laws or regulations. Fines and other
penalties also may be imposed for violations. We expect to apply for and acquire
various authorizations to operate our foreign facilities and provide our
telecommunications services though we cannot guarantee that our licenses will
not be delayed or include burdensome conditions.
Authorizations to operate as a new carrier are not available in some
countries, may be available in other countries with limitations on the number
and characteristics of carriers, and may not be required at all in other
countries. In addition, while some countries require complex applications
procedures for authorizations, some countries simply require registration with
or notification to the regulatory agency. Within a country, moreover, some
services or activities may require a full authorization while others may require
a simple registration or notification, or no filing at all. Authorizations and
regulations impose a range of restrictions on the carriers'
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operations, corporate governance and shareholders, with penalties for
noncompliance, including loss of license and monetary fines. For example, many
countries place limits on foreign ownership of telecommunications carriers and
require regulatory approval of transfers of control.
In granting authorizations, regulators frequently establish service
obligations for the operator. Typical obligations include nondiscrimination,
build-out or service coverage and interconnection obligations, as well as
requirements regarding the quality of service provided and the approval of new
service offerings. Many regulators also require licensed carriers to pay certain
fees or charges, including to cover the costs of regulation and to support the
availability of services, and these fees may in some cases be significant.
Many national regulators require interconnection between carriers and
resolve disputes as to the reasonableness of particular interconnection
arrangements and pricing. Many regulators require a dominant carrier in the
market to offer competing carriers interconnection on reasonable and
nondiscriminatory terms and conditions, and a number of regulators are also
beginning to require incumbent carriers to unbundle their local loops, allowing
increasing competition in local services. In some countries, all
telecommunications carriers are required to provide interconnection to other
carriers. We may be required to provide interconnection to our foreign network
as well as access to our facilities for the installation of other carriers'
telecommunications equipment.
We may also be required to obtain street use and construction permits and
licenses and/or franchises to install and expand our fiber-optic network using
public rights of way. In some countries where we have installed or anticipate
constructing networks, we may be required to pay license or franchise fees.
Submarine telecommunications cable systems require national authorizations
from each country in which they land and operate. Cable landing authorizations
typically involve environmental reviews as well as approvals by
telecommunications authorities to provide international telecommunications
facilities and services. In addition, municipal and state permits may be
necessary. Any such authorization may be difficult to obtain or involve
burdensome conditions. Telecommunications carriers using capacity on the cables
usually need licenses from each country in which they operate and may need
different licenses to provide different services. For example, we will need to
acquire a Type I license to land our interest in an undersea cable in Japan, and
also a Type II license if we seek to resell international private line services
to or from Japan.
BRAZIL
A cellular concession was granted to ATL in 1998 for an initial term of 15
years which may be renewed for equal periods at the discretion of the national
regulatory agency, Anatel. Currently, within each area, only two cellular
companies may operate. In 2000, the government announced plans to sell
additional licenses in each wireless market for personal communications service.
The cellular concessions and other regulations impose a range of restrictions on
the companies' operations, rates, services, corporate governance and
shareholders, with penalties for noncompliance, including loss of license and
monetary fines.
AUSTRALIA
PowerTel holds a carrier license and is subject to regulation by the
Australian Competition and Consumer Commission and the Australian Communications
Authority. PowerTel does not have any service coverage obligations. PowerTel
does not require any further regulatory approval for new services provided on
its fiber-optic network.
Under the regulations, access to particular regulated carriage services and
other services which facilitate the supply of those regulated services must be
provided between operators on
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non-discriminatory technical and operational terms and, in some circumstances,
at cost-based prices. Any transmission capacity of two or more megabits per
second is regulated on all routes except between Sydney, Canberra and Melbourne.
The Australian Competition and Consumer Commission is currently considering
regulating local call resale and local network unbundling. Regulation of
switched interconnection at the local exchange level would allow PowerTel and
other competitors to reduce their access costs by interconnecting with the
Telstra Corporation Limited network closer to the customer. The Australian
Competition and Consumer Commission has issued a draft report in favor of
regulating noncompetitive access services with pricing based on total service
long-run incremental cost.
PowerTel currently has entered into a facilities access agreement with
Telstra for access to Telstra's ducts, underground facilities and equipment
buildings. PowerTel also obtains services from Telstra through wholesale/resale
products and is in the process of negotiating an agreement covering Telstra's
wireline and mobile originating and terminating access services.
CHILE
Chile currently has a competitive, multi-carrier system for long distance
and local services. There is no regulatory limit on the number of concessions
that could be granted to companies that would compete against Telefonica
Manquehue. The largest providers of local telecommunications services in
Santiago are Compania de Telecomunicaciones de Chile and CMET.
Telefonica Manquehue holds an intermediate service concession for the
installation, operation, and exploitation of a high-capacity fiber-optic cable
network in Santiago and the towns surrounding it. Intermediate services are
provided via networks to satisfy the transmission or exchange service
requirements of other telecommunications providers. The concession is for a
renewable 30-year term. Telefonica Manquehue's concession provides for network
construction to end on December 23, 1998, and service to begin on January 23,
1999. The company requested an extension of these terms, which was granted by
the telecommunications authority but is pending before the Republic
Comptrollership's Office for formal amendment of the concession.
The regulatory authority has declared that the conditions prevailing in the
local (including Santiago) and long distance markets, as well as in the market
for intermediate services, require rates to be determined by the regulatory
authority. The maximum rate structure is determined every five years. Local
providers must also give long distance service providers equal access to their
network connections.
SETTLEMENT COSTS FOR INTERNATIONAL TRAFFIC
International switched long distance traffic between two countries
typically is exchanged under correspondent agreements between carriers, each
owning network transmission facilities in their respective countries.
Correspondent agreements generally provide for, among other things, the
termination of switched traffic in, and return switched traffic to, the
carriers' respective countries at a negotiated accounting rate. Settlement
costs, typically one-half of the accounting rate, are reciprocal fees owed by
one international carrier to another for transporting traffic on its facilities
and terminating that traffic in the other country. The FCC and regulators in
foreign countries may regulate agreements between U.S. and foreign carriers.
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The FCC's international settlements policy governs the settlements between
U.S. carriers and their foreign corespondents and prevents foreign carriers from
discriminating among U.S. carriers in bilateral accounting rate negotiations.
The policy requires:
- the equal division of accounting rates
- non-discriminatory treatment of U.S. carriers
- proportionate return of inbound traffic
Agreements governed under the policy must be filed publicly with and
approved by the FCC. The policy applies only to U.S. carrier arrangements with
certain foreign carriers with market power in their respective countries. For
example, U.S. carrier arrangements with Telefonos de Mexico continue to be
subject to the policy, but U.S. carrier arrangements with a Telefonos de Mexico
competitor in Mexico are not subject to the policy. The FCC also recently
decided to exempt certain foreign routes from the policy, depending upon the
ability of U.S. carriers to terminate traffic on those routes at rates
substantially below benchmarks set by the agency. However, Mexico is not
currently an exempted route. Other countries have policies similar to that of
the FCC.
Resale of international private lines allows carriers to bypass the
settlement rate system, and, therefore, bypass the need to negotiate accounting
rates with foreign carriers with market power and obtain termination of
international traffic in the United States and foreign countries at
substantially reduced rates. The FCC's private line resale policy currently
prohibits a carrier from reselling international private leased circuits to
provide switched services to or from a country unless certain conditions are
met.
Currently, Mexican carriers other than Telefonos de Mexico can engage in
such resale under FCC rules, but the Mexican regulator has not permitted such
resale. If Mexico approves such resale but the FCC continues to restrict
Telefonos de Mexico from engaging in such resale, competitors of Telefonos de
Mexico would be permitted to engage in low-cost termination of traffic between
the United States and Mexico, but Telefonos de Mexico would be precluded from
doing so.
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MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of the date of this
prospectus concerning our directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Keith E. Bailey...................... 58 Director; Chairman of the Board
Howard E. Janzen..................... 46 Director; President and Chief Executive Officer
John C. Bumgarner, Jr. .............. 58 Director; Senior Vice President -- Strategic
Investments
J. Cliff Eason....................... 53 Director
Michael P. Johnson, Sr. ............. 53 Director
Robert W. Lawless.................... 63 Director
Steven J. Malcolm.................... 52 Director
Jack D. McCarthy..................... 57 Director
H. Brian Thompson.................... 61 Director
Cuba Wadlington, Jr. ................ 56 Director
Roy A. Wilkens....................... 57 Director
Scott E. Schubert.................... 47 Senior Vice President and Chief Financial Officer
Frank M. Semple...................... 48 Senior Vice President -- Network
Delwin L. Bothof..................... 55 Senior Vice President -- Domestic Strategic
Investments
S. Miller Williams................... 49 Senior Vice President and General
Manager -- Network International
Patti L. Schmigle.................... 42 Senior Vice President -- Solutions
Kenneth R. Epps...................... 44 Senior Vice President -- Strategic Marketing
Matthew W. Bross..................... 40 Senior Vice President and Chief Technology Officer
Gerald L. Carson..................... 61 Senior Vice President -- Human Resources
Bob F. McCoy......................... 57 Senior Vice President -- Law
Mark A. Bender....................... 35 Vice President and Chief Information Officer
Ken Kinnear.......................... 39 Vice President and Controller
P. David Newsome, Jr. ............... 53 General Counsel and Corporate Secretary
</TABLE>
OUR DIRECTORS
Our restated certificate of incorporation provides that the number of
directors may be altered from time to time by a resolution adopted by our board
of directors. However, the number of directors may not be less than three.
Currently, we have 11 directors on our board. Four of the directors are
independent, one of whom was designated by SBC Communications Inc. SBC will be
entitled to designate a director for our board once SBC obtains, and for so long
as it retains, more than a 5% equity interest in us and has obtained approval to
and continues to have the right to provide long distance services in states
within its traditional exchange service area. Although SBC currently does not
meet these requirements, the SBC designee was elected to, and currently serves
on, our board.
Our restated certificate of incorporation provides for a classified board
of directors, consisting of three classes as nearly equal in size as
practicable. Each class holds office until the third annual stockholders'
meeting for election of directors following the most recent election of that
class, except that the initial terms of two of the classes expire in 2001 and
2002.
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The following individuals are our directors. Each director holds office
until his successor is duly elected and qualifies or until his resignation or
removal, if earlier.
Keith E. Bailey is the Chairman of the Board, President and Chief Executive
Officer of Williams. Mr. Bailey has held various officer level positions with
Williams and its subsidiaries since 1975 and has served as a director of
Williams since 1988. Mr. Bailey is Chairman of the Board of our company and has
been a director since 1994. Mr. Bailey's term as a director expires at the
annual stockholders' meeting in 2002.
Howard E. Janzen has been a director of our company since 1994. He was
elected Co-Chairman and Chief Operating Officer effective February 1997, and
President and Chief Executive Officer effective May 1998. From April 1993 to
December 1994, Mr. Janzen served as Senior Vice President and General Manager of
Williams Gas Pipelines Central, Inc., an affiliate of Williams. Mr. Janzen has
also held various other management and officer level positions with Williams
since 1979. Mr. Janzen also serves on the board of directors of BOK Financial
Corporation. Mr. Janzen's term as a director expires at the annual stockholders'
meeting in 2002.
John C. Bumgarner, Jr. is the Senior Vice President of Corporate
Development and Planning of Williams and President of Williams International
Company, a subsidiary of Williams. Mr. Bumgarner has held various officer level
positions with Williams since 1977. Mr. Bumgarner has been a director of our
company since 1997 and was named Senior Vice President, Strategic Investments of
our company in May 1999. Mr. Bumgarner's term as a director expires at the
annual stockholders' meeting in 2001.
J. Cliff Eason has been President of Southwestern Bell since September
2000. He was President of SBC Network Services -- SBC Operations, Inc. from
November 1999 to September 2000. From March 1998 to November 1999, he served as
President of SBC International -- SBC Operations, Inc. Mr. Eason served as
President and Chief Executive Officer of Southwestern Bell Telephone Company
from February 1996 to February 1998. From July 1995 to February 1996, he was
President and Chief Executive Officer of Southwestern Bell Communications, Inc.
Mr. Eason served as President of Southwestern Bell Telephone Company -- Network
Services from July 1993 to June 1995. Mr. Eason also serves as a member of the
board of directors of Reinsurance Group of America, Inc. Mr. Eason has been a
director of our company since January 2000. Mr. Eason's term as a director of
our company will expire at the annual stockholders' meeting in 2003.
Michael P. Johnson, Sr. is the Senior Vice President of Human Resources of
Williams and has been since May 1999. Prior to joining Williams in December 1998
as Vice President of Human Resources, Mr. Johnson was a vice president of human
resources with Amoco Corporation, where he held various officer level positions
since 1991. Mr. Johnson has been a director of our company since May 1999. Mr.
Johnson's term as a director expires at the annual stockholders' meeting in
2003.
Robert W. Lawless has been the President of The University of Tulsa since
May 1996. Previously, he served as president and chief executive officer of
Texas Tech University and Texas Tech University Health Sciences Center from 1989
to 1996. From 1982 to 1989 he served, first as vice president -- finance and
chief financial officer, then as executive vice president and chief operations
officer, for Southwest Airlines in Dallas, Texas. He currently serves as
Independent Director, Four Salomon Brothers Mutual Funds, and Tuition Plan, Inc.
He also is a member of the NCAA Division I Board of Directors; the NCAA
Executive Committee; Hillcrest Healthcare System Board of Trustees; the
Metropolitan Tulsa Chamber of Commerce Board of Directors; and the Board of
Directors of the National Association of Independent Colleges and
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Universities. Mr. Lawless has been a director of our company since July 2000.
Mr. Lawless' term as a director will expire at the annual stockholders meeting
in 2001.
Steven J. Malcolm is the President and Chief Executive Officer of Williams
Energy Services, a subsidiary of Williams. Mr. Malcolm has held various
management and officer level positions with subsidiaries of Williams since 1984.
Mr. Malcolm has been a director of our company since 1998. Mr. Malcolm's term as
a director expires at the annual stockholders' meeting in 2001.
Jack D. McCarthy is the Senior Vice President and Chief Financial Officer
of Williams. Mr. McCarthy has held various officer level positions with Williams
since 1986. Mr. McCarthy has been a director of our company since 1997. Mr.
McCarthy's term as a director expires at the annual stockholders' meeting in
2001.
H. Brian Thompson was Chairman and Chief Executive Officer of Global
TeleSystems Group, Inc. from March 1999 to September 2000. From January to March
1999, he served as non-executive chairman of Telecom Eireann, Ireland's
incumbent telephone company. From June to December 1998, Mr. Thompson served as
Vice Chairman of Qwest Communications International Inc. after its merger with
LCI International. From 1991 to June 1998, Mr. Thompson served as Chairman and
Chief Executive Officer of LCI International. Mr. Thompson also serves as a
member of the board of directors of Bell Canada International Inc. and PageNet
do Brazil, as co-chairman of the Global Information Infrastructure Commission,
and as chairman of the Advisory Committee for Telecommunications for Ireland's
Department of Public Enterprise. Mr. Thompson has been a director of our company
since October 1999. Mr. Thompson's term as a director will expire at the annual
stockholders' meeting in 2001.
Cuba Wadlington, Jr. is President and Chief Operating Officer of Williams
Gas Pipeline Company, a subsidiary of Williams. From 1995 to 1999, Mr.
Wadlington was Senior Vice President and General Manager of Transcontinental Gas
Pipe Line Corporation, a subsidiary of Williams. Mr. Wadlington also serves on
the board of directors of Sterling Bank. Mr. Wadlington has been a director of
our company since January 2000. Mr. Wadlington's term as a director expires at
the annual stockholders' meeting in 2003.
Roy A. Wilkens is currently CEO of the Data Network division of McLeodUSA,
Inc. He was President of Williams Pipeline Company, a subsidiary of Williams,
when he founded WilTel, Inc., then a subsidiary of Williams, in 1985. He served
as Chief Executive Officer of WilTel from 1985 to 1997. In 1995, LDDS
Communications, which now operates under the name WorldCom, acquired WilTel from
Williams. In 1997, Mr. Wilkens retired from WorldCom as Vice Chairman. In 1992,
President George Bush appointed Mr. Wilkens to the National Security
Telecommunications Advisory Council. He has also served as chairman of both the
Competitive Telecommunications Association and the National Telecommunications
Network. Mr. Wilkens is a member of the board of directors of Lightyear
Communications, Inc., Orillion Corporation, The Management Network Group, Inc.,
Tachion Networks, Inc., Splitrock Services, Inc., and McLeodUSA Incorporated. He
is a former director of Qwest Communications and Paging Network Inc. Mr. Wilkens
has been a director of our company since October 1999. Mr. Wilkens' term as a
director of our company will expire at the annual stockholders' meeting in 2002.
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BOARD COMPENSATION AND BENEFITS
Directors who are our employees or who are employees of Williams receive no
additional compensation for service on the board of directors or committees of
the board. Nonemployee directors receive an annual retainer of $12,000 in cash
and $40,000 in shares of our common stock. They also receive a committee
retainer of $4,000 for serving on the audit, nominating, or compensation
committees. Chairmen of the audit, nominating, and compensation committees
receive an additional annual retainer of $2,500. Nonemployee directors also
receive $1,000 for each board meeting attended, $500 for each audit, nominating,
or compensation committee meeting attended and $750 for each executive committee
meeting attended.
Under the Williams Communications Group, Inc. 1999 Stock Plan, a
nonemployee director may elect to receive all or any part of cash fees in the
form of our common stock or deferred stock. Deferred stock may be deferred to
any subsequent year or until such individual ceases to be a director. Under the
Williams Communications Group, Inc. 1999 Stock Plan, nonemployee directors
receive an annual stock option grant of 8,000 shares of our common stock. The
options are exercisable on the date of grant and remain exercisable for ten
years so long as the director remains a director of our company. The exercise
price is equal to the fair market value of the stock on the date of grant as
defined by the plan.
All directors are reimbursed for reasonable out-of-pocket expenses incurred
in attending meetings of the board or any committee or otherwise because of
service as a director.
Nonemployee directors of our company and of Williams serving at the time of
our initial public offering received a one-time grant of ten-year options to
purchase 10,000 shares of our common stock at an exercise price of $23 per
share. These options were vested upon grant. Directors who were not our
employees, but who were employees of Williams at the time of our initial public
offering, received one-time grants of ten-year options to purchase 50,000 shares
of our common stock at an exercise price of $23 per share. These options will
cliff vest on September 30, 2004. Mr. Bailey received an option with respect to
100,000 shares of our common stock under the same terms. These grants also will
cliff vest on September 30, 2004. Mr. Bumgarner received a retention award of
14,493 deferred shares of our common stock that will cliff vest on September 30,
2002.
COMMITTEES OF THE BOARD
The board has the responsibility for establishing broad corporate policies
and for our overall performance. However, the board is not involved in our
day-to-day operations. The board is kept informed of our business through
discussions with the Chief Executive Officer and other officers, by reviewing
analyses and reports provided to it on a regular basis, and by participating in
board and committee meetings.
The board has established standing committees to consider designated
matters. The committees of the board are executive, audit, nominating and
compensation. In accordance with our by-laws, the board annually elects from its
members the members and chairman of each committee.
Executive Committee
The executive committee was established in November 1999 and is authorized
to act in the management of our business and affairs, except as such authority
may be limited from time to time by the laws of the State of Delaware. The
members of the executive committee are Keith E. Bailey, Chairman, John C.
Bumgarner, Jr., Howard E. Janzen, Jack D. McCarthy and Roy A. Wilkens.
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Audit Committee
The audit committee was established in October 1999 and is composed solely
of directors who are neither our employees nor employees of Williams. The audit
committee annually considers the qualifications of our independent auditor and
makes recommendations to the board on the engagement of our independent auditor.
The audit committee meets on a scheduled basis with representatives of the
independent auditor and is available to meet at the request of the independent
auditor. During meetings, the audit committee receives reports regarding our
books of accounts, accounting procedures, financial statements, audit policies
and procedures and other matters within the scope of the committee's duties. It
reviews the plans for and results of audits of our company and our subsidiaries.
It reviews and approves the independence of the independent auditor. It
considers and authorizes the fees for both audit and nonaudit services of the
independent auditor.
The audit committee also meets with representatives of our audit services
department. It reviews the results of the internal audits, compliance with our
written policies and procedures, and the adequacy of our system of internal
accounting and management controls. It meets with our financial and accounting
officers and the executive officers of subsidiary companies to review various
aspects of their operations. The members of the audit committee are H. Brian
Thompson, Chairman, J. Cliff Eason, Robert W. Lawless and Roy A. Wilkens.
Nominating Committee
The nominating committee was established in November 1999. The nominating
committee is responsible for recommending candidates to fill vacancies on the
board as such vacancies occur, as well as the slate of nominees for election as
directors by the stockholders at each annual meeting of stockholders.
Additionally, the committee recommends to the board the individual to be the
chairman of the board and chief executive officer.
Qualifications considered by the nominating committee for director
candidates include an attained position of leadership in the candidate's field
of endeavor, business and financial experience, demonstrated exercise of sound
business judgment, expertise relevant to our company's lines of business and the
ability to serve the interests of all stockholders. The members of the
nominating committee are Howard E. Janzen, Chairman, Keith E. Bailey and Michael
P. Johnson, Sr.
Compensation Committee
The compensation committee was established in October 1999 and is composed
solely of directors who are neither our employees nor employees of Williams. The
compensation committee approves the standard for setting salary ranges for
executive officers, reviews and approves the salary budgets for all other
officers of our company and of each subsidiary, and specifically reviews and
approves the compensation of our senior executives. It reviews action taken by
management in accordance with the salary guidelines for executives and
establishes the performance objectives for variable compensation for executives.
It also approves stock option grants for the executive officers named herein.
The members of the compensation committee are Roy A. Wilkens, Chairman, J. Cliff
Eason, Robert W. Lawless and H. Brian Thompson.
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OUR EXECUTIVE OFFICERS
In addition to Mr. Bailey, Mr. Janzen and Mr. Bumgarner, the following
persons are our executive officers:
Scott E. Schubert became Senior Vice President and Chief Financial Officer
of our company in June 1999. Before joining our company, Mr. Schubert was vice
president of global accounting services and finance of BP Amoco. He had 23 years
of experience with Amoco, including six years as an officer of Amoco prior to
its merger with British Petroleum.
Frank M. Semple has been Senior Vice President, Network of our company
since 1997. From 1995 to 1997, Mr. Semple served as Senior Vice President and
General Manager of Williams Gas Pipelines Central, Inc., an affiliate of
Williams. From 1994 to 1995, Mr. Semple served as Vice President of Operations
and Marketing for Northwest Pipeline Corporation, also an affiliate of Williams.
Mr. Semple has held various management and officer level positions with Williams
since 1979.
Delwin L. Bothof has been Senior Vice President, Domestic Strategic
Investments since May 1999 and was Senior Vice President, Applications of our
company from 1997 to 1999. Mr. Bothof served as President of Vyvx, Inc. from
1989 to 1997.
S. Miller Williams has been Senior Vice President and General
Manager -- Network International since August 2000. Prior to that date, Mr.
Williams was Senior Vice President, International Strategic Investments from May
1999 to August 2000 and was Senior Vice President, Corporate Development of our
company from 1996 to 1999. From 1992 through 1996, Mr. Williams held various
officer level positions with predecessors of our company and WilTel, Inc.
Patti L. Schmigle has been Senior Vice President of our company since 1997
and has been Senior Vice President, Solutions since June 1999. Ms. Schmigle has
held various management and officer level positions with Williams since 1980,
including Vice President of Performance Management of Williams from June 1996 to
November 1997, Vice President of Operations and Engineering of Williams Gas
Pipeline Central, Inc., an affiliate of Williams, from 1995 to June 1996, and
Director of Engineering of Williams Pipe Line Company, also an affiliate of
Williams, from 1994 to 1995.
Kenneth R. Epps has been Senior Vice President, Strategic Marketing of our
company since February 1999. Before joining us in February 1999, Mr. Epps served
as a vice president of Emerald Solutions, Inc., a start-up information
technology firm, from 1998 to 1999. Prior to that he was with AT&T for 13 years.
Matthew W. Bross has been Senior Vice President and Chief Technology
Officer of our company since May 1999 and was Vice President and Chief
Technology Officer of our company from 1998 to 1999. He joined our company in
1997 when our company acquired Critical Technologies, Inc., a company he founded
in 1991, that focused on large-scale, global telecommunications infrastructures
with an emphasis on the Internet. Mr. Bross served as Chief Executive Officer of
Critical Technologies from 1991 until its acquisition by our company and has
more than 20 years of experience in the telecommunications industry.
Gerald L. Carson has been Senior Vice President, Human Resources of our
company since May 1999 and was Vice President, Human Resources of our company
from 1997 to 1999. Prior to that time, Mr. Carson held various management and
human resources positions with Williams since 1985.
Bob F. McCoy has been Senior Vice President, Law of our company since July
2000 and was General Counsel of our company from November 1999 until August
2000. Prior to that
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time, he served as General Counsel of Williams Energy Services, a Williams
subsidiary, from 1996 to 1997, and as Vice President -- Performance Management
of Williams from 1997 to 1999. Mr. McCoy has been with Williams since 1988.
Mark A. Bender has been Vice President and Chief Information Officer of our
company since March 1999. He has held various positions with other affiliates of
Williams since November 1993.
Ken Kinnear has been Vice President and Controller of our company since May
2000. He has 17 years of experience in various accounting and finance positions,
including the past 8 years in the telecommunications industry since joining
Williams in 1992.
P. David Newsome, Jr. has been General Counsel and Corporate Secretary of
our Company since September 2000. Prior to that time, Mr. Newsome practiced law
with the law firm of Conner & Winters in Tulsa, Oklahoma since 1984.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation of our Chief Executive Officer and each of our four other most
highly-compensated executive officers for the three fiscal years ended December
31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------- --------------------------------------
STOCK OPTIONS
RESTRICTED STOCK SHARES(5)
NAME AND PRINCIPAL BONUS AWARDS ---------------- ALL OTHER
POSITION(1) YEAR SALARY (YR. EARNED)(2) (YR. EARNED)(3)(4) WCG WMB(6) COMPENSATION(7)
------------------ ---- -------- --------------- ------------------ ------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard E. Janzen...... 1999 $451,538 $226,616 $ 97,122 300,000 10,000 $10,905
President and Chief 1998 400,000 126,000 2,609,000(8) 30,000 12,050
Executive Officer 1997 300,000 105,000 45,000 60,000 10,131
Delwin L. Bothof...... 1999 $220,039 $ 52,377 $ 22,449 70,000 7,500 $10,905
Senior Vice
President, 1998 210,000 46,857 658,832(9) 15,000 12,800
Domestic Strategic 1997 184,000 55,956 23,981 30,000 10,131
Investments
Lawrence C.
Littlefield......... 1999 $211,808 $ 49,614 $ 232,866(10) 70,000 7,500 $10,905
Senior Vice
President 1998 190,000 42,394 209,794(9) 15,000 12,800
and Group Executive 1997 175,000 53,219 22,808 30,000 10,131
Bob F. McCoy.......... 1999 $201,037 $ 68,630 $ 29,414 25,000 10,500 $10,905
Senior Vice
President, 1998 192,408 28,284 12,122 10,500 10,815
Law 1997 185,016 55,677 23,861 21,500 10,131
Frank M. Semple....... 1999 $264,000 $ 82,050 $ 35,165 100,000 7,500 $10,905
Senior Vice
President 1998 240,000 91,350 677,900(9) 15,000 12,800
and Chief Operating 1997 210,717 95,404 40,888 50,000 10,131
Officer, Network
</TABLE>
---------------
(1) Mr. Janzen was elected Co-Chairman and Chief Operating Officer effective
February 12, 1997, and President and Chief Executive Officer effective May
1, 1998. Mr. Littlefield ceased being an executive officer effective
February 15, 2000.
(2) Excludes executive incentive compensation program awards converted to
deferred stock amounts that are included in the Restricted Stock Awards
column.
(3) Amounts reported in this column are the dollar value as of the date of
grant of our deferred stock awards under the terms of the Williams
Communications Group, Inc. 1999 Stock Plan and Williams deferred stock
awards under the terms of The Williams Companies, Inc. 1996
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Stock Plan and The Williams Companies, Inc. Stock Plan for Nonofficer
Employees. Amounts shown include the value of awards granted pursuant to
the executive incentive compensation program. Such awards are converted to
deferred stock using the three-month average price of our stock for the
1999 awards and the 52-week average price of Williams stock for the 1999,
1998 and 1997 awards, as follows: Mr. Janzen -- for 1999, 3,417 shares
valued at $97,122, for 1998, 1,769 shares valued at $54,000, and for 1997,
1,963 shares valued at $45,000; Mr. Bothof -- for 1999, 790 shares valued
at $22,449, for 1998, 658 shares valued at $20,082, and for 1997, 1,047
shares valued at $23,981; Mr. Littlefield -- for 1999, 749 shares valued at
$21,266, for 1998, 596 shares valued at $18,169, and for 1997, 995 shares
valued at $22,808; Mr. McCoy -- for 1999, 889 shares valued at $29,414, for
1998, 398 shares valued at $12,122, and for 1997, 1,041 shares valued at
$23,861; Mr. Semple -- for 1999, 1,237 shares valued at $35,165, for 1998,
1,283 shares valued at $39,150, and for 1997, 1,784 shares valued at
$40,888. Receipt of deferred stock under the executive incentive
compensation program normally occurs approximately three years after the
date of grant. Dividend equivalents are paid on Williams deferred stock at
the same time and at the same rate as dividends are paid to stockholders
generally; dividend equivalents are not paid on our stock.
(4) The aggregate number and market value of our deferred shares held and of
Williams deferred shares held, respectively, at the end of the fiscal year,
were as follows: Mr. Janzen, 98,152 shares valued at $2,840,274; 6,508
shares valued at $198,901; Mr. Bothof, 24,538 shares valued at $710,068;
1,705 shares valued at $52,109; Mr. Littlefield, 19,016 shares valued at
$550,276; 67,203 shares valued at $2,053,892; Mr. McCoy, none of our
deferred shares; 10,641 shares valued at $325,216; Mr. Semple, 24,538
shares valued at $710,068; 11,700 shares valued at $357,581. Aggregate
market value was calculated using $28.9375 per share, the closing price of
our common stock, and $30.5625 per share, the closing price of Williams'
common stock, reported in the table entitled "New York Stock Exchange
Composite Transactions" contained in The Wall Street Journal for December
31, 1999.
(5) Our common stock is designated WCG. Executives also hold common stock of
The Williams Companies, Inc., designated WMB.
(6) Adjusted to reflect stock split in Williams common stock which occurred on
December 30, 1997.
(7) Amounts reported in this column represent the value of contributions made
by Williams to defined contribution plans on behalf of each of our
executive officers named in the table.
(8) This amount includes a Williams deferred stock award of 80,000 shares
granted for retention purposes on May 21, 1998, under The Williams
Companies, Inc. 1996 Stock Plan with a closing market value on the date of
grant of $2,555,000. Previously, this award was valued using the average of
the high and low stock prices on the date of grant. At the time of the
initial public offering of our common stock, September 30, 1999, this
deferred award was converted to our deferred stock under the terms of the
Williams Communications Group, Inc. 1999 Stock Plan. Twenty-five percent of
these deferred shares vested on that date.
(9) Amounts include the dollar value as of the date of grant of Williams
deferred stock under the terms of the Williams Communications Stock Plan.
Amounts represent the closing market value of stock awards granted on May
21, 1998, as follows: Mr. Bothof, 20,000 shares valued at $638,750; Mr.
Littlefield, 6,000 shares valued at $191,625; and Mr. Semple, 20,000 shares
valued at $638,750. Previously these awards were valued using the average
of the high and low stock prices on the date of grant. At the time of the
initial public offering of our common stock, these deferred awards were
converted to our deferred
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stock under the terms of the Williams Communications Group, Inc. 1999 Stock
Plan. Twenty-five percent of these deferred shares vested on that date.
(10) Amount includes the dollar value of 9,200 shares of our deferred stock
awarded at the time of the initial public offering of our common stock,
valued at $211,600.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following tables provide certain information concerning the grant of
our stock options and Williams stock options during the last fiscal year to the
named executive officers:
OUR OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
WCG SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME DATE GRANTED OPTIONS GRANTED FISCAL YEAR(1) (PER SHARE) DATE PRESENT VALUE(2)
---- ------------ --------------- ---------------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen......... 9/30/99 75,000(3) 0.98% $23.0000 9/30/09 $1,301,250
9/30/99 225,000(4) 2.95% $23.0000 9/30/09 $3,903,750
------- ---- ----------
300,000 3.93% $5,205,000
Delwin L. Bothof......... 9/30/99 25,000(3) 0.33% $23.0000 9/30/09 $ 433,750
9/30/99 45,000(4) 0.59% $23.0000 9/30/09 $ 780,750
------- ---- ----------
70,000 0.92% $1,214,500
Lawrence C.
Littlefield............ 9/30/99 25,000(3) 0.33% $23.0000 9/30/09 $ 433,750
9/30/99 45,000(4) 0.59% $23.0000 9/30/09 $ 780,750
------- ---- ----------
70,000 0.92% $1,214,500
Bob F. McCoy............. 11/18/99 25,000(5) 0.33% $27.3750 11/18/09 $ 516,250
Frank M. Semple.......... 9/30/99 37,500(3) 0.49% $23.0000 9/30/09 $ 650,625
9/30/99 62,500(4) 0.82% $23.0000 9/30/09 $1,084,375
------- ---- ----------
100,000 1.31% $1,735,000
</TABLE>
---------------
(1) The total number of options granted to employees in the fiscal year excludes
715,750 options converted from Williams stock at the time of our initial
public offering to our common stock under the terms of the Williams
Communications Group, Inc. 1999 Stock Plan.
(2) The grant date present value is determined using the Black-Scholes option
pricing model and is based on assumptions about future stock price
volatility and dividend yield. The model does not take into account that the
stock options are subject to vesting restrictions and that executives cannot
sell their options. The calculations assume an expected volatility of 59.9%,
a risk-free rate of return of 6.36%, a dividend yield of 0% and an exercise
date at the end of the contractual term in 2009. The actual value, if any,
that may be realized by an executive will depend on the market price of our
common stock on the date of exercise. The dollar amounts shown are not
intended to forecast possible future appreciation in our stock price.
(3) These stock options will vest in thirds on September 30, 2000, September 30,
2001, and September 30, 2002, respectively.
(4) These stock options will cliff vest on September 30, 2004.
(5) These stock options will cliff vest on November 18, 2004.
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WILLIAMS OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
WMB SECURITIES OPTIONS GRANTED
UNDERLYING OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME DATE GRANTED GRANTED(1)(2) FISCAL YEAR (PER SHARE) DATE PRESENT VALUE(3)
---- ------------ ------------------ ---------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen........ 3/18/99 10,000 0.20% $39.9375 3/18/09 $157,400
Delwin L. Bothof........ 3/18/99 7,500 0.15% $39.9375 3/18/09 $118,050
Lawrence C.
Littlefield........... 3/18/99 7,500 0.15% $39.9375 3/18/09 $118,050
Bob F. McCoy............ 3/18/99 5,250 0.10% $39.9375 3/18/09 $ 82,635
9/16/99 5,250 0.10% $40.5000 9/16/09 $ 89,775
------ ---- --------
10,500 0.20% $172,410
Frank M. Semple......... 3/18/99 7,500 0.15% $39.9375 3/18/09 $118,050
</TABLE>
---------------
(1) All options were granted under The Williams Companies, Inc. Stock Plan for
Non-Officer Employees except for options granted to Messrs. Janzen and
McCoy, which were granted under The Williams Companies, Inc. 1996 Stock
Plan.
(2) Options granted in 1999 were granted subject to an accelerated vesting
provision. Those awarded in March 1999 vested on April 15, 1999, and those
awarded in September 1999 vested upon grant pursuant to such accelerated
vesting.
(3) The grant date present value is determined using the Black-Scholes option
pricing model and is based on assumptions about future stock price
volatility and dividend yield. The model does not take into account that the
stock options are subject to vesting restrictions and that executives cannot
sell their options. The calculations assume an expected volatility of 27%
"weighted-average," a risk-free rate of return of 6% "weighted-average," a
dividend yield of 1.54% and an exercise date at the end of the contractual
term in 2009. The actual value, if any, that may be realized by an executive
will depend on the market price of Williams' common stock on the date of
exercise. The dollar amounts shown are not intended to forecast possible
future appreciation in Williams' stock price.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following tables provide certain information on stock option exercises
of our common stock and Williams common stock, respectively, in 1999 by the
named executive officers and the value of such officers' unexercised options at
December 31, 1999.
AGGREGATED OPTION EXERCISES OF OUR STOCK IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen......... 0 $0 0 300,000 $0 $1,781,250
Delwin L. Bothof......... 0 $0 0 70,000 $0 $ 415,625
Lawrence C.
Littlefield............ 0 $0 0 70,000 $0 $ 415,625
Bob F. McCoy............. 0 $0 0 25,000 $0 $ 39,062
Frank M. Semple.......... 0 $0 0 100,000 $0 $ 593,750
</TABLE>
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---------------
(1) Based on the closing price of our common stock reported in the table
entitled "New York Stock Exchange Composite Transactions" contained in The
Wall Street Journal for December 31, 1999 ($28.9375 per share), less the
exercise price. The values shown reflect the value of options accumulated
over periods of up to ten years. Such values had not been realized at that
date and may not be realized. In the event the options are exercised, their
value will depend on the market price of our common stock on the date of
exercise.
AGGREGATED OPTION EXERCISES OF WILLIAMS STOCK IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Howard E. Janzen....... 74,808 $2,233,935 180,004 0 $1,554,437 $0
Delwin L. Bothof....... 0 $ 0 52,500 0 $ 189,062 $0
Lawrence C.
Littlefield.......... 0 $ 0 108,500 0 $ 968,562 $0
Bob F. McCoy........... 0 $ 0 89,000 0 $ 788,410 $0
Frank M. Semple........ 0 $ 0 162,500 0 $1,819,687 $0
</TABLE>
---------------
(1) Based on the closing price of Williams' common stock reported in the table
entitled "New York Stock Exchange Composite Transactions" contained in The
Wall Street Journal for December 31, 1999 ($30.5625 per share), less the
exercise price. The values shown reflect the value of options accumulated
over periods of up to ten years. Such values had not been realized at that
date and may not be realized. In the event the options are exercised, their
value will depend on the market price of Williams common stock on the date
of exercise.
RETIREMENT PLAN
Eligible employees participate in the Williams pension plan. The Williams
pension plan is a noncontributory, tax-qualified defined benefit plan subject to
the Employee Retirement Income Security Act of 1974. The Williams pension plan
generally includes our salaried employees who have completed one year of
service. Except as noted below, our executive officers participate in the
Williams pension plan on the same terms as our other full-time employees.
Effective April 1, 1998, Williams converted its pension plan from a final
average pay plan to a cash balance pension plan. Each participant's accrued
benefit as of that date was converted to a beginning account balance. Account
balances are credited with an annual employer contribution and quarterly
interest allocations. Each year an employer contribution equal to a percentage
of eligible compensation is allocated to an employee's pension account. Such
percentage is based upon the employee's age according to the following table:
<TABLE>
<CAPTION>
PERCENTAGE OF
ELIGIBLE PAY
GREATER THAN THE
PERCENTAGE OF SOCIAL SECURITY
AGE ALL ELIGIBLE PAY WAGE BASE
--- ---------------- ----------------
<S> <C> <C>
<30.......................................... 4.5% 1%
30-39........................................ 6% 2%
40-49........................................ 8% 3%
50+.......................................... 10% 5%
</TABLE>
91
<PAGE> 96
For employees, including the executive officers named in the Summary
Compensation Table, who were active employees and plan participants on March 31,
1998, and April 1, 1998, the percentage of all eligible pay is increased by an
amount equal to 0.3% multiplied by the participant's total years of service
prior to March 31, 1998. Interest is credited to account balances quarterly at a
rate determined annually in accordance with the terms of the plan. The normal
retirement benefit is a monthly annuity based on an individual's account balance
as of benefit commencement. The plan defines eligible compensation to include
salary and bonuses. Normal retirement age is 65. Early retirement may begin as
early as age 55. At retirement, employees are entitled to receive a single-life
annuity or one of several optional forms of payment having an equivalent
actuarial value to the single-life annuity.
Participants who were age 50 or older as of March 31, 1998, were
grandfathered under a transitional provision that gives them the greater of the
benefit payable under the cash balance formula or the final average pay formula
based on all years of service and compensation. Mr. Bothof, Mr. Littlefield and
Mr. McCoy are covered under this grandfather provision.
The Internal Revenue Code of 1986, as amended, currently limits the pension
benefits that can be paid from a tax-qualified defined benefit plan, such as the
pension plan, to highly compensated individuals. These limits prevent such
individuals from receiving the full pension benefit based on the same formula as
is applicable to other employees. As a result, we have adopted an unfunded
supplemental retirement plan to provide a supplemental retirement benefit equal
to the amount of such reduction to every employee, including the executive
officers named in the Summary Compensation Table, whose benefit payable under
the pension plan is reduced by Internal Revenue Code limitations.
Total estimated annual benefits payable at normal retirement age under the
cash balance formula from both the tax qualified and the supplemental retirement
plans are as follows:
<TABLE>
<S> <C>
Howard E. Janzen $504,840
Delwin L. Bothof 92,319
Lawrence C. Littlefield, Jr. 44,394
Bob F. McCoy 96,859
Frank M. Semple 259,410
</TABLE>
The following schedule illustrates projected annual retirement benefits
under the final average pay formula, payable from both the tax qualified and the
supplemental retirement plans based on various levels of final average annual
compensation and years of service. The benefits are not subject to deduction for
any offset amounts:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$ 400,000 $109,022 $145,363 $181,703 $218,044 $ 254,385
600,000 164,522 219,363 274,203 329,044 383,885
800,000 220,022 293,363 366,703 440,044 513,385
1,000,000 275,522 367,363 459,203 551,044 642,885
1,200,000 331,022 441,363 551,703 662,044 772,385
1,400,000 386,522 515,363 644,203 773,044 901,885
1,600,000 442,022 589,363 736,703 884,044 1,031,385
1,800,000 497,522 663,363 829,203 995,044 1,160,885
</TABLE>
92
<PAGE> 97
As of December 31, 1999, the years of credited service under the pension
plan for the executive officers named in the Summary Compensation Table, who are
grandfathered under the final average pay formula, were: Mr. Bothof, 9; Mr.
Littlefield, 10; and Mr. McCoy, 12.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL SEVERANCE PLAN
We have established the Williams Communications Group, Inc. Change in
Control Severance Plan, which covers some of our employees, including the
executive officers named in the Summary Compensation Table. The plan provides
severance benefits if, within two years following a change in control of our
company, a participant's employment is terminated (a) involuntarily other than
for cause, death, disability, or the sale of a business, or (b) voluntarily for
good reason. The severance benefit is a lump sum payment equal to 100% of the
participant's annual base salary, plus 100% of the participant's monthly base
salary for each completed year of service, subject to a maximum severance
benefit of 200% of the participant's annual base salary. If necessary, a
participant is also entitled to receive a corresponding gross-up payment
sufficient to compensate for the amount of any excise tax imposed by Internal
Revenue Code Section 4999, and for any taxes imposed on such additional payment.
Amounts payable under the plan are in lieu of any payments that may otherwise be
payable under any other severance plan or program.
93
<PAGE> 98
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of our common stock,
Class B common stock and preferred stock and the percentage represented by that
number of shares for each person who is known to us to own beneficially 5% or
more of our common stock, Class B common stock or preferred stock as of
September 29, 2000. We obtained certain information in the table on common stock
ownership from filings made with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
TITLE OF CLASS NAME AND ADDRESS SHARES OF CLASS
-------------- ---------------- ----------- --------
<S> <C> <C> <C>
Common stock.................. Telefonos de Mexico, S.A. de C.V. 4,612,546 6.8%
Marque Via 198-102
Col. Cuauhtenoc
Mexico 06594 D.F. Mexico
Common stock.................. Intel Corporation 9,225,093 13.5%
2200 Mission College Boulevard
Santa Clara, California 95052
Common stock.................. SBC Communications Inc. 20,226,812 29.7%
175 East Houston
San Antonio, Texas 78205
Class B common stock.......... The Williams Companies, Inc. 395,434,965 100.0%
One Williams Center
Tulsa, Oklahoma 74172
Preferred stock............... Fidelity Investments 600,000 12.0%
82 Devonshire Street
Boston, Massachusetts 02110
Preferred stock............... Citadel Investment Partners 600,000 12.0%
225 W. Washington Street
9th Floor
Chicago, Illinois 60606
</TABLE>
94
<PAGE> 99
The following table sets forth, as of August 1, 2000, the amount of our
common stock beneficially owned by each of our directors, each of our executive
officers named in the Summary Compensation Table, and by all directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF
COMMON
STOCK SHARES
OWNED UNDERLYING OPTIONS
DIRECTLY EXERCISABLE PERCENT
NAME OF INDIVIDUAL OR GROUP OR INDIRECTLY(1) WITHIN 60 DAYS(2) TOTAL OF CLASS
--------------------------- ---------------- ------------------ --------- --------
<S> <C> <C> <C> <C>
Keith E. Bailey.......................... 0 0 0 *
Delwin L. Bothof......................... 30,992 36,934 67,926 *
John C. Bumgarner, Jr. .................. 41,796 0 41,796 *
J. Cliff Eason........................... 0 0 0 *
Howard E. Janzen......................... 123,318 125,000 248,318 *
Michael P. Johnson, Sr. ................. 303 0 303 *
Robert W. Lawless........................ 1,000 0 1,000 *
Lawrence C. Littlefield, Jr. ............ 5,751 34,334 40,085 *
Steven J. Malcolm........................ 303 0 303 *
Jack D. McCarthy......................... 0 0 0 *
Bob F. McCoy............................. 2,248 10,900 13,148 *
Frank M. Semple.......................... 48,768 77,500 126,268 *
H. Brian Thompson........................ 2,718 22,000 24,718 *
Cuba Wadlington, Jr. .................... 303 0 303 *
Roy A. Wilkens........................... 302,480 22,000 324,480 *
All directors and executive officers as a
group (22 Persons(3)).................. 698,071 624,362 1,322,433 1.8%
</TABLE>
---------------
* Less than 1%.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bothof, 25,328; Mr. Bumgarner, 14,493; Mr. Janzen, 101,872,
including 303 over which he has sole voting and investment power; Mr.
Littlefield, 4,948; Mr. McCoy, 1,848, including 303 over which he has sole
voting and investment power; Mr. Semple, 43,407, including 303 over which he
has sole voting and investment power; and Mr. Thompson, 1,038.
(2) The Securities and Exchange Commission deems a person to have beneficial
ownership of all shares that that person has the right to acquire within 60
days. The shares indicated represent shares subject to stock options granted
under our stock plans. Shares subject to options cannot be voted.
(3) Does not include security ownership of Mr. Lawrence C. Littlefield, who
ceased being an executive officer of our company on February 15, 2000.
No director or officer owns beneficially any securities of our subsidiaries
other than directors' qualifying shares.
95
<PAGE> 100
The following table sets forth, as of August 1, 2000, the amount of
Williams common stock beneficially owned by each of our directors, each of the
executive officers named in the Summary Compensation Table, and by all directors
and nominees and executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF
WILLIAMS
COMMON
STOCK SHARES
OWNED UNDERLYING OPTIONS
DIRECTLY EXERCISABLE %
NAME OF INDIVIDUAL OR GROUP OR INDIRECTLY(1) WITHIN 60 DAYS(2) TOTAL OF CLASS
--------------------------- ---------------- ------------------ --------- --------
<S> <C> <C> <C> <C>
Keith E. Bailey.......................... 2,199,902 150,000 2,349,902 *
Delwin L. Bothof......................... 146,304 52,500 198,804 *
John C. Bumgarner, Jr. .................. 1,064,454 60,000 1,124,454 *
J. Cliff Eason........................... 0 0 0 *
Howard E. Janzen......................... 223,246 120,002 343,248 *
Michael P. Johnson, Sr. ................. 23,170 55,250 78,420 *
Robert W. Lawless........................ 1,000 0 1,000 *
Lawrence C. Littlefield, Jr. ............ 58,442 108,500 166,942 *
Steven J. Malcolm........................ 75,440 208,938 284,378 *
Jack D. McCarthy......................... 209,970 90,000 299,970 *
Bob F. McCoy............................. 103,326 94,250 197,576 *
Frank M. Semple.......................... 104,455 162,500 266,955 *
H. Brian Thompson........................ 0 0 0 *
Cuba Wadlington, Jr. .................... 147,811 224,102 371,913 *
Roy A. Wilkens........................... 206,470 0 206,470 *
All directors and executive officers as a
group (22 persons(3)).................. 4,856,829 1,513,519 6,370,348 1.4%
</TABLE>
---------------
* Less than 1%.
(1) Includes shares held under the terms of incentive and investment plans as
follows: Mr. Bailey, 642,127, including 180,034 over which he has sole
voting and investment power; Mr. Bothof, 12,984, including 11,279 over which
he has sole voting and investment power; Mr. Bumgarner, 422,006, including
227,139 over which he has sole voting and investment power; Mr. Janzen,
63,459, including 59,727 over which he has sole voting and investment power;
Mr. Johnson, 22,866, including 1,519 over which he has sole voting and
investment power; Mr. Littlefield, 37,958, including 12,239 over which he
has sole voting and investment power; Mr. Malcolm, 54,422, including 33,534
over which he has sole voting and investment power; Mr. McCarthy, 45,539,
including 575 over which he has sole voting and investment power; Mr. McCoy,
52,027, including 40,151 over which he has sole voting and investment power;
Mr. Semple, 66,951, including 55,251 over which he has sole voting and
investment power; and Mr. Wadlington, 117,396, including 104,444 over which
he has sole voting and investment power.
(2) The Securities and Exchange Commission deems a person to have beneficial
ownership of all shares that person has the right to acquire within 60 days.
The shares indicated represent shares subject to stock options granted under
Williams' stock plans. Shares subject to options cannot be voted.
(3) Does not include security ownership of Mr. Lawrence C. Littlefield, who
ceased being an executive officer of our company on February 15, 2000.
96
<PAGE> 101
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Included in our revenues are charges to Williams and its subsidiaries and
affiliates for managing their internal telephone operations of approximately
$10,000,000, $7,700,000 and $5,200,000 for 1999, 1998 and 1997, respectively.
Charges are for communications services which we obtain from WorldCom and resell
internally. The agreement with WorldCom, which was entered into at the time
Williams sold its business to them, provides for certain amounts of service on
the WorldCom network for a 35-year term. We are provided services on the portion
of the network which WorldCom owns at no cost, and on portions which WorldCom
leases at its cost. We resell these communication services to Williams, its
subsidiaries and affiliates at market rates.
In addition, our revenues include charges to Williams' gas pipelines for
managing microwave frequencies of approximately $4,300,000, $4,300,000 and
$3,800,000 for 1999, 1998 and 1997, respectively. We own portions of these
microwave frequencies which we acquired from and lease to the gas pipelines.
These leases are for a 10-year term and the rental payments are equal to our
purchase cost plus a market rate of return.
Williams grants our directors and officers fully recourse loans in order to
enable them to exercise stock options to purchase Williams common stock. These
loans use stock certificates as collateral and may be for either a three-or
five-year term. Interest payments are due annually during the term of the loan
and are based on the minimum applicable federal rates required to avoid imputed
income. The principal amount is due at the end of the loan term; however, a
participant may request, prior to the end of a loan term, a new loan which may
be granted at the discretion of Williams. Participants who leave Williams during
the loan period are required to pay the loan balance and any accrued interest
within 30 days of termination. We anticipate that Williams will continue to make
loans to our directors and officers on similar terms to enable them to exercise
Williams stock options. We may make loans to our officers and directors,
including loans to enable them to exercise stock options to purchase our common
stock. We anticipate that the terms of these loans will be fully recourse and
otherwise similar to those for Williams loans.
The following table describes details regarding these loans which have been
made to our directors and officers:
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1999 8/01/00
---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Keith E. Bailey.............. 6.28% $ 50,641.92 $ 171,408.39 $ --
Keith E. Bailey.............. 6.58% $ 71,656.20 $ 232,131.21 $ --
Keith E. Bailey.............. 6.42% $ 67,673.84 $ 266,050.00 $ --
Keith E. Bailey.............. 6.80% $ 36,162.67 $ 113,593.31 $ 110,601.24
Keith E. Bailey.............. 6.80% $ 49,588.48 $ 254,269.42 $ --
Keith E. Bailey.............. 6.80% $ 59,459.20 $ 233,464.78 $ --
Keith E. Bailey.............. 5.68% $ 406,609.84 $ 1,513,046.80 $ 1,479,403.98
Keith E. Bailey.............. 5.57% $1,026,811.18 $ 3,892,296.43 $ 3,807,338.37
Keith E. Bailey.............. 5.54% $1,670,829.99 $ 6,366,043.21 $ 6,227,799.20
Keith E. Bailey.............. 6.45% $ 484,833.60 $ -- $ 2,565,374.01
Keith E. Bailey.............. 6.53% $1,786,619.91 -- $ 9,177,167.37
------------- -------------- --------------
Total............. $5,710,886.83 $13,042,303.55 $23,367,684.17
Delwin L. Bothof............. 5.42% $ 241,045.04 $ 1,562,790.15 $ 1,529,550.13
Delwin L. Bothof............. 4.67% $ 69,781.32 $ 622,339.21 $ 616,428.16
------------- -------------- --------------
Total............. $ 310,826.36 $ 2,185,129.36 $ 2,145,978.29
</TABLE>
97
<PAGE> 102
<TABLE>
<CAPTION>
TOTAL LARGEST
INTEREST AMOUNT AMOUNT
INTEREST OVER TERM DUE DURING OUTSTANDING
NAME RATE OF LOAN 1999 8/01/00
---- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
John C. Bumgarner, Jr. ...... 5.91% $ 203,927.62 $ 1,218,159.86 $ --
John C. Bumgarner, Jr. ...... 5.42% $ 559,102.89 $ 3,624,884.74 $ 3,547,784.73
John C. Bumgarner, Jr. ...... 5.42% $ 373,329.60 $ 2,333,503.43 $ 2,368,961.22
John C. Bumgarner, Jr. ...... 6.46% $ 104,168.11 $ -- $ 1,192,270.19
------------- -------------- --------------
Total............. $1,240,528.22 $ 7,176,548.03 $ 7,109,016.14
Gerald L. Carson............. 5.59% $ 183,874.33 $ 694,643.63 $ 679,429.95
------------- -------------- --------------
Total............. $ 183,874.33 $ 694,643.63 $ 679,429.95
Howard E. Janzen............. $ -- $ 10,547.35(1) $ --
Howard E. Janzen............. 5.70% $ 80,997.64 $ 500,669.57 $ 489,500.08
Howard E. Janzen............. 5.69% $ 87,092.51 $ 323,543.31 $ 316,337.29
Howard E. Janzen............. 5.77% $ 38,864.87 $ 142,486.55 $ 139,270.91
Howard E. Janzen............. 4.71% $ 25,451.88 $ 112,692.14 $ 111,060.43
Howard E. Janzen............. 4.71% $ 27,328.23 $ 120,999.99 $ 119,247.97
Howard E. Janzen............. 4.71% $ 54,070.99 $ 239,407.68 $ 235,941.18
Howard E. Janzen............. 4.83% $ 114,621.70 $ 492,021.37 $ 488,064.57
Howard E. Janzen............. 5.37% $ 101,999.39 $ 391,455.23 $ 391,846.48
Howard E. Janzen............. 6.71% $ 173,152.09 $ -- $ 527,486.94
Howard E. Janzen............. 6.71% $ 178,617.93 $ -- $ 544,137.97
Howard E. Janzen............. 6.62% $ 180,651.86 $ -- $ 549,834.48
------------- -------------- --------------
Total............. $1,062,849.09 $ 2,333,823.19 $ 3,912,728.30
Jack D. McCarthy............. 6.23% $ 107,056.32 $ 365,091.26 $ 356,233.45
Jack D. McCarthy............. 6.23% $ 108,144.83 $ 368,803.35 $ 359,855.49
Jack D. McCarthy............. 6.23% $ 106,111.35 $ 361,868.69 $ 353,089.05
Jack D. McCarthy............. 5.59% $ 28,721.07 $ 120,963.89 $ 118,314.62
Jack D. McCarthy............. 5.59% $ 29,013.10 $ 122,193.79 $ 119,517.59
Jack D. McCarthy............. 5.59% $ 28,467.56 $ 119,896.15 $ 117,270.28
Jack D. McCarthy............. 6.42% $ 97,467.41 $ 323,130.26 $ 315,065.86
Jack D. McCarthy............. 6.42% $ 100,999.44 $ 334,839.89 $ 326,483.22
Jack D. McCarthy............. 6.42% $ 66,565.13 $ 220,681.05 $ 215,173.45
Jack D. McCarthy............. 5.59% $ 26,748.86 $ 125,456.13 $ 122,708.45
Jack D. McCarthy............. 5.59% $ 27,718.19 $ 130,002.40 $ 127,155.17
Jack D. McCarthy............. 5.59% $ 18,268.07 $ 85,679.99 $ 83,803.43
Jack D. McCarthy............. 4.83% $ 301,392.00 $ 1,295,562.16 $ 1,283,341.31
Jack D. McCarthy............. 6.21% $ 8,504.25 $ -- $ 65,162.90
Jack D. McCarthy............. 6.21% $ 12,452.27 $ -- $ 95,414.21
Jack D. McCarthy............. 6.21% $ 7,340.67 $ -- $ 56,247.09
Jack D. McCarthy............. 6.80% $ 17,328.98 $ -- $ 126,856.58
Jack D. McCarthy............. 6.80% $ 31,942.00 $ -- $ 191,431.64
Jack D. McCarthy............. 6.80% $ 32,266.77 $ -- $ 193,378.04
Jack D. McCarthy............. 6.80% $ 31,300.96 $ -- $ 187,589.85
------------- -------------- --------------
Total............. $1,187,809.23 $ 3,974,169.01 $ 4,814,091.68
Frank M. Semple.............. 5.42% $ 180,664.33 $ 1,171,318.21 $ 1,146,404.65
------------- -------------- --------------
Total............. $ 180,664.33 $ 1,171,318.21 $ 1,146,404.65
Grand Total....... $9,877,438.39 $30,577,934.98 $43,175,333.18
</TABLE>
---------------
(1) Represents additional interest that Mr. Janzen was undercharged in 1998. The
amount was paid in 1999.
98
<PAGE> 103
Williams agreed to loan Scott E. Schubert, in connection with his
employment with us, approximately $4,000,000 to provide funds to exercise
options granted by his former employer. Currently Mr. Schubert has three such
loans outstanding, the first two of which were made on June 22, 1999, in the
principal amount of $1,200,000 and bearing an interest rate of 4.98% and in the
principal amount of $800,000 and bearing an interest rate of 5.37% and the third
of which was made on February 29, 2000, in the principal amount of $2,000,000
and bearing an interest rate of 6.56%.
John C. Bumgarner, a director and Senior Vice President, Strategic
Investments, of our company, owns real estate and leases a portion of it to our
subsidiaries for use as office space. In 1999, payments under these leases
approximated $900,000. These leases remain in place, and we expect our
subsidiaries to make similar payments approximating $75,000 per month for the
term of the leases.
Williams has entered into agreements with us for the provision of
administrative and other services to us, for the lease of certain property and
facilities, for the sharing of tax liabilities and benefits, and the license of
the Williams name and logo. We paid Williams approximately $26,900,000 in 1999
for these items. See the section of this prospectus entitled "Relationship
Between Our Company and Williams" for more information.
On September 8, 1999, borrowings previously provided to us by Williams to
fund our operations were converted into a seven-year amortizing note payable by
our subsidiary, Williams Communications, Inc., to Williams. We currently have
approximately $982 million outstanding under the note. Please see the section of
this prospectus entitled "Description of Other Indebtedness and Other Financing
Arrangements -- Williams note" for more information.
SBC Communications Inc., which owns approximately 29.7% of the outstanding
shares of our common stock, has entered into a series of agreements with us
under which SBC must first seek to obtain domestic voice and data long distance
services from us for 20 years; we must first seek to obtain select international
wholesale services and various other services, including toll-free, operator,
calling card and directory assistance services, from SBC for 20 years; and we
and SBC will sell each other's products to their respective customers and
provide installation and maintenance of communications equipment and other
services. During 1999, we paid $13,185,000 to SBC pursuant to these agreements,
and SBC paid $2,864,000 to us. See the section of this prospectus entitled
"Business -- Strategic alliances -- SBC Communications Inc." for more
information.
We have entered into an agreement with SBC pursuant to which we will
provide SBC with local transport service in New York, Boston and Denver, and
with colocation services in New York, Seattle and Miami. Subject to best
pricing, quality of service and other requirements, we have agreed with SBC to
give each other a right of first refusal to provide telecommunications services
where we or SBC have such services available.
In addition, in June 2000, we acquired SBC's interests in undersea
communications cables between the United States and China, and between the
United States and Japan, for a purchase price of approximately $111,400,000,
which was determined based on arm's length negotiations between SBC and us. SBC
originally paid $87,880,524.16 for its interests in the cables.
In September 2000, we acquired the long distance network assets of
Ameritech Communications, Inc., a subsidiary of SBC, for a purchase price of
$145,000,000, which was determined based on arm's length negotiations between
SBC and us. SBC purchased the assets as part of a larger transaction and
allocated $154,000,000 of the purchase price to these assets.
99
<PAGE> 104
J. Cliff Eason, an executive officer of an affiliate of SBC, is a member of
our board of directors.
A subsidiary of Intel Corporation, which owns approximately 13.5% of the
outstanding shares of our common stock, has entered into a 10-year master
alliance agreement with us under which each will purchase services from the
other and work together to create a co-marketing arrangement. The services we
provide include domestic transport services, and Intel provides Web-hosting
services. Subject to our meeting price, quality of service, and other
specifications, Intel will purchase a significant portion of its yearly domestic
transport requirements from us. During 1999, Intel paid $77,000 to us pursuant
to this arrangement, and no amounts were paid to Intel by us. In August 1999,
Intel invested $5 million to acquire a 15% interest in CSI, which was then our
wholly owned subsidiary. See the section of this prospectus entitled
"Business -- Strategic alliances -- Intel Corporation" for more information.
Telefonos de Mexico, S.A. de C.V. which owns approximately 6.8% of the
outstanding shares of our common stock, has entered into agreements with us
under which Telefonos de Mexico must first seek to obtain select international
wholesale services and various other services from us for 20 years and we must
first seek to obtain select international wholesale services and various other
services from Telefonos de Mexico for 20 years. In addition, Telefonos de Mexico
and we have entered into an interconnection agreement and are negotiating
additional agreements for the purchase and sale of telecommunications services.
See the section of this prospectus entitled "Business -- Strategic
alliances -- Telefonos de Mexico, S.A. de C.V." for more information.
During the first quarter of 2000, in a series of transactions involving SBC
and Telefonos de Mexico, we sold a portion of our investment in ATL, which
reduced our economic interest in ATL to 50%. We sold 7% of our interest in ATL's
preferred shares and 30% of our interest in ATL's common stock, together
representing a 15% economic interest in ATL. The purchase price of approximately
$168 million was determined based on arm's length negotiations among SBC,
Telefonos de Mexico and us. We originally paid approximately $30 million for the
interest we sold.
RELATIONSHIP BETWEEN OUR COMPANY AND WILLIAMS
Williams is currently our controlling stockholder and beneficially owns
100% of our outstanding Class B common stock, which represents approximately 85%
of the outstanding shares of our common stock and approximately 98% of the
outstanding voting power in our company. On July 24, 2000, Williams announced
that its board of directors had authorized its management to pursue a course of
action that, if successful, would lead to a complete separation of our business
from Williams' energy business. On August 8, 2000, Williams announced that the
Internal Revenue Service had issued a favorable ruling on a proposed tax-free
distribution of our Class B common stock to Williams' stockholders. In order for
Williams and its stockholders to receive the benefit of the ruling, a spin-off
must be completed by August 2001, unless the IRS consents to an extension of
time. Although rulings such as the one Williams received generally are binding
on the IRS, Williams will not be able to rely on the ruling if any factual
representations or assumptions that Williams made in connection with its request
for the ruling are incorrect or untrue in any material respect. We are not aware
of any facts or circumstances, including the completion of or failure to
complete the exchange offer, that would cause its representations or assumptions
to be incorrect or untrue in any material respect. Williams has informed us that
it also is not aware of any such facts or circumstances. Williams has not yet
determined a specific course of action regarding the separation of its energy
business from our business.
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In order to preserve the benefit of the favorable IRS ruling regarding
Williams' spin-off of our company, we may be restricted in our ability to
undertake some transactions following a spin-off, including a disposition of a
material portion of our assets outside the ordinary course of business; a merger
or liquidation; some issuances of our capital stock; and acquisitions or
strategic combinations that would, individually or in the aggregate, result in a
significant change in our ownership.
For so long as Williams continues to beneficially own shares of capital
stock representing more than 50% of the combined voting power of our outstanding
capital stock, it will be able to approve any matter submitted to a vote of our
stockholders without the consent of our other stockholders, including, among
other things, the amendment of our restated certificate of incorporation and
by-laws and the election of all members of our board of directors. SBC will have
a right to maintain a designee on our board of directors once it obtains, and
for so long as it retains, more than a 5% equity interest in us and satisfies
the procedural and substantive requirements to provide long distance services
originating in a state in its traditional exchange service area. Although SBC
currently is not entitled to exercise this right, a director designated by SBC
has been elected to, and is currently a member of, our board of directors. In
addition, through its controlling beneficial ownership of us, as well as certain
provisions of intercompany agreements discussed below, Williams will be able to
exercise a controlling influence over our company, including determinations with
respect to mergers or other business combinations involving us, the acquisition
or disposition of assets by us, our access to the capital markets, the payment
of dividends and any change of control of our company. In these and other
situations, various conflicts of interest between Williams and us could arise.
Furthermore, ownership interests of our directors and officers in Williams'
common stock or service as a director or officer of both us and Williams could
create, or appear to create, conflicts of interest when directors and officers
are faced with decisions that could have different implications for us and
Williams. We cannot assure you that conflicts of interest will not arise or will
be resolved in a manner favorable to us.
The following are summaries of material provisions of the agreements
entered into by our company with Williams. Other than as indicated for a
particular agreement or unless terminated by both Williams and us, these
agreements would remain in place regardless of the level of Williams' continued
ownership interest in our company, although it is anticipated that they may be
amended in connection with the separation.
SEPARATION AGREEMENT
We have entered into a separation agreement with Williams relating to
various aspects of our companies' operations that governs our relationship with
each other. Under the separation agreement, we have agreed not to compete with
Williams for five years from October 1, 1999, in any area of the energy industry
in which Williams currently has operations and Williams has agreed not to
compete with us during the same five-year period in any area of the
telecommunications industry in which we currently have operations. We and
Williams may, however, acquire or invest in an entity engaged in activities
reserved to the other provided such activities represent no more than 30% of the
consolidated revenues or net income of such entity. In the event Williams
acquires telecommunications activities reserved to us or we acquire energy
activities reserved to Williams pursuant to this exception, the other has a
right of first offer to acquire the activities should any be disposed of prior
to October 2004. Under the separation agreement, if a party decides not to
pursue a business opportunity that it has the right to pursue to the exclusion
of the other party, it must promptly inform the other party of this decision.
The other party would then be free to pursue the opportunity.
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Our restated certificate of incorporation provides that we may not bring
any claim against Williams or any of its officers, directors or other affiliates
for breach of any duty, including the duty of loyalty or fair dealing on account
of a diversion of a corporate business opportunity to Williams, unless that
opportunity relates solely to a business that we have the right to elect to
pursue to the exclusion of Williams pursuant to the separation agreement.
Notwithstanding the above, no claim may be made in any event if our directors
who are not employees of Williams disclaim the opportunity by a unanimous vote.
Other components of the separation agreement provide for the following:
- exchange of participation, service and compensation records of employees
who transfer between Williams and us
- filing of annual reports and compliance with other legal requirements
applicable to the parties' employee benefit plans
- allocation of assets and liabilities under various nonqualified pension
and deferred compensation plans maintained by Williams for the benefit of
employees and non-employee directors
- disposition of outstanding stock options, stock appreciation rights and
long-term incentive awards
- allocation of assets and liabilities pertaining to post-retirement life
insurance and health care benefits
- allocation of liabilities for accrued vacation, paid leave and certain
other benefits
- maintenance of insurance coverage consistent with past practices
- establishment of a separation committee to resolve disputes between
Williams and us and arbitration provisions
Our employees, other than those who work for Solutions LLC, are jointly
employed by other subsidiaries of Williams which provide administrative services
related to their employment. We have entered into personnel services agreements
providing for reimbursement by us of the actual costs incurred by the services
companies related to our employees. Williams also pays the services companies a
fee for administration. Under the separation agreement, we have agreed to
reimburse Williams for our portion of the fee. A Williams subsidiary also
performs risk management services for us and other Williams subsidiaries.
Williams compensates the risk management subsidiary for its actual costs
incurred, a portion of which is related to our business. Under the separation
agreement, we have agreed to reimburse the risk management subsidiary for our
portion of the costs.
TAX SHARING AGREEMENT
In the past, we have been included in Williams' federal consolidated income
tax group. We expect that we will continue to be included in the Williams
federal consolidated income tax group, until completion by Williams of the
separation of its businesses. We also expect to be included with Williams and/or
some of its subsidiaries in combined, consolidated or unitary income tax groups
for state income tax purposes during this period. We have entered into a tax
sharing agreement with Williams under which we and Williams will make payments
such that, for any period, the amount of federal income taxes we will pay will,
subject to certain adjustments, generally be determined as though we were filing
separate federal income tax returns (including amounts determined to be due
under such agreement as a result of an audit or otherwise). Under the tax
sharing agreement, our losses or other similar tax attributes realized
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for periods after our initial public offering will be utilized or retained by
the Williams group and thus will not be available to us in order to reduce our
hypothetical separate tax liability. We will be responsible for any increases in
federal income tax liabilities resulting to Williams and its subsidiaries if
these losses or attributes are reduced by audit or otherwise. If, during any
period after our initial public offering, we have a current realized operating
loss determined on such a hypothetical separate tax return basis, we will not
owe any payments under the tax sharing agreement for that tax year, and, in
general, we will be allowed to carry over the loss to other tax years in which
we are a member of the Williams federal consolidated income tax group in order
to offset our income determined on this hypothetical separate tax return basis
for other tax years. However, if we are unable to utilize any loss on a
hypothetical separate tax return basis, Williams will be entitled to utilize the
loss without paying us for it. If we cease to be included in the Williams
federal consolidated income tax group, we will not be entitled to receive the
benefit of any carryforward of any loss to offset our income for any tax years
thereafter where such loss has been utilized by the Williams group. We will also
be required to pay Williams for any tax attribute that we are entitled to use
after leaving the Williams federal consolidated income tax group if we have
already received the benefit of this tax attribute under the tax sharing
agreement. Therefore, we generally will receive the benefit of a loss only if we
are able to offset the loss against our income while we are a member of the
Williams federal consolidated income tax group. We cannot guarantee that we will
earn any income against which we can offset any loss while we are a member of
the Williams federal consolidated income tax group and, thus, that we will
obtain any benefit from losses generated while we are a member of the Williams
group.
For as long as we are included in the Williams federal consolidated income
tax group, Williams will continue to have all the rights of a parent of a
consolidated group. During this time, Williams will have sole and absolute
responsibility for, and sole and absolute discretion with respect to, the
following:
- preparing any of our income and other tax returns, including amended
returns or claims for refunds
- representing us with respect to any tax audit or tax contest, including
settling or compromising any tax controversy
- engaging outside counsel and accountants with respect to tax matters
regarding us
- performing other acts and duties with respect to our tax returns as
Williams determines to be appropriate
- interpreting and applying the tax sharing agreement and determining any
disputes that arise under it
The general principles of the tax sharing agreement will also apply to
state income taxes (and, in the sole and absolute discretion of Williams, may
also apply to foreign, local, other state and other federal taxes) with respect
to which we are included with Williams and/or some of its subsidiaries in
consolidated, combined or unitary groups. Thus, we will be responsible for any
foreign tax liability arising from our business activities.
The tax sharing agreement will remain in effect so long as and to the
extent that we are included with Williams and/or any of its subsidiaries in any
combined, consolidated or unitary income tax group in any taxing jurisdiction
and the statute of limitations for these returns remains open.
Under the administrative services agreement which is described below, the
amounts that we will pay Williams will encompass reimbursement to Williams for
all direct and indirect costs and
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expenses incurred with respect to our share of the overall costs and expenses
incurred by Williams with respect to tax-related services.
In general, we will be included in Williams' consolidated group for federal
income tax purposes for so long as Williams beneficially owns at least 80% of
the total voting power and value of our outstanding capital stock. Each member
of a consolidated group is jointly and severally liable for the federal income
tax liability of the consolidated group for the period during which it is a
member of this consolidated group. Accordingly, although the tax sharing
agreement allocates tax liabilities between us and Williams during the period in
which we are included in Williams' federal consolidated income tax group and
provides that Williams will indemnify us for any tax liabilities not allocated
to us, we could be liable for any federal income tax liabilities incurred, but
not discharged, by any other member of Williams' federal consolidated income tax
group. Similar principles may apply for combined, consolidated or unitary state
income tax purposes.
INDEMNIFICATION AGREEMENT
We and Williams have entered into an indemnification agreement which
provides that each party to the agreement will indemnify the other party and its
directors, officers, employees, agents and representatives for liabilities under
federal or state securities laws as a result of our 1999 offerings, including
liabilities arising out of or based upon alleged misrepresentations in or
omissions from the registration statements. Each party will indemnify the other
party for liabilities, which also include taxes, that may be incurred by the
other party relating to, resulting from or arising out of the business and
operations conducted or formerly conducted, or assets formerly owned, by the
indemnifying party and its subsidiaries. However, where Williams is the
indemnifying party, it will not indemnify us for any liabilities relating to,
resulting from or arising out of our business and operations and assets. Each
party will indemnify the other party for liabilities, which also include taxes,
that may be incurred by that other party relating to, resulting from or arising
out of the failure by that party to comply with other agreements executed in
connection with our 1999 offerings, except to the extent caused by the other
party.
The indemnification agreement also provides that we indemnify Williams for
any liabilities incurred by Williams under the guarantees of Williams'
obligations with respect to us or any other of our liabilities that are imposed
on Williams and that we will pay Williams for the direct cost, if any, of
maintaining these guarantees or for the costs of defending a claim asserting any
potentially covered liability.
Williams currently guarantees our obligations under the asset defeasance
program, which we describe in the section of this prospectus entitled
"Description of Other Indebtedness and Other Financing Arrangements."
REGISTRATION RIGHTS AGREEMENT
We and Williams have entered into a registration rights agreement which
provides that, upon the request of Williams, we will use our reasonable efforts
to effect the registration under the applicable federal and state securities
laws of any shares of our common stock, and any other securities issued in
respect of or exchange for our common stock, held by Williams and will take any
other action necessary to permit the sale of these securities in other
jurisdictions, subject to specified limitations. For the foreseeable future,
Williams will also have the right, which it may exercise at any time and from
time to time, to include shares of our common stock held by it in other
registrations of our common equity securities we initiate on our own behalf or
on behalf of other stockholders. Williams will pay the out-of-pocket costs and
expenses of registration for registrations which it initiates and its pro rata
share of registration expenses in connection with
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registrations we or others initiate in which Williams participates. Our restated
certificate of incorporation provides that any shares of Class B common stock
sold or otherwise transferred to any person other than a Williams affiliate are
automatically converted into shares of our common stock.
ADMINISTRATIVE SERVICES AGREEMENT
The administrative services agreement provides for Williams to continue to
provide similar financial management services, information services, legal and
contract services, risk management, human resources services, corporate planning
and other management support services to us as it has in the past. Under the
terms of the administrative services agreement, all of the services are rendered
by Williams or its subsidiaries, subject to our oversight, supervision and
approval through our board of directors.
The administrative costs we pay to Williams and its subsidiaries pursuant
to the administrative services agreement are allocated pursuant to an
established formula based on actual costs and are believed to be equal to or
less than the fees that would be paid if these services were to be provided by
an independent third party.
The administrative services agreement will terminate on October 6, 2004,
unless earlier terminated by Williams or us. The administrative services
agreement will be automatically renewed for additional terms of two years unless
either party gives at least six months' written notice prior to a scheduled
termination date. The administrative services agreement can be terminated upon a
material breach by either party.
Williams and its affiliates incur certain costs on our behalf, primarily
for insurance coverage and related risk management services provided by
non-affiliates, benefits provided to our employees under Williams' benefit
plans, payroll administration, bank fees, certain utility costs, employee
relocation and other costs. Williams and its affiliates either directly charge
these costs to us or, for a shared service or cost, allocate a portion of these
costs to us based for insurance coverage on various risk exposure factors and
otherwise primarily on actual usage.
SERVICE AGREEMENT
We have entered into a service agreement with Williams Information Services
Corporation, or WISC, a wholly owned subsidiary of Williams. Under this
agreement, WISC provides data processing computer-related services to us. These
services include mainframe operations, help desk support, network services,
mid-range operations, general data center operations, technical support,
development services and hardware and software procurement assistance. Services
are generally charged at cost on a usage basis plus a 15% management fee. Any
procured items are transferred at actual cost.
LEASE AGREEMENT
We have leases with various Williams affiliates providing for the leasing
of office and other space. The lease charges are based on occupied square
footage and terms approximate market. In addition, we reimburse Williams
affiliates for the cost of leased space utilized by our employees at these
affiliates' locations.
CROSS-LICENSE AGREEMENT
The cross-license agreement addresses Williams' and our respective rights
and obligations with respect to intellectual property, inventions, trademarks
and trade names, as well as the use of proprietary information by employees of
Williams and us. Williams and WISC license certain
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intellectual property to us at no cost. Similarly we cross-license to Williams
certain intellectual property on the same terms as their license to us. Among
other things, for so long as Williams beneficially owns at least 50% of the
voting power of our outstanding capital stock, we are permitted to continue our
use of the Williams trademark and brand names.
TECHNICAL, MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The technical, management and administrative services agreement provides
for Williams to continue to provide to us the same management services relating
to our international operations and investments as it has in the past. Under the
terms of this agreement, all of the services are rendered by Williams or its
subsidiaries, subject to our oversight, supervision and approval through our
board of directors.
The management costs we pay to Williams and its subsidiaries pursuant to
the technical, management and administrative services agreement are allocated
pursuant to an established formula based on actual costs and are believed to be
equal to or less than the fees that would be paid if these services were to be
provided by an independent third party.
WILLIAMS NOTE
On September 8, 1999, borrowings previously provided to us by Williams to
fund our operations were converted into a seven-year amortizing note payable by
our subsidiary, Williams Communications, Inc., to Williams. We currently have
approximately $982 million outstanding under the note. Please see the section of
this prospectus entitled "Description of Other Indebtedness and Other Financing
Arrangements -- Williams note" for more information.
CONFLICTS OF INTEREST
Conflicts of interest may arise between Williams and us in a number of
areas relating to our past and ongoing relationships with Williams, including
potential acquisitions of businesses or properties or other corporate
opportunities, potential competitive business activities, the election of new or
additional directors, payment of dividends, incurrence or repayment of debt, tax
matters, financial commitments, marketing functions, indemnity arrangements,
registration rights, administration of benefits plans, service arrangements,
issuances of our capital stock, sales or distributions by Williams of its shares
of our Class B common stock and the exercise by Williams of its ability to
control our management and affairs. Although the separation agreement contains
certain non-compete provisions, in many circumstances we and Williams are free
to compete with one another.
We and Williams may enter into material transactions and agreements in the
future in addition to those described above. Our board of directors will utilize
procedures in evaluating the terms and provisions of any material transactions
between us and Williams or its affiliates as our board of directors may deem
appropriate in light of its fiduciary duties under state law. In any evaluation,
our board of directors may rely on management's statements and opinions and may
or may not utilize outside experts or consultants or obtain independent
appraisals or opinions. One of our directors is both a senior officer and
director, and six of our directors are also senior officers of Williams. These
directors and officers may have conflicts of interest with respect to matters
potentially or actually involving or affecting Williams or us, such as
acquisitions, financing and other corporate opportunities that may be suitable
both for Williams and for us. To the extent that opportunities arise, these
directors may consult with their legal advisors and make a determination after
considering a number of factors, including whether such an opportunity is within
our line of business or consistent with our strategic objectives and whether we
will be able to undertake or benefit from a particular opportunity. In addition,
determinations may be made
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by our board of directors, and when appropriate, by the vote of the
disinterested directors only. Despite the foregoing, there can be no assurance
that conflicts will be resolved in our favor.
For so long as Williams controls at least 50% of the voting power of our
outstanding capital stock, our directors and officers will, subject to certain
limitations, be indemnified by Williams and insured under insurance policies
maintained by Williams against liability for actions taken, or omitted to be
taken, in their capacities as our directors and officers, including actions or
omissions that may be alleged to constitute breaches of the fiduciary duties
owed by our directors and officers to us and our stockholders. This insurance
may not be applicable to certain of the claims which Williams may have against
us under the indemnification agreement or otherwise.
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DESCRIPTION OF THE NOTES
GENERAL
The exchange notes, like the original notes, will be issued under an
indenture between WCG and The Bank of New York, as trustee. In this description
of the notes, the term "WCG" refers to Williams Communications Group, Inc. and
does not include its subsidiaries, except for purposes of financial data
determined on a consolidated basis. You can find the definitions of capitalized
terms used in this section in the section below entitled "-- Certain
definitions." For purposes of this "Description of the Notes," all references to
the notes shall be deemed to refer collectively to the original notes and the
exchange notes.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. The indenture is
governed by the Trust Indenture Act of 1939. The terms of the notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act. We urge you to read the indenture because it, and
not this description, defines your rights as a holder of the notes. The
indenture has been filed as an exhibit to the registration statement of which
this prospectus is a part.
BRIEF DESCRIPTION OF THE NOTES
The notes:
- are senior unsecured obligations of WCG;
- rank equally with all existing and future senior unsecured indebtedness
of WCG;
- rank senior to all existing and future indebtedness of WCG expressly
subordinated in right of payment to the notes; and
- are subordinated to all existing and future indebtedness and other
liabilities, including trade payables, of WCG's subsidiaries as described
below under "-- Ranking."
WCG has agreed that it will offer to repurchase the notes under the
circumstances described in the indenture upon:
- a Change of Control Triggering Event; or
- the accumulation of a specified amount of Excess Proceeds from Asset
Dispositions by WCG or any of its Restricted Subsidiaries.
The indenture also contains the following covenants:
- limitation on consolidated Debt;
- limitation on Debt of Restricted Subsidiaries;
- limitation on Restricted Payments;
- limitation on issuances of Guarantees by, and Debt Securities of,
Domestic Restricted Subsidiaries;
- limitation on dividend and other payment restrictions affecting
Restricted Subsidiaries;
- limitation on Liens;
- limitation on Sale and Leaseback Transactions;
- limitation on Asset Dispositions;
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- limitation on issuances and sales of Capital Stock of Restricted
Subsidiaries;
- limitation on transactions with Affiliates;
- reports;
- limitation on designations of Unrestricted Subsidiaries; and
- limitation on mergers, consolidations and certain sales of assets.
RANKING
The notes will be senior unsecured obligations of WCG, ranking equally with
all of WCG's existing and future senior unsecured debt. The notes will be senior
to all of WCG's subordinated debt and junior to any secured debt WCG may incur
as to the assets securing such debt. Substantially all the operations of WCG are
conducted through its subsidiaries and, therefore, WCG is dependent upon cash
flow from those entities to meet its obligations. The payment of dividends and
the making of loans and advances to WCG by its subsidiaries are subject to
various restrictions. Future debt of certain of WCG's subsidiaries may prohibit
the payment of dividends or the making of loans or advances to WCG. In addition,
the ability of subsidiaries of WCG to make such payments, loans or advances to
WCG is limited by the laws of the relevant jurisdictions in which such
subsidiaries are organized or located. In some cases, the prior or subsequent
approval of such payments, loans or advances by such subsidiaries to WCG may be
required from applicable regulatory bodies or other governmental entities.
WCG's subsidiaries will have no direct obligation to pay amounts due on the
notes unless they become Guarantors. The notes effectively will be subordinated
to all existing and future indebtedness and other liabilities of WCG's
subsidiaries that are not Guarantors, including trade payables and indebtedness
under the Williams note, the credit facility and our asset defeasance program.
As of the date of the indenture, none of WCG's subsidiaries will be Guarantors.
As of June 30, 2000, WCG's consolidated subsidiaries had approximately $2.5
billion of liabilities outstanding, excluding intercompany debt, but including
$988.1 million of debt owed to Williams, which would effectively rank senior to
the notes. As of June 30, 2000, WCG had outstanding approximately $2.0 billion
of debt ranking equally with the notes, and no debt ranking senior to the notes.
The indenture permits WCG and its subsidiaries to incur substantial amounts of
additional indebtedness and other liabilities. Any rights of WCG and its
creditors, including the holders of notes, to participate in the assets of any
of WCG's subsidiaries upon any liquidation or reorganization of any such
subsidiary will be subject to the prior claims of that subsidiary's creditors,
including trade creditors. See the section of this prospectus entitled "Risk
Factors -- Risks relating to our notes -- Your right to receive payment on the
notes is effectively junior to existing and future debt of our
subsidiaries -- the rights of holders of notes to participate in the assets of
any of our subsidiaries upon any liquidation or reorganization of any subsidiary
will be subject to the prior claims of that subsidiary's creditors" for more
information.
PRINCIPAL, MATURITY AND INTEREST
The exchange notes, like the original notes, will be issued with a maximum
aggregate principal amount of $1.0 billion. The 2008 senior notes will mature on
August 1, 2008, and will bear interest from August 8, 2000, or from the most
recent date to which interest has been paid. The 2010 senior notes will mature
on August 1, 2010, and will bear interest from August 8, 2000, or from the most
recent date to which interest has been paid. Interest on the notes will be
payable in cash semiannually in arrears on February 1 and August 1, commencing
February 1, 2001. WCG will make each interest payment to the persons who are
registered holders of the
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notes at the close of business on the preceding January 15 or July 15. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
Principal of, premium, if any, and interest on the notes will be payable,
and the notes may be exchanged or transferred, at the office or agency of WCG,
which, unless otherwise provided by WCG, will be the offices of the trustee. At
the option of WCG, interest may be paid by check mailed to the registered
holders at their registered addresses. The notes initially will be issued
without coupons and in fully registered global form only, in minimum
denominations of $1,000 and integral multiples thereof. No service charge will
be made for any registration of transfer or exchange of the notes, but WCG may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection with the registration, transfer or
exchange of the notes.
BOOK ENTRY, DELIVERY AND FORM
The original notes are, and the exchange notes will be, represented by one
or more global notes in definitive, fully registered form without interest
coupons. The exchange notes will be deposited with or on behalf of DTC and
registered in the name of a nominee of DTC in exchange for the original notes.
The global notes representing the original notes and the exchange notes are
sometimes collectively referred to as the "Global Notes."
Except in the limited circumstances described below, owners of beneficial
interests in Global Notes will not be entitled to receive physical delivery of
certificated notes. Transfers of beneficial interests in the Global Notes will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants, which may change from time to time.
BOOK-ENTRY PROCEDURES
Global Notes. The following description of the operations and procedures
of DTC is provided solely as a matter of convenience. These operations and
procedures are solely within the control of DTC and are subject to changes by it
from time to time. We take no responsibility for these operations and procedures
and we urge investors to contact the system or their participants directly to
discuss these matters.
Upon the issuance of the Global Notes, DTC will credit, on its internal
system, the respective principal amount of the individual beneficial interests
represented by such Global Notes to the accounts of persons who have accounts
with DTC. Ownership of beneficial interests in a Global Note will be limited to
participants or persons who hold interests through participants. Ownership of
beneficial interests in the Global Notes will be shown on, and the transfer of
that ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
As long as DTC, or its nominee, is the registered holder of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner and
holder of the notes represented by such Global Note for all purposes and under
the indenture and the notes.
Unless:
- DTC notifies us that it is unwilling or unable to continue as depositary
for a Global Note and a successor depositary is not appointed within 90
days of such notice, or DTC ceases to be a "Clearing Agency" registered
under the Exchange Act, or
- an Event of Default has occurred and is continuing with respect to the
notes,
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owners of beneficial interests in a Global Note will not be entitled to have any
portions of such Global Note registered in their names, will not receive or be
entitled to receive physical delivery of notes in certificated form and will not
be considered the owners or holders of the Global Note (or any notes represented
thereby) under the indenture or the notes. In addition, no beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures (in addition to those under the
indenture referred to herein).
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are participants in such system, or indirectly through
organizations which are participants in such system. All interests in a Global
Note will be subject to the procedures and requirements of DTC.
PAYMENTS ON THE NOTES
Payments of the principal of and interest on the Global Notes will be made
to DTC or its nominee as the registered owner thereof. Neither we, the trustee,
DTC nor any of their respective agents will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Notes or for maintaining
supervision or reviewing any records relating to such beneficial ownership
interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a Global Note representing any notes held by it or its
nominee, will immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Note for such notes as shown on the records of DTC or its
nominee.
We also expect that payments by participants to owners of beneficial
interests in any such Global Note held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in "street name."
Such payments will be the responsibility of such participants.
The laws of some countries and some U.S. states require that certain
secured parties or pledgees take physical delivery of securities in certificated
form. Consequently, the ability to transfer beneficial interests in a Global
Note to such persons may be limited. Because DTC can act only on behalf of
participants, which, in turn, act on behalf of indirect participants and certain
banks, the ability of a person having a beneficial interest in a Global Note to
pledge such interest to persons or entities that do not participate in the DTC
system or otherwise take actions in respect of such interest, may be affected by
the lack of a physical certificate evidencing such interest.
Interests in the Global Notes will trade in DTC's Same-Day Funds Settlement
System, and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its participants. Transfers of interests in Global Notes
between participants in DTC will be effected in accordance with DTC's procedures
and will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes (including the presentation of notes for exchange as described
below) only at the direction of one or more participants to whose account with
DTC interests in the Global Notes are credited and only in respect of such
portion of the aggregate principal amount of the notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the notes, DTC reserves the right to exchange the
Global Notes for notes in certificated form and to distribute such notes to
their respective participants.
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If the notes are issued in certificated form, holders of such certificated
notes will be able to receive payments of principal and interest on their notes
in accordance with the procedures described under "-- Certificated notes."
DEPOSITARY PROCEDURES
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical transfer
and delivery of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant directly or
indirectly ("indirect participants").
Although DTC currently follows the foregoing procedures to facilitate
transfers of interests in securities among participants of DTC, it is under no
obligation to do so, and such procedures may be discontinued or modified at any
time. Neither we nor the trustee will have any responsibility for the
performance by DTC or its respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
In the event that use of the book-entry system for the notes is
discontinued for any of the reasons set forth above under "-- Book-entry
procedures," we will issue certificates for such notes in definitive, fully
registered, non-global form without interest coupons in exchange for the Global
Notes. Certificates for notes delivered in exchange for any Global Note or
beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by DTC.
In the event certificated notes are issued, the holders of certificated
notes will be able to receive payments of principal and interest on their notes
at the office of WCG's paying agent maintained in the Borough of Manhattan. All
payments of interest may be received at the offices of a paying agent upon
presentation of certificated notes and all payments of principal may be received
at such offices upon surrender of the notes. WCG also has the option of mailing
checks to the registered holders of the notes.
If any certificated note is lost, stolen, mutilated, defaced or destroyed,
it may be replaced at the office of the paying agent upon payment by the
claimant of the expenses incurred in connection with such replacement and on
such terms as to evidence, security, indemnity and otherwise as we may
reasonably require. Mutilated or defaced notes must be surrendered before
replacements will be issued.
WCG's paying agent with respect to the notes in the Borough of Manhattan is
expected to be the corporate trust office of The Bank of New York, located at
101 Barclay Street, Floor 21 West, New York, New York.
In the event certificated notes are issued, the holders of certificated
notes will be able to transfer their certificated notes, in whole or in part, by
surrendering the certificated notes for registration of transfer at the offices
of The Bank of New York, duly endorsed by or
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accompanied by a written instrument of transfer in form satisfactory to WCG and
the securities registrar. Upon surrender, WCG will execute, and the trustee will
authenticate and deliver, new notes to the designated transferee in the amount
being transferred, and a new note for any amount not being transferred will be
issued to the transferor. Any new notes so issued may be obtained through the
offices of the paying agent. WCG will not charge any fee for the registration of
transfer or exchange, except that WCG may require the payment of a sum
sufficient to cover any applicable tax or other governmental charge payable in
connection with the transfer. Notwithstanding any statement herein, WCG and the
trustee reserve the right to impose such transfer, certification, exchange or
other requirements, if any, as they may determine are necessary to ensure
compliance with applicable laws or as DTC may require.
SAME-DAY SETTLEMENT AND PAYMENT
The indenture will require that payment in respect of the notes represented
by the Global Notes, including principal and premium, if any, be made by wire
transfer of immediately available funds to the accounts specified by the Global
Note holder. With respect to notes in certificated form, we will make all
payments of principal and premium, if any, by wire transfer of immediately
available funds to the accounts specified by the holders thereof, or, if no such
account is specified, by mailing a check to each such holder's registered
address. The notes represented by the Global Notes will be eligible to trade in
DTC's Same-Day Funds Settlement System. Therefore, DTC will require any
permitted secondary market trading activity in the notes to be settled in
immediately available funds.
OPTIONAL REDEMPTION
2008 SENIOR NOTES:
WCG may redeem all or part of the 2008 senior notes at any time upon not
less than 30 nor more than 60 days' notice at the Make-Whole Price, plus accrued
and unpaid interest on such notes, if any, to the redemption date.
At any time or from time to time prior to August 1, 2003, WCG may redeem up
to 35% of the original aggregate principal amount of the 2008 senior notes at a
redemption price equal to 111.70% of the principal amount of the notes so
redeemed, plus accrued and unpaid interest on such notes, if any, to the
redemption date, subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date, with
the net cash proceeds of one or more private placements to Persons other than
Affiliates of WCG or public offerings of common stock of WCG, in each case
resulting in gross proceeds to WCG of at least $100 million in the aggregate;
provided that
- at least 65% of the original aggregate principal amount of the 2008
senior notes would remain outstanding immediately after giving effect to
such redemption;
- any such redemption shall be made within 90 days of such private
placement or public offering upon not less than 30 nor more than 60 days'
prior notice; and
- any such redemption may not occur with or after a Change of Control.
2010 SENIOR NOTES:
Prior to August 1, 2005, WCG may redeem all or part of the 2010 senior
notes at any time upon not less than 30 nor more than 60 days' notice at the
Make-Whole Price, plus accrued and unpaid interest on such notes, if any, to the
redemption date.
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On or after August 1, 2005, WCG may redeem all or part of the 2010 senior
notes upon not less than 30 nor more than 60 days' prior notice, at the
redemption prices set forth below, plus accrued and unpaid interest on such
notes, if any, to the redemption date, subject to the right of holders of record
on the relevant record date to receive interest due on the relevant interest
payment date, if redeemed during the twelve months beginning on August 1, of the
years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2005......................................... 105.938%
2006......................................... 103.958%
2007......................................... 101.979%
2008 and thereafter.......................... 100.000%
</TABLE>
In addition, at any time or from time to time prior to August 1, 2003, WCG
may redeem up to 35% of the original aggregate principal amount of the 2010
senior notes at a redemption price equal to 111.875% of the principal amount of
the notes so redeemed, plus accrued and unpaid interest on such notes, if any,
to the redemption date, subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date, with the net cash proceeds of one or more private placements to Persons
other than Affiliates of WCG or public offerings of common stock of WCG, in each
case, resulting in gross proceeds to WCG of at least $100 million in the
aggregate; provided that
- at least 65% of the original aggregate principal amount of the 2010
senior notes would remain outstanding immediately after giving effect to
such redemption;
- any such redemption shall be made within 90 days of such private
placement or public offering upon not less than 30 nor more than 60 days'
prior notice; and
- any such redemption may not occur with or after a Change of Control.
PARTIAL REDEMPTION PROCEDURES
In the case of any partial redemption, the trustee will make the selection
of notes on a pro rata basis, by lot or by such other method as the trustee in
its sole discretion shall deem to be fair and appropriate, but no note of $1,000
in principal amount or less shall be redeemed in part. If any note is to be
redeemed in part, the notice of redemption, provided in accordance with the
section below entitled "-- Notices," relating to such note shall state the
portion of the principal amount to be redeemed. A new note in principal amount
equal to the unredeemed portion will be issued in the name of the holder upon
cancellation of the original note.
MANDATORY REDEMPTION
Except as set forth below under the sections entitled "-- Certain
covenants -- Change of control triggering event" and "-- Limitation on asset
dispositions," WCG is not required to make mandatory redemption payments or
sinking fund payments with respect to the notes.
CERTAIN COVENANTS
Set forth below are the material covenants contained in the indenture.
Limitation on consolidated debt. (a) WCG may not, and may not permit any
Restricted Subsidiary to, directly or indirectly, Incur any Debt, unless, after
giving pro forma effect to such Incurrence and the receipt and application of
the net proceeds of such Incurrence, no Default or
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Event of Default would occur as a consequence of such Incurrence or be
continuing following such Incurrence and either:
(1) the ratio of (A) the aggregate consolidated principal amount, or,
in the case of Debt issued at a discount, the then Accreted Value, of Debt
of WCG 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 and that
remains outstanding on the date as of which the Debt to be Incurred is
to be Incurred (the "incurrence date") since such balance sheet date
and the receipt and application of the net proceeds thereof, in each
case, as if such Incurrence, receipt and application had occurred on
such balance sheet date, and
- the repayment, repurchase, retirement or extinguishment of any Debt
since such balance sheet date, as if such repayment, repurchase,
retirement or extinguishment had occurred on such balance sheet date,
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 of such Debt
had been applied, and any material Investment in, or acquisition or
disposition of, any material asset outside the ordinary course of business
consummated during, or since the end of, such period of four fiscal
quarters had occurred at the beginning of such four fiscal quarters,
would be less than 5.0 to 1.0; or
(2) WCG's Consolidated Capital Ratio is less than 2.25 to 1.0 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 and that
remains outstanding on the incurrence date since such balance sheet
date as if such Incurrence had occurred on such balance sheet date,
- the repayment, repurchase, retirement or extinguishment of any Debt
since such balance sheet date, as if such repayment, repurchase or
extinguishment had occurred on such balance sheet date,
- the issuance of any Capital Stock, other than Disqualified Stock, of
WCG since such balance sheet date, including the issuance of any
Capital Stock to be issued concurrently with the Incurrence of such
Debt, as if such Incurrence had occurred on such balance sheet date,
and
- the receipt and application of the net proceeds of such Debt or
Capital Stock, as the case may be, as if such receipt and application
of the proceeds therefrom had occurred on the balance sheet date.
(b) The restrictions in paragraph (a) do not prevent WCG or any Restricted
Subsidiary from Incurring any and all of the following, each of which shall be
given independent effect:
(1) Debt under the notes, the indenture or any Domestic Restricted
Subsidiary Guarantee;
(2) Debt under Credit Facilities in an aggregate principal amount
outstanding or available (together with all refinancing Debt outstanding or
available pursuant to
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clause (8) below in respect of Debt previously Incurred pursuant to this
clause (2)) at any one time not to exceed the greater of
(x) $2.0 billion, less
- the amount of all mandatory principal payments actually made by
WCG or any Restricted Subsidiary in respect of term loans
thereunder (excluding any such payments to the extent refinanced
at the time of payment under a new Credit Facility) and
- in the case of a revolving facility, reduced by any required
permanent repayments actually made (which are accompanied by a
corresponding permanent commitment reduction) under the revolving
facility (excluding any such repayments and commitment reductions
to the extent refinanced and replaced at the time under a new
Credit Facility), and
(y) 85% of the Eligible Receivables;
(3) Purchase Money Debt; provided that the amount of such Purchase
Money Debt does not exceed 100% of the cost of the construction,
installation, acquisition, lease, development or improvement of the
applicable Telecommunications Assets;
(4) Subordinated Debt of WCG; provided, however, that the aggregate
principal amount of such Debt, together with any other outstanding Debt
Incurred pursuant to this clause (4), shall not exceed $500 million at any
one time (which amount shall be permanently reduced by the amount of Net
Available Proceeds used to repay Subordinated Debt of WCG, and not
reinvested in Telecommunications Assets or used to purchase notes or repay
other Debt, pursuant to the covenant described in the section below
entitled "-- Limitation on asset dispositions"), except to the extent such
Debt in excess of $500 million
(A) is subordinated to all other Debt of WCG other than Debt
Incurred pursuant to this clause (4) in excess of such $500 million
limitation,
(B) does not provide for the payment of cash interest on such Debt
prior to the Stated Maturity of the notes, and
(C) does not
- provide for payments of principal of such Debt at stated maturity
or by way of a sinking fund applicable to the payment of such Debt
or by way of any mandatory redemption, defeasance, retirement or
repurchase thereof by WCG (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
under such Debt), in each case, on or prior to the Stated Maturity
of the notes, and
- permit redemption or other retirement, including pursuant to an
offer to purchase made by WCG, of such Debt at the option of the
holder of such Debt on or prior to the Stated Maturity of the
notes,
other than, in the case of each of these points under (C), a
redemption or retirement at the option of the holder of such Debt,
including pursuant to an offer to purchase made by WCG, which is
conditioned upon a change of control or asset disposition pursuant
to provisions substantially similar to those described in the
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sections below entitled "-- Change of control triggering event" and
"-- Limitation on asset dispositions";
(5) Debt outstanding on the date of the indenture;
(6) Debt owed by WCG to any Restricted Subsidiary of WCG or Debt owed
by a Restricted Subsidiary of WCG to WCG or a Restricted Subsidiary of WCG;
provided, however, that
- upon any subsequent transfer, conveyance or other disposition by any
such Restricted Subsidiary or WCG of any Debt so permitted to a Person
other than WCG or another Restricted Subsidiary of WCG or
- if for any reason such Restricted Subsidiary ceases to be a Restricted
Subsidiary,
the provisions of this clause (6) shall no longer be applicable to such
Debt and such Debt shall be deemed to have been Incurred by the issuer
thereof at the time of such transfer, conveyance or other disposition or
when such Restricted Subsidiary ceases to be a Restricted Subsidiary;
(7) Debt Incurred 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 was not Incurred with, or in anticipation of,
such transaction or such Person becoming a Restricted Subsidiary.
(8) Debt Incurred to renew, extend, refinance, defease, repay,
replace, prepay, repurchase, redeem, retire, exchange or refund (each, a
"refinancing") Debt Incurred pursuant to clause (1), (2), (3), (5), (7),
(12) or (13) of this paragraph (b) or this clause (8), in an aggregate
principal amount, or if issued at a discount, the then Accreted Value, not
to exceed the aggregate principal amount, or if issued at a discount, the
then Accreted Value, of and accrued interest on the Debt so refinanced plus
the amount of any premium, accrued interest, prepayment penalties, fees and
expenses required to be paid with such refinancing pursuant to the terms of
the Debt so refinanced or the amount of any premium or accrued interest
reasonably determined by the board of directors of WCG as necessary to
accomplish such refinancing by means of a redemption, tender offer or
privately negotiated repurchase plus the amount of fees and expenses
incurred with such redemption, tender offer or privately negotiated
repurchase; provided, however, that
- the refinancing Debt shall not be senior in right of payment to the
Debt that is being refinanced and
- in the case of any refinancing of Debt Incurred pursuant to clause
(1), (5), (7) or (12), or, if such Debt previously refinanced Debt
Incurred pursuant to any such clause, this clause (8), the refinancing
Debt by its terms, or by the terms of any agreement or instrument
pursuant to which such Debt is issued,
(x) does not provide for payments of principal of such Debt at
stated maturity or by way of a sinking fund applicable to the payment of
such Debt or by way of any mandatory redemption, defeasance, retirement
or repurchase thereof by WCG, including any redemption, retirement or
repurchase which is contingent upon events or
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circumstances, but excluding any retirement required by virtue of the
acceleration of any payment with respect to such Debt upon any event of
default under such Debt, 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 WCG, of such Debt at the option
of the holder of such Debt prior to the time the same are required by
the terms of the Debt being refinanced,
other than, in the case of clause (x) or (y), any such payment, redemption
or other retirement, including pursuant to an offer to purchase made by
WCG, which is conditioned upon a change of control or asset sale pursuant
to provisions substantially similar to those described in the sections
below entitled "-- Change of control triggering event" and "-- Limitation
on asset dispositions";
provided further that the above clauses (x) and (y) and the limitation on
the aggregate principal amount referred to above in this clause (8) shall
not apply to any refinancing of all of the notes then outstanding;
(9) Debt
(A) in respect of performance, surety or appeal bonds, Guarantees,
letters of credit or reimbursement obligations Incurred or provided in
the ordinary course of business securing the performance of contractual,
franchise, lease, self-insurance or license obligations and not in
connection with the Incurrence of Debt, or
(B) in respect of customary agreements providing for
indemnification, adjustment of purchase price after closing, or similar
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any such obligations of WCG or any of its
Restricted Subsidiaries pursuant to such agreements, Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary of WCG (other than Guarantees of Debt Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary of WCG for the purpose of financing such acquisition) and in
an aggregate principal amount not to exceed the gross proceeds actually
received by WCG or any Restricted Subsidiary in connection with such
disposition;
(10) Debt consisting of Permitted Interest Rate or Currency Protection
Agreements;
(11) Debt secured by Receivables originated by WCG or any Restricted
Subsidiary and related assets; provided that such Debt is nonrecourse to
WCG and any of its other Restricted Subsidiaries; provided further, that
Receivables shall not be available at any time to secure Debt under this
clause (11) to the extent that they are used as the basis for the
Incurrence of Debt pursuant to clause (2)(y) of this paragraph (b);
(12) Debt Incurred after the date of the indenture pursuant to the
Williams note, including Debt Incurred in lieu of payments under the
Williams Intercompany Arrangements and any accrual of interest that is
capitalized under, or added to the principal amount of, the Williams note;
provided that the aggregate amount of such Debt Incurred in lieu of
payments under the Williams Intercompany Arrangements, other than in
respect of any such accrual of interest, in reliance on this clause (12)
does not exceed $25 million in any 12-month period;
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(13) Debt Incurred pursuant to the lease, dated as of September 2,
1998, between 1998 WCI Trust, as lessor, and Williams Communications, Inc.,
as lessee, in an aggregate principal amount not to exceed $750 million at
any one time outstanding; and
(14) Debt not otherwise permitted to be Incurred pursuant to clauses
(1) through (13) above, which, together with any other outstanding Debt
Incurred pursuant to this clause (14), has an aggregate principal amount
not in excess of $50 million at any time outstanding.
Notwithstanding any other provision of the covenant on limitation on
consolidated debt, the maximum amount of Debt that WCG or a Restricted
Subsidiary may Incur pursuant to this covenant will not be exceeded solely as a
result of fluctuations in the exchange rates of currencies.
For purposes of determining any particular amount of Debt under this
limitation on consolidated debt covenant:
- Guarantees, Liens or obligations with respect to letters of credit
supporting Debt otherwise included in the determination of such
particular amount shall not be included; and
- any Liens granted for the benefit of the notes pursuant to the equal and
ratable provisions referred to in the covenant described in the section
below entitled "-- Limitation on liens" and Liens granted for the benefit
of the existing notes pursuant to the equal and ratable provisions of the
1999 indenture shall not be treated as Debt.
For purposes of determining compliance with this limitation on consolidated
debt covenant, if an item of Debt meets the criteria of more than one of the
types of Debt described in the above clauses, WCG, in its sole discretion, may
classify such item of Debt and only be required to include the amount and type
of such Debt in one of such clauses, but also may classify a portion of such
item of Debt in more than one of such clauses and in any order WCG so chooses.
Limitation on debt of restricted subsidiaries. WCG may not permit any
Restricted Subsidiary that is not a Guarantor to Incur any Debt except any and
all of the following, each of which shall be given independent effect:
(1) Domestic Restricted Subsidiary Guarantees;
(2) Debt outstanding on the date of the indenture;
(3) Debt of Restricted Subsidiaries under Credit Facilities permitted
to be Incurred pursuant to clause (2) of paragraph (b) of the section above
entitled "-- Limitation on consolidated debt";
(4) Purchase Money Debt of Restricted Subsidiaries permitted to be
Incurred pursuant to clause (3) of paragraph (b) of the section above
entitled "-- Limitation on consolidated debt";
(5) Debt owed by a Restricted Subsidiary to WCG or a Restricted
Subsidiary of WCG permitted to be Incurred pursuant to clause (6) of
paragraph (b) of the section above entitled "-- Limitation on consolidated
debt";
(6) Debt of Restricted Subsidiaries consisting of Permitted Interest
Rate or Currency Protection Agreements permitted to be Incurred pursuant to
clause (10) of paragraph (b) of the section above entitled "-- Limitation
on consolidated debt";
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(7) Debt of Restricted Subsidiaries permitted to be Incurred under
clause (7) of paragraph (b) of the section above entitled "-- Limitation on
consolidated debt";
(8) Debt of Restricted Subsidiaries permitted to be Incurred under
clause (9) or (14) of paragraph (b) of the section above entitled
"-- Limitation on consolidated debt";
(9) Debt of Restricted Subsidiaries secured by Receivables originated
by WCG or any Restricted Subsidiary and related assets permitted to be
Incurred under clause (11) of paragraph (b) of the section above entitled
"-- Limitation on consolidated debt";
(10) Debt permitted to be Incurred pursuant to clause (12) of
paragraph (b) of the section above entitled "-- Limitation on consolidated
debt";
(11) Debt Incurred pursuant to the lease, dated as of September 2,
1998, between 1998 WCI Trust, as lessor, and Williams Communications, Inc.,
as lessee, in an aggregate principal amount not to exceed $750 million at
any one time outstanding; and
(12) Debt which is Incurred to refinance any Debt of a Restricted
Subsidiary permitted to be Incurred pursuant to clauses (1), (2), (3), (4),
(7), (10) or (11) of this paragraph or this clause (12), in an aggregate
principal amount (or if issued at a discount, the then Accreted Value) not
to exceed the aggregate principal amount (or if issued at a discount, the
then Accreted Value) of the Debt so refinanced, plus the amount of any
premium, prepayment penalties, accrued interest, fees and expenses required
to be paid for such refinancing pursuant to the terms of the Debt so
refinanced or the amount of any premium or accrued interest reasonably
determined by the board of directors of WCG as necessary to accomplish such
refinancing by means of a redemption, tender offer or privately negotiated
repurchase, plus the amount of fees and expenses of WCG and the applicable
Restricted Subsidiary Incurred with such refinancing; provided, however,
that, in the case of any refinancing of Debt Incurred pursuant to clause
(1), (2) or (7) of this paragraph or, if such Debt previously refinanced
Debt Incurred pursuant to any such clause, this clause (12), 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 at the stated
maturity of such Debt or by way of a sinking fund applicable to such
Debt or by way of any mandatory redemption, defeasance, retirement or
repurchase of such Debt by WCG 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
being refinanced and
(y) does not permit redemption or other retirement, including
pursuant to an offer to purchase made by WCG or a Restricted Subsidiary,
of such Debt at the option of the holder of such Debt prior to the
stated maturity of the Debt being refinanced,
other than, in the case of clause (x) or (y), any such payment, redemption
or other retirement, including pursuant to an offer to purchase made by WCG
or a Restricted Subsidiary, which is conditioned upon the change of control
or asset sale of WCG pursuant to provisions substantially similar to those
contained in the indenture which are described in the sections below
entitled "-- Change of control triggering event" and "-- Limitation on
asset dispositions";
provided further that the above clauses (x) and (y) and the limitation on
the aggregate principal amount referred to above in this clause (12) shall
not apply to any refinancing of all of the notes then outstanding.
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Notwithstanding any other provision of the limitation on debt of restricted
subsidiaries covenant, the maximum amount of Debt that a Restricted Subsidiary
may Incur pursuant to this covenant will not be exceeded solely as a result of
fluctuations in the exchange rates of currencies.
For purposes of determining any particular amount of Debt under this
limitation on Debt of Restricted Subsidiaries covenant, Guarantees, Liens or
obligations with respect to letters of credit supporting Debt otherwise included
in the determination of such particular amount shall not be included. For
purposes of determining compliance with this limitation on Debt of Restricted
Subsidiaries covenant, if an item of Debt meets the criteria of more than one of
the types of Debt described in the above clauses, WCG, in its sole discretion,
may classify such item of Debt and only be required to include the amount and
type of such Debt in one of such clauses, but also may classify a portion of
such item of Debt in more than one of such clauses and in any order WCG so
chooses.
Limitation on issuances of guarantees by, and debt securities of, domestic
restricted subsidiaries. WCG will not permit any of its Domestic Restricted
Subsidiaries, directly or indirectly, to issue or Guarantee any Debt Securities,
unless such Domestic Restricted Subsidiary simultaneously executes and delivers
a supplemental indenture to the indenture providing for the Guarantee of the
payment of the notes by such Domestic Restricted Subsidiary, which Guarantee
shall be senior to or rank equally with such Debt Securities.
Any such Guarantee by a Domestic Restricted Subsidiary of the notes shall
provide by its terms that it shall be automatically and unconditionally released
and discharged upon a sale or other disposition, by way of merger or otherwise,
to any Person not an Affiliate of WCG, of WCG's equity interest in, or the
assets of, such Domestic Restricted Subsidiary, which sale or other disposition
results in such Domestic Restricted Subsidiary ceasing to be a Domestic
Restricted Subsidiary and such sale or other disposition is made in compliance
with, and the Net Available Proceeds therefrom are applied in accordance with,
the applicable provisions of the indenture.
The foregoing provisions will not be applicable to:
- Guarantees of Debt Securities of a Person by its subsidiaries in effect
prior to the time such Person is merged with or into or became a Domestic
Restricted Subsidiary; provided that such Guarantees do not extend to any
other Debt Securities of such Person or any other Person; and
- any one or more Guarantees of up to $100 million in aggregate principal
amount of Debt Securities of WCG or any Domestic Restricted Subsidiary at
any time outstanding.
Limitation on restricted payments. (a) WCG:
(1) may not, and may not permit any Restricted Subsidiary to, directly
or indirectly, declare or pay any dividend, or make any distribution, in
respect of its Capital Stock or to the holders of its Capital Stock,
excluding any dividends or distributions which are made solely to WCG or a
Restricted Subsidiary (and, if the Restricted Subsidiary declaring, paying
or making any such dividend or distribution is not a Wholly Owned
Subsidiary, to the other stockholders or equity owners of such Restricted
Subsidiary on a pro rata basis or on a basis that results in the receipt by
WCG or a Restricted Subsidiary of dividends or distributions of greater
value than it would receive on a pro rata basis) or any dividends or
distributions payable solely in shares of Capital Stock of WCG, other than
Disqualified Stock, or in options, warrants or other rights to acquire
Capital Stock of WCG, other than Disqualified Stock;
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(2) may not, and may not permit any Restricted Subsidiary to,
purchase, redeem, or otherwise retire or acquire for value
- any Capital Stock of WCG or any Restricted Subsidiary of WCG or
- any options, warrants or rights to purchase or acquire shares of
Capital Stock of WCG or any Restricted Subsidiary or any securities
convertible into or exchangeable for shares of Capital Stock of WCG or
any Restricted Subsidiary,
except, in any such case, any such purchase, redemption or retirement or
acquisition for value
- paid to WCG 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, to the other stockholders or equity owners of such
Restricted Subsidiary on a pro rata basis or on a basis that results
in the receipt by WCG or a Restricted Subsidiary of payments of
greater value than it would receive on a pro rata basis), or
- paid solely in shares of Capital Stock, other than Disqualified Stock,
of WCG;
(3) may not make, or permit any Restricted Subsidiary to make, any
Investment, other than an Investment in WCG or a Restricted Subsidiary or a
Permitted Investment, in any other Person, including the Designation of any
Restricted Subsidiary as an Unrestricted Subsidiary, or the Revocation of
any such Designation, according to the covenant described in the section
below entitled "-- Limitation on designations of unrestricted
subsidiaries";
(4) 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 WCG
which is subordinate in right of payment to the notes (other than any
redemption, defeasance, repurchase, retirement or other acquisition or
retirement for value made in anticipation of satisfying a scheduled
maturity, repayment or sinking fund obligation due within one year
thereof); and
(5) may not, and may not permit any Restricted Subsidiary to, issue,
transfer, convey, sell or otherwise dispose of Capital Stock of any
Restricted Subsidiary to a Person other than WCG or another Restricted
Subsidiary if the result thereof is that such Restricted Subsidiary shall
cease to be a Restricted Subsidiary, in which event the amount of such
"Restricted Payment" shall be the Fair Market Value of the remaining
interest, if any, in such former Restricted Subsidiary held by WCG and the
other Restricted Subsidiaries;
each of clauses (1) through (5) being a "Restricted Payment," if:
(A) 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
(B) upon giving effect to such Restricted Payment, WCG could not
Incur at least $1.00 of additional Debt pursuant to the terms of the
indenture described in paragraph (a) of the section above entitled
"-- Limitation on consolidated debt"; or
(C) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments made on or after October 6, 1999, plus Permitted
Investments made on or after October 6, 1999 pursuant to clause (i) or
(n) of the definition thereof, other than any such Permitted Investments
that are Permitted Investments in WCG or any Restricted Subsidiary (the
amount of any such Restricted Payment or Permitted
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Investment, if made other than in cash, to be based upon Fair Market
Value), exceeds the sum of:
- 50% of cumulative Consolidated Net Income (or, if Consolidated Net
Income is negative, 100% of such negative amount) since March 31,
2000, through the last day of the last full fiscal quarter for
which consolidated financial statements are available;
- in the case of any Revocation made after October 6, 1999, an
amount equal to the lesser of the portion (proportionate to WCG's
direct or indirect equity interest in the Subsidiary to which such
Revocation relates) of the Fair Market Value of the net assets of
such Subsidiary at the time of Revocation and the amount of
Investments previously made (and treated as a Restricted Payment)
by WCG or any Restricted Subsidiary in such Subsidiary; and
- the aggregate amount of Returned Investments since October 6, 1999
and on or prior to the date of such Restricted Payment;
provided, however, that WCG or a Restricted Subsidiary of WCG may, without
regard to the limitations in clause (C) but subject to clauses (A) and (B)
above, make Restricted Payments in an aggregate amount not to exceed the sum of
$50 million and the aggregate net cash proceeds received after October 6, 1999:
(1) as capital contributions to WCG, or proceeds from the issuance,
other than to a Subsidiary, of Capital Stock, other than
Disqualified Stock, of WCG and options, warrants or rights to
purchase or acquire shares of Capital Stock, other than
Disqualified Stock, of WCG; and
(2) from the issuance or sale of Debt of WCG or any Restricted
Subsidiary, other than to a Subsidiary, WCG or a Plan, that
after October 6, 1999 has been converted into or exchanged for
Capital Stock, other than Disqualified Stock, of WCG;
provided further that, in the case of the issuance of Capital Stock of WCG
to any Plan, if such Plan Incurs any Debt for the purpose of purchasing
such Capital Stock, the aggregate net cash proceeds from such issuance
shall be included for purposes of the above proviso only to the extent of
any increase in the Consolidated Net Worth of WCG resulting from principal
repayments made with respect to the Debt Incurred to finance the purchase
of such Capital Stock.
The aggregate net cash proceeds referred to in the immediately
preceding clauses (1) and (2) shall not be utilized to make Restricted
Payments pursuant to such clauses to the extent such proceeds have been
utilized to make Permitted Investments under clause (i) of the definition
of "Permitted Investments."
(b) The restrictions in paragraph (a) do not prevent the following:
(1) WCG or any Restricted Subsidiary may pay any dividend on Capital
Stock of any class of WCG or such Restricted Subsidiary within 60 days
after the declaration of such dividend if, on the date when the dividend
was declared, WCG or such Restricted Subsidiary, as the case may be, could
have paid such dividend in accordance with the above provisions; provided,
however, that at the time of such payment of such dividend, no other Event
of Default shall have occurred and be continuing, or result from, the
payment of such dividend;
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(2) WCG or any Restricted Subsidiary may repurchase, redeem, acquire,
cancel or otherwise retire for value any shares of its Common Stock or
options to acquire its Common Stock from Persons who are currently or were
formerly directors, officers or employees of WCG or any of its Subsidiaries
or other Affiliates, or their estates or beneficiaries under their estates,
or from any Plan, upon death, disability, retirement or termination of
employment in an amount not to exceed $3 million in any 12-month period;
(3) WCG and any Restricted Subsidiary may refinance any Debt otherwise
permitted by clause (8) of paragraph (b) in the section above entitled
"-- Limitation on consolidated debt" or clause (12) in the section above
entitled "-- Limitation on debt of restricted subsidiaries";
(4) WCG and any Restricted Subsidiary may retire or repurchase any
Capital Stock of WCG or of any Restricted Subsidiary or any Subordinated
Debt of WCG in exchange for, or out of the proceeds of the substantially
concurrent sale, other than to a Subsidiary of WCG or any Plan, of, Capital
Stock, other than Disqualified Stock, of WCG; provided that the proceeds
from any such exchange or sale of Capital Stock shall be excluded from any
calculation pursuant to clause (b) of the definition of "Invested Capital";
(5) WCG or any Restricted Subsidiary may purchase shares of Capital
Stock of WCG or any Restricted Subsidiary of WCG for the purpose of
contributing such shares to any Plan; provided that all such purchases
referred to in this clause (5) may not exceed $10 million in any 12-month
period;
(6) WCG or any Restricted Subsidiary may purchase all, but not less
than all, excluding directors' qualifying shares, of the Capital Stock or
other ownership interests in a Subsidiary of WCG which Capital Stock or
other ownership interests were not until that time owned by WCG or a
Subsidiary of WCG such that after giving effect to such purchase such
Subsidiary becomes a Wholly Owned Subsidiary of WCG;
(7) WCG or any Restricted Subsidiary may redeem, defease, repurchase,
retire or acquire for value any Subordinated Debt upon a Change of Control
or Asset Disposition to the extent required by the indenture or other
agreement pursuant to which such Subordinated Debt was issued, but only if
WCG has first complied with its obligations under the sections below
entitled "-- Change of control triggering event" and "-- Limitation on
asset dispositions"; and
(8) WCG or any Restricted Subsidiary may make distributions to the
stockholders or equity owners of Restricted Subsidiaries that are
partnerships, limited liability companies that are treated as partnerships
for U.S. tax purposes or other similar pass-through entities in order to
reimburse or compensate such other stockholders or equity owners for income
taxes attributable to the operations of such Restricted Subsidiaries as
required by the formation agreement, operating agreement or partnership
agreement or similar governing document of the Restricted Subsidiary.
The Restricted Payments described in the foregoing clauses (1), (2), (5),
(6), and (7) shall be included in the calculation of Restricted Payments; the
Restricted Payments described in clauses (3), (4) and (8) shall be excluded in
the calculation of Restricted Payments.
Limitation on dividend and other payment restrictions affecting restricted
subsidiaries. (a) WCG may not, and may not permit any Restricted Subsidiary to,
directly or indirectly,
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create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction, other than pursuant to law or regulation, on the
ability of any Restricted Subsidiary:
(1) to pay dividends in cash or otherwise, or make any other
distributions in respect of its Capital Stock owned by WCG or any other
Restricted Subsidiary or pay any Debt or other obligation owed to WCG or
any other Restricted Subsidiary;
(2) to make loans or advances to WCG or any other Restricted
Subsidiary; or
(3) to transfer any of its Property to WCG or any other Restricted
Subsidiary.
(b) Despite the above limitation, WCG may, and may permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist:
(1) any encumbrance or restriction pursuant to any agreement in effect
on the date of the indenture or pursuant to WCG's current credit facility,
or, in each case, encumbrances or restrictions that are substantially
similar taken as a whole;
(2) any customary (as conclusively determined in good faith by the
Chief Financial Officer of WCG) 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 such encumbrances and restrictions do
not prohibit the distribution of funds to WCG in an amount sufficient for
WCG to make the timely payment of interest, premium, if any, and principal
(whether at stated maturity, by way of a sinking fund applicable thereto,
by way of any mandatory redemption, defeasance, retirement or repurchase
thereof, including upon the occurrence of designated events or
circumstances or by virtue of acceleration upon an event of default, or by
way of redemption or retirement at the option of the holder of the Debt,
including pursuant to offers to purchase) according to the terms of the
indenture and the notes and other Debt that is solely an obligation of WCG;
provided further that such agreement may nevertheless contain customary (as
so determined) net worth, restricted payment, leverage, interest coverage,
invested capital and other financial covenants, customary (as so
determined) covenants regarding the merger of or sale of all or any
substantial part of the assets of WCG or any Restricted Subsidiary,
customary (as so determined) restrictions on transactions with affiliates
and customary (as so determined) subordination provisions governing Debt
owed to WCG or any Restricted Subsidiary;
(3) any encumbrance or restriction 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;
(4) any encumbrance or restriction pursuant to an agreement effecting
a refinancing of Debt Incurred pursuant to an agreement referred to in
clause (1), (2) or (3) of this paragraph (b); provided, however, that the
provisions contained in such agreement relating to such encumbrance or
restriction are no more restrictive (as so determined) in any material
respect than the provisions contained in the agreement governing the Debt
being refinanced;
(5) in the case of clause (3) of paragraph (a) above, any encumbrance
or restriction contained in any security agreement (including a Capital
Lease Obligation) securing Debt of WCG 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;
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(6) in the case of clause (3) of paragraph (a) above, customary
provisions
- that restrict the subletting, assignment or transfer of any
Property that is the subject of a lease, license, conveyance or
similar contract,
- contained in asset sale or other asset disposition agreements
limiting the transfer of the Property being sold or disposed of
pending the closing of such sale or disposition or
- arising or agreed to in the ordinary course of business, not
relating to any Debt, and that do not, individually or in the
aggregate, detract from the value of Property of WCG or any
Restricted Subsidiary in any manner material to WCG or any
Restricted Subsidiary;
(7) any encumbrance or 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
Property of such Restricted Subsidiary; provided that the consummation of
such transaction would not result in a Default or an Event of Default, that
such restriction terminates if such transaction is abandoned and that the
consummation or abandonment of such transaction occurs within one year of
the date such agreement was entered into;
(8) any encumbrance or restriction pursuant to the indenture and the
notes (or encumbrances or restrictions that are substantially similar taken
as a whole); and
(9) Permitted Liens.
Limitation on liens. WCG may not, and may not permit any Restricted
Subsidiary to, directly or indirectly, Incur or suffer to exist any Lien on or
with respect to any Property now owned or acquired after the date of the
indenture to secure any Debt without making, or causing such Restricted
Subsidiary to make, effective provision for securing the notes
- equally and ratably with such Debt as to such Property for so long as
such Debt will be so secured or
- in the event such Debt is Debt of WCG or a Guarantor which is subordinate
in right of payment to the notes or the applicable Domestic Restricted
Subsidiary Guarantee, prior to such Debt as to such Property for so long
as such Debt will be so secured.
These restrictions shall not apply to:
(1) Liens existing on the date of the indenture;
(2) Liens Incurred on or after the date of the indenture pursuant to
any Credit Facility to secure Debt permitted to be Incurred pursuant to
clause (2) of paragraph (b) of the section above entitled "-- Limitation on
consolidated debt";
(3) Liens securing Debt in an amount which, together with the
aggregate amount of Debt then outstanding or available under all Credit
Facilities (together with all refinancing Debt then outstanding or
available pursuant to clause (8) of paragraph (b) of the section above
entitled "-- Limitation on consolidated debt" in respect of Debt previously
Incurred under Credit Facilities), does not exceed 1.5 times WCG's
Consolidated Cash Flow Available for Fixed Charges for the four full fiscal
quarters preceding the Incurrence of such Lien for which WCG's consolidated
financial statements are available, determined on a pro forma basis as if
such Debt had been Incurred and the proceeds thereof had been applied at
the beginning of such four fiscal quarters;
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(4) Liens in favor of WCG or any Restricted Subsidiary; provided,
however, that any subsequent issue or transfer of Capital Stock or other
event that results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of the Debt secured by any
such Lien, except to WCG or a Restricted Subsidiary, shall be deemed, in
each case, to constitute the Incurrence of such Lien by the issuer thereof;
(5) Liens to secure Purchase Money Debt permitted to be Incurred
pursuant to clause (3) of paragraph (b) of the section above entitled
"-- Limitation on consolidated debt"; provided that any such Lien may not
extend to any Property other than the Telecommunications Assets installed,
constructed, acquired, leased, developed or improved with the proceeds of
such Purchase Money Debt and any improvements or accessions thereto (it
being understood that all Debt to any single lender or group of related
lenders or outstanding under any single credit facility, and in any case
relating to the same group or collection of Telecommunications Assets
financed thereby, shall be considered a single Purchase Money Debt, whether
drawn at one time or from time to time);
(6) Liens to secure Acquired Debt; provided that
- such Lien attaches to the acquired Property prior to the time of the
acquisition of such Property and
- such Lien does not extend to or cover any other Property;
(7) Liens to secure Debt permitted to be Incurred pursuant to clause
(13) of paragraph (b) of the section above entitled "-- Limitation on
consolidated debt";
(8) Liens to secure Debt Incurred to refinance, in whole or in part,
Debt secured by any Lien referred to in the foregoing clauses (1), (2),
(5), (6) and (7) or this clause (8) so long as such Lien does not extend to
any other Property (other than improvements and accessions to the original
Property) and the principal amount of Debt so secured is not increased
except as otherwise permitted under clause (8) of paragraph (b) of the
section above entitled "-- Limitation on consolidated debt" or clause (12)
of the section above entitled "-- Limitation on debt of restricted
subsidiaries";
(9) Liens to secure Debt consisting of Permitted Interest Rate and
Currency Protection Agreements permitted to be Incurred pursuant to clause
(10) of paragraph (b) of the section above entitled "-- Limitation on
consolidated debt";
(10) Liens to secure Debt secured by Receivables permitted to be
Incurred pursuant to clause (11) of paragraph (b) of the section above
entitled "-- Limitation on consolidated debt";
(11) Liens granted after the date of the indenture to secure the
notes;
(12) Permitted Liens; and
(13) Liens not otherwise permitted by the foregoing clauses (1)
through (12) that, at the time of Incurrence thereof, taken together with
all other Liens Incurred after the date of the indenture in reliance on
this clause (13) and which remain in existence, secure Debt in an aggregate
principal amount not to exceed 5% of WCG's Consolidated Tangible Assets as
of the most recent balance sheet date as of which WCG's consolidated
balance sheet is available.
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Limitation on sale and leaseback transactions. WCG 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, unless:
(1) WCG or such Restricted Subsidiary would be entitled to Incur
- Debt in an amount equal to the Attributable Value of the Sale and
Leaseback Transaction pursuant to the covenant described in the
section above entitled "-- Limitation on consolidated debt" and
- a Lien pursuant to the covenant described in the section above
entitled "-- Limitation on liens," equal in amount to the Attributable
Value of the Sale and Leaseback Transaction, without also securing the
notes; and
(2) the Sale and Leaseback Transaction is treated as an Asset
Disposition and all of the conditions of the indenture described in the
section below entitled "-- Limitation on asset dispositions" (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. WCG may not, and may not permit any
Restricted Subsidiary to, make any Asset Disposition unless:
(1) WCG or the Restricted Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the Fair Market Value
for the Property sold or disposed of; and
(2) at least 75% of the consideration for such disposition consists of
cash or Cash Equivalents or the assumption of Debt of WCG or any Restricted
Subsidiary (other than Debt that is subordinated to the notes or any
Domestic Restricted Subsidiary Guarantee) and release of WCG and all
Restricted Subsidiaries from all liability on the Debt assumed (or if less
than 75%, the remainder of such consideration consists of
Telecommunications Assets).
The Net Available Proceeds or any portion thereof from Asset Dispositions
may be applied by WCG or a Restricted Subsidiary, to the extent WCG or such
Restricted Subsidiary elects or is required by the terms of any Debt:
- to the permanent repayment or reduction of Debt then outstanding under
any Credit Facility, to the extent such Credit Facility would require
such application or prohibit payments pursuant to the offer to purchase
the notes in accordance with the indenture described in the following
paragraph (other than Debt owed to WCG or any Affiliate of WCG); or
- to reinvest in Telecommunications Assets (including by means of an
Investment in Telecommunications Assets by a Restricted Subsidiary with
Net Available Proceeds received by WCG or another Restricted Subsidiary).
Any Net Available Proceeds from an Asset Disposition not applied in
accordance with the preceding paragraph within 360 days from the date of the
receipt of such Net Available Proceeds shall constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $10 million, WCG will be
required to make an offer to purchase, in accordance with the
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indenture, with such Excess Proceeds, on a pro rata basis according to principal
amount, or, in the case of Debt issued at a discount, the then Accreted Value,
for
(x) outstanding notes at a price in cash equal to 100% of the
principal amount of the notes on the purchase date plus accrued and unpaid
interest, if any, on the notes, subject to the right of holders of record
on the relevant record date to receive interest due on the relevant
interest payment date; and
(y) any other Debt of WCG or any Guarantor that ranks equally with the
notes, or any Debt of a Restricted Subsidiary that is not a Guarantor, at a
price no greater than 100% of the principal amount of such Debt plus
accrued and unpaid interest, if any, to the purchase date, or 100% of the
then Accreted Value plus accrued and unpaid interest, if any, to the
purchase date in the case of original issue discount Debt, to the extent,
in the case of this clause (y), required under the terms of such Debt
(other than Debt owed to WCG or any Affiliate of WCG).
To the extent there are any remaining Excess Proceeds following the
completion of the offer to purchase the notes in accordance with the indenture,
WCG shall apply such Excess Proceeds to the repayment of other Debt of WCG or
any Restricted Subsidiary, to the extent permitted or required under the terms
of such other Debt. Any other remaining Excess Proceeds may be applied to any
use as determined by WCG which is not otherwise prohibited by the indenture, and
the amount of Excess Proceeds shall be reset to zero.
Limitation on issuances and sales of capital stock of restricted
subsidiaries. WCG 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 WCG or a Restricted
Subsidiary except:
(1) a sale of all of the Capital Stock of a Restricted Subsidiary
owned by WCG and any Restricted Subsidiary that complies with the
provisions described in the section above entitled "-- Limitation on asset
dispositions" to the extent such provisions apply;
(2) in a transaction that results in such Restricted Subsidiary
becoming a Joint Venture; provided
- such transaction complies with the provisions described in the section
above entitled "-- Limitation on asset dispositions" to the extent
such provisions apply and
- the remaining interest of WCG or any other Restricted Subsidiary in
such Joint Venture would have been permitted as a new Restricted
Payment or Permitted Investment under the provisions of the section
above entitled "-- Limitation on restricted payments";
(3) the issuance, transfer, conveyance, sale or other disposition of
shares of a Restricted Subsidiary so long as after giving effect to such
transaction such Restricted Subsidiary remains a Restricted Subsidiary and
such transaction complies with the provisions described in the section
above entitled "-- Limitation on asset dispositions" to the extent such
provisions apply;
(4) the transfer, conveyance, sale or other disposition of shares
required by applicable law or regulation;
(5) if required, the issuance, transfer, conveyance, sale or other
disposition of directors' qualifying shares;
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(6) Disqualified Stock issued in exchange for, or upon conversion of,
or the proceeds of the issuance of which are used to redeem, replace,
refund or refinance, 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, replaced, refunded or refinanced;
(7) in a transaction where WCG or a Restricted Subsidiary acquires at
the same time not less than its Proportionate Interest in such issuance of
Capital Stock;
(8) Capital Stock issued and outstanding on the date of the indenture;
(9) Capital Stock of a Restricted Subsidiary issued and outstanding
prior to the time that such Person becomes a Restricted Subsidiary so long
as such Capital Stock was not issued in contemplation of such Person's
becoming a Restricted Subsidiary or otherwise being acquired by WCG; and
(10) an issuance of Preferred Stock of a Restricted Subsidiary (other
than Preferred Stock convertible or exchangeable into Common Stock of any
Restricted Subsidiary) otherwise permitted by the indenture.
Transactions with affiliates. WCG will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, sell, lease, transfer, or
otherwise dispose of any of its Property to, or purchase any Property from, or
enter into any contract, agreement, understanding, loan, advance, Guarantee or
transaction, including the rendering of services, with or for the benefit of,
any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless:
(a) such Affiliate Transaction or series of Affiliate Transactions is
in the best interest of WCG or such Restricted Subsidiary and on terms that
are fair and reasonable to, and in the best interests of, WCG or the
Restricted Subsidiary, as the case may be; and
(b) WCG delivers to the trustee
- with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate payments in excess of $10
million but less than $15 million, a certificate of the chief
executive, operating or financial officer of WCG evidencing such
officer's determination that such Affiliate Transaction or series of
Affiliate Transactions complies with clause (a) above, and
- with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate payments equal to or in
excess of $15 million, a board resolution certifying that such
Affiliate Transaction or series of Affiliate Transactions complies
with clause (a) above and that such Affiliate Transaction or series of
Affiliate Transactions has been approved by the board of directors of
WCG, including a majority of the disinterested members of the board of
directors of WCG; provided that, if there shall not be at least two
disinterested members of the board of directors of WCG with respect to
the Affiliate Transaction, WCG shall, in addition to such board
resolution, file with the trustee a written opinion from an investment
banking firm of national standing in the United States which, in the
good faith judgment of the board of directors of WCG, is independent
with respect to WCG and its Affiliates and qualified to perform such
task, which opinion shall be to the effect that the consideration to
be paid or received in connection with such Affiliate Transaction is
fair, from a financial point of view, to WCG or such Restricted
Subsidiary.
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Despite paragraphs (a) and (b) above, the following shall not be deemed
Affiliate Transactions:
(1) any employment agreement entered into by WCG or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with industry practice;
(2) any agreement or arrangement with respect to the compensation of a
director or officer of WCG or any Restricted Subsidiary approved by a
majority of the board of directors of WCG and consistent with industry
practice;
(3) transactions between or among WCG and its Restricted Subsidiaries;
provided that no more than 10% of the Voting Stock on a fully diluted basis
of any such Restricted Subsidiary is owned by an Affiliate of WCG (other
than a Restricted Subsidiary);
(4) Restricted Payments and Permitted Investments permitted by the
covenant described in the section above entitled "-- Limitation on
restricted payments" (other than Investments in Affiliates that are not WCG
or Restricted Subsidiaries);
(5) transactions pursuant to the terms of or performance of any
agreement or arrangement as in effect on the date of the indenture;
(6) transactions pursuant to and any payments under, compliance with,
or performance of obligations under, the Williams Intercompany
Arrangements;
(7) transactions with respect to wireline or wireless transmission
capacity, the lease or sharing or other use of cable or fiber-optic lines,
equipment, rights of way or other access rights, between WCG, or any
Restricted Subsidiary, and any other Person; provided that, in the case of
this clause (7), such transaction complies with paragraph (a) above;
(8) loans, advances or extensions of credit to employees, officers and
directors of WCG or any Restricted Subsidiary made in the ordinary course
of business and consistent with past practice or in connection with
employee benefits agreements or arrangements approved by the board of
directors of WCG; provided, however, that if WCG or any Restricted
Subsidiary makes loans, advances or extensions of credit to employees,
officers and directors in excess of $3 million in the aggregate at any one
time outstanding, the board of directors of WCG must determine that such
loans, advances or extensions of credit in excess of $3 million are fair
and reasonable to, and in the best interests of, WCG or the Restricted
Subsidiary, as the case may be;
(9) the granting or performance of registration rights under any
written registration rights agreement approved by the board of directors of
WCG;
(10) transactions with Persons solely in their capacity as holders of
Debt or Capital Stock of WCG or any of its Subsidiaries, where such Persons
are treated no more favorably than holders of Debt or Capital Stock of WCG
generally;
(11) sales or issuances of Capital Stock, other than Disqualified
Stock, in exchange for cash, securities or Property; provided that such
transactions comply with paragraph (a) above; and
(12) any agreement to do any of the foregoing.
Change of control triggering event. Within 30 days of both a Change of
Control and a Rating Decline with respect to the notes (a "Change of Control
Triggering Event"), WCG will be required to make an offer to purchase all
outstanding notes in accordance with the indenture at a price in cash equal to
101% of the principal amount of the notes on the purchase date plus
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any accrued and unpaid interest, if any, to such purchase date, subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date.
"Change of Control" means the occurrence of any of the following events:
(A) if any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act or any successor provisions to either
of the foregoing), including any group acting for the purpose of acquiring,
holding, voting or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act, other than any one or more of the
Permitted Holders, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act, except that a person will be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of 35% or more of the total
voting power of the Voting Stock of WCG at a time when the Permitted
Holders are the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act, except that a person will be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, in the aggregate of a lesser percentage of
the total voting power of the Voting Stock of WCG than such other person or
group (for purposes of this clause (A), such person or group shall be
deemed to beneficially own any Voting Stock of a corporation held by any
other corporation so long as such person or group beneficially owns,
directly or indirectly, in the aggregate a majority of the total voting
power of the Voting Stock of such other corporation); or
(B) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of WCG and the Restricted Subsidiaries, considered as a whole (other than a
disposition of such assets as an entirety or virtually as an entirety to
one or more Permitted Holders) shall have occurred; or
(C) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of WCG
(together with any new directors whose election or appointment by such
board or whose nomination for election by the shareholders of WCG was
approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of WCG then in office; or
(D) the shareholders of WCG shall have approved any plan of
liquidation or dissolution of WCG.
If WCG makes an offer to purchase the notes in accordance with the
indenture, WCG 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. To the extent that the provisions of any
applicable securities laws or regulations conflict with the provisions relating
to the offer to purchase, WCG will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations
described above by virtue thereof.
The existence of the holders' right to require, subject to certain
conditions, WCG to repurchase notes upon a Change of Control Triggering Event
may deter a third party from acquiring WCG in a transaction that constitutes a
Change of Control. If an offer to purchase the notes in accordance with the
indenture is made, there can be no assurance that WCG will have sufficient funds
to pay the purchase price for all notes tendered by holders seeking to accept
the offer to purchase. In addition, instruments governing other Debt of WCG may
prohibit WCG
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from purchasing any notes prior to their Stated Maturity, including pursuant to
an offer to purchase the notes in accordance with the indenture, or require that
such Debt be repurchased upon a Change of Control.
If an offer to purchase the notes in accordance with the indenture occurs
at a time when WCG does not have sufficient available funds to pay the purchase
price for all notes tendered pursuant to such offer to purchase or a time when
WCG is prohibited from purchasing the notes, and WCG 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, transfer,
assignment, lease, conveyance or other disposition of all or substantially all
of the assets of WCG. 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 WCG 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 WCG was required to make an offer to purchase the notes in
accordance with the indenture.
Except as described herein with respect to a Change of Control, the
indenture does not contain any other provisions that permit holders of notes to
require that WCG repurchase or redeem notes in the event of a takeover,
recapitalization or similar restructuring.
Reports. Whether or not WCG is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, WCG shall file with the
Commission, unless the Commission will not accept such filing, the annual
reports, quarterly reports and other documents which WCG would have been
required to file with the Commission pursuant to such Section 13(a) or 15(d) or
any successor provision thereto if WCG were subject to such successor provision,
such documents to be filed with the Commission on or prior to the respective
dates by which WCG would have been required to file them.
WCG shall also in any event:
(a) within 15 days of each required filing date:
- transmit by mail to all holders, as their names and addresses appear in
the security register, without cost to such holders; and
- file with the trustee copies of the annual reports, quarterly reports and
other documents, without exhibits, which WCG would have been required to
file with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act or any successor provisions thereto if WCG were subject to
such successor provisions; and
(b) if filing such documents by WCG with the Commission is not permitted
under the Exchange Act, promptly upon written request, supply copies of such
documents, without exhibits, to any prospective holder.
Limitation on designations of unrestricted subsidiaries. The indenture
will provide that WCG will not designate any Subsidiary of WCG, 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;
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(b) immediately after giving effect to such Designation, WCG would be
able to Incur $1.00 of Debt under paragraph (a) of the section above
entitled "-- Limitation on consolidated debt"; and
(c) WCG 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 portion
(proportionate to WCG's equity interest in such Restricted Subsidiary) of
the Fair Market Value of the net assets of such Restricted Subsidiary on
such date.
In the event of any such Designation, WCG will be deemed to have made an
Investment in the Designation Amount constituting a Restricted Payment for all
purposes of the indenture; provided, however, that, upon a Revocation of any
such Designation of a Subsidiary, WCG shall be deemed to continue to have a
permanent Investment in an Unrestricted Subsidiary of an amount (if positive)
equal to
(1) WCG's Investment in such Subsidiary at the time of such Revocation
less
(2) the portion (proportionate to WCG's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such Subsidiary
at the time of such Revocation less
(3) any Returned Investment.
At the time of any Designation of any Subsidiary as an Unrestricted
Subsidiary, such Subsidiary shall not own any Capital Stock of WCG or any
Restricted Subsidiary.
The indenture will further provide that neither WCG 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 WCG 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 WCG
other than to obtain such pledged Capital Stock or Debt;
(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 of such Debt may (upon notice, lapse of time or both) declare a
default thereon or cause the payment thereof to be accelerated or payable
prior to its final scheduled maturity upon the occurrence of a default with
respect to any Debt, Lien or other obligation 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 the
covenants described in the sections above entitled "Limitation on restricted
payments" and "Transactions with affiliates."
Unless Designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of WCG will be classified as a Restricted Subsidiary; provided,
however, that such Subsidiary shall not be designated as a Restricted Subsidiary
and shall be automatically classified as an Unrestricted Subsidiary if either of
the requirements set forth in clauses (a) and (b) of the immediately following
paragraph will not be satisfied immediately following such classification.
Except as provided in the first sentence of this section, "-- Limitation on
designations of
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unrestricted subsidiaries," no Restricted Subsidiary may be redesignated as an
Unrestricted Subsidiary.
The indenture will further provide that a Designation may be revoked (a
"Revocation") by a resolution of the board of directors of WCG; provided that
WCG 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 WCG
- certifying compliance with the foregoing provisions;
- giving the effective date of such Designation or Revocation; and
- delivered to the trustee within 45 days after the end of the fiscal
quarter of WCG in which such Designation or Revocation is made (or, in
the case of a Designation or Revocation made during the last fiscal
quarter of WCG's fiscal year, within 90 days after the end of such fiscal
year).
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
WCG may not, in a single transaction or a series of related transactions,
(1) consolidate with or merge into any other Person or Persons or
permit any other Person to consolidate with or merge into WCG; or
(2) directly or indirectly, transfer, sell, lease, convey or otherwise
dispose of all or substantially all its assets to any other Person or
Persons,
unless:
(a) in a transaction in which WCG is not the resulting, surviving
or transferee Person or in which WCG transfers, sells, leases, conveys
or otherwise disposes of all or substantially all of its assets to any
other Person, the resulting, surviving or transferee Person is organized
under the laws of the United States of America or any State thereof or
the District of Columbia and expressly assumes, by supplemental
indentures executed and delivered to the trustee in form satisfactory to
the trustee, all of WCG's obligations under the indenture;
(b) immediately before and after giving effect to such transaction
and treating any Debt which becomes an obligation of WCG or a Restricted
Subsidiary as a result of such transaction as having been Incurred by
WCG 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 and
treating any Debt which becomes an obligation of WCG or a Restricted
Subsidiary as a result of such transaction as having been Incurred by
WCG, or the successor entity to WCG, or such Restricted Subsidiary at
the time of the transaction, WCG, or the successor entity to WCG, could
Incur at least $1.00 of additional Debt pursuant to the provisions of
the
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indenture described in paragraph (a) of the section above entitled
"Certain covenants -- Limitation on consolidated debt";
(d) if, as a result of any such transaction, Property of WCG or any
Restricted Subsidiary would become subject to a Lien prohibited by the
provisions of the indenture described in the section above entitled
"Certain covenants -- Limitation on liens," WCG or the successor entity
to WCG shall have secured the notes as required by said covenant; and
(e) in the case of a transfer, sale, lease, conveyance or other
disposition of all or substantially all of the assets of WCG, such
assets shall have been transferred as an entirety or virtually as an
entirety to one Person and such Person shall have complied with all the
provisions of this paragraph.
The resulting, surviving or transferee Person shall succeed to, and be
substituted for, and may exercise every right and power of, WCG under the
indenture, and the predecessor company, except in the case of a lease, shall be
released from all its obligations under the indenture. However,
(1) a consolidation or merger by WCG with or into, or
(2) the sale, assignment, transfer, lease, conveyance or other
disposition by WCG of all or substantially all of its property or assets
to,
one or more of its Subsidiaries shall not relieve WCG from its obligations under
the indenture or the notes.
In addition, WCG may merge or consolidate with or into any Restricted
Subsidiary so long as the merger or consolidation complies with clauses (a) and
(b) above.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
indenture and in this "Description of the Notes."
"Accreted Value" of any Debt issued at a price less than the principal
amount at stated maturity, means, as of any date of determination, an amount
equal to the sum of (a) the issue price of such Debt, as determined in
accordance with Section 1273 of the Code or any successor provisions, plus (b)
the aggregate of the portions of the original issue discount (the excess of the
amounts considered as part of the "stated redemption price" of such Debt within
the meaning of Section 1273(a)(2) of the Code or any successor provisions,
whether denominated as principal or interest, over the issue price of such Debt)
that shall until that time have accrued pursuant to Section 1272 of the Code
(without regard to Section 1272(a)(7) of the Code) from the date of issue of
such Debt to the date of determination, minus all amounts until that time paid
in respect of such Debt, which amounts are considered as part of the "stated
redemption price" of such Debt within the meaning of Section 1273(a)(2) of the
Code or any successor provisions (whether such amounts paid were denominated
principal or interest).
"Acquired Debt" means, with respect to any specified Person,
- 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
- Debt secured by a Lien encumbering any Property acquired by such
specified Person,
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which Debt was not incurred in connection with, or in anticipation of, such
merger, consolidation or acquisition or such Person becoming a Subsidiary of
such specified Person.
"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. For purposes of the
covenants described in the sections above entitled "-- Certain
covenants -- Transactions with affiliates" and "-- Limitation on asset
dispositions" and the definition of "Telecommunications Assets" only,
"Affiliate" shall also mean any beneficial owner of shares representing 10% or
more of the total voting power of the Voting Stock on a fully diluted basis of
WCG or of rights or warrants to purchase such Voting Stock, whether or not
currently exercisable, and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any transfer, conveyance, sale, lease, issuance
or other disposition by WCG or any Restricted Subsidiary in one or more related
transactions (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 WCG, but
excluding a disposition by a Restricted Subsidiary to WCG or a Restricted
Subsidiary or by WCG to a Restricted Subsidiary) of:
(1) shares of Capital Stock or other ownership interests of a
Restricted Subsidiary (other than as permitted by clause (5), (6), (7) or
(9) of the covenant described in the section above entitled "-- Certain
covenants -- Limitation on issuances and sales of capital stock of
restricted subsidiaries" and other than any transaction in which WCG or
such Restricted Subsidiary receives therefor one or more properties with a
Fair Market Value equal to the Fair Market Value of the Capital Stock
issued, sold or disposed of by WCG or the Restricted Subsidiary);
(2) real property;
(3) all or substantially all of the assets of WCG or any Restricted
Subsidiary representing a division or line of business; or
(4) other Property of WCG or any Restricted Subsidiary outside of the
ordinary course of business, excluding
- any transfer, conveyance, sale, lease or disposition of Property by
WCG or any Restricted Subsidiary for which WCG or any Restricted
Subsidiary receives capacity and
- any transfer, conveyance, sale, lease or other disposition of
equipment that in the good faith judgment of WCG is obsolete, damaged,
worn out or no longer used by or useful to WCG;
provided, in each case, that the aggregate consideration for such transfer,
conveyance, sale, lease or other disposition is equal to $5 million or more in
any 12-month period.
The following shall not be Asset Dispositions:
(1) Permitted Telecommunications Asset Dispositions that comply with
clause (1) of the first paragraph in the section above entitled "-- Certain
covenants -- Limitation on asset dispositions";
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(2) when used with respect to WCG, any Asset Disposition permitted
pursuant to the covenant described in the section above entitled
"-- Mergers, consolidations and certain sales of assets" which constitutes
a disposition of all or substantially all of the assets of WCG and the
Restricted Subsidiaries taken as a whole;
(3) Receivables sales constituting Debt under Qualified Receivable
Facilities permitted to be Incurred pursuant to the section above entitled
"-- Certain covenants -- Limitation on consolidated debt";
(4) sales, leases, conveyances, transfers or other dispositions to WCG
or to a Restricted Subsidiary or to any other Person if, after giving
effect to such sale, lease, conveyance, transfer or other disposition, such
other Person becomes a Restricted Subsidiary; and
(5) any disposition that results in a Permitted Investment (other than
pursuant to clause (f) or (i) of the definition of "Permitted Investment")
or a Restricted Payment permitted by the covenant described in the section
above entitled "-- Certain covenants -- Limitation on restricted payments."
"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 owed under such lease is to be determined, the total
net amount of rent required to be paid by such Person under such lease during
the remaining term of such lease, including any period for which such lease has
been extended, as determined in accordance with generally accepted accounting
principles, discounted from the last date of such remaining term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of a 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 such 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) Property of such Person which is required to be classified and
accounted for as a capital lease or a liability on the face of a balance sheet
of such Person in accordance with generally accepted accounting principles (a
"Capital Lease"). The stated maturity of such obligation shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without payment
of a penalty. The principal amount of such obligation shall be the capitalized
amount thereof that would appear on the face of a balance sheet of such Person
in accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents however designated of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person and any rights (other than debt securities convertible
or exchangeable into an equity interest), warrants or options to acquire an
equity interest in such Person.
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"Cash Equivalents" means:
(1) Government Securities maturing, or subject to tender at the option
of the holder thereof, within two years after the date of acquisition
thereof;
(2) time deposits and certificates of deposit of any commercial bank
organized in the United States having capital and surplus in excess of $500
million or a commercial bank organized under the law of any other country
that is a member of the Organization for Economic Cooperation and
Development having total assets in excess of $500 million, or its foreign
currency equivalent at the time, with a maturity date not more than one
year from the date of acquisition;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with
- any bank meeting the qualifications specified in clause (2) above; or
- any primary government securities dealer reporting to the Market
Reports Division of the Federal Reserve Bank of New York;
(4) direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing, or subject to tender at the option of the
holder of such obligation, within one year after the date of acquisition
thereof; provided that, at the time of acquisition, the long-term debt of
such state, political subdivision or public instrumentality has a rating of
A or higher from S&P or A-2 or higher from Moody's, or, if at any time
neither S&P nor Moody's shall be rating such obligations, then an
equivalent rating from another nationally recognized rating service;
(5) commercial paper issued by the parent corporation of any
commercial bank organized in the United States having capital and surplus
in excess of $500 million or a commercial bank organized under the laws of
any other country that is a member of the Organization for Economic
Cooperation and Development having total assets in excess of $500 million
or its foreign currency equivalent at the time, and money market
instruments and commercial paper issued by others having one of the three
highest ratings obtainable from either S&P or Moody's, or, if at any time
neither S&P nor Moody's shall be rating such obligations, then from another
nationally recognized rating service, and in each case maturing within one
year after the date of acquisition;
(6) overnight bank deposits and bankers' acceptances at any commercial
bank organized in the United States having capital and surplus in excess of
$500 million or a commercial bank organized under the laws of any other
country that is a member of the Organization for Economic Cooperation and
Development having total assets in excess of $500 million or its foreign
currency equivalent at the time;
(7) deposits available for withdrawal on demand with a commercial bank
organized in the United States having capital and surplus in excess of $500
million or a commercial bank organized under the laws of any other country
that is a member of the Organization for Economic Cooperation and
Development having total assets in excess of $500 million or its foreign
currency equivalent at the time; and
(8) investments in money market funds substantially all of whose
assets comprise securities of the types described in clauses (1) through
(7).
"Change of Control" has the meaning set forth in the section above entitled
"-- Certain covenants -- Change of control triggering event."
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"Change of Control Triggering Event" has the meaning set forth in the
section above entitled "-- Certain covenants -- Change of control triggering
event."
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"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" means as of the date of determination the
ratio of (1) the aggregate amount of Debt of WCG and its Restricted Subsidiaries
on a consolidated basis as at the date of determination to (2) the sum of:
(a) WCG's capital in excess of par value on October 6, 1999 determined
on a consolidated basis in accordance with generally accepted accounting
principles;
(b) the aggregate Net Proceeds to WCG from the issuance or sale of any
Capital Stock, including Preferred Stock, of WCG other than Disqualified
Stock subsequent to October 6, 1999; and
(c) the aggregate Net Proceeds from the issuance or sale of Debt of
WCG or any Restricted Subsidiary subsequent to October 6, 1999 convertible
or exchangeable into Capital Stock of WCG other than Disqualified Stock, in
each case upon conversion or exchange thereof into Capital Stock of WCG
subsequent to October 6, 1999;
provided, however, that, for purposes of calculation of the Consolidated Capital
Ratio, the Net Proceeds from the issuance or sale of Capital Stock or Debt
described in clause (b) or (c) above shall not be included to the extent
- such proceeds have been utilized to make a Permitted Investment under
clause (i) of the definition thereof or a Restricted Payment or
- such Capital Stock or Debt shall have been issued or sold to WCG, a
Subsidiary of WCG or a Plan.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of WCG and its Restricted Subsidiaries for such
period increased by the sum of, to the extent reducing Consolidated Net Income
for such period;
(1) Consolidated Interest Expense of WCG and its Restricted
Subsidiaries for such period; plus
(2) Consolidated Income Tax Expense of WCG and its Restricted
Subsidiaries for such period; plus
(3) consolidated depreciation and amortization expense and any other
non-cash items (other than any such non-cash item to the extent that it
represents an accrual of or reserve for cash expenditures in any future
period) for such period; plus
(4) any penalty paid in such period in connection with redeeming or
retiring any Debt prior to its stated maturity; plus
(5) any change in Deferred Revenue during such period;
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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 WCG) that is subject to a restriction which prevents the
payment of dividends or the making of distributions to WCG or another Restricted
Subsidiary to the extent of such restrictions.
"Consolidated Income Tax Expense" for any period means the aggregate
amounts of the provisions for income taxes of WCG and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Interest Expense" for any period means the interest expense
included in a consolidated income statement, excluding interest income, of WCG
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, but in no event adding any
amount that would be eliminated in consolidation in accordance with generally
accepted accounting principles):
(1) the amortization of Debt discounts and issuance costs, including
commitment fees;
(2) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities;
(3) net costs with respect to interest rate swap or similar agreements
or foreign currency hedge, exchange or similar agreements, including fees;
(4) Preferred Stock Dividends other than dividends paid in shares of
Preferred Stock that is not Disqualified Stock declared and paid or
payable;
(5) accrued Disqualified Stock Dividends, whether or not declared or
paid;
(6) interest on Debt guaranteed by WCG and its Restricted
Subsidiaries;
(7) the portion of any Capital Lease Obligation or Sale and Leaseback
Transaction paid during such period that is allocable to interest expense
in accordance with generally accepted accounting principles; and
(8) the cash contributions to any Plan to the extent such
contributions are used by such Plan to pay interest or fees to any Person,
other than WCG or a Restricted Subsidiary, in connection with Debt Incurred
by such Plan.
"Consolidated Net Income" for any period means the net income (or loss) of
WCG 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 from such net income (or loss):
(a) for purposes of the covenant described in the section above
entitled "-- Certain covenants -- Limitation on restricted payments" only,
the net income (or loss) of any Person acquired by WCG 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 WCG or a Restricted Subsidiary by such
Person during such period (except, for purposes of the covenant described
under "-- Certain covenants -- Limitation on restricted payments" only, to
the extent such dividends or distributions have been subtracted from the
calculation of the amount of Investments to support the actual making of
Investments);
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(c) gains or losses realized upon the sale or other disposition of any
Property of WCG or its Restricted Subsidiaries that is not sold or disposed
of in the ordinary course of business (it being understood that Permitted
Telecommunications Asset Dispositions shall be considered to be in the
ordinary course of business);
(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 WCG or any Restricted Subsidiary of (1) options to purchase
Capital Stock of WCG or such Restricted Subsidiary or (2) other
compensatory rights; and
(h) with respect to a Restricted Subsidiary that is not a Wholly Owned
Subsidiary any aggregate net income (or loss) in excess of WCG'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, but such
excess shall be excluded only to the extent that such minority interest in
net income (or loss) is not otherwise excluded in determining consolidated
net income in accordance with generally accepted accounting principles;
provided further that 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 WCG or another Restricted Subsidiary to the extent of such
restriction; and provided further, that at the time any restriction
referred to in the immediately preceding proviso ceases to be effective,
all of such net income previously excluded from Consolidated Net Income by
reason of such proviso shall be included cumulatively in Consolidated Net
Income in the accounting period during which such restriction ceases to be
effective.
"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 (to the extent not otherwise accounted for
as a liability) amounts attributable to Disqualified Stock of such Person.
"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
from such total amount of assets 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.
"Credit Facilities" means one or more credit agreements, loan agreements,
fiscal agency agreements (other than fiscal agency agreements relating to Debt
Securities) or similar facilities, secured or unsecured, providing for working
capital advances, revolving credit loans, term loans and/or letters of credit,
including any Qualified Receivable Facility, entered into from time to time by
WCG and its Restricted Subsidiaries, and including any related notes,
Guarantees, collateral documents, instruments and agreements executed with such
credit facilities, as the same may be amended, supplemented, modified, restated
or replaced from time to time.
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"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:
(1) every obligation of such Person for money borrowed;
(2) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in
connection with the acquisition of Property;
(3) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of such Person or for which such Person is otherwise obligated
to make payment;
(4) every obligation of such Person issued or assumed as the deferred
purchase price of Property or services, including securities repurchase
agreements;
(5) every Capital Lease Obligation of such Person;
(6) all obligations to redeem or repurchase Disqualified Stock issued
by such Person and all Attributable Value in respect of Sale and Leaseback
Transactions entered into by such Person;
(7) the liquidation preference of any Preferred Stock, other than
Disqualified Stock, which is covered by the preceding clause (6), issued by
any Restricted Subsidiary of such Person;
(8) every obligation under Interest Rate or Currency Protection
Agreements of such Person; and
(9) every obligation of the type referred to in clauses (1) through
(8) 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 here represented by (a) any Debt issued at a price that is less than the
principal amount at maturity thereof, shall be, except as otherwise set forth
here, the Accreted Value of such Debt at such time or (b) in the case of any
Receivables sale constituting Debt, the amount of the unrecovered purchase price
paid (that is, the amount paid for Receivables that has not been actually
recovered from the collection of such Receivables) by the purchaser (other than
WCG or a Restricted Subsidiary that is wholly owned by WCG) thereof.
The amount of Debt represented by an obligation under an Interest Rate or
Currency Protection Agreement shall be equal to
(x) zero if such obligation has been Incurred pursuant to clause (10)
of paragraph (b) of the covenant described in the section above entitled
"-- Certain covenants -- Limitation on consolidated debt" or
(y) the notional amount of such obligation if not Incurred pursuant to
such clause.
Despite the above, "Debt" does not include trade accounts payable or
accrued liabilities arising in the ordinary course of business.
"Debt Securities" means any debt securities, including any Guarantee of
such securities, issued by WCG or any Domestic Restricted Subsidiary in
connection with an underwritten public offering or an underwritten private
placement for resale in accordance with Rule 144A
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and/or Regulation S, in each case, not rated or rated below Baa3 by Moody's or
BBB- by S&P, or an equivalent below investment grade rating by any successor
Rating Agency.
"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.
"Deferred Revenue" means amounts appearing as a liability on the financial
statements of WCG prepared in accordance with generally accepted accounting
principles as deferred revenue, except, in the case of any increase in deferred
revenue, only to the extent of cash received in connection therewith.
"Designation" has the meaning set forth in the section above entitled
"-- Certain covenants -- Limitations on designations of unrestricted
subsidiaries."
"Designation Amount" has the meaning set forth in the section above
entitled "-- Certain covenants -- Limitations on designations of unrestricted
subsidiaries."
"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 the holder thereof, in whole or in
part, on or prior to the final Stated Maturity of the notes; provided, however,
that any Preferred Stock which would not constitute Disqualified Stock but for
provisions of such Preferred Stock giving holders thereof the right to require
WCG to repurchase or redeem such Preferred Stock upon the occurrence of a change
of control or asset disposition occurring prior to the final Stated Maturity of
the notes shall not constitute Disqualified Stock if the change of control or
asset disposition provisions applicable to such Preferred Stock are no more
favorable to the holders of such Preferred Stock than the provisions applicable
to the notes contained in the covenants described in the sections above entitled
"-- Certain covenants -- Change of control triggering event" and "-- Limitations
on asset dispositions" and such Preferred Stock specifically provides that WCG
will not repurchase or redeem any such stock pursuant to such provisions prior
to WCG's repurchase of such notes as are required to be repurchased pursuant to
the covenants described in the sections above entitled "-- Certain
covenants -- Change of control triggering event" and "-- Limitations on asset
dispositions"; provided further, that such Preferred Stock will not be deemed
Disqualified Stock if it is redeemable by exchange for or through the issuance
of Capital Stock (other than Disqualified Stock).
"Disqualified Stock Dividends" means all dividends with respect to
Disqualified Stock of WCG held by Persons other than a Restricted Subsidiary
that is wholly owned by WCG. The amount of any such dividend shall be equal to
the quotient of such dividend divided by the difference between one and the
maximum statutory federal income tax rate (expressed as a decimal number between
1 and 0) applicable to WCG for the period during which such dividends were paid.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of WCG
- that was formed under the laws of the United States of America or any
state, district or territory thereof or the District of Columbia, or
- 50% or more of the assets of which are located in the United States or
any territory thereof.
"Domestic Restricted Subsidiary Guarantee" means a supplemental indenture
to the indenture in form satisfactory to the trustee, providing for an
unconditional Guarantee by a Domestic Restricted Subsidiary of payment in full
of the principal of, premium, if any, and
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interest on the notes. Any such Domestic Restricted Subsidiary Guarantee shall
not be subordinate to any Debt of the Domestic Restricted Subsidiary providing
the Domestic Restricted Subsidiary Guarantee.
"Eligible Receivables" means, at any time, Receivables of WCG and its
Restricted Subsidiaries, as evidenced on the most recent quarterly consolidated
balance sheet of WCG as at a date at least 45 days prior to such time, arising
in the ordinary course of business of WCG or any Restricted Subsidiary.
"Event of Default" has the meaning set forth in the section below entitled
"-- Events of default."
"Excess Proceeds" has the meaning set forth in the section above entitled
"-- Certain covenants -- Limitation on asset dispositions."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing International Joint Ventures" means ATL, PowerTel, Telefonica
Manquehue and Algar.
"Fair Market Value" means, with respect to any 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, and except in the case of Permitted Telecommunications Asset
Dispositions in the ordinary course of business, Fair Market Value shall be
determined by the board of directors of WCG acting in good faith and shall be
evidenced by a resolution of the board of directors of WCG.
"Government Securities" means direct obligations of, or obligations fully
and unconditionally guaranteed or insured by, the United States of America or
any agency or instrumentality thereof for the payment of which obligations or
guarantee the full faith and credit of the United States is pledged and which
are not callable or redeemable at the issuer's option (unless, for purposes of
the definition of "Cash Equivalents" only, the obligations are redeemable or
callable at a price not less than the purchase price paid by WCG or the
applicable Restricted Subsidiary, together with all accrued and unpaid interest,
if any, on such Government Securities).
"Guarantee" by any Person means any obligation, direct or indirect,
contingent or otherwise, of such Person guaranteeing, or having the economic
effect of guaranteeing, any Debt of any other Person in any manner, whether
directly or indirectly.
"Guarantor" means a Domestic Restricted Subsidiary of WCG that has executed
a Domestic 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 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
- neither the accrual of interest nor the amortization or accretion of
original issue discount shall be deemed an Incurrence of Debt.
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Debt otherwise incurred by a Person before it becomes a Subsidiary of WCG
shall be deemed to have been Incurred at the time at which it becomes a
Restricted Subsidiary.
"Interest Payment Date" means each semiannual interest payment date on
February 1 and August 1 of each year commencing February 1, 2001.
"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.
"Invested Capital" means the sum of:
(a) $625 million;
(b) the aggregate Net Proceeds received by WCG from any Capital Stock,
including Preferred Stock, of WCG, but excluding Disqualified Stock, issued
or sold pursuant to the over-allotment option in the initial public
offering or subsequent to October 6, 1999; and
(c) the aggregate Net Proceeds from the issuance or sale of Debt of
WCG or any Restricted Subsidiary subsequent to October 6, 1999, convertible
or exchangeable into Capital Stock of WCG other than Disqualified Stock, in
each case, upon conversion or exchange thereof into Capital Stock of WCG
subsequent to October 6, 1999;
provided, however, that the Net Proceeds from the issuance or sale of Capital
Stock or Debt described in clause (b) or (c) shall be excluded from any
computation of Invested Capital to the extent (1) utilized to make a Restricted
Payment or (2) such Capital Stock or Debt shall have been issued or sold to WCG,
a Subsidiary of WCG or a Plan.
"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, purchase, redemption, retirement or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Debt issued by, or Incurrence of, or payment on, a Guarantee of any
obligation of, any other Person; provided that Investments shall exclude
- commercially reasonable extensions of trade credit,
- trade receivables arising in the ordinary course of business; provided
that such receivables would be recorded as assets of such Person in
accordance with generally accepted accounting principles,
- Investments received in connection with the bankruptcy or reorganization
of suppliers and customers or in good faith bona fide settlement of
delinquent ordinary course of business trade receivables of customers,
- endorsements for collection or deposit in the ordinary course of business
by such Person of bank drafts and similar negotiable instruments of such
other Person received as payment for ordinary course of business trade
receivables, and
- any Investment that is less than $100,000.
The amount, as of any date of determination, of any Investment shall be the
original cost of such Investment, plus the cost of all additions, as of such
date, thereto and minus the amount, as of such date, of any portion of such
Investment repaid to such Person in cash as a repayment of principal or a return
of capital, as the case may be (except to the extent such repaid amount has been
included in Consolidated Net Income to support the actual making of Restricted
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Payments), but without any other adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such Investment.
In determining the amount of any Investment involving a transfer of any Property
other than cash, such Property shall be valued at its Fair Market Value at the
time of such transfer.
"Joint Venture" means a Person in which WCG or a Restricted Subsidiary
holds, directly or indirectly, not more than 50% of the shares of Voting Stock.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, 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
(including any Capital Lease Obligation, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing and any Sale and Leaseback Transaction). For purposes of this
definition, the sale, lease, conveyance or other transfer by WCG or any of its
Subsidiaries 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.
"Make-Whole Amount" means
- with respect to any 2008 senior note, an amount equal to the excess, if
any, of:
(1) the present value of the remaining principal, premium and
interest payments that would be payable with respect to such note if such
note were redeemed on August 1, 2008, computed using a discount rate
equal to the Treasury Rate plus 50 basis points; over
(2) the outstanding principal amount of such note
- with respect to any 2010 senior note, an amount equal to the excess, if
any, of:
(1) the present value of the remaining principal, premium and
interest payments that would be payable with respect to such note if such
note were redeemed on August 1, 2005, computed using a discount rate
equal to the Treasury Rate plus 50 basis points; over
(2) the outstanding principal amount of such note
"Make-Whole Average Life" means, with respect to any date of redemption of
notes, the number of years (calculated to the nearest one-twelfth) from such
redemption date to
- August 1, 2008, with respect to the 2008 senior notes
- August 1, 2010, with respect to the 2010 senior notes
"Make-Whole Price" means
- with respect to any 2008 senior note, the sum of the principal amount of
such note and the Make-Whole Amount, and
- with respect to any 2010 senior note, the greater of (1) the sum of the
principal amount of such note and the Make-Whole Amount with respect to
such note and (2) the redemption price of such note on August 1, 2005.
"Moody's" means Moody's Investors Service, Inc. or, if Moody's Investors
Service, Inc. shall cease rating debt securities having a maturity at original
issuance of at least one year and
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such ratings business shall have been transferred to a successor Person, such
successor Person; provided, however, that if there is no successor Person, then
"Moody's" shall mean any other national recognized rating agency, other than
S&P, that rates debt securities having a maturity at original issuance of at
least one year and that shall have been designated by WCG.
"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 Property) therefrom by
such Person, net of:
(1) all legal, title and recording taxes, expenses and commissions and
other fees and expenses (including appraisals, brokerage commissions and
investment banking fees) Incurred and all federal, state, provincial,
foreign and local taxes required to be accrued as a liability as a
consequence of such Asset Disposition;
(2) all payments made by such Person or its Subsidiaries on any Debt
which is secured by such Property in accordance with the terms of any Lien
upon or with respect to such Property 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;
(3) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or Joint Ventures of such Person
as a result of such Asset Disposition; and
(4) appropriate amounts to be provided by such Person or any
Subsidiary of such Person, as the case may be, as a reserve in accordance
with generally accepted accounting principles against any liabilities
associated with such Property and retained by such Person or any Subsidiary
of such Person, as the case may be, after such Asset Disposition, including
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Disposition, in each
case, as determined by the board of directors of such Person, in its
reasonable good faith judgment evidenced by a resolution of the board of
directors of such Person filed with the trustee; provided, however, that
any reduction in such reserve within twelve months following the
consummation of such Asset Disposition will be, for all purposes of the
indenture and the notes, treated as a new Asset Disposition at the time of
such reduction with Net Available Proceeds equal to the amount of such
reduction; provided further, however, that, if any consideration for a
transaction, which would otherwise constitute Net Available Proceeds, is
required to be held in escrow pending determination of whether a purchase
price adjustment will be made, at such time as such portion of the
consideration is released to such Person or its Restricted Subsidiary from
escrow, such portion shall be treated for all purposes of the indenture and
the notes as a new Asset Disposition at the time of, but not before, such
release from escrow with Net Available Proceeds equal to the amount of such
portion of consideration released from escrow.
"Net Proceeds" means the aggregate net proceeds (including the Fair Market
Value of non-cash proceeds constituting Capital Stock in or of a person engaged
in a Telecommunications Business or assets of a type generally used in a
Telecommunications Business) received by a Person from the sale of Capital Stock
or Debt after payment of out-of-pocket expenses, commissions and discounts
incurred and net of taxes paid or payable in connection with the sale of such
Capital Stock or Debt.
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"Permitted Holders" means
- The Williams Companies, Inc. and any of its Subsidiaries,
- any corporation the outstanding voting power of the Capital Stock of
which is beneficially owned, directly or indirectly, by the stockholders
of WCG in substantially the same proportions as their ownership of the
voting power of the Capital Stock of WCG,
- any underwriter during the period engaged in a firm commitment
underwriting on behalf of WCG with respect to the shares of Capital Stock
being underwritten, or
- WCG or any Subsidiary of WCG.
"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 not for purposes of
speculation and which, in the case of an interest rate agreement, shall have a
notional amount no greater than the principal amount at maturity due with
respect to the Debt being hedged thereby.
"Permitted Investments" means:
(a) Cash Equivalents;
(b) investments in prepaid expenses;
(c) negotiable instruments held for collection and lease, utility and
workers' compensation, performance and other similar deposits;
(d) loans, advances or extensions of credit to employees, officers and
directors of WCG or any Restricted Subsidiary made in the ordinary course
of business and consistent with past practice or in connection with
employee benefits agreements or arrangements approved by the board of
directors of WCG;
(e) obligations under Permitted Interest Rate or Currency Protection
Agreements;
(f) Investments received as consideration for, or customary
indemnities given in connection with, Asset Dispositions pursuant to and in
compliance with the covenant described in the section above entitled
"-- Certain covenants -- Limitation on asset dispositions," and for
Permitted Telecommunication Asset Dispositions;
(g) Investments in WCG or any Restricted Subsidiary, or in any Person
as a result of which such Person becomes a Restricted Subsidiary;
(h) Investments made prior to the date of the indenture;
(i) Investments made after the date of the indenture in Persons
engaged in the Telecommunications Business in an aggregate amount as of the
date of determination not to exceed Invested Capital as of the date of
determination;
(j) Investments deemed to have been made as a result of the
acquisition of a Person that at the time of such acquisition held
instruments constituting Investments that were not acquired in
contemplation of the acquisition of such Person;
(k) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers or in good faith bona fide
settlement of delinquent ordinary course of business trade receivables of
customers;
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(l) Investments where all or a portion of the consideration provided
is Capital Stock of WCG, other than Disqualified Stock, but the same shall
constitute a Permitted Investment only to the extent of such consideration
provided in the form of such Capital Stock;
(m) Investments in Existing International Joint Ventures; provided
that the aggregate amount of such Investments made after the date of the
indenture does not exceed $100 million as of the date of determination; and
(n) additional Investments in an aggregate amount not to exceed $200
million.
"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 for such Liens;
(b) other Liens incidental to the conduct of WCG's and its Restricted
Subsidiaries' businesses or the ownership of Property not securing any
Debt, and which do not in the aggregate materially detract from the value
of WCG's and its Restricted Subsidiaries' Property when taken as a whole,
or materially impair the use thereof in the operation of its business;
(c) Liens, pledges and deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of statutory obligations;
(d) 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, the obtaining
of advances or credit or the payment of the deferred purchase price of
Property and which do not in the aggregate materially impair the use of
Property in the operation of the business of WCG and the Restricted
Subsidiaries taken as a whole;
(e) 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 WCG or its
Restricted Subsidiaries;
(f) any interest or title of a lessor in the Property subject to any
lease other than a Capital Lease;
(g) Liens with respect to assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to WCG to secure Debt owing to WCG;
(h) Liens arising out of judgments or awards against WCG or any
Restricted Subsidiary of WCG with respect to which WCG or such Restricted
Subsidiary is prosecuting an appeal or proceeding for review and WCG or
such Restricted Subsidiary is maintaining adequate reserves in accordance
with generally accepted accounting principles;
(i) Liens arising by operation of law in connection with judgments,
only to the extent, for an amount and for a period not resulting in an
Event of Default with respect thereto;
(j) Liens securing Permitted Interest Rate or Currency Protection
Agreement; and
(k) Liens in favor of the trustee arising under the indenture or the
1999 indenture.
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"Permitted Telecommunications Asset Disposition" means the transfer,
conveyance, sale, lease or other disposition of an interest in or capacity on
optical fiber and/or conduit and any related equipment used in a Segment of
WCG's communications network, whether or not in the ordinary course of business;
provided that, after giving effect to such disposition, WCG would retain at
least
(1) with respect to any Segment constructed by, for or on behalf of
WCG or any of its Subsidiaries or Affiliates,
- 24 optical fibers per route mile on such Segment as deployed at the
time of such disposition, or
- 12 optical fibers and one empty conduit per route mile on such Segment
as deployed at such time; and
(2) with respect to any Segment purchased or leased from third
parties, the lesser of
- 50% of the optical fibers per route mile originally purchased on such
Segment,
- 24 optical fibers per route mile on such Segment as deployed at the
time of such disposition, or
- 12 optical fibers and one empty conduit per route mile on such Segment
as deployed at the time of such disposition.
"Person" means any individual, corporation, company, partnership, joint
venture, limited liability company, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"Plan" means any employee benefit plan, retirement plan, deferred
compensation plan, restricted stock plan, health, life, disability or other
insurance plan or program, employee stock purchase plan, employee stock
ownership plan, pension plan, stock option plan or similar plan or arrangement
of WCG or any Restricted Subsidiary of WCG, or any successor plan thereof; and
"Plans" shall have a correlative meaning.
"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.
"Preferred Stock Dividends" means all dividends with respect to Preferred
Stock of Restricted Subsidiaries held by Persons other than WCG or one or more
Restricted Subsidiaries that are wholly owned by WCG. The amount of any such
dividend shall be equal to the quotient of such dividend divided by the
difference between one and the maximum statutory federal income rate (expressed
as a decimal number between 1 and 0 and determined in accordance with generally
accepted accounting principles) applicable to the issuer of such Preferred Stock
for the period during which such dividends were paid.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the indenture, the
value of any Property shall be its Fair Market Value.
"Proportionate Interest" in any issuance of Capital Stock of a Restricted
Subsidiary means a ratio (1) the numerator of which is the aggregate amount of
Capital Stock of such Restricted
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Subsidiary beneficially owned by WCG and the Restricted Subsidiaries and (2) the
denominator of which is the aggregate amount of Capital Stock of such Restricted
Subsidiary beneficially owned by all Persons, excluding, in the case of this
clause (2), any Investment made in connection with such issuance.
"Purchase Money Debt" means Debt (including Acquired Debt and Capital Lease
Obligations, mortgage financings and purchase money obligations) incurred for
the purpose of financing all or any part of the cost of construction,
installation, acquisition, lease, development or improvement by WCG or any
Restricted Subsidiary of any Telecommunications Assets of WCG or any Restricted
Subsidiary and including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as the same may be
amended, supplemented, modified or restated from time to time.
"Qualified Receivable Facility" means Debt of WCG or any Subsidiary
Incurred from time to time pursuant to either
- credit facilities secured by Receivables or
- Receivables purchase facilities
in each case, including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as the same may be
amended, supplemented, modified or restated from time to time.
"Rating Agencies" mean Moody's and S&P.
"Rating Date" means the earlier of the date of public notice of the
occurrence of a Change of Control or of the intention of WCG to effect a Change
of Control.
"Rating Decline" shall be deemed to have occurred if, no later than 90 days
after the Rating Date (which period shall be extended so long as the rating of
the notes is under publicly announced consideration for possible downgrade by
any of the Rating Agencies), either of the Rating Agencies assigns or reaffirms
a rating to the notes that is lower than the applicable rating of the notes on
the date of the indenture or the equivalent thereof. If, prior to the Rating
Date, either of the ratings assigned to the notes by the Rating Agencies is
lower than the applicable rating of the notes on the date of the indenture, then
a Rating Decline will be deemed to have occurred if such rating is not changed
by the 90th day following the Rating Date. A downgrade within rating categories,
as well as between rating categories, will be considered a Rating Decline.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money and proceeds
and products thereof, in each case, generated in the ordinary course of
business.
"Restricted Subsidiary" means
- a Subsidiary of WCG or of a Restricted Subsidiary that has not been
designated or classified as an Unrestricted Subsidiary pursuant to and in
compliance with the section above entitled "-- Certain
covenants -- Limitation on designations of unrestricted subsidiaries" and
- an Unrestricted Subsidiary that is redesignated as a Restricted
Subsidiary pursuant to such covenant.
"Returned Investments" mean, with respect to all Investments made in
Unrestricted Subsidiaries, the aggregate amount of all payments made in respect
of such Investments, other
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than interest, dividends or other distributions not in the nature of a return or
repurchase of capital or a repayment of principal, that have been paid or
returned, without restriction, to WCG or any Restricted Subsidiary.
"Revocation" has the meaning set forth in the section above entitled
"-- Certain covenants -- limitations on designations of unrestricted
subsidiaries."
"S&P" means Standard & Poor's Ratings Service or, if Standard & Poor's
Ratings Service shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
that if there is no successor Person, then "S&P" shall mean any other national
recognized rating agency, other than Moody's, that rates debt securities having
a maturity at original issuance of at least one year and that shall have been
designated by WCG.
"Sale and Leaseback Transaction" of any Person means any direct or indirect
arrangement pursuant to which any Property is sold or transferred by such Person
or a Restricted Subsidiary of such person and is thereafter leased back from the
purchaser or transferee thereof by such Person or one of its Restricted
Subsidiaries. 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.
"Segment" means
- with respect to WCG's intercity network, the through-portion of such
network between two local networks and
- with respect to a local network of WCG, the entire through-portion of
such network, excluding the spurs which branch off the through-portion.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" of WCG within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission.
"Stated Maturity" when used with respect to a note or any installment of
interest on such note, means the date specified in such note as the date fixed
on which the principal of such note or such installment of interest is due and
payable, including pursuant to any mandatory redemption provision, but excluding
any provision providing for the repurchase of such note at the option of the
holder of such note upon the happening of any contingency beyond the control of
WCG unless such contingency has occurred.
"Subordinated Debt" means Debt of WCG (a) that is not secured by any Lien
on or with respect to any Property now owned or acquired after the date of the
indenture and (b) 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 in cash of the notes to at least the
following extent:
(1) no payments of principal of, or premium, if any, or interest on or
otherwise due, including by acceleration or for additional amounts, in
respect of, or repurchases, redemptions or other retirements of, such Debt
may be permitted for so long as any default, after giving effect to any
applicable grace periods, in the payment of principal, or premium, if any,
or interest on the notes exists, including as a result of acceleration;
(2) if any other Default exists with respect to the notes, upon notice
by holders of 25% or more in aggregate principal amount of the notes to the
trustee, the trustee shall have the right to give notice to WCG and the
holders of such Debt, or trustees or agents therefor, of a payment
blockage, and thereafter no payments of such Debt may be made for a period
of
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179 days from the date of such notice; provided that not more than one such
payment blockage notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to the notes during
such period;
(3) if payment of such Debt is accelerated when any notes are
outstanding, no payments of such Debt may be made until three Business Days
after the trustee receives notice of such acceleration and, thereafter,
such payments may only be made to the extent the terms of such Debt permit
payment at that time; and
(4) such Debt may not
(x) provide for payments of principal of such Debt at the stated
maturity of such Debt or by way of a sinking fund applicable to such
Debt or by way of any mandatory redemption, defeasance, retirement or
repurchase of such Debt by WCG, 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 notes, or
(y) permit redemption or other retirement, including pursuant to an
offer to purchase made by WCG, of such Debt at the option of the holder
of such Debt prior to the final Stated Maturity of the notes,
other than, in the case of clause (x) or (y), any such payment,
redemption or other retirement, including pursuant to an offer to
purchase made by WCG, which is conditioned upon
- a change of control of WCG pursuant to provisions substantially
similar to those described in the section above entitled
"-- Certain covenants -- Change of control triggering event" (and
which shall provide that such Debt will not be repurchased
pursuant to such provisions prior to WCG's repurchase of the notes
required to be repurchased by WCG pursuant to the provisions
described in the section above entitled "-- Certain
covenants -- Change of control triggering event"), or
- a sale or other disposition of assets pursuant to provisions
substantially similar to those described in the section above
entitled "-- Certain covenants -- Limitation on asset
dispositions" (and which shall provide that such Debt will not be
repurchased pursuant to such provisions prior to WCG's repurchase
of the notes required to be repurchased by WCG pursuant to the
provision described in the section above entitled "-- Certain
covenants -- Limitation on asset dispositions").
"Subsidiary" of any Person means:
- a corporation more than 50% of the combined voting power of the
outstanding Voting Stock of which is owned, directly or indirectly, by
such Person or by one or more other Subsidiaries of such Person or by
such Person and one or more Subsidiaries of such Person; or
- any other Person, other than a corporation, in which such Person, or one
or more other Subsidiaries of such Person or such Person and one or more
other Subsidiaries of such Person, directly or indirectly, has at least a
majority ownership and power to direct the policies, management and
affairs thereof.
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"Telecommunications Assets" means:
(a) any Property, other than cash, cash equivalents and securities, to
be owned or used by WCG or any Restricted Subsidiary and used in the
Telecommunications Business;
(b) for purposes of the covenants described in the sections above
entitled "-- Certain covenants -- Limitation on consolidated debt" and
"-- Limitation on liens" only, Capital Stock of any Person; or
(c) for all other purposes of the indenture, Capital Stock of a Person
that becomes a Restricted Subsidiary as a result of the acquisition of such
Capital Stock by WCG or another Restricted Subsidiary from any Person other
than an Affiliate of WCG;
provided, however, that, in the case of clause (b) or (c), such Person is
primarily engaged in the Telecommunications Business.
"Telecommunications Business" means the business of:
(1) transmitting, or providing services relating to the transmission
of, voice, video or data through owned or leased transmission facilities or
the right to use such facilities;
(2) constructing, creating, developing, operating, managing or
marketing communications networks, related network transmission equipment,
software and other devices for use in a communications business;
(3) computer outsourcing, data center management, computer systems
integration, reengineering of computer software for any purpose, including,
for the purposes of porting computer software from one operating
environment or computer platform to another or to address issues commonly
referred to as "Year 2000 issues";
(4) constructing, managing or operating fiber-optic telecommunications
networks and leasing capacity on those networks to third parties;
(5) the sale, resale, installation or maintenance of communications
systems and equipment; or
(6) evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in (1), (2), (3),
(4) or (5) above;
provided that the determination of what constitutes a Telecommunications
Business shall be made in good faith by the board of directors of WCG.
"Treasury Rate" means, at any date of determination, the yield to maturity
as of such date (as compiled by and published in the most recent Federal Reserve
Statistical Release H.15(519), which has become publicly available at least two
business days prior to the date of the redemption notice for which such
computation is being made, or if such Statistical Release is no longer
published, as reported in any publicly available source of similar market data)
of United States Treasury securities with a constant maturity most nearly equal
to the Make-Whole Average Life; provided, however, that if the Make-Whole
Average Life is not equal to the constant maturity of the United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the Make-Whole Average Life is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
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"Unrestricted Subsidiary" means:
- any Subsidiary of WCG designated as such pursuant to and in compliance
with the covenant described in the section above entitled "-- Certain
covenants -- Limitation on designations of unrestricted subsidiaries" and
not thereafter redesignated as a Restricted Subsidiary as permitted
pursuant to such section, and
- any Subsidiary of an Unrestricted Subsidiary.
"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 are at the time 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.
"Williams Intercompany Arrangements" means the Williams note and any other
documents, instruments, agreements and arrangements between WCG and any
Restricted Subsidiaries, between any Restricted Subsidiaries or between WCG or
any Restricted Subsidiary, on the one hand, and The Williams Companies, Inc. or
any of its Subsidiaries, on the other hand, in effect on the date of the
indenture, as such documents, instruments, agreements and arrangements may be
amended, modified or supplemented, but only to the extent any such amendments,
modifications or supplements are approved by a majority of the members of the
board of directors of WCG who are disinterested with respect to such amendment,
modification or supplement.
EVENTS OF DEFAULT
The following will be Events of Default under the indenture:
(a) failure to pay when due principal of, or premium, if any, on, any
note issued under the indenture;
(b) failure to pay when due any interest on any note issued under the
indenture, continued for 30 days;
(c) default in the payment of principal of and interest on notes
required to be purchased pursuant to an offer to purchase the notes in
accordance with the indenture as described in the section above entitled
"-- Certain covenants -- Change of control triggering event," when due and
payable;
(d) failure to perform or comply with the provisions described in the
section above entitled "-- Mergers, consolidations and certain sales of
assets";
(e) failure to perform any other covenant or agreement of WCG under
the indenture or the notes, continued for 60 days after written notice to
WCG by the trustee or holders of at least 25% in aggregate principal amount
of any series of outstanding notes;
(f) default under the terms of any instrument evidencing or securing
Debt of WCG or any Restricted Subsidiary having an outstanding principal
amount of $25 million or its foreign currency equivalent at the time,
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);
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(g) the rendering of a final judgment or judgments, not subject to
appeal or covered by insurance, against WCG or any Restricted Subsidiary in
an aggregate amount in excess of $25 million or its foreign currency
equivalent at the time, and which has not been waived, satisfied or
discharged for a period of 45 consecutive days after the date on which the
right to appeal has expired;
(h) any Domestic Restricted Subsidiary Guarantee ceases to be in full
force and effect, other than in accordance with the terms of such Domestic
Restricted Subsidiary Guarantee, or any Guarantor denies or disaffirms its
obligations under its Domestic Restricted Subsidiary Guarantee; and
(i) certain events of bankruptcy, insolvency or reorganization
affecting WCG or any Significant Subsidiary.
If an Event of Default has occurred, which has not been cured or waived,
the trustee will exercise its rights and powers under the indenture, and use the
same degree of care and skill in its exercise, as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs. At
all other times, 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 notes, unless such holders shall have offered to the trustee
reasonable indemnity. Subject to this indemnification, the holders of a majority
in aggregate principal amount of any series of outstanding notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee.
If any Event of Default (other than an Event of Default described in clause
(i) above) shall occur and be continuing with respect to either series of notes,
either the trustee or the holders of at least 25% in aggregate principal amount
of outstanding notes of such series may accelerate the maturity of all notes of
such series. After such acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of such
series of 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. If an Event of Default specified in clause
(e) above occurs, such acceleration shall be automatically rescinded and
annulled if such Event of Default is remedied or cured. In addition, if any
Event of Default specified in clause (i) above occurs with respect to either
series of notes, all of the outstanding notes of such series will automatically
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
the section below entitled "-- Amendment, supplement and waiver."
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy under the indenture, unless such
holder shall have previously given to the trustee written notice of a continuing
Event of Default and the holders of at least 25% in aggregate principal amount
of the outstanding notes of the relevant series shall have made written request
and offered indemnity satisfactory 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 notes of such series a
direction inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a note for enforcement of payment of the principal of
and premium, if any, or interest on such note on or after the respective due
dates expressed in such note.
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WCG shall deliver to the trustee written notice in the form of an officers'
certificate, within 30 days after the occurrence, of any event which with the
giving of notice and the lapse of time would become an Event of Default, its
status and what action WCG is taking or proposes to take with respect to such
event. WCG also will be required to deliver to the trustee annually a statement
as to the performance by WCG of certain of its obligations under the indenture
and as to any default in such performance. In the event that WCG shall fail to
timely notify the trustee of a default or Event of Default, this failure will be
deemed to be cured if the default or Event of Default is cured.
AMENDMENT, SUPPLEMENT AND WAIVER
WCG, the Guarantors, if any, and the trustee may, at any time and from time
to time, without notice to or consent of any holders of notes, enter into one or
more indentures supplemental to an indenture:
(1) to evidence the succession of another Person to WCG and the
assumption by such successor of the covenants of WCG in the indenture and
the notes;
(2) to add to the covenants of WCG, for the benefit of the holders, or
to surrender any right or power conferred upon WCG by the indenture;
(3) to add any additional Events of Default;
(4) to provide for uncertificated notes in addition to or in place of
certificated notes;
(5) to evidence and provide for the acceptance of appointment under
the indenture of a successor trustee;
(6) to secure the notes;
(7) to comply with the Trust Indenture Act;
(8) to add additional Guarantees with respect to the notes or to
release Guarantors from Domestic Restricted Subsidiary Guarantees as
provided by the terms of the indenture; or
(9) to cure any ambiguity in the indenture, to correct or supplement
any provision in the indenture which may be inconsistent with any other
provision therein or to add any other provision with respect to matters or
questions arising under the indenture;
provided such actions shall not adversely affect the interests of the holders in
any material respect.
With the consent of the holders of at least a majority in principal amount
of outstanding notes of either series issued under the indenture, WCG, the
Guarantors, if any, and the trustee may enter into one or more supplemental
indentures 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 of such notes; except that no such supplemental
indenture shall, without the consent of the holder of each outstanding note of
the affected series:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any note, or reduce the principal amount of any note or the
interest on any note that would be due and payable upon the Stated Maturity
of any note, or change the place of payment where, or the coin or currency
in which, any note or any premium or interest on any note is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity of any note;
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(2) reduce the percentage in principal amount of the outstanding
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
notes to any other Debt;
(4) except as otherwise required by the indenture, release any
security interest that may have been granted in favor of the holders of the
notes;
(5) reduce the premium payable upon the redemption of any note or
change the time at which any note may be redeemed;
(6) reduce the premium payable upon a Change of Control Triggering
Event;
(7) make any change in any Domestic Restricted Subsidiary Guarantee
that would adversely affect the holders of the notes; or
(8) modify any provision of this paragraph, except to increase any
percentage set forth herein.
The holders of at least a majority in principal amount of outstanding notes
of either series issued under the indenture may, by written notice to WCG and
the trustee on behalf of the holders of all such notes, waive any past Default
under the indenture relating to such series of notes and the consequences of
such Default, except Default
- in the payment of the principal of, or premium, if any, or interest on
any note, or
- in respect of a covenant or provision referred to in clauses (1) -- (8)
of the immediately preceding paragraph, which cannot be modified or
amended without the consent of the holder of each outstanding note
affected.
SATISFACTION AND DISCHARGE OF THE INDENTURE, DEFEASANCE
WCG, at its election, shall:
(a) be deemed to have paid and discharged its debt on the notes, and
the indenture shall cease to be of further effect as to all such
outstanding notes, except as to
- rights of registration of transfer, substitution and exchange of notes
and WCG's right of optional redemption,
- rights of holders to receive payment of principal of, premium, if any,
and interest on such notes (but not the purchase price referred to in
the section above entitled "-- Certain covenants -- Change of control
triggering event" or in the section above entitled "-- Limitation on
asset dispositions") and any rights of the holders with respect to
such amount,
- the rights, obligations and immunities of the trustee under the
indenture, and
- certain other specified provisions in the indenture; or
(b) cease to be under any obligation to comply with certain
restrictive covenants, including some of those described in the section
above entitled "-- Certain covenants," and terminate the operation of
certain Events of Default,
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after the irrevocable deposit by WCG with the trustee, in trust for the benefit
of the holders of such notes, at any time prior to the maturity of such notes,
of
- money in an amount,
- 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 such notes, money in an amount, or
- a combination thereof,
sufficient to pay and discharge the principal of, premium, if any, on, and
accrued interest on, the notes then outstanding on the dates on which any such
payments are due in accordance with the terms of the indenture and of such
notes.
Such defeasance or covenant defeasance shall be deemed to occur only if
certain conditions are satisfied, including among other things, delivery by WCG
to the trustee of an opinion of counsel acceptable to the trustee to the effect
that
- 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 (which opinion, in the case of defeasance described in clause (a)
above, must be based on a ruling of the Internal Revenue Service to the
same effect unless there has been a change in law after the date of the
indenture such that a ruling is no longer required); and
- WCG's deposit will not result in the trust relating thereto or the
trustee being subject to regulation under the Investment Company Act of
1940, as amended.
GOVERNING LAW
The indenture and the notes are governed by the laws of the State of New
York, without reference to principles of conflicts of law.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of WCG, as
such, shall have any liability for any obligations of WCG under the 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 director,
officer, employee, incorporator or stockholder of WCG. By accepting a note, each
holder waives and releases all such liability, but only such liability. The
waiver and release are part of the consideration for issuance of the 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 notes in accordance with the indenture.
WCG, the registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and WCG may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
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EXCHANGE OFFER AND REGISTRATION RIGHTS
WCG has agreed with the initial purchasers of the original notes, for the
benefit of the holders of the original notes, that it will use its reasonable
best efforts, and at its cost, to complete an exchange offer to exchange new
registered exchange notes for the original notes. For a more complete discussion
of WCG's obligations under the registration rights agreement, see the section of
this prospectus entitled "The Exchange Offer."
NOTICES
Notices to holders of the notes will be made by first class mail, postage
prepaid, to the addresses that appear on our register.
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DESCRIPTION OF OTHER INDEBTEDNESS AND OTHER FINANCING ARRANGEMENTS
The following are summaries of the material provisions of our other debt
agreements and financing arrangements, copies of which we have filed with the
Securities and Exchange Commission. See the section of this prospectus entitled
"Where You Can Find Additional Information" for more information.
SENIOR REDEEMABLE NOTES
GENERAL
Our outstanding senior redeemable notes issued in October 1999 consist of
10.70% senior redeemable notes due 2007 and 10.875% senior redeemable notes due
2009, all of which were issued under an indenture dated as of October 6, 1999,
between us and The Bank of New York, as trustee. The notes are general unsecured
senior obligations of ours and rank on a parity with all of our other unsecured
senior indebtedness.
The 10.70% senior redeemable notes due 2007 have an aggregate principal
amount outstanding of $500 million and will mature on October 1, 2007. The
10.875% senior redeemable notes due 2009 have an aggregate principal amount
outstanding of $1.5 billion and will mature on October 1, 2009. Interest on the
notes is payable on April 1 and October 1 of each year at the rate of 10.70% per
annum for the senior redeemable notes due 2007 and 10.875% per annum for the
senior redeemable notes due 2009.
OPTIONAL REDEMPTION
10.70% senior redeemable notes:
We may redeem the 10.70% senior redeemable notes due 2007, in whole or
in part, at any time at a make-whole price. The make-whole price represents
a premium based upon the present value of the remaining payments to be made
with respect to the notes to be redeemed.
At any time or from time to time prior to October 1, 2002, we may
redeem up to 35% of the original aggregate principal amount of the 10.70%
senior redeemable notes due 2007 at a redemption price equal to 110.70% of
the principal amount of such notes so redeemed, with the net cash proceeds
of one or more offerings of our common stock as described in the indenture.
10.875% senior redeemable notes:
Prior to October 1, 2004, we may redeem all or part of the 10.875%
senior redeemable notes due 2009 at any time at a make-whole price. The
make-whole price represents a premium based upon the present value of the
remaining payments to be made with respect to the notes to be redeemed.
The 10.875% senior redeemable notes due 2009 will also be redeemable,
at our option, in whole or in part, at any time on or after October 1,
2004, at redemption prices starting at 105.438% of their principal amount
and declining to 100% of their principal amount on or after October 1,
2007, plus accrued and unpaid interest.
In addition, at any time or from time to time prior to October 1,
2002, we may redeem up to 35% of the original aggregate principal amount of
the 10.875% senior redeemable notes due 2009 at a redemption price equal to
110.875% of the principal amount of such notes so redeemed, with the net
cash proceeds of one or more offerings of our common stock as described in
the indenture relating to such notes.
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COVENANTS
The 1999 indenture contains restrictive covenants, including, among others,
the following:
- a limitation on our ability and that of our subsidiaries to incur
indebtedness
- a limitation on our ability and that of our subsidiaries to, directly or
indirectly, make certain payments, including payment of dividends,
prepayment of subordinated indebtedness, repurchases of capital stock,
and making of capital expenditures and investments
- a limitation on our ability to allow to exist specified dividend and
other payment restrictions affecting our subsidiaries
- a limitation on our ability to sell or to permit any subsidiary to issue
or sell capital stock of a subsidiary
- a limitation on our ability and that of our subsidiaries to consummate
asset dispositions unless specified conditions are fulfilled
- limitations on transactions with affiliates
- limitations on our ability and that of our subsidiaries to incur liens
If a change of control of our company and a decline in the rating of the
notes occur, each note holder will have the right to require us to purchase that
holder's notes.
In addition, the 1999 indenture limits our ability to merge with or to
transfer all or substantially all of our assets to another person. Except as set
forth above, the 1999 indenture does not contain any material quantitative
financial requirements. The notes provide for acceleration upon customary events
of default.
All of our subsidiaries are subject to the restrictive covenants described
above. However, if we meet specified conditions, we have the ability to
designate subsidiaries as "unrestricted," which means they will no longer be
subject to these covenants.
CREDIT FACILITY
On September 8, 1999, our subsidiary, Williams Communications, Inc.,
entered into a $1.05 billion credit facility with various banks for which Bank
of America, N.A. serves as administrative agent and a lender, The Chase
Manhattan Bank serves as syndication agent and a lender, Chase Securities Inc.
and Banc of America Securities LLC serve as joint lead arrangers and joint book
managers and Bank of Montreal and The Bank of New York serve as co-documentation
agents and lenders. The credit facility consists of a $525 million seven-year
senior multi-draw amortizing term loan facility and a $525 million six-year
senior reducing revolving credit facility. In September 2000, we borrowed the
$525 million term loan under the credit facility, which otherwise would have
expired on September 7, 2000. We may borrow under the revolving credit facility
throughout its six-year term, if we are in compliance with specified covenants
and conditions.
The loans bear interest at rates equal to, at our option, LIBOR or an
alternate base rate plus, in either case, a margin based on the debt ratings of
our credit facility by Standard & Poor's and Moody's, and plus 0.25%, if our
ratio of total debt to adjusted EBITDA (as defined in our credit facility) is
greater than or equal to 6.0 to 1.0. As of June 30, 2000, the annual rate of
interest was LIBOR plus 2.25%.
Term loans must be repaid beginning in the fourth year of the term loan
facility: 15% of the term loans must be repaid during the fourth year, 25%
during the fifth year, 30% during the sixth
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year and 30% during the seventh year. The commitments under the revolving credit
facility will be permanently reduced by 20% in the fourth year, by 30% in the
fifth year, and by 50% in the sixth year. We must repay amounts borrowed under
the revolving credit facility to the extent these amounts are in excess of the
remaining commitments.
We are required to ratably prepay the term loans and reduce our revolving
loan commitments by an amount equal to:
- 100% of net cash proceeds from sales of assets to the extent these
proceeds are not reinvested in core assets or permitted acquisitions
- 50% of excess cash flow beginning in 2001
- 100% of net cash proceeds received from the issuance of debt, except
permitted debt
If our unsecured senior debt is rated at least BBB- by Standard & Poor's
and Baa3 by Moody's, or our ratio of total debt to adjusted EBITDA is less than
3.5 to 1.0, prepayment of the term loans and reduction of the revolving loan
commitments will not be required from excess cash flow and will only be required
to be made with 50% of the proceeds of debt that is not permitted debt. No
prepayments or reductions are required to be made from the proceeds of issuing
permitted debt. The lenders may terminate the credit facility and declare all
loans outstanding under the credit facility due and payable if an event of
default occurs under the credit facility. Events of default under the credit
facility include:
- nonpayment of principal, interest or other amounts due under the
facilities
- material misrepresentations
- covenant violations
- default under our other material debt
- specified bankruptcy and ERISA events
- material judgments against us
- a downgrade by Standard & Poor's or Moody's of the senior unsecured debt
of Williams to less than BBB- or Baa3, respectively
- a change of control of our company
For these purposes, a change of control of our company would be deemed to
include Williams' ownership of less than 75% of the voting power of our issued
and outstanding voting stock or less than 65% of our issued and outstanding
capital stock, except that these percentages would be reduced to 35% if the
facilities are rated at least BBB- by Standard & Poor's and Baa3 by Moody's.
Williams has announced its intention to separate our business from its energy
business, which could result in a change of control.
The loans are unsecured except that if at any time the rating for the
credit facility assigned by Standard & Poor's is less than BB- or by Moody's is
less than Ba3, we must, if requested by the lenders, provide the lenders with
security interests and liens upon substantially all of our assets. Following the
July 24, 2000 announcement by Williams of its intention to separate our business
from Williams' energy business, our facilities were rated BB- by Standard and
Poor's and Ba3 by Moody's.
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The credit facility contains restrictive and financial maintenance
covenants. Restrictive covenants include limitations on:
- additional debt
- creation of liens
- guarantees
- sales of assets
- mergers, consolidations, liquidations and dissolutions
- investments, capital expenditures, loans, advances and acquisitions
- dividends and other payments with respect to our capital stock and common
stock of our subsidiaries and voluntary prepayments of debt
- material changes to our charter, the 1999 indenture for our senior
redeemable notes, the Williams note, or certain other agreements
- sale and leaseback transactions
- material changes in our lines of business
- transactions with affiliates
- agreements not to pledge assets or pay dividends
Financial maintenance covenants include:
- a total debt to contributed capital requirement
- a minimum adjusted EBITDA requirement
- a limitation on capital expenditures
- a total debt to adjusted EBITDA requirement
- a senior debt to adjusted EBITDA requirement
- an adjusted EBITDA to interest expense requirement
Our ability to borrow under the credit facility is subject to a number of
conditions, many of which require lender satisfaction or are based on lender
determination. The facilities are guaranteed by us, and all of our direct and
indirect domestic restricted subsidiaries.
We expect to borrow the amounts necessary under the credit facility as and
when needed for our capital investment plan and for working capital and general
corporate purposes.
At any time within two years after we entered into the credit facility, we
may request one or more additional credit facilities from the credit facility
lenders. These facilities could be in an aggregate amount of not less than $100
million or more than $500 million. The terms and conditions of any additional
facilities have not been agreed to and would have to be negotiated. The average
life to maturity of any additional facilities could not be less than the
remaining average life to maturity of the term or revolving credit facilities.
We are not required to request or enter into any additional facilities and, if
we request additional facilities, no lender is obligated to participate.
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WILLIAMS NOTE
To fund our operations, we historically have received capital contributions
from Williams and interest-bearing advances from Williams and an affiliate of
Williams at floating rates of interest established at specified margins above
benchmark rates. On September 8, 1999, the borrowings provided by Williams were
converted into a seven-year amortizing note payable by our subsidiary, Williams
Communications, Inc., to Williams. The loan bears interest at rates equal to, at
our option, LIBOR or an alternate base rate plus, in either case, a margin based
on the debt ratings of our credit facility by Standard & Poor's and Moody's, and
plus 0.25%, if our ratio of total debt to adjusted EBITDA (as defined) is
greater than or equal to 6.0 to 1.0. As of June 30, 2000, the annual interest
rate was LIBOR plus 2.25%. We currently have approximately $982 million in
borrowings from Williams. For so long as no default or event of default exists
under our credit facility, principal will be paid quarterly beginning July 1,
2000, with no less than $25 million payable in each full fiscal year. Additional
principal payments are permitted under our credit facility and will be made to
the extent that, after giving effect to such payment, the ratio of total debt to
adjusted EBITDA, as defined in our credit facility, is less than 5.0 to 1.0.
Additional principal payments may also be made with additional capital as
defined in our credit facility. Any event of default with respect to any of our
indebtedness with an aggregate principal amount of at least $25 million that
would permit our lenders to accelerate the maturity of such indebtedness would
also be an event of default under the Williams note and permit Williams to
accelerate the maturity of amounts outstanding under the Williams note.
The Williams note ranks senior to our senior redeemable notes. It ranks
equal to our credit facility except to the extent our credit facility is secured
and as set forth in an intercreditor agreement entered into between Williams and
the credit facility lenders. Under the intercreditor agreement, Williams has
agreed that the Williams note will be subordinated to rights of the lenders in
any bankruptcy, insolvency, liquidation or dissolution of the borrower and in
the event of default under our credit facility, with some exceptions.
ASSET DEFEASANCE PROGRAM
During 1998, we entered into an asset defeasance program in the form of an
operating lease agreement covering a portion of our network with a group of
financial institutions. The total cost of the network assets covered by this
lease agreement is $750 million. The lease term includes an interim term that
ended April 30, 2000, during which the covered network assets were constructed,
and a base term. The interim and base terms are expected to total five years
and, if renewed, could total seven years.
We have an option to purchase the covered network assets during the lease
term at an amount approximating the lessor's cost. Williams provides a residual
value guarantee equal to a maximum of 89.9% of the transaction. The residual
value guarantee is reduced by the present value of the actual lease payments. In
the event that we do not exercise the purchase option, we expect the fair market
value of the covered network assets to substantially reduce or eliminate
Williams' payment, if any, under the residual value guarantee. At June 30, 2000,
all $750 million of availability had been used under this program.
PREFERRED STOCK
GENERAL
In September 2000, we issued 5,000,000 shares of 6.75% redeemable
cumulative convertible preferred stock in a private placement at a liquidation
preference of $50.00 per share.
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DIVIDENDS
Dividends on the preferred stock are cumulative from the date of issue and
will be payable on January 15, April 15, July 15, and October 15 of each year,
beginning on January 15, 2001, at an annual rate of 6.75%. The terms of our
credit facility and our senior redeemable notes currently restrict us from
paying cash dividends. During any periods when we are restricted from paying
cash dividends, we expect to pay dividends by delivering shares of our common
stock to the transfer agent for the preferred stock, which will resell those
shares of common stock. The proceeds from the sale of our common stock will then
be used to pay cash dividends to the holders of shares of preferred stock.
CONVERSION
Each share of preferred stock is convertible into 1.7610 shares of common
stock, based on a conversion price of $28.39. On or after October 15, 2005, we
may, at our option, cause the conversion rights on our shares of our preferred
stock to terminate. We may exercise this option only if for at least 20 trading
days within any period of 30 consecutive trading days, including the last
trading day of that period, the current market price of our common stock exceeds
$39.75, equivalent to 140% of the conversion price, subject to adjustment in a
number of circumstances.
OPTIONAL REDEMPTION
We may not redeem any shares of preferred stock at any time before October
15, 2005. Thereafter, we may, at our option, redeem all or any part of the
shares of preferred stock at a redemption price equal to 103.38% of the
liquidation preference if we redeem the shares in 2005, and thereafter this
percentage gradually declines to 100% on and after October 15, 2010, plus
accumulated and unpaid dividends, including special dividends, if any, to the
redemption date. The terms of our debt instruments currently restrict our
ability to redeem shares of preferred stock.
MANDATORY REDEMPTION
We will be obligated to redeem the shares of preferred stock on October 15,
2012 at 100% of their liquidation value plus accumulated and unpaid dividends,
including special dividends, if any, to that date.
RANKING
The preferred stock will be, with respect to dividend rights and rights
upon liquidation, winding up or dissolution, junior to all our existing and
future debt obligations; junior to each class or series of capital stock other
than our common stock or Class B common stock and any other class or series of
our capital stock the terms of which provide that such class or series will rank
junior to the preferred stock; and on a parity with each class or series of our
capital stock the terms of which provide that such class will rank on a parity
with the preferred stock.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following general discussion summarizes certain U.S. federal income tax
consequences of the exchange of the original notes and the holding and
disposition of the exchange notes. This discussion only deals with persons that
hold the notes as capital assets within the meaning of Section 1221 of the
Internal Revenue Code, and that purchased the original notes for cash at
original issue. This discussion does not address the U.S. federal income tax
consequences that may be relevant to a particular holder subject to special
treatment under certain U.S. federal income tax laws, such as dealers in
securities or foreign currency, banks, trusts, insurance companies, tax-exempt
organizations, persons that hold notes as part of a straddle, hedge against
currency risk or constructive sale or conversion transaction, persons that have
a functional currency other than the U.S. dollar and investors in pass-through
entities.
This discussion is based on the Internal Revenue Code, the final, temporary
and proposed Treasury regulations promulgated under the Internal Revenue Code,
administrative pronouncements and judicial decisions, all as in effect on the
date of this prospectus and all of which are subject to change, possibly with
retroactive effect. We have not requested, and will not request, a ruling from
the IRS regarding any of the U.S. federal income tax consequences described
below. As a result, there can be no assurance that the IRS will not disagree
with or challenge any of the conclusions set forth in this prospectus.
This discussion does not discuss all of the U.S. federal income tax
considerations that may be relevant to a holder of notes. Prospective
participants in the exchange offer are urged to consult their own tax advisors
regarding the application to their particular situations of U.S. federal income
tax laws, as well as the laws of any state, local or foreign taxing
jurisdiction.
EXCHANGE OFFER
The exchange of original notes for exchange notes in the exchange offer
will not constitute a taxable event for U.S. federal income tax purposes. As a
result:
(1) a holder of notes will not recognize taxable gain or loss as a
result of the exchange of original notes for exchange notes in the exchange
offer;
(2) the holding period of the exchange notes will include the holding
period of the original notes surrendered in exchange for the exchange
notes; and
(3) a holder's adjusted tax basis in the exchange notes will be the
same as the holder's adjusted tax basis in the original notes surrendered
in exchange for the exchange notes.
U.S. HOLDERS
The following discussion is limited to persons who or which are U.S.
holders. For these purposes, U.S. holder means:
(1) an individual who is a citizen or resident of the U.S.;
(2) a corporation or other entity taxable as a corporation created or
organized under the laws of the U.S. or of any political subdivision of the
U.S.;
(3) an estate or trust the income of which is subject to U.S. federal
income tax regardless of its source;
(4) a trust subject to the primary supervision of a U.S. court and the
control of one or more U.S. persons; or
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(5) a person whose worldwide income or gain is otherwise subject to
U.S. federal income tax on a net income basis.
Stated interest on notes. Stated interest on a note other than a discount
note will be taxable to a U.S. Holder as ordinary interest income in accordance
with such holder's regular method of tax accounting.
Sale, exchange or redemption of notes. Upon the sale, exchange or
redemption of a note, a U.S. holder generally will recognize taxable gain or
loss equal to the difference between:
(1) the amount realized on that disposition and
(2) the U.S. holder's adjusted tax basis in the note.
Notwithstanding the foregoing, any amounts realized in connection with any
sale, exchange, or redemption with respect to accrued interest not previously
included in income will be treated as ordinary interest income.
Information reporting and backup withholding. A U.S. holder of notes may
be subject to backup withholding at a 31% rate relating to reportable payments,
which include interest, including original issue discount, or principal paid on
or the gross proceeds of a sale, exchange or redemption of the notes. The payor
of any reportable payments will be required to deduct and withhold 31% of these
payments if:
(1) the payee fails to establish that it is entitled to an exemption;
(2) the payee fails to furnish a correct taxpayer identification
number to the payor in the prescribed manner;
(3) the IRS notifies the payor that the taxpayer identification number
furnished by the payee is incorrect;
(4) the payee has failed properly to report the receipt of reportable
payments and the IRS has notified the payor that backup withholding is
required; or
(5) the payee fails to certify under penalties of perjury that it is
not subject to backup withholding.
If any one of these events occurs with respect to a U.S. holder of notes, we or
our paying or other withholding agent will be required to withhold 31% of any
payments of principal, premium, if any, and interest, including original issue
discount, on a note.
Any amount withheld from a payment to a U.S. holder under the backup
withholding rules will be allowed as a credit against the U.S. holder's U.S.
federal income tax liability, so long as the required information is provided to
the IRS. We or our paying or other withholding agent generally will report to a
U.S. holder of notes and to the IRS the amount of any reportable payments made
on the notes for each calendar year and the amount of tax withheld, if any,
relating to these payments. We will report annually to the IRS and to each U.S.
holder the amount of original issue discount accrued on the notes for the
calendar year.
Recently adopted Treasury regulations that generally are effective for
payments made after December 31, 2000, subject to certain transition rules, will
generally expand the circumstances under which information reporting and backup
withholding may apply. U.S. holders should consult their tax advisors regarding
the application of the information reporting and backup withholding rules,
including the new Treasury regulations.
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NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a note that is not a U.S. holder.
Stated interest and original issue discount. Subject to the discussion of
backup withholding below, payments of interest, including original issue
discount, on a note to a non-U.S. holder generally will not be subject to U.S.
federal income tax, or the withholding of U.S. federal income tax, as long as:
(1) the non-U.S. holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of our stock that
are entitled to vote;
(2) the non-U.S. holder is not:
(A) a controlled foreign corporation that is related to us through
stock ownership, or
(B) a bank receiving interest on a loan entered into in the
ordinary course of business;
(3) the interest is not effectively connected with the conduct by the
non-U.S. holder of a trade or business within the U.S.; and
(4) We or our paying agent receives:
(A) from the non-U.S. holder, properly completed documentation
signed under penalties of perjury, which provides the non-U.S. holder's
name and address and certifies that the non-U.S. holder is not a U.S.
person, or
(B) from a security clearing organization, bank or other financial
institution that holds the notes in the ordinary course of its trade or
business on behalf of the non-U.S. holder, certification under penalties
of perjury that such documentation has been received by it or by another
such financial institution from the non-U.S. holder, and a copy of the
documentation is furnished to the payor.
Sale, exchange or redemption of notes. Subject to the discussion of backup
withholding, any gain realized by a non-U.S. holder on the sale, exchange or
redemption of a note generally will not be subject to U.S. federal income tax,
unless:
(1) the gain is effectively connected with the conduct by the non-U.S.
holder of a trade or business within the United States;
(2) the non-U.S. holder is an individual who 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 under the provisions of U.S.
federal income tax law applicable to certain expatriates.
Information reporting and backup withholding. We must report annually to
the IRS and to each non-U.S. holder the amount of any interest paid and original
issue discount accrued on the notes in that year and the amount of tax withheld,
if any, relating to those payments. Copies of those information returns also may
be made available, under the provisions of a specific treaty or agreement, to
the taxing authorities of the country in which the non-U.S. holder resides.
Backup withholding and information reporting generally will not apply to
interest, including original issue discount, payments made to a non-U.S. holder
in respect of the notes if the non-
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U.S. holder furnishes us or our paying agent with appropriate documentation
signed under penalties of perjury stating that the beneficial owner is not a
U.S. person and setting forth the non-U.S. holder's name and address. However,
neither we nor our paying agent may have actual knowledge that the holder is a
U.S. person or that the conditions of an exemption are not in fact satisfied.
The payment of proceeds from a non-U.S. holder's disposition of notes to or
through the U.S. office of any broker, domestic or foreign, will be subject to
information reporting and possible backup withholding unless the non-U.S. holder
certifies as to its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. However, the broker must not have actual knowledge
that the holder is a U.S. person or that the conditions of an exemption are not
in fact satisfied. The payment of the proceeds from a non-U.S. holder's
disposition of a note to or through a non-U.S. office of either a U.S. broker or
a non-U.S. broker that is a U.S.-related person will be subject to information
reporting, but not backup withholding. However, this payment of proceeds will
not be subject to information reporting if the broker has documentary evidence
in its files that the non-U.S. holder is not a U.S. person and the broker has no
knowledge to the contrary, or the non-U.S. holder establishes an exemption. For
this purpose, a U.S.-related person is:
(1) a controlled foreign corporation for U.S. federal income tax
purposes; or
(2) a foreign person 50% or more of whose gross income from all
sources for the three-year period ending with the close of its taxable year
preceding payment, or for the part of the period that the broker has been
in existence, is derived from activities that are effectively connected
with the conduct of a U.S. trade or business.
Neither information reporting nor backup withholding will apply to a payment of
the proceeds of a non-U.S. holder's disposition of notes by or through a
non-U.S. office of a non-U.S. broker that is not a U.S. related person.
A non-U.S. holder that does not qualify for exemption from withholding
under the preceding paragraphs generally will be subject to withholding of U.S.
federal income tax at a 30% rate, or lower applicable treaty rate, on payments
of interest, including original issue discount, on the notes.
If interest, including original issue discount, on the notes is effectively
connected with the conduct by a non-U.S. holder of a trade or business within
the U.S., the interest will be subject to U.S. federal income tax on a net
income basis at the rate applicable to U.S. persons generally, and, for
corporate holders, may also be subject to a 30% branch profits tax. If interest,
including original issue discount, is subject to U.S. federal income tax on a
net income basis in accordance with these rules, the payments will not be
subject to U.S. withholding of the tax so long as the relevant non-U.S. holder
provides our paying agent or us with a properly executed Form 4224.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be allowed as a refund or a credit against the non-U.S.
holder's U.S. federal income tax liability, as long as the required procedures
are followed.
New Treasury regulations that generally are effective for payments made
after December 31, 2000, subject to certain transition rules, will generally
expand the circumstances under which information reporting and backup
withholding may apply. The new Treasury regulations unify current certification
procedures and forms and clarify reliance standards and certain rules relating
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to foreign partnerships. For example, these Treasury regulations require, in the
case of notes held by a foreign partnership, that:
(1) the certification described in clause (4) above be provided by the
partners rather than by the foreign partnership; and
(2) the partnership provide certain information, including a taxpayer
identification number. A look-through rule applies in the case of tiered
partnerships.
Holders should consult their tax advisors regarding the application of the
information reporting and backup withholding rules, including the new Treasury
regulations.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those exchange notes. Each letter of transmittal that
accompanies this prospectus 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. A participating
broker-dealer may use this prospectus, in connection with resales of exchange
notes received in exchange for original notes where those exchange notes were
acquired by the broker-dealer as a result of market-making activities or other
trading activities. We have agreed that, starting on the offer termination date
and ending on the close of business on the day that is 180 days following the
offer termination date, we will make this prospectus available to any
broker-dealer for use in connection with any of those resales.
We will not receive any proceeds from any sale of exchange notes. Exchange
notes received by broker-dealers for their own account in the exchange offer may
be sold from time to time in one or more transactions. These sales may be made
in the over-the-counter market, in negotiated transactions, through the writing
of options on the exchange notes or a combination of these methods of resale,
and may be at market prices prevailing at the time of resale, at prices related
to the prevailing market prices or negotiated prices. Any resale of this kind
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 of these
broker-dealers and/or the purchasers of any of these exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account in the exchange offer and any broker or dealer that participates in a
distribution of these exchange notes may be deemed to be an underwriter within
the meaning of the Securities Act. If this is the case, any profit of any of
these resales of exchange notes and any commissions or concessions received by
any of these persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an underwriter within the meaning of the Securities Act.
For a period of 180 days after the offer termination date, we will promptly
send additional copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests those documents in its letter
of transmittal. We have agreed to pay all expenses incident to the exchange
offer, other than the commissions or concessions of any brokers or dealers. We
also have agreed to indemnify the initial purchasers of the original notes
against certain liabilities, including liabilities under the Securities Act.
172
<PAGE> 177
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by William G.
von Glahn, Senior Vice President, Law, of Williams and special counsel to us.
Certain legal matters in connection with this offering will be passed upon by
our special counsel, Conner & Winters, A Professional Corporation, Tulsa,
Oklahoma. Conner & Winters has from time to time represented, and may continue
to represent, Williams and its affiliates in certain legal matters. As of July
31, 2000, Mr. von Glahn owned directly or indirectly, 193,408 shares of common
stock of Williams and had the right to exercise options to purchase an
additional 135,504 shares. At the same date, Mr. von Glahn also owned, directly
or indirectly, 303 shares of our common stock and held options to purchase
50,000 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules included in our Annual Report on Form 10-K/A
for the year ended December 31, 1999, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedules are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
173
<PAGE> 178
$1,000,000,000
[WILLIAMS COMM. LOGO]
WILLIAMS COMMUNICATIONS GROUP, INC.
EXCHANGE OFFER FOR
11.70% SENIOR REDEEMABLE NOTES DUE 2008
AND
11.875% SENIOR REDEEMABLE NOTES DUE 2010
---------------------
PROSPECTUS
, 2000
---------------------
<PAGE> 179
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Williams Communications Group, Inc. (the "Company") is incorporated under
the laws of the State of Delaware. Section 145 ("Section 145") of the General
Corporation Law of the State of Delaware ("DGCL") provides that a Delaware
corporation may 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, director, employee or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation or 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 provided such person acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his or her conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action or
suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the corporation's best interests except that
no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. 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 him or her against the
expenses which such officer or director has actually and reasonably incurred.
Section 145 further provides that the indemnification provisions of Section
145 shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office. The Restated Certificate of Incorporation contains a provision
eliminating, to the fullest extent permitted by the DGCL as it exists or may in
the future be amended, the liability of a director to the Company and its
stockholders for monetary damages for breaches of fiduciary or other duty as a
director. However, the DGCL does not currently allow such provision to limit the
liability of a director for: (i) any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of laws; (iii)
payment of dividends, stock purchases or redemptions that violate the DGCL; or
(iv) any transaction from which the director derived an improper personal
benefit. Such limitation of liability also does not affect the availability of
equitable remedies such as injunctive relief or rescission.
The Restated Certificate of Incorporation and the By-Laws also provide
that, to the fullest extent permitted by the DGCL as it exists or may in the
future be amended, the Company will indemnify and hold harmless any director who
is or was made a party or is threatened to be made a party to or is involved in
any manner in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
II-1
<PAGE> 180
that such person is or was a director or officer of the Company or its
subsidiaries, and any person serving at the request of the Company as an
officer, director, partner, member, employee or agent of another corporation,
partnership, limited liability company, joint venture, trust, employee benefit
plan or other enterprise and may indemnify any officer, employee or agent of the
Company; provided, however, that the Company will indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors or is a proceeding to enforce such person's
claim to indemnification pursuant to the rights granted by the Restated
Certificate of Incorporation or By-Laws. In addition, the Company will pay the
expenses incurred by directors, and may pay the expenses incurred by other
persons that may be indemnified pursuant to the Restated Certificate of
Incorporation and the By-Laws, in defending any such proceeding in advance of
its final disposition upon receipt (unless the Company upon authorization of the
Board of Directors waives such requirement to the extent permitted by applicable
law) of an undertaking by or on behalf of such person to repay such amount if it
is ultimately determined that such person is not entitled to be indemnified by
the Company as authorized in the Restated Certificate of Incorporation or
By-Laws or otherwise. The Restated Certificate of Incorporation and the By-Laws
also state that such indemnification is not exclusive of any other rights of the
indemnified party, including rights under any indemnification agreements or
otherwise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following is a list of all exhibits filed as a part of this
Registration Statement on Form S-4, including those incorporated by reference
herein.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Current Report on Form 8-K
dated October 1, 1999 (the "October 1999 8-K"))(1)
3.2 -- Restated By-laws of the Company (filed as Exhibit 3.2 to
the October 1999 8-K)(1)
4.1 -- Indenture dated as of August 8, 2000 between the Company
and The Bank of New York, as trustee relating to the
11.70% Senior Redeemable Notes due 2008 and the 11.875%
Senior Redeemable Notes due 2010
4.2 -- Registration Rights Agreement dated as of August 8, 2000
between the Company and the initial purchasers
4.3 -- Specimen certificate of common stock (filed as Exhibit
4.1 to Registration Statement No. 333-76007 on Form S-1
relating to an equity offering (the "Equity Registration
Statement"), dated April 9, 1999)(1)
4.4 -- Certificate of Designation of 6.75% Redeemable Cumulative
Convertible Preferred Stock
4.5 -- Certificate of designation of Series A Junior
Participating Preferred Stock (filed as Exhibit 4.1 to
the October 1999 8-K)(1)
4.6 -- Specimen certificate of Class B common stock (filed as
Exhibit 4.2 to the Equity Registration Statement dated
April 9, 1999)(1)
4.7 -- Indenture governing notes dated October 6, 1999 between
the Company and The Bank of New York, Trustee (filed as
Exhibit 4.2 to the October 1999 8-K)(1)
5 -- Opinion of William G. von Glahn, Esq.
</TABLE>
II-2
<PAGE> 181
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
8 -- Opinion of Conner & Winters, A Professional Corporation,
as to certain tax matters
10.1 -- Securities Purchase Agreement among the Company, The
Williams Companies, Inc. ("TWC") and Telefonos de Mexico,
S.A. de C.V. ("TelMex"), dated May 25, 1999 (filed as
Exhibit 10.1 to the Equity Registration Statement,
Amendment No. 1, dated May 27, 1999)(1)
10.2 -- Amended and Restated Alliance Agreement between TelMex
and Williams Communications, Inc. ("WCI"), dated May 25,
1999 (filed as Exhibit 10.2 to the Equity Registration
Statement, Amendment No. 8, dated September 29,
1999)(1)(2)
10.3 -- Securities Purchase Agreement dated as of May 24, 1999 by
and among the Company, TWC and Intel Corporation (filed
as Exhibit 10.3 to the Equity Registration Statement,
Amendment No. 3, dated July 12, 1999)(1)
10.4 -- Master Alliance Agreement Between Intel Internet Data
Services and WCI dated as of May 24, 1999 (filed as
Exhibit 10.4 to the Equity Registration Statement,
Amendment No. 1, dated May 27, 1999)(1)(2)
10.5 -- Fiber Lease Agreement between Metromedia Fiber Network
Services, Inc. and WCI dated September 16, 1999 (filed as
Exhibit 10.5 to the Equity Registration Statement,
Amendment No. 8, dated September 29, 1999)(1)(2)
10.6 -- Fiber Lease Agreement between WCI and Metromedia Fiber
National Network Services, Inc., dated September 16, 1999
(filed as Exhibit 10.6 to the Equity Registration
Statement, Amendment No. 8, dated September 29,
1999)(1)(2)
10.7 -- Shareholders Agreement by and among Metrogas S.A.,
Williams International Telecom (Chile) Limited, and
Metrocom S.A., dated March 30, 1999 and Letter Agreement
dated March 30, 1999 (filed as Exhibit 10.8 the Equity
Registration Statement, Amendment No. 3, dated July 29,
1999)(1)
10.8 -- Share Purchase Agreement by and among Lightel, S.A.
Tecnologia da Informacao, Williams International ATL
Limited, Johi Representacoes Ltda and ATL-Algar Telecom
Leste, S.A., dated as of March 25, 1999 (filed as Exhibit
10.9 to the Equity Registration Statement, Amendment No.
1, dated May 27, 1999)(1)
10.9 -- Master Alliance Agreement between SBC Communications Inc.
("SBC") and WCI dated February 8, 1999 (filed as Exhibit
10.10 the Equity Registration Statement, Amendment No. 1,
dated May 27, 1999)(1)(2)
10.10 -- Transport Services Agreement dated February 8, 1999,
between Southwestern Bell Communication Services, Inc.
and WCI (filed as Exhibit 10.11 to the Equity
Registration Statement, Amendment No. 1, dated May 27,
1999)(1)(2)
10.11 -- Securities Purchase Agreement dated February 8, 1999,
between SBC and the Company (filed as Exhibit 10.12 to
the Equity Registration Statement, Amendment No. 1, dated
May 27, 1999)(1)
</TABLE>
II-3
<PAGE> 182
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Amended and Restated Lease for Bank of Oklahoma Tower, as
of January 1, 1999, by and between Williams Headquarters
Building Company and TWC (filed as Exhibit 10.14 the
Equity Registration Statement, Amendment No. 1, dated May
27, 1999)(1)
10.13 -- Lease as of January 1, 1999, for Williams Technology
Center, by and between Williams Headquarters Building
Company and the Company (filed as Exhibit 10.15 to the
Equity Registration Statement, Amendment No. 1, dated May
27, 1999)(1)
10.14 -- Lease as of January 1, 1999, for Williams Resource
Center, by and between Williams Headquarters Building
Company and the Company (filed as Exhibit 10.16 the
Equity Registration Statement, Amendment No. 1, dated May
27, 1999)(1)
10.15 -- Wireless Fiber IRU Agreement by and between Winstar
Wireless, Inc. and WCI, effective as of December 17, 1998
(filed as Exhibit 10.17 to the Equity Registration
Statement, Amendment No. 1, dated July 12, 1999)(1)
10.16 -- IRU Agreement between Winstar Wireless, Inc. and WCI
dated December 17, 1998 (long haul), together with
Clarification Agreement effective as of December 17, 1998
and Side Agreement dated March 31, 1999 (filed as Exhibit
10.18 to the Equity Registration Statement, Amendment No.
1, dated May 27, 1999)(1)(2)
10.17 -- UtiliCom Networks, Inc. Note and Warrant Purchase
Agreement dated December 15, 1998. (filed as Exhibit
10.19 to the Equity Registration Statement, Amendment No.
3, dated July 12, 1999)(1)
10.18 -- Consolidated IRU Agreement by and among IXC Carrier,
Inc., Vyvx, Inc. and The WilTech Group, dated December 9,
1998 and Amendment No. 4, dated December 22, 1998 (filed
as Exhibit 10.20 to the Equity Registration Statement,
Amendment No. 2, dated July 6, 1999)(1)(2)
10.19 -- Stock Purchase Agreement for CNG Computer Networking
Group Inc. by and among The Sellers (1310038 Ontario
Inc., George Johnston, Hayden Marcus, The H. Marcus
Family Trust and Gary White), WilTel Communications
(Canada), Inc. and Williams Communications Solutions,
LLC, dated October 13, 1998 (filed as Exhibit 10.21 to
the Equity Registration Statement, Amendment No. 6, dated
August 18, 1999)(1)
10.20 -- Preferred Stock Purchase by and among UniDial Holdings,
Inc. and WCI, dated October 2, 1998 (filed as Exhibit
10.22 to the Equity Registration Statement, Amendment No.
6, dated August 18, 1999)(1)(2)
10.21 -- Amended and Restated Lease between State Street Bank &
Trust Co. of Connecticut, National Association, as
Lessor, and WCI, as Lessee, as of September 2, 1998
(filed as Exhibit 10.23 to the Equity Registration
Statement, Amendment No. 3, dated July 12, 1999)(1)
</TABLE>
II-4
<PAGE> 183
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.22 -- Amended and Restated Participation Agreement dated as of
September 2, 1998, among WCI; State Street Bank & Trust
Company of Conn., National Association, as Trustee; Note
Holders and Certificate holders; APA Purchasers; State
Street Bank & Trust Co., as Collateral Agent; and
Citibank, N.A., as agent, with Citibank, N.A. and Bank of
Montreal as Co-Arrangers; Royal Bank of Canada, as
Documentation Agent; and Bank of America, The Chase
Manhattan Bank and Toronto Dominion, as Managing Agents
(filed as Exhibit 10.24 to the Equity Registration,
Amendment No. 1, dated May 27, 1999)(1)
10.23 -- Capacity Purchase Agreement between WCI and Intermedia
Communications, Inc., dated January 5, 1998 and Amendment
dated August 5, 1998 (filed as Exhibit 10.25 to the
Equity Registration Statement, Amendment No. 6, dated
August 18, 1999)(1)(2)
10.24 -- Settlement and Release Agreement by and between WorldCom
Network Services, Inc. and WCI, dated July 1, 1998 (filed
as Exhibit 10.26 to the Equity Registration Statement,
Amendment No. 6, dated August 18, 1999)(1)(2)
10.25 -- Umbrella Agreement by and between DownTown Utilities Pty
Limited, WilTel Communications Pty Limited, Spectrum
Network Systems Limited, CitiPower Pty, Energy Australia,
South East Queensland Electricity Corporation Limited,
Williams Holdings of Delaware Inc. and Williams
International Services Company, dated June 19, 1998
(filed as Exhibit 10.27 to the Equity Registration
Statement, Amendment No. 1, dated May 27, 1999)(1)
10.26 -- Carrier Services Agreement between Vyvx, Inc. and U S
WEST Communications, Inc., dated January 5, 1998, and
Amendment No. 1, dated June 14, 1999 (filed as Exhibit
10.28 to the Equity Registration Statement, Amendment No.
1, dated May 27, 1999)(1)(2)
10.27 -- Distributorship Agreement by and between Northern Telecom
Limited and WilTel Communications, L.L.C., dated January
1, 1998 (filed as Exhibit 10.29 to the Equity
Registration Statement, Amendment No. 6, dated August 18,
1999)(1)(2)
10.28 -- Common Stock and Warrant Purchase Agreement by and among
Concentric Network Corporation ("Concentric") and the
Company, dated July 25, 1997 (filed as Exhibit 10.30 to
the Equity Registration, Amendment No. 1, dated May 27,
1999)(1)
10.29 -- Note and Warrant Purchase Agreement by and among
Concentric and the Company, dated June 19, 1997 (filed as
Exhibit 10.31 to the Equity Registration Statement,
Amendment No. 3, dated July 12, 1999)(1)
10.30 -- Limited Liability Company Agreement of WilTel
Communications, LLC, by and between the Company and
Northern Telecom, Inc. ("Nortel"), dated April 30, 1997
(filed as Exhibit 10.32 to the Equity Registration
Statement, Amendment No. 6, dated August 18, 1999)(1)
10.31 -- Share Purchase Agreement for TTS Meridian Systems Inc. by
and among Northern Telecom Limited, WilTel
Communications, LLC and 1228966 Ontario Inc., dated April
30, 1997 (filed as Exhibit 10.33 to the Equity
Registration Statement, Amendment No. 6 dated August 18,
1999)(1)
</TABLE>
II-5
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.32 -- Formation Agreement by and between Nortel and the
Company, dated April 1, 1997 (filed as Exhibit 10.34 to
the Equity Registration Statement, Amendment No. 6, dated
August 18, 1999)(1)
10.33 -- Purchase Agreement among ABC Industria e Comercio
S.A.-ABC INCO, Lightel S.A. Tecnologia da Informacao,
Algar S.A.-Empreendimentos e Participacoes and Williams
International Telecom Limited, dated January 21, 1997
(filed as Exhibit 10.35 to the Equity Registration
Statement, Amendment No. 1, dated May 27, 1999)(6)
10.34 -- Subscription and Shareholders Agreement among Lightel
S.A. Tecnologia da Informacao, Algar S.A.-Empreendimentos
e Participacoes and Williams International Telecom
Limited, dated January 21, 1997 (filed as Exhibit 10.36
to the Equity Registration Statement, Amendment 1, dated
May 27, 1999)(1)
10.35 -- Sublease Agreement as of June 1, 1996, by and between
Transcontinental Gas Pipeline Company and Williams
Telecommunications Systems, Inc. (filed as Exhibit 10.37
to the Equity Registration Statement, Amendment No. 1,
dated May 27, 1999)(1)
10.36 -- System Use and Service Agreement between WilTel, Inc. and
Vyvx, Inc. effective as of January 1, 1994 (filed as
Exhibit 10.38 to the Equity Registration Statement,
Amendment No. 1, dated May 27, 1999)(1)(2)
10.37 -- Administrative Services Agreement dated September 30,
1999 between the Company and its Subsidiaries as
identified therein and TWC and its Subsidiaries as
identified therein (filed as Exhibit 10.1 to the October
1999 8-K)(1)
10.38 -- Service Agreement September 30, 1999 between Williams
Information Services Corporation ("WISC") and the Company
(filed as Exhibit 10.2 to the October 1999 8-K)(1)
10.39 -- Tax Sharing Agreement dated September 30, 1999 between
TWC and the Company (filed as Exhibit 10.3 to the October
1999 8-K)(1)
10.40 -- Indemnification Agreement dated September 1, 1999 between
TWC and the Company (filed as Exhibit 10.4 to the October
1999 8-K)(2)
10.41 -- Rights Agreement between the Company and The Bank of New
York, Rights Agent, dated as of September 30, 1999 (filed
as Exhibit 10.5 to the October 1999 8-K)(1)
10.42 -- Registration Rights Agreement dated September 30, 1999
between TWC and the Company (filed as Exhibit 10.6 to the
October 1999 8-K)(1)
10.43 -- Separation Agreement dated September 30, 1999 between TWC
and the Company (filed as Exhibit 10.7 to the October
1999 8-K)(1)
10.44 -- Call option agreement by and among Williams Holdings of
Delaware, Inc., Williams International Company, Williams
International Telecom Limited, and the Company dated May
27, 1999 (filed as Exhibit 10.46 to the Equity
Registration Statement, Amendment No. 1, dated May 27,
1999)(1)
10.45 -- Cross License Agreement dated September 30, 1999 between
WISC, TWC and the Company (filed as Exhibit 10.8 to the
October 1999 8-K)(1)
10.46 -- Technical, Management and Administrative Service
Agreement dated May 27, 1999 between Williams
International Company and the Company (filed as Exhibit
10.9 to the October 1999 8-K)(1)
</TABLE>
II-6
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.47 -- The Williams Companies, Inc. 1996 Stock Plan (filed as
Exhibit 10.49 to the Equity Registration Statement,
Amendment No. 1, dated May 27, 1999)(1)
10.48 -- The Williams Companies, Inc. Stock Plan for Nonofficer
Employees (filed as Exhibit 10.50 to the Equity
Registration Statement, Amendment No. 1, dated May 27,
1999)(1)
10.49 -- Williams Communications Stock Plan (filed as Exhibit
10.51 to the Equity Registration Statement, Amendment No.
1, dated May 27, 1999)(1)
10.50 -- Williams Communications Group, Inc. 1999 Stock Plan
(filed as Exhibit 10.52 to the Equity Registration
Statement, Amendment No. 3, dated July 12, 1999)(1)
10.51 -- Williams Pension Plan (filed as Exhibit 10.53 to the
Equity Registration Statement, Amendment No. 1, dated May
27, 1999)(1)
10.52 -- Solutions LLC Pension Plan (filed as Exhibit 10.54 to the
Equity Registration Statement, Amendment No. 1, dated May
27, 1999)(1)
10.53 -- Williams Communications Change in Control Severance Plan
(filed as Exhibit 10.55 to the Equity Registration
Statement, Amendment No. 3, dated July 12, 1999)(1)
10.54 -- Stock Purchase Agreement by and among WCI, Conferencing
Acquisition Corporation and Genesys, S.A. dated as of
June 30, 1999 (filed as Exhibit 10.56 to the Equity
Registration Statement, Amendment No. 6, dated August 18,
1999)(1)
10.55 -- Loan agreement dated as of September 8, 1999 between WCI
and TWC (filed as Exhibit 10.57 to the Equity
Registration Statement, Amendment No. 8, dated September
29, 1999)(1)
10.56 -- Williams Communications, Inc. Senior Credit Facilities
Commitment Letter, dated June 2, 1999. (filed as Exhibit
10.58 to the Equity Registration Statement, Amendment No.
4, July 14, 1999)(1)
10.57 -- Credit Agreement dated as of September 8, 1999 among WCI,
the Company, the Lenders party thereto, Bank of America,
N.A., as Administrative Agent ("B of A"), and The Chase
Manhattan Bank, as Syndication Agent ("Chase") (filed as
Exhibit 10.60 to the Equity Registration Statement,
Amendment No. 8, dated September 29, 1999)(1)
10.58 -- Intercreditor Agreement dated as of September 8, 1999
among TWC, WCI, the Company and B of A (filed as Exhibit
10.61 the Equity Registration Statement, Amendment No. 8,
dated September 29, 1999)(1)
10.59 -- Subsidiary Guarantee dated as of September 8, 1999 of
each of Critical Connections, Inc., WCS Communications
Systems, Inc., WCS Microwave Services, Inc., WCS, Inc.,
Williams Communications of Virginia, Inc., Williams
International Ventures Company, Williams Learning
Network, Inc., Williams Local Network, Inc. and Williams
Wireless, Inc., in favor of B of A (filed as Exhibit
10.62 to the Equity Registration Statement, Amendment No.
8, dated September 29, 1999)(1)
</TABLE>
II-7
<PAGE> 186
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.60 -- Securities Purchase Agreement Amendment and Addendum
dated as of September 24, 1999, among the Company, TWC
and SBC (filed as Exhibit 10.64 to the Equity
Registration Statement, Amendment No. 8, dated September
29, 1999)(1)
10.61 -- Amendment No. 1 dated as of December 31, 1999 to Credit
Agreement dated as of September 8, 1999 among WCI, the
Company, the Lenders party thereto, and Bank of America,
N.A., The Chase Manhattan Bank, Bank of Montreal and The
Bank of New York, as agents thereunder (filed as Exhibit
10.60.1 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000, as filed on August
10, 2000)(1)
10.62 -- Amendment No. 2 dated as of December 31, 1999 to Credit
Agreement dated as of September 8, 1999 among WCI, the
Company, the Lenders party thereto, and Bank of America,
N.A., The Chase Manhattan Bank, Bank of Montreal and The
Bank of New York, as agents thereunder (filed as Exhibit
10.60.2 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000, as filed on August
10, 2000)(1)
10.63 -- Amended and Restated Credit Agreement dated as of
September 1, 2000 to the Credit Agreement dated as of
September 8, 1999 among WCI, the Company, the lenders
party thereto and Bank of America, N.A., The Chase
Manhattan Bank, Bank of Montreal and The Bank of New
York, as agents thereunder
12 -- Computation of Ratio of Earnings to Fixed Charges
21 -- List of Subsidiaries (filed as Exhibit 21 to the Annual
Report on Form 10-K/A for the fiscal year ended December
31, 1999, as filed on June 16, 2000)(1)
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of William G. von Glahn, Esq. (included in
Exhibit 5)
23.3 -- Consent of Conner & Winters, A Professional Corporation
(included in Exhibit 8)
24 -- Power of Attorney
25 -- Statement on Form T-1 of Eligibility of Trustee relating
to the 11.70% Senior Redeemable Notes due 2008 and the
11.875% Senior Redeemable Notes due 2010
99.1 -- Form of Letter of Transmittal relating to the 11.70%
Senior Redeemable Notes due 2008
99.2 -- Form of Notice of Guaranteed Delivery relating to the
11.70% Senior Redeemable Notes due 2008
99.3 -- Form of Letter to Clients relating to the 11.70% Senior
Redeemable Notes due 2008
99.4 -- Form of Letter to Depository Trust Company Clients
relating to the 11.70% Senior Redeemable Notes due 2008
99.5 -- Form of Letter of Transmittal relating to the 11.875%
Senior Redeemable Notes due 2010
99.6 -- Form of Notice of Guaranteed Delivery relating to the
11.875% Senior Redeemable Notes due 2010
</TABLE>
II-8
<PAGE> 187
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
99.7 -- Form of Letter to Clients relating to the 11.875% Senior
Redeemable Notes due 2010
99.8 -- Form of Letter to Depository Trust Company Clients
relating to the 11.875% Senior Redeemable Notes due 2010
99.9 -- Guidelines for Certification of Taxpayer Identification
Number
</TABLE>
---------------
(1) Previously filed with the Securities and Exchange Commission as part of the
filing indicated and incorporated herein by reference.
(2) Portions of this exhibit have been redacted pursuant to a request for
confidential treatment which was granted by the Securities and Exchange
Commission in connection with the Equity Registration Statement.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant 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 of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this 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 this 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 this effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
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.
II-9
<PAGE> 188
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 20 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the 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 proceeding) 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
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 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 this Registration Statement through the date
of responding to such request.
The undersigned Registrant 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 this Registration Statement when it became effective.
II-10
<PAGE> 189
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Tulsa,
Oklahoma, on the 12th day of October, 2000.
WILLIAMS COMMUNICATIONS GROUP, INC.
By: /s/ LORETTA K. ROBERTS
-------------------------------------
(Loretta K. Roberts,
Attorney-in-fact)
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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer October 12, 2000
----------------------------------------------------- and President
Howard E. Janzen (Principal Executive
Officer)
* Chief Financial Officer October 12, 2000
----------------------------------------------------- (Principal Financial
Scott E. Schubert Officer)
* Controller (Principal October 12, 2000
----------------------------------------------------- Accounting Officer)
Ken Kinnear
* Director October 12, 2000
-----------------------------------------------------
Keith E. Bailey
* Director October 12, 2000
-----------------------------------------------------
John C. Bumgarner, Jr.
* Director October 12, 2000
-----------------------------------------------------
J. Cliff Eason
* Director October 12, 2000
-----------------------------------------------------
Michael P. Johnson, Sr.
* Director October 12, 2000
-----------------------------------------------------
Robert W. Lawless
* Director October 12, 2000
-----------------------------------------------------
Steven J. Malcolm
* Director October 12, 2000
-----------------------------------------------------
Jack D. McCarthy
* Director October 12, 2000
-----------------------------------------------------
H. Brian Thompson
* Director October 12, 2000
-----------------------------------------------------
Cuba Wadlington, Jr.
* Director October 12, 2000
-----------------------------------------------------
Roy A. Wilkens
</TABLE>
* Pursuant to a power of attorney
II-11
<PAGE> 190
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Current Report on Form 8-K
dated October 1, 1999 (the "October 1999 8-K"))(1)
3.2 -- Restated By-laws of the Company (filed as Exhibit 3.2 to
the October 1999 8-K)(1)
4.1 -- Indenture dated as of August 8, 2000 between the Company
and The Bank of New York, as trustee relating to the
11.70% Senior Redeemable Notes due 2008 and the 11.875%
Senior Redeemable Notes due 2010
4.2 -- Registration Rights Agreement dated as of August 8, 2000
between the Company and the initial purchasers
4.3 -- Specimen certificate of common stock (filed as Exhibit
4.1 to Registration Statement No. 333-76007 on Form S-1
relating to an equity offering (the "Equity Registration
Statement"), dated April 9, 1999)(1)
4.4 -- Certificate of Designation of 6.75% Redeemable Cumulative
Convertible Preferred Stock
4.5 -- Certificate of designation of Series A Junior
Participating Preferred Stock (filed as Exhibit 4.1 to
the October 1999 8-K)(1)
4.6 -- Specimen certificate of Class B common stock (filed as
Exhibit 4.2 to the Equity Registration Statement dated
April 9, 1999)(1)
4.7 -- Indenture governing notes dated October 6, 1999 between
the Company and The Bank of New York, Trustee (filed as
Exhibit 4.2 to the October 1999 8-K)(1)
5 -- Opinion of William G. von Glahn, Esq.
8 -- Opinion of Conner & Winters, A Professional Corporation,
as to certain tax matters
10.1 -- Securities Purchase Agreement among the Company, The
Williams Companies, Inc. ("TWC") and Telefonos de Mexico,
S.A. de C.V. ("TelMex"), dated May 25, 1999 (filed as
Exhibit 10.1 to the Equity Registration Statement,
Amendment No. 1, dated May 27, 1999)(1)
10.2 -- Amended and Restated Alliance Agreement between TelMex
and Williams Communications, Inc. ("WCI"), dated May 25,
1999 (filed as Exhibit 10.2 to the Equity Registration
Statement, Amendment No. 8, dated September 29,
1999)(1)(2)
10.3 -- Securities Purchase Agreement dated as of May 24, 1999 by
and among the Company, TWC and Intel Corporation (filed
as Exhibit 10.3 to the Equity Registration Statement,
Amendment No. 3, dated July 12, 1999)(1)
10.4 -- Master Alliance Agreement Between Intel Internet Data
Services and WCI dated as of May 24, 1999 (filed as
Exhibit 10.4 to the Equity Registration Statement,
Amendment No. 1, dated May 27, 1999)(1)(2)
10.5 -- Fiber Lease Agreement between Metromedia Fiber Network
Services, Inc. and WCI dated September 16, 1999 (filed as
Exhibit 10.5 to the Equity Registration Statement,
Amendment No. 8, dated September 29, 1999)(1)(2)
</TABLE>
<PAGE> 191
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.6 -- Fiber Lease Agreement between WCI and Metromedia Fiber
National Network Services, Inc., dated September 16, 1999
(filed as Exhibit 10.6 to the Equity Registration
Statement, Amendment No. 8, dated September 29,
1999)(1)(2)
10.7 -- Shareholders Agreement by and among Metrogas S.A.,
Williams International Telecom (Chile) Limited, and
Metrocom S.A., dated March 30, 1999 and Letter Agreement
dated March 30, 1999 (filed as Exhibit 10.8 the Equity
Registration Statement, Amendment No. 3, dated July 29,
1999)(1)
10.8 -- Share Purchase Agreement by and among Lightel, S.A.
Tecnologia da Informacao, Williams International ATL
Limited, Johi Representacoes Ltda and ATL-Algar Telecom
Leste, S.A., dated as of March 25, 1999 (filed as Exhibit
10.9 to the Equity Registration Statement, Amendment No.
1, dated May 27, 1999)(1)
10.9 -- Master Alliance Agreement between SBC Communications Inc.
("SBC") and WCI dated February 8, 1999 (filed as Exhibit
10.10 the Equity Registration Statement, Amendment No. 1,
dated May 27, 1999)(1)(2)
10.10 -- Transport Services Agreement dated February 8, 1999,
between Southwestern Bell Communication Services, Inc.
and WCI (filed as Exhibit 10.11 to the Equity
Registration Statement, Amendment No. 1, dated May 27,
1999)(1)(2)
10.11 -- Securities Purchase Agreement dated February 8, 1999,
between SBC and the Company (filed as Exhibit 10.12 to
the Equity Registration Statement, Amendment No. 1, dated
May 27, 1999)(1)
10.12 -- Amended and Restated Lease for Bank of Oklahoma Tower, as
of January 1, 1999, by and between Williams Headquarters
Building Company and TWC (filed as Exhibit 10.14 the
Equity Registration Statement, Amendment No. 1, dated May
27, 1999)(1)
10.13 -- Lease as of January 1, 1999, for Williams Technology
Center, by and between Williams Headquarters Building
Company and the Company (filed as Exhibit 10.15 to the
Equity Registration Statement, Amendment No. 1, dated May
27, 1999)(1)
10.14 -- Lease as of January 1, 1999, for Williams Resource
Center, by and between Williams Headquarters Building
Company and the Company (filed as Exhibit 10.16 the
Equity Registration Statement, Amendment No. 1, dated May
27, 1999)(1)
10.15 -- Wireless Fiber IRU Agreement by and between Winstar
Wireless, Inc. and WCI, effective as of December 17, 1998
(filed as Exhibit 10.17 to the Equity Registration
Statement, Amendment No. 1, dated July 12, 1999)(1)
10.16 -- IRU Agreement between Winstar Wireless, Inc. and WCI
dated December 17, 1998 (long haul), together with
Clarification Agreement effective as of December 17, 1998
and Side Agreement dated March 31, 1999 (filed as Exhibit
10.18 to the Equity Registration Statement, Amendment No.
1, dated May 27, 1999)(1)(2)
10.17 -- UtiliCom Networks, Inc. Note and Warrant Purchase
Agreement dated December 15, 1998. (filed as Exhibit
10.19 to the Equity Registration Statement, Amendment No.
3, dated July 12, 1999)(1)
</TABLE>
<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.18 -- Consolidated IRU Agreement by and among IXC Carrier,
Inc., Vyvx, Inc. and The WilTech Group, dated December 9,
1998 and Amendment No. 4, dated December 22, 1998 (filed
as Exhibit 10.20 to the Equity Registration Statement,
Amendment No. 2, dated July 6, 1999)(1)(2)
10.19 -- Stock Purchase Agreement for CNG Computer Networking
Group Inc. by and among The Sellers (1310038 Ontario
Inc., George Johnston, Hayden Marcus, The H. Marcus
Family Trust and Gary White), WilTel Communications
(Canada), Inc. and Williams Communications Solutions,
LLC, dated October 13, 1998 (filed as Exhibit 10.21 to
the Equity Registration Statement, Amendment No. 6, dated
August 18, 1999)(1)
10.20 -- Preferred Stock Purchase by and among UniDial Holdings,
Inc. and WCI, dated October 2, 1998 (filed as Exhibit
10.22 to the Equity Registration Statement, Amendment No.
6, dated August 18, 1999)(1)(2)
10.21 -- Amended and Restated Lease between State Street Bank &
Trust Co. of Connecticut, National Association, as
Lessor, and WCI, as Lessee, as of September 2, 1998
(filed as Exhibit 10.23 to the Equity Registration
Statement, Amendment No. 3, dated July 12, 1999)(1)
10.22 -- Amended and Restated Participation Agreement dated as of
September 2, 1998, among WCI; State Street Bank & Trust
Company of Conn., National Association, as Trustee; Note
Holders and Certificate holders; APA Purchasers; State
Street Bank & Trust Co., as Collateral Agent; and
Citibank, N.A., as agent, with Citibank, N.A. and Bank of
Montreal as Co-Arrangers; Royal Bank of Canada, as
Documentation Agent; and Bank of America, The Chase
Manhattan Bank and Toronto Dominion, as Managing Agents
(filed as Exhibit 10.24 to the Equity Registration,
Amendment No. 1, dated May 27, 1999)(1)
10.23 -- Capacity Purchase Agreement between WCI and Intermedia
Communications, Inc., dated January 5, 1998 and Amendment
dated August 5, 1998 (filed as Exhibit 10.25 to the
Equity Registration Statement, Amendment No. 6, dated
August 18, 1999)(1)(2)
10.24 -- Settlement and Release Agreement by and between WorldCom
Network Services, Inc. and WCI, dated July 1, 1998 (filed
as Exhibit 10.26 to the Equity Registration Statement,
Amendment No. 6, dated August 18, 1999)(1)(2)
10.25 -- Umbrella Agreement by and between DownTown Utilities Pty
Limited, WilTel Communications Pty Limited, Spectrum
Network Systems Limited, CitiPower Pty, Energy Australia,
South East Queensland Electricity Corporation Limited,
Williams Holdings of Delaware Inc. and Williams
International Services Company, dated June 19, 1998
(filed as Exhibit 10.27 to the Equity Registration
Statement, Amendment No. 1, dated May 27, 1999)(1)
10.26 -- Carrier Services Agreement between Vyvx, Inc. and U S
WEST Communications, Inc., dated January 5, 1998, and
Amendment No. 1, dated June 14, 1999 (filed as Exhibit
10.28 to the Equity Registration Statement, Amendment No.
1, dated May 27, 1999)(1)(2)
</TABLE>
<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.27 -- Distributorship Agreement by and between Northern Telecom
Limited and WilTel Communications, L.L.C., dated January
1, 1998 (filed as Exhibit 10.29 to the Equity
Registration Statement, Amendment No. 6, dated August 18,
1999)(1)(2)
10.28 -- Common Stock and Warrant Purchase Agreement by and among
Concentric Network Corporation ("Concentric") and the
Company, dated July 25, 1997 (filed as Exhibit 10.30 to
the Equity Registration, Amendment No. 1, dated May 27,
1999)(1)
10.29 -- Note and Warrant Purchase Agreement by and among
Concentric and the Company, dated June 19, 1997 (filed as
Exhibit 10.31 to the Equity Registration Statement,
Amendment No. 3, dated July 12, 1999)(1)
10.30 -- Limited Liability Company Agreement of WilTel
Communications, LLC, by and between the Company and
Northern Telecom, Inc. ("Nortel"), dated April 30, 1997
(filed as Exhibit 10.32 to the Equity Registration
Statement, Amendment No. 6, dated August 18, 1999)(1)
10.31 -- Share Purchase Agreement for TTS Meridian Systems Inc. by
and among Northern Telecom Limited, WilTel
Communications, LLC and 1228966 Ontario Inc., dated April
30, 1997 (filed as Exhibit 10.33 to the Equity
Registration Statement, Amendment No. 6 dated August 18,
1999)(1)
10.32 -- Formation Agreement by and between Nortel and the
Company, dated April 1, 1997 (filed as Exhibit 10.34 to
the Equity Registration Statement, Amendment No. 6, dated
August 18, 1999)(1)
10.33 -- Purchase Agreement among ABC Industria e Comercio
S.A.-ABC INCO, Lightel S.A. Tecnologia da Informacao,
Algar S.A.-Empreendimentos e Participacoes and Williams
International Telecom Limited, dated January 21, 1997
(filed as Exhibit 10.35 to the Equity Registration
Statement, Amendment No. 1, dated May 27, 1999)(6)
10.34 -- Subscription and Shareholders Agreement among Lightel
S.A. Tecnologia da Informacao, Algar S.A.-Empreendimentos
e Participacoes and Williams International Telecom
Limited, dated January 21, 1997 (filed as Exhibit 10.36
to the Equity Registration Statement, Amendment 1, dated
May 27, 1999)(1)
10.35 -- Sublease Agreement as of June 1, 1996, by and between
Transcontinental Gas Pipeline Company and Williams
Telecommunications Systems, Inc. (filed as Exhibit 10.37
to the Equity Registration Statement, Amendment No. 1,
dated May 27, 1999)(1)
10.36 -- System Use and Service Agreement between WilTel, Inc. and
Vyvx, Inc. effective as of January 1, 1994 (filed as
Exhibit 10.38 to the Equity Registration Statement,
Amendment No. 1, dated May 27, 1999)(1)(2)
10.37 -- Administrative Services Agreement dated September 30,
1999 between the Company and its Subsidiaries as
identified therein and TWC and its Subsidiaries as
identified therein (filed as Exhibit 10.1 to the October
1999 8-K)(1)
10.38 -- Service Agreement September 30, 1999 between Williams
Information Services Corporation ("WISC") and the Company
(filed as Exhibit 10.2 to the October 1999 8-K)(1)
10.39 -- Tax Sharing Agreement dated September 30, 1999 between
TWC and the Company (filed as Exhibit 10.3 to the October
1999 8-K)(1)
</TABLE>
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.40 -- Indemnification Agreement dated September 1, 1999 between
TWC and the Company (filed as Exhibit 10.4 to the October
1999 8-K)(2)
10.41 -- Rights Agreement between the Company and The Bank of New
York, Rights Agent, dated as of September 30, 1999 (filed
as Exhibit 10.5 to the October 1999 8-K)(1)
10.42 -- Registration Rights Agreement dated September 30, 1999
between TWC and the Company (filed as Exhibit 10.6 to the
October 1999 8-K)(1)
10.43 -- Separation Agreement dated September 30, 1999 between TWC
and the Company (filed as Exhibit 10.7 to the October
1999 8-K)(1)
10.44 -- Call option agreement by and among Williams Holdings of
Delaware, Inc., Williams International Company, Williams
International Telecom Limited, and the Company dated May
27, 1999 (filed as Exhibit 10.46 to the Equity
Registration Statement, Amendment No. 1, dated May 27,
1999)(1)
10.45 -- Cross License Agreement dated September 30, 1999 between
WISC, TWC and the Company (filed as Exhibit 10.8 to the
October 1999 8-K)(1)
10.46 -- Technical, Management and Administrative Service
Agreement dated May 27, 1999 between Williams
International Company and the Company (filed as Exhibit
10.9 to the October 1999 8-K)(1)
10.47 -- The Williams Companies, Inc. 1996 Stock Plan (filed as
Exhibit 10.49 to the Equity Registration Statement,
Amendment No. 1, dated May 27, 1999)(1)
10.48 -- The Williams Companies, Inc. Stock Plan for Nonofficer
Employees (filed as Exhibit 10.50 to the Equity
Registration Statement, Amendment No. 1, dated May 27,
1999)(1)
10.49 -- Williams Communications Stock Plan (filed as Exhibit
10.51 to the Equity Registration Statement, Amendment No.
1, dated May 27, 1999)(1)
10.50 -- Williams Communications Group, Inc. 1999 Stock Plan
(filed as Exhibit 10.52 to the Equity Registration
Statement, Amendment No. 3, dated July 12, 1999)(1)
10.51 -- Williams Pension Plan (filed as Exhibit 10.53 to the
Equity Registration Statement, Amendment No. 1, dated May
27, 1999)(1)
10.52 -- Solutions LLC Pension Plan (filed as Exhibit 10.54 to the
Equity Registration Statement, Amendment No. 1, dated May
27, 1999)(1)
10.53 -- Williams Communications Change in Control Severance Plan
(filed as Exhibit 10.55 to the Equity Registration
Statement, Amendment No. 3, dated July 12, 1999)(1)
10.54 -- Stock Purchase Agreement by and among WCI, Conferencing
Acquisition Corporation and Genesys, S.A. dated as of
June 30, 1999 (filed as Exhibit 10.56 to the Equity
Registration Statement, Amendment No. 6, dated August 18,
1999)(1)
10.55 -- Loan agreement dated as of September 8, 1999 between WCI
and TWC (filed as Exhibit 10.57 to the Equity
Registration Statement, Amendment No. 8, dated September
29, 1999)(1)
10.56 -- Williams Communications, Inc. Senior Credit Facilities
Commitment Letter, dated June 2, 1999. (filed as Exhibit
10.58 to the Equity Registration Statement, Amendment No.
4, July 14, 1999)(1)
</TABLE>
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.57 -- Credit Agreement dated as of September 8, 1999 among WCI,
the Company, the Lenders party thereto, Bank of America,
N.A., as Administrative Agent ("B of A"), and The Chase
Manhattan Bank, as Syndication Agent ("Chase") (filed as
Exhibit 10.60 to the Equity Registration Statement,
Amendment No. 8, dated September 29, 1999)(1)
10.58 -- Intercreditor Agreement dated as of September 8, 1999
among TWC, WCI, the Company and B of A (filed as Exhibit
10.61 the Equity Registration Statement, Amendment No. 8,
dated September 29, 1999)(1)
10.59 -- Subsidiary Guarantee dated as of September 8, 1999 of
each of Critical Connections, Inc., WCS Communications
Systems, Inc., WCS Microwave Services, Inc., WCS, Inc.,
Williams Communications of Virginia, Inc., Williams
International Ventures Company, Williams Learning
Network, Inc., Williams Local Network, Inc. and Williams
Wireless, Inc., in favor of B of A (filed as Exhibit
10.62 to the Equity Registration Statement, Amendment No.
8, dated September 29, 1999)(1)
10.60 -- Securities Purchase Agreement Amendment and Addendum
dated as of September 24, 1999, among the Company, TWC
and SBC (filed as Exhibit 10.64 to the Equity
Registration Statement, Amendment No. 8, dated September
29, 1999)(1)
10.61 -- Amendment No. 1 dated as of December 31, 1999 to Credit
Agreement dated as of September 8, 1999 among WCI, the
Company, the Lenders party thereto, and Bank of America,
N.A., The Chase Manhattan Bank, Bank of Montreal and The
Bank of New York, as agents thereunder (filed as Exhibit
10.60.1 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000, as filed on August
10, 2000)(1)
10.62 -- Amendment No. 2 dated as of December 31, 1999 to Credit
Agreement dated as of September 8, 1999 among WCI, the
Company, the Lenders party thereto, and Bank of America,
N.A., The Chase Manhattan Bank, Bank of Montreal and The
Bank of New York, as agents thereunder (filed as Exhibit
10.60.2 to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000, as filed on August
10, 2000)(1)
10.63 -- Amended and Restated Credit Agreement dated as of
September 1, 2000 to the Credit Agreement dated as of
September 8, 1999 among WCI, the Company, the lenders
party thereto and Bank of America, N.A., The Chase
Manhattan Bank, Bank of Montreal and The Bank of New
York, as agents thereunder
12 -- Computation of Ratio of Earnings to Fixed Charges
21 -- List of Subsidiaries (filed as Exhibit 21 to the Annual
Report on Form 10-K/A for the fiscal year ended December
31, 1999, as filed on June 16, 2000)(1)
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of William G. von Glahn, Esq. (included in
Exhibit 5)
23.3 -- Consent of Conner & Winters, A Professional Corporation
(included in Exhibit 8)
24 -- Power of Attorney
</TABLE>
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
25 -- Statement on Form T-1 of Eligibility of Trustee relating
to the 11.70% Senior Redeemable Notes due 2008 and the
11.875% Senior Redeemable Notes due 2010
99.1 -- Form of Letter of Transmittal relating to the 11.70%
Senior Redeemable Notes due 2008
99.2 -- Form of Notice of Guaranteed Delivery relating to the
11.70% Senior Redeemable Notes due 2008
99.3 -- Form of Letter to Clients relating to the 11.70% Senior
Redeemable Notes due 2008
99.4 -- Form of Letter to Depository Trust Company Clients
relating to the 11.70% Senior Redeemable Notes due 2008
99.5 -- Form of Letter of Transmittal relating to the 11.875%
Senior Redeemable Notes due 2010
99.6 -- Form of Notice of Guaranteed Delivery relating to the
11.875% Senior Redeemable Notes due 2010
99.7 -- Form of Letter to Clients relating to the 11.875% Senior
Redeemable Notes due 2010
99.8 -- Form of Letter to Depository Trust Company Clients
relating to the 11.875% Senior Redeemable Notes due 2010
99.9 -- Guidelines for Certification of Taxpayer Identification
Number
</TABLE>
---------------
(1) Previously filed with the Securities and Exchange Commission as part of the
filing indicated and incorporated herein by reference.
(2) Portions of this exhibit have been redacted pursuant to a request for
confidential treatment which was granted by the Securities and Exchange
Commission in connection with the Equity Registration Statement.
