<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
U S WEST, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
1801 California Street
Denver, Colorado 80202
NOTICE OF SPECIAL MEETING TO BE HELD ON NOVEMBER 2, 1999
To the Shareholders of U S WEST, Inc.:
The special meeting of shareholders of U S WEST, Inc. will be held on
Tuesday, November 2, 1999, starting at 9:00 a.m. local time, at the Auditorium
at Equitable Center, The Equitable Building, 787 7th Avenue, New York, New York,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of July 18, 1999, as amended, between U S
WEST, Inc. and Qwest Communications International Inc., and the merger,
as described in the attached joint proxy statement/prospectus;
2. To consider and vote upon any proposal to adjourn or postpone the
special meeting; and
3. To transact such other business as may properly come before the special
meeting, including any adjournment or postponement thereof.
Holders of record of U S WEST, Inc. common stock at the close of business on
Tuesday, September 7, 1999, will be entitled to vote at the special meeting or
any adjournment or postponement thereof.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, YOU ARE ENCOURAGED TO MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, USE U S
WEST'S INTERNET VOTING PROCEDURES OR CAST YOUR VOTE VIA TELEPHONE. A POSTAGE
PREPAID ENVELOPE IS ENCLOSED.
ANY SHAREHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF
THAT SHAREHOLDER HAS RETURNED A PROXY, HAS USED U S WEST'S INTERNET VOTING
PROCEDURES OR HAS VOTED BY TELEPHONE. PLEASE DO NOT SEND ANY CERTIFICATES FOR
YOUR STOCK AT THIS TIME.
By Order of the Board of Directors
[SIG]
Mark Roellig
Executive Vice President--Public
Policy,
Human Resources and Law, General
Counsel
and Secretary
September 17, 1999.
WSTNC-SL-99
<PAGE>
[LOGO]
[LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Qwest Communications International Inc. and U S WEST,
Inc. have approved a merger agreement which provides for the strategic merger of
the two companies. We believe the combined company will be able to create
substantially more shareholder value than could be achieved by the companies
individually.
Our combined company will be named Qwest Communications International Inc. and
will have its headquarters in Denver, Colorado.
Upon completion of the merger, holders of U S WEST common stock will receive,
for each U S WEST share they own, subject to the collar and the cash option
described in this joint proxy statement/prospectus, shares of Qwest common stock
having a value of $69 per share. Qwest shareholders will continue to own their
existing shares after the merger.
We estimate that Qwest will issue between 873,058,054 and 1,232,662,130 shares
of Qwest common stock to U S WEST shareholders in the merger. These shares will
represent between 53.9% and 62.3% of the outstanding shares of Qwest common
stock after the merger. Qwest shareholders before the merger will hold between
46.1% and 37.7% of the outstanding Qwest shares after the merger.
We are asking shareholders of Qwest and U S WEST to approve the merger agreement
and the merger. We cannot complete the merger unless the shareholders of both
companies approve it. PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE I-8 FOR A
DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER IN EVALUATING THE MERGER
AND THE OTHER PROPOSALS.
The dates, times and places of the meetings are:
For QWEST shareholders:
Tuesday, November 2, 1999
10:00 a.m. (local time)
Hyatt Regency Denver
The Grand Ballroom
1750 Welton Street
Denver, Colorado 80202
For U S WEST shareholders:
Tuesday, November 2, 1999
9:00 a.m. (local time)
The Auditorium at Equitable Center
The Equitable Building
787 Seventh Avenue
New York, New York 10019
<TABLE>
<S> <C>
[SIG] [SIG]
Joseph P. Nacchio Solomon D. Trujillo
Chairman and Chief Executive Officer Chairman, President and Chief Executive
Qwest Communications International Inc. Officer
U S WEST, Inc.
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the Qwest stock to be issued under this joint proxy
statement/prospectus or determined if this joint proxy statement/prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
Joint proxy statement/prospectus dated September 17, 1999 and first mailed to
shareholders on September 18, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CHAPTER ONE--THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER....... I-1
SUMMARY...................................... I-2
The Companies.............................. I-2
Our Recommendations to Shareholders........ I-2
The Merger................................. I-3
THE MERGER................................... I-8
General.................................... I-8
Risk Factors............................... I-8
Background of the Merger................... I-10
Our Reasons for the Merger; Recommendations
of Our Boards of Directors............... I-17
Material Federal Income Tax Consequences of
the Merger............................... I-22
Regulatory Matters Relating to the
Merger................................... I-24
Appraisal Rights........................... I-25
Federal Securities Laws Consequences; Stock
Transfer Restriction Agreements.......... I-26
Accounting Treatment....................... I-26
Legal Proceedings.......................... I-26
INTERESTS OF OFFICERS AND DIRECTORS IN THE
MERGER..................................... I-28
Qwest Board; Management.................... I-28
Indemnification; Directors' and Officers'
Insurance................................ I-28
Qwest's Stock Options and Growth Share
Plan..................................... I-28
Qwest's Retention Grants................... I-29
Modification of Compensation Terms for
Qwest's Chief Executive Officer.......... I-30
U S WEST's Stock and Stock Option Plans.... I-30
U S WEST Long-Term Incentive Plan.......... I-31
U S WEST Executive Short-Term Incentive
Plan..................................... I-32
Other Benefits............................. I-32
U S WEST's Retention Plan.................. I-33
Recent Developments........................ I-35
THE MERGER AGREEMENT......................... I-36
Structure of the Merger.................... I-36
Timing of Closing.......................... I-36
Merger Consideration....................... I-36
<CAPTION>
PAGE
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<S> <C>
Treatment of U S WEST Stock Options........ I-39
Exchange of Shares......................... I-39
Qwest Board and Board Committees........... I-39
Office of the Chairman..................... I-40
Executive Officers......................... I-40
Certain Covenants.......................... I-40
Representations and Warranties............. I-42
Conditions to the Completion of the
Merger................................... I-42
Termination of the Merger Agreement........ I-42
Other Expenses............................. I-45
Amendments and Waivers..................... I-45
VOTING AGREEMENT............................. I-46
Agreement to Vote.......................... I-46
Restrictions on Transfer................... I-46
Termination................................ I-46
THE GLOBAL AGREEMENTS........................ I-47
The Qwest-Global Agreement................. I-47
The U S WEST-Global Termination
Agreement................................ I-47
The Amendment to the U S WEST-Global Tender
Offer and Purchase Agreement............. I-47
The Qwest-Global Capacity Purchase
Agreement................................ I-47
OPINIONS OF FINANCIAL ADVISORS............... I-48
Opinion of Financial Advisor to Qwest...... I-48
Opinions of Financial Advisors to U S
WEST..................................... I-53
Merrill Lynch Opinion...................... I-54
Lehman Brothers Opinion.................... I-55
EMPLOYEE BENEFITS PROPOSAL................... I-62
CHAPTER TWO--FINANCIAL INFORMATION
COMPARATIVE PER SHARE MARKET PRICE AND
DIVIDEND INFORMATION....................... II-1
SELECTED FINANCIAL DATA...................... II-2
COMPARATIVE PER SHARE DATA................... II-6
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION...................... II-7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
PROJECTIONS AND SYNERGIES.................... II-16
CHAPTER THREE--INFORMATION ABOUT THE MEETINGS
AND VOTING
Matters Relating to the Meetings........... III-1
Vote Necessary to Approve Qwest and U S
WEST Proposals........................... III-3
Proxies.................................... III-3
Other Business; Adjournments............... III-6
CHAPTER FOUR--CERTAIN LEGAL INFORMATION
COMPARISON OF QWEST AND U S WEST SHAREHOLDER
RIGHTS..................................... IV-1
Summary of Material Differences Between
Current Rights of Qwest and U S WEST
Shareholders and Rights Those
Shareholders Will Have as Qwest
Shareholders Following the Merger........ IV-1
DESCRIPTION OF QWEST CAPITAL STOCK........... IV-5
Authorized Capital Stock................... IV-5
Qwest Common Stock......................... IV-5
Qwest Preferred Stock...................... IV-5
Transfer Agent and Registrar............... IV-6
Stock Exchange Listing; Delisting and
Deregistration of U S WEST Common
Stock.................................... IV-6
INFORMATION REGARDING FORWARD-LOOKING
STATEMENTS................................. IV-6
<CAPTION>
PAGE
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<S> <C>
Qwest...................................... IV-6
U S WEST................................... IV-7
LEGAL MATTERS................................ IV-8
EXPERTS...................................... IV-8
CHAPTER FIVE--ADDITIONAL INFORMATION FOR
SHAREHOLDERS
FUTURE SHAREHOLDER PROPOSALS................. V-1
Qwest...................................... V-1
U S WEST................................... V-1
WHERE YOU CAN FIND MORE INFORMATION.......... V-1
</TABLE>
<TABLE>
<S> <C>
ANNEXES
Annex A Agreement and Plan of Merger
Annex B Voting Agreement
Annex C Opinion of Donaldson, Lufkin &
Jenrette Securities Corporation
Annex D Opinion of Merrill Lynch,
Pierce, Fenner & Smith, Inc.
Annex E Opinion of Lehman Brothers Inc.
Annex F Section 262 of the Delaware
General Corporation Law
Annex G Qwest Equity Incentive Plan
Annex H Form of Qwest Charter
Annex I Form of Qwest Bylaws
</TABLE>
ii
<PAGE>
CHAPTER ONE
THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHEN AND WHERE ARE THE SHAREHOLDER MEETINGS?
A: The shareholder meeting of Qwest Communications International Inc. ("Qwest")
will take place on November 2, 1999 in Denver, Colorado. The shareholder meeting
of U S WEST, Inc. ("U S WEST") will take place on November 2, 1999 in New York,
New York. The address of each meeting is specified on the cover page.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope or vote by
telephone or the Internet, as soon as possible, so that your shares may be
represented at your meeting. In order to assure that we obtain your vote, please
give your proxy as instructed on your proxy card even if you currently plan to
attend your meeting in person.
Q: WHAT SHOULD I DO IF I WANT TO CHANGE MY VOTE?
A: Just send in a later-dated, signed proxy card to your company's Secretary or
vote again by telephone or the Internet before your meeting. Or, you can attend
your meeting in person and vote. You may also revoke your proxy by sending a
notice of revocation to your company's Secretary at the address under
"Summary--The Companies" on page I-2.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them. You should
therefore be sure to provide your broker with instructions on how to vote your
shares. Please check the voting form used by your broker to see if it offers
telephone or Internet voting.
If you do not give voting instructions to your broker, you will, in effect, BE
VOTING AGAINST THE MERGER unless you appear in person at your shareholder
meeting and vote in favor of the merger.
Q: WHAT HAPPENED TO THE U S WEST MERGER WITH GLOBAL CROSSING LTD. ("GLOBAL")?
A: U S WEST terminated the Global-U S WEST merger agreement in order to enter
into the merger agreement with Qwest. In connection with the termination, U S
WEST paid Global $140 million in cash and 2,231,076 shares of Global common
stock, Qwest loaned $140 million in cash to U S WEST and Qwest entered into an
agreement to buy $140 million in services from Global.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will send U S WEST shareholders written
instructions for exchanging their share certificates. Qwest shareholders will
keep their existing certificates.
Q: WILL I CONTINUE TO RECEIVE DIVIDENDS ON MY U S WEST SHARES UNTIL THE MERGER?
A: We do not expect any changes in the current dividend policies of either of
the companies before the merger. However, subject to the terms of the merger
agreement, either company may change its dividend policy before the merger.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: After the closing of the merger, Qwest will initially pay a dividend of
$0.0125 per quarter. The payment of dividends by the combined company in the
future, however, will depend on business conditions, the combined company's
financial condition and earnings, and other factors.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the merger as quickly as practicable. In
addition to shareholder approvals, we must also obtain regulatory approvals. We
hope to complete the merger by mid-2000.
Q: WHO DO I CALL IF I HAVE QUESTIONS ABOUT THE MEETINGS OR THE MERGER?
A: Qwest shareholders may call 1-800-567-7296. U S WEST shareholders may call
1-800-735-3568.
I-1
<PAGE>
CHAPTER ONE - THE MERGER
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS JOINT PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ THIS DOCUMENT AND
THE DOCUMENTS WE HAVE REFERRED YOU TO CAREFULLY. SEE "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE V-1.
THE COMPANIES
QWEST COMMUNICATIONS INTERNATIONAL INC.
700 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
(303) 992-1400
Qwest is a worldwide broadband Internet communications company whose principal
business is providing leading-edge communications to businesses and consumers.
Qwest has operations throughout North America, Europe and Mexico, and has
developed one of the most technologically advanced, secure and reliable networks
capable of carrying data, image and voice communications.
U S WEST, INC.
1801 California Street
Denver, Colorado 80202
(303) 672-2700
U S WEST's principal business is telecommunications and related services,
including local exchange telephone services, exchange access services, long
distance within Local Access and Transport Areas, high speed data and Internet
services, wireless communications and directory services.
OUR RECOMMENDATIONS TO SHAREHOLDERS
TO QWEST SHAREHOLDERS:
The Qwest Board believes the merger is advisable, fair to you and in your best
interest and recommends that you vote FOR the proposal to approve and adopt the
merger agreement and the merger, including the issuance of shares of Qwest
common stock in the merger, the Qwest charter amendments and the increase in the
number of shares of Qwest common stock eligible for award under Qwest's equity
incentive plan contemplated by the merger agreement.
The Qwest Board also recommends that you vote FOR the proposal to approve and
ratify Qwest's equity incentive plan.
TO U S WEST SHAREHOLDERS:
The U S WEST Board believes the merger is advisable, fair to you and in your
best interest and recommends that you vote FOR the proposal to approve and adopt
the merger agreement and the merger.
SHAREHOLDER VOTES REQUIRED
FOR QWEST SHAREHOLDERS: Approval and adoption of the merger agreement and the
merger, including the issuance of shares of Qwest common stock in the merger,
the Qwest charter amendments and the increase in the number of shares of Qwest
common stock eligible for award under Qwest's equity incentive plan contemplated
by the merger agreement, requires the affirmative vote of at least a majority of
the outstanding shares of Qwest common stock.
Approval and ratification of Qwest's equity incentive plan requires the
affirmative vote of at least a majority of the shares of Qwest common stock
present in person or by proxy and entitled to vote at the Qwest meeting,
assuming a quorum is present.
NEITHER OF THE QWEST PROPOSALS IS CONDITIONED ON APPROVAL OF THE OTHER QWEST
PROPOSAL.
FOR U S WEST SHAREHOLDERS: Approval and adoption of the merger agreement and the
merger requires the affirmative vote of at least a majority of the outstanding
shares of U S WEST common stock.
I-2
<PAGE>
CHAPTER ONE - THE MERGER
THE MERGER
THE MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT AS IT IS THE
LEGAL DOCUMENT THAT GOVERNS THE MERGER.
WHAT U S WEST SHAREHOLDERS WILL RECEIVE (SEE PAGE I-36)
As a result of the merger, U S WEST shareholders will receive, for each share of
U S WEST common stock, subject to the collar and cash option described below,
shares of Qwest common stock having a value of $69. The value of the
consideration will be $69 so long as the Qwest average price (as described
below) is between $28.26 and $39.90.
If the Qwest average price is above $39.90, U S WEST shareholders will receive,
for each of their shares of U S WEST common stock, 1.72932 shares of Qwest
common stock. In these circumstances, the Qwest shares received for each U S
WEST share would have a value of more than $69.
If the Qwest average price is below $28.26, U S WEST shareholders will receive,
subject to the cash option described below, for each of their shares of U S WEST
common stock, 2.44161 shares of Qwest common stock. In these circumstances, the
Qwest shares received for each U S WEST share would have a value of less than
$69.
If the Qwest average price is less than $38.70, Qwest and U S WEST may elect to
pay a portion of the merger consideration in cash.
If the Qwest average price is less than $22 or the closing price of Qwest common
stock is less than $22 for 20 consecutive trading days before the completion of
the merger, U S WEST may terminate the merger agreement.
The Qwest average price is the average of the volume weighted averages of the
trading prices of Qwest common stock on the Nasdaq National Market for the 15
trading days randomly selected by lot by Qwest and U S WEST together from the 30
consecutive trading days ending on the third trading day immediately before the
date on which all of the conditions to the closing of the merger have been
satisfied or waived.
YOU MAY CALL 1-888-339-9805 ANYTIME AFTER MONDAY, OCTOBER 4, 1999 UNTIL THE
MERGER CLOSES TO HEAR A TAPE RECORDED MESSAGE STATING WHAT THE EXCHANGE RATIO IN
THE MERGER WOULD BE IF THE QWEST AVERAGE PRICE WERE EQUAL TO THE MOST RECENT
CLOSING PRICE OF QWEST COMMON STOCK.
Qwest will not issue any fractional shares in the merger. U S WEST shareholders
will receive a check in the amount of the proceeds from the sale of their
fractional shares in the market unless Qwest elects instead to pay the U S WEST
shareholders a price equal to the average of the closing prices of Qwest common
stock on the Nasdaq National Market for the ten consecutive trading days
immediately following the closing of the merger.
CONDITIONS TO THE COMPLETION OF THE MERGER (SEE PAGE I-42)
The completion of the merger depends upon meeting a number of conditions,
including the following:
- - approval by the Qwest and U S WEST shareholders;
- - receipt of necessary approvals from the Federal Communications Commission and
certain state public utility commissions;
- - absence of any law or court order prohibiting the merger;
- - receipt of opinions of counsel to Qwest and U S WEST that the merger will
qualify as a tax-free reorganization;
- - receipt by U S WEST of the opinion of its counsel that the merger will not
affect the tax-free qualification of the prior spin-off of U S WEST and
delivery of a copy of that opinion to Qwest;
- - material accuracy as of closing of the representations and warranties made by
the other party; and
- - absence of an imposition by any regulatory authority of any condition,
requirement or
I-3
<PAGE>
CHAPTER ONE - THE MERGER
restriction that would (1) reasonably be expected to have a material adverse
effect on the combined company after the merger, or (2) result in a reduction
in aggregate revenues of Qwest and U S WEST on a pro forma, combined basis for
the last four fiscal quarters prior to the closing of the merger of more than
$750 million or require any additional capital investment of more than $500
million.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE I-42)
Either Qwest or U S WEST can terminate the merger agreement if any of the
following occurs:
- we do not complete the merger by July 30, 2000; however, that date will be
extended to December 31, 2000 if we have not completed the merger by July
30, 2000 because the regulatory conditions specified in the merger
agreement have not been satisfied by that date; or
- Qwest or U S WEST shareholders do not give the required approvals; or
- a law or court order permanently prohibits the merger; or
- the other party breaches the merger agreement in a manner that renders a
condition to the merger incapable of being satisfied before July 30, 2000;
or
- before its shareholder vote, the other party's board of directors modifies
its recommendation of the merger and merger agreement in a manner adverse
to the party seeking to terminate.
In addition, U S WEST may terminate the merger agreement if the Qwest average
price is less than $22 or the closing price of Qwest common stock is less than
$22 for any 20 consecutive trading days before the completion of the merger.
Neither Qwest nor U S WEST can terminate the merger agreement as described in
the first bullet point above if the merger has not closed because it is in
material breach of the merger agreement.
Finally, Qwest and U S WEST can mutually agree to terminate the merger
agreement.
Although the Qwest and U S WEST Boards are entitled to withdraw their
recommendations of the merger in response to a superior acquisition proposal,
neither Qwest nor U S WEST is permitted to terminate the merger agreement to
accept a superior acquisition proposal made by a third party. Accordingly, it is
expected that the Qwest and U S WEST meetings will be held even if Qwest or U S
WEST receives a superior acquisition proposal from a third party.
TERMINATION FEES (SEE PAGES I-43)
U S WEST must pay Qwest a termination fee of $850 million in cash if:
- the merger agreement is terminated by Qwest because the U S WEST Board
modifies its recommendation of the merger and merger agreement in a manner
adverse to Qwest; or
- the merger agreement could have been terminated by Qwest as described in
the immediately preceding bullet point but was not and is subsequently
terminated as a result of the failure to obtain U S WEST shareholder
approval; or
- the merger agreement is terminated in circumstances where:
- U S WEST's shareholders do not vote in favor of the merger;
- a third party has made a proposal for an alternative transaction
involving U S WEST before the U S WEST shareholder vote; and
- within twelve months after the termination of the merger agreement U S
WEST enters into an agreement for an alternative transaction with any
third party; or
- the merger agreement is terminated by Qwest as a result of U S WEST's
material breach of its non-solicitation obligations in the merger
agreement.
I-4
<PAGE>
CHAPTER ONE - THE MERGER
Qwest must pay U S WEST a termination fee of $850 million in cash if:
- the merger agreement is terminated by U S WEST because the Qwest Board
modifies its recommendation of the merger and merger agreement in a manner
adverse to U S WEST; or
- the merger agreement could have been terminated by U S WEST as described
in the immediately preceding bullet point but was not and is subsequently
terminated as a result of the failure to obtain Qwest shareholder
approval; or
- the merger agreement is terminated in circumstances where:
- Qwest's shareholders do not vote in favor of the merger;
- a third party has made a proposal for an alternative transaction
involving Qwest before the Qwest shareholder vote; and
- within twelve months after the termination of the merger agreement
Qwest enters into an agreement for an alternative transaction with any
third party; or
- the merger agreement is terminated by U S WEST as a result of Qwest's
material breach of its non-solicitation obligations in the merger
agreement.
PAYMENTS TO GLOBAL (SEE PAGE I-44)
Immediately before the signing of the merger agreement, U S WEST and Global
agreed to terminate their merger agreement. In connection with the termination
of the Global-U S WEST merger agreement, U S WEST paid Global $140 million in
cash and 2,231,076 shares of Global common stock, Qwest loaned $140 million in
cash to U S WEST and Qwest entered into an agreement to buy $140 million in
services from Global. If the merger agreement is terminated, Qwest will not
receive repayment from U S WEST of its $140 million loan and will have to
deliver to U S WEST the same number of shares of Global common stock delivered
to Global by U S WEST (or pay their market value in cash at that time). However,
if the termination of the merger agreement is the result of U S WEST changing
its recommendation of the merger, U S WEST will be obligated to repay $70
million (plus interest at LIBOR plus .15%) to Qwest and will receive only
1,115,538 shares of Global common stock (or their market value in cash at that
time) from Qwest. No other payments have been made in connection with the
termination of the Global-U S WEST merger agreement.
QWEST BOARD AND BOARD COMMITTEES AFTER THE MERGER (SEE PAGE I-39)
Following the merger, the Qwest Board will have fourteen members, seven of whom
will be designated by Qwest and seven of whom will be designated by U S WEST.
The Qwest Board committees will consist of an equal number of Qwest and U S WEST
Board designees. The Qwest by-law provisions that implement these requirements
will survive for three years after the completion of the merger and during that
period may not be changed except with the approval of 75% of the Qwest Board.
OFFICE OF THE CHAIRMAN (SEE PAGE I-40)
Following the merger, Philip F. Anschutz, Qwest's Chairman of the Board, Joseph
P. Nacchio, Qwest's Chairman and Chief Executive Officer, and Solomon D.
Trujillo, U S WEST's Chairman, President and Chief Executive Officer, together
will constitute the Office of the Chairman. Subject to the power and authority
of the Qwest Board after the merger, the Office of the Chairman will have
exclusive power and final authority for all decisions relating to material
acquisitions and dispositions, the allocation of capital resources, the
termination of any of the eight most senior executive officers of Qwest other
than Mr. Nacchio and Mr. Trujillo, and general corporate strategy. Any decision
by the Office of the Chairman will require a majority vote, and any of Messrs.
Anschutz, Nacchio and Trujillo may present any of these matters to the entire
Qwest Board. The Qwest bylaw provisions
I-5
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CHAPTER ONE - THE MERGER
that implement these requirements will survive for three years after the
completion of the merger and during that period may not be changed except with
the approval of 75% of the Qwest Board.
EXECUTIVE OFFICERS (SEE PAGE I-40)
After the merger, Mr. Anschutz will be the Non-Executive Chairman of Qwest, Mr.
Nacchio will be Chairman and Chief Executive Officer of Qwest and Mr. Trujillo
will be Chairman of Qwest and President of the broadband local and wireless
division of Qwest. For a period of one year following the closing of the merger,
the twenty most senior policy-making executive officers of Qwest will be
substantially equally represented by officers of Qwest and U S WEST. Messrs.
Anschutz, Nacchio and Trujillo will jointly appoint these twenty executive
officers.
REGULATORY APPROVALS (SEE PAGE I-24)
Completion of the merger will not occur until after we have received specified
regulatory approvals required for the transaction. The parties have satisfied
their obligation under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, to provide specified materials and information for review by the
Antitrust Division of the Department of Justice and the Federal Trade
Commission, and the specified review period has ended without either the DOJ or
the FTC taking action. In addition, the Federal Communications Commission and
certain state public utility commissions will, and other state public utility
commissions may, have jurisdiction to approve the merger.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE I-28)
When considering our Boards' recommendations that you vote in favor of the
merger, you should be aware that a number of our officers and directors have
interests in the merger that are different from, or in addition to, yours.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE I-22)
A U S WEST shareholder's receipt of Qwest common stock in the merger generally
will be tax-free for United States federal income tax purposes, except for taxes
resulting from the receipt of cash instead of any fractional shares of Qwest
common stock.
If Qwest and U S WEST elect to pay a portion of the merger consideration in
cash, a U S WEST shareholder will be taxed on any gain on the shares of U S WEST
common stock surrendered in the merger to the extent of cash received as merger
consideration.
VOTING AGREEMENT (SEE PAGE I-46)
Qwest's principal shareholder, Mr. Anschutz, has agreed to vote his shares of
Qwest common stock in favor of the approval and adoption of the merger agreement
and merger and against any competing acquisition proposal involving Qwest or any
other action that could reasonably be expected to impede the closing of the
merger. Under the terms of the voting agreement with U S WEST, at least 250
million shares of Qwest common stock, representing approximately 33% of the
Qwest common stock outstanding as of the date of this joint proxy
statement/prospectus, must remain subject to the voting agreement. Unless
otherwise agreed to by the parties, the voting agreement will survive any
termination of the merger agreement and will remain in effect even if the Qwest
Board withdraws its recommendation to vote in favor of the merger (unless U S
WEST decides to terminate the merger agreement in response to the change in the
Qwest Board recommendation).
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Qwest common stock is quoted on the Nasdaq National Market and U S WEST common
stock is listed on the New York Stock Exchange. On May 14, 1999, the last full
trading day before the announcement of the signing of the Global-U S WEST merger
agreement, U S WEST common stock closed at $62.25. On June 11, 1999, the last
full trading day before
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Qwest publicly announced its initial proposal for U S WEST, Qwest common stock
closed at $44.875 and U S WEST common stock closed at $54.875. On July 16, 1999,
the last full trading day before the announcement of the signing of the merger
agreement, Qwest common stock closed at $35.00 and U S WEST common stock closed
at $60.25. On September 16, 1999, the most recent practicable date prior to the
mailing of this joint proxy statement/prospectus, Qwest common stock closed at
$29.25 and U S WEST common stock closed at $56.188.
LISTING OF QWEST COMMON STOCK
The shares of Qwest common stock to be issued in the merger will be quoted on
the Nasdaq National Market under the ticker symbol "QWST."
OWNERSHIP OF QWEST AFTER THE MERGER
We estimate that Qwest will issue between 873,058,054 and 1,232,662,130 shares
of Qwest common stock to U S WEST shareholders in the merger. The shares of
Qwest common stock to be issued to U S WEST shareholders in the merger will
represent between 53.9% and 62.3% of the outstanding Qwest common stock after
the merger. Qwest shareholders before the merger will hold between 46.1% and
37.7% of the outstanding Qwest shares after the merger. This information is
based on the number of Qwest and U S WEST shares outstanding on September 7,
1999 and the Qwest average price ranging from $28.26 (which is the price at the
bottom of the collar) to $39.90 (which is the price at the top of the collar)
and does not take into account stock options or other equity-based awards or
other transactions involving the issuance of stock, including acquisitions.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGE I-48)
In connection with the merger, the Qwest Board received the opinion of
Donaldson, Lufkin & Jenrette Securities Corporation, Qwest's financial advisor,
and the U S WEST Board received the opinions of Merrill Lynch, Pierce, Fenner &
Smith, Inc. and Lehman Brothers Inc., U S WEST's financial advisors. Qwest
received a written opinion from DLJ as to the fairness, from a financial point
of view, to Qwest shareholders of the consideration to be paid by Qwest in the
merger as of July 18, 1999, and U S WEST received an opinion from each of
Merrill Lynch and Lehman Brothers that, as of June 18, 1999, the consideration
to be received by the U S WEST shareholders in the merger was fair to them from
a financial point of view. These opinions, which are attached as Annex C, Annex
D and Annex E, set forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinions. We encourage you to read
these opinions in their entirety. THESE OPINIONS ARE DIRECTED TO THE BOARDS OF
DIRECTORS OF THE RESPECTIVE COMPANIES AND ARE NOT RECOMMENDATIONS TO
SHAREHOLDERS WITH RESPECT TO ANY MATTER RELATING TO THE MERGER. THE OPINIONS
SPEAK ONLY AS OF THEIR RESPECTIVE DATES AND THE FINANCIAL ADVISORS TO QWEST AND
U S WEST ARE UNDER NO OBLIGATION TO CONFIRM THEIR OPINIONS AS OF A LATER DATE.
FURTHER, THE QWEST AND U S WEST BOARDS MAY NOT NECESSARILY REQUEST THAT THEIR
FINANCIAL ADVISORS CONFIRM THESE OPINIONS AS OF A LATER DATE.
APPRAISAL RIGHTS (SEE PAGE I-25)
The holders of Qwest common stock do not have any right to an appraisal of the
value of their shares in connection with the merger. The holders of U S WEST
common stock have appraisal rights for their shares only if they receive cash as
consideration in the merger.
ACCOUNTING TREATMENT (SEE PAGE I-26)
The merger will be accounted for using the purchase method of accounting. U S
WEST will be deemed the acquiror for accounting purposes.
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THE MERGER
GENERAL
The Qwest Board is using this joint proxy statement/prospectus to solicit
proxies from the holders of Qwest common stock for use at the Qwest meeting. The
U S WEST Board is also using this document to solicit proxies from the holders
of U S WEST common stock for use at the U S WEST meeting.
QWEST PROPOSALS
At the Qwest meeting, Qwest shareholders will be asked to vote upon a
proposal to approve and adopt the merger agreement and the merger, including
approval of the issuance of Qwest common stock in the merger, the Qwest charter
amendments and the increase in the number of shares of Qwest common stock
eligible for award under Qwest's equity incentive plan contemplated by the
merger agreement. We sometimes refer to this proposal as the "Qwest merger
proposal."
At the Qwest meeting, Qwest shareholders will also be asked to vote upon a
proposal to approve and ratify Qwest's equity incentive plan. We sometimes refer
to this proposal as the "Qwest employee benefits proposal" and to the "Qwest
merger proposal" and the "Qwest employee benefits proposal" collectively as the
"Qwest proposals."
NEITHER OF THE QWEST PROPOSALS IS CONDITIONED ON APPROVAL OF THE OTHER QWEST
PROPOSAL.
U S WEST PROPOSAL
At the U S WEST meeting, holders of U S WEST common stock will be asked to
vote upon a proposal to approve and adopt the merger agreement and the merger.
We sometimes refer to this proposal as the "U S WEST proposal."
RISK FACTORS
In addition to the risks relating to the businesses of Qwest and U S WEST
which are incorporated by reference in this joint proxy statement/prospectus
from our other Securities and Exchange Commission filings, you should carefully
consider the following risk factors relating to the merger in determining
whether to vote in favor of the approval and adoption of the merger and the
merger agreement. You should also consider the risk factors that will generally
have an impact on the combined company's financial condition, results of
operations and business after the merger, including those described under
"Information Regarding Forward-looking Statements."
DIFFICULTIES IN COMBINING OPERATIONS AND REALIZING SYNERGIES. Qwest and U S
WEST have entered into the merger agreement with the expectation that the merger
will result in certain benefits including operating efficiencies, cost savings,
synergies and other benefits. Achieving the benefits of the merger will depend
in part upon the integration of the businesses of Qwest and U S WEST in an
efficient manner, which we believe will require considerable effort. In
addition, the consolidation of operations will require substantial attention
from management. The diversion of management attention and any difficulties
encountered in the transition and integration process could have a material
adverse effect on the revenues, levels of expenses and operating results of the
combined company. No assurance can be given that Qwest and U S WEST will succeed
in integrating their operations in a timely manner or without encountering
significant difficulties or that the expected operating efficiencies, cost
savings, synergies and other benefits from such integration will be realized.
UNCERTAIN VALUE OF QWEST COMMON STOCK TO BE RECEIVED IN THE MERGER. No
assurances can be given to the U S WEST shareholders of the value of the shares
of Qwest common stock to be issued in the merger. The calculation of the
exchange ratio is designed so that U S WEST shareholders receive Qwest common
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stock having a value of $69 for each share of U S WEST common stock converted in
the merger. If, however, the Average Price of Qwest common stock for the 15
randomly selected trading days during the 30-day pricing period prior to closing
is less than $28.26, U S WEST shareholders will receive Qwest common stock
having a value of less than $69 for each share of U S WEST common stock
converted in the merger. If the Average Price is less than $22 or the closing
price of Qwest common stock is less than $22 for 20 consecutive trading days
between the signing of the merger agreement and the closing of the merger, the U
S WEST Board is entitled to terminate the merger agreement. Because the U S WEST
meeting will occur before the date on which the Average Price of Qwest common
stock is determined, U S WEST shareholders will not have the power to vote
against the merger if the average price is less than $28.26.
In addition, even if the average price of Qwest common stock is more than
$28.26, no assurances can be given to the U S WEST shareholders that the Qwest
common stock to be issued in the merger will have a value of $69 upon completion
of the merger. If the price of Qwest common stock is declining during the 30
trading day pricing period prior to the closing of the merger, U S WEST
shareholders may receive Qwest common stock actually having a value of less than
$69 at the effective time of the merger, notwithstanding the fact that the
average price is more than $28.26.
Furthermore, no assurances can be given to the U S WEST shareholders of the
value of the shares of Qwest common stock to be issued in the merger after the
completion of the merger. After the completion of the merger, the price of Qwest
common stock is likely to change based upon changes in the business, operations
and prospects of the combined company, general market and economic conditions,
regulatory considerations and other factors beyond our control. Also, the merger
will result in the recognition of a substantial amount of goodwill. We have
preliminarily estimated that the useful life associated with the goodwill will
be 40 years, however, due to changes in the communications industry, including
advances in technology, competition, consolidation of service providers and the
regulatory environment, the SEC believes a life of 20 to 25 years to be more
appropriate. Although we believe a 40-year life is appropriate and consistent
with industry practice, there can be no assurance that the SEC will not require,
or we will not decide, to change the useful life to a shorter period. If we were
to reduce the useful life from 40 to 20 years, annual earnings per share would
be reduced by $0.34. See footnote 5 to the pro forma financial statements on
page II-13.
REGULATORY APPROVALS MAY BE DELAYED OR CONDITIONED. Completion of the
merger is conditioned on receipt of all material regulatory consents and
approvals required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as well as the applicable statutes, policies and rules governing the
Federal Communications Commission and state public utility commissions. The DOJ
and the FTC granted early termination of the Hart-Scott-Rodino Act review period
without taking action, but other consents and approvals remain to be obtained.
There can be no assurance that such approvals will be granted on a timely basis,
or without materially adverse conditions.
DIVESTITURE OF IN-REGION INTERLATA BUSINESS. The Telecommunications Act of
1996 currently prohibits U S WEST from providing long distance
telecommunications services between Local Access and Transport Areas (LATAs)
within its 14 state region, and between these LATAs and locations outside its
region. Upon the closing of the merger, the interLATA service prohibition also
would apply to Qwest. Consequently, as of the closing, Qwest plans to
discontinue providing these interLATA services, and these services will be
divested under separate agreements. There can be no assurance that the terms and
conditions under which the divestitures will be made will permit Qwest to
receive the full economic value of its in-region interLATA business.
Furthermore, closing of the merger could be delayed if the necessary
divestitures cannot be completed on a timely basis. The combined company will
continue to provide long distance services outside the U S WEST region. The
parties have anticipated some loss of out-of-region long
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distance business as a result of the discontinuance of in-region business. There
can be no assurance that these losses will not be materially greater than
expected.
FUTURE PROVISION OF INTERLATA SERVICES. U S WEST and, upon closing, the
combined company will be allowed to provide in-region interLATA services upon
satisfaction of certain regulatory conditions primarily related to local
exchange telephone competition. These restrictions will be lifted on a state by
state basis following further proceedings in each U S WEST state and at the FCC.
Qwest and U S WEST expect the combined company to work actively to meet the
applicable requirements so that interLATA services can be provided in particular
states starting in 2000 or 2001, but there can be no assurance that they will be
successful in that regard. Even after elimination of the interLATA restriction,
the combined company's long distance operations will be subject to various
regulatory constraints, including the requirement that interLATA services be
offered through a subsidiary that is structurally separated from the company's
local exchange services. There can be no assurance that these regulations will
not have a material adverse affect on the combined company's ability to compete.
CONCENTRATION OF VOTING POWER; POTENTIAL CONFLICTS OF INTEREST. As of the
date of this joint proxy statement/prospectus, Philip F. Anschutz, Qwest's
Chairman of the Board, beneficially owns approximately 39% of the outstanding
shares of Qwest common stock. Based on the number of shares of Qwest common
stock and U S WEST common stock outstanding as of September 7, 1999, the record
date for the Qwest and U S WEST meetings, and depending on the number of shares
of Qwest common stock issued in the merger (which will in turn depend on the
Qwest average price), upon completion of the merger, Mr. Anschutz will
beneficially own between approximately 14.86% and 18.02% of the outstanding
shares of Qwest common stock. Based on Qwest and U S WEST's current shareholder
composition, it is not anticipated that, upon completion of the merger, any
Qwest shareholder other than Mr. Anschutz would own more than 5% of the
outstanding shares of Qwest common stock. In addition, Mr. Anschutz will be
Qwest's Non-Executive Chairman and a member of the Office of the Chairman. As a
result, Mr. Anschutz will continue to be in a position to substantially
influence actions that require shareholder approval, including the election of
the Qwest Board.
ANTI-TAKEOVER PROVISIONS. The merger agreement provides that, upon the
completion of the merger, Qwest's amended and restated charter and bylaws will
include certain provisions that may have the effect of delaying, deterring or
preventing a future takeover or change in control of Qwest unless that takeover
or change in control is approved by the Qwest Board. These provisions may render
the removal of directors and management more difficult. For example, upon
completion of the merger, Qwest shareholders will not be permitted to call a
special meeting of shareholders or act by written consent to vote on the removal
of directors and will not be able to remove directors without cause. In
addition, since the Qwest Board will be classified upon completion of the
merger, a shareholder attempting to gain control of the Qwest Board might have
to wage two successful proxy contests to do so.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER. A number of the officers
and directors of Qwest and U S WEST have interests in the merger that are
different from, or in addition to, yours as a shareholder of Qwest or U S WEST.
For a description of these interests, see "Interests of Officers and Directors
in the Merger."
BACKGROUND OF THE MERGER
In pursuing their strategies for enhancing shareholder value, each of Qwest
and U S WEST regularly considers opportunities for acquisitions, joint ventures
and other strategic alliances. While each company believes that it has positive
prospects on a stand-alone basis, representatives of each of Qwest and U S WEST
from time to time hold discussions with third parties regarding a range of
possible options to
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CHAPTER ONE - THE MERGER
improve their competitive positions, including acquisitions or dispositions of
assets, possible partnerships, alliances or other significant transactions.
In April of 1998, Qwest and U S WEST entered into a joint marketing and
teaming arrangement. Qwest and U S WEST terminated their activities under this
arrangement in May of 1998 when the FCC determined that these activities were
impermissible under the Telecommunications Act of 1996.
After the June 12, 1998 separation from its former parent company, U S WEST
reviewed its strategic position and objectives in light of changes in the
competitive marketplace as evidenced by recent significant consolidations and
mergers in the telecommunications industry, swiftly advancing technology and
changes in the regulatory landscape. From September 30 through October 2, 1998,
the U S WEST Board held a strategy session during which it reviewed these
changes. With this background, it considered various strategic alternatives for
U S WEST. These alternatives included potential relationships and industry
alliances with other entities but no specific transactions were proposed.
Following this session, during the fall of 1998, representatives of U S WEST and
Global met on various occasions to discuss a potential transaction involving U S
WEST's data business and Global. These discussions ended in January 1999. Also,
representatives of U S WEST and Qwest discussed opportunities for the two
companies in the changing telecommunications industry.
On February 4 and 5, 1999, in the context of the discussion of a potential
opportunity for U S WEST's data business, the U S WEST Board had lengthy
discussions regarding the various strategies that U S WEST could pursue.
Through February and into April 1999, representatives of Global and U S WEST
had further discussions about ways of combining Global and the data business of
U S WEST.
On March 17, 1999, Global and Frontier Corporation announced the execution
of a definitive merger agreement.
At an April 2 regular meeting, the U S WEST Board reviewed the strategic
objectives of U S WEST and requested that its management further investigate
possible long-term strategic alternatives and options for U S WEST, including
the possibility of a business combination transaction involving Global. Analysis
of possible strategies to either acquire or build the technology necessary to
advance U S WEST into the forefront of the rapidly expanding data and
telecommunications industry was undertaken. U S WEST considered a number of
potential acquisition candidates with a variety of technologies that would
enhance its products or services.
Thereafter, representatives of U S WEST had preliminary discussions with a
number of significant potential partners that could strategically fit with its
goals of becoming a global leader in the data/ communications race. U S WEST
retained Merrill Lynch to advise it with respect to a possible transaction.
From April 22 through May 11, representatives of U S WEST and Global met to
discuss the possibility of a business combination or a joint venture between U S
WEST and Global.
On May 3, U S WEST and Global executed a mutual confidentiality agreement
and agreed to exchange non-public information.
On May 4, a U S WEST representative asked a Qwest representative whether
Qwest had any interest in a business combination between U S WEST and Qwest. The
Qwest representative said that, in light of other pending matters, Qwest was not
then interested in pursuing such a combination.
During the first two weeks of May, representatives of U S WEST and Global
met to discuss a possible structure for a business combination between U S WEST
and Global and agreed that any business combination transaction between U S WEST
and Global would include a tender offer for Global shares.
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On May 11, at a special meeting of the U S WEST Board, senior management of
U S WEST and U S WEST's financial and legal advisors reviewed with the U S WEST
Board the possible long-term strategic alternatives for U S WEST and the status
of the discussions between U S WEST and Global. The U S WEST Board then
authorized senior management of U S WEST to continue discussions with Global.
Thereafter, representatives of U S WEST and Global continued to meet to
negotiate the terms of a possible business combination, including the terms of a
tender offer for Global shares, and continued negotiations relating to a merger
and the tender offer for Global shares.
On May 14, Qwest learned that U S WEST and Global were negotiating a
business combination. On May 15, representatives of Qwest discussed with
representatives of U S WEST the possibility of a business combination
transaction between Qwest and U S WEST.
On May 16, the U S WEST Board met for the purpose of considering the terms
and conditions of the proposed merger agreement with Global, the tender offer
and the related transactions and agreements. U S WEST's financial and legal
advisors were present at the meeting. The U S WEST Board was advised that Qwest
had become aware of the possible combination with Global and had requested that
U S WEST delay negotiations while Qwest continued to consider making an
alternative proposal. Throughout the day and evening, representatives of U S
WEST encouraged Qwest to make a firm and specific proposal that could be
considered. Representatives of Qwest advised representatives of U S WEST that
Qwest was not prepared to make an offer at that time because Qwest had not
undertaken the necessary work to evaluate a possible offer for U S WEST, and
they requested U S WEST to postpone the execution of any agreement with Global
or, failing that, to maintain the flexibility to discuss future proposals from
third parties in any agreement between U S WEST and Global. At the U S WEST
Board meeting, senior management of U S WEST and U S WEST's legal and financial
advisors reviewed with the U S WEST Board the terms and conditions of the Global
merger agreement, the tender offer and the related transactions. Merrill Lynch
addressed certain financial aspects of the Global merger. Counsel reviewed legal
considerations to be considered by the U S WEST Board in approving the Global
merger and the tender offer. Extensive discussion followed relating to the
financial and legal aspects of the transaction as well as the status of the
conversations with the representatives of Qwest. After discussion, the Board
unanimously approved the Global merger, the tender offer, the Global merger
agreement and the related transactions and agreements and agreed to reconvene
later that evening to authorize management to execute and deliver the Global
merger agreement and the related agreements. Later that evening, the U S WEST
Board reconvened and, after being advised that no proposal from Qwest was
imminent and that Global would not defer entering into the Global merger
agreement, authorized senior management of U S WEST to execute and deliver the
Global merger agreement and commence the tender offer for Global shares.
On May 17, Global and U S WEST announced that they had entered into a
definitive merger agreement, under which U S WEST and Global/Frontier would each
become subsidiaries of a newly-created holding company to be named Global
Crossing Corporation ("New Holdco"). New Holdco would establish two categories
of tracking stock: the Class G stock would track the global data and voice
network and Internet assets of New Holdco, and the Class L stock would track its
local telecommunications assets. In the merger, each share of U S WEST stock
would be exchanged for approximately 1.2 shares of New Holdco tracking stock,
and each share of Global common stock would be exchanged for one share of New
Holdco tracking stock. Shareholders could elect which class of tracking stock
they would receive, subject to proration based on an appraisal of the relative
values of the two classes of assets represented by the two classes of tracking
stock shortly before closing. As part of the Global merger transaction, U S WEST
agreed to make a cash tender offer for approximately 9.5% of the outstanding
Global common stock at a price of $62.75 per share. The tender offer closed on
June 18.
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Following the announcement of the Global merger agreement, representatives
of Qwest commenced their due diligence investigation of publicly available
information about U S WEST and Frontier and analyzed possible synergies that
might result from the potential combinations with one or both companies.
In late May and early June, representatives of Qwest and BellSouth entered
into discussions regarding various alternatives relating to BellSouth's interest
in Qwest, including the acquisition of a control position in, or a combination
with, Qwest. The discussions terminated without Qwest and BellSouth reaching
agreement on these issues.
At special meetings of the Qwest Board held on June 11 and June 13, Qwest's
senior management and its financial and legal advisors briefed the Qwest Board
on the potential offers for U S WEST and Frontier. On June 13, the Qwest Board
discussed the proposals and unanimously authorized senior management to make
proposals to acquire U S WEST and Frontier. Immediately thereafter,
representatives of Qwest called representatives of U S WEST, Frontier and Global
and told them that Qwest was making offers to acquire U S WEST and Frontier.
On the same day, Joseph P. Nacchio, Chairman and Chief Executive Officer of
Qwest, sent Solomon D. Trujillo, Chairman, President and Chief Executive Officer
of U S WEST, a letter stating that Qwest was offering to pay 1.738 shares of
Qwest common stock for each share of U S WEST common stock, having a value of
$78.00 per share at the close of trading on Friday, June 11. The letter also
stated that Qwest was simultaneously offering to acquire Frontier in a separate
transaction, and that the consideration offered to U S WEST shareholders would
increase to 1.783 shares of Qwest common stock for each share of U S WEST common
stock, having a value of $80.00 per share at the close of trading on Friday,
June 11, if Frontier were to accept Qwest's proposal. Mr. Nacchio enclosed a
draft merger agreement with the letter.
On June 14, the U S WEST Board held a special meeting to discuss the Qwest
proposal. At the meeting, the U S WEST Board received financial and legal advice
regarding the Qwest proposal and its obligations under the Global merger
agreement. Also on June 14, U S WEST retained Lehman Brothers as a financial
advisor.
On June 17, Frontier issued a press release stating that the Frontier Board
had not, at that time, decided to take any action with respect to Qwest's offer.
On June 18, U S WEST issued a press release stating that the U S WEST Board
was continuing to review Qwest's offer.
On June 21, Mr. Nacchio sent separate letters to Mr. Trujillo and Joseph P.
Clayton, Chief Executive Officer of Frontier, detailing the reasons why Qwest
believed its offers for U S WEST and Frontier were superior to Global's
outstanding offers.
Also on June 21, the U S WEST Board held a special meeting to further
discuss the Qwest proposal. At the special meeting, the U S WEST Board decided
to take no action at that time with respect to the Qwest proposal. On the same
day, U S WEST issued a press release expressing its concerns about the Qwest
proposal.
On June 23, Mr. Nacchio sent a letter to Mr. Trujillo stating that Qwest had
modified its offer for U S WEST and was now offering to acquire each U S WEST
share for $69.00 in Qwest stock. The revised offer was subject to a collar on
the price of Qwest stock between $30.50 and $43.50, under which Qwest would have
the option to pay cash or issue additional shares to offset any decline in
Qwest's stock price from $38.70 per share down to $30.50 per share, while U S
WEST stockholders would realize all of the upside of any increase in the Qwest
stock price above the collar. At the same time, Qwest also revised its offer to
acquire Frontier.
On June 24, the U S WEST Board held a special meeting to discuss the revised
Qwest proposal made on June 23. At the meeting, the U S WEST Board received
financial and legal advice regarding the revised Qwest proposal. The U S WEST
Board directed the company's officers to determine if Global would improve its
offer or would allow U S WEST to enter into discussions with Qwest.
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Chapter One - The Merger
On June 27, the U S WEST Board held a special meeting to discuss
developments relating to the revised Qwest proposal, including management's
discussions with Global and Global's press release indicating that Qwest would
face significant regulatory problems in completing a merger with U S WEST. Also
on that day, in response to Global's press release, Mr. Nacchio sent Mr.
Trujillo a letter stating that Qwest's strategic merger with U S WEST would not
face any greater regulatory hurdles than the Global/ U S WEST transaction. Mr.
Nacchio also sent to the Boards of U S WEST and Frontier a presentation
describing why Qwest's offer was, in each case, superior to the relevant
Global's offer.
On June 28, Mr. Nacchio sent a letter to Qwest's shareholders explaining the
strategic purpose for Qwest's offers for U S WEST and Frontier. In that letter,
Mr. Nacchio said that Qwest would consider adopting different strategies to
encourage U S WEST and Frontier, or their shareholders, to accept Qwest's
offers, and would consider setting deadlines by which the offers must be
accepted.
In late June, without notice to U S WEST, representatives of Global
contacted representatives of Qwest and suggested a meeting between the
representatives of Global and Qwest. As a result of these contacts, on June 30
and July 1 representatives of Qwest and Global discussed, among other things,
the terms of a possible resolution of the issues among the parties in the event
Qwest determined to discontinue its offer to acquire Frontier in connection with
a possible transaction with U S WEST. The terms of a possible resolution
included a reduction in the termination fee payable to Global by U S WEST under
the Global/U S WEST merger agreement, payment of a part of that fee in the form
of Global's common stock acquired in the tender offer by U S WEST for 9.5% of
Global's common stock, a change in certain provisions of the agreements between
Global and U S WEST related to the tender offer, and Qwest's agreeing to enter
into a commercial arrangement to purchase services from Global.
On June 30, Frontier announced in a press release that the Frontier Board
had directed management of Frontier to meet with Qwest and to discuss a
potential business combination. Qwest and Frontier signed a confidentiality
agreement on July 2. During the week of July 5, representatives of Qwest and
Frontier met several times to discuss the terms of Qwest's offer, including
features of the offer that representatives of Frontier said were unacceptable or
undesirable, and to conduct preliminary financial due diligence. Among other
matters, representatives of Frontier expressed a concern about the regulatory
delays in the closing of any Qwest/Frontier transaction that might result from a
three-way combination of Qwest, Frontier and U S WEST. The parties also
discussed Frontier's expectations regarding the terms of a potential business
combination, including the limitations on the conditions to closing and an
increase in the consideration payable by Qwest if the closing was delayed
because of Qwest's offer to acquire U S WEST.
Also on June 30, the U S WEST Board held a special meeting to further
discuss the revised Qwest proposal. U S WEST's management reported to the U S
WEST Board that they had discussions with representatives of Global who stated
that Global would not improve its offer at that time and consented to a waiver
of the non-solicitation limitations in the Global merger agreement so as to
allow U S WEST to commence negotiations with Qwest.
On July 1, Mr. Nacchio sent a letter to Mr. Trujillo which stated that Qwest
was prepared to discuss increasing the number of U S WEST Directors to be
elected to the Board of the combined company beyond the four board seats
previously offered, and stating Qwest's expectation that Mr. Trujillo and senior
management of U S WEST would be integral members of the management team within
the new company.
Also on July 1, U S WEST announced that the U S WEST Board had determined to
authorize the company's management and advisors to discuss with Qwest issues
relating to the revised Qwest merger proposal. That same day, Global announced
that at the request of U S WEST it had granted a waiver
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under the merger agreement to allow U S WEST to furnish information to, and to
participate in discussions with, Qwest.
From July 2 through July 7, representatives of Qwest and U S WEST discussed
the terms of Qwest's offer. The discussions focused on such issues as the
structure of the proposed merger; the use of a single class of stock rather than
dual tracking stocks; the terms of the collar; regulatory issues; the
contribution to the strategic vision of the combined company by the directors
and officers of both companies; possible governance structures which would
afford senior executives of both companies the opportunity to participate in the
realization of this strategic vision; employee issues; the name and principal
office location of the combined company; non-solicitation and related
termination provisions and the termination fees. U S WEST representatives
expressed their view that the combined company would have better uses for its
capital than for the acquisition of Frontier. In response, Qwest representatives
expressed their willingness to terminate the offer for Frontier if satisfactory
agreement could be reached with U S WEST on the open issues.
During the weeks of July 5 and July 12, representatives of Qwest and Global
continued to discuss the possibility that Qwest and Global could resolve the
issues relating to their offers for Frontier and U S WEST generally on the terms
referred to above.
On July 8, the U S WEST Board held a special meeting to further discuss the
status of the negotiations with Qwest.
Also on July 8, U S WEST delivered to Qwest drafts of a merger agreement and
a voting agreement pursuant to which certain affiliates of Philip F. Anschutz,
Chairman of the Board of Qwest, would agree to vote their Qwest shares in favor
of the transactions contemplated by a Qwest/U S WEST merger agreement.
On July 9, representatives of Qwest provided comments on these agreements to
U S WEST and its counsel and, in the following days, representatives of Qwest
and U S WEST continued to negotiate the provisions of these agreements. During
discussions that followed, Qwest reiterated its willingness to terminate its
offer for Frontier if Qwest and U S WEST agreed on the terms of a definitive
merger agreement.
Also on July 9, Qwest and U S WEST entered into a reciprocal confidentiality
agreement and exchanged due diligence request lists. Beginning on July 9, and
continuing through the week of July 12, representatives of Qwest and U S WEST
undertook reciprocal due diligence investigations and in that connection
exchanged and discussed certain business, personnel, legal and financial
information relating to Qwest and U S WEST. They also discussed the potential
near- and long-term benefits achievable from a potential merger as well as the
synergies that might be achieved by the combined company.
On July 12, representatives of Qwest and U S WEST discussed governance
issues and other matters related to Qwest's offer. Among other things, the
representatives discussed the composition of the Board and senior management of
the combined company and the roles of Messrs. Anschutz, Nacchio and Trujillo in
the combined company.
On July 13, representatives of Qwest and Frontier discussed the terms of
Qwest's offer for Frontier. Qwest and Frontier were not able to reach agreement
on matters each of them considered fundamental to Qwest's offer.
On July 14, at a regularly scheduled meeting, the Qwest Board was briefed by
senior management on the strategic benefits, both near- and long-term, available
from a merger with U S WEST, as well as on the status of discussions with U S
WEST. The Qwest Board was also informed of the discussions with Global
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and the possibility of reaching a resolution with Global. DLJ, Qwest's financial
advisor, reviewed with the Qwest Board the financial aspects of the merger.
Qwest's legal counsel, Davis Polk & Wardwell ("Davis Polk"), reviewed the terms
and conditions of the proposed merger agreement as well as the remaining open
issues, and reviewed the Qwest Board's legal duties and responsibilities. The
Qwest Board discussed these matters. Later that day, representatives of Qwest
and U S WEST discussed various issues, including the strategic vision of the
combined company and governance issues, including the roles of Messrs. Anschutz,
Nacchio and Trujillo in the combined company.
Also on July 14, Qwest delivered a draft agreement to Global that reflected
Qwest's proposed resolution of the issues relating to their offers for Frontier
and U S WEST. Thereafter, representatives of Global provided their comments on
the proposed agreement and representatives of Qwest and Global commenced their
efforts to resolve the open issues related to the agreements.
On July 15 and 16, representatives of Qwest and U S WEST continued to
discuss issues related to the merger agreement and other agreements described in
this document.
At a July 16 special meeting to consider the merger, the Qwest Board
received a presentation from Davis Polk on the terms and conditions of the
merger agreement, voting agreement, the agreement with Global and related
agreements described in this document and updated the Board on how certain of
the remaining open issues had been resolved. The Qwest Board then received a
financial presentation from DLJ and received DLJ's opinion as to the fairness,
from a financial point of view, to Qwest shareholders of the merger
consideration. The Qwest Board discussed the issues presented by management and
by the financial and legal advisors, including the factors discussed under
"--Reasons for the Merger; Recommendation of the Qwest Board." After discussion
and due consideration, the Qwest Board unanimously approved the merger agreement
and related agreements and merger matters described in this document.
At a July 16 special meeting, the U S WEST Board received a presentation
from senior management, Merrill Lynch and Lehman Brothers, its financial
advisors, and Cadwalader, Wickersham & Taft, its legal advisor, regarding the
terms and conditions of the proposed merger agreement with Qwest, the
termination of the Global merger agreement, the voting agreement with certain
affiliates of Mr. Anschutz and other matters relating thereto. As part of their
financial presentations to the U S WEST Board, both Merrill Lynch and Lehman
Brothers presented oral fairness opinions (subsequently confirmed in writing).
The U S WEST Board discussed the issues presented by management and by the
financial and legal advisors, including the factors discussed under "--Reasons
for the Merger; Recommendations of the U S WEST Board." After discussion and due
consideration, the U S WEST Board unanimously approved the termination of the
Global merger agreement, and then approved the Qwest merger agreement and the
agreements and the transactions related thereto and authorized management to
execute and deliver all necessary agreements.
On July 17 and 18, Qwest, U S WEST and Global representatives and outside
counsel continued discussions with the goal of resolving remaining open issues.
These issues included governance issues, the payment of the termination fee, the
agreements relating to the stock of Global acquired by U S WEST in the tender
offer and the terms of the commercial arrangement between Global and Qwest
relating to Qwest's purchase of services from Global.
On July 18, upon reaching the agreement on remaining open issues, Qwest and
U S WEST executed the merger agreement and related agreements described in this
document. At the same time, upon reaching agreement on the issues remaining
among the three parties, Global and U S WEST executed an agreement terminating
the Global/U S WEST merger agreement, and Global and Qwest executed the
agreement providing for payment of termination fees and the commercial
arrangements described above.
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Qwest and U S WEST issued a joint press release immediately thereafter
announcing the execution of the merger agreement, the withdrawal of Qwest's
offer for Frontier and the termination of U S WEST's agreement with Global.
On September 8, Qwest and U S WEST executed an amendment to the merger
agreement to increase from and after the closing of the merger (1) the number of
authorized shares of Qwest common stock from 2.0 billion to 5.0 billion to
permit Qwest to consummate the merger, to effect acquisitions, to grant options,
to provide for stock splits, to raise capital and for other corporate purposes
and (2) the number of shares of Qwest common stock eligible for award under the
Qwest Equity Incentive Plan to ensure that Qwest can continue to make awards
that will help the combined company attract, retain and motivate the most
qualified executives and employees.
OUR REASONS FOR THE MERGER; RECOMMENDATIONS OF OUR BOARDS OF DIRECTORS
In the past several years, the communications industry has experienced a
significant increase in mergers, acquisitions and consolidations among local
service providers, long distance providers, broadband Internet providers, cable
television companies and other emerging technology companies. These industry
changes have resulted from significant competitive, regulatory and technological
changes over the last few years and are an indication that the most effective
competitors in the communications industry are expected to be those companies
that offer the most complete array of products and services without geographic
limitations. Strong national and international players, which have formed and
are forming through mergers, acquisitions and alliances, are looking to lead the
telecommunications industry by offering customers one-stop shopping for their
communications services, including broadband Internet services.
Qwest has been implementing its strategy of being a leading broadband
Internet communications company through its national high-capacity fiber
communications network, and providing Internet and multimedia services. U S WEST
has also been implementing its strategy of providing customers with integrated
advanced communications products and services through its enhanced network
capacity and capability, custom calling features, integration of wireline and
wireless services, and its broadband Internet products and services. Through its
directories business, U S WEST also provides directory services throughout its
14 state region, and is expanding that service onto the Internet. By combining,
we expect to bring together Qwest's advanced network and broadband Internet
service capability with U S WEST's innovative local communications and broadband
Internet access capability. Through this combination we will be able to offer
customers in the United States and worldwide more choices and greater access to
next generation telecommunications and broadband Internet based services
including web hosting and value added web based applications. We will also be
able to share resources and capitalize on synergies that will speed our ability
to compete effectively at the top tier of the telecommunications industry. The
merger will enable both companies to achieve our mutual goals more quickly than
either company could have achieved them separately.
We believe that the merger will create a stronger competitor and will
provide significant value for our shareholders, employees and customers for the
following reasons, among others:
- We believe that the combination of Qwest and U S WEST will create the
benchmark large-capitalization growth company in the
communications/Internet sector for the new millennium, with approximately
$18.5 billion of pro forma year-2000 revenue and $7.4 billion pro forma
year-2000 EBITDA and will be accretive to Qwest's earnings per share and
cash flow per share beginning in the first year of combined operations.
See "Projections and Synergies" and "Information Regarding Forward Looking
Statements."
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- We believe that during the period from 2000 through 2005 the combination
of Qwest and U S WEST will enable us to achieve gross revenue synergies of
more than $12 billion and net financial and operational synergies of
approximately $10.5 billion to $11 billion. We expect that these synergies
will be comprised of (1) incremental revenues as the combined company
expands its local, data, Internet Protocol and long-distance service; (2)
operating cost savings in areas such as network operations and
maintenance, sales and marketing, billing and customer and back office
support; and (3) capital savings through elimination of duplication in the
companies' planned network buildouts and in other infrastructure and
back-office areas. See "Projections and Synergies" and "Information
Regarding Forward Looking Statements."
- We believe the combination of Qwest and U S WEST will accelerate our
strategic development and will enable us to grow faster than each of us
could grow alone and will increase our revenues and profits faster than
each of us would accomplish alone. In particular, it is our expectation
that the combination will accelerate the delivery of Internet-based
broadband communications services provided by Qwest to the large customer
base of U S WEST and will bring together our complementary assets,
resources and expertise and the network infra-structure, applications,
services and customer distribution channels of our companies and that the
combination of our customer bases, assets, resources and expertise in a
timely manner will permit each of us to compete more effectively in our
rapidly consolidating industries. We believe the combination will also
enable us to rapidly increase our customer base for our respective
products by acquiring the other company's customer bases: the combined
company would have an expanding client base of more than 29 million
customers, including many multinational corporations.
- We believe worldwide broadband end-to-end infrastructure, expanded range
of products and services, access to each other's customers, people and
processes and combined use of our distribution and operating systems will
create growth for the combined company and that, as a large company with
global scale and scope, multiple capabilities, end-to-end broadband
connectivity, and a full suite of data, voice and video products and
services, we can successfully compete in the telecommunications industry
in the long-term.
- We believe we will be able to redeploy our capital in the years 2000
through 2005 in the aggregate amount of approximately $7.5 billion toward
new investment in Internet applications and hosting, out-of-region
facilities based competitive local exchange service, out-of-region
broadband access and Internet services, wireless expansion and video
entertainment. We believe we can fund this redeployment of capital with
approximately $5.3 billion of savings from the reduction in the dividends
currently paid by U S WEST and $2.2 billion of savings from capital
expenditure synergies. See "Projection and Synergies" and "Information
Regarding Forward Looking Statements."
- We believe we will be able to obtain the required regulatory approvals to
permit us to close the merger in a timely manner without the imposition by
regulators of conditions that would prevent us from obtaining
substantially all of the expected benefits of the merger.
QWEST
In approving the transaction and making its recommendation that Qwest
shareholders approve the merger agreement and the related transactions, the
Qwest Board consulted with Qwest's management as
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CHAPTER ONE - THE MERGER
well as its outside legal counsel and financial advisor and considered the
following material factors, among others:
- the reasons described above under "Our Reasons for the Merger" and the
risks described under "Risk Factors";
- the fact that the merger consideration payable to the shareholders of U S
WEST is fixed at $69.00 in Qwest common stock, subject to a "collar" when
the price of Qwest common stock is between $28.26 and $39.90 and that
Qwest retains the ability to pay a portion of the merger consideration in
cash, subject to U S WEST's approval;
- the familiarity of the Qwest Board with the business, properties and
prospects of Qwest, including the opportunities and alternatives available
to Qwest if the merger were not to be undertaken;
- DLJ's financial presentation and opinion to the Qwest Board to the effect
that, as of July 18, 1999 and based on and subject to the assumptions,
limitations and qualifications stated in the opinion, the merger
consideration to be paid by Qwest in the merger was fair from a financial
point of view to the holders of Qwest common stock, as described under
"Opinion of Qwest's Financial Advisor";
- the qualification of the merger as a tax-free transaction for U.S. federal
income tax purposes (except for tax resulting from any cash received by U
S WEST shareholders);
- the right of U S WEST to terminate the merger agreement if the average
price of Qwest common stock during the 15 randomly selected trading days
during the pricing period prior to closing is below $22.00 per share or
the closing price of Qwest common stock is below $22.00 per share for 20
consecutive trading days between the signing of the merger agreement and
the completion of the merger;
- the terms and conditions of the merger agreement, including the conditions
to closing, the termination fees payable under certain circumstances, and
the restrictions imposed on the conduct of the businesses of Qwest and U S
WEST in the period prior to closing;
- the provisions of the merger agreement which do not permit either Qwest or
U S WEST to terminate the merger agreement if it receives an acquisition
proposal that is superior to the Qwest-U S WEST transaction but do permit
Qwest or U S WEST to terminate if the board of the other party changes its
recommendation that its shareholders vote in favor of the merger;
- the voting agreement of certain shareholders of Qwest which requires them
to vote in favor of the merger;
- the decreased likelihood of a third party making an acquisition proposal
with respect to Qwest pre-closing because of the voting agreement, and
post-closing because of the anti-takeover provisions of the combined
company's charter and bylaws, including the classified board provisions;
- the reduction in the beneficial ownership of Qwest's principal shareholder
as a result of the merger;
- the amount of the termination fee payable to Global by U S WEST, the
composition of such termination fee, the obligation of Qwest to lend part
of such fee to U S WEST, and the circumstances under which part of the
loan might be repayable to Qwest;
- the governance structure of the combined company, including the creation
of the Office of the Chairman with Messrs. Anschutz, Nacchio and Trujillo
as its initial members; the right of each of Qwest and U S WEST to
designate seven of the initial fourteen members of the board of directors
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CHAPTER ONE - THE MERGER
of the combined company; and the initial substantially equal participation
by senior officers of each of Qwest and U S WEST in the management of the
combined company;
- the interests of the officers and directors of Qwest and U S WEST in the
merger, as described under "Interests of Officers and Directors in the
Merger";
- the effect of the merger on Qwest's existing joint ventures and other
relationships with third parties, including KPNQwest, BellSouth
Corporation and Microsoft Corporation; and
- the satisfactory completion of Qwest's due diligence investigation of U S
WEST.
The foregoing discussion of the information and factors considered by the
Qwest Board is not intended to be exhaustive. In view of the wide variety of the
material factors considered in connection with its evaluation of the merger and
the complexity of these matters, the Qwest Board did not find it practicable to,
and did not, quantify or otherwise attempt to assign any relative weight to the
various factors considered. In addition, the Qwest Board did not undertake to
make any specific determination as to whether any particular factor, or any
aspect of any particular factor, was favorable or unfavorable to the Qwest
Board's ultimate determination, but rather the Qwest Board conducted an overall
analysis of the factors described above, including through discussions with and
questioning of Qwest's management and legal and financial advisors. In
considering the factors described above, individual members of the Qwest Board
may have given different weight to different factors.
There can be no assurance that any of the potential savings, synergies or
opportunities considered by the Qwest Board will be achieved through
consummation of the merger. See "Risk Factors," "Projections and Synergies" and
"Information Regarding Forward-Looking Statements."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF QWEST
THE QWEST BOARD BELIEVES THAT THE MERGER IS ADVISABLE AND IS FAIR TO AND IN
THE BEST INTERESTS OF QWEST AND ITS SHAREHOLDERS AND RECOMMENDS TO ITS
SHAREHOLDERS THAT THEY VOTE "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND THE MERGER, INCLUDING THE ISSUANCE OF SHARES OF QWEST COMMON STOCK
IN THE MERGER, THE QWEST CHARTER AMENDMENTS CONTEMPLATED BY THE MERGER AGREEMENT
AND THE INCREASE IN THE NUMBER OF SHARES OF QWEST COMMON STOCK ELIGIBLE FOR
AWARD UNDER QWEST'S EQUITY INCENTIVE PLAN CONTEMPLATED BY THE MERGER AGREEMENT.
U S WEST
In reaching its decision, the U S WEST Board consulted with its financial
and legal advisors and its senior management, reviewed a significant amount of
information and considered a number of factors. The most relevant information
reviewed and factors considered are set forth below.
- the reasons described above under "Our Reasons for the Merger" and the
risks described under "Risk Factors";
- the fact that the terms and benefits of the merger agreement are
significantly better than the terms and benefits of the Global-U S WEST
merger agreement, including:
- the premium to the U S WEST shareholders represented by the Qwest offer
compared to the Global offer and compared to the historical trading
price of U S WEST common stock;
- the fact that the cumulative synergies expected to result from the
merger exceed the cumulative synergies that were expected to result
from the Global-U S WEST merger;
- the fact that the merger agreement provides price protection for the U
S WEST shareholders for the collar range of $28.26 through $39.90 of
Qwest's average price; and
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CHAPTER ONE - THE MERGER
- the ability of U S WEST to terminate the merger agreement if Qwest's
average stock price is less than $22 for 15 randomly selected trading
days during the 30 trading day pricing period before the completion of
the merger or the closing price of Qwest common stock is less than $22
for 20 consecutive trading days before the completion of the merger;
- the fact that U S WEST will be able to designate seven of the initial
fourteen directors to the Qwest Board and a substantial number of senior
executives after the merger, as well as the fact that Solomon D. Trujillo
will serve as one of the initial members of the Office of the Chairman,
thus enabling U S WEST to provide substantial input into the policies and
operation of the combined businesses and effect the long-term goals of U S
WEST;
- the strategic and financial alternatives available to U S WEST in the
rapidly changing industry environment and U S WEST's belief that expanding
its broadband Internet-based communications business was essential to its
growth and development as a full service telecommunications provider;
- the strategic fit between U S WEST and Qwest, and the belief that the
combined company has the potential to enhance shareholder value through
additional opportunities and operating efficiencies;
- the opportunity for the U S WEST shareholders to participate in a larger,
more diversified, competitive company in the telecommunications industry
which has the potential to become a significant worldwide Internet-based
broadband services provider with one of the highest capacity networks in
the industry;
- information concerning the financial performance, business operations,
debt capacity and asset quality of U S WEST and Qwest and of the two
companies on a combined basis;
- the opinions of Merrill Lynch and Lehman Brothers that, as of June 18,
1999 and subject to the assumptions and limitations set forth in the
opinions, the consideration to be received by U S WEST shareholders in the
merger was fair from a financial point of view to such holders, and the
financial presentations made by Merrill Lynch and Lehman Brothers to the U
S WEST Board in connection with the delivery of their opinions;
- the likely impact of the merger on U S WEST's employees and customers;
- the existence of an agreement of holders of approximately 39% of the Qwest
common stock to vote in favor of the merger, increasing the likelihood of
Qwest shareholder approval of the merger transaction;
- the reduction in the termination fee payable to Global upon the
termination of the Global-U S WEST merger agreement;
- the effect of the merger on Qwest's existing joint ventures and other
relationships with third parties;
- the interests of officers and directors of U S WEST in the merger, as
described under "Interests of Officers and Directors in the Merger";
- the fact that in the event Qwest elects to pay a portion of the merger
consideration in cash, U S WEST and Qwest will jointly agree on the amount
of such cash;
- the fact that neither U S WEST nor Qwest is permitted to terminate the
merger agreement upon receipt of a superior acquisition proposal, but that
either U S WEST or Qwest is permitted to terminate the merger agreement if
the other party's board changes its recommendation that its shareholders
vote in favor of the merger; and
- the qualification of the merger as a tax-free transaction for U.S. federal
income tax purposes (except for tax resulting from any cash received by U
S WEST shareholders).
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Chapter One - The Merger
The foregoing discussion of the information and factors considered by the U
S WEST Board is not intended to be exhaustive. In view of the wide variety of
the material factors considered in connection with its evaluation of the merger
and the complexity of these matters, the U S WEST Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign any
relative weight to the various factors considered. In addition, the U S WEST
Board did not undertake to make any specific determination as to whether any
particular factor, or any aspect of any particular factor, was favorable or
unfavorable to the U S WEST Board's ultimate determination, but rather the U S
WEST Board conducted an overall analysis of the factors described above,
including through discussions with and questioning of U S WEST's management and
legal and financial advisors. In considering the factors described above,
individual members of the U S WEST Board may have given different weight to
different factors.
There can be no assurance that any of the potential savings, synergies or
opportunities considered by the U S WEST Board will be achieved through
consummation of the merger. See "Risk Factors," "Projections and Synergies" and
"Information Regarding Forward-Looking Statements."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF U S WEST
THE U S WEST BOARD BELIEVES THAT THE MERGER IS ADVISABLE AND IS FAIR TO AND
IN THE BEST INTERESTS OF U S WEST AND ITS SHAREHOLDERS AND RECOMMENDS TO ITS
SHAREHOLDERS THAT THEY VOTE "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND THE MERGER.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material United States federal
income tax consequences of the merger. This discussion is based on the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations,
administrative interpretations and court decisions as in effect as of the date
of this joint proxy statement/prospectus, all of which may change, possibly with
retroactive effect.
This discussion does not address all aspects of federal income taxation that
may be important to a U S WEST shareholder in light of that shareholder's
particular circumstances or to a U S WEST shareholder subject to special rules,
such as:
- a shareholder who is not a citizen or resident of the United States,
- a financial institution or insurance company,
- a tax-exempt organization,
- a dealer or broker in securities,
- a shareholder that holds its U S WEST common stock as part of a hedge,
appreciated financial position, straddle or conversion transaction, or
- a shareholder who acquired his U S WEST common stock pursuant to the
exercise of options or otherwise as compensation.
TAX OPINIONS. Qwest has received an opinion of Davis Polk & Wardwell, and U
S WEST has received an opinion of Cadwalader, Wickersham & Taft (together with
Davis Polk & Wardwell, "tax counsel"), each dated as of the date of this joint
proxy statement/prospectus, that the merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code and that Qwest and U S WEST will each be a party to that
reorganization within the meaning of Section 368(b) of the Internal Revenue
Code. It is a condition to the obligation of each of Qwest and U S WEST to
complete the merger that the relevant tax counsel confirm its opinion as of the
closing date. Neither Qwest nor U S WEST intends to waive this condition.
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CHAPTER ONE - THE MERGER
Another condition to the obligation of each of Qwest and U S WEST to
complete the merger is that Cadwalader, Wickersham & Taft opine to U S WEST that
the merger will not affect the tax-free qualification of the prior spin-off of U
S WEST from MediaOne Group, Inc. Neither Qwest nor U S WEST intends to waive
this condition.
The opinions of tax counsel regarding the merger have relied, and the
confirmation opinions regarding the merger as of the closing date, and the
opinion regarding the prior spin-off of U S WEST (together with the confirmation
merger opinions, the "closing date opinions"), will each rely, on (1)
representations and covenants made by Qwest and U S WEST, including those
contained in certificates of officers of Qwest and U S WEST, and (2) specified
assumptions, including an assumption regarding the completion of the merger in
the manner contemplated by the merger agreement. In addition, the opinions of
tax counsel have assumed, and tax counsel's ability to provide the closing date
opinions will depend on, the absence of changes in existing facts or in law
between the date of this joint proxy statement/prospectus and the closing date.
If any of those representations, covenants or assumptions is inaccurate, tax
counsel may not be able to provide one or more of the required closing date
opinions and/or the tax consequences of the merger could differ from those
described in the opinions that tax counsel have delivered. Tax counsel's
opinions neither bind the Internal Revenue Service ("IRS") nor preclude the IRS
or the courts from adopting a contrary position. Qwest and U S WEST do not
intend to obtain a ruling from the IRS on the tax consequences of the merger.
FEDERAL INCOME TAX TREATMENT OF THE MERGER. The merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, and Qwest and U S WEST will each be a party
to that reorganization within the meaning of Section 368(b) of the Internal
Revenue Code.
FEDERAL INCOME TAX CONSEQUENCES TO U S WEST SHAREHOLDERS. For federal
income tax purposes:
- A holder of U S WEST common stock will not recognize any gain or loss
upon its exchange in the merger of its shares of U S WEST common stock
for shares of Qwest common stock. If Qwest and U S WEST elect to pay a
portion of the merger consideration in cash, a holder will be taxed on
any gain on the shares of U S WEST common stock surrendered in the
merger to the extent of cash received as merger consideration. This
gain will be capital gain, and will be long-term capital gain if the
shares of U S WEST common stock exchanged for the merger consideration
were held for more than one year on the closing date of the merger.
- If a holder of U S WEST common stock receives cash instead of a
fractional share of Qwest common stock, the holder will be required to
recognize gain or loss, measured by the difference between the amount
of cash received instead of that fractional share and the portion of
the tax basis of that holder's shares of U S WEST common stock
allocable to that fractional share. This gain or loss will be capital
gain or loss, and will be long-term capital gain or loss if the share
of U S WEST common stock exchanged for that fractional share of Qwest
common stock was held for more than one year on the closing date of the
merger.
- A holder of U S WEST common stock will have a tax basis in the Qwest
common stock received in the merger equal to (1) the tax basis of the U
S WEST common stock surrendered by that holder in the merger, plus (2)
any gain that is recognized by that holder as a result of the receipt
of cash (other than cash received instead of any fractional share of
Qwest common stock), if any, in the merger, less (3) any tax basis of
the U S WEST common stock surrendered that is allocable to any
fractional share of Qwest common stock for which cash is received, less
(4) the cash (other than cash received instead of any fractional share
of Qwest common stock), if any, received by that holder in the merger.
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<PAGE>
CHAPTER ONE - THE MERGER
- The holding period for shares of Qwest common stock received in
exchange for shares of U S WEST common stock in the merger will include
the holding period for the shares of U S WEST common stock surrendered
in the merger.
FEDERAL INCOME TAX CONSEQUENCES TO QWEST SHAREHOLDERS. For federal income
tax purposes, holders of Qwest common stock will not recognize gain or loss as a
result of the merger.
This discussion of material federal income tax consequences is intended to
provide only a general summary, and is not a complete analysis or description of
all potential federal income tax consequences of the merger. This discussion
does not address tax consequences that may vary with, or are contingent on,
individual circumstances. In addition, it does not address any non-income tax or
any foreign, state or local tax consequences of the merger. ACCORDINGLY, WE
STRONGLY URGE EACH U S WEST SHAREHOLDER TO CONSULT HIS OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR UNITED STATES FEDERAL, STATE OR LOCAL OR FOREIGN INCOME
OR OTHER TAX CONSEQUENCES TO HIM OF THE MERGER.
REGULATORY MATTERS RELATING TO THE MERGER
ANTITRUST REVIEW
The parties have satisfied their obligation under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules promulgated under the
Hart-Scott-Rodino Act to give notice and provide certain information and
materials to the Antitrust Division of the Department of Justice and the Federal
Trade Commission, and the specified review period has ended without either the
DOJ or FTC taking action. Notwithstanding the FTC's grant of early termination
of the review period, at any time prior to or after the consummation of the
merger, the DOJ or the FTC could take action under the federal antitrust laws,
including seeking to enjoin the merger or seeking conditions thereon. State
antitrust authorities and private parties in certain circumstances may bring
legal action under the antitrust laws seeking to enjoin the merger or impose
conditions. Qwest and U S WEST believe that the merger promotes competition and
is in the public interest in part because the combined company will be able to
compete more effectively with larger telecommunications companies, such as AT&T,
MCI Worldcom, and the proposed SBC-Ameritech and Bell Atlantic-GTE companies,
than either Qwest or U S WEST could alone. However, there can be no assurance
that a challenge to the merger on antitrust grounds will not be made and that,
if made, will not be successful.
FCC APPROVAL
Under the Communications Act of 1934, as amended, the prior approval of the
FCC for transfer of control of radio licenses and other FCC issued
authorizations is necessary before the merger may be consummated. On August 19,
1999, Qwest and U S WEST filed a joint application for approval of the transfer
of the licenses and other authorizations with the FCC. In reviewing this
application for its approval of the transfer of the licenses and other
authorizations, the FCC will consider whether the merger will serve the public
interest and meet other applicable requirements. Third parties also have an
opportunity to file petitions requesting the FCC to deny approval of the
transfer of the licenses and other authorizations, or to file comments
requesting conditions on that approval. Upon grant of FCC approval and
satisfaction or waiver of other closing conditions, the transaction may be
consummated by the parties. However, for a period after issuance of that
approval the FCC action remains subject to judicial review upon the appeal of a
third party, or subject to reconsideration by the FCC itself. Parties who close
transactions during this period assume the risk that the FCC's approval could be
reversed or modified by the FCC or a reviewing court. It is possible that Qwest
and U S WEST will close the merger during this period depending upon the overall
circumstances at the time.
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<PAGE>
CHAPTER ONE - THE MERGER
Third parties have asked the FCC to condition mergers involving other
Regional Bell Operating Companies ("RBOCs") on further actions to expand local
exchange competition. For example, the FCC is currently considering conditions
to its approval of the proposed SBC-Ameritech merger that would include
requirements that the merged company create a separate affiliate to provide
advanced broadband services, take additional steps to open its local telephone
markets to competition, extend broadband services to a minimum number of rural
and low income urban locations, and other conditions, subject to significant
financial penalties for failure to comply. Qwest and U S WEST believe that their
merger is fundamentally different from the previous RBOC mergers because it does
not involve any material increase in the number of local exchange telephone
customers to be served by one company. Nevertheless, it is possible that third
parties may request conditions to the FCC's approval of the merger similar to
those under discussion with respect to the SBC-Ameritech transaction or
otherwise, and that FCC consideration of the requests could result in a delay of
the merger review process and/or the imposition of materially adverse
conditions. Approval of the merger also could be delayed by issues related to
the current restrictions on the provision of interLATA long distance services
within the U S WEST region. Qwest expects to take actions to comply with those
restrictions as of the closing of the merger, including, without limitation, the
divestiture or termination of its interLATA services in the U S WEST region,
pending FCC approval at a later date after closing of applications demonstrating
that the requirements of Section 271 of the Telecommunications Act with respect
to local exchange competition have been met. Nevertheless, there can be no
assurance that the FCC will grant its approval of the merger on a timely basis
or without materially adverse conditions.
STATE APPROVALS
Certain state public utility commissions will, and others may, have
jurisdiction to approve the merger or address related issues. Qwest and U S WEST
have filed applications for approval of the merger in several states, and
shortly will file similar applications in all other states where public utility
commission approval is required. Third parties generally have an opportunity to
comment on such applications and in some cases the PUCs may request additional
information or hold hearings. State PUC proceedings involving changes in
ownership resulting from combinations involving other RBOCs have sometimes been
slowed by third party or PUC interest in conditioning such transfers on
commitments by the RBOC to take certain actions regarding its services, or
regarding its implementation of the requirements of the Telecommunications Act
related to opening the local exchange market to competition. Sometimes such
conditions have been imposed. There is a risk that such conditions will be
sought in the context of our merger. There can be no assurance that the PUC
approval process will be resolved on a timely basis or without materially
adverse conditions.
APPRAISAL RIGHTS
Holders of Qwest common stock do not have dissenters' appraisal rights under
Delaware law in connection with the merger because the holders of shares of
Qwest common stock will not be required to accept any consideration in respect
of their shares of common stock and Qwest common stock will continue to be
listed on the Nasdaq at the record date and at the closing of the merger. Except
in the event that any cash, other than cash received in lieu of fractional
shares, is received by U S WEST shareholders as consideration in connection with
the merger, holders of U S WEST common stock do not have dissenters' appraisal
rights under Delaware law in connection with the merger because the shares of
Qwest common stock that the holders will be entitled to receive in the merger
will be listed on the Nasdaq at the closing of the merger.
If Qwest and U S WEST elect to pay a portion of the merger consideration in
cash, U S WEST shareholders will be entitled under Delaware law to appraisal
rights for their shares of U S WEST common
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<PAGE>
CHAPTER ONE - THE MERGER
stock. In that event, any U S WEST shareholder who does not wish to accept the
consideration provided for in the merger agreement has the right to demand
appraisal of, and to be paid the fair market value for, the shareholder's shares
of U S WEST common stock. The value of the U S WEST common stock for this
purpose will exclude any element of value arising from the accomplishment or
expectation of the merger.
In order for a U S WEST shareholder to exercise his right to an appraisal,
if any, he must deliver to U S WEST a written demand for an appraisal of his
shares of U S WEST common stock as provided by Delaware law prior to the date of
the U S WEST meeting.
Simply voting against the merger will not be considered a demand for
appraisal rights. Any U S WEST shareholder who fails to send a demand to the
corporate secretary of U S WEST, Inc. at 1801 California Street, Denver,
Colorado 80202, will lose the right to an appraisal. In addition, any
shareholder who votes for the merger will lose the right to an appraisal.
The preceding discussion is not a complete statement of the law pertaining
to appraisal rights under the Delaware General Corporation Law and is qualified
in its entirety by the full text of Section 262 which is attached as Annex F to
this joint proxy statement/prospectus.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTION AGREEMENTS
This joint proxy statement/prospectus does not cover any resales of the
Qwest common stock to be received by the shareholders of U S WEST upon
completion of the merger, and no person is authorized to make any use of this
joint proxy statement/prospectus in connection with any such resale.
All shares of Qwest common stock received by U S WEST shareholders in the
merger will be freely transferable, except that shares of Qwest common stock
received by persons who are deemed to be "affiliates" of U S WEST under the
Securities Act of 1933, as amended, at the time of the U S WEST meeting may be
resold by them only in transactions permitted by Rule 145 under the 1933 Act or
as otherwise permitted under the 1933 Act. Persons who may be deemed to be
affiliates of U S WEST for such purposes generally include individuals or
entities that control, are controlled by or are under common control with U S
WEST and include directors and executive officers of U S WEST. The merger
agreement requires that U S WEST use all commercially reasonable efforts to
cause each of such affiliates to execute a written agreement to the effect that
such persons will not offer, sell or otherwise dispose of any of the shares of
Qwest common stock issued to them in the merger in violation of the 1933 Act or
the related SEC rules.
ACCOUNTING TREATMENT
Qwest will account for the merger under the purchase method of accounting,
with U S WEST being the acquiror for accounting purposes. Under this method of
accounting, the assets and liabilities of U S WEST will be brought forward at
their net book values, a new basis will be established for Qwest's assets and
liabilities and any excess of the consideration over the fair value of Qwest's
assets and liabilities will be accounted for as goodwill. The revenues and
expenses of U S WEST and Qwest will be consolidated from the date of
consummation of the merger. The pre-merger historical results of operations and
financial condition of the combined company will represent those of U S WEST.
LEGAL PROCEEDINGS
On July 22, 1999, a putative derivative action was filed by a purported
shareholder of Qwest in the District Court for the City and County of Denver,
Colorado, naming as defendants Philip F. Anschutz and Qwest, as nominal
defendant. The action is styled BORNFREUND V. ANSCHUTZ, ET AL. The complaint
alleges, among other things, that, on the date of the closing of the sale and
before the public announcement of the
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<PAGE>
CHAPTER ONE - THE MERGER
offer, Mr. Anschutz was aware of Qwest's preparations to propose a formal offer
to purchase U S WEST, that Mr. Anschutz failed to disclose any information
regarding Qwest's planned offer, that Mr. Anschutz knew that a formal Qwest
offer to purchase U S WEST would substantially depress the price of Qwest common
stock and that, by selling shares of Qwest common stock prior to the
announcement of the U S WEST merger proposal, Mr. Anschutz was able to secure an
illegal insider trading profit of over $437 million. The plaintiff seeks
declarations, among other things, that the lawsuit is properly maintained as a
derivative action, that Mr. Anschutz has committed an abuse of trust and has
breached his fiduciary and other duties to the plaintiff and to Qwest, and that
Mr. Anschutz be required to disgorge all profits and gains he received as a
result of his actions constituting unjust enrichment. The plaintiff also seeks
an award of compensatory and punitive damages against Mr. Anschutz. These claims
are based on Mr. Anschutz's sale of approximately 33 million shares of Qwest
common stock on May 27, 1999 pursuant to a definitive agreement that was entered
into on April 19, 1999. On August 26, 1999, defendants removed the action to the
United States District Court for the District of Colorado. The action is in its
earliest stages. On or about September 1, 1999, a second putative derivative
action, styled LESK V. ANSCHUTZ, ET AL., was filed by a purported shareholder of
Qwest in the District Court for the City and County of Denver, Colorado, naming
the same defendants as in the BORNFREUND action. The complaint in the LESK
action makes allegations substantially similar to the allegations in the
BORNFREUND complaint and seeks similar relief. The defendants believe that the
claims asserted in the two actions are without merit and intend to vigorously
defend the actions.
The following four actions have been filed against U S WEST and the
directors of U S WEST in California, New York and Colorado: ADELE BRODY V. USWC,
ET AL. in Los Angeles Superior Court on May 19, 1999; BARNETT STEPAK AND BYRNA
THISTLETHWAITE V. USW, ET AL. in the Supreme Court for the City and County of
New York on June 18, 1999; and PAMELA CAGAN V. USWC, ET AL. and LORRAINE LUBOW
V. USW, ET AL., each filed in the District Court for the City and County of
Denver on May 18, 1999 and May 25, 1999, respectively. Additionally, the
following eight actions have been filed against U S WEST and the directors of U
S WEST in the Court of Chancery for the State of Delaware: ADELE BRODY V. USWC,
ET AL. on June 14, 1999; KENNETH ELAN V. USWC, ET AL. on June 14, 1999; H.A.
FAMILY TRUST V. USW, ET AL. on June 14, 1999; JEROME KAPLAN, KENNETH STEINER AND
MORRIS MONDSCHEIN V. USW, ET AL. on June 15, 1999; JOHN MIZZARO V. USW, ET AL.
on June 14, 1999; JOSEPH ORLIAN V. USW, ET AL. on June 18, 1999; BRADLEY REICH
V. USW, ET AL. on June 16, 1999; and STUART WERMAN AND LYNN MCFARLANE, JTROS V.
USW, ET AL. on July 13, 1999. These actions are purported class actions brought
on behalf of all persons, other than the defendants, who own the common stock of
U S WEST against U S WEST and the directors of U S WEST. Each of the complaints
makes substantially similar allegations that the defendants breached their
fiduciary duties to the class members by refusing to seek all bona fide offers
for U S WEST and refusing to consider the Qwest proposal, resulting in the
shareholders being prevented from maximizing the value of their common stock.
The complaints seek injunctive and monetary relief, including orders: (1)
requiring defendants to act in accordance with their fiduciary duties by
considering any bona fide proposal which would maximize shareholder value; (2)
requiring the directors to undertake an evaluation of U S WEST as a merger/
acquisition candidate and take steps to enhance that value and create an active
auction for U S WEST; (3) preventing defendants from using a shareholder rights
plan to impede any bona fide offer for U S WEST; (4) enjoining the consummation
of the proposed Global-U S WEST merger until all alternatives are explored; (5)
requiring defendants to account for all damages suffered by plaintiffs as a
result of defendants' actions with respect to the tender offer for the shares of
Global common stock by U S WEST and the proposed Global-U S WEST merger; and (6)
requiring defendants to pay damages to plaintiffs. The defendants intend to
vigorously defend these actions.
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<PAGE>
CHAPTER ONE - THE MERGER
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendations of the Qwest Board and the U S WEST Board
with respect to the merger, shareholders of Qwest and U S WEST should be aware
that the officers and directors of Qwest and U S WEST have interests in the
merger that are different from, or in addition to, their interests as
shareholders of Qwest and U S WEST generally. The Qwest Board and the U S WEST
Board were aware of these interests and considered them, among other matters, in
approving the merger agreement and the transactions contemplated by the merger
agreement.
QWEST BOARD; MANAGEMENT
Qwest and U S WEST have agreed in the merger agreement that, as of the
effective time of the merger, the Qwest Board will consist of fourteen members,
seven of whom will be designated by Qwest and seven of whom will be designated
by U S WEST. It is expected that these designees will be selected from the
current Qwest and U S WEST directors. Qwest and U S WEST have also agreed that
Philip F. Anschutz, Qwest's Chairman of the Board, will become Qwest's
Non-Executive Chairman, Joseph P. Nacchio, Qwest's Chairman and Chief Executive
Officer, will continue as Chairman and Chief Executive Officer of Qwest, and
Solomon D. Trujillo, U S WEST's Chairman, President and Chief Executive Officer,
will become Chairman of Qwest and President of the broadband local and wireless
division of Qwest. Messrs. Anschutz, Nacchio and Trujillo will together
constitute the Office of the Chairman which will have the authority described
under "The Merger Agreement--Office of the Chairman."
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
See "The Merger Agreement--Indemnification; Directors' and Officers'
Insurance."
QWEST'S STOCK OPTIONS AND GROWTH SHARE PLAN
A portion of the options outstanding under Qwest's option plans contain
change of control provisions that will give rise to accelerated vesting as a
result of the merger. In addition, the payments due under "growth shares"
previously awarded to certain of Qwest's executive officers and directors under
Qwest's Growth Share Plan will also be accelerated as a result of the merger.
Furthermore, under the terms of the merger agreement, Qwest may elect to
accelerate the vesting of stock options and/or growth shares for up to 25
unspecified individuals. Any outstanding option under Qwest's option plans that
is not exercised before the date the merger becomes effective will be converted
into an option to purchase common stock of the combined company. The merger
agreement also provides that Qwest will maintain its current employee severance
policy through the first year following the merger.
The following table shows the number of unvested options held by Qwest's
executive officers and directors whose vesting will accelerate as a result of
the merger and the estimated value of such options,
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<PAGE>
CHAPTER ONE - THE MERGER
assuming the merger is completed on June 30, 2000, as well as the current value
of the payments under such individuals' growth shares that will become due as a
result of the merger.
<TABLE>
<CAPTION>
AGGREGATE VALUE OF DOLLAR VALUE
NUMBER OF UNVESTED UNVESTED OPTIONS OF GROWTH
QWEST OPTIONS THAT THAT SHARES THAT
ACCELERATE AS A ACCELERATE AS A VEST AS A
RESULT RESULT RESULT OF THE
NAME OF THE MERGER(1) OF THE MERGER(2) MERGER
- ----------------------------------------------------- -------------------- -------------------- --------------
<S> <C> <C> <C>
Lewis O. Wilks....................................... 840,000 $ 15,225,000 --
Stephen M. Jacobsen.................................. 660,000 16,170,000 $ 1,110,913
Robert S. Woodruff................................... 480,000 7,200,000 --
All other executive officers as a group.............. 1,320,000 24,502,500 --
Nonemployee directors as a group..................... 1,335,000 24,727,000 1,626,788
</TABLE>
- ------------------------------
(1) This represents the number estimated to be unvested as of June 30, 2000.
(2) The estimated value of unvested options shown in this table assumes a
hypothetical price of Qwest common stock of $30 per share.
QWEST'S RETENTION GRANTS
In connection with the merger, effective August 13, 1999, the Compensation
Committee of the Qwest Board granted options to purchase shares of Qwest common
stock to Mr. Nacchio and to certain executive officers. The exercise price of
the options is $28.50, the options generally become exercisable on May 13, 2009,
provided the executive remains an employee of Qwest at that time, and the
options will terminate on August 13, 2009.
MODIFICATION OF OPTIONS UPON COMPLETION OF THE MERGER
Upon completion of the merger, however, the terms of the options will be
modified as described below:
The options awarded to Mr. Nacchio will vest and become exercisable in four
equal annual installments beginning with the first anniversary of the date of
the grant, provided that Mr. Nacchio remains employed by Qwest through the
applicable anniversary date. Of the options granted to Mr. Nacchio, 500,000 are
subject to the additional condition that the published closing price of Qwest
common stock equals or exceeds $45 per share for each of 30 consecutive trading
days ending on or before the second anniversary of the completion of the merger.
If this condition is met, these 500,000 options will vest according to the same
four-year schedule described above. If this condition is not met, these 500,000
options will vest in full on May 13, 2009.
If Mr. Nacchio's employment is terminated by Qwest without cause (as the
term is used in the option agreement) or by Mr. Nacchio for good reason (as the
term is used in the option agreement) following the merger (but before the
occurrence of a subsequent change of control of Qwest), then (1) in addition to
any portion of the option then vested, Mr. Nacchio's options will be subject to
pro rata monthly vesting through the date of the termination, and (2) if Mr.
Anschutz is not a member of the Qwest Board as of the date of the termination,
Mr. Nacchio's options will immediately vest and become exercisable in their
entirety (subject, in each case, to successful satisfaction of the $45 per share
price target described above for 500,000 of the options). If Mr. Nacchio's
employment is terminated by reason of his death or disability (1) before
completion of the merger, his options will immediately vest and become
exercisable upon completion of the merger and, in the case of 500,000 of the
options, upon satisfaction on or before the second anniversary of the closing of
the merger of the $45 per share price target described above, and (2) after
completion of the merger, his options will immediately vest and become
exercisable, provided that 500,000 of the options shall not vest until the $45
per share price target described above is satisfied on or before the second
anniversary of the closing of the merger.
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<PAGE>
CHAPTER ONE - THE MERGER
If, after completion of the merger and a subsequent change of control of
Qwest, Mr. Nacchio's employment is terminated by Qwest without cause or by Mr.
Nacchio for good reason, the options awarded to Mr. Nacchio will immediately
vest and become exercisable.
Upon completion of the merger, the options granted to executives other than
Mr. Nacchio also will vest and become exercisable in four equal annual
installments beginning with the first anniversary of the date of the grant,
provided the executive remains employed by Qwest through the applicable
anniversary date. In addition, the options will immediately vest and become
exercisable in their entirety if the executive's employment is terminated by
reason of death or disability after completion of the merger. Finally, if, after
completion of the merger and a subsequent change of control of Qwest, the
executive's employment is terminated by Qwest without cause (as used in the
option agreements) or by the executive because of a material diminution in his
duties, the option will immediately vest and become exercisable in its entirety.
The following table shows the number of options awarded to Mr. Nacchio and
certain other executive officers of Qwest in connection with the merger as of
the date of this joint proxy statement/prospectus:
<TABLE>
<CAPTION>
NUMBER OF
NAME OPTIONS AWARDED
- ------------------------------------------------------------------------------------------------ ----------------
<S> <C>
Joseph P. Nacchio............................................................................... 9,000,000
Lewis O. Wilks.................................................................................. 1,000,000
Stephen M. Jacobsen............................................................................. 700,000
Robert S. Woodruff.............................................................................. 600,000
All other executive officers as a group......................................................... 3,300,000
</TABLE>
MODIFICATION OF COMPENSATION TERMS FOR QWEST'S CHIEF EXECUTIVE OFFICER
In connection with the merger, and in recognition of the additional duties
and responsibilities incumbent upon Mr. Nacchio in connection with effectuation
of the merger and his anticipated role in the management of the combined
company, Qwest and Mr. Nacchio have entered into certain modifications to the
terms of his employment. The modifications are contingent upon the closing of
the merger.
The modifications provide that, effective upon closing of the merger, Mr.
Nacchio's annual base salary will be increased from $680,000 to $1,000,000, and
his target annual bonus will be increased from 110% to 150% of his base salary.
In addition, at the earlier of the closing of the merger and January 1, 2001,
Mr. Nacchio will receive a cash payment of $750,000.
The Compensation Committee also agreed to make Mr. Nacchio's "growth share"
payment of $25,482,004 on January 1, 2001. The payment was due during the
calendar year 2001 in connection with growth shares awarded to Mr. Nacchio under
Qwest's Growth Share Plan in 1997 for his contributions to Qwest before its
initial public offering in June 1997.
U S WEST'S STOCK AND STOCK OPTION PLANS
As a result of the merger, all outstanding options and restricted stock
grants awarded under U S WEST's Stock and Stock Option Plans prior to the
announcement of the proposed merger, whether or not fully vested, will, with
regard to options, accelerate, vest and become fully exercisable, and will, with
regard to restricted stock, become unrestricted and freely transferable, subject
to restrictions under the federal securities laws. Any option that is not
exercised before the date the merger becomes effective will be converted into an
immediately exercisable option to purchase Qwest common stock following the
merger. Under the merger agreement, U S WEST may, in its discretion, accelerate
the vesting of options and restricted stock of an employee, who is not necessary
for the operations prior to the effective date of the merger, in the event such
employee is terminated without cause, resigns for good reason prior to the
effective date of the merger, or otherwise, in the discretion of U S WEST's
Chief Executive Officer.
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<PAGE>
Chapter One - The Merger
The following table shows the number of unvested options and the estimated
value of unvested options that will become exercisable and the number of shares
of restricted stock which become unrestricted for executive officers of U S
WEST, assuming the merger is completed on June 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF UNVESTED AGGREGATE VALUE OF
U S WEST OPTIONS UNVESTED OPTIONS NUMBER OF RESTRICTED
THAT ACCELERATE AS A THAT ACCELERATE AS A SHARES THAT BECOME
RESULT OF THE RESULT OF THE UNRESTRICTED AS A
NAME MERGER(1) MERGER(2) RESULT OF THE MERGER
- ------------------------------------------------ -------------------- -------------------- --------------------
<S> <C> <C> <C>
Solomon D. Trujillo............................. 1,254,334 $ 17,752,721 --
Gregory M. Winn................................. 435,000(3) 6,434,875 39,600(3)
Allan R. Spies.................................. 207,767 2,701,860 5,004
Mark Roellig.................................... 209,834 2,741,909 35,912
James A. Smith.................................. 172,167 2,444,298 --
Other executive officers as a group............. 1,171,554 15,390,720 112,270
</TABLE>
- ------------------------------
(1) The number of unvested U S WEST options estimated to be outstanding as of
June 30, 2000. Unvested stock options and restricted stock will become
vested upon termination of employment under certain circumstances following
a "Change of Control," as defined in the executives' individual change of
control agreements.
(2) The estimated value of unvested options shown in this table assumes a
hypothetical price of U S WEST common stock of $69 per share.
(3) Mr. Winn was granted 30,000 shares of restricted U S WEST common stock in
tandem with a grant of 300,000 options on August 6, 1998. This tandem grant
cliff vests in four years. Upon vesting, Mr. Winn shall only be entitled to
receive one of the tandem grants with the other grant being forfeited.
In addition, 34,019 shares of restricted stock of U S WEST and unvested
options to purchase 110,000 shares of U S WEST common stock previously awarded
to U S WEST's non-employee directors will become unrestricted and vest,
respectively, upon the completion of the merger.
U S WEST LONG-TERM INCENTIVE PLAN
The U S WEST Long-Term Incentive Plan (the "U S WEST LTIP") is intended to
provide key executives of U S WEST with incentive compensation based upon the
sum of regular cash dividends, if any, paid on U S WEST stock, and the
achievement of pre-established, objective performance goals. Eligibility under
this plan is limited to executives and key employees of U S WEST selected by the
Human Resources Committee of the U S WEST Board. The Human Resources Committee
assigns dividend equivalent units ("DEUs") to participants with respect to
three-year performance periods. Each DEU represents the right to receive an
amount equal to cumulative dividends paid on U S WEST common stock during a
performance period, multiplied by a percentage representing the extent to which
U S WEST achieves certain performance goals based on financial results, revenue,
productivity and efficiency, service and customer care, employee satisfaction,
and customer performance.
As a result of the merger, for any DEUs issued in any calendar year(s) prior
to the change of control (which is the effective date of the merger), the total
dividend payout shall be determined as if the change of control occurred on the
date on which the pre-set performance period is scheduled to end, as described
in the plan. No DEUs have been issued under that plan since 1998 and the plan
will terminate at the end of the 1998-2000 performance period. The value of
dividends yet to be paid in any current performance period shall be valued at
the amount of the most recent dividend paid prior to the change of control, and
assuming that dividends would continue to be paid for the full duration of such
performance period with the same frequency as prior to the change of control. As
a result of the change of control, the performance goals shall be deemed to have
been met in full, and the participants are to be paid immediately in shares of
I-31
<PAGE>
CHAPTER ONE - THE MERGER
common stock or their equivalent. The table below shows DEUs granted to named
executive officers of U S WEST in 1998 and the maximum future payout at the
effective time of the merger.
<TABLE>
<CAPTION>
PERFORMANCE
PERIOD
UNTIL ESTIMATED PAYMENTS UNDER
NUMBER OF UNITS MATURATION NON-STOCK PRICED-BASED PLAN
NAME ISSUED IN 1998 OR PAYOUT AS A RESULT OF THE MERGER(1)
- --------------------------------------------------- --------------- ----------- -----------------------------
<S> <C> <C> <C>
Solomon D. Trujillo................................ 231,000 1998-2000 $ 1,532,685
Gregory M. Winn.................................... 47,000 1998-2000 311,845
Allan R. Spies..................................... 41,500 1998-2000 275,353
Mark Roellig....................................... 46,100 1998-2000 305,874
James A. Smith..................................... 33,000 1998-2000 218,955
Other executive officers as a group................ 148,300 1998-2000 983,971
</TABLE>
- ------------------------------
(1) Estimated future payouts assume a quarterly dividend rate of $0.535 per
share over the performance period (except that on August 2, 1999, the
quarterly dividend was $0.75). Any changes to the quarterly dividend rate
would vary the payouts.
U S WEST EXECUTIVE SHORT-TERM INCENTIVE PLAN
The U S WEST Executive Short-Term Incentive Plan (the "U S WEST ESTIP")
provides certain officers with the opportunity to earn annual cash awards based
upon the accomplishment of corporate objectives and individual contributions to
business results. Eligibility under this plan is limited to the Chief Executive
Officer of U S WEST and any individuals employed by U S WEST at the end of any
calendar year who appear in the summary compensation table of U S WEST's annual
proxy statement to shareholders for that year. In U S WEST's 1999 annual proxy
statement, Messrs. Trujillo, Winn, Spies, Roellig and Smith were listed in the
summary compensation table. The individuals listed in U S WEST's summary
compensation table reflecting 1999 compensation may be different. Participants
in this plan are eligible to receive equal shares of a cash bonus pool
established annually. The cash bonus pool for any performance period (January 1
through December 31) will be one-quarter of one percent (0.25%) of cash provided
by operating activities for U S WEST and its consolidated subsidiaries,
determined in accordance with the standards of the Financial Accounting
Standards Board, less any amounts that the Human Resources Committee of U S WEST
deems appropriate.
As a result of the merger, the performance period that will commence on
January 1, 2000 will end early on the effective date of the merger instead of
December 31, 2000. Each participant's share of the cash bonus will be determined
in accordance with the terms of the U S WEST ESTIP and each participant will be
paid his or her share of the cash bonus pool. Based on 1999 ESTIP opportunities,
we currently estimate a target pay of $1,125,000 for Mr. Trujillo, $382,500 for
Mr. Winn, $323,000 for Mr. Spies, $323,000 for Mr. Roellig and $276,250 for Mr.
Smith.
OTHER BENEFITS
Upon completion of the merger, all benefits under the U S WEST Nonqualified
Pension Plan, Deferred Compensation Plan and Mid-Career Pension Plan will vest,
the present value of benefits under each plan will be funded into a rabbi trust,
and participants may elect to receive lump sum payments equal to 94% of the
present value of their benefits under each plan. In addition, for three years
following completion of the merger, the Executive Life Insurance Plan, the
Executive Disability Plan and the plans listed above may not be amended to
reduce benefit accruals. After completion of the merger, the cash values of the
basic policies under the Executive Life Insurance Plan may not be withdrawn by
the plan
I-32
<PAGE>
CHAPTER ONE - THE MERGER
sponsor, and three years after the merger, collateral assignment of the
supplemental policies will be released to the participant in an amount
sufficient to fund a 50% death benefit.
U S WEST'S RETENTION PLAN
On August 6, 1999, the Human Resources Committee of the U S WEST Board
approved and the U S WEST Board ratified various retention agreements and
arrangements for Mr. Trujillo and for certain executive officers (including
named executive officers) and certain other key executives and critical
employees of U S WEST. The purpose for such retention awards and grants is to
provide additional incentives to individuals who are critical to the business
both in terms of completing the merger and beyond, and who are likely targets
for competitive offers from other companies. The stock options and restricted
stock grants made since the announcement of the merger and those described below
will not vest or become unrestricted as a result of the consummation of the
merger.
In order to provide retention incentives for Mr. Trujillo and given the
demand for senior executives in the telecommunications industry, the Human
Resources Committee approved and the U S WEST Board ratified the terms of a
retention agreement with Mr. Trujillo. The retention agreement with Mr. Trujillo
modifies the current terms of his change of control agreement and expires on
August 31, 2003 or earlier if U S WEST and Qwest cease their efforts to complete
the merger. Termination or expiration of the retention agreement will not affect
any rights that would have accrued to Mr. Trujillo before the date of
termination. Under the retention agreement, Mr. Trujillo agreed (1) not to
engage, directly or indirectly, within the United States, in any business that
is competitive with U S WEST or the combined company for a period of eighteen
months following his separation from employment for any reason and (2) for the
same period not to solicit or entice away any employee, sales representative or
customer from U S WEST or the combined company. Mr. Trujillo also agreed under
the retention agreement that mandatory arbitration would apply to all disputes
with respect to the retention agreement and to his change of control agreement.
In connection with Mr. Trujillo's agreement not to compete, not to solicit
and to mandatorily arbitrate any disputes with U S WEST, and to further provide
retention incentives for his employment, the Human Resources Committee approved
and the US WEST Board ratified (1) a grant of an option to purchase 1 million
shares of U S WEST common stock which vests 25 percent each year over four years
and agreed to grant an option to purchase 2 million additional shares of U S
WEST common stock on January 3, 2000 which will also vest 25 percent each year
over four years following the August 6, 1999 approval date and (2) 300,000
shares of restricted stock of U S WEST, 50 percent of which become unrestricted
on August 6, 2001, and 25 percent each year thereafter and which will be
forfeited if the merger is not consummated. Such restricted stock grants will be
grossed-up upon the lapse of the restrictions to cover Mr. Trujillo's income,
employment, excise or other tax liability. The tax gross-up is to ensure Mr.
Trujillo will not have to sell the shares to satisfy tax obligations. The value
of the tax gross-up, plus the value of 100,000 shares of the restricted stock
grant, to the extent unrestricted, will be deducted from any payment Mr.
Trujillo would receive under his change of control agreement. Under the
retention agreement, Mr. Trujillo will forfeit any right to any unvested portion
of the stock option grant and any unvested portion of the restricted stock grant
if (1) U S WEST or the combined company after the merger terminates his
employment for cause (as described under his change of control agreement), (2)
Mr. Trujillo voluntarily resigns with or without good reason (as described under
his change of control agreement) before completion of the merger, or (3) Mr.
Trujillo resigns for any reason other than involuntary termination prior to the
second anniversary of the date of the consummation of the merger. Following the
completion of the merger, if Mr. Trujillo is discharged without cause or is
involuntarily terminated, all such unvested stock options will continue to vest,
and all the restrictions on such restricted stock will lapse over time as if he
had continued his employment for the full restricted period. Involuntary
termination under the retention agreement includes
I-33
<PAGE>
CHAPTER ONE - THE MERGER
resignation following an assignment of duties inconsistent with the status,
title and duties attributed to Mr. Trujillo under the merger agreement within
two years following the consummation of the merger, termination of employment
other than for cause or his resignation (except in certain circumstances) for
any reason following the second anniversary of the consummation of the merger,
and any reduction in the level of annual cash compensation, perquisites and
benefits that existed as of the date of the retention agreement.
In order to provide retention incentives for executive officers (including
named executive officers) of U S WEST and given the demand for senior executives
in the telecommunications industry, the Human Resources Committee approved of
the following terms of retention agreements for Messrs. Winn, Spies, Roellig and
Smith, and other executives of the company. The retention agreement for these
executives modify the current terms of their respective change of control
agreements and would expire on December 21, 2001 or earlier if U S WEST and
Qwest cease their efforts to complete the merger. Termination or expiration of
the retention agreement will not affect any rights that would have accrued to
the executive before the date of termination or expiration. Under the retention
agreement, the executives would agree to mandatory arbitration of all disputes
which also would apply to their change of control agreements. In connection with
the retention agreements, the Human Resources Committee approved of the
following retention cash awards and option and restricted stock grants:
<TABLE>
<CAPTION>
RETENTION
CASH AWARDS U S WEST U S WEST
(IN STOCK RESTRICTED
NAME MILLIONS)(1) OPTIONS(2) STOCK(3)
- -------------------------------------------------------------------- --------------- ------------- -------------
<S> <C> <C> <C>
Greg M. Winn........................................................ $ 3.9 300,000 50,000
Allan R. Spies...................................................... 3.2 200,000 40,000
Mark Roellig........................................................ 3.2 200,000 40,000
James A. Smith...................................................... 2.6 175,000 25,000
All other executive officers as a group............................. 11.9 950,000 135,000
</TABLE>
- ------------------------
(1) Upon completion of the merger, the executive would receive the greater of
the payments provided under such executive's change of control agreement or
the amounts shown in the table. The retention cash awards shown in the table
equal the estimated cash payments provided under such executive officer's
change of control agreement using 1999 salary and bonus potential amounts.
Since salary and bonus potential amounts for 2000 have not been established,
the possibly greater amount of cash payments provided under such executive
officer's change of control agreement cannot be determined at this time. For
a discussion of payments provided under an executive officer's change of
control agreement, you are encouraged to review U S WEST's 1999 Proxy
Statement filed with the SEC on March 24, 1999. The retention cash awards
are accelerated upon involuntary termination without cause prior to the
merger or upon termination for any reason following the merger. The
retention agreements would also result in a vesting of other benefits under
the change of control agreements as long as the executive remained employed
through the completion of the merger.
(2) The stock options vest in one-quarter increments each year over four years
following date of grant (August 6, 1999).
(3) The grants of restricted stock are forfeited if the merger is not completed.
The restricted stock becomes 50 percent unrestricted two years from the date
of completion of the merger and 25 percent each year thereafter.
Under the retention agreements, the executives are not entitled to any
unearned retention cash award (which will be earned in full upon completion of
the merger), any unvested portion of the stock options, or any unvested portion
of the restricted stock if (1) U S WEST or the combined company after the merger
terminates the executive's employment for cause (as described under the
executive's change of control agreement), (2) the executive resigns with or
without good reason (as defined in the change of control agreement) before
completion of the merger or (3) the executive resigns without good reason after
the completion of the merger (good reason includes a reduction in new job duties
established within two months after the merger). If the executive is discharged
without cause before the consummation of the
I-34
<PAGE>
CHAPTER ONE - THE MERGER
merger and the merger is subsequently consummated, the executive's retention
cash award is payable at the time of the merger as described above, unless the
termination is caused by the merger and then the terms of the changes of control
agreement would apply. If the merger occurs and U S WEST or the combined company
provides the executive with notice of involuntary termination, the stock options
granted will continue to vest and the restricted stock will continue to become
unrestricted in accordance with its terms.
In order to provide retention incentives for certain other key executives
and critical employees of U S WEST and given the demand for such individuals in
the telecommunications industry, the Human Resources Committee approved of a
retention plan for such executives and employees consisting of retention cash
awards, stock options and restricted stock. Depending upon the grade level of
the selected executive or employee, limited retention packages may range in
value from 0.5 to 2 times base salary per year for the stay period.
RECENT DEVELOPMENTS
In August 1999, U S WEST Capital Funding, Inc., a wholly owned subsidiary of
U S WEST, completed the issuance of $1,150,000,000 6 7/8% notes due August 2001.
The proceeds of the notes were utilized to retire commercial paper.
I-35
<PAGE>
Chapter One - The Merger
THE MERGER AGREEMENT
The following summary of the merger agreement is qualified by reference to
the complete text of the merger agreement, which is incorporated by reference
and attached as Annex A.
STRUCTURE OF THE MERGER
Under the merger agreement, U S WEST will merge with and into Qwest, with
Qwest continuing as the surviving corporation.
TIMING OF CLOSING
The closing will occur as soon as practicable after the conditions set forth
in the merger agreement have been satisfied or waived. We expect that, as
promptly as practicable after the closing, we will file a certificate of merger
with the Secretary of State of the State of Delaware, at which time the merger
will become effective.
MERGER CONSIDERATION
The merger agreement provides that each share of U S WEST common stock
outstanding immediately prior to the effective time of the merger will, at the
effective time of the merger, be converted into the right to receive, subject to
the collar and the cash option described below, a number of shares of Qwest
common stock equal to $69 divided by the "Average Price." The number of shares
of Qwest common stock to be received per share of U S WEST common stock is
referred to in this joint proxy statement/prospectus as the "exchange ratio."
However, any shares of U S WEST common stock held by U S WEST as treasury stock
or owned by Qwest will be canceled without any payment for those shares. Shares
held in U S WEST's employee pension and compensation plans will be deemed issued
and outstanding and will not be treated as treasury stock for this purpose.
"Average Price" means the average of the volume weighted averages of the trading
prices of Qwest common stock on the Nasdaq National Market for the 15 trading
days randomly selected by lot by Qwest and U S WEST together from the 30
consecutive trading days ending on the third trading day immediately preceding
the date on which all the conditions to the closing of the merger (other than
conditions that, by their terms, cannot be satisfied until the closing date so
long as it is reasonably apparent that such conditions will be able to be
satisfied on the closing date) have been satisfied or waived.
The value of the consideration received by U S WEST shareholders for each of
their shares will remain at $69 so long as the Average Price is between $28.26
and $39.90. If the Average Price is below $28.26, U S WEST shareholders will
receive (and the exchange ratio will equal), subject to the cash option
described below, 2.44161 shares of Qwest common stock for each of their shares
of U S WEST. If the Average Price is above $39.90, U S WEST shareholders will
receive (and the exchange ratio will equal) 1.72932 shares of Qwest common stock
for each of their shares of U S WEST. If the Average Price is below $22.00, or
if the closing price of Qwest common stock is less than $22.00 for 20
consecutive trading days before the merger is completed, U S WEST may choose to
terminate the merger agreement (these circumstances are sometimes referred to as
U S WEST's "Walkaway Point").
It is not possible to know until the date on which we calculate the exchange
ratio if the Average Price of Qwest common stock during the measurement period
will be less than $22.00. It is likewise not possible to know if the closing
price of Qwest common stock will be less than $22.00 for 20 consecutive trading
days at any point prior to the consummation of the merger. The U S WEST Board
has not decided whether it would exercise its right to terminate the merger
agreement if the Walkaway Point were reached. We cannot
I-36
<PAGE>
CHAPTER ONE - THE MERGER
predict whether the U S WEST Board will exercise its right to terminate the
merger agreement if the Walkaway Point were reached.
Adoption of the merger agreement by U S WEST shareholders at the U S WEST
meeting will give the U S WEST Board the power to complete the merger even if
the Average Price is less than $22.00 without any further action by, or
resolicitation of, the U S WEST shareholders.
The following table illustrates the number of shares of Qwest common stock
which U S WEST shareholders will receive per share of U S WEST common stock at
different Average Prices and the value of these shares based on the Average
Price:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TOTAL VALUE
AVERAGE EXCHANGE PER U S WEST
PRICE RATIO SHARE
--------- ----------- -------------
$ 46.00 1.72932 $ 79.55
44.00 1.72932 76.09
42.00 1.72932 72.63
40.00 1.72932 69.17
Top of Collar.............................................. 39.90 1.72932 69.00
38.70 1.78300 69.00
38.00 1.81579 69.00
36.00 1.91667 69.00
34.00 2.02941 69.00
32.00 2.15625 69.00
30.00 2.30000 69.00
Bottom of Collar........................................... 28.26 2.44161 69.00
26.00 2.44161 63.48
24.00 2.44161 58.60
Walkaway Point............................................. 22.00 2.44161 53.72
</TABLE>
NOTE THAT THE NUMBER OF SHARES OF QWEST COMMON STOCK THAT YOU RECEIVE IN THE
MERGER WILL BE BASED UPON THE AVERAGE PRICE, WHICH WILL BE AN AVERAGE MARKET
PRICE OVER 15 RANDOMLY SELECTED TRADING DAYS DURING A 30-DAY PRICING PERIOD
PRIOR TO CLOSING AND WILL NOT BE BASED ON THE CLOSING PRICE PER SHARE OF QWEST
COMMON STOCK ON THE CLOSING DATE. THE AVERAGE PRICE CAN, AND PROBABLY WILL,
DIFFER FROM THE TRADING PRICE OF THE QWEST COMMON STOCK ON THE CLOSING DATE OF
THE MERGER.
THE TOTAL VALUE PER U S WEST SHARE DOES NOT REPRESENT THE ACTUAL CASH VALUE
PER SHARE OF QWEST COMMON STOCK THAT YOU COULD EXPECT TO RECEIVE FROM SELLING
THE SHARES OF QWEST COMMON STOCK THAT YOU WILL RECEIVE IN THE MERGER. THE CASH
VALUE MAY BE GREATER THAN THE TOTAL VALUE PER U S WEST SHARE OR LESS THAN THE
TOTAL VALUE PER U S WEST SHARE, AND THE CASH VALUE WILL IN ANY CASE CHANGE OVER
TIME. THE CASH AMOUNT MAINLY DEPENDS UPON THE TRADING PRICE PER SHARE OF QWEST
COMMON STOCK WHEN YOU SELL THE QWEST SHARES. THE TRADING PRICE PER SHARE OF
QWEST COMMON STOCK WILL VARY DEPENDING UPON THE FACTORS THAT GENERALLY INFLUENCE
THE TRADING PRICES OF SECURITIES.
YOU MAY CALL 1-888-339-9805 ANYTIME AFTER MONDAY, OCTOBER 4, 1999 UNTIL THE
MERGER CLOSES TO HEAR A TAPE RECORDED MESSAGE STATING WHAT THE EXCHANGE RATIO IN
THE MERGER WOULD BE IF THE AVERAGE PRICE WERE EQUAL TO THE MOST RECENT CLOSING
PRICE OF QWEST COMMON STOCK.
If the Average Price is less than $38.70, Qwest may elect, two trading days
before the closing, to pay each U S WEST shareholder a portion of the merger
consideration in cash instead of in Qwest common
I-37
<PAGE>
CHAPTER ONE - THE MERGER
stock. If a portion of the merger consideration is paid in cash, U S WEST and
Qwest will jointly determine the amount of the merger consideration to be paid
in cash by considering (1) U S WEST's desire to provide a meaningful cash
element for its shareholders, (2) Qwest's desire to reduce dilution to its
shareholders and (3) both parties' desire to maintain a strong financial
position for the combined company. If Qwest elects to pay cash, each holder of U
S WEST common stock will receive for each share of U S WEST common stock:
- a number of shares of Qwest common stock equal to the "True Up Exchange
Ratio"; and
- an amount in cash equal to the "Per Share Cash True Up."
"Per Share Cash True Up" means the quotient of (1) the "Cash Amount" divided
by (2) the number of outstanding shares of U S WEST common stock.
"Cash Amount" means the aggregate amount of cash to be paid to U S WEST
shareholders as mutually agreed upon by U S WEST and Qwest, which amount will
not be greater than the product of (1) the difference between the exchange ratio
and 1.783 multiplied by (2) the number of outstanding shares of U S WEST common
stock multiplied by (3) (A) if the Average Price is greater than or equal to
$28.26, the Average Price or (B) if the Average Price is less than $28.26,
$28.26.
"True Up Exchange Ratio" means the quotient of (1) the difference between
$69 and the Per Share Cash True Up divided by (2) (A) if the Average Price is
greater than or equal to $28.26, the Average Price or (B) if the Average Price
is less than $28.26, $28.26.
The following table illustrates the number of shares of Qwest common stock
and the amount of cash which U S WEST shareholders will receive per share of U S
WEST common stock at different Average Prices, and the total value of this stock
and cash based upon the Average Price, assuming Qwest and U S WEST elect to pay
the maximum amount of cash which could be paid at each Average Price:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TRUE UP TOTAL VALUE
AVERAGE EXCHANGE PER SHARE PER U S WEST
PRICE RATIO CASH TRUE UP SHARE
--------- ----------- ------------- -------------
$ 46.00 1.72932 $ 0.00 $ 79.55
44.00 1.72932 0.00 76.09
42.00 1.72932 0.00 72.63
40.00 1.72932 0.00 69.17
Top of Collar.................................. 39.90 1.72932 0.00 69.00
38.70 1.78300 0.00 69.00
38.00 1.78300 1.25 69.00
36.00 1.78300 4.81 69.00
34.00 1.78300 8.38 69.00
32.00 1.78300 11.94 69.00
30.00 1.78300 15.51 69.00
Bottom of Collar............................... 28.26 1.78300 18.61 69.00
26.00 1.78300 18.61 64.97
24.00 1.78300 18.61 61.40
Walkaway Point................................. 22.00 1.78300 18.61 57.84
</TABLE>
I-38
<PAGE>
CHAPTER ONE - THE MERGER
TREATMENT OF U S WEST STOCK OPTIONS
At the effective time of the merger, each outstanding option, warrant and
other right granted by U S WEST to purchase shares of U S WEST common stock will
be converted into an option, warrant or other right to acquire Qwest common
stock that, except as described in the next sentence, has the same terms and
conditions as the U S WEST stock option, warrant or right had before the
effective time of the merger. The number of shares that the new Qwest option,
warrant or right will be exercisable for and the exercise price of the new Qwest
option, warrant or right will be adjusted to reflect the exchange ratio in the
merger. To the extent the merger consideration includes a cash payment, the
shares subject to and the exercise price and such other terms and conditions of
each U S WEST option, warrant or right will be adjusted pursuant to the terms of
such option, warrant or right or in accordance with the provisions of any plan
or agreement applicable to such option, warrant or right so as to preserve the
economic benefit of such cash payment for the holders of such option, warrant or
right without negative effect on such holders' interest.
EXCHANGE OF SHARES
Qwest will appoint an exchange agent to handle (1) the exchange of U S WEST
stock in the merger for Qwest stock, (2) the payment of cash as part of the
merger consideration, if applicable, and (3) the transfer of cash to U S WEST
shareholders instead of fractional shares of Qwest common stock. Soon after the
effective time of the merger, the exchange agent will send to each holder of U S
WEST common stock a letter of transmittal for use in the exchange and
instructions explaining how to surrender U S WEST stock certificates to the
exchange agent. Holders of certificates representing shares of U S WEST common
stock that surrender their certificates to the exchange agent, together with a
properly completed letter of transmittal, and holders of uncertificated shares
of U S WEST common stock that deliver to the exchange agent a properly completed
letter of transmittal will receive the appropriate merger consideration. Holders
of unexchanged shares of U S WEST common stock will not be entitled to receive
any dividends or other distributions payable by Qwest after the effective time
of the merger until their certificates are surrendered or, with respect to
uncertificated shares, until a properly completed letter of transmittal is
delivered to the exchange agent.
Qwest will not issue any fractional shares in the merger. Instead, as
promptly as practicable following the effective time of the merger, the exchange
agent will sell the "Excess Shares" of Qwest common stock at then prevailing
prices on the Nasdaq National Market. "Excess Shares" means the number of shares
of Qwest common stock delivered by Qwest to the exchange agent over the
aggregate number of shares of Qwest common stock to be distributed to U S WEST
shareholders. Qwest has the option, in lieu of the issuance and sale of Excess
Shares, to pay the exchange agent an amount sufficient for the exchange agent to
pay each U S WEST shareholder the amount such holder would have received if the
sales of Qwest common stock were made at a price equal to the average of the
closing prices of the Qwest common stock on the Nasdaq National Market for the
ten consecutive trading days immediately following the effective time of the
merger. As soon as practicable after the determination of the amount of cash to
be paid to U S WEST shareholders with respect to any fractional share interests,
holders of U S WEST common stock will receive a cash payment equal to the value
of their fractional shares.
QWEST BOARD AND BOARD COMMITTEES
After the merger, the initial Qwest Board will consist of fourteen members,
seven of whom will be designated by Qwest and seven of whom will be designated
by U S WEST. Additionally, each Qwest Board committee will consist of an equal
number of U S WEST and Qwest Board designees. The bylaw
I-39
<PAGE>
CHAPTER ONE - THE MERGER
provisions that implement the board structure, including the establishment of
the Office of the Chairman described below, will survive for three years after
the effective time of the merger and during such period may not be changed
except with the approval of 75% of the Qwest Board.
OFFICE OF THE CHAIRMAN
Following the merger, Philip F. Anschutz, Qwest's Chairman of the Board,
Joseph P. Nacchio, Qwest's Chairman and Chief Executive Officer, and Solomon D.
Trujillo, U S WEST's Chairman, President and Chief Executive Officer, together
will constitute the Office of the Chairman. The Office of the Chairman will,
through one of its members so designated, chair all meetings of the Qwest Board
and will have exclusive power and final authority with respect to decisions
relating to material acquisitions and dispositions, the approval of any merger,
consolidation of similar transactions, the allocation of capital resources, the
termination of any of the eight most senior executive officers of Qwest (other
than Mr. Nacchio and Mr. Trujillo) and general corporate strategy. The Office of
the Chairman will take action by a majority vote among its three members. Any
member of the Office of the Chairman will have the right to bring any decision
of the Office of the Chairman to the Qwest Board for its consideration.
EXECUTIVE OFFICERS
After the merger, Philip F. Anschutz will be the Non-Executive Chairman of
Qwest, Joseph P. Nacchio will be Chairman and Chief Executive Officer of Qwest
and Solomon D. Trujillo will be Chairman of Qwest and President of the broadband
local and wireless division of Qwest. For a period of one year following the
closing of the merger, the twenty most senior policy-making executive officers
of Qwest will be substantially equally represented by officers of Qwest and U S
WEST. Messrs. Anschutz, Nacchio and Trujillo will jointly appoint these twenty
executive officers.
CERTAIN COVENANTS
Each of Qwest and U S WEST has undertaken certain covenants in the merger
agreement. The following summarizes the more significant of these covenants.
NO SOLICITATION. U S WEST and Qwest have agreed that they and their
subsidiaries and their officers, directors, employees and advisers will not take
action to solicit or encourage an offer for an alternative acquisition
transaction involving U S WEST or Qwest of a nature defined in the merger
agreement.
Restricted actions include engaging in any discussions with or furnishing
any information to a potential bidder, or knowingly taking any other action
designed to facilitate an alternative transaction. Qwest or U S WEST, as the
case may be, is permitted to take these actions in response to an unsolicited
offer, however, if the unsolicited offer is made prior to the time that the U S
WEST or Qwest shareholder approval, as the case may be, is obtained and if prior
to taking any of these actions: (1) the Qwest or U S WEST Board, as the case may
be, determines in good faith that taking any of these actions is reasonably
likely to result in a superior proposal, and (2) U S WEST or Qwest, as the case
may be, receives from such person an executed confidentiality agreement
substantially similar to the existing confidentiality agreement between U S WEST
and Qwest.
Each of U S WEST and Qwest must keep the other reasonably informed of the
status and details of any offer.
U S WEST BOARD'S COVENANT TO RECOMMEND. The U S WEST Board has agreed to
recommend the approval and adoption of the merger agreement to U S WEST's
shareholders. However, the U S WEST
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CHAPTER ONE - THE MERGER
Board is permitted to withdraw or to modify in a manner adverse to Qwest this
recommendation if (1) the U S WEST Board determines in good faith, based in part
on the advice of a nationally recognized financial advisor, that an unsolicited
acquisition proposal is superior to the merger and (2) the U S WEST Board has
given Qwest five business days to match the superior proposal.
QWEST BOARD'S COVENANT TO RECOMMEND. The Qwest Board has agreed to
recommend the approval of the merger agreement to Qwest's shareholders. However,
the Qwest Board is permitted to withdraw or to modify in a manner adverse to U S
WEST this recommendation if (1) the Qwest Board determines in good faith, based
in part on the advice of a nationally recognized financial advisor, that an
unsolicited acquisition proposal is superior to the merger with U S WEST and (2)
the Qwest Board has given U S WEST five business days to match the superior
proposal.
COVENANT TO HOLD SHAREHOLDER MEETINGS. Qwest and U S WEST have agreed to
submit the merger and the merger agreement to their shareholders at the meetings
even if their boards of directors no longer recommend approval and adoption of
the merger and the merger agreement.
INTERIM OPERATIONS OF QWEST AND U S WEST. Qwest and U S WEST are required
to conduct their business in the ordinary course consistent with past practice
until the effective time of the merger and, subject to certain exceptions, may
not engage in certain material transactions during this period such as material
acquisitions or dispositions and issuances or repurchases of stock.
EQUITY INCENTIVE PLAN COVENANT. Qwest has agreed in the merger agreement to
increase the number of shares of Qwest common stock eligible for award under
Qwest's equity incentive plan to an amount equal to the lesser of (1) 200
million and (2) 10% of the total number of shares of Qwest common stock
outstanding as of the close of business on the date on which the effective time
of the merger occurs, in each case reduced by the number of shares of Qwest
common stock issuable upon the exercise of U S WEST options and Qwest options
(other than Qwest options awarded under the Qwest equity incentive plan)
outstanding as of the close of business on the date on which the effective time
of the merger occurs.
COOPERATION COVENANT. Qwest and U S WEST have agreed to cooperate with each
other to take all actions and do all things necessary or advisable under the
merger agreement and applicable laws to complete the merger and the other
transactions contemplated by the merger agreement.
INDEMNIFICATION AND INSURANCE OF QWEST AND U S WEST DIRECTORS AND
OFFICERS. The merger agreement provides that for six years after the effective
time of the merger:
- Qwest will maintain in effect the current provisions regarding
indemnification of officers and directors contained in the charter and
bylaws of U S WEST and Qwest and each of their respective subsidiaries
and any directors, officers or employees indemnification agreements of
U S WEST and Qwest and their respective subsidiaries;
- Qwest will maintain in effect the current policies of directors' and
officers' liability insurance and fiduciary liability insurance
maintained by U S WEST and Qwest, respectively (except that Qwest may
substitute policies which are, in the aggregate, no less advantageous
to the insured in any material respect) with respect to claims arising
from facts or events which occurred on or before the effective time of
the merger; and
- Qwest will indemnify the directors and officers of U S WEST and Qwest,
respectively, to the fullest extent to which they are permitted to
indemnify such officers and directors under their respective charters
and bylaws and applicable law.
CERTAIN OTHER COVENANTS. The merger agreement contains other mutual
covenants of the parties that are typical for a transaction similar to the
merger.
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Chapter One - The Merger
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations and
warranties made by Qwest and U S WEST customary for a transaction similar to the
merger. In addition, the merger agreement also contains a representation by
Qwest that its annual revenues for the four fiscal quarters immediately prior to
the completion of the merger derived from services, activities or interests
which could be determined to be in violation of the Communications Act of 1934
if engaged in by a Bell Operating Company are no more than $500 million.
CONDITIONS TO THE COMPLETION OF THE MERGER
The obligations of Qwest and U S WEST to complete the merger are subject to
the satisfaction or waiver of the following conditions:
- approval of the merger by the Qwest and U S WEST shareholders;
- absence of a legal prohibition on completion of the merger;
- absence of an imposition by any regulatory authority of any condition,
requirement or restriction that would (1) reasonably be expected to have a
material adverse effect on the combined company after the merger, or (2)
result in a reduction in aggregate revenues of Qwest and U S WEST on a pro
forma, combined basis for the last four fiscal quarters prior to the
closing of the merger of more than $750 million or require any additional
capital investment of more than $500 million;
- receipt by each party of consents or approvals from any person required
for completion of the merger, except for those which the failure to obtain
would not have a material adverse effect on Qwest or U S WEST;
- approval for the listing on the Nasdaq National Market of the shares of
Qwest common stock to be issued in the merger;
- receipt by Qwest and U S WEST of opinions from Davis Polk & Wardwell and
Cadwalader, Wickersham & Taft, respectively, that the merger will qualify
as a tax-free reorganization;
- receipt by U S WEST of the opinion of Cadwalader, Wickersham & Taft that
the merger will not affect the tax-free qualification of the prior
spin-off of U S WEST and delivery of a copy of that opinion to Qwest;
- accuracy as of closing of the representations and warranties made by the
other party to the extent specified in the merger agreement, except for
such inaccuracies which in the aggregate would not reasonably be expected
to result in a material adverse effect to the other party;
- performance in all material respects by the other party of the obligations
required to be performed by it at or prior to closing; and
- receipt by each party of a certificate from the other party that it has
complied with the prior two bullet points.
TERMINATION OF THE MERGER AGREEMENT
RIGHT TO TERMINATE. The merger agreement may be terminated at any time
prior to the effective time of the merger in any of the following circumstances:
- The merger agreement may be terminated by mutual written consent of Qwest
and U S WEST.
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CHAPTER ONE - THE MERGER
- The merger agreement may be terminated by either Qwest or U S WEST if:
- the merger has not been completed by July 30, 2000. However, that date
is automatically extended to December 31, 2000 if the reason the merger
has not been completed by July 30, 2000 is the failure of the
regulatory conditions specified in the merger agreement to be
satisfied; or
- Qwest or U S WEST shareholders fail to give the necessary approval of
the merger at a duly held meeting; or
- there is a final and nonappealable legal prohibition to closing the
merger; or
- the board of directors of the other party withdraws or modifies in a
manner adverse to the party seeking to terminate the merger agreement
its approval or recommendation of the merger or recommends an
alternative acquisition transaction; or
- the other party breaches or fails to perform in any material respect
any of its representations, warranties, covenants or other agreements
in a manner that renders a related closing condition incapable of being
satisfied by July 30, 2000.
- The merger agreement may be terminated by U S WEST if:
- the average price of Qwest common stock on 15 randomly selected trading
days during the 30 trading day pricing period prior to the closing is
less than $22.00; or
- at any time prior to the completion of the merger, the closing price
for Qwest common stock on NASDAQ is below $22.00 for 20 consecutive
trading days.
Neither Qwest nor U S WEST can terminate the merger agreement if the merger
has not been completed by July 30, 2000 (or December 31, 2000, as applicable) if
its failure to fulfill in any material respect its obligations under the merger
agreement has resulted in the failure to complete the merger.
If the merger agreement is validly terminated, the agreement will become
void without any liability on the part of any party unless such party is in
willful breach of the merger agreement. However, the provisions of the merger
agreement relating to expenses and termination fees, as well as the
confidentiality agreement entered into between Qwest and U S WEST, will continue
in effect notwithstanding termination of the merger agreement.
Although the Qwest and U S WEST Boards are entitled to withdraw their
recommendations of the merger in response to a superior acquisition proposal,
neither Qwest nor U S WEST is permitted to terminate the merger agreement to
accept a superior acquisition proposal made by a third party. Accordingly, it is
expected that the Qwest and U S WEST meetings will be held even if Qwest or U S
WEST receives a superior acquisition proposal from a third party.
TERMINATION FEES PAYABLE BY U S WEST. U S WEST has agreed to pay Qwest a
cash amount equal to $850 million in any of the following circumstances:
- Qwest terminates the merger agreement because the U S WEST Board withdraws
or modifies in a manner adverse to Qwest its approval or recommendation of
the merger or recommends an alternative acquisition transaction; or
- the merger agreement is terminated after the shareholders of U S WEST fail
to approve the merger and, prior to such termination, the U S WEST Board
withdrew or modified in a manner adverse to
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CHAPTER ONE - THE MERGER
Qwest its approval or recommendation of the merger or recommended an
alternative acquisition transaction; or
- the merger agreement is terminated because the U S WEST shareholders fail
to approve the merger and:
- at any time prior to the U S WEST shareholder vote there had been an
offer or proposal for an alternative acquisition transaction for at
least 50% of U S WEST; and
- within 12 months after such termination, U S WEST enters into an
agreement with any third party with respect to an alternative
transaction; or
- Qwest terminates the merger agreement because U S WEST fails to honor its
non-solicitation obligations.
TERMINATION FEES PAYABLE BY QWEST. Qwest has agreed to pay U S WEST a cash
amount equal to $850 million in any of the following circumstances:
- U S WEST terminates the merger agreement because the Qwest Board withdraws
or modifies in a manner adverse to U S WEST its approval or recommendation
of the merger or recommends an alternative acquisition transaction; or
- the merger agreement is terminated after the shareholders of Qwest fail to
approve the merger and, prior to such termination, the Qwest Board
withdrew or modified in a manner adverse to U S WEST its approval or
recommendation of the merger or recommended an alternative acquisition
transaction; or
- the merger agreement is terminated because the Qwest shareholders fail to
approve the merger and:
- at any time prior to the Qwest shareholder vote there had been an offer
or proposal for an alternative acquisition transaction for at least 50%
of Qwest; and
- within 12 months after such termination, Qwest enters into an agreement
with any third party with respect to an alternative transaction; or
- U S WEST terminates the merger agreement because Qwest fails to honor its
non-solicitation obligations.
PAYMENTS TO GLOBAL IN CONNECTION WITH THE TERMINATION OF THE GLOBAL-U S WEST
MERGER AGREEMENT AND RELATED MATTERS. Immediately before the signing of the
merger agreement, U S WEST and Global agreed to terminate their merger
agreement. In connection with the termination of the Global-U S WEST merger
agreement, U S WEST paid Global $140 million in cash and 2,231,076 shares of
Global common stock, Qwest loaned $140 million in cash to U S WEST and Qwest
entered into an agreement to buy $140 million in services from Global. If the
merger agreement between Qwest and U S WEST is terminated, Qwest will not
receive repayment from U S WEST of its $140 million loan and will have to
deliver to U S WEST the same number of shares of Global common stock delivered
to Global by U S WEST (or pay their market value in cash at such time). However,
if the termination of the merger agreement is the result of U S WEST changing
its recommendation of the merger, U S WEST will be obligated to repay $70
million (plus interest at LIBOR plus .15%) in cash to Qwest and will receive
only 1,115,538 shares of Global common stock (or their market value in cash at
such time) from Qwest. No other payments have been made in connection with the
termination of the Global-U S WEST merger agreement.
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CHAPTER ONE - THE MERGER
OTHER EXPENSES
All expenses incurred by Qwest and U S WEST in connection with the merger
agreement and the transactions contemplated by the merger agreement will be paid
by the party incurring such expenses, except that expenses incurred by Qwest and
U S WEST in connection with the printing of this joint proxy
statement/prospectus and the filing of the registration statement in which this
joint proxy statement/ prospectus is included will be shared equally by Qwest
and U S WEST.
AMENDMENTS AND WAIVERS
AMENDMENTS. Any provision of the merger agreement may be amended prior to
the effective time of the merger if the amendment is in writing and signed by
Qwest and U S WEST. After the approval of the merger agreement by the
shareholders of either Qwest or U S WEST, no amendment may be made which would:
- alter or change the amount or kinds of consideration to be received by the
holders of U S WEST common stock upon completion of the merger;
- alter or change any term of the Qwest or U S WEST charter; or
- alter or change any of the terms and conditions of the merger agreement if
such alteration or change would adversely affect the holders of any class
or series of securities of Qwest or U S WEST.
WAIVER. At any time before the effective time of the merger, by a waiver in
writing and signed by the party against whom the waiver is to be effective, any
party may:
- extend the time for the performance of any of the obligations or other
acts of the other party;
- waive any inaccuracies in the representations and warranties contained in
the merger agreement; or
- waive compliance with any of the agreements or conditions contained in the
merger agreement.
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Chapter One - The Merger
VOTING AGREEMENT
In connection with the merger agreement, U S WEST has entered into a voting
agreement with Anschutz Company and Anschutz Family Investment Company LLC, two
shareholders of Qwest common stock and affiliates of Mr. Anschutz. The following
summary of the voting agreement is qualified by reference to the complete text
of the voting agreement, which is incorporated by reference and attached as
Annex B.
AGREEMENT TO VOTE
Under the terms of the voting agreement, each of the shareholders agrees to
vote its shares of Qwest common stock in favor of approval of the transactions
contemplated by the merger agreement and against any competing acquisition
proposal involving Qwest, against any action that could reasonably be expected
to impede consummation of the merger, and in favor of the election of directors
to the Qwest Board as contemplated by the merger agreement.
RESTRICTIONS ON TRANSFER
Under the terms of the voting agreement, each shareholder is free to sell or
otherwise transfer its shares of Qwest common stock; PROVIDED that, subject to
the exception described in the next sentence, the shareholder continues to hold
at least 250,000,000 shares of Qwest common stock (approximately 33% of the
shares of Qwest common stock outstanding as of the date of the joint proxy
statement/prospectus). If, as a result of a sale of other transfer of shares of
Qwest common stock by either of the shareholders, the shareholder would no
longer hold at least 250,000,000 shares of Qwest common stock, the sale or other
transfer may be completed only if the person receiving the shares of Qwest
common stock agrees to be bound by the transfer and voting restrictions included
in the voting agreement.
TERMINATION
Except for the agreement by the shareholders to vote in favor of the
election of directors to the Qwest Board as contemplated by the merger
agreement, which agreement survives for a period of three years following the
completion of the merger, the voting agreement will terminate upon the first to
occur of the following events:
- The completion of the merger; or
- The termination of the merger agreement solely for reasons that are not
directly or indirectly related to a third party having made a superior
proposal for Qwest; or
- The termination of the merger agreement by U S WEST; or
- July 18, 2001.
Unless otherwise agreed to by the parties, the voting agreement will survive
any termination of the merger agreement and will remain in effect even if the
Qwest Board withdraws its recommendation to vote in favor of the merger (unless
U S WEST decides to terminate the merger agreement in response to the change in
the Qwest Board recommendation).
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CHAPTER ONE - THE MERGER
THE GLOBAL AGREEMENTS
The following summaries of the Qwest-Global agreement, the U S WEST-Global
termination agreement, the amendment to the U S WEST-Global tender offer and
purchase agreement and the Qwest-Global capacity purchase agreement are
qualified by reference to the complete text of such agreements, all of which are
incorporated herein by reference and attached as exhibits to the registration
statement of which this joint proxy statement/prospectus is a part.
THE QWEST-GLOBAL AGREEMENT
On July 18, 1999, Qwest and Global entered into an agreement pursuant to
which (1) Global agreed to terminate its merger agreement with U S WEST and not
to interfere with or seek to impede the Qwest-U S WEST merger and (2) Qwest
agreed to withdraw its publicly announced offer to acquire Frontier Corporation
and not to interfere with or seek to impede Global's pending acquisition of
Frontier. Qwest and Global also agreed in the Qwest-Global agreement to enter
into the Qwest-Global capacity purchase agreement described below and to a
general release of all claims against the other arising out of the U S WEST and
Frontier transactions.
THE U S WEST-GLOBAL TERMINATION AGREEMENT
On July 18, 1999, U S WEST entered into an agreement with Global to
terminate the U S WEST-Global merger agreement dated as of May 16, 1999. In
connection with the negotiated termination, U S WEST agreed to pay Global
$140,000,000 and 2,231,076 shares of Global common stock (which it had recently
purchased in a tender offer it had commenced in connection with the proposed U S
WEST-Global merger), and Global agreed to discharge U S WEST from all
obligations to Global under the terminated merger agreement. U S WEST and Global
also agreed in the termination agreement to a general release of all claims
against the other arising out of the transactions contemplated by the Global-U S
WEST merger agreement.
THE AMENDMENT TO THE U S WEST-GLOBAL TENDER OFFER AND PURCHASE AGREEMENT
On July 18, 1999, U S WEST and Global agreed to amend the tender offer and
purchase agreement that they had entered into in connection with the U S
WEST-Global merger agreement and pursuant to which U S WEST had made a tender
offer for and purchased 9.5% of the outstanding shares of Global common stock.
Under the terms of the amendment, U S WEST agreed to give up its right to
designate a member to the Global Board, and Global agreed not to grant any
person registration rights that are more favorable to such person than the
registration rights provided to U S WEST under the tender offer and purchase
agreement are to U S WEST.
THE QWEST-GLOBAL CAPACITY PURCHASE AGREEMENT
On July 18, 1999 Qwest and Global entered into a purchase agreement pursuant
to which Qwest agreed to purchase services from Global over a four year period
in a total amount of $140,000,000. At the end of the two year period following
the signing of the agreement, Qwest must pay Global an amount equal to the
difference between $140,000,000 and the amount of the services purchased under
the agreement at that time. The amount of the differential payment will be
credited by Global against all purchases by Qwest of services from Global during
the remaining two years of the agreement. Under the agreement, Qwest is entitled
to purchase services on any of Global's network segments, whether such segments
are presently functioning or constructed during the term of the agreement, and
is entitled to purchase the services at the most favorable commercially
available prices offered by Global.
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CHAPTER ONE - THE MERGER
OPINIONS OF FINANCIAL ADVISORS
OPINION OF FINANCIAL ADVISOR TO QWEST
DLJ has acted as exclusive financial advisor to Qwest in connection with the
merger. In its role as financial advisor to Qwest, DLJ was asked by Qwest to
render an opinion to the Qwest Board as to the fairness of the merger
consideration, from a financial point of view, to the holders of Qwest common
stock. On July 16, 1999, at a meeting of the Qwest Board held to evaluate the
merger, DLJ delivered to the Qwest Board an oral opinion, subsequently confirmed
by delivery of a written opinion dated July 18, 1999, the date of execution of
the merger agreement, to the effect that, as of the date of the opinion and
based on and subject to the assumptions, limitations and qualifications stated
in the opinion, the merger consideration was fair, from a financial point of
view, to the holders of Qwest common stock.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS ANNEX C AND SHOULD BE READ
CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW
UNDERTAKEN BY DLJ IN ARRIVING AT ITS OPINION. DLJ'S OPINION WAS PREPARED FOR THE
QWEST BOARD AND IS DIRECTED ONLY TO THE FAIRNESS OF THE MERGER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF QWEST COMMON STOCK AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER WITH RESPECT TO THE MERGER
AGREEMENT OR THE MERGER.
The Qwest Board selected DLJ to act as its exclusive financial advisor in
the merger because DLJ is an internationally recognized investment banking firm
with substantial expertise in the media and telecommunication industries and in
transactions similar to the merger and because it is familiar with Qwest and its
business. DLJ, as part of its investment banking services, is regularly engaged
in the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
DLJ was not requested to, and did not, make any recommendation as to the
form or amount of the merger consideration to be paid by Qwest, which matters
were determined through negotiations between Qwest and U S WEST. DLJ's opinion
does not address the relative merits of the merger or the merger agreement or
the other business strategies considered by the Qwest Board, nor does it address
the Qwest Board's decision to proceed with the merger or the merger agreement.
No restrictions or limitations were imposed by Qwest upon DLJ with respect to
the investigations made or procedures followed by DLJ in rendering its opinion.
In arriving at its opinion, DLJ:
- reviewed the merger agreement and related documents;
- reviewed financial and other information that was publicly available or
furnished to it by Qwest and U S WEST, including financial projections
prepared by the managements of Qwest and U S WEST and other information
provided during discussions with Qwest and U S WEST;
- compared financial and securities data of Qwest and U S WEST with various
other companies whose securities are traded in public markets;
- reviewed the historical stock prices and trading volumes of Qwest common
stock and US WEST common stock;
- reviewed prices and premiums paid in other business combinations; and
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CHAPTER ONE - THE MERGER
- conducted other financial studies, analyses and investigations as DLJ
deemed appropriate for purposes of its opinion.
In rendering its opinion, DLJ relied on and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by Qwest, U S WEST or their
respective representatives, or that it otherwise reviewed. In particular, DLJ
relied on the estimates of the managements of Qwest and U S WEST as to the
operating synergies anticipated to result from the merger. With respect to the
financial projections relating to Qwest and U S WEST supplied to it, DLJ assumed
that they were reasonably prepared on the basis reflecting the best currently
available estimates and judgments of the managements of Qwest and U S WEST as to
the future operating and financial performance of Qwest and U S WEST and the
operating synergies anticipated to result from the merger. DLJ did not assume
any responsibility for making any independent evaluation of any assets or
liabilities or for making any independent verification of any of the information
that it reviewed. DLJ assumed that in the course of obtaining the necessary
regulatory and third party consents for the merger and the transactions
contemplated by the merger, no restriction will be imposed that will have a
material adverse effect on the contemplated benefits of the merger or the
transactions contemplated by the merger. DLJ also relied as to certain legal
matters on advice of counsel to Qwest.
DLJ's opinion is necessarily based on economic, market, financial and other
conditions as they existed on, and on the information made available to it as
of, the date of its opinion. It should be understood that DLJ's opinion speaks
only as of July 18, 1999 and that, although subsequent developments may affect
its opinion, DLJ does not have any obligation to update, revise or reaffirm its
opinion. Furthermore, the Qwest Board may not necessarily request that DLJ
confirm its opinion as of any later date. DLJ expressed no opinion as to the
prices at which the Qwest common stock will actually trade at any time.
The following is a summary of the material analyses that DLJ performed in
connection with its opinion and presented to the Qwest Board at its July 16,
1999 meeting. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND DLJ'S FINANCIAL
ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE
TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES.
CONSIDERING THE DATA IN THE TABLES BELOW WITHOUT CONSIDERING THE FULL NARRATIVE
DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE METHODOLOGIES AND
ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING OR INCOMPLETE
VIEW OF DLJ'S FINANCIAL ANALYSES. Valuations for U S WEST were calculated on an
equity value basis converted to a per share basis based on $12,463 million of
net debt, 504.7 million outstanding shares and 24.7 million outstanding options
with an average exercise price of $41.11 per share.
SELECTED PUBLIC COMPANY ANALYSIS. DLJ compared financial and operating data
of U S WEST with the following selected regional bell operating companies:
- Ameritech Corporation
- BellSouth Corporation
- Bell Atlantic Corporation
- SBC Communications Inc.
DLJ reviewed enterprise values, calculated as equity value, plus debt and
minority interests, less cash and investments in unconsolidated affiliates, as
multiples of, among other things, latest 12 months and estimated calendar year
1999 earnings before interest, taxes, depreciation and amortization, commonly
known as "EBITDA." DLJ also reviewed equity values as multiples of estimated
calendar years 1999 and 2000 net income and estimated calendar year 1999
after-tax cash flow, calculated as net income, plus
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CHAPTER ONE - THE MERGER
depreciation and amortization. Estimated financial and operating data for the
selected companies were based on research analysts' estimates and estimated
financial and operating data for U S WEST were based on internal estimates of
the management of U S WEST.
DLJ then applied a range of selected multiples of latest 12 months and
estimated calendar year 1999 EBITDA, estimated calendar years 1999 and 2000 net
income and estimated calendar year 1999 after-tax cash flow for the selected
companies to corresponding financial and operating data for U S WEST. This
analysis produced an implied equity reference range for U S WEST of
approximately $63.00 to $80.00 per share, as compared to the equity value for U
S WEST implied in the merger of approximately $69.00 per share based on the
closing stock price of Qwest common stock on July 14, 1999.
No company utilized in the "Selected Public Company Analysis" is identical
to U S WEST. Accordingly, an analysis of the above results necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of U S WEST and other factors that could affect the
public trading value of U S WEST and the selected companies to which it is being
compared. Mathematical analysis is not in itself a meaningful method of using
selected company data.
SELECTED MERGER AND ACQUISITION TRANSACTIONS ANALYSIS. Using public
information, DLJ reviewed the purchase prices and implied transaction multiples
paid in the following selected transactions involving companies in the long
distance, regional bell, incumbent local exchange carrier and competitive local
exchange carrier markets of the telecommunications industry:
<TABLE>
<CAPTION>
TARGET ACQUIROR
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
- MCI Communications Corp. - WorldCom, Inc.
- GTE Corporation - Bell Atlantic Corporation
- Ameritech Corporation - SBC Communications, Inc.
- NYNEX Corporation - Bell Atlantic Corporation
- Pacific Telesis Group - SBC Communications, Inc.
- Aliant Communications - ALLTEL Corporation
- Anchorage Telephone Utility - Alaska Communication Systems, Inc.
- Century Telephone Enterprises, Inc. - Alaska Communication Systems, Inc.
- Lufkin-Conroe Communications Company - Texas Utilities Company
- Consolidated Communications, Inc. - McLeod USA Incorporated
- Teleport Communications Group Inc. - AT&T Corporation
- MFS Communications Company, Inc. - WorldCom, Inc.
</TABLE>
DLJ reviewed enterprise values as multiples of latest 12 months revenues,
EBITDA and earnings before interest and taxes, commonly known as "EBIT." DLJ
also reviewed equity values as multiples of latest 12 months net income. All
multiples were based on financial information available at the time of
announcement of the relevant transaction. Estimated financial and operating data
for U S WEST were based on internal estimates of the management of U S WEST.
DLJ then applied a range of selected multiples of latest 12 months revenues,
EBITDA, EBIT and net income for the selected transactions to corresponding
financial and operating data for U S WEST. This analysis produced an implied
equity reference range for U S WEST of approximately $65.00 to $90.00 per share,
as compared to the equity value for U S WEST implied in the merger of
approximately $69.00 per share based on the closing stock price of Qwest common
stock on July 14, 1999.
No transaction utilized in the "Selected Merger and Acquisition Transactions
Analysis" is identical to the merger. Accordingly, an analysis of the above
results necessarily involves complex considerations and
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CHAPTER ONE - THE MERGER
judgments concerning differences in financial and operating characteristics that
could affect the acquisition values of U S WEST or the companies to which it is
being compared. Mathematical analysis is not in itself a meaningful method of
using selected transaction data.
PREMIUMS PAID ANALYSIS. DLJ reviewed the premiums paid in 43 merger and
acquisition transactions announced since June 7, 1996 with transaction values in
excess of $10.0 billion involving stock consideration. DLJ then applied the
median premiums derived from these transactions based on the per share market
prices of the target company's common stock one trading day, one week and four
weeks prior to public announcement of the transaction to the per share market
price of U S WEST common stock one day, one week, and four weeks prior to public
announcement of the proposed Global and U S WEST merger transaction on May 17,
1999. This analysis produced the following median premiums and implied equity
values for U S WEST:
<TABLE>
<CAPTION>
PERIOD PRIOR TO ANNOUNCEMENT
-------------------------------------
ONE DAY ONE WEEK FOUR WEEKS
----------- ----------- -----------
<S> <C> <C> <C>
U S WEST share price........................................................... $ 62.25 $ 54.94 $ 55.06
Median premiums................................................................ 26.3% 32.0% 34.1%
Implied equity values per share................................................ $ 78.64 $ 72.50 $ 73.82
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS. DLJ performed a discounted cash flow
analysis of U S WEST based on internal estimates of the management of U S WEST
in order to estimate the net present value of the unlevered, after-tax cash
flows that U S WEST could generate for the remainder of fiscal year 1999 through
fiscal year 2005. Applying discount rates of 9.0% to 11.0% and multiples of
terminal year 2005 EBITDA of 8.0x to 10.0x, this analysis produced an implied
equity reference range for U S WEST of approximately $76.00 to $109.00 per
share, as compared to the equity value for U S WEST implied in the merger of
approximately $69.00 per share based on the closing stock price of Qwest common
stock on July 14, 1999.
PRO FORMA MERGER ANALYSIS. DLJ analyzed the potential pro forma effect of
the merger on Qwest's projected 2001 book earnings per share, commonly known as
"EPS," cash EPS and EBITDA per share both in the case where the merger
consideration consists entirely of Qwest common stock (sometimes referred to as
a "stock make-whole" payment) and where the merger consideration consists
partially of cash (sometimes referred to as a "cash make-whole" payment). This
analysis indicated that the merger would be accretive to Qwest's book EPS, cash
EPS and EBITDA per share under either payment alternative, assuming the cost
savings and other potential synergies anticipated by the managements of Qwest
and U S WEST to result from the merger are achieved. The actual results achieved
by the combined company may vary from projected results and the variations may
be material.
CONTRIBUTION ANALYSIS. DLJ analyzed the respective contributions of Qwest
and U S WEST to the estimated calendar years 1999 and 2000 revenues, EBITDA and
funds from operations (calculated as net income to common stock plus
depreciation, amortization and other non-cash charges) of the combined company
based on internal estimates of the managements of Qwest and U S WEST. This
analysis indicated the following relative contributions of U S WEST and Qwest
and the pro forma equity ownership of
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CHAPTER ONE - THE MERGER
holders of U S WEST common stock and Qwest common stock in the combined company
based both on a stock make-whole and cash make-whole basis:
<TABLE>
<CAPTION>
ESTIMATED 1999 ESTIMATED 2000
CONTRIBUTION CONTRIBUTION
--------------- ---------------
<S> <C> <C>
REVENUES
U S WEST.......................................................................... 78.3% 73.9%
Qwest............................................................................. 21.7% 26.1%
EBITDA
U S WEST.......................................................................... 88.5% 86.0%
Qwest............................................................................. 11.5% 14.0%
FUNDS FROM OPERATIONS
U S WEST.......................................................................... 85.8% 83.3%
Qwest............................................................................. 14.2% 16.7%
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA EQUITY OWNERSHIP
--------------------------------
STOCK MAKE-
WHOLE CASH MAKE- WHOLE
--------------- ---------------
<S> <C> <C>
U S WEST.......................................................................... 56.9% 53.7%
Qwest............................................................................. 43.1% 46.3%
</TABLE>
OTHER FACTORS. In the course of preparing its opinion, DLJ considered and
reviewed other information and data, including:
- research analysts' price targets for U S WEST common stock both before and
after public announcement of the proposed Global and U S WEST merger
transaction on May 17, 1999, which indicated a selected range of 12-month
price targets for U S WEST common stock of approximately $67.00 to $76.00
per share in the case of reports dated prior to the May 17, 1999
announcement and approximately $64.25 to $100.00 per share in the case of
reports dated either before or after the May 17, 1999 announcement which
included a sum of the parts analysis;
- the net present value of the potential pre-tax annual cost savings and
synergies that could be achieved in the merger based on internal estimates
of the managements of Qwest and U S WEST;
- financial and operating data of the business segments of U S WEST as
compared to other companies in similar businesses, which indicated an
implied equity reference range for U S WEST of approximately $79.00 to
$118.00 per share; and
- the possible credit impact of the merger on Qwest.
The above summary does not purport to be a complete description of DLJ's
analyses but describes, in summary form, the material analyses that DLJ
presented to the Qwest Board on July 16, 1999 in connection with its opinion.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, a fairness
opinion is not readily susceptible to partial or summary description. Each of
the analyses conducted by DLJ was carried out in order to provide a different
perspective on the merger and add to the total mix of information available. DLJ
did not form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness from a
financial point of view. Rather, in reaching its conclusion, DLJ considered the
results of
I-52
<PAGE>
CHAPTER ONE - THE MERGER
the analyses in light of each other and ultimately rendered its opinion based on
the results of all of the analyses taken as a whole. DLJ did not place
particular reliance or weight on any individual analysis, but instead concluded
that its analyses, taken as a whole, supported its determination. Accordingly,
notwithstanding the separate factors summarized above, DLJ believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it or focusing on information presented
in tabular format, without considering all such factors and analyses or the
narrative description of the analyses, could create an incomplete or misleading
view of the process underlying its opinion. In addition, analyses relating to
the value of businesses or securities do not necessarily purport to be
appraisals or to reflect the prices at which such businesses or securities can
actually be sold. The analyses performed by DLJ are not necessarily indicative
of actual past or future results or values, which may be significantly more or
less favorable than such estimates or those suggested by its analyses.
Pursuant to the terms of an engagement letter between Qwest and DLJ dated
June 11, 1999, Qwest has agreed to pay DLJ upon completion of the merger an
aggregate financial advisory fee of $30.0 million. Qwest also has agreed to
reimburse DLJ for all out-of-pocket expenses, including the reasonable fees and
expenses of counsel, incurred by DLJ in connection with its engagement, and to
indemnify DLJ and related persons against liabilities, including liabilities
under the federal securities laws, relating to or arising out of its services.
DLJ provides a full range of financial, advisory and brokerage services and,
in the ordinary course of business, DLJ and its affiliates may actively trade
the debt and equity securities of Qwest and U S WEST for its own account and for
the account of customers and accordingly may at any time hold a long or short
position in such securities. DLJ has performed investment banking and other
services for Qwest in the past, including participation in the offering of Qwest
debt securities, for which services DLJ has received customary compensation.
OPINIONS OF FINANCIAL ADVISORS TO U S WEST
<TABLE>
<CAPTION>
U S WEST FINANCIAL ADVISOR LOCATION OF THEIR FULL OPINION
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Merrill Lynch Annex D
Lehman Brothers Annex E
</TABLE>
U S WEST engaged Merrill Lynch and Lehman Brothers as its financial advisors
in connection with the merger based on their experience and expertise. Merrill
Lynch and Lehman Brothers are internationally recognized investment banking
firms that have substantial experience in transactions similar to the merger.
The U S WEST financial advisors, as part of their respective investment banking
businesses, are continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
At the July 16, 1999 meeting of the U S WEST Board, Merrill Lynch and Lehman
Brothers both delivered their oral opinions (subsequently confirmed separately
by each in writing) to the effect that, as of the date thereof, and subject to
the assumptions, qualifications and limitations set forth therein, the merger
consideration was fair, from a financial point of view, to the holders of U S
WEST common stock.
I-53
<PAGE>
Chapter One - The Merger
The full texts of these opinions, which set forth the assumptions made,
matters considered and qualifications and limitations on the review undertaken
by the U S WEST financial advisors, are set forth in Annexes D and E and are
incorporated herein by reference. The summary of the U S WEST financial
advisors' opinions set forth below is qualified in its entirety by reference to
the full text of those opinions. U S WEST shareholders are urged to read
carefully each of the Merrill Lynch and Lehman Brothers opinions in its
entirety. The opinions speak only as of July 18, 1999, and neither financial
advisor is under any obligation to confirm its opinion as of any later date.
Furthermore, the U S WEST Board may not necessarily request that either Merrill
Lynch or Lehman Brothers confirm their respective opinions as of any later date.
In reading the following discussion of these fairness opinions, U S WEST
shareholders should be aware that the opinions:
- were provided to the U S WEST Board for its information and are
directed only to the fairness, from a financial point of view, of the
merger consideration to the holders of U S WEST common stock;
- did not constitute a recommendation to the U S WEST Board in connection
with their consideration of the merger agreement and the merger;
- do not address the merits of the underlying decision by U S WEST to
engage in the merger or the price or range of prices at which shares of
U S WEST common stock or Qwest common stock may trade subsequent to the
announcement or consummation of the merger; and
- do not constitute a recommendation to any holder of U S WEST common
stock as to how such shareholder should vote on the merger or any
matter related thereto.
Although the U S WEST financial advisors each evaluated the fairness, from a
financial point of view, of the merger consideration to the holders of U S WEST
common stock, the merger consideration itself was determined by Qwest and U S
WEST through arm's-length negotiations. The U S WEST financial advisors provided
advice to U S WEST during the course of such negotiations. U S WEST did not
provide specific instructions to, or place any limitations on, the U S WEST
financial advisors with respect to the procedures to be followed or factors to
be considered by them in performing their analyses or providing their opinions.
MERRILL LYNCH OPINION
In arriving at its opinion, Merrill Lynch, among other things:
- reviewed certain publicly available business and financial information
relating to U S WEST and Qwest that Merrill Lynch deemed to be
relevant;
- reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of U S WEST and Qwest, as well as the amount and timing of the cost
savings and related expenses and synergies expected to result from the
merger furnished to Merrill Lynch by U S WEST and Qwest, respectively;
- conducted discussions with members of senior management and
representatives of U S WEST and Qwest concerning the matters described
in the above two bullet points, as well as their respective businesses
and prospects before and after giving effect to the merger and the
expected synergies;
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<PAGE>
CHAPTER ONE - THE MERGER
- reviewed the market prices and valuation multiples for shares of U S
WEST common stock and Qwest common stock and compared them with those
of certain publicly traded companies that Merrill Lynch deemed to be
relevant;
- reviewed the results of operations of U S WEST and Qwest and compared
them with those of certain publicly traded companies that Merrill Lynch
deemed to be relevant;
- compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Merrill Lynch deemed to be
relevant;
- participated in certain discussions and negotiations among
representatives of U S WEST and Qwest and their financial and legal
advisors;
- reviewed the potential pro forma impact of the merger;
- reviewed a draft of the merger agreement; and
- reviewed such other financial studies and analyses and took into
account such other matters as Merrill Lynch deemed necessary, including
its assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for independently
verifying such information or undertake an independent evaluation or appraisal
of any of the assets or liabilities of U S WEST or Qwest nor was Merrill Lynch
furnished with any such evaluation or appraisal. In addition, Merrill Lynch did
not assume any obligation to conduct any physical inspection of the properties
or facilities of U S WEST or Qwest. With respect to the financial forecast
information and the expected synergies furnished to or discussed with Merrill
Lynch by U S WEST or Qwest, Merrill Lynch assumed that they had been reasonably
prepared and reflected the best currently available estimates and judgment of U
S WEST's or Qwest's management as to the expected future financial performance
of U S WEST or Qwest, as the case may be, and the expected synergies. Merrill
Lynch further assumed that the merger will be accounted for as a purchase by U S
WEST of Qwest under generally accepted accounting principles and that it will
qualify as a tax-free reorganization for U.S. federal income tax purposes.
Merrill Lynch also assumed that the final form of the merger agreement would be
substantially similar to the last draft reviewed by Merrill Lynch.
Merrill Lynch's opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of its opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the merger, no
restrictions, including any divestiture requirements or amendments or
modifications, to the merger agreement, will be imposed that will have a
material adverse effect on the contemplated benefits of the merger.
Merrill Lynch's opinion did not address the relative merits, financial or
otherwise, of the merger as compared to any alternative transaction or business
strategy that may be available to U S WEST.
LEHMAN BROTHERS OPINION
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
- the merger agreement and the specific terms of the merger;
I-55
<PAGE>
CHAPTER ONE - THE MERGER
- publicly available information concerning U S WEST and Qwest that
Lehman Brothers believed to be relevant to its analysis, including
without limitation, Forms 10-K of U S WEST and Qwest for the fiscal
year ended December 31, 1998 and Forms 10-Q of U S WEST and Qwest for
the three months ended March 31, 1999;
- financial and operating information with respect to the business,
operations and prospects of U S WEST furnished to Lehman Brothers by U
S WEST, including the expected results for the three months ended June
30, 1999 and certain financial forecasts prepared by U S WEST;
- financial and operating information with respect to the business,
operations and prospects of Qwest furnished to Lehman Brothers by
Qwest, including the expected results for the three months ended June
30, 1999 and certain financial forecasts prepared by Qwest;
- a trading history of the U S WEST common stock from June 15, 1998 to
the present and of the U S WEST Communications Group common stock (the
common stock of U S WEST's predecessor) from November 1, 1995 to June
12, 1998 and a comparison of these trading histories with those of
other companies that Lehman Brothers deemed relevant;
- a trading history of the Qwest common stock from June 24, 1997 to the
present and a comparison of this trading history with those of other
companies that Lehman Brothers deemed relevant;
- a comparison of the historical financial results and present financial
condition of U S WEST with those of other companies that Lehman
Brothers deemed relevant and a comparison of the historical financial
results and present financial condition of Qwest with those of other
companies that Lehman Brothers deemed relevant;
- third party research analysts' earnings estimates, valuation analyses,
target prices and investment recommendations for U S WEST and Qwest;
- a comparison of the financial terms of the merger with the financial
terms of certain other transactions that Lehman Brothers deemed
relevant;
- the potential pro forma financial effects of the merger, including the
cost savings, operating synergies and strategic benefits expected by
management of U S WEST and Qwest to result from a combination of the
businesses of U S WEST and Qwest;
- the terms and conditions of the proposed merger of U S WEST with
Global; and
- such information relating to the business, operations and prospects of
Global and Global's common stock that Lehman Brothers deemed relevant.
Lehman Brothers also had discussions with the managements of U S WEST and
Qwest concerning their respective businesses, operations, assets, financial
conditions and prospects and had undertaken such other studies, analyses and
investigations as it deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied on the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for the independent verification of such
information and further relied upon the assurances of the management of U S WEST
and Qwest that they were not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
forecasts of U S WEST furnished to Lehman Brothers by U S WEST, upon the advice
of U S WEST, Lehman Brothers assumed that such forecasts had been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the
I-56
<PAGE>
CHAPTER ONE - THE MERGER
management of U S WEST as to the future financial performance of U S WEST and
that U S WEST would perform in accordance with such forecasts. In addition, with
respect to the financial forecasts of Qwest furnished to Lehman Brothers by
Qwest, upon the advice of U S WEST and Qwest, Lehman Brothers assumed that such
forecasts had been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of Qwest as to the future
financial performance of Qwest and that Qwest would perform in accordance with
such forecasts. With respect to the cost savings, operating synergies and
strategic benefits expected by the managements of U S WEST and Qwest to result
from a combination of the businesses of U S WEST and Qwest, upon the advice of U
S WEST and Qwest, Lehman Brothers assumed that cost savings, operating
efficiencies and strategic benefits would be realized substantially in
accordance with such expectations. In arriving at its opinion, Lehman Brothers
did not conduct a physical inspection of the properties and facilities of U S
WEST or Qwest and did not make or obtain any evaluations or appraisals of the
assets or liabilities of U S WEST or Qwest.
Upon advice of U S WEST and its legal advisors, Lehman Brothers assumed that
the receipt of shares of Qwest common stock by stockholders of U S WEST in the
merger will qualify as a tax-free transaction to U S WEST stockholders. Upon
advice of U S WEST and its legal advisors, Lehman Brothers also assumed that
consummation of the merger will not cause the split-off by MediaOne Group, Inc.
(formerly U S WEST, Inc.) of U S WEST on June 12, 1998 to fail to qualify as a
tax-free transaction. Lehman Brothers' opinion necessarily is based upon market,
economic and other conditions as they existed on, and could be evaluated as of,
the date of its opinion.
In addition, Lehman Brothers did not express any opinion as to the prices at
which shares of Qwest common stock may trade at any time prior to or following
the consummation of the merger and Lehman Brothers' opinion should not be viewed
as providing any assurance that the market value of the shares of Qwest common
stock to be held by the holders of U S WEST common stock after the consummation
of the merger will be in excess of the market value of the shares of U S WEST
common stock owned by such shareholders at any time prior to announcement of
consummation of the merger.
FINANCIAL ANALYSES OF THE U S WEST FINANCIAL ADVISORS
The following is a brief summary of the material valuation, financial and
comparative analyses presented by the U S WEST financial advisors to the U S
WEST Board in connection with the rendering of the U S WEST financial advisors'
opinions. This summary does not purport to be a complete description of the
analyses underlying the U S WEST financial advisors' opinions and is qualified
in its entirety by reference to the full text of the U S WEST financial
advisors' opinions which are incorporated herein by reference.
In performing their analyses, the U S WEST financial advisors made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of the U S WEST financial advisors, U S WEST and Qwest. Any estimates
contained in the analyses performed by the U S WEST financial advisors are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses. In
addition, estimates of the value of businesses or securities do not purport to
be appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. In addition, as described above, the U S
WEST financial advisors' opinions were among several factors taken into
consideration by the U S WEST Board in making its determination to approve the
merger agreement and the merger.
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<PAGE>
CHAPTER ONE - THE MERGER
U S WEST VALUATION
COMPARABLE PUBLICLY TRADED COMPANIES ANALYSIS. In order to assess how the
public market values shares of similar publicly traded companies, the U S WEST
financial advisors reviewed and compared specific financial information relating
to U S WEST to corresponding financial information, ratios and public market
multiples for publicly traded companies in two sectors: Regional Bell Operating
Companies (referred to as RBOCs) and incumbent local exchange carriers (referred
to as ILECs). In the RBOC sector, the U S WEST financial advisors reviewed the
following companies: BellSouth Corporation, SBC Communications Inc. (pro forma
for the merger with Ameritech Corporation) and Bell Atlantic Corporation (pro
forma for the merger with GTE Corporation). In the ILEC sector, the U S WEST
financial advisors reviewed the following companies: ALLTEL Corporation (pro
forma for its acquisition of Aliant Communications Inc.), CenturyTel, Inc. and
Cincinnati Bell Inc. The comparable companies were chosen because they are
publicly traded companies with operations that, for purposes of analysis, may be
considered similar to U S WEST.
The U S WEST financial advisors calculated the multiple of each company's
current market price to its projected 2000 (calendar year) earnings per share
(commonly referred to as a price to earnings ratio, or P/E). The U S WEST
financial advisors further calculated each company's projected total return by
adding its projected 5-year annual EPS growth rate and its dividend yield and
then calculated the multiple of each company's 2000 P/E to projected total
return. An appropriate range of 2000 P/E to projected total return multiples
derived from this analysis were applied to the projected total return of U S
WEST based upon U S WEST's projected 5-year annual EPS growth rate and its
current dividend yield to determine an appropriate P/E range for U S WEST. This
P/E range was then applied to U S WEST's projected 2000 EPS to arrive at a value
range per share of U S WEST common stock of $52.00 to $66.00, as compared to a
nominal offer price of $69.00 per share in Qwest common stock.
However, because of the inherent differences in the businesses, operations,
financial conditions and prospects of U S WEST and the comparable companies, the
U S WEST financial advisors believed that it was inappropriate to, and therefore
did not, rely solely on the quantitative results of the comparable companies
analysis, and, accordingly, also made quantitative judgments based upon
perceived qualitative differences between the characteristics of the comparable
companies and U S WEST and Qwest that would affect the trading values of U S
WEST, Qwest and such companies.
DISCOUNTED CASH FLOW ANALYSIS. The U S WEST financial advisors performed a
discounted cash flow analysis of the projected after-tax unlevered free cash
flows of U S WEST (defined as unlevered after-tax earnings plus amortization and
depreciation less capital expenditures and net changes in working capital). The
U S WEST financial advisors calculated a range of present values for U S WEST
based upon the discounted present value of the sum of the projected stream of
after-tax unlevered free cash flows of U S WEST and the projected terminal value
of U S WEST based upon a range of multiples of U S WEST's projected EBITDA.
Applying discount rates ranging from 9.0% to 11.0% and terminal value multiples
of 6.5x to 7.5x, the U S WEST financial advisors calculated implied equity
values per share of U S WEST common stock ranging from $63.00 to $77.00, as
compared to a nominal offer price of $69.00 per share in Qwest common stock.
SUM OF THE PARTS ANALYSIS. The U S WEST financial advisors performed a "sum
of the parts" analysis of U S WEST by valuing each individual business segment
individually and deriving therefrom a range of values for U S WEST as a whole.
The U S WEST business segments considered were the core business (the local
wireline business and the Dex directories business), the wireless/PCS business,
the data business and U S WEST's holdings in public companies. Using various
methodologies that the U S WEST financial
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<PAGE>
CHAPTER ONE - THE MERGER
advisors deemed appropriate for each business segment analyzed, the analysis
indicated a range of equity values per share of U S WEST common stock ranging
from $69.00 to $86.00 per share, as compared to a nominal offer price of $69.00
per share in Qwest common stock.
SELECTED TRANSACTIONS ANALYSIS. This analysis compares selected data with
respect to the following seven comparable local exchange carrier transactions
since 1996 to the proposed merger:
<TABLE>
<CAPTION>
TARGET ACQUIROR
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
- Aliant Communications Inc. - ALLTEL Corporation
- GTE Corporation - Bell Atlantic Corporation
- Ameritech Corporation - SBC Communications Inc.
- Southern New England Telecommunications - SBC Communications Inc.
Corporation
- Pacific Telecom Inc. - CenturyTel, Inc.
- NYNEX Corporation - Bell Atlantic Corporation
- Pacific Telesis Group - SBC Communications Inc.
</TABLE>
The U S WEST financial advisors compared appropriate ranges of various
statistics for these transactions to corresponding statistics for the merger.
The following table presents the results of this analysis:
<TABLE>
<CAPTION>
RANGE FOR SELECTED THE
TRANSACTIONS MERGER
------------------ ---------
<S> <C> <C>
Offer value (in millions).......................................................... $1,397--$61,700 $ 35,475
Transaction value (in millions).................................................... $1,533--$73,252 $ 45,960
Offer price as a multiple of current year EPS...................................... 16.0x--25.0x 21.7x
Offer price as a multiple of forward year EPS...................................... 14.0x--23.0x 20.8x
Transaction value as a multiple of current year EBITDA............................. 5.9x--10.6x 7.9x
Transaction value as a multiple of forward year EBITDA............................. 5.3x--9.3x 7.3x
Premium over market value paid 1 day prior to announcement date.................... (5.8)--39.0% 20.1%
Premium over market value paid 1 month prior to announcement date.................. (1.9)--42.9% 22.2%
</TABLE>
QWEST VALUATION
COMPARABLE PUBLICLY TRADED COMPANIES ANALYSIS. The U S WEST financial
advisors reviewed and compared specific financial information relating to Qwest
to corresponding financial information, ratios and public market multiples for
publicly traded companies in three sectors: Large Capitalization Long Distance,
Mid-Size Long Distance and International Long Distance Providers. In the large
capitalization sector, the U S WEST financial advisors reviewed AT&T Corp., MCI
WorldCom, Inc. and Sprint Corporation (Wireline only). In the mid-size sector,
the U S WEST financial advisors reviewed Global Crossing Ltd./Frontier
Corporation (on a pro forma basis), Level 3 Communications, Inc. and IXC
Communications, Inc. In the international sector, the U S WEST financial
advisors reviewed Global Telesystems Group, Inc. and Viatel, Inc.. The
comparable companies were chosen because they are publicly traded companies with
operations that, for purposes of analysis, may be considered similar to Qwest
according to the U S WEST financial advisors.
The U S WEST financial advisors calculated the multiple of each company's
current enterprise value (total equity value plus the value of net debt,
preferred stock and minority interests) to its projected 2000 (calendar year)
EBITDA. Each EBITDA multiple was further compared to each company's projected
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EBITDA growth rate to calculate an EBITDA multiple to projected EBITDA growth
rate ratio. An appropriate range of 2000 EBITDA multiple to EBITDA growth rate
ratios derived from this analysis was then applied to Qwest's projected EBITDA
growth rate to determine an appropriate range of 2000 EBITDA multiples for
Qwest, and this range was then applied to Qwest's projected 2000 EBITDA to imply
a range of values per share of Qwest common stock of $34.00 to $42.00 (after
subtracting net debt), as compared to a market price per share of Qwest common
stock of $34.00 on July 14, 1999.
However, because of the inherent differences in the businesses, operations,
financial conditions and prospects of Qwest and the comparable companies, the U
S WEST financial advisors believed that it was inappropriate to, and therefore
did not, rely solely on the quantitative results of the comparable companies
analysis, and, accordingly, also made quantitative judgments based upon
perceived qualitative differences between the characteristics of the comparable
companies and Qwest that would affect the trading values of Qwest and such
companies.
DISCOUNTED CASH FLOW ANALYSIS. The U S WEST financial advisors performed a
discounted cash flow analysis of the projected after-tax unlevered free cash
flows of Qwest. The U S WEST financial advisors calculated a range of present
values for Qwest based upon the discounted present value of the sum of the
projected stream of after-tax unlevered free cash flows of Qwest and the
projected terminal value of Qwest based upon a range of multiples of Qwest's
projected EBITDA. Applying discount rates ranging from 10.0% to 12.0% and
terminal value multiples of 12.0x to 14.0x, the U S WEST financial advisors
calculated implied equity values per share of Qwest common stock ranging from
$36.00 to $47.00, as compared to a market price per share of Qwest common stock
of $34.00 on July 14, 1999.
PRO FORMA VALUATION
"HAS-GETS" ANALYSIS. The U S WEST financial advisors compared the range of
values for a share of U S WEST common stock based upon the comparable publicly
traded companies and discounted cash flow valuation methodologies described
above (what a U S WEST shareholder currently "has") to the implied value of the
merger consideration which will be received by a U S WEST stockholder in
exchange for one share of U S WEST common stock (what a U S WEST shareholder
"gets"). The implied value of the merger consideration was determined by
applying the same comparable publicly traded companies and discounted cash flow
valuation methodologies described above to the pro forma combined company to
determine a per share value of the combined company and then multiplying such
per share value by the applicable exchange ratio and adding any cash received
per share of U S WEST common stock in the merger. This analysis was performed at
both the high end of the collar (i.e., a Qwest common stock price of $39.90 per
share and an exchange ratio of 1.72932) and the low end of the collar (i.e., a
Qwest common stock price of $28.26 per share) using both a "stock true-up"
(I.E., an exchange ratio of 2.44161) and a "cash true-up" in which the maximum
amount of cash is delivered (i.e., an exchange ratio of 1.7830 and a cash
payment of $18.61 per share). In addition, all scenarios were calculated with
and without giving effect
I-60
<PAGE>
CHAPTER ONE - THE MERGER
to synergies expected to be achieved in the merger. The results of the analysis
are presented in the following table:
<TABLE>
<CAPTION>
U S WEST "GETS"
--------------------------------------------------------------------------------------
WITHOUT SYNERGIES WITH SYNERGIES
------------------------------------------ ------------------------------------------
BOTTOM OF COLLAR BOTTOM OF COLLAR
TOP OF ---------------------------- TOP OF ----------------------------
COLLAR STOCK TRUE-UP CASH TRUE-UP COLLAR STOCK TRUE-UP CASH TRUE-UP
------------ ------------- ------------- ------------ ------------- -------------
U S WEST "HAS"
----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Publicly traded
comparable
companies.... $ 52.00-$66.00 $60.00-$76.00 $70.00-$89.00 $70.00-$87.00 $76.00-$92.00 $88.00-$107.00 $86.00-$102.00
Discounted cash
flow
analysis..... $ 63.00-$77.00 $61.00-$77.00 $71.00-$89.00 $71.00-$87.00 $76.00-$92.00 $89.00-$108.00 $87.00-$103.00
</TABLE>
RELEVANCE OF VARIOUS ANALYSES
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of these methods to the
particular circumstances involved. Such an opinion is therefore not readily
susceptible to partial analysis or summary description, and taking portions of
the analyses set out above, without considering the analysis as a whole, would,
in the view of the U S WEST financial advisors, create an incomplete and
misleading picture of the processes underlying the analyses considered in
rendering the U S WEST financial advisors' opinions. The U S WEST financial
advisors did not form an opinion as to whether any individual analysis or factor
(positive or negative), considered in isolation, supported or failed to support
the U S WEST financial advisors' opinions. In arriving at their respective
opinions, the U S WEST financial advisors each considered the results of their
separate analyses and did not attribute particular weight to any one analysis or
factor considered by such firm. The analyses performed by the U S WEST financial
advisors, particularly those based on estimates and projections, are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of the U S WEST financial advisors'
analyses of the fairness, from a financial point of view, of the merger
consideration to the holders of U S WEST common stock.
FEE ARRANGEMENTS
Pursuant to the terms of its engagement letters with Merrill Lynch and
Lehman Brothers, U S WEST has agreed to pay customary fees to each of Merrill
Lynch and Lehman Brothers in connection with the delivery of the U S WEST
financial advisors' opinions. In addition, U S WEST has agreed to reimburse the
U S WEST financial advisors for all reasonable out-of-pocket expenses incurred
by them in connection with the merger, including reasonable fees and
disbursements of their legal counsel. U S WEST has also agreed to indemnify the
U S WEST financial advisors against certain liabilities in connection with their
respective engagements, including certain liabilities under the federal
securities laws.
Both Merrill Lynch and Lehman Brothers have previously rendered certain
investment banking and financial advisory services to U S WEST and Qwest. In
addition, Merrill Lynch has rendered financial advisory services to Global in
connection with the Global/Frontier merger.
I-61
<PAGE>
Chapter One - The Merger
EMPLOYEE BENEFITS PROPOSAL
The Qwest Board, effective June 1, 1998, adopted amendments to the Qwest
Equity Incentive Plan that, among other things, increased the number of shares
of Qwest common stock eligible for award under the plan to 70 million. The plan,
which was adopted by the Qwest Board and approved by its shareholders in June
1997 and May 1998, provides for the grant of non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock, stock
units and other stock grants to employees of Qwest and its affiliates and
consultants to Qwest.
The purposes of the plan are to provide those who are selected for
participation with added incentives to continue in the long-term service of
Qwest and to create in such persons a more direct interest in the future success
of the operations of Qwest by relating incentive compensation to increases in
shareholder value, so that the interests of those participating in the plan is
more closely aligned with the interests of Qwest's shareholders. The plan is
also designed to provide a financial incentive that will help Qwest attract,
retain and motivate the most qualified employees and consultants.
TO ENSURE THAT QWEST CAN CONTINUE TO MAKE AWARDS UNDER THE PLAN AT LEVELS
DETERMINED APPROPRIATE BY QWEST'S COMPENSATION COMMITTEE AND TO CLAIM A FEDERAL
INCOME TAX DEDUCTION FOR THE COMPENSATION RESULTING FROM THE EXERCISE OF OPTIONS
AND THE VESTING AND PAYMENT OF OTHER AWARDS GRANTED UNDER THE PLAN, THE QWEST
BOARD RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL TO REAPPROVE THE PLAN.
NEITHER THE QWEST MERGER PROPOSAL NOR THE QWEST EMPLOYEE BENEFITS PROPOSAL IS
CONDITIONED ON APPROVAL OF THE OTHER QWEST PROPOSAL. IF THE QWEST MERGER
PROPOSAL IS APPROVED AND THE MERGER IS CONSUMMATED, THE NUMBER OF SHARES OF
QWEST COMMON STOCK ELIGIBLE FOR AWARD UNDER THE QWEST EQUITY INCENTIVE PLAN WILL
BE INCREASED TO AN AMOUNT EQUAL TO THE LESSER OF (1) 200 MILLION AND (2) 10% OF
THE TOTAL NUMBER OF SHARES OF QWEST COMMON STOCK OUTSTANDING AS OF THE CLOSE OF
BUSINESS ON THE DATE ON WHICH THE EFFECTIVE TIME OF THE MERGER OCCURS, IN EACH
CASE REDUCED BY THE NUMBER OF SHARES OF QWEST COMMON STOCK ISSUABLE UPON THE
EXERCISE OF U S WEST OPTIONS AND QWEST OPTIONS (OTHER THAN QWEST OPTIONS AWARDED
UNDER THE PLAN) OUTSTANDING AS OF THE CLOSE OF BUSINESS ON THE DATE ON WHICH THE
EFFECTIVE TIME OF THE MERGER OCCURS. IF THE MERGER WERE TO CLOSE ON THE DATE OF
THIS JOINT PROXY STATEMENT/PROSPECTUS, APPROVAL OF THE QWEST MERGER PROPOSAL
WOULD INCREASE THE NUMBER OF SHARES OF QWEST COMMON STOCK ELIGIBLE FOR AWARD
UNDER THE PLAN TO A NUMBER BETWEEN APPROXIMATELY 96.1 MILLION AND 106.6 MILLION.
THE CALCULATION OF THIS NUMBER IS BASED ON THE NUMBER OF OUTSTANDING QWEST AND U
S WEST OPTIONS ON SEPTEMBER 7, 1999 AND AVERAGE PRICES RANGING FROM $28.26 TO
$39.90, THE LIMITS OF THE COLLAR.
The following summary of the plan is qualified by reference to the complete
text of the plan, which is incorporated by reference and attached as Annex G.
PARTICIPATION. The plan provides that awards may be made to employees and
consultants who are responsible for Qwest's growth and profitability. Directors
who are not employees of Qwest and its affiliates or consultants to Qwest are
not eligible. Qwest currently considers all of its employees and certain of its
consultants to be eligible for grant of awards under the plan. As of June 30,
1999, there were approximately 9,300 eligible participants. The plan is a
discretionary plan and, accordingly, it is not possible at present to determine
the amount or form of awards that will be available for grant to any individual
during the term of the plan.
ADMINISTRATION. The plan is administered by the members of Qwest's
compensation committee other than Mr. Anschutz. The committee must be structured
at all times so that it satisfies the "non-employee director" requirement of
Rule 16b-3 under the Exchange Act. To the extent practicable, Qwest intends to
satisfy the similar requirement of Section 162(m) of the Code with respect to
grants to employees whose compensation is subject to Section 162(m) of the Code.
The committee has the sole discretion to
I-62
<PAGE>
CHAPTER ONE - THE MERGER
determine the employees and consultants to whom awards may be granted under the
plan and the manner in which such awards will vest. Options, stock appreciation
rights, restricted stock and stock units are granted by the committee to
employees and consultants in such numbers and at such times during the term of
the Plan as the committee shall determine, except that the maximum number of
shares subject to one or more options or stock appreciation rights that can be
granted during any calendar year to any employee or consultant is 40 million
shares of Qwest common stock, and except that incentive options may be granted
only to employees. In granting options, stock appreciation rights, restricted
stock and stock units, the committee will take into account such factors as it
may deem relevant in order to accomplish the plan's purposes, including one or
more of the following: the extent to which performance goals have been met, the
duties of the respective employees and consultants, and their present and
potential contributions to Qwest's success.
The plan provides that the committee may delegate authority to grant stock
options and other awards to specified officers of Qwest. Pursuant to that
authority, the committee has delegated authority to Joseph P. Nacchio, Chairman
and Chief Executive Officer of Qwest, to grant options and other awards to such
employees and consultants as he may determine; PROVIDED that the maximum number
of shares that may be granted to any one individual by Mr. Nacchio is 200,000
(as adjusted for stock splits, stock dividends, recapitalizations and other
dilutive changes in the Qwest common stock), the maximum aggregate number of
shares that may be granted to all individuals by Mr. Nacchio is 10 million (as
adjusted for stock splits, stock dividends, recapitalizations and other dilutive
changes in the Qwest common stock), and no grants of options or other awards may
be made by Mr. Nacchio to any employee or consultant who is covered by Section
16(b) of the Exchange Act. References in this section to grants and other
actions by the committee shall include a reference to Mr. Nacchio to the extent
that the committee has delegated such authority to him.
EXERCISE OF OPTIONS. The committee determines the exercise price for each
option; however, incentive stock options must have an exercise price that is at
least equal to the fair market value of the Qwest common stock on the date the
incentive stock option is granted (at least equal to 110% of fair market value
in the case of an incentive stock option granted to an employee who owns Qwest
common stock having more than 10% of the voting power). An option holder may
exercise an option by written notice and payment of the exercise price in (1)
cash or certified funds, (2) by the surrender of a number of shares of Qwest
common stock already owned by the option holder for at least six months with a
fair market value equal to the exercise price, or (3) through a broker's
transaction by directing the broker to sell all or a portion of the Qwest common
stock to pay the exercise price or make a loan to the option holder to permit
the option holder to pay the exercise price. Option holders who are subject to
the withholding of federal and state income tax as a result of exercising an
option may be provided with an election to satisfy the minimum required income
tax withholding obligation through the withholding of a portion of the Qwest
common stock to be received upon exercise of the option.
OPTION TERM. The committee determines the term of each Option, which shall
be no longer than ten years (five years in the case of an incentive stock option
granted to an employee who owns Qwest common stock having more than 10% of the
voting power). Unless the committee provides otherwise, the following provisions
apply in the event of an employee's termination of employment. If the option
holder's services are terminated for cause, as determined by Qwest, the option
terminates immediately. If the option holder becomes disabled, the option may be
exercised for one year after the option holder terminates employment on account
of disability. If the option holder dies during employment or in the one-year
period referred to in the preceding sentence or in the three-month period
referred to in the next sentence, the option may be exercised for one year after
the option holder's death. If the option holder terminates
I-63
<PAGE>
CHAPTER ONE - THE MERGER
employment for any reason other than cause, disability, or death, the option may
be exercised for three months after termination of employment. In all cases, the
option can be exercised only to the extent it is vested at the time of
termination of employment and only during the term of the option.
RESTRICTED STOCK. The committee may grant a participant a number of shares
of restricted stock as determined by the committee in its sole discretion.
Grants of restricted stock may be subject to such restrictions, including for
example, continuous employment with Qwest for a stated period of time or the
attainment of performance goals and objectives, as determined by the committee
in its sole discretion. The restrictions may vary among awards and participants.
If a participant dies or becomes disabled or retires pursuant to Qwest's
retirement policy, the restricted stock will become fully vested as to a pro
rata portion of each award based on the ratio of the number of months of
employment completed at termination of employment from the date of the award to
the total number of months of employment required for each award to become fully
vested. The remaining portion of the restricted stock will be forfeited. If a
participant terminates employment for any other reason, all unvested shares of
restricted stock will be forfeited.
STOCK UNITS. The committee may grant stock units to participants. The
committee determines the number of stock units to be granted, the goals and
objectives to be satisfied, the time and manner of payment, and any other terms
and conditions applicable to the stock units.
STOCK APPRECIATION RIGHTS. The committee may grant stock appreciation
rights to participants, either separately or in tandem with the grant of
options. The committee determines the period during which a stock appreciation
right may be exercised and the other terms and conditions applicable to the
stock appreciation rights. Upon exercise of a stock appreciation right, a
participant is entitled to a payment equal to the number of shares of Qwest
common stock as to which the stock appreciation right is exercised times the
excess of the fair market value of a share of Qwest common stock on the date the
stock appreciation right is exercised over the fair market value of a share of
Qwest common stock on the date the stock appreciation right was granted. The
amount may be paid in shares of Qwest common stock, in cash, or in a combination
of cash and Qwest common stock as the committee determines in its sole
discretion. Upon termination of employment, stock appreciation rights are
exercisable in the same manner as options. If a stock appreciation right is
granted in tandem with an option, exercise of the stock appreciation right or
the option will result in an equal reduction in the number of shares subject to
the corresponding option or stock appreciation right.
OTHER STOCK GRANTS. The committee may award stock bonuses to such
participants, subject to such conditions and restrictions, as it determines in
its sole discretion. Stock bonuses may be outright grants or may be conditioned
on continued employment or attainment of performance goals as the committee
determines in its sole discretion. The Qwest Board may, in its sole discretion,
establish other incentive compensation arrangements pursuant to which
participants may acquire Qwest common stock or provide that other incentive
compensation will be paid in Qwest common stock under the Plan.
NONTRANSFERABILITY. Except as may be otherwise permitted by the committee,
options, stock appreciation rights, stock units and restricted stock awards
granted under the plan are not transferable other than by will or by the laws of
descent and distribution.
ADJUSTMENT IN NUMBER OF SHARES; REELIGIBILITY OF SHARES. The number of
shares eligible for award under the plan is subject to adjustment on account of
stock splits, stock dividends, recapitalizations and other dilutive changes in
Qwest common stock. Shares of Qwest common stock covered by unexercised
non-qualified or incentive stock options that expire, terminate or are canceled,
together with shares of
I-64
<PAGE>
CHAPTER ONE - THE MERGER
Qwest common stock that are forfeited pursuant to a restricted stock grant or
any other award (other than an option) under the plan or that are used to pay
withholding taxes or the option exercise price, will again be available for
option or grant under the plan.
CHANGE IN CONTROL. All awards granted under the plan shall immediately vest
upon any "change in control" of Qwest unless otherwise provided by the committee
at the time of grant. A "change in control" occurs if (1) 50% or more of Qwest's
voting stock or outstanding stock is acquired by a person, entity or group
(other than an entity controlled by Mr. Anschutz or a trustee or other fiduciary
of a Qwest employee benefit plan) or (2) at any time during any period of three
consecutive years, individuals who at the beginning of such period make up the
Qwest Board (and any new director approved by two-thirds of the existing or
previously approved directors) cease to constitute a majority of the Qwest
Board. (Options granted under the plan before June 1, 1998 are subject to a
different definition of change in control which will be triggered if, among
other events, entities controlled by Mr. Anschutz cease to have beneficial
ownership of at least 20% of Qwest's voting stock or outstanding stock.
Completion of the merger will give rise to a "change in control" for these
options. See "Interests of Officers and Directors in the Merger-- Qwest's Stock
Options" above.)
MERGER AND REORGANIZATION. Upon the occurrence of (1) the reorganization
(other than a bankruptcy reorganization), merger or consolidation of Qwest
(other than a reorganization, merger or consolidation in which Qwest is the
continuing company and that does not result in any change in the outstanding
shares of Qwest common stock), (2) the sale of all or substantially all of the
assets of Qwest (other than a sale in which Qwest continues as a holding company
of an entity that conducts the business formerly conducted by Qwest), or (3) the
dissolution or liquidation of Qwest, all outstanding options will terminate
automatically when the event occurs if Qwest gives the option holders 30 days'
prior written notice of the event. Notice is also given to holders of other
awards. Notice is not required for a merger or consolidation or for a sale if
Qwest, the successor, or the purchaser makes adequate provision for the
assumption of the outstanding options or the substitution of new options or
awards on terms comparable to the outstanding options or awards. When the notice
is given, all outstanding options fully vest and can be exercised prior to the
event and other awards become exercisable and payable.
AMENDMENT AND TERMINATION. The Qwest Board may amend the plan in any
respect at any time provided shareholder approval is obtained when necessary or
desirable, but no amendment can impair any option, stock appreciation right,
award or unit previously granted or deprive an option holder, without his or her
consent, of any Qwest common stock previously acquired. The plan will terminate
on June 22, 2007 unless sooner terminated by the Qwest Board.
FEDERAL INCOME TAX CONSEQUENCES OF ISSUANCE AND EXERCISE OF OPTIONS UNDER
THE PLAN. When a non-qualified stock option is granted, there are no income tax
consequences for the option holder or Qwest. When a non-qualified stock option
is exercised, in general, the option holder recognizes compensation equal to the
excess of the fair market value of the Qwest common stock on the date of
exercise over the exercise price. If, however, the sale of the Qwest common
stock at a profit would subject the option holder to liability under Section
16(b) of the Exchange Act, the option holder will recognize compensation income
equal to the excess of (1) the fair market value of the Qwest common stock on
the earlier of the date that is six months after the date of exercise or the
date the option holder can sell the Qwest common stock without Section 16(b)
liability over (2) the exercise price. The option holder can make an election
under Section 83(b) of the Code to measure the compensation as of the date the
non-qualified option is exercised. The compensation recognized by an employee is
subject to income tax withholding. Qwest is entitled to a deduction equal to the
compensation recognized by the option holder for Qwest's taxable year that ends
with or within the taxable year in which the option holder recognized the
compensation,
I-65
<PAGE>
CHAPTER ONE - THE MERGER
assuming that the compensation amounts satisfy the ordinary and necessary and
reasonable compensation requirements for deductibility and that the deduction is
not limited by Section 162(m) of the Code.
When an incentive stock option is granted, there are no income tax
consequences for the option holder or Qwest. When an incentive stock option is
exercised, the option holder does not recognize income and Qwest does not
receive a deduction. The option holder, however, must treat the excess of the
fair market value of the Qwest common stock on the date of exercise over the
exercise price as an item of adjustment for purposes of the alternative minimum
tax. If the option holder makes a "disqualifying disposition" of the Qwest
common stock (described below) in the same taxable year the incentive stock
option was exercised, there are no alternative minimum tax consequences.
If the option holder disposes of the Qwest common stock after the option
holder has held the Qwest common stock for at least two years after the
incentive stock option was granted and one year after the incentive stock option
was exercised, the amount the option holder receives upon the disposition over
the exercise price is treated as capital gain for the option holder. Qwest is
not entitled to a deduction. If the option holder makes a "disqualifying
disposition" of the Qwest common stock by disposing of the Qwest common stock
before it has been held for at least two years after the date the incentive
stock option was granted and one year after the date the incentive stock option
was exercised, the option holder recognizes compensation income equal to the
excess of (1) the fair market value of the Qwest common stock on the date the
incentive stock option was exercised or, if less, the amount received on the
disposition over (2) the exercise price. At present, Qwest is not required to
withhold income or other taxes. Qwest is entitled to a deduction equal to the
compensation recognized by the option holder for Qwest's taxable year that ends
with or within the taxable year in which the option holder recognized the
compensation, assuming that the compensation amounts satisfy the ordinary and
necessary and reasonable compensation requirements for deductibility and that
the deduction is not limited by Section 162(m) of the Code.
The plan provides that option holders are responsible for making appropriate
arrangements with Qwest to provide for any additional withholding amounts.
Furthermore, Qwest shall have no obligation to deliver shares of Qwest common
stock upon the exercise of any options, stock appreciation rights, awards or
units under the plan until all applicable federal, state and local income and
other tax withholding requirements have been satisfied.
Under Section 162(m) of the Code, Qwest may be limited as to federal income
tax deductions to the extent that the total annual compensation in excess of $1
million is paid to Qwest's Chief Executive Officer or any one of the four
highest paid executive officers who were employed by Qwest on the last day of
the taxable year. However, certain "performance-based compensation," the
material terms of which are disclosed to and approved by Qwest's stockholders,
is not subject to this limitation on deductibility. Qwest has structured the
plan with the intention that compensation resulting from options and awards
granted under the plan would be deductible without regard to the limitations
otherwise imposed by Section 162(m) of the Code.
I-66
<PAGE>
CHAPTER TWO
FINANCIAL INFORMATION
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Qwest common stock is listed on the NASDAQ and U S WEST common stock is
listed on the NYSE. Qwest's ticker symbol on the NASDAQ is "QWST" and U S WEST's
ticker symbol on the NYSE is "USW." The following table shows, for the calendar
quarters indicated, based on published financial sources (1) the high and low
last reported closing prices per share of Qwest common stock as reported on the
NASDAQ Composite Tape, (2) the high and low last reported closing prices per
share of U S WEST common stock (and, prior to June 15, 1998, the U S WEST
Communications Group targeted common stock, the targeted stock of U S WEST's
predecessor) as reported on the New York Stock Exchange Composite Transaction
Tape and (3) the cash dividends per share of each of Qwest and U S WEST common
stock.
<TABLE>
<CAPTION>
QWEST COMMON STOCK(1) U S WEST COMMON STOCK
----------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
--------- --------- ------------- --------- --------- -----------
1997
First Quarter.......................................... $ n/a $ n/a -- $ 37.250 $ 31.750 $ 0.535
Second Quarter......................................... $ 7.375 $ 6.813 -- $ 38.500 $ 31.125 $ 0.535
Third Quarter.......................................... $ 12.750 $ 6.813 -- $ 39.438 $ 35.625 $ 0.535
Fourth Quarter......................................... $ 16.438 $ 11.875 -- $ 46.938 $ 36.875 $ 0.535
1998
First Quarter.......................................... $ 20.219 $ 15.094 -- $ 56.313 $ 45.375 $ 0.535
Second Quarter......................................... $ 19.781 $ 13.938 -- $ 57.438 $ 46.813 $ 0.535
Third Quarter.......................................... $ 23.000 $ 12.500 -- $ 54.938 $ 48.438 $ 0.535
Fourth Quarter......................................... $ 25.031 $ 14.469 -- $ 65.000 $ 51.875 $ 0.535
1999
First Quarter.......................................... $ 37.406 $ 25.625 -- $ 65.625 $ 53.313 $ 0.535
Second Quarter......................................... $ 48.063 $ 32.563 -- $ 62.250 $ 51.563 $ 0.750
Third Quarter (through September 16)................... $ 35.938 $ 26.250 -- $ 60.250 $ 52.250 --
</TABLE>
- ------------------------------
(1) Qwest prior period share prices have been restated to give effect to (1) a
two-for-one stock split effective February 25, 1998 and (2) a second
two-for-one stock split effective May 24, 1999.
On May 14, 1999, the last full trading day prior to the announcement of the
signing of the Global-U S WEST merger agreement, the last reported closing price
per share of U S WEST stock was $62.25. On June 11, 1999, the last full trading
day before Qwest publicly announced its initial proposal for U S WEST, the last
reported closing prices per share of Qwest and U S WEST stock were $44.875 and
$54.875 respectively. On July 16, 1999, the last full trading day prior to the
announcement of the signing of the merger agreement, the last reported closing
prices per share of Qwest and U S WEST stock were $35.00 and $60.25,
respectively. On September 16, 1999, the most recent practicable date prior to
the mailing of this joint proxy statement/prospectus, the last reported closing
prices per share of Qwest and U S WEST stock were $29.25 and $56.188,
respectively. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR
TO MAKING ANY DECISION WITH RESPECT TO THE MERGER.
Unless otherwise agreed to by Qwest and U S WEST, the merger agreement does
not permit Qwest to change its dividend policy before the merger. The merger
agreement allows U S WEST to continue to pay dividends in a manner consistent
with its past practice. The merger agreement provides that Qwest initially will
pay a dividend of $0.0125 per quarter after completion of the merger. The
payment of dividends by the combined company after the merger, however, will
depend on business conditions, the combined company's financial condition and
earnings, and other factors.
II-1
<PAGE>
CHAPTER TWO - FINANCIAL INFORMATION
QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------- --------------------
1994 1995 1996 1997 1998(1) 1998 1999
--------- --------- --------- --------- ----------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Total revenue................................... $ 71 $ 125 $ 231 $ 697 $ 2,242 $ 571 $ 1,752
Total operating expense......................... 82 161 243 673 2,996 1,395 1,599
Earning (loss) from operations.................. (11) (36) (12) 24 (754) (824) 153
Earning (loss) before income taxes.............. (11) (39) (10) 24 (850) (843) 72
Net earnings (loss)............................. $ (7) $ (25) $ (7) $ 15 $ (844) $ (816) $ 23
Net earnings (loss) per share--basic............ $ (0.02) $ (0.08) $ (0.02) $ 0.04 $ (1.51) $ (1.82) $ 0.03
Net earnings (loss) per share--diluted.......... $ (0.02) $ (0.08) $ (0.02) $ 0.04 $ (1.51) $ (1.82) $ 0.03
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Total assets.................................... $ 90 $ 184 $ 263 $ 1,398 $ 8,068 $ 6,549 $ 10,000
Long-term debt.................................. $ 27 $ 69 $ 109 $ 631 $ 2,307 $ 1,365 $ 2,336
Total stockholders' equity(2)................... $ 25 $ 27 $ 9 $ 382 $ 4,238 $ 3,671 $ 6,464
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3)....................................... $ (6) $ (26) $ 7 $ 44 $ 294 $ 29 $ 342
Net cash provided by (used in) operating
activities.................................... $ 3 $ (57) $ 33 $ (36) $ 45 $ 101 $ (109)
Net cash used in investing activities........... $ (42) $ (59) $ (53) $ (357) $ (1,439) $ (436) $ (913)
Net cash provided by financing activities....... $ 34 $ 114 $ 26 $ 766 $ 1,477 $ 321 $ 1,997
Capital expenditures............................ $ 41 $ 49 $ 57 $ 346 $ 1,413 $ 413 $ 764
</TABLE>
- ------------------------------
(1) The selected financial and operating data for the year ended as of December
31, 1998 include the effect of the acquisitions of LCI International, Inc.,
Icon CMT Corp., EUnet International Limited and Phoenix Network, Inc., which
occurred during 1998. (See further discussion of these acquisitions in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the 1998 Qwest Form 10-K.)
(2) Qwest has not paid cash dividends on its common stock since becoming a
public company in June 1997. The merger agreement provides that Qwest
initially will pay a dividend of $0.0125 per quarter subsequent to the
consummation of the merger. The payment of dividends by the combined company
after the merger, however, will be determined by the Qwest Board and may
depend on business conditions, the combined company's financial condition
and earnings, and other factors.
(3) EBITDA represents net earnings (loss) before interest, other expense
(income), income tax expense (benefit), depreciation and amortization, a
non-recurring expense of $2.6 million in the year ended December 31, 1996,
the non-recurring gain on sale of telecommunication agreements of $6.1
million in the year ended December 31, 1996, to restructure operations, a
non-recurring gain on sale of contract rights of approximately $9.3 million
in the year ended December 31, 1997, and non-recurring merger-related
expenses of $812.5 million and $846.5 million for the six months ended June
30, 1998 and the year ended December 31, 1998, respectively. EBITDA does not
represent cash flow for the periods presented and should not be considered
as an alternative to net earnings (loss) as an indicator of Qwest's
operating performance or as an alternative to cash flows as a source of
liquidity, and may not be comparable with EBITDA as defined by other
companies.
II-2
<PAGE>
Chapter Two - Financial Information
U S WEST, INC.
SELECTED FINANCIAL DATA
The table below shows selected historical financial information for U S
WEST. The information has been prepared using the consolidated financial
statements of U S WEST as of the dates indicated and for each of the fiscal
periods presented.
On October 25, 1997, the Board of Directors of U S WEST's former parent
company (herein referred to as "Old U S WEST") adopted a proposal to separate
Old U S WEST into two independent companies (the "Separation"). Old U S WEST
conducted its businesses through two groups: (i) the U S WEST Communications
Group (the "Communications Group"), which included the communications businesses
of Old U S WEST, and (ii) the U S WEST Media Group (the "Media Group"), which
included the multimedia and directory businesses of Old U S WEST. On June 4,
1998, shareholders of Old U S WEST voted in favor of the Separation, which
became effective June 12, 1998 (the "Separation Date"). As part of the
Separation, Old U S WEST contributed to U S WEST the businesses of the
Communications Group and the domestic directories business of Media Group known
as U S WEST Dex, Inc. ("Dex"). The alignment of Dex with U S WEST is referred to
in this joint proxy statement/prospectus as the "Dex Alignment." Old U S WEST
has continued as an independent public company comprised of the businesses of
Media Group, other than Dex, and has been renamed MediaOne Group, Inc.
("MediaOne").
The Separation was implemented under the terms of a separation agreement
between U S WEST and MediaOne. In the Separation, each share of U S WEST
Communications Group common stock was exchanged for one share of U S WEST common
stock. In connection with the Dex Alignment: (i) Old U S WEST distributed, as a
dividend to holders of Media Group common stock, approximately 16,341,000 shares
of U S WEST common stock (net of the redemption of approximately 305,000
fractional shares) with an aggregate value of $850 million and (ii) U S WEST
refinanced $3.9 billion of Old U S WEST debt, formerly allocated to the Media
Group (the "Dex Indebtedness").
<TABLE>
<CAPTION>
(UNAUDITED) SIX
MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues............................ $ 10,132 $ 10,508 $ 11,168 $ 11,479 $ 12,378 $ 6,062 $ 6,440
Operating expenses............................ 7,616 7,931 8,356 8,703 9,329 4,563 4,792
Operating income.............................. 2,516 2,577 2,812 2,776 3,049 1,499 1,648
Income before extraordinary item and
cumulative effect of change in accounting
principle(1)................................ 1,403 1,431 1,501 1,527 1,508 761 818
Net income(2)................................. 1,403 1,423 1,535 1,524 1,508 761 818
Pro forma income(3)........................... * * * * 1,436 689 n/a
Historical earnings per share:(1,2,4)
Basic....................................... 3.09 3.02 3.21 3.16 3.05 1.56 1.62
Diluted..................................... 3.03 2.98 3.17 3.12 3.02 1.55 1.61
Average common shares outstanding (thousands):
Basic....................................... 453,316 470,716 477,549 482,751 494,395 486,424 503,622
Diluted..................................... 463,801 481,933 488,591 491,232 498,798 490,521 508,255
Pro forma earnings per share:(3)
Basic....................................... * * * * $ 2.86 $ 1.37 n/a
Diluted..................................... * * * * 2.84 1.36 n/a
Pro forma average common shares outstanding
(thousands):(3)
Basic....................................... * * * * 501,827 501,411 n/a
Diluted..................................... * * * * 506,230 505,508 n/a
</TABLE>
II-3
<PAGE>
CHAPTER TWO - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(UNAUDITED) SIX
MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends per common share.................... $ 2.14 $ 2.14 $ 2.14 $ 2.14 $ 2.14 $ 1.07 $ 1.285
Equivalent historical earnings per
share:(1,2,4,6)
Basic....................................... 1.57 1.53 1.63 1.60 1.55 0.79 0.82
Diluted..................................... 1.54 1.51 1.61 1.58 1.53 0.79 0.82
Equivalent average common shares outstanding
(thousands):(7)
Basic....................................... 893,680 927,983 941,454 951,709 974,664 958,950 992,855
Diluted..................................... 914,351 950,096 963,222 968,429 983,345 967,027 1,001,974
Equivalent pro forma earnings per share:(3,6)
Basic....................................... * * * * $ 1.45 $ 0.69 n/a
Diluted..................................... * * * * 1.44 0.69 n/a
Equivalent pro forma average common shares
outstanding (thousands):(7)
Basic....................................... * * * * 989,316 988,496 n/a
Diluted..................................... * * * * 997,996 996,573 n/a
Equivalent dividends per common share(6)...... $ 1.09 $ 1.09 $ 1.09 $ 1.09 $ 1.09 $ 0.543 $ 0.652
Total assets.................................. 16,317 16,960 17,279 17,667 18,407 18,597 21,891
Total debt(5)................................. 6,147 6,782 6,545 5,715 9,919 10,699 12,676
Debt to total capital ratio................... 64.7% 65.0% 61.6% 56.7% 92.9% 95.7% 92.2%
Capital expenditures.......................... $ 2,513 $ 2,770 $ 2,831 $ 2,672 $ 2,905 $ 1,331 $ 1,768
Telephone network access lines in service
(thousands)................................. 14,299 14,795 15,424 16,033 16,601 16,306 16,816
Billed access minutes of use (millions):
Interstate.................................. 43,768 47,801 52,039 55,362 58,927 29,161 30,720
Intrastate.................................. 8,507 9,504 10,451 11,729 12,366 6,099 6,355
Total employees............................... 55,246 54,552 51,477 51,110 54,483 53,535 55,726
Telephone company employees................... 47,493 47,934 45,427 43,749 46,310 45,497 47,044
Telephone company employees per 10,000 access
lines....................................... 33.2 32.4 29.5 27.3 27.9 27.9 28.0
</TABLE>
- ------------------------------
(1) 1998 income includes Separation expenses of $68 ($0.13 per diluted share)
associated with the Separation of Old U S WEST into two independent
companies and an asset impairment charge of $21 ($0.04 per diluted share).
1997 income includes a $152 regulatory charge ($0.31 per diluted share)
related primarily to the 1997 Washington State Supreme Court ruling that
upheld a Washington rate order, a gain of $32 ($0.07 per diluted share) on
the sale of an interest in Bell Communications Research, Inc. and a gain of
$48 ($0.10 per diluted share) on the sales of local telephone exchanges.
1996 income includes a gain of $36 ($0.07 per diluted share) on the sales of
local telephone exchanges and the current effect of $15 ($0.03 per diluted
share) from adopting Statement of Financial Accounting Standards ("FAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." 1995 income includes a gain of $85 ($0.18 per
diluted share) on the sales of local telephone exchanges and costs of $8
($0.02 per diluted share) associated with the 1995 Recapitalization
discussed in footnote 4 below. 1994 income includes a gain of $51 ($0.11 per
diluted share) on the sales of local telephone exchanges.
(2) 1997 net income was reduced by an extraordinary charge of $3 ($0.01 per
diluted share) for the early extinguishment of debt. 1996 net income
includes a gain of $34 ($0.07 per diluted share) for the cumulative effect
of the adoption of FAS No. 121. 1995 net income was reduced by an
extraordinary item of $8 ($0.02 per diluted share) for the early
extinguishment of debt.
(3) Pro forma income reflects the incremental interest expense associated with
the Dex Indebtedness from the beginning of the period through the Separation
Date. The pro forma earnings per share amounts also reflect the issuance of
approximately 16,341,000 shares of common stock (net of the redemption of
approximately 305,000 fractional shares) issued in connection with the Dex
Alignment as if the shares had been issued at the beginning of the period
indicated.
(4) The historical average shares outstanding assume a one-for-one conversion of
historical Communications Group common shares outstanding into shares of U S
WEST as of the Separation Date. The 1998 historical average common shares
outstanding include the issuance of approximately 16,341,000 shares of
common stock (net of redemption of approximately 305,000 fractional shares)
II-4
<PAGE>
CHAPTER TWO - FINANCIAL INFORMATION
issued in connection with the Dex Alignment. Effective November 1, 1995,
each share of common stock of Old U S WEST was converted into one share each
of Communications Stock and Media Stock (the "1995 Recapitalization").
Earnings per common share and dividends per common share for 1995 and 1994
have been presented on a pro forma basis to reflect the two classes of stock
as if they had been outstanding since January 1, 1994.
(5) 1998 and 1999 debt includes $3,900 of Dex Indebtedness.
(6) The equivalent historical earnings per share, equivalent pro forma earnings
per share, and equivalent dividends per common share were calculated by
dividing the historical earnings per share, pro forma earnings per share,
and dividends per share by a Qwest exchange ratio of 1.9714, reflecting an
Average Price of $35.
(7) The equivalent average common shares outstanding and equivalent pro forma
average common shares outstanding were calculated by multiplying the average
common shares outstanding and pro forma average common shares outstanding by
a Qwest exchange ratio of 1.9714, reflecting an Average Price of $35.
* Information has not been presented.
II-5
<PAGE>
Chapter Two - Financial Information
QWEST COMMUNICATIONS INTERNATIONAL INC. AND U S WEST, INC.
COMPARATIVE PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
1998 1999
--------------- -----------
<S> <C> <C>
Book value per share
Qwest historical.................................................................. $ 6.11 $ 8.68
U S WEST historical............................................................... $ 1.50 $ 2.11
Qwest/U S WEST pro forma combined................................................. $ 15.61 $ 16.34
U S WEST pro forma equivalent(a).................................................. $ 30.77 $ 32.21
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR MONTHS
ENDED DECEMBER ENDED JUNE
31, 1998 30, 1999
--------------- -----------
<S> <C> <C>
Net earnings (loss) per share
Qwest historical--basic and diluted............................................... $ (1.51) $ 0.03
U S WEST historical--basic........................................................ $ 3.05 $ 1.62
U S WEST historical--diluted...................................................... $ 3.02 $ 1.61
Qwest/U S WEST pro forma combined--basic.......................................... $ 0.07 $ 0.35
Qwest/U S WEST pro forma combined--diluted........................................ $ 0.07 $ 0.34
U S WEST pro forma equivalent--basic(a)........................................... $ 0.14 $ 0.69
U S WEST pro forma equivalent--diluted(a)......................................... $ 0.14 $ 0.67
</TABLE>
- ------------------------------
(a) The U S WEST pro forma equivalent represents the Qwest/U S WEST book value
or net income (loss) per share multiplied by a Qwest exchange ratio of
1.9714 reflecting an Average Price of $35.00.
II-6
<PAGE>
CHAPTER TWO - FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The unaudited pro forma information set forth below gives effect to the
merger of U S WEST with and into Qwest as if it had been completed on January 1,
1998, for purposes of the statements of operations, and as if it had been
completed on June 30, 1999, for balance sheet purposes, subject to the
assumptions and adjustments in the accompanying notes to the pro forma
information. The unaudited pro forma condensed combined financial information is
derived from the historical financial statements of Qwest and U S WEST.
U S WEST will account for the merger under the purchase method of
accounting. Under the purchase method of accounting, the acquiring enterprise
for accounting purposes in a business combination effected through the exchange
of stock is presumptively the enterprise whose former common shareholders either
retain or receive the larger portion of the voting rights in the combined
enterprise. U S WEST shareholders will receive between 54% and 62% of the voting
rights of the combined company (59% as of the date of the announcement of the
merger) and is presumptively the accounting acquiror. Management has analyzed
the factors that may indicate U S WEST should not be deemed to be the accounting
acquiror, including (1) U S WEST's level of representation on the Board of
Directors of the combined company; (2) U S WEST's representation in the
surviving company management team; (3) the market value of the shares held by U
S WEST and Qwest shareholders; (4) the relative size of the financial measures
(for example, revenues, total assets, net income and so forth) of U S WEST and
Qwest; and (5) the relative size of non-financial measures of U S WEST and Qwest
(for example, customers, employees and so forth). Management has concluded that
none of these factors, either individually or in the aggregate, is sufficient to
rebut the presumption that U S WEST should be deemed the accounting acquiror.
Accordingly, U S WEST will be deemed the acquiror for accounting purposes and
its assets and liabilities will be brought forward at their net book values. A
new basis will be established for Qwest's assets and liabilities based upon the
fair values thereof. The purchase accounting adjustments made in connection with
the development of the pro forma condensed combined financial information are
preliminary and have been made solely for purposes of developing such pro forma
condensed combined financial information.
The pro forma adjustments do not reflect any operating efficiencies and cost
savings that may be achieved with respect to the combined companies nor do they
include any adjustments to historical sales for any future price changes.
Further, the pro forma condensed combined statements of operations do not
reflect Qwest's discontinuance of interLATA services within the U S WEST 14
state region. InterLATA revenues earned by Qwest from the U S WEST 14 state
region were approximately $96 million for the six months ended June 30, 1999.
Upon the closing of the merger, the combined company may incur certain
integration related expenses not reflected in the pro forma financial
information as a result of the elimination of duplicate facilities, operational
realignment and related workforce reductions. Such costs would generally be
recognized as a liability assumed as of the merger date resulting in additional
goodwill if they relate to facilities or workforce previously aligned with
Qwest, and would be expensed if they relate to facilities or workforce
previously aligned with U S WEST. The assessment of integration related expenses
is ongoing. The following pro forma information is not necessarily indicative of
the financial position or operating results that would have occurred had the
merger been consummated on the dates discussed above, or at the beginning of the
periods, for which such transactions are being given effect. The pro forma
adjustments reflecting the consummation of the merger are based upon the
assumptions set forth in the notes hereto, including the exchange of all of the
outstanding shares of U S WEST for an aggregate of approximately 994 million
shares of Qwest common stock and the exchange of U S WEST stock options for
Qwest stock options. If the Average Price is less than $38.70 per share, Qwest
and
II-7
<PAGE>
CHAPTER TWO - FINANCIAL INFORMATION
U S WEST may elect to pay a portion of the merger consideration in cash. The
accompanying pro forma financial information assumes no cash component to the
merger consideration.
Qwest and U S WEST are unaware of events other than those disclosed in these
pro forma notes that would require a material change to the preliminary purchase
price allocation. However, a final determination of necessary purchase
accounting adjustments will be made upon the completion of a study to be
undertaken to determine the fair value of certain of its assets and liabilities,
including intangible assets and in-process research and development. Refer to
Note 2 for a discussion of the sensitivity to earnings that may occur as a
result of the final determination of fair value. Assuming completion of the
merger, the actual financial position and results of operations will differ,
perhaps significantly, from the pro forma amounts reflected herein because of a
variety of factors, including access to additional information, changes in value
not currently identified and changes in operating results between the dates of
the pro forma financial data and the date on which the merger takes place.
II-8
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND U S WEST, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA PRO FORMA
QWEST(1) U S WEST(1) ADJUSTMENTS COMBINED
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenue:
Communications services..................................... $ 1,528 $ 6,440 $ 7,968
Construction services....................................... 224 -- 224
----------- ------ ----- -----------
1,752 6,440 8,192
----------- ------ ----- -----------
Operating expenses:
Operating expenses.......................................... 1,410 3,617 5,027
Depreciation and amortization............................... 189 1,175 (77)(4) 1,625
296(5)
42(6)
----------- ------ ----- -----------
1,599 4,792 261 6,652
----------- ------ ----- -----------
Earnings from operations...................................... 153 1,648 (261) 1,540
Other expense:
Interest expense, net....................................... 71 316 387
Other, net.................................................. 10 14 24
----------- ------ ----- -----------
Earnings before income taxes.................................. 72 1,318 (261) 1,129
Income tax expense............................................ 49 500 (17)(6) 532
----------- ------ ----- -----------
Net earnings.................................................. $ 23 $ 818 $ (244) $ 597
----------- ------ ----- -----------
----------- ------ ----- -----------
Net earnings per share--basic................................. $ 0.03 $ 0.82(7) $ 0.35(7)
----------- ------ -----------
----------- ------ -----------
Net earnings per share--diluted............................... $ 0.03 $ 0.82(7) $ 0.34(7)
----------- ------ -----------
----------- ------ -----------
Weighted average shares outstanding--basic.................... 708 994(7) 1,702(7)
----------- ------ -----------
----------- ------ -----------
Weighted average shares outstanding--diluted.................. 747 1,001(7) 1,748(7)
----------- ------ -----------
----------- ------ -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
II-9
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND U S WEST, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------
<S> <C> <C> <C> <C>
PRO FORMA PRO FORMA
QWEST(1) U S WEST(1) ADJUSTMENTS COMBINED
----------- ------------- ----------- -----------
Revenue:
Communications services..................................... $ 1,554 $ 12,378 $ 13,932
Construction services....................................... 688 -- 688
----------- ------------- ----------- -----------
2,242 12,378 14,620
----------- ------------- ----------- -----------
Operating expenses:
Operating expenses.......................................... 1,948 7,130 9,078
Depreciation and amortization............................... 202 2,199 (92)(4) 2,985
591(5)
85(6)
Merger costs................................................ 86 -- 86
Provision for in-process R&D................................ 760 -- 760
----------- ------------- ----------- -----------
2,996 9,329 584 12,909
----------- ------------- ----------- -----------
Earnings (loss) from operations............................... (754) 3,049 (584) 1,711
Other expense (income):
Interest expense, net....................................... 97 543 640
Other, net.................................................. (1) 87 86
----------- ------------- ----------- -----------
Earnings (loss) before income taxes........................... (850) 2,419 (584) 985
Income tax expense (benefit).................................. (6) 911 (34)(6) 871
----------- ------------- ----------- -----------
Net earnings (loss)........................................... $ (844) 1,508 $ (550) $ 114
----------- ------------- ----------- -----------
----------- ------------- ----------- -----------
Net earnings (loss) per share--basic.......................... $ (1.51) $ 1.55(7) $ 0.07(7)
----------- ------------- -----------
----------- ------------- -----------
Net earnings (loss) per share--diluted........................ $ (1.51) $ 1.53(7) $ 0.07(7)
----------- ------------- -----------
----------- ------------- -----------
Weighted average shares outstanding--basic.................... 558 975(7) 1,533(7)
----------- ------------- -----------
----------- ------------- -----------
Weighted average shares outstanding--diluted.................. 558 983(7) 29(11) 1,570(7)
----------- ------------- ----------- -----------
----------- ------------- ----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
II-10
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. AND U S WEST, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ PRO FORMA PRO FORMA
QWEST(1) U S WEST(1) ADJUSTMENTS COMBINED
--------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 1,437 $ 122 $ -- $ 1,559
Trade accounts receivable, net.............................. 664 1,730 -- 2,394
Deferred income tax asset................................... 30 153 -- 183
Prepaid expenses and other.................................. 210 665 -- 875
--------- ------------- ----------- -----------
Total current assets...................................... 2,341 2,670 5,011
Property and equipment, net................................... 3,160 15,480 2,120(6) 20,760
Excess of cost over net assets acquired....................... 3,309 -- (3,309)(8) 23,655
23,655(2)
Other, net.................................................... 1,190 3,741 (417)(8) 4,514
140(3)
(140)(3)
--------- ------------- ----------- -----------
Total assets.................................................. $ 10,000 $ 21,891 $ 22,049 $ 53,940
--------- ------------- ----------- -----------
--------- ------------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities........................................... $ 943 $ 7,902 $ 100 (10 $ 9,225
280(3)
Long-term debt and capital lease obligations.................. 2,336 8,458 (68)(9) 10,726
Other long-term liabilities................................... 257 4,465 848(6) 5,570
--------- ------------- ----------- -----------
Total liabilities........................................... 3,536 20,825 1,160 25,521
--------- ------------- ----------- -----------
Stockholders' equity
Common stock and additional paid in capital................. 7,195 589 20,438 (10 28,222
Retained earnings (accumulated deficit)..................... (853) 394 853 (10 114
(280)(3)
Accumulated other comprehensive income...................... 122 83 (122) 10) 83
--------- ------------- ----------- -----------
Total stockholders' equity.................................. 6,464 1,066 20,889 28,419
--------- ------------- ----------- -----------
Total liabilities and stockholders' equity.................... $ 10,000 $ 21,891 $ 22,049 $ 53,940
--------- ------------- ----------- -----------
--------- ------------- ----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
II-11
<PAGE>
Chapter Two - Financial Information
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. These columns reflect the historical results of operations and financial
position of the respective companies.
2. This adjustment reflects the merger of Qwest with U S WEST. U S WEST will be
deemed the acquiror for accounting purposes and its assets and liabilities
will be brought forward at their net book values. A new basis will be
established for Qwest's assets and liabilities by relating the total merger
consideration to the fair values thereof.
All outstanding options to purchase shares of U S WEST will vest upon
completion of the merger. These options will be exchanged for options to
purchase shares of Qwest common stock. Qwest options granted prior to June
1, 1998, will vest and remain outstanding upon the merger. Qwest options
granted on or after June 1, 1998 will remain outstanding and vest in
accordance with their original terms. All vested and unvested options of
Qwest will be recorded at their fair value by using the Black-Scholes option
pricing model.
This adjustment reflects the step-up of Qwest's assets and liabilities to
fair value
(in millions, except per share amounts):
<TABLE>
<S> <C>
Equivalent per share merger consideration.......................... $ 35
Shares of Qwest common stock outstanding........................... 745
---------
26,075
Historical net book value of Qwest................................. (6,464)
Fair value of Qwest options........................................ 1,558
Merger costs incurred by U S WEST (estimate)....................... 100
---------
Step-up of Qwest assets and liabilities to fair value............ 21,269
Pro forma adjustments relating to:
Existing Qwest intangible assets................................. 3,726
Debt............................................................. (68)
Existing fiber optic network..................................... (2,120)
Deferred tax impacts............................................. 848
---------
Preliminary goodwill............................................... $ 23,655
---------
---------
</TABLE>
Upon the closing of the merger, the step-up in the fair value of Qwest's
assets and liabilities will be allocated to its specific identifiable
tangible and intangible assets and liabilities. A preliminary allocation of
the purchase price has been made to certain identifiable tangible and
intangible assets and liabilities of Qwest, including deferred income tax
impacts, based upon information available to management at the date of the
preparation of the accompanying pro forma condensed combined financial
information. The final allocation of fair value may also include certain
in-process research and development projects and other intangible assets
such as customer relationships.
Consideration allocated to in-process research and development projects
would be recorded as a charge against net income in the period the merger
occurs. Each $1 billion of consideration allocated to in-process research
and development would have the effect of increasing net income by $25
million annually by reducing goodwill amortization expense. A preliminary
estimate of in-process research and development will not be available until
the completion of an independent evaluation of each project, if any, in
process as of the merger date.
II-12
<PAGE>
CHAPTER TWO - FINANCIAL INFORMATION
Assuming an estimated useful life of 10 years, each $1 billion of
consideration allocated to intangible assets other than goodwill would have
the effect of decreasing net income by $45 million annually. Upon the
closing of the merger, the combined company may incur certain integration
related expenses not reflected in the pro forma financial information as a
result of the elimination of duplicate facilities, operational realignment
and related workforce reductions. Such costs would generally be recognized
as a liability assumed as of the merger date resulting in additional
goodwill if these costs relate to facilities or workforce previously aligned
with Qwest, and would be expensed if these costs relate to facilities or
workforce previously aligned with U S WEST.
The per share merger consideration has been fixed at $69 for each U S WEST
common share outstanding provided Qwest's common stock remains between
$28.26 and $39.90 per share. The number of Qwest shares to be issued to U S
WEST will vary in relation to the market price of Qwest's common stock (the
denominator) and $69 per share (the numerator) in order to maintain the
value at $69 per share. The equivalent fixed price per share for Qwest
shares, after adjustment for the exchange of U S WEST shares for Qwest
shares upon consummation of the merger, is $35.00 per share. If the Average
Price falls below $38.70 per share, Qwest and U S WEST can elect to pay a
portion of the consideration in cash. Using Qwest's incremental borrowing
rate at June 30, 1999, each $1 billion of merger consideration paid in cash
would reduce net income by approximately $40 million annually due to
increased interest expense. If the Average Price falls below $22 per share
or if the closing price of Qwest's common stock is less than $22 for any 20
consecutive trading days between the signing of the merger agreement and the
completion of the merger, U S WEST may terminate the merger. If the Average
Price exceeds $39.90 or falls below $28.26, the value of Qwest will be
re-established for accounting purposes since the price established for the U
S WEST common shares will no longer be fixed at $69 per share. For every $1
per share change in stock price outside of this range, goodwill amortization
would change by approximately $19 million annually, based upon a 40-year
life.
3. As a result of the termination of the merger agreement between U S WEST and
Global, U S WEST paid Global a termination fee of $280 million. $140 million
of the termination fee was funded by Qwest and will be recorded on U S
WEST's balance sheet as a note payable to Qwest. $140 million of the
termination fee was satisfied by conveying approximately 2.3 million shares
of Global stock acquired by U S WEST in June 1999 to Global. Further, Qwest
has agreed to acquire $140 million in services from Global over a four year
period at the most favorable commercially available prices offered by
Global. The $280 million will result in a charge against U S WEST's
earnings. The charge has not been reflected in the pro forma condensed
combined statement of operations because it is a non-recurring item
resulting directly from the merger of U S WEST and Qwest. The pro forma
condensed combined balance sheet includes the charge of $280 million against
retained earnings and the $140 million prepayment for capacity. For the
purpose of the pro forma condensed combined balance sheet, the note payable
from U S WEST to Qwest has not been reflected as it would be eliminated in
consolidation upon the closing of the merger.
4. Represents the reversal of Qwest amortization as originally recorded. The
adjustment discussed in note (5) records amortization expense based on the
intangible assets created by the merger.
5. This entry represents the amortization of goodwill resulting from the
preliminary allocation of the merger consideration over the fair value of
Qwest's identifiable net assets. Qwest expects the amount of excess
consideration allocated to goodwill to be amortized over 40 years. Qwest has
been informed by the Office of the Chief Accountant of the SEC that it
believes that the expiration of goodwill associated with a
telecommunications merger could occur sooner than 40 years. The SEC believes
a
II-13
<PAGE>
CHAPTER TWO - FINANCIAL INFORMATION
more reasonable amortization period would be 20 to 25 years. Qwest continues
to believe that consideration allocated to goodwill has an indeterminate
life and, accordingly, goodwill should be amortized over the maximum period
of 40 years as prescribed under generally accepted accounting principles.
Qwest's position on a 40 year goodwill amortization period is consistent
with those of other companies in significant telecommunications mergers in
the last two years, including AT&T/TCI, MCI/WorldCom, GTE/Bell Atlantic and
Vodaphone/AirTouch. The factors considered in determining the appropriate
amortization period included the expected life of the associated technology,
legal and regulatory issues, future changes in technology, anticipated
market demand and competition. An allocation to workforce and other
intangible assets with shorter amortization periods will be made, although
the amounts allocated are not expected to be material. Qwest will evaluate
the periods of amortization continually to determine whether events and
circumstances warrant revised estimates of useful lives. If the goodwill
were amortized over a period of 20 years, Qwest net income would decrease by
$591 million annually or $0.34 per diluted share. As discussed in Note 2,
amounts allocated to other assets such as intangible assets may be amortized
over shorter periods resulting in a lower net income. Amounts allocated to
goodwill will also be impacted by any in-process research and development
charge recorded.
6. These entries represent the adjustment to fixed assets and the associated
additional depreciation resulting from the restatement of Qwest's fiber
optic network to estimated fair value. The preliminary fair value of Qwest's
fiber optic network has been estimated based upon recent sales of dark fiber
by Qwest to other telecommunication providers. The average remaining life of
the network is estimated to be approximately 25 years. The fair value of the
network and its useful life are preliminary estimates and will be refined
subsequent to the closing of the merger. The increase in the fair value of
the network without a corresponding increase in the tax basis of the network
because of the tax-free nature of the merger has resulted in deferred income
taxes and additional goodwill of $848 million, using an estimated effective
tax rate of 40%. The deferred taxes will reverse and a benefit will be
recognized as the step-up in the value of the network is depreciated.
7. The pro forma earnings per share assumes the exchange of U S WEST shares for
Qwest shares at an exchange ratio of 1.9714 Qwest shares for each U S WEST
share. U S WEST's historical earnings per share have been restated to
reflect the number of equivalent shares to be received in the merger.
8. Represents the reversal of Qwest's intangible assets recorded in connection
with previous Qwest mergers. As discussed in Note 2, a new basis will be
established for Qwest's assets and liabilities based upon fair values.
9. Represents a fair market value adjustment on Qwest's fixed rate debt based
on current interest rates offered for debt of similar terms and maturity.
10. Represents the elimination of Qwest's accumulated deficit and accumulated
other comprehensive income and the increase in common stock and additional
paid-in capital for the step-up of Qwest to fair value as follows (in
millions):
<TABLE>
<S> <C>
Increase in additional paid-in capital............................. $ 20,438
Elimination of Qwest's accumulated deficit......................... 853
Elimination of accumulated other comprehensive income.............. (122)
Accrual of estimated merger costs.................................. 100
---------
Step-up to fair value.......................................... $ 21,269
---------
---------
</TABLE>
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<PAGE>
CHAPTER TWO - FINANCIAL INFORMATION
11. Represents the incremental weighted average common share equivalents
attributable to Qwest securities that were anti-dilutive as a result of
Qwest's net loss for the year ended December 31, 1998.
12. Qwest pays a fee to U S WEST for access to its network. The access cost is
included in Qwest's operating expenses and U S WEST's revenues. The amounts
included in the pro forma income statement information have not been
eliminated. The elimination would not have an effect on the pro forma net
earnings. There are no other significant transactions between U S WEST and
Qwest.
II-15
<PAGE>
CHAPTER TWO - FINANCIAL INFORMATION
PROJECTIONS AND SYNERGIES
FINANCIAL PROJECTIONS AND SYNERGIES. We believe that together we will be a
benchmark large capitalization growth company with increasing revenue and
profits. We expect that the combined company will have pro forma revenues of
approximately $18.5 billion and pro forma EBITDA of approximately $7.4 billion
in 2000, and by 2005 have revenues of approximately $38 billion to $40 billion
and EBITDA of approximately $18 billion to $19 billion. During the period 2000
through 2005, we expect the combined company to have a compounded average annual
revenue growth rate of approximately 15% to 17%, and a targeted compounded
annual EBITDA growth rate of approximately 20%.
We expect that during the period 2000 through 2005 we will realize net
synergies of approximately $10.5 billion to $11.0 billion as a result of the
combination of our two companies. These synergies, we believe, will result from
the operational and structural synergies described below.
REVENUE BENEFITS. We expect the combined company will realize gross revenue
benefits of more than $12 billion from the following four areas: improved long
distance market share gain within the 14 state U S WEST region, improved
retention of customer base and increased share of Internet and hosting markets
within the U S WEST region, aggressive build out and operation of long distance
and competitive local exchange carrier services outside the U S WEST region by
leveraging U S WEST's systems and Qwest's broadband network, and aggressive
build out of high speed Internet access (DSL) and data local exchange carrier
facilities in multiple markets to enable a bundled offering of broadband access,
Internet, hosting and long distance services. We believe that during the period
2000 through 2005, these revenue benefits will result in incremental gross
margins of approximately $4.0 billion to $4.2 billion.
OPERATING EXPENSE SAVINGS. We expect to realize operating expense savings
primarily in three areas: avoided network operating expenses, reduced sales,
general and administrative expenses, and reduced information and operating
systems expenses.
- Avoided network operating expenses. We expect the combined company will
avoid the need to duplicate many network operating functions and will
enjoy reduced network costs resulting from combining the companies'
network facilities.
- Reduced sales, general and administrative expenses. We expect the
increased scale of activities in the combined company's operations will
result in opportunities to reduce costs by avoiding expenditures on
duplicative activities, greater purchasing power and the adoption of the
best practices in cost containment across the combined company.
- Reduced information and operating systems expenses. We expect to avoid
duplicate operations of billing, customer service and fulfillment
platforms and functions.
We believe that during the period 2000 through 2005, these operating expense
savings will be approximately $4.3 billion to $4.5 billion.
CAPITAL EXPENDITURE SAVINGS. Capital expenditure savings are expected to be
realized primarily in three areas: the combined company's network activities
within the 14 state U S WEST region, the combined company's product development
initiatives, and the avoided capital associated with the elimination of
duplicative administrative functions. We believe that during the period 2000
through 2005, these capital expenditure savings will be approximately $2.2
billion to $2.3 billion.
The projection and synergy estimates are based on certain assumptions
including, among others, that (1) the merger will be completed by June 30, 2000,
(2) we will receive approval under Section 271 of the Telecommunications Act to
provide interLATA services in U S WEST's 14 state region by December 31,
II-16
<PAGE>
CHAPTER TWO - FINANCIAL INFORMATION
2001, (3) competitive pricing pressures in our long distance and other
businesses will not cause material reductions in margins, and (4) regulatory
authorities will not require us to commit significant resources to improve
service quality or provide additional services.
The projections and synergy estimates are based on internal projections
prepared by Qwest and U S WEST, were not prepared with a view to compliance with
the published guidelines of the Commission or the American Institute of
Certified Public Accountants, or in accordance with generally accepted
accounting principles, and were not prepared with the assistance of, or reviewed
by, independent accountants.
THE PROJECTIONS AND SYNERGY ESTIMATES ARE BASED ON NUMEROUS ASSUMPTIONS
RELATING TO THE BUSINESSES OF QWEST AND U S WEST, INDUSTRY PERFORMANCE, GENERAL
BUSINESS AND ECONOMIC CONDITIONS, DEVELOPMENT OF NEW TECHNOLOGIES, REGULATORY
REQUIREMENTS, AND OTHER MATTERS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT
UNCERTAINTIES AND CONTINGENCIES BEYOND THE CONTROL OF QWEST AND U S WEST. THESE
ASSUMPTIONS INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE
ECONOMIC AND COMPETITIVE CONDITIONS, DEVELOPMENTS IN TECHNOLOGY AND REGULATORY
DEVELOPMENTS. THE PROJECTIONS AND SYNERGY ESTIMATES, WHILE PRESENTED WITH
NUMERICAL SPECIFICITY, ARE INHERENTLY IMPRECISE, AND THERE CAN BE NO ASSURANCE
THAT THEY WILL PROVE TO BE RELIABLE. IN FACT, ACTUAL RESULTS MAY VARY MATERIALLY
FROM THOSE SHOWN IN THE PROJECTIONS OR SYNERGY ESTIMATES. WE UNDERTAKE NO
OBLIGATION TO UPDATE THE PROJECTIONS OR SYNERGY ESTIMATES AT ANY TIME. SEE
"INFORMATION REGARDING FORWARD-LOOKING STATEMENTS" AND "RISK
FACTORS--DIFFICULTIES IN COMBINING OPERATIONS AND REALIZING SYNERGIES."
II-17
<PAGE>
CHAPTER THREE
INFORMATION ABOUT THE MEETINGS AND VOTING
The Qwest Board is using this joint proxy statement/prospectus to solicit
proxies from the holders of Qwest common stock for use at the Qwest meeting. The
U S WEST Board is also using this document to solicit proxies from the holders
of U S WEST common stock for use at the U S WEST meeting. We are first mailing
this joint proxy statement/prospectus and accompanying form of proxy to Qwest
and U S WEST shareholders on or about September 18, 1999.
MATTERS RELATING TO THE MEETINGS
<TABLE>
<CAPTION>
<C> <S> <C>
QWEST MEETING U S WEST MEETING
<CAPTION>
<C> <S> <C>
TIME AND PLACE: November 2, 1999 November 2, 1999
10:00 a.m. (local time) 9:00 a.m. (local time)
Hyatt Regency Denver The Auditorium at Equitable Center
The Grand Ballroom The Equitable Building
1750 Welton Street 787 Seventh Avenue
Denver, Colorado 80202 New York, New York 10019
PURPOSE OF MEETING IS TO - the proposal to approve and adopt the - the proposal to approve and adopt the
VOTE ON THE FOLLOWING merger agreement and the merger, merger agreement and the merger
ITEMS: including the issuance of Qwest common
stock in the merger, the Qwest charter
amendments and the increase in the
number of shares of Qwest common stock
eligible for award under Qwest's equity
incentive plan contemplated by the
merger agreement
- the proposal to approve and ratify
Qwest's equity incentive plan
- such other matters as may properly come - such other matters as may properly come
before the Qwest meeting, including the before the U S WEST meeting, including
approval of any adjournment of the the approval of any adjournment of the
meeting meeting
RECORD DATE: The record date for shares entitled to The record date for shares entitled to
vote is September 7, 1999. vote is September 7, 1999.
OUTSTANDING SHARES HELD As of September 7, 1999, there were As of September 7, 1999, there were
ON RECORD DATE: approximately 746,616,439 outstanding approximately 504,856,275 outstanding
shares of Qwest common stock. shares of U S WEST common stock.
SHARES ENTITLED TO VOTE: Shares entitled to vote are Qwest common Shares entitled to vote are U S WEST
stock held at the close of business on the common stock held at the close of business
record date, September 7, 1999. on the record date, September 7, 1999.
</TABLE>
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<PAGE>
CHAPTER THREE - INFORMATION ABOUT THE MEETINGS AND VOTING
<TABLE>
<CAPTION>
QWEST MEETING U S WEST MEETING
<C> <S> <C>
Each share of Qwest common stock that you Each share of U S WEST common stock that
own entitles you to one vote. you own entitles you to one vote.
Shares held by Qwest in its treasury are Shares held by U S WEST in its treasury
not voted. are not voted.
QUORUM REQUIREMENT: A quorum of shareholders is necessary to A quorum of shareholders is necessary to
hold a valid meeting. hold a valid meeting.
The presence in person or by proxy at the The presence in person or by proxy at the
meeting of holders of a majority of the meeting of holders of a majority of the
shares of Qwest common stock entitled to shares of U S WEST common stock entitled
vote at the meeting is a quorum. to vote at the meeting is a quorum.
Abstentions and broker "non-votes" count Abstentions and broker "non-votes" count
as present for establishing a quorum. as present for establishing a quorum.
Shares held by Qwest in its treasury do Shares held by U S WEST in its treasury do
not count toward a quorum. not count toward a quorum.
A broker non-vote occurs on an item when a A broker non-vote occurs on an item when a
broker is not permitted to vote on that broker is not permitted to vote on that
item without instruction from the item without instruction from the
beneficial owner of the shares and no beneficial owner of the shares and no
instruction is given. instruction is given.
SHARES BENEFICIALLY Approximately 292,824,000 shares of Qwest Approximately 2,002,000 shares of U S WEST
OWNED BY QWEST AND U S common stock, including exercisable common stock, including exercisable
WEST DIRECTORS AND options and including shares beneficially options. These shares represent in total
EXECUTIVE OFFICERS AS OF owned by Philip F. Anschutz, Qwest's less than one-half of one percent of the
SEPTEMBER 7, 1999: Chairman of the Board. These shares shares of U S WEST common stock
represent in total approximately 39.2% of outstanding as of September 7, 1999.
the shares of Qwest common stock
outstanding as of September 7, 1999.
These individuals have indicated or agreed These individuals have indicated that they
that they will vote in favor of the Qwest will vote in favor of the U S WEST
proposals. proposal.
</TABLE>
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<PAGE>
CHAPTER THREE - INFORMATION ABOUT THE MEETINGS AND VOTING
VOTE NECESSARY TO APPROVE QWEST AND U S WEST PROPOSALS
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM VOTE NECESSARY*
PROPOSALS QWEST: Approval of the Qwest merger proposal requires the affirmative vote of at
least a majority of the outstanding shares of Qwest common stock. Abstentions
and broker non-votes have the same effect as a vote against the Qwest merger
proposal.
Approval of the Qwest employee benefits proposal requires the affirmative vote
of at least a majority of the shares of Qwest common stock present in person
or by proxy at the Qwest meeting, assuming a quorum is present. Abstentions
have the same effect as a vote against the Qwest employee benefits proposal
but broker non-votes have no effect on the outcome of the vote on the Qwest
employee benefits proposal.
NEITHER OF THE QWEST PROPOSALS IS CONDITIONED ON APPROVAL OF THE OTHER QWEST
PROPOSAL.
U S WEST: Approval of the U S WEST proposal requires the affirmative vote of at least a
majority of the outstanding shares of U S WEST common stock. Abstentions and
broker non-votes have the same effect as a vote against.
* Under New York Stock Exchange or Nasdaq rules, if your broker holds your shares in its name, your broker may
not vote your shares absent instructions from you. Without your voting instructions, a broker non-vote will
occur and will have the effect of a vote against the Qwest merger proposal and the U S WEST proposal.
</TABLE>
PROXIES
VOTING YOUR PROXY. You may vote in person at your meeting or by proxy. We
recommend you vote by proxy even if you plan to attend your meeting. You can
always change your vote at the meeting.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxy will vote your shares as you have directed. You may vote for or
against the proposal submitted at your meeting or abstain from voting.
III-3
<PAGE>
CHAPTER THREE - INFORMATION ABOUT THE MEETINGS AND VOTING
HOW TO VOTE BY PROXY
<TABLE>
<CAPTION>
<C> <S> <C>
QWEST U S WEST
BY TELEPHONE*: Call toll-free 1-800-840-1208 and follow the Call toll-free 1-877-779-8683 and follow the
instructions. You will need to give the instructions. You will need to give the
personal identification number contained on personal identification number contained on
your proxy card. your proxy card.
BY INTERNET*: Go to www.eproxy.com/QWST and follow the Go to www.eproxyvote.com/USW and follow the
instructions. You will need to give the instructions. You will need to give the
personal identification number contained on personal identification number contained on
your proxy card. your proxy card.
IN WRITING: Complete, sign, date and return your proxy Complete, sign, date and return your proxy
card in the enclosed envelope. card in the enclosed envelope.
* If you hold shares through a broker or other custodian, please check the voting form used by that firm to see
if it offers telephone or internet voting.
</TABLE>
VOTING BY QWEST 401k PLAN PARTICIPANTS. If you are a participant in the
Qwest Communications International Inc. 401k Plan, your proxy card will also
serve as a voting instruction card for the plan's Investment Committee with
respect to the shares held in your account. Plan provisions provide that the
Investment Committee will vote the shares held in the plan for which proxies are
not received in the same proportion as the shares for which proxies are
received. However, the Investment Committee will always exercise voting
obligations consistent with its fiduciary duties under the Employee Retirement
Income Security Act of 1974 or other legal requirements.
VOTING BY QWEST EMPLOYEE STOCK PURCHASE PLAN PARTICIPANTS. If you are a
participant in the Qwest Communications International Inc. Employee Stock
Purchase Plan, your proxy card will also serve as a voting instruction card for
the custodian of the plan with respect to the shares held in your accounts. The
custodian will vote the shares held in the plan for which proxies are not
received in the same proportion as the shares for which proxies are received.
VOTING BY U S WEST SHAREOWNER INVESTMENT PLAN PARTICIPANTS. If you are a
participant in the U S WEST Shareowner Investment Plan, your proxy card will
cover both the number of full shares in your plan account and shares registered
in your name.
If you are a participant in the U S WEST Savings Plan/ESOP, your proxy card
will also serve as a voting instruction card for the trustees of the plans with
respect to the shares held in your accounts. The trustees will vote the shares
held in the plans for which proxies are not received (as well as shares held in
the suspense account of the plans) in the same proportion as the shares for
which proxies are received. However, the trustees will always exercise voting
obligations consistent with their fiduciary duties under the Employee Retirement
Income Security Act of 1974 or other legal requirements.
III-4
<PAGE>
CHAPTER THREE - INFORMATION ABOUT THE MEETINGS AND VOTING
IF YOU SUBMIT YOUR PROXY BUT DO NOT MAKE SPECIFIC CHOICES, YOUR PROXY WILL
FOLLOW THE BOARD'S RECOMMENDATIONS AND VOTE YOUR SHARES:
<TABLE>
<CAPTION>
<S> <C>
QWEST U S WEST
- - "FOR" the Qwest merger proposal - "FOR" the U S WEST proposal
- - "FOR" the Qwest employee benefits proposal - "FOR" any proposal by the U S WEST Board to adjourn
- - "FOR" any proposal by the Qwest Board to adjourn the the U S WEST meeting
Qwest meeting - In its discretion as to any other business as may
- - In its discretion as to any other business as may properly come before the U S WEST meeting
properly come before the Qwest meeting
</TABLE>
REVOKING YOUR PROXY. You may revoke your proxy before it is voted by:
- submitting a new proxy with a later date, including a proxy given by
telephone or internet,
- notifying your company's Secretary in writing before the meeting that you
have revoked your proxy, or
- voting in person at the meeting.
VOTING IN PERSON. If you plan to attend a meeting and wish to vote in
person, we will give you a ballot at the meeting. However, if your shares are
held in the name of your broker, bank or other nominee, you must bring an
account statement or letter from the nominee indicating that you are the
beneficial owner of the shares on September 7, 1999, the record date for voting.
PEOPLE WITH DISABILITIES. We can provide reasonable assistance to help you
participate in the meeting if you tell us about your disability and your plan to
attend. Please call or write the Secretary of your company at least two weeks
before your meeting at the number or address under "Summary--The Companies" on
page I-2.
CONFIDENTIAL VOTING. Independent inspectors count the votes. Your
individual vote is kept confidential from us unless special circumstances exist.
For example, a copy of your proxy card will be sent to us if you write comments
on the card.
PROXY SOLICITATION. We will pay our own costs of soliciting proxies.
In addition to this mailing, Qwest and U S WEST employees may solicit
proxies personally, electronically or by telephone. Qwest and U S WEST each are
paying D.F. King & Co., Inc. a fee of $17,500 plus expenses to help with the
solicitation.
The extent to which these proxy soliciting efforts will be necessary depends
entirely upon how promptly proxies are submitted. You should send in your proxy
by mail, telephone or internet without delay. We also reimburse brokers and
other nominees for their expenses in sending these materials to you and getting
your voting instructions.
Do not send in any stock certificates with your proxy cards. The exchange
agent will mail transmittal forms with instructions for the surrender of stock
certificates for U S WEST common stock to former U S WEST shareholders as soon
as practicable after the completion of the merger.
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<PAGE>
CHAPTER THREE - INFORMATION ABOUT THE MEETINGS AND VOTING
OTHER BUSINESS; ADJOURNMENTS
We are not currently aware of any other business to be acted upon at either
meeting. If, however, other matters are properly brought before either meeting,
or any adjourned meeting, your proxies will have discretion to vote or act on
those matters according to their best judgment, including to adjourn the
meeting.
Adjournments may be made for the purpose of, among other things, soliciting
additional proxies. Any adjournment may be made from time to time by approval of
the holders of shares representing a majority of the votes present in person or
by proxy at the meeting, whether or not a quorum exists, without further notice
other than by an announcement made at the meeting. None of us currently intends
to seek an adjournment of our meeting.
III-6
<PAGE>
CHAPTER FOUR
CERTAIN LEGAL INFORMATION
COMPARISON OF QWEST AND U S WEST SHAREHOLDER RIGHTS
Qwest and U S WEST have agreed in the merger agreement that the Qwest
charter and the Qwest bylaws will be amended at the effective time of the merger
to reflect the substantive provisions of the U S WEST charter and U S WEST
bylaws as in effect immediately prior to the effective time of the merger, the
governance arrangements agreed to by Qwest and U S WEST for the three-year
period following completion of the merger and an increase in the number of
authorized shares of Qwest common stock from 2 billion to 5 billion. See "The
Merger--The Merger Agreement" on I-36. Accordingly, the rights of U S WEST
shareholders under Delaware law, the U S WEST charter and the U S WEST bylaws
prior to the merger are substantially the same as the rights Qwest and U S WEST
shareholders will have following the merger under Delaware law and the Qwest
amended and restated charter and bylaws. Copies of the U S WEST charter, the U S
WEST bylaws, the Qwest charter and the Qwest bylaws, in each case as in effect
on the date of this joint proxy statement/prospectus, are incorporated by
reference and will be sent to holders of shares of Qwest and U S WEST common
stock upon request. See "Where You Can Find More Information." The summary
contained in the following chart is not intended to be complete and is qualified
by reference to Delaware law, the U S WEST charter, the U S WEST bylaws, the
Qwest charter and the Qwest bylaws, in each case as in effect on the date of
this joint proxy statement/prospectus. Copies of the Qwest charter and bylaws
that will be in effect from and after the closing of the merger if the Qwest
merger proposal is approved are attached at Annexes H and I, respectively, to
this joint proxy statement/ prospectus.
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF QWEST AND U S WEST
SHAREHOLDERS AND RIGHTS THOSE SHAREHOLDERS WILL HAVE AS QWEST SHAREHOLDERS
FOLLOWING THE MERGER
<TABLE>
<CAPTION>
<C> <S> <C>
QWEST SHAREHOLDER RIGHTS U S WEST SHAREHOLDER RIGHTS
AUTHORIZED The authorized capital stock of The authorized capital stock of U S
CAPITAL STOCK: Qwest consists of 2 billion shares WEST consists of 2 billion shares of
of common stock and 25 million common stock and 200 million shares
shares of preferred stock. of preferred stock.
If the merger is completed, the
authorized capital stock of Qwest
will consist of 5 billion shares of
common stock and 200 million shares
of preferred stock.
NUMBER OF The Qwest Board currently consists The U S WEST Board currently
DIRECTORS: of 12 directors. consists of 10 directors.
If the merger is completed, the size
of the Qwest Board will be increased
from 12 to 14. The Qwest Board will
consist of 7 directors designated by
Qwest and 7 directors designated by
U S WEST.
</TABLE>
IV-1
<PAGE>
CHAPTER FOUR - CERTAIN LEGAL INFORMATION
<TABLE>
<CAPTION>
QWEST SHAREHOLDER RIGHTS U S WEST SHAREHOLDER RIGHTS
<C> <S> <C>
CLASSIFICATION Qwest does not currently have a The U S WEST Board is divided into
OF BOARD OF classified board. The Qwest bylaws three classes as nearly equal in
DIRECTORS: currently require that all directors number of directors as possible,
be elected at each annual meeting of with each class serving a staggered
shareholders for a term of one year. three-year term.
If the merger is completed, the
Qwest Board will be divided into
three classes as nearly equal in
number of directors as possible,
with each class serving a staggered
three-year term and consisting of as
nearly equal a number of Qwest and U
S WEST Board designees as possible.
REMOVAL OF Qwest directors may be removed from U S WEST directors may be removed
DIRECTORS: office with or without cause by the from office only with cause (as
affirmative vote of holders of at defined below) and only then by the
least a majority of the shares of affirmative vote of the holders of
Qwest common stock. at least 80% of the shares of U S
If the merger is completed, Qwest WEST common stock. "Cause" means the
directors will be able to be removed willful and continuous failure of a
only with cause and then only by the director to substantially perform
affirmative vote of the holders of duties to U S WEST or the willful
at least 80% of the shares of Qwest engaging in gross misconduct
common stock. materially and demonstrably
injurious to U S WEST.
SHAREHOLDER Qwest shareholders currently may act U S WEST shareholders may not act by
ACTION BY by written consent in lieu of a written consent in lieu of a meeting
WRITTEN meeting of shareholders. of shareholders.
CONSENT:
If the merger is completed, Qwest
shareholders will no longer be able
to act by written consent in lieu of
a meeting of shareholders.
CALLING OF The Qwest bylaws currently provide The U S WEST charter provides that
SPECIAL that the Qwest Board, the Chairman only the U S WEST Board and the
MEETINGS OF of the Qwest Board and holders of at Chairman of the U S WEST Board may
SHAREHOLDERS: least 25% of the shares of Qwest each call a special meeting of U S
common stock may each call a special WEST shareholders.
meeting of Qwest shareholders.
If the merger is completed, the
Qwest restated charter will provide
that only the Qwest Board and the
Office of the Chairman may call a
special meeting of Qwest
shareholders.
</TABLE>
IV-2
<PAGE>
CHAPTER FOUR - CERTAIN LEGAL INFORMATION
<TABLE>
<CAPTION>
QWEST SHAREHOLDER RIGHTS U S WEST SHAREHOLDER RIGHTS
<C> <S> <C>
AMENDMENT OF The Qwest bylaws currently may be The U S WEST bylaws may be amended
CHARTER AND amended by the affirmative vote of by the affirmative vote of at least
BYLAWS: at least a majority of the Qwest two- thirds of the U S WEST
directors then in office. The Qwest directors then in office. The U S
bylaws may also be amended by the WEST bylaws may also be amended by
affirmative vote of a majority of the affirmative vote of the holders
the votes cast by the holders of of at least 80% of the shares of U S
Qwest common stock. WEST common stock.
The Qwest charter currently may be The U S WEST charter generally may
amended by the affirmative vote of be amended by the affirmative vote
the majority of the votes cast by of the holders of at least a
the holders of Qwest common stock. majority of the shares of U S WEST
common stock.
If the merger is completed, the However, amendments of the U S WEST
Qwest restated charter and amended charter relating to (1)
and restated bylaws will only be classification of the U S WEST
able to be amended by the Qwest Board, (2) removal of U S WEST
directors and shareholders to the directors, (3) shareholder actions
same extent as the U S WEST charter and meetings and (4) requirements
and bylaws currently may be amended. for amendments of the U S WEST
charter and bylaws require the
affirmative vote of the holders of
at least 80% of the shares of U S
WEST common stock.
SHAREHOLDER Qwest does not have a shareholder U S WEST has entered into a Rights
RIGHTS PLAN: rights plan. While Qwest has no Agreement, dated as of June 1, 1998,
present intention to adopt a between U S WEST and State Street
shareholder rights plan either Bank and Trust Company, as Rights
before or after the merger, the Agent, as amended, pursuant to which
Qwest Board, pursuant to its U S WEST has issued rights,
authority to issue preferred stock, exercisable only upon the occurrence
could do so without shareholder of certain events, to purchase its
approval at any future time. See Series A Junior Participating
"Description of Qwest Capital Preferred Stock.
Stock--Qwest Preferred Stock--Blank
Check Preferred Stock."
U S WEST has taken all action
necessary to render the rights
issued pursuant to the terms of the
Rights Agreement inapplicable to the
merger and the related agreements
and transactions.
</TABLE>
IV-3
<PAGE>
CHAPTER FOUR - CERTAIN LEGAL INFORMATION
<TABLE>
<CAPTION>
QWEST SHAREHOLDER RIGHTS U S WEST SHAREHOLDER RIGHTS
<C> <S> <C>
BUSINESS A business combination between Qwest A business combination between U S
COMBINATIONS: and a holder of more than 15% of WEST and a holder of more than 15%
Qwest's voting stock requires the of U S WEST's voting stock requires
approval of holders of at least the approval of holders of at least
66 2/3% of Qwest's voting stock 66 2/3% of U S WEST's voting stock
(other than voting stock held by the (other than voting stock held by the
15% holder) unless prior to the 15% holder) unless prior to the
business combination, the Qwest business combination, the U S WEST
Board approved the business Board approved the business
combination or the transaction which combination or the transaction which
resulted in the 15% holder becoming resulted in the 15% holder becoming
a 15% holder or three years have a 15% holder or three years have
elapsed since the 15% holder became elapsed since the 15% holder became
a 15% holder or as a result of the a 15% holder or as a result of the
business combination, the 15% holder business combination, the 15% holder
becomes an 85% holder. becomes an 85% holder.
If the merger is completed, a In addition, a business combination
business combination between Qwest between U S WEST and a holder of
and a holder of more than 10% of more than 10% of U S WEST's voting
Qwest's voting stock will require stock requires the approval of
the approval of holders of at least holders of at least 80% of U S
80% of Qwest's voting stock unless WEST's voting stock unless the
the transaction which resulted in transaction which resulted in the
the 10% holder's owning more than 10% holder's owning more than 10% of
10% of Qwest voting stock was U S WEST voting stock was approved
approved by a majority of the by a majority of the directors of
directors of the Qwest Board who the U S WEST Board who were
were unaffiliated with the 10% unaffiliated with the 10% holder or
holder or the consideration to be the consideration to be received by
received by Qwest shareholders in U S WEST shareholders in the
the business combination meets business combination meets certain
certain fair price standards. fair price standards.
</TABLE>
IV-4
<PAGE>
CHAPTER FOUR - CERTAIN LEGAL INFORMATION
DESCRIPTION OF QWEST CAPITAL STOCK
The following summary of the terms of the capital stock of Qwest prior to,
and after completion of, the merger is not meant to be complete and is qualified
by reference to the Qwest charter and Qwest bylaws. Copies of the Qwest charter
and Qwest bylaws are incorporated by reference and will be sent to holders of
shares of Qwest common stock and U S WEST common stock upon request. See "Where
You Can Find More Information."
AUTHORIZED CAPITAL STOCK
Under the Qwest charter, Qwest's authorized capital stock consists of 2
billion shares of Qwest common stock and 25 million shares of preferred stock.
If the Qwest merger proposal is approved by Qwest shareholders at the Qwest
meeting, the number of authorized shares of Qwest common stock will increase to
5 billion and the number of authorized shares of Qwest preferred stock will
increase to 200 million.
QWEST COMMON STOCK
QWEST COMMON STOCK OUTSTANDING. The outstanding shares of Qwest common
stock are, and the shares of Qwest common stock issued pursuant to the merger
will be, duly authorized, validly issued, fully paid and nonassessable.
VOTING RIGHTS. Each holder of Qwest common stock is entitled to one vote
for each share of Qwest common stock held of record on the applicable record
date on all matters submitted to a vote of shareholders.
DIVIDEND RIGHTS; RIGHTS UPON LIQUIDATION. The holders of Qwest common stock
are entitled to receive, from funds legally available for the payment thereof,
dividends when and as declared by resolution of the Qwest Board, subject to any
preferential dividend rights granted to the holders of any outstanding Qwest
preferred stock. In the event of liquidation, each share of Qwest common stock
is entitled to share pro rata in any distribution of Qwest's assets after
payment or providing for the payment of liabilities and the liquidation
preference of any outstanding Qwest preferred stock.
PREEMPTIVE RIGHTS. Holders of Qwest common stock have no preemptive rights
to purchase, subscribe for or otherwise acquire any unissued or treasury shares
or other securities.
QWEST PREFERRED STOCK
QWEST PREFERRED STOCK OUTSTANDING. As of the date of this joint proxy
statement/prospectus, no shares of Qwest preferred stock were issued and
outstanding.
BLANK CHECK PREFERRED STOCK. Under the Qwest charter, the Qwest Board has
the authority, without shareholder approval, to create one or more classes or
series within a class of preferred stock, to issue shares of preferred stock in
such class or series up to the maximum number of shares of the relevant class or
series of preferred stock authorized, and to determine the preferences, rights,
privileges and restrictions of any such class or series, including the dividend
rights, voting rights, the rights and terms of redemption, the rights and terms
of conversion, liquidation preferences, the number of shares constituting any
such class or series and the designation of such class or series. Acting under
this authority, the Qwest Board could create and issue a class or series of
preferred stock with rights, privileges or restrictions, and adopt a shareholder
rights plan, having the effect of discriminating against an existing or
prospective holder of securities as a result of such shareholder beneficially
owning or commencing a tender offer for a
IV-5
<PAGE>
CHAPTER FOUR - CERTAIN LEGAL INFORMATION
substantial amount of Qwest common stock. One of the effects of authorized but
unissued and unreserved shares of capital stock may be to render more difficult
or discourage an attempt by a potential acquiror to obtain control of Qwest by
means of a merger, tender offer, proxy contest or otherwise, and thereby protect
the continuity of Qwest's management. The issuance of such shares of capital
stock may have the effect of delaying, deferring or preventing a change in
control of Qwest without any further action by the shareholders of Qwest. Qwest
has no present intention to adopt a shareholder rights plan, but could do so
without shareholder approval at any future time.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. is the transfer agent and registrar
for the Qwest common stock as of the date of this joint proxy
statement/prospectus.
STOCK EXCHANGE LISTING; DELISTING AND DEREGISTRATION OF U S WEST COMMON STOCK
It is a condition to the merger that the shares of Qwest common stock
issuable in the merger be approved for quotation on the Nasdaq National Market,
subject to official notice of issuance. If the merger is completed, U S WEST
common stock will cease to be listed on the New York Stock Exchange.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
QWEST
This joint proxy statement/prospectus contains or incorporates by reference
financial projections, synergy estimates and other "forward-looking statements"
as that term is used in federal securities laws about Qwest's financial
condition, results of operations and business. These statements include, among
others:
- statements concerning the benefits that Qwest expects will result from its
business activities and certain transactions Qwest has completed, such as
increased revenues, decreased expenses and avoided expenses and
expenditures,
- Qwest's plans to complete its communications network, and
- other statements of Qwest's expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not
historical facts.
These statements may be made expressly in this document, or may be
incorporated by reference to other documents Qwest has filed with the SEC. You
can find many of these statements by looking for words such as "believes,"
"expects," "anticipates," "estimates," or similar expressions used in this
report or incorporated by reference in this report.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties that may cause Qwest's actual results to be materially
different from any future results expressed or implied by Qwest in those
statements. The risks and uncertainties include those risks, uncertainties and
risk factors identified, among other places, under "Risk Factors" in this
document, and under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Annual Report on Form 10-K for the year ended
December 31, 1998.
IV-6
<PAGE>
CHAPTER FOUR - CERTAIN LEGAL INFORMATION
The most important facts that could prevent Qwest from achieving its stated
goals include, but are not limited to, the following:
- Qwest's failure to construct its communications network on schedule and on
budget;
- operating and financial risks related to managing rapid growth,
integrating acquired businesses and sustaining operating cash flow to meet
Qwest's debt service requirements, make capital expenditures and fund
operations;
- potential fluctuation in quarterly results;
- volatility of stock price;
- intense competition in the communications services market;
- dependence on new product development;
- Qwest's ability to achieve year 2000 compliance;
- rapid and significant changes in technology and markets;
- adverse changes in the regulatory or legislative environment affecting
Qwest's business;
- failure to maintain necessary rights of way; and
- failure to complete the merger timely or at all, and difficulties in
combining operations of Qwest and U S WEST and in realizing synergies
expected from the merger.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. Qwest cautions you not to place undue reliance on
the statements, which speak only as of the date of this report or, in the case
of documents incorporated by reference, the date of the document.
The cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that Qwest or persons acting on its behalf may issue. Qwest does not
undertake any obligation to review or confirm analysts' expectations or
estimates or to release publicly any revisions to any forward-looking statements
to reflect events or circumstances after the date of this report or to reflect
the occurrence of unanticipated events.
U S WEST
Some of the information presented in this joint proxy statement/prospectus
or incorporated by reference constitutes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Although U S
WEST believes that its expectations are based on reasonable assumptions within
the bounds of its knowledge of its businesses and operations, there can be no
assurance that actual results will not differ materially from U S WEST's
expectations. Factors that could cause actual results to differ from
expectations include:
- greater than anticipated competition from new entrants into the local
exchange, intraLATA toll, wireless, data and directories markets, causing
loss of customers and increased price competition;
- changes in demand for U S WEST's products and services, including optional
custom calling features;
- higher than anticipated employee levels, capital expenditures and
operating expenses (such as costs associated with interconnection and Year
2000 remediation);
- the loss of significant customers;
IV-7
<PAGE>
Chapter Four - Certain Legal Information
- pending and future state and federal regulatory changes affecting the
telecommunications industry, including changes that could have an impact
on the competitive environment in the local exchange market;
- acceleration of the deployment of advanced new services to customers, such
as broadband data, wireless and video services, which would require
substantial expenditure of financial and other resources;
- a change in economic conditions in the various markets served by U S
WEST's operations;
- higher than anticipated start-up costs associated with new business
opportunities;
- delays in U S WEST's ability to begin offering interLATA long-distance
services;
- consumer acceptance of broadband services, including telephony, data,
video and wireless services;
- delays in the development of anticipated technologies, or the failure of
such technologies to perform according to expectations; and
- timing and completion of the merger.
These cautionary statements should not be construed by you as an exhaustive
list or as any admission by U S WEST regarding the adequacy of disclosures made
by U S WEST. We cannot always predict or determine after the fact what factors
would cause actual results to differ materially from those indicated by U S
WEST's forward-looking statements or other statements. In addition, you are
urged to consider statements that include the terms "believes," "belief,"
"expects," "plans," "objectives," "anticipates," "intends," or the like to be
uncertain and forward-looking. All cautionary statements should be read as being
applicable to all forward-looking statements wherever they appear.
U S WEST does not undertake any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed herein might not occur.
LEGAL MATTERS
The validity of the Qwest common stock to be issued to U S WEST shareholders
in the merger will be passed upon by counsel to Qwest. It is a condition to the
completion of the merger that Qwest and U S WEST receive opinions from their
respective counsel that the merger will qualify as a tax-free reorganization. It
is also a condition to the completion of the merger that U S WEST receive an
opinion of its counsel that the merger will not affect the tax-free
qualification of the prior spin-off of U S WEST, and that a copy of that opinion
be delivered to Qwest.
EXPERTS
The consolidated financial statements and schedule of Qwest and subsidiaries
as of December 31, 1998 and 1997 and for each of the years in the three-year
period ended December 31, 1998 have been incorporated in this registration
statement by reference in reliance on the report pertaining to the consolidated
financial statements, dated February 2, 1999, and the report dated February 2,
1999 pertaining to the related financial statement schedule, of KPMG LLP,
independent certified public accountants, incorporated in this registration
statement by reference, and on the authority of that firm as experts in
accounting and auditing.
IV-8
<PAGE>
CHAPTER FOUR - CERTAIN LEGAL INFORMATION
The consolidated financial statements and schedules of LCI International,
Inc. and subsidiaries as of December 31, 1997 and 1996 and for each of the years
in the three-year period ended December 31, 1997 incorporated by reference in
this registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports dated February 16,
1998 (except with respect to the matter discussed in Note 15, as to which the
date is March 16, 1998) with respect thereto, and are incorporated by reference
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
The consolidated financial statements of Icon CMT Corp. as of December 31,
1996 and 1997 and for each of the three years in the period ended December 31,
1997, have been incorporated in this joint proxy statement/prospectus by
reference to the Registration Statement (No. 333-65095) on Form S-4 of Qwest,
dated September 30, 1998, as amended by Amendment No. 1 to the S-4, dated
December 10, 1998. Such financial statements, except as they relate to Frontier
Media Group, Inc. as of December 31, 1996 and 1997 and for each of the two years
in the period ended December 31, 1997, have been audited by
PricewaterhouseCoopers LLP, independent accountants, and insofar as they relate
to Frontier Media Group, Inc. as of December 31, 1996 and 1997 and for each of
the two years in the period ended December 31, 1997, by Ernst & Young LLP,
independent accountants.
The consolidated financial statements and schedules of U S WEST and
subsidiaries as of December 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1998 included in U S WEST's Annual Report on Form
10-K, as amended by Form 10-K/A filed March 21, 1999, and Proxy Statement on
Schedule 14A dated March 24, 1999 and the selected condensed consolidated
financial statements in U S WEST's Current Report on Form 8-K dated February 25,
1999 have been incorporated by reference in this registration statement and have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports dated January 22, 1999 (except with respect to Note
12 and Note 14, as to which the date is March 22, 1999) with respect thereto,
and are included herein in reliance upon the authority of said firm in giving
said reports.
IV-9
<PAGE>
CHAPTER FIVE
ADDITIONAL INFORMATION FOR SHAREHOLDERS
FUTURE SHAREHOLDER PROPOSALS
QWEST
The deadline for receipt of a proposal to be considered for inclusion in
Qwest's proxy statement for the 2000 annual meeting is December 31, 1999. The
deadline for notice of a proposal for which a shareholder will conduct his or
her own solicitation is January 6, 2000 (however, if the date of the annual
meeting is not within 30 days of May 5, 2000, then the deadline for such notice
becomes not less than 150 days prior to the date of the annual meeting). Any
such notice of a proposal should be directed to the attention of the Secretary,
Qwest Communications International Inc., 700 Qwest Tower, 555 Seventeenth
Street, Denver, Colorado 80202.
U S WEST
U S WEST will hold an annual meeting in the year 2000 only if the merger has
not already been completed. If such meeting is held, the deadline for receipt of
a proposal to be considered for inclusion in U S WEST's proxy statement for the
2000 annual meeting is November 25, 1999. The deadline for notice of a proposal
for which a shareholder will conduct his or her own solicitation is January 21,
2000. Any such notice of a proposal should be directed to the attention of the
Secretary, U S WEST, Inc., 1801 California Street, Denver, Colorado 80202.
WHERE YOU CAN FIND MORE INFORMATION
Qwest and U S WEST file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms at 450 Fifth Street, N.W., Washington, D.C., 20549, and in New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from commercial document retrieval services and at the web site
maintained by the SEC at "http://www.sec.gov."
Qwest filed a registration statement on Form S-4 to register with the SEC
the Qwest common stock to be issued to U S WEST shareholders in the merger. This
joint proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of Qwest in addition to being a proxy statement of
Qwest and U S WEST for their respective meetings. As allowed by SEC rules, this
joint proxy statement/ prospectus does not contain all the information you can
find in the registration statement or the exhibits to the registration
statement.
The SEC allows us to "incorporate by reference" information into this joint
proxy statement/ prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
joint proxy statement/prospectus, except for any information superseded by
information in, or incorporated by reference in, this joint proxy
statement/prospectus. This joint proxy statement/prospectus
V-1
<PAGE>
CHAPTER FIVE - ADDITIONAL INFORMATION FOR SHAREHOLDERS
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about our
companies and their finances.
<TABLE>
<CAPTION>
QWEST SEC FILINGS (FILE NO. 000-22609) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarters ended March 31, 1999 and June 30, 1999
Current Reports on Form 8-K Filed on January 14, 1999, April 27, 1999, April 28,
1999, June 14, 1999, June 18, 1999, June 22, 1999,
June 21, 1999, June 23, 1999, June 29, 1999 and July
20, 1999
Amendment No. 1 to Registration Statement on Form S-4 Filed on December 10, 1998
(File No. 333-65095)
The description of Qwest common stock set forth in the Filed on May 28, 1997
Registration Statement on Form 8-A
</TABLE>
<TABLE>
<CAPTION>
U S WEST SEC FILINGS (FILE NO. 1-14087) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K/A Fiscal Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarters ended March 31, 1999 and June 30, 1999
Current Reports on Form 8-K Filed on January 13, 1999, January 15, 1999, January 22,
1999, February 23, 1999, February 25, 1999, February
26, 1999, April 7, 1999, April 22, 1999, May 12, 1999,
May 18, 1999, May 21, 1999, May 26, 1999, June 18,
1999, June 22, 1999, July 7, 1999, July 21, 1999, July
26, 1999 and July 27, 1999
The description of U S WEST common stock set forth in Filed on May 1, 1998 (as amended on May 12, 1998), May
the Registration Statement on Form 8-A 12, 1998 and August 17, 1999
</TABLE>
We are also incorporating by reference additional documents that we file
with the SEC between the date of this joint proxy statement/prospectus and the
date of the meetings.
Qwest has supplied all information contained or incorporated by reference in
this joint proxy statement/prospectus relating to Qwest and U S WEST has
supplied all such information relating to U S WEST.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this joint proxy statement/prospectus. Shareholders may obtain
documents incorporated by
V-2
<PAGE>
CHAPTER FIVE - ADDITIONAL INFORMATION FOR SHAREHOLDERS
reference in this joint proxy statement/prospectus by requesting them in writing
or by telephone from the Secretary of the appropriate company at the following
address:
<TABLE>
<S> <C>
Qwest Communications
International Inc. U S WEST, Inc.
700 Qwest Tower 1801 California Street
555 Seventeenth Street Denver, Colorado 80202
Denver, Colorado 80202 Tel: (303) 672-2700
Tel: (303) 992-1400
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM US, PLEASE DO SO BY OCTOBER 25,
1999 TO RECEIVE THEM BEFORE THE MEETINGS.
You can also get more information by visiting Qwest's web site at
www.qwest.com and U S WEST's web site at www.uswest.com. Web site materials are
not part of this joint proxy statement/prospectus.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE QWEST
PROPOSALS AND THE U S WEST PROPOSAL, AS THE CASE MAY BE. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED
IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS
IS DATED SEPTEMBER 17, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THE JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS JOINT PROXY
STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF QWEST COMMON STOCK IN
THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
V-3
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 18, 1999*
BETWEEN
U S WEST, INC.
AND
QWEST COMMUNICATIONS INTERNATIONAL INC.
* TEXT OF ANNEX A REFLECTS AMENDMENT NO. 1 DATED AS OF SEPTEMBER 8, 1999 TO
THE AGREEMENT AND PLAN OF MERGER, BUT THE AGREEMENT AND PLAN OF MERGER DATED
AS OF JULY 18, 1999 HAS NOT BEEN AMENDED AND RESTATED.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE 1
THE MERGER
SECTION 1.01 THE MERGER.......................................................................... A-1
SECTION 1.02 EFFECTIVE TIME...................................................................... A-1
SECTION 1.03 EFFECT OF THE MERGER................................................................ A-1
SECTION 1.04 CERTIFICATE OF INCORPORATION; BYLAWS OF THE SURVIVING CORPORATION................... A-2
ARTICLE 2
EFFECT OF MERGER ON STOCK AND OPTIONS
SECTION 2.01 CONVERSION OF SECURITIES............................................................ A-2
SECTION 2.02 CONVERSION.......................................................................... A-2
SECTION 2.03 EXCHANGE OF SHARES.................................................................. A-4
SECTION 2.04 TRANSFER BOOKS...................................................................... A-5
SECTION 2.05 NO FRACTIONAL SHARE CERTIFICATES.................................................... A-5
SECTION 2.06 CERTAIN ADJUSTMENTS................................................................. A-6
SECTION 2.07 BYLAWS OF THE SURVIVING CORPORATION................................................. A-6
SECTION 2.08 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION.............................. A-7
SECTION 2.09 CASH ELECTION PROCEDURES............................................................ A-7
SECTION 2.10 ALTERNATIVE STRUCTURE............................................................... A-8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF QWEST
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES........................................ A-8
SECTION 3.02 CERTIFICATE OF INCORPORATION AND BYLAWS............................................. A-8
SECTION 3.03 CAPITALIZATION...................................................................... A-9
SECTION 3.04 AUTHORITY RELATIVE TO THIS AGREEMENT................................................ A-9
SECTION 3.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.......................................... A-10
SECTION 3.06 SEC FILINGS; FINANCIAL STATEMENTS................................................... A-10
SECTION 3.07 ABSENCE OF CERTAIN CHANGES OR EVENTS................................................ A-11
SECTION 3.08 LITIGATION.......................................................................... A-11
SECTION 3.09 NO VIOLATION OF LAW; PERMITS........................................................ A-11
SECTION 3.10 JOINT PROXY STATEMENT............................................................... A-12
SECTION 3.11 EMPLOYEE MATTERS; ERISA............................................................. A-12
SECTION 3.12 LABOR MATTERS....................................................................... A-14
SECTION 3.13 ENVIRONMENTAL MATTERS............................................................... A-14
SECTION 3.14 BOARD ACTION; VOTE REQUIRED; APPLICABILITY OF SECTION 203........................... A-15
SECTION 3.15 OPINION OF FINANCIAL ADVISOR........................................................ A-15
SECTION 3.16 BROKERS............................................................................. A-15
SECTION 3.17 TAX MATTERS......................................................................... A-15
SECTION 3.18 INTELLECTUAL PROPERTY............................................................... A-15
SECTION 3.19 INSURANCE........................................................................... A-16
SECTION 3.20 OWNERSHIP OF SECURITIES............................................................. A-16
SECTION 3.21 CERTAIN CONTRACTS................................................................... A-16
SECTION 3.22 LICENSES............................................................................ A-17
SECTION 3.23 YEAR 2000........................................................................... A-17
SECTION 3.24 FOREIGN CORRUPT PRACTICES AND INTERNATIONAL TRADE SANCTIONS......................... A-17
SECTION 3.25 DISCLOSURE OF QWEST PLANS........................................................... A-17
</TABLE>
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF U S WEST
SECTION 4.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES........................................ A-17
SECTION 4.02 CERTIFICATE OF INCORPORATION AND BYLAWS............................................. A-18
SECTION 4.03 CAPITALIZATION...................................................................... A-18
SECTION 4.04 AUTHORITY RELATIVE TO THIS AGREEMENT................................................ A-19
SECTION 4.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.......................................... A-19
SECTION 4.06 SEC FILINGS; FINANCIAL STATEMENTS................................................... A-19
SECTION 4.07 ABSENCE OF CERTAIN CHANGES OR EVENTS................................................ A-20
SECTION 4.08 LITIGATION.......................................................................... A-20
SECTION 4.09 NO VIOLATION OF LAW; PERMITS........................................................ A-20
SECTION 4.10 JOINT PROXY STATEMENT............................................................... A-21
SECTION 4.11 EMPLOYEE MATTERS; ERISA............................................................. A-21
SECTION 4.12 LABOR MATTERS....................................................................... A-23
SECTION 4.13 ENVIRONMENTAL MATTERS............................................................... A-23
SECTION 4.14 BOARD ACTION; VOTE REQUIRED; U S WEST RIGHTS PLAN; APPLICABILITY OF SECTION 203;
TERMINATION OF GLOBAL MERGER AGREEMENT............................................ A-23
SECTION 4.15 OPINIONS OF FINANCIAL ADVISORS...................................................... A-24
SECTION 4.16 BROKERS............................................................................. A-24
SECTION 4.17 TAX MATTERS......................................................................... A-24
SECTION 4.18 INTELLECTUAL PROPERTY............................................................... A-24
SECTION 4.19 INSURANCE........................................................................... A-25
SECTION 4.20 OWNERSHIP OF SECURITIES............................................................. A-25
SECTION 4.21 CERTAIN CONTRACTS................................................................... A-25
SECTION 4.22 LICENSES............................................................................ A-25
SECTION 4.23 YEAR 2000........................................................................... A-25
SECTION 4.24 FOREIGN CORRUPT PRACTICES AND INTERNATIONAL TRADE SANCTIONS......................... A-26
ARTICLE 5
CONDUCT OF INDEPENDENT BUSINESSES PENDING THE MERGER
SECTION 5.01 TRANSITION PLANNING................................................................. A-26
SECTION 5.02 CONDUCT OF BUSINESS IN THE ORDINARY COURSE.......................................... A-26
SECTION 5.03 NO SOLICITATION..................................................................... A-29
SECTION 5.04 SUBSEQUENT FINANCIAL STATEMENTS..................................................... A-30
SECTION 5.05 CONTROL OF OPERATIONS............................................................... A-30
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.01 JOINT PROXY STATEMENT AND THE REGISTRATION STATEMENT................................ A-30
SECTION 6.02 QWEST AND U S WEST STOCKHOLDERS' MEETINGS AND CONSUMMATION OF THE MERGER............ A-31
SECTION 6.03 ADDITIONAL AGREEMENTS............................................................... A-33
SECTION 6.04 NOTIFICATION OF CERTAIN MATTERS..................................................... A-34
SECTION 6.05 ACCESS TO INFORMATION............................................................... A-34
SECTION 6.06 PUBLIC ANNOUNCEMENTS................................................................ A-35
SECTION 6.07 COOPERATION......................................................................... A-35
SECTION 6.08 INDEMNIFICATION, DIRECTORS' AND OFFICERS' INSURANCE................................. A-35
SECTION 6.09 EMPLOYEE BENEFIT PLANS.............................................................. A-35
SECTION 6.10 COMMERCIALLY REASONABLE EFFORTS..................................................... A-35
</TABLE>
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SECTION 6.11 NASDAQ LISTING...................................................................... A-36
SECTION 6.12 MANAGEMENT.......................................................................... A-36
SECTION 6.13 NO SHELF REGISTRATION............................................................... A-36
SECTION 6.14 AFFILIATES.......................................................................... A-36
SECTION 6.15 BLUE SKY............................................................................ A-36
SECTION 6.16 TAX-FREE REORGANIZATION............................................................. A-36
SECTION 6.17 INTERIM DIVIDEND POLICY............................................................. A-36
SECTION 6.18 DIVIDEND POLICY..................................................................... A-36
SECTION 6.19 PERMITTED ACQUISITIONS.............................................................. A-37
SECTION 6.20 EQUAL MANAGEMENT.................................................................... A-37
SECTION 6.21 QWEST EQUITY INCENTIVE PLAN......................................................... A-37
ARTICLE 7
CONDITIONS TO THE MERGER
SECTION 7.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER........................ A-37
SECTION 7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF QWEST....................................... A-38
SECTION 7.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF U S WEST.................................... A-38
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 TERMINATION......................................................................... A-39
SECTION 8.02 EFFECT OF TERMINATION............................................................... A-40
SECTION 8.03 AMENDMENT........................................................................... A-42
SECTION 8.04 WAIVER.............................................................................. A-42
ARTICLE 9
DEFINITIONS
SECTION 9.01 CERTAIN DEFINITIONS................................................................. A-42
ARTICLE 10
GENERAL PROVISIONS
SECTION 10.01 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.......................... A-45
SECTION 10.02 NOTICES............................................................................. A-45
SECTION 10.03 EXPENSES............................................................................ A-45
SECTION 10.04 HEADINGS............................................................................ A-46
SECTION 10.05 SEVERABILITY........................................................................ A-46
SECTION 10.06 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES...................................... A-46
SECTION 10.07 ASSIGNMENT.......................................................................... A-46
SECTION 10.08 GOVERNING LAW....................................................................... A-46
SECTION 10.09 SUBMISSION TO JURISDICTION; WAIVERS................................................. A-46
SECTION 10.10 COUNTERPARTS........................................................................ A-46
</TABLE>
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SCHEDULES
<TABLE>
<S> <C> <C>
Schedule
3.01 -- Subsidiaries of Qwest
Schedule
3.03 -- Option Plans and Equity Rights of Qwest
Schedule
3.05 -- Required Filings and Consents of Qwest
Schedule
3.07 -- Certain Changes or Events of Qwest
Schedule
3.08 -- Pending or Threatened Litigation against Qwest
Schedule
3.09 -- Violations of Laws, Permits, Regulations, etc. of Qwest
Schedule
3.11 -- Qwest Employee Benefit Plans
Schedule
3.12 -- Collective Bargaining or Labor Agreements of Qwest
Schedule
3.13 -- Environmental Claims Against Qwest
Schedule
3.17 -- Tax Liens or Liabilities of Qwest
Schedule
3.18 -- Qwest Intellectual Property Losses and Claims
Schedule
3.19 -- Termination or Cancellation of Insurance Coverage of Qwest
Schedule
3.20 -- Qwest's Ownership of U S WEST's Common Stock
Schedule
3.21 -- Qwest Contracts
Schedule
3.22 -- Qwest Licenses
Schedule
4.01 -- Subsidiaries of U S WEST
Schedule
4.03 -- Option Plans and Equity Rights of U S WEST
Schedule
4.05 -- Required Filings and Consents of U S WEST
Schedule
4.07 -- Certain Changes or Events of U S WEST
Schedule
4.08 -- Pending or Threatened Litigation against U S WEST
Schedule
4.09 -- Violations of Laws, Permits, Regulations, etc. of U S WEST
Schedule
4.11 -- U S WEST Employee Benefit Plans
Schedule
4.12 -- Collective Bargaining or Labor Agreements of U S WEST
Schedule
4.13 -- Environmental Claims Against U S WEST
Schedule
4.17 -- Tax Liens or Liabilities of U S WEST
Schedule
4.18 -- U S WEST Intellectual Property Losses and Claims
Schedule
4.19 -- Termination or Cancellation of Insurance Coverage of U S WEST
Schedule
4.20 -- U S WEST's Ownership of Qwest's Common Stock
Schedule
4.21 -- U S WEST Contracts
Schedule
5.02 -- Conduct of Business
Schedule
6.14 -- Securities Act Affiliate
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 18, 1999**, between U S WEST,
Inc., a Delaware corporation ("U S WEST") and Qwest Communications International
Inc., a Delaware corporation ("QWEST").
W I T N E S S E T H
WHEREAS, the respective Boards of Directors of U S WEST and Qwest have
approved, and deem it advisable and in the best interest of their respective
stockholders to consummate the business combination transaction provided for
herein in which U S WEST will merge with and into Qwest (the "MERGER").
WHEREAS, it is intended that, for U.S. federal income tax purposes, the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Code, and that this Agreement be adopted as a plan of reorganization within
the meaning of such Section.
WHEREAS, the Boards of Directors of U S WEST and Qwest have each determined
that the Merger and the other transactions contemplated hereby are consistent
with, and in furtherance of, their respective business strategies and goals and
have each approved this Agreement and the Merger contemplated hereby.
WHEREAS, the parties hereto intend that the transactions contemplated hereby
shall be accounted for using the purchase method of accounting with U S WEST as
the acquiror.
WHEREAS, simultaneously with the execution and delivery of this Agreement,
and to induce U S WEST to enter into this Agreement, certain shareholders of
Qwest are entering into a Voting Agreement with U S WEST with respect to this
Agreement and the Merger (the "VOTING AGREEMENT").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and subject to Section 1.05 hereof, intending
to be legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.01 THE MERGER. At the Effective Time (as defined below), U S
WEST shall be merged with and into Qwest in accordance with Delaware Law,
whereupon the separate existence of U S WEST shall cease, and Qwest shall be the
surviving corporation (the "SURVIVING CORPORATION"). U S WEST and Qwest, as well
as any other Person which may become a party to this Agreement after the date of
this Agreement, are herein referred to collectively as the "PARTIES" and each
individually as a "PARTY."
SECTION 1.02 EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article 7 hereof and the
consummation of the Closing referred to in Section 6.03 hereof, the Parties
shall cause the Merger to be consummated by filing with the Secretary of State
of the State of Delaware a Certificate of Merger (the "DELAWARE CERTIFICATE") in
such form as is required by, and executed in accordance with, the relevant
provisions of Delaware Law. The Merger shall become effective at such time (the
"EFFECTIVE TIME") as the Delaware Certificate is duly filed with such Secretary
of State of Delaware (or at such later time as may be agreed by U S WEST and
Qwest and specified in the Delaware Certificate).
SECTION 1.03 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
- ------------------------
** Text reflects Amendment No. 1 dated as of September 8, 1999 to the Agreement
and Plan of Merger, but the Agreement and Plan of Merger dated as of July
18, 1999 has not been amended and restated.
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U S WEST and Qwest shall continue with, or vest in, as the case may be, the
Surviving Corporation, and all debts, liabilities and duties of U S WEST and
Qwest shall continue to be, or become, as the case may be, the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.04 CERTIFICATE OF INCORPORATION; BYLAWS OF THE SURVIVING
CORPORATION. Unless otherwise agreed by Qwest and U S WEST before the Effective
Time, at the Effective Time:
(a) the Certificate of Incorporation of the Surviving Corporation shall
be the Certificate of Incorporation of U S WEST as in effect immediately
prior to the Effective Time (as amended to reflect the changes specified in
Section 2.08), until thereafter amended as provided by law and the
Certificate of Incorporation of the Surviving Corporation; and
(b) the Bylaws of the Surviving Corporation shall be the Bylaws of U S
WEST as in effect immediately prior to the Effective Time (as amended to
reflect the changes specified in Section 2.07), until thereafter amended as
provided by law and the Certificate of Incorporation and the Bylaws of the
Surviving Corporation.
ARTICLE 2
EFFECT OF MERGER ON STOCK AND OPTIONS
SECTION 2.01 CONVERSION OF SECURITIES. The manner and basis of converting
the shares of common stock of U S WEST and the treatment of shares of Qwest, as
well as options, warrants and other rights to purchase or otherwise acquire
shares of common stock of U S WEST and Qwest, at the Effective Time, by virtue
of the Merger and without any action on the part of any of the Parties or the
holder of any of such securities, shall be as hereinafter set forth in this
Article 2.
SECTION 2.02 CONVERSION. (a) Each share of common stock, par value $.0l
per share, of Qwest ("QWEST COMMON STOCK") issued and outstanding immediately
prior to the Effective Time, and all rights in respect thereof, shall at the
Effective Time continue to remain outstanding as one share of Qwest Common
Stock.
(b) Each option, warrant and other right issued and outstanding immediately
prior to the Effective Time to purchase or otherwise acquire common stock, par
value $.01 per share, of U S WEST ("U S WEST COMMON STOCK") (each, a "U S WEST
RIGHT") (other than U S WEST Rights owned by Qwest (collectively, the
"DISQUALIFIED RIGHTS")) shall at the Effective Time no longer be options,
warrants or rights to purchase or otherwise acquire U S WEST Common Stock, as
applicable, and shall be converted into the options, warrants or rights, as
applicable to purchase such number of shares of Qwest Common Stock determined as
provided in Section 2.02(c). Each option, warrant and other right issued and
outstanding immediately prior to the Effective Time to purchase or otherwise
acquire Qwest Common Stock (each a "QWEST RIGHT") shall at the Effective Time
continue in full force and effect on the same terms and conditions that would
have applied to the purchase or other acquisition of Qwest Common Stock prior to
the Merger. U S WEST and Qwest shall take all such steps as may be required to
cause consummation of the transactions contemplated by this Section 2.02(b) and
any other disposition of U S WEST equity securities (including derivative
securities) or acquisitions of Qwest equity securities (including derivative
securities) in connection with this Agreement by each individual who (x) is a
director or officer of U S WEST or (y) at the Effective Time, will become a
director or officer of Qwest, to be exempt under Rule 16b-3 promulgated under
the Exchange Act (as defined in Article 9 hereof), such steps to be taken in
accordance with the No-Action Letter dated January 12, 1999, issued by the
Securities and Exchange Commission (the "SEC") to Skadden, Arps, Slate, Meagher
& Flom LLP.
(c) Subject to the provisions of Section 2.09, each holder of record of U S
WEST Common Stock (other than U S WEST Common Stock owned by Qwest or U S WEST
("DISQUALIFIED SHARES")) immediately prior to the Effective Time shall be
entitled to receive a number of shares of Qwest Common Stock equal to the
product of the Conversion Ratio (as defined below) multiplied by the number of
shares
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<PAGE>
of U S WEST Common Stock held by such holder at the Effective Time (such shares
of Qwest Common Stock and any other consideration to be received by holders of U
S WEST Common Stock in connection with the Merger pursuant to Section 2.09 shall
be referred to herein as the "MERGER CONSIDERATION"). The "CONVERSION RATIO"
shall be equal to (i) $69.00 divided by the Average Price (as defined below), if
the Average Price is greater than or equal to $28.26 and less than or equal to
$39.90; (ii) 2.44161, if the Average Price is less than $28.26, or (iii)
1.72932, if the Average Price is greater than $39.90. "AVERAGE PRICE" means the
average (rounded to the nearest 1/10,000) of the volume weighted averages
(rounded to the nearest 1/10,000) of the trading prices of Qwest Common Stock on
the NASDAQ National Market ("NASDAQ"), as reported by Bloomberg Financial
Markets (or such other source as the Parties shall agree in writing), for the 15
trading days randomly selected by lot by Qwest and U S WEST together from the 30
consecutive trading days ending on the third trading day immediately preceding
the date on which all the conditions to Closing (other than conditions that, by
their terms, cannot be satisfied until the Closing Date so long as it is
reasonably apparent that such conditions will be able to be satisfied on the
Closing Date) set forth in Article 7 of this Agreement have been satisfied or
waived (the "DETERMINATION PERIOD"). Each Disqualified Share shall at the
Effective Time be terminated and no longer be outstanding and no shares of Qwest
Common Stock will be issued in connection therewith.
(d) With respect to each U S WEST Right: (i) from and after the Effective
Time, each such U S WEST Right may be exercised only for Qwest Common Stock
notwithstanding any contrary agreement or document relating to the U S WEST
Rights or pursuant to which any U S WEST Rights were issued, (ii) each such U S
WEST Right shall at the Effective Time become a right to acquire a number of
shares of Qwest Common Stock (rounded up to the next whole share) equal to the
product arrived at by multiplying the Conversion Ratio by the number of shares
of U S WEST Common Stock subject to such right immediately prior to the
Effective Time, and (iii) the exercise price or purchase price per share of
Qwest Common Stock for which each such right (as exchanged) is exercisable shall
be the amount (rounded up to the next whole cent) arrived at by dividing the
exercise price or purchase price per share of U S WEST Common at which such U S
WEST Right is exercisable immediately prior to the Effective Time by the
Conversion Ratio. Each Disqualified Right at the Effective Time shall be
terminated and no longer be outstanding and no shares of Qwest Common Stock will
be issued in connection therewith. To the extent that the Merger Consideration
includes a cash payment pursuant to Section 2.09 hereof the shares subject to
and exercise price and such other terms and conditions of U S WEST Rights shall
be adjusted pursuant to the terms of such U S WEST Rights or in accordance with
the provisions of any plan or agreement applicable to such U S WEST Rights so as
to preserve the economic benefit of such cash payment for the holders of such U
S WEST Rights and without negative effect on such holders' interest.
(e) Commencing immediately after the Effective Time, each certificate which,
immediately prior to the Effective Time, represented issued and outstanding
shares of U S WEST Common Stock shall evidence ownership of Qwest Common Stock
on the basis hereinbefore set forth. Customary provisions will be made for
uncertificated shares to provide for equivalent treatment. Commencing
immediately after the Effective Time, each option, warrant or other right which,
immediately prior to the Effective Time, represented the right to purchase or
otherwise acquire shares of U S WEST Common Stock shall evidence the right to
purchase or otherwise acquire shares of Qwest Common Stock on the basis
hereinabove set forth and, subject to Section 2.02(d) and 2.05, on the same
terms and conditions that would have applied to the purchase or other
acquisition of U S WEST Common Stock.
(f) For all purposes of this Agreement, unless otherwise specified, all
shares of U S WEST Common Stock held by employee stock ownership plans or other
pension savings, 401(k) or deferred compensation plans of U S WEST (i) shall be
deemed to be issued and outstanding, (ii) shall not be deemed to be held in the
treasury of U S WEST and (iii) shall be subject to the rights and procedures
described in Sections 2.02(c) and 2.03.
A-3
<PAGE>
SECTION 2.03 EXCHANGE OF SHARES. (a) Prior to the Effective Time, Qwest
shall appoint an agent (the "EXCHANGE AGENT") for the purpose of (i) exchanging
certificates representing shares of U S WEST Common Stock for shares of Qwest
Common Stock in accordance with Section 2.02 and (ii) paying cash, if
applicable, in accordance with Section 2.09. To the extent the Merger
Consideration includes cash, the Surviving Corporation shall deposit with the
Exchange Agent for inclusion in the Exchange Fund (defined below), from time to
time sufficient cash as is necessary to promptly pay to stockholders of U S WEST
the cash portion of the Merger Consideration. Promptly after the Effective Time,
Qwest shall cause a letter of transmittal to be mailed to the holders of record
of shares of U S WEST Common Stock and holders of record of U S WEST Rights at
the Effective Time.
(b) Subject to the terms and conditions hereof, Qwest shall cause the
Exchange Agent to effect the exchange of U S WEST Common Stock for the Qwest
Common Stock and the payment of cash, if applicable, in accordance with the
provisions of this Article 2. From time to time after the Effective Time, Qwest
shall deposit, or cause to be deposited, with the Exchange Agent an amount of
cash and certificates representing Qwest Common Stock required to effect the
conversion of U S WEST Common Stock in accordance with the provisions of Section
2.02 and 2.09 hereof (such certificates, together with any dividends or
distributions with respect thereto and any cash deposited, if necessary, being
herein referred to as the "EXCHANGE FUND"). Commencing immediately after the
Effective Time and until the appointment of the Exchange Agent shall be
terminated, (i) each holder of a certificate or certificates theretofore
representing U S WEST Common Stock may surrender the same to the Exchange Agent,
and, after the appointment of the Exchange Agent shall be terminated, any such
holder may surrender any such certificate to Qwest and (ii) each holder of
uncertificated shares of outstanding U S WEST Common Stock may deliver a
completed letter or transmittal to the Exchange Agent. Such holder shall be
entitled upon such surrender or, with respect to uncertificated shares, the
delivery of a duly completed letter of transmittal, to receive in exchange
therefor (i) shares representing the number of full shares of Qwest Common Stock
into which the U S WEST Common Stock theretofore represented by the shares so
surrendered shall have been converted in accordance with the provisions of
Sections 2.02 and 2.03 hereof, (ii) cash pursuant to Section 2.09, if
applicable, and (iii) a cash payment in lieu of fractional shares, if any, in
accordance with Section 2.05 hereof, and all such shares of Qwest Common Stock
so issued shall be deemed to have been issued at the Effective Time. Each
outstanding certificate which, prior to the Effective Time, represented issued
and outstanding U S WEST Common Stock shall, until so surrendered or exchanged,
and each uncertificated outstanding share of U S WEST Common Stock shall, be
deemed for all corporate purposes of Qwest, other than the payment of dividends
and other distributions, if any, to evidence ownership of the number of full
shares of Qwest Common Stock into which the U S WEST Common Stock theretofore
represented thereby shall have been converted at the Effective Time. Unless and
until any such certificate theretofore representing U S WEST Common Stock is so
surrendered, or, with respect to uncertificated shares, a duly completed letter
of transmittal shall have been delivered to the Exchange Agent with respect to
such shares, no dividend or other distribution, if any, payable to the holders
of record of Qwest Common Stock as of any date subsequent to the Effective Time
shall be paid to the holder of such shares in respect thereof. Upon the
surrender of any such shares representing U S WEST Common Stock, however, the
record holder of the shares representing shares of Qwest Common Stock issued in
exchange therefor shall receive from the Exchange Agent, or from Qwest, as the
case may be, payment of the amount of dividends and other distributions, if any,
which as of any date subsequent to the Effective Time and until such surrender
shall have become payable with respect to such number of shares of Qwest Common
Stock ("PRE-SURRENDER DIVIDENDS"). No interest shall be payable with respect to
the payment of Pre-Surrender Dividends upon the surrender of certificates
theretofore representing U S WEST Common Stock. After the appointment of the
Exchange Agent shall have been terminated, any holders of shares representing U
S WEST Common Stock which have not received payment of Pre-Surrender Dividends
shall look only to Qwest for payment thereof. Notwithstanding the foregoing
provisions of this Section 2.03(b), neither the Exchange Agent nor any Party
shall be liable to a holder of U S WEST Common Stock for any Qwest Common Stock,
any dividends or distributions thereon
A-4
<PAGE>
or any cash payment as contemplated by Section 2.05 or 2.09, delivered to a
public official pursuant to any applicable abandoned property, or escheat or
similar law.
(c) Notwithstanding anything herein to the contrary, shares surrendered for
exchange by any affiliate of U S WEST shall not be exchanged until a signed
agreement from such affiliate as provided in Section 6.14 hereof has been
delivered to Qwest.
(d) Any portion of the Exchange Fund which remains undistributed for six (6)
months after the Effective Time shall be delivered to the Surviving Corporation,
upon demand, and any holders of U S WEST Common Stock who have not theretofore
complied with the provisions of this Article shall thereafter look only to Qwest
for satisfaction of their claims for Qwest Common Stock and cash, if applicable,
and any Pre-Surrender Dividends.
SECTION 2.04 TRANSFER BOOKS. The stock transfer books of U S WEST shall be
closed at the Effective Time and no transfer of any U S WEST Common Stock will
thereafter be recorded on any of such stock transfer books. In the event of a
transfer of ownership of U S WEST Common Stock that is not registered in the
stock transfer records of U S WEST at the Effective Time, the number of full
shares of Qwest Common Stock into which such U S WEST Common Stock shall have
been converted shall be issued to the transferee and any cash payable in respect
of such U S WEST Common Stock in accordance with Section 2.03(b), 2.05 and 2.09
hereof shall be paid to the transferee if the U S WEST Common Stock is
surrendered as provided in Section 2.03 hereof, accompanied by all documents
required to evidence and effect such transfer and by evidence of payment of any
applicable stock transfer tax.
SECTION 2.05 NO FRACTIONAL SHARE CERTIFICATES. (a) No scrip or fractional
share certificate for Qwest Common Stock will be issued upon the surrender for
exchange of certificates evidencing U S WEST Common Stock or upon exercise of
Qwest Rights or U S WEST Rights, and an outstanding fractional share interest
will not entitle the owner thereof to vote, to receive dividends or to any
rights of a stockholder of the Surviving Corporation with respect to such
fractional share interest.
(b) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (i) the number of full shares of Qwest
Common Stock to be issued and delivered to the Exchange Agent pursuant to
Section 2.03 hereof, over (ii) the aggregate number of full shares of Qwest
Common Stock to be distributed to holders of U S WEST Common Stock pursuant to
Section 2.03 hereof (such excess being herein called the "EXCESS SHARES").
Following the Effective Time, the Exchange Agent, as agent for the holders of U
S WEST Common Stock, shall sell the Excess Shares at then prevailing prices on
the NASDAQ, all in the manner provided in Section 2.05(c).
(c) The sale of the Excess Shares by the Exchange Agent shall be executed on
NASDAQ and shall be executed in round lots to the extent practicable. The
Exchange Agent shall use all commercially reasonable efforts to complete the
sale of the Excess Shares as promptly following the Effective Time as, in the
Exchange Agent's reasonable judgment, is practicable consistent with obtaining
the best execution of such sales in light of prevailing market conditions. Until
the net proceeds of such sale or sales have been distributed to the holders of U
S WEST Common Stock, the Exchange Agent will hold such proceeds in trust for the
holders of U S WEST Common Stock (the "COMMON SHARES TRUST").
(d) Notwithstanding the provisions of subsections (b) and (c) of this
Section 2.05, Qwest may decide, at its option, exercised prior to the Effective
Time, in lieu of the issuance and sale of Excess Shares and the making of the
payments contemplated in such subsections, that Qwest shall pay to the Exchange
Agent an amount sufficient for the Exchange Agent to pay each holder of U S WEST
Common Stock the amount such holder would have received pursuant to Section
2.05(c) assuming that the sales of Qwest Common Stock were made at a price equal
to the average of the closing prices of the Qwest Common Stock on the NASDAQ for
the ten (10) consecutive trading days immediately following the Effective Time
and, in such case, all references herein to the cash proceeds of the sale of the
Excess Shares and similar references shall be deemed to mean and refer to the
payments calculated as set forth in this subsection (d). In such event,
A-5
<PAGE>
Excess Shares shall not be issued or otherwise transferred to the Exchange Agent
pursuant to Section 2.05(b) or 2.03(b) hereof.
(e) As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of U S WEST Common Stock with respect to any
fractional share interests, the Exchange Agent shall make available such
amounts, net of any required withholding and net of fees and expenses, to such
holders of U S WEST Common Stock, subject to and in accordance with the terms of
Section 2.03 hereof.
(f) Following the Effective Time, upon the exercise of any U S WEST Right
entitling the holder thereof to purchase a fractional share of Qwest Common
Stock, Qwest will, in lieu of issuing a fractional share certificate therefor,
pay to such holder the value of such fractional interest as determined based on
the closing price on the trading day immediately preceding the date of exercise,
of a share of Qwest Common Stock on NASDAQ or such other principal security
exchange on which the Qwest Common Stock shall then be trading, or, if not so
traded, based on such price as shall be determined by, or pursuant to authority
delegated by, the Board of Directors of Qwest.
SECTION 2.06 CERTAIN ADJUSTMENTS. If between the date hereof and the
Effective Time, the outstanding shares of U S WEST Common Stock or Qwest Common
Stock shall, in accordance with Section 5.02(a), be changed into a different
number of shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or any dividend payable in stock or other
securities shall be declared thereon with a record date within such period, then
the Conversion Ratio and other related share prices used in this Agreement shall
be adjusted accordingly to provide to the holders of U S WEST Common Stock the
same economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or dividend.
SECTION 2.07 BYLAWS OF THE SURVIVING CORPORATION. The By-Laws of the
Surviving Corporation will include the following provisions which will be
applicable and in full force and effect until the third anniversary of the
Effective Time unless otherwise amended as set forth below:
(i) The Board of Directors of the Surviving Corporation (the "BOARD OF
DIRECTORS") shall consist of 14 members. Initially, U S WEST shall have the
right to designate 7 members and Qwest shall have the right to designate 7
members. Thereafter, U S WEST designees on the Board of Directors shall have
the right to nominate 7 members of the Board of Directors and Qwest
designees on the Board of Directors shall have the right to nominate 7
members of the Board of Directors. Any vacancy created on the Board of
Directors as a result of any such nominee leaving the Board of Directors
shall be filled by the remaining designees of U S WEST or Qwest, as
applicable, on the Board of Directors who nominated such person leaving the
Board of Directors. To the extent the Surviving Corporation has a classified
Board of Directors, each class of Directors shall contain as even a number
of U S WEST designees and Qwest designees as possible.
(ii) The Surviving Corporation will establish an Office of the Chairman
of the Surviving Corporation which initially will consist of 3 members: the
Chief Executive Officer/Chairman of U S WEST, the Chief Executive
Officer/Chairman of Qwest and Philip F. Anschutz. Only the Board of
Directors shall have the authority to remove from office and replace any
member of the Office of the Chairman.
(iii) Subject to the power and authority of the Board of Directors of the
Surviving Corporation as required by applicable law, the Office of the
Chairman shall, through one of its members so designated, chair all meetings
of the Board of Directors and shall have the exclusive power and final
authority with respect to the following matters (to the extent Board of
Director and/or stockholder action is not required by law):
(A) the approval of any acquisition or disposition of a business
through a merger, strategic acquisition or disposition, asset purchase or
sale, joint venture, partnership, lease arrangement or otherwise, in each
case involving aggregate sale or purchase proceeds of $25 million or
more;
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(B) the approval of any merger, consolidation or other similar type
of transaction between the Surviving Corporation and any third party;
(C) the setting of general corporate strategy and direction involving
approval of long term strategic plans and annual budgets and goals;
(D) the allocation of capital resources including approval of Qwest's
annual capital budget and any material amendment or deviation therefrom;
and
(E) the termination or any significant diminution of the
responsibilities of the officers in the 8 positions as set forth in the
letter of understanding dated July 18, 1999.
To the extent Board of Directors action is required with respect to any
such matters, the Office of the Chairman shall have the sole power and
authority to present such matters to the Board of Directors.
(iv) The Office of the Chairman shall take action by a majority vote.
Any member of the Office of the Chairman shall have the right to call a
special meeting of the Board of Directors or at a regularly called meeting
to present any matter referred to in items (a) through (e) above for
consideration by the full Board of Directors.
(v) U S WEST designees on the Board of Directors and Qwest designees on
the Board of Directors will be represented equally on all of the committees
of the Board of Directors.
(vi) The compensation committee of the Board of Directors shall have the
right to approve the filling of any vacancy created in the executive
positions (exclusive of the Office of the Chairman) as set forth in the
letter of understanding dated July 18, 1999 and the setting of compensation
levels of such executives. The Board of Directors shall set the compensation
of the members of the Office of the Chairman.
(vii) The foregoing provision of the By-Laws may only be amended or
repealed by the affirmative vote of 75% of the Board of Directors of the
Surviving Corporation or 75% of the then outstanding Surviving Corporation
Common Stock.
SECTION 2.08 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of the Surviving Corporation will include the
following provisions:
(i) the name of the Surviving Corporation shall be "QWEST COMMUNICATIONS
INTERNATIONAL INC.";
(ii) the provisions of the By-Laws of the Surviving Corporation
described in Section 2.07 may only be amended or repealed by the affirmative
vote of 75% of the Board of Directors of the Surviving Corporation or 75% of
the then outstanding Surviving Corporation Common Stock; and
(iii) the number of authorized shares of Qwest Common Stock will be
5,000,000,000.
SECTION 2.09 CASH ELECTION PROCEDURES. (a) If the Average Price is less
than $38.70, Qwest upon written notice (a "CASH ALTERNATIVE NOTICE") to U S WEST
not more than two days prior to the Effective Time shall have the right to elect
(the "QWEST CASH ELECTION") to pay a portion of the Merger Consideration in cash
(in lieu of shares of Qwest Common Stock) (the "CASH TRUE-UP"), subject to
agreement by U S WEST and Qwest as to the amount of cash as set forth below.
(a) In the event Qwest makes the Qwest Cash Election, in lieu of the
provisions of Section 2.02(c), each holder of record of U S WEST Common Stock
(other than a holder of Disqualified Shares) immediately prior to the Effective
Time shall receive for each share of U S WEST Common Stock:
(i) a number of shares of Qwest Common Stock equal to the True Up
Exchange Ratio (as defined below); and
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(ii) an amount in cash equal to the Per Share Cash True Up (as defined
below).
For purposes of the foregoing, the terms set forth below shall have the meanings
indicated:
"CASH AMOUNT" means the aggregate amount of the Cash True Up as mutually
agreed upon by U S WEST and Qwest which shall not be greater than the product of
(x) the difference between the Conversion Ratio and 1.783 multiplied by (y) the
number of outstanding shares of U S WEST Common Stock (other than Disqualified
Shares) multiplied by (z) (I) if the Average Price is greater than or equal to
$28.26, the Average Price or (II) if the Average Price is less than $28.26,
$28.26. In determining the cash amount, the Parties shall consider (a) U S
WEST's desire to provide a meaningful cash element for its stockholders, (b)
Qwest's desire to reduce dilution to its stockholders and (c) both Parties'
desire to maintain a strong financial condition.
"PER SHARE CASH TRUE UP" means the quotient of (x) the Cash Amount divided
by (y) the number of outstanding shares of U S WEST Common Stock (other than
Disqualified Shares).
"TRUE UP EXCHANGE RATIO" means the quotient of (x) the difference between
$69 and the Per Share Cash True Up divided by (y) (I) if the Average Price is
greater than or equal to $28.26, the Average Price or (II) if the Average Price
is less than $28.26, $28.26.
SECTION 2.10 ALTERNATIVE STRUCTURE. U S WEST and Qwest may mutually agree
to adopt an alternative merger structure (the "ALTERNATIVE STRUCTURE") whereby U
S WEST and Qwest will jointly incorporate a new corporation, to be equally owned
by U S WEST and Qwest, under the laws of the State of Delaware ("PARENT") and
where Parent will then incorporate two new subsidiaries under the laws of the
State of Delaware, to be named U S WEST Merger Sub and Qwest Merger Sub and
where, at the effective time, U S WEST will merge into U S WEST Merger Sub, with
U S WEST as the surviving corporation and Qwest will merger into Qwest Merger
Sub, with Qwest as the surviving corporation. In the event U S WEST and Qwest
agree on the Alternative Structure, the Parties will promptly enter into an
amendment to this Agreement to make such changes to reflect the Alternative
Structure. All other provisions of this Agreement shall remain unchanged.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF QWEST
Qwest hereby represents and warrants as of the date hereof to U S WEST as
follows:
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Qwest and each
of its Significant Subsidiaries, as listed on Schedule 3.01 hereto, is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization. Each of the Qwest
Subsidiaries which is not a Significant Subsidiary is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, except for such failure which, when taken
together with all other such failures, would not reasonably be expected to have
a Material Adverse Effect on Qwest. Each of Qwest and its Subsidiaries has the
requisite corporate power and authority and any necessary Permit to own, operate
or lease the properties that it purports to own, operate or lease and to carry
on its business as it is now being conducted, and is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except for such failure which,
when taken together with all other such failures, would not reasonably be
expected to have a Material Adverse Effect on Qwest.
SECTION 3.02 CERTIFICATE OF INCORPORATION AND BYLAWS. Qwest has heretofore
furnished, or otherwise made available, to U S WEST a complete and correct copy
of the Certificate of Incorporation and the Bylaws, each as amended to the date
hereof, of Qwest and each of its Significant Subsidiaries. Such Certificates of
Incorporation and Bylaws are in full force and effect. Neither Qwest nor any of
its Significant Subsidiaries is in violation of any of the provisions of its
respective Certificate of Incorporation or, in any material respect, its Bylaws.
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SECTION 3.03 CAPITALIZATION. (a) The authorized capital stock of Qwest
consists solely of (i) 2,000,000,000 shares of Qwest Common Stock, of which, as
of June 14, 1999, (a) 745,195,731 shares were issued and outstanding, (b) no
shares were held in the treasury of Qwest, (c) 53,846,897 shares were issuable
upon the exercise of options outstanding under the Qwest option plans listed on
Schedule 3.03 hereto, and (d) (x) 17.2 million shares were issuable upon the
exercise of a warrant exercisable on May 23, 2000 at an exercise price of $7.00
per share of Qwest Common Stock, and (y) 600,000 shares were issuable upon the
exercise of warrants exercisable in 2007 at an exercise price of $8.905 per
share of Qwest Common Stock (collectively, the "QWEST WARRANTS") and (ii)
25,000,000 shares of undesignated preferred stock, $.01 par value, of Qwest, of
which, as of June 14, 1999, none were issued and outstanding. Except as set
forth on Schedule 3.03 or, after the date hereof, as permitted by Section 5.02
hereof, (i) since June 14, 1999, no shares of Qwest Common Stock have been
issued, except upon the exercise of options and warrants described in the
immediately preceding sentence, and (ii) there are no outstanding Qwest Equity
Rights. For purposes of this Agreement, Qwest Equity Rights shall mean
subscriptions, options, warrants, calls, commitments, agreements, conversion
rights or other rights of any character (contingent or otherwise) to purchase or
otherwise acquire from Qwest or any of Qwest's Subsidiaries at any time, or upon
the happening of any stated event, any shares of the capital stock or other
voting or non-voting securities of Qwest ("QWEST EQUITY RIGHTS"). Schedule 3.03
hereto sets forth a complete and accurate list of all outstanding Qwest Equity
Rights as of June 14, 1999. Since June 14, 1999, no Qwest Equity Rights have
been issued except as set forth on Schedule 3.03 or, after the date hereof, as
permitted by Section 5.02 hereof.
(b) Except as set forth on Schedule 3.03, or, after the date hereof, as
permitted by Section 5.02 hereof, there are no outstanding obligations of Qwest
or any of Qwest's Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of Qwest.
(c) All of the issued and outstanding shares of Qwest Common Stock are
validly issued, fully paid and nonassessable.
(d) Except as disclosed on Schedule 3.03 hereto, all the outstanding capital
stock of each of Qwest's Significant Subsidiaries which is owned by Qwest is
duly authorized, validly issued, fully paid and nonassessable, and is owned by
Qwest free and clear of any liens, security interest, pledges, agreements,
claims, charges or encumbrances except for any liens, security interest,
pledges, agreements, claims, charges or encumbrances which are granted to secure
indebtedness permitted by Section 5.02. Except as set forth on Schedule 3.03 or
as hereafter issued or entered into in accordance with Section 5.02 hereof,
there are no existing subscriptions, options, warrants, calls, commitments,
agreements, conversion rights or other rights of any character (contingent or
otherwise) to purchase or otherwise acquire from Qwest or any of Qwest's
Subsidiaries at any time, or upon the happening of any stated event, any shares
of the capital stock or other voting or non-voting securities of any Qwest
Subsidiary, whether or not presently issued or outstanding (except for rights of
first refusal to purchase interests in Subsidiaries which are not wholly-owned
by Qwest), and there are no outstanding obligations of Qwest or any of Qwest's
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock or other voting or non-voting securities of any of Qwest's Subsidiaries,
other than such as would not, individually or in the aggregate, have a Material
Adverse Effect on Qwest. Except for (i) its Subsidiaries, (ii) immaterial
amounts of equity securities, (iii) investments of Persons in which Qwest has
less than a five percent (5%) interest, and (iv) equity interests disclosed on
Schedule 3.03 hereto or hereafter acquired as permitted under Section 5.02
hereof, Qwest does not directly or indirectly own any equity interest in any
other Person.
(e) No bonds, debentures, notes or other indebtedness of Qwest having the
right to vote on any matters on which stockholders may vote are issued or
outstanding except for any securities issued after the date hereof in accordance
with Section 5.02.
SECTION 3.04 AUTHORITY RELATIVE TO THIS AGREEMENT. Qwest has the necessary
corporate power and authority to enter into this Agreement and, subject to
obtaining any necessary stockholder approval of the
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Merger, this Agreement and the issuance of Qwest Common Stock pursuant to this
Agreement, to carry out its obligations hereunder. The execution and delivery of
this Agreement by Qwest and the consummation by Qwest of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Qwest, subject to the approval of this Agreement by Qwest's
stockholders required by the rules of the NASDAQ and by Delaware Law. This
Agreement has been duly executed and delivered by Qwest and, assuming the due
authorization, execution and delivery thereof by the other Parties, constitutes
a legal, valid and binding obligation of Qwest, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting the rights and
remedies of creditors generally and to general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
SECTION 3.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Except as set
forth on Schedule 3.05 or as described in subsection (b) below, the execution
and delivery of this Agreement by Qwest does not, and the performance of this
Agreement by Qwest will not, (i) violate or conflict with the Certificate of
Incorporation or Bylaws of Qwest, (ii) conflict with or violate any law,
regulation, court order, judgment or decree applicable to Qwest or any of its
Significant Subsidiaries or by which any of their respective property is bound
or affected, (iii) violate or conflict with the Certificate of Incorporation or
Bylaws of any of Qwest's Subsidiaries, or (iv) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Qwest or any of its Subsidiaries pursuant to, or
result in the loss of any material benefit or right, including the benefit of
any standstill agreement, or result in an acceleration of any rights or amounts
due resulting from a change of control or otherwise, or require the consent of
any other party to, any contract, instrument, Permit, license or franchise to
which Qwest or any of its Significant Subsidiaries is a party or by which Qwest,
any of such Subsidiaries or any of their respective property is bound or
affected, except, in the case of clauses (ii), (iii) and (iv) above, for
conflicts, violations, breaches, defaults, rights, results or consents which,
individually or in the aggregate, would not have a Material Adverse Effect on
Qwest.
(b) Except for applicable requirements, if any, of state, local, District of
Columbia, or foreign regulatory laws and commissions, the Federal Communications
Commission, the Exchange Act, the premerger notification requirements of the HSR
Act, filing and recordation of appropriate merger or other documents as required
by Delaware Law and any filings required pursuant to any state securities or
"BLUE SKY" laws or the rules of any applicable stock exchanges, neither Qwest
nor any of its Subsidiaries is required to submit any notice, report or other
filing with any Governmental or Regulatory Authority in connection with the
execution, delivery or performance of this Agreement. Except as set forth in the
immediately preceding sentence, no waiver, consent, approval or authorization of
any Governmental or Regulatory Authority is required to be obtained by Qwest or
any of its Subsidiaries in connection with its execution, delivery or
performance of this Agreement.
(c) The total amount of Qwest's annual revenues for the four fiscal quarters
immediately prior to the Closing Date derived from services, activities or
interests which could be determined to be in violation of the Communications Act
of 1934, as amended (the "TELECOM ACT") if engaged in or owned by a Bell
Operating Company are no more than $500 million.
SECTION 3.06 SEC FILINGS; FINANCIAL STATEMENTS. (a) Qwest has filed all
forms, reports and documents required to be filed with the SEC since January 1,
1998, and has heretofore delivered or made available to U S WEST, in the form
filed with the SEC, together with any amendments thereto, its (i) Annual Report
on Form 10-K for the fiscal year ended December 31, 1998, (ii) all proxy
statements relating to Qwest's meetings of stockholders (whether annual or
special) held since January 1, 1998, (iii) Quarterly Reports on Form 10-Q for
the fiscal quarter ended March 31, 1999, and (iv) all other reports or
registration statements filed by Qwest with the SEC since January 1, 1998
(collectively, the "QWEST SEC REPORTS"). The Qwest SEC Reports (i) were prepared
substantially in accordance with the requirements of the Securities Act or the
Exchange Act (as defined in Article 9 hereof), as the case may be,
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and the rules and regulations promulgated under each of such respective acts,
and (ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The financial statements, including all related notes and schedules,
contained in the Qwest SEC Reports (or incorporated by reference therein) fairly
present the consolidated financial position of Qwest and its Subsidiaries as at
the respective dates thereof and the consolidated results of operations and cash
flows of Qwest and its Subsidiaries for the periods indicated in accordance with
GAAP applied on a consistent basis throughout the periods involved (except for
changes in accounting principles disclosed in the notes thereto) and subject in
the case of interim financial statements to normal year-end adjustments.
SECTION 3.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Qwest SEC Reports filed prior to the date hereof and on Schedule 3.07, since
December 31, 1998, and except as permitted by this Agreement or consented to
hereunder, Qwest and its Subsidiaries have not incurred any material liability,
except in the ordinary course of their businesses consistent with their past
practices, and there has not been any change, or any event involving a
prospective change, in the business, financial condition or results of
operations of Qwest or any of its Subsidiaries which has had, or is reasonably
likely to have, a Material Adverse Effect on Qwest, and Qwest and its
Subsidiaries have conducted their respective businesses in the ordinary course
consistent with their past practices.
SECTION 3.08 LITIGATION. There are no claims, actions, suits, proceedings
or investigations pending or, to Qwest's Knowledge, threatened against Qwest or
any of its Subsidiaries, or any properties or rights of Qwest or any of its
Subsidiaries, before any Governmental or Regulatory Authority as to which there
is a reasonable likelihood of an adverse judgment or determination against Qwest
or any of its Subsidiaries, except for those that are not, individually or in
the aggregate, reasonably likely to have a Material Adverse Effect on Qwest or
prevent or materially delay the ability of Qwest to consummate the transactions
contemplated by this Agreement except as set forth on Schedule 3.08 hereof. With
respect to Tax matters, litigation shall not be deemed threatened unless a Tax
authority has delivered a written notice of deficiency to Qwest or any of its
Subsidiaries.
SECTION 3.09 NO VIOLATION OF LAW; PERMITS. The business of Qwest and its
Subsidiaries is not being conducted in violation of any statute, law, ordinance,
regulation, judgment, order or decree of any Governmental or Regulatory
Authority (including, without limitation, any stock exchange or other self-
regulatory body) ("LEGAL REQUIREMENTS"), or in violation of any permits,
franchises, licenses, privileges, immunities, approvals, certificates, orders,
authorizations or consents that are granted by any Governmental or Regulatory
Authority (including, without limitation, any stock exchange or other
self-regulatory body) ("PERMITS"), except for possible violations none of which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Qwest. Except as disclosed in Qwest SEC Reports and
as set forth on Schedule 3.09 hereto, no investigation, review or proceeding by
any Governmental or Regulatory Authority (including, without limitation, any
stock exchange or other self-regulatory body) with respect to Qwest or its
Subsidiaries in relation to any alleged violation of law or regulation is
pending or, to Qwest's Knowledge, threatened, nor has any Governmental or
Regulatory Authority (including, without limitation, any stock exchange or other
self-regulatory body) indicated an intention to conduct the same, except for
such investigations which, if they resulted in adverse findings, would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Qwest. Except as set forth in the Qwest SEC Reports and on
Schedule 3.09 hereto, neither Qwest nor any of its Subsidiaries is subject to
any cease and desist or other order, judgment, injunction or decree issued by,
or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has adopted any
board resolutions at the request of, any Governmental or Regulatory Authority
that materially restricts the conduct of its business or which would reasonably
be expected to have a Material Adverse Effect on Qwest, nor has Qwest or any of
its Subsidiaries been advised that any Governmental or
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Regulatory Authority is considering issuing or requesting any of the foregoing.
None of the representations and warranties made in this Section 3.09 are being
made with respect to Environmental Laws.
SECTION 3.10 JOINT PROXY STATEMENT. None of the information supplied or to
be supplied by or on behalf of Qwest for inclusion or incorporation by reference
in the registration statement to be filed with the SEC by Qwest in connection
with the issuance of shares of Qwest Common Stock in the Merger (the
"REGISTRATION STATEMENT") will, at the time the Registration Statement becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to be
supplied by or on behalf of Qwest for inclusion or incorporation by reference in
the joint proxy statement, in definitive form, relating to the meetings of Qwest
and U S WEST stockholders to be held in connection with the Merger, or in the
related proxy and notice of meeting, or soliciting material used in connection
therewith (referred to herein collectively as the "JOINT PROXY STATEMENT") will,
at the dates mailed to stockholders and at the times of the Qwest stockholders'
meeting and the U S WEST stockholders' meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Registration
Statement and the Joint Proxy Statement (except for information relating solely
to U S WEST) will comply as to form in all material respects with the provisions
of the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder.
SECTION 3.11 EMPLOYEE MATTERS; ERISA. Except as set forth on Schedule
3.11:
(a) Schedule 3.11 contains a true and complete list of all employee
benefit plans covering present or former employees or directors of Qwest and
of each of its Subsidiaries or their beneficiaries, or providing benefits to
such persons in respect of services provided to any such entity, or with
respect to which Qwest or any of its Subsidiaries has, or has had, an
obligation to contribute or any other liability, including, but not limited
to, any employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), any
deferred compensation, bonus, stock option, restricted stock, incentive,
profit sharing, retirement, savings, medical, health, life insurance,
disability, sick leave, cafeteria or flexible spending, vacation,
unemployment compensation, severance or change in control agreements,
arrangements, programs, policies or plans and any other benefit arrangements
or payroll practice (collectively, the "QWEST BENEFIT PLANS"), whether
funded or unfunded, insured or uninsured, written or unwritten.
(b) All contributions and other payments required to be made by Qwest or
any of its Subsidiaries to or under any Qwest Benefit Plan (or to any person
pursuant to the terms thereof) have been made or the amount of such payment
or contribution obligation has been reflected in the Qwest Financial
Statements.
(c) Each of the Qwest Benefit Plans intended to be "qualified" within
the meaning of Section 401(a) of the Code has been determined by the
Internal Revenue Service (the "IRS") to be so qualified, and, to Qwest's
Knowledge, no circumstances exist that could reasonably be expected by Qwest
to adversely affect such qualification. Qwest is in compliance in all
material respects with, and each of the Qwest Benefit Plans complies in form
with, and is and has been operated in all material respects in compliance
with, all applicable Legal Requirements, including, without limitation,
ERISA and the Code. No assets of Qwest or any of its Subsidiaries are
subject to liens arising under ERISA or the Code on account of any Qwest
Benefit Plan, neither Qwest nor any of its Subsidiaries has been required to
provide any security under Sections 401(a)(29) or 412(f) of the Code, or
under Section 307 of ERISA, and no event has occurred that could give rise
to any such lien or a requirement to provide such security.
(d) With respect to the Qwest Benefit Plans, individually and in the
aggregate, no event has occurred and, to Qwest's Knowledge, there does not
now exist any condition or set of circumstances,
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that could subject Qwest or any of its Subsidiaries to any material
liability arising under the Code, ERISA or any other applicable Legal
Requirements (including, without limitation, any liability to any such plan
or the Pension Benefit Guaranty Corporation (the "PBGC")), or under any
indemnity agreement to which Qwest or any of its Subsidiaries is a party,
excluding liability for benefit claims and funding obligations payable in
the ordinary course. No Qwest Benefit Plan subject to Title IV of ERISA has
terminated, nor has a "reportable event" (within the meaning of Section 4043
of ERISA) occurred with respect to any such plan (other than such events
with respect to which the reporting requirement has been waived by
regulation).
(e) None of the Qwest Benefit Plans that are "welfare plans" within the
meaning of Section 3(1) of ERISA (i) provide for any post-employment or
retiree benefits other than continuation coverage required to be provided
under Section 4980B of the Code, Part 6 of Title I of ERISA, or applicable
state law, or (ii) has provided any disqualified benefit, within the meaning
of Section 4976 of the Code, with respect to which an excise tax has been,
or could be, imposed.
(f) Qwest has made available to U S WEST a true and correct copy of each
current or last, in the case where there is no current, expired collective
bargaining agreement to which Qwest or any of its Subsidiaries is a party or
under which Qwest or any of its Subsidiaries has obligations and copies of
the following documents with respect to each Qwest Benefit Plan, where
applicable; (i) all plan documents governing such plan and the most recent
summary plan description furnished to employees, (ii) the three (3) most
recent annual reports filed with the IRS, (Form 5500-series), including all
schedules and attachments thereto, (iii) each related trust agreement or
other funding arrangement (including all amendments to each such agreement),
(iv) the most recent determination of the IRS with respect to the qualified
status of such Qwest Benefit Plan, and any currently-pending application for
such a letter, (v) the most recent actuarial report or valuation, and (vi)
written descriptions of unwritten Qwest Benefit Plans.
(g) Except as set forth on Schedule 3.11 hereto as made available to U S
WEST prior to the date hereof, (i) the consummation or announcement of any
transaction contemplated by this Agreement will not (either alone or upon
the occurrence of any additional or further acts or events) result in any
(a) payment (whether of severance pay or otherwise) becoming due from Qwest
or any of its Subsidiaries to any officer, employee, former employee or
director thereof or to the trustee under any "rabbi trust" or similar
arrangement, (b) benefit under any Qwest Benefit Plan being established or
becoming accelerated, vested or payable, or (c) "reportable event" (as
defined in Section 4043 of ERISA) with respect to a Qwest Benefit Plan
subject to Title IV of ERISA, and (ii) neither Qwest nor any of its
Subsidiaries is a party to (a) any management, employment, deferred
compensation, severance (including any payment, right or benefit resulting
from a change in control), bonus or other contract for personal services
with any current or former officer, director or employee (whether or not
characterized as a plan for purposes of ERISA), (b) any consulting contract
with any person who prior to entering into such contract was a director or
officer of Qwest or any of its Subsidiaries, or (c) any plan, agreement,
arrangement or understanding similar to any of the items described in clause
(ii)(a) or (b) of this sentence.
(h) The consummation or announcement of any transaction contemplated by
this Agreement will not (either alone or upon the occurrence of any
additional or further acts or events) result in the disqualification of any
of the Qwest Benefit Plans intended to be qualified under, result in a
prohibited transaction or breach of fiduciary duty under, or otherwise
violate, ERISA or the Code.
(i) Neither Qwest nor any of its Subsidiaries nor any of their
directors, officers, employees or agents, nor any "party in interest" or
"disqualified person", as such terms are defined in Section 3 of ERISA and
Section 4975 of the Code, with respect to any Qwest Benefit Plan, has
engaged in or been a party to any "prohibited transaction", as such term is
defined in Section 4975 of the Code or Section 406 of ERISA, which is not
otherwise exempt, which could result in the imposition of either a
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penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code upon Qwest or its Subsidiaries, or which could
constitute a breach of fiduciary duty which could result in liability on the
part of Qwest or any of its Subsidiaries.
(j) No Qwest Benefit Plan has incurred any "accumulated funding
deficiency" (as defined in Section 412 of the Code or Part 3 of Title I of
ERISA), whether or not waived. Neither Qwest nor any of its Subsidiaries has
incurred, and none of such entities reasonably expects to incur, any
material liability to the PBGC with respect to any Qwest Benefit Plan.
Neither Qwest nor any of its Subsidiaries is a party to, contributes to, or
is required to contribute to, and neither has incurred or reasonably expects
to incur, any withdrawal liability with respect to, any "multiemployer plan"
(as defined in Section 3(37) of ERISA). No Qwest Benefit Plan is a "multiple
employer plan", within the meaning of the Code or ERISA.
SECTION 3.12 LABOR MATTERS. Except as set forth on Schedule 3.12, neither
Qwest nor any of its Subsidiaries is the subject of any pending material
proceeding asserting that it or any of its Subsidiaries has committed an unfair
labor practice or seeking to compel it to bargain with any labor union or labor
organization, nor is any such proceeding pending or, to Qwest's Knowledge,
threatened, except in each case as would not, individually or in the aggregate,
be reasonably likely to have a Material Adverse Effect on Qwest.
SECTION 3.13 ENVIRONMENTAL MATTERS. Except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect on Qwest, or would not otherwise require disclosure pursuant to
the Securities Act, or are listed on Schedule 3.13 hereto (i) each of Qwest and
its Subsidiaries has complied and is in compliance with all applicable
Environmental Laws (as defined below); (ii) the properties currently owned or
operated by it or any of its Subsidiaries (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances (as defined below); (iii) Hazardous Substances were not present,
disposed, released or otherwise deposited on, under, at or from the properties
formerly owned or operated by it or any of its Subsidiaries during the period of
ownership or operation by it or any of its Subsidiaries; (iv) neither it nor any
of its Subsidiaries is subject to liability for any Hazardous Substance disposal
or contamination on any third party property; (v) neither it nor any of its
Subsidiaries has been associated with any release or threat of release of any
Hazardous Substance; (vi) neither it nor any of its Subsidiaries has received
any notice, demand, threat, letter, claim or request for information alleging
that it or any of its Subsidiaries may be in violation of or liable under any
Environmental Law (including any claims relating to electromagnetic fields or
microwave transmissions); (vii) neither it nor any of its Subsidiaries is
subject to any orders, decrees, injunctions or other arrangements with any
Governmental or Regulatory Authority or is subject to any indemnity or other
agreement with any third party relating to liability under any Environmental Law
or relating to Hazardous Substances; and (viii) there are no circumstances or
conditions involving it or any of its Subsidiaries that could reasonably be
expected to result in any claims, liability, investigations, costs or
restrictions on the ownership, use, or transfer of any of its properties
pursuant to any Environmental Law.
As used herein and in Section 4.13, the term "ENVIRONMENTAL LAW" means any
federal, state, local, foreign or other law (including common law), statutes,
ordinances or codes relating to: (a) the protection, investigation or
restoration of the environment, health, safety or natural resources, (b) the
handling, use, presence, disposal, release or threatened release of any
Hazardous Substance, or (c) noise, odor, wetlands, pollution, contamination or
any injury or threat of injury to person or property in connection with any
Hazardous Substance.
As used herein and in Section 4.13, the term "HAZARDOUS SUBSTANCES" means
any substance that is: listed, classified or regulated pursuant to any
Environmental Law, including any petroleum product or by-product,
asbestos-containing material, lead-containing paint or plumbing, polychlorinated
biphenyls, radioactive materials or radon.
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SECTION 3.14 BOARD ACTION; VOTE REQUIRED; APPLICABILITY OF SECTION 203.
(a) The Board of Directors of Qwest has unanimously determined that the
transactions contemplated by this Agreement are in the best interests of Qwest
and its stockholders and has resolved to recommend to such stockholders that
they vote in favor thereof.
(b) The approval of this Agreement and the issuance of Qwest Common Stock
pursuant to this Agreement by a majority of the votes entitled to be cast by all
holders of Qwest Common Stock is the only vote of the holders of any class or
series of the capital stock of Qwest required to approve this Agreement, the
Merger and the other transactions contemplated hereby.
(c) The provisions of Section 203 of Delaware Law will not, assuming the
accuracy of the representation specified in Section 4.20 hereof (without giving
effect to the knowledge qualification therein), apply to this Agreement, the
Voting Agreement or any of the transactions contemplated hereby or thereby.
SECTION 3.15 OPINION OF FINANCIAL ADVISOR. Qwest has received the opinion
of Donaldson, Lufkin & Jenrette Securities Corporation dated the date hereof, to
the effect that, as of such date, the Merger Consideration is fair from a
financial point of view to the holders of Qwest Common Stock.
SECTION 3.16 BROKERS. Except for Donaldson, Lufkin & Jenrette Securities
Corporation, the arrangements with which have been disclosed to U S WEST prior
to the date hereof, who have been engaged by Qwest, no broker, finder or
investment banker is entitled to any brokerage, finder's, investment banking or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Qwest or any of its
Subsidiaries.
SECTION 3.17 TAX MATTERS. Except as set forth on Schedule 3.17 attached
hereto and except to the extent that the failure of the following
representations to be true would not have a Material Adverse Effect on Qwest:
(a) All Tax Returns required to be filed by Qwest or its Subsidiaries on
or prior to the Effective Time have been or will be timely filed with the
appropriate Governmental or Regulatory Authorities and are or will be
correct in all respects, and all Taxes due by Qwest or its Subsidiaries on
or prior to the Effective Time have been, or will be, timely paid;
(b) All unpaid Taxes in respect of Qwest or its Subsidiaries with
respect to taxable periods ending on or prior to the Effective Time or with
respect to taxable periods that begin before the Effective Time and end
after the Effective Time, to the extent such Taxes are attributable to the
portion of such period ending at the Effective Time, have been or will be
adequately reflected as a liability on the books of Qwest or its
Subsidiaries on or prior to the Effective Time;
(c) There are no liens (except for statutory liens for current Taxes not
yet due and payable) against any domestic or foreign assets of Qwest or any
of its Subsidiaries resulting from any unpaid Taxes;
(d) No audit or other proceeding with respect to Taxes due from Qwest or
any of its Subsidiaries, or any Tax Return of Qwest or any of its
Subsidiaries, is pending, threatened in writing, or being conducted by any
Governmental or Regulatory Authority; and
(e) No extension of the statute of limitations on the assessment of any
Taxes has been granted by Qwest or any of its Subsidiaries and is currently
in effect.
SECTION 3.18 INTELLECTUAL PROPERTY. Qwest and its Subsidiaries have all
right, title and interest in, or a valid and binding license to use, all
Intellectual Property (as defined below) that is individually or in the
aggregate material to the conduct of the businesses of Qwest and its
Subsidiaries taken as a whole ("QWEST INTELLECTUAL PROPERTY"). Except as
disclosed in Schedule 3.18, Qwest and its Subsidiaries (i) have not defaulted in
any material respect under any license to use Qwest Intellectual Property, (ii)
are not the subject of any proceeding or litigation for infringement of any
third party Intellectual Property, (iii) have
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no Knowledge of circumstances that would be reasonably expected to give rise to
any such proceeding or litigation, and (iv) have no Knowledge of circumstances
that are causing or would be reasonably expected to cause the loss or impairment
of Qwest Intellectual Property, other than a default, proceeding, litigation,
loss or impairment that is not having or would not be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect on the conduct
of the businesses of Qwest and its Subsidiaries taken as a whole. For purposes
of this Agreement, "INTELLECTUAL PROPERTY" means patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, copyrights and copyright rights, trade secret and
trade secret rights, and other intellectual property rights, and all pending
applications for and registrations of any of the foregoing.
SECTION 3.19 INSURANCE. Except as set forth on Schedule 3.19 hereto, each
of Qwest and each of its Significant Subsidiaries is insured with financially
responsible insurers in such amounts and against such risks and losses as are
customary for companies conducting the business as conducted by Qwest and its
Subsidiaries during such time period. Except as set forth on Schedule 3.19
hereto, since January 1, 1998, neither Qwest nor any of its Subsidiaries has
received notice of cancellation or termination with respect to any material
insurance policy of Qwest or its Subsidiaries which has not been cured. The
insurance policies of Qwest and its Subsidiaries are valid and enforceable
policies.
SECTION 3.20 OWNERSHIP OF SECURITIES. Except as set forth on Schedule 3.20
hereto, as of the date hereof, neither Qwest nor, to Qwest's Knowledge, any of
its affiliates or associates (as such terms are defined under the Exchange Act),
(a) (i) beneficially owns, directly or indirectly, or (ii) is party to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, shares of capital stock of U S WEST, which
in the aggregate represent ten percent (10%) or more of the outstanding shares
of U S WEST Common Stock (other than shares held by Qwest Benefit Plans), nor
(b) is an "interested stockholder" of U S WEST within the meaning of Section 203
of Delaware Law. Except as set forth on Schedule 3.20 hereto, Qwest owns no
shares of U S WEST Common Stock which would constitute Disqualified Shares.
SECTION 3.21 CERTAIN CONTRACTS. Except as set forth on Schedule 3.21
hereto, all material contracts required to be described in Item 601(b)(l0) of
Regulation S-K to which Qwest or its Subsidiaries is a party or may be bound
have been filed as exhibits to, or incorporated by reference in, Qwest's Annual
Report on Form 10-K for the year ended December 31, 1998. Schedule 3.21 lists
all material joint venture or strategic alliance agreements to which Qwest is a
party. All contracts, licenses, consents, royalty or other agreements which are
material to Qwest and its Subsidiaries, taken as a whole, to which Qwest or any
of its Subsidiaries is a party (the "QWEST CONTRACTS") are valid and in full
force and effect on the date hereof except to the extent they have previously
expired in accordance with their terms or, to the extent such invalidity would
not have a Material Adverse Effect on Qwest, and, to Qwest's Knowledge, neither
Qwest nor any of its Subsidiaries has violated any provision of, or committed or
failed to perform any act which with or without notice, lapse of time or both
would constitute a default under the provisions of, any Qwest Contract, except
for defaults which individually and in the aggregate would not reasonably be
expected to result in a Material Adverse Effect on Qwest. Schedule 3.21
separately identifies each Qwest Contract which contains a change-in-control or
similar type provision which will be "triggered" and/or require a consent as a
result of the transactions contemplated hereby.
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SECTION 3.22 LICENSES. Qwest and each of its Subsidiaries are the
authorized legal holders or otherwise have rights to all material Permits and
licenses and operating rights necessary for the operation of their businesses as
presently operated (collectively, the "QWEST LICENSES"). All Qwest Licenses were
duly obtained and are validly issued and in full force and effect. Qwest is in
compliance in all respects with the Communications Act of 1934, as amended, and
the rules, regulations and policies of the FCC and all applicable Governmental
or Regulatory Authorities, except for such failure to comply which would not
have a Material Adverse Effect on Qwest. There is not now pending and, to
Qwest's Knowledge, there is not threatened in each case as of the date hereof,
any action by or before the FCC or any Governmental or Regulatory Authority to
revoke, suspend, cancel, rescind or modify in any material respect any of the
Qwest Licenses. Schedule 3.22 sets forth a complete list of all Qwest Licenses.
SECTION 3.23 YEAR 2000. Qwest has (i) initiated a review and assessment of
all areas within its and each of its existing Subsidiaries' business and
operations that could be adversely affected by a failure of any of its Systems
to be Year 2000 Compliant (as defined below), (ii) developed a plan and timeline
for addressing Year 2000 compliance on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable. Subject to the
qualification contained in the Qwest SEC Reports, based on the foregoing, to
Qwest's Knowledge, all Systems that are material to its or any of its
Subsidiaries' business or operations are reasonably expected on a timely basis
to be Year 2000 Compliant.
SECTION 3.24 FOREIGN CORRUPT PRACTICES AND INTERNATIONAL TRADE
SANCTIONS. To Qwest's Knowledge, neither Qwest, nor any of its Subsidiaries,
nor any of their respective directors, officers, agents, employees or any other
Persons acting on their behalf has, in connection with the operation of their
respective businesses, (i) used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials, candidates
or members of political parties or organizations, or established or maintained
any unlawful or unrecorded funds in violation of Section 104 of the Foreign
Corrupt Practices Act of 1977, as amended, or any other similar applicable
foreign, federal or state law, (ii) paid, accepted or received any unlawful
contributions, payments, expenditures or gifts, or (iii) violated or operated in
non-compliance with any export restrictions, anti-boycott regulations, embargo
regulations or other applicable domestic or foreign laws and regulations, except
in each case where there would be no Material Adverse Effect on Qwest.
SECTION 3.25 DISCLOSURE OF QWEST PLANS. Qwest has disclosed to U S WEST
all plans, projections or the like (written or otherwise) relating to its or its
affiliates' efforts to compete in U S WEST's 14 state region.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF U S WEST
U S WEST hereby represents and warrants as of the date hereof to Qwest as
follows:
SECTION 4.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. U S WEST and
each of its Significant Subsidiaries, as listed on Schedule 4.01 hereto, is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization. Each of the U S WEST
Subsidiaries which is not a Significant Subsidiary is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, except for such failure which, when taken
together with all other such failures, would not reasonably be expected to have
a Material Adverse Effect on U S WEST. Each of U S WEST and its Subsidiaries has
the requisite corporate power and authority and any necessary Permit to own,
operate or lease the properties that it purports to own, operate or lease and to
carry on its business as it is now being conducted, and is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, operated or leased or
the nature of its activities makes such qualification necessary, except for such
failure which, when taken together with all other such failures, would not
reasonably be expected to have a Material Adverse Effect on U S WEST.
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SECTION 4.02 CERTIFICATE OF INCORPORATION AND BYLAWS. U S WEST has
heretofore furnished, or otherwise made available, to Qwest a complete and
correct copy of the Certificate of Incorporation and the Bylaws, each as amended
to the date hereof, of U S WEST and each of its Significant Subsidiaries. Such
Certificates of Incorporation and Bylaws are in full force and effect. Neither U
S WEST nor any of its Significant Subsidiaries is in violation of any of the
provisions of its respective Certificate of Incorporation or, in any material
respect, its Bylaws.
SECTION 4.03 CAPITALIZATION. (a) The authorized capital stock of U S WEST
consists solely of (i) 10,000,000 shares of Series A Junior Preferred Stock, par
value $1.00 per share, none of which are outstanding and all of which are
reserved for issuance under the Rights Agreement (as defined in Section 4.14),
(ii) 190,000,000 shares of Preferred Stock, par value $1.00 per share, none of
which are outstanding and none of which are reserved for issuance, and (iii)
2,000,000,000 shares of U S WEST Common Stock, of which, as of July 12, 1999,
504,527,735 shares were issued and outstanding, 304,003 shares were held in the
treasury of U S WEST and 24,672,931 shares were issuable upon the exercise of
options outstanding under the U S WEST option plans listed on Schedule 4.03
hereto. Except as set forth on Schedule 4.03 or, after the date hereof, as
permitted by Section 5.02 hereof, (x) since July 12, 1999, no shares of U S WEST
Common Stock have been issued, except upon the exercise of options and rights
described in the immediately preceding sentence, and (y) there are no
outstanding U S WEST Equity Rights. For purposes of this Agreement, U S WEST
Equity Rights shall mean subscriptions, options, warrants, calls, commitments,
agreements, conversion rights or other rights of any character (contingent or
otherwise) to purchase or otherwise acquire from U S WEST or any of U S WEST's
Subsidiaries at any time, or upon the happening of any stated event, any shares
of the capital stock or other voting or non-voting securities of U S WEST ("U S
WEST EQUITY RIGHTS"). Schedule 4.03 hereto sets forth a complete and accurate
list of all outstanding U S WEST Equity Rights as of July 12, 1999. Since July
12, 1999, no U S WEST Equity Rights have been issued except as set forth on
Schedule 4.03 or, after the date hereof, as permitted by Section 5.02 hereof.
(b) Except as set forth on Schedule 4.03, or, after the date hereof, as
permitted by Section 5.02 hereof, there are no outstanding obligations of U S
WEST or any of U S WEST's Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of U S WEST.
(c) All of the issued and outstanding shares of U S WEST Common Stock are
validly issued, fully paid and nonassessable.
(d) Except as disclosed on Schedule 4.01 hereto, all the outstanding capital
stock of each of U S WEST's Significant Subsidiaries which is owned by U S WEST
is duly authorized, validly issued, fully paid and nonassessable, and is owned
by U S WEST free and clear of any liens, security interests, pledges,
agreements, claims, charges or encumbrances except for liens, security
interests, pledges, agreements, claims, charges or encumbrances which are
granted to secure indebtedness permitted by Section 5.02. Except as set forth on
Schedule 4.03, or hereafter issued or entered into in accordance with Section
5.02 hereof, there are no existing subscriptions, options, warrants, calls,
commitments, agreements, conversion rights or other rights of any character
(contingent or otherwise) to purchase or otherwise acquire from U S WEST or any
of U S WEST's Subsidiaries at any time, or upon the happening of any stated
event, any shares of the capital stock or other voting or non-voting securities
of any U S WEST Subsidiary, whether or not presently issued or outstanding
(except for rights of first refusal to purchase interests in Subsidiaries which
are not wholly-owned by U S WEST), and there are no outstanding obligations of U
S WEST or any of U S WEST's Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock or other voting or non-voting securities of
any of U S WEST's Subsidiaries, other than such as would not, individually or in
the aggregate, have a Material Adverse Effect on U S WEST. Except for (i) its
Subsidiaries, (ii) immaterial amounts of equity securities, (iii) investments of
Persons in which U S WEST has less than a five percent (5%) interest, and (iv)
equity interests disclosed on Schedule 4.03 hereto or hereafter acquired as
permitted under Section 5.02 hereof, U S WEST does not directly or indirectly
own any equity interest in any other Person.
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(e) No bonds, debentures, notes or other indebtedness of U S WEST having the
right to vote on any matters on which stockholders may vote are issued or
outstanding except for any securities issued after the date hereof in accordance
with Section 5.02.
SECTION 4.04 AUTHORITY RELATIVE TO THIS AGREEMENT. U S WEST has the
necessary corporate power and authority to enter into this Agreement and,
subject to obtaining any necessary stockholder approval of the Merger and this
Agreement, to carry out its obligations hereunder. The execution and delivery of
this Agreement by U S WEST and the consummation by U S WEST of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of U S WEST, subject to the approval of the U S Merger and of this
Agreement by U S WEST's stockholders required by Delaware Law. This Agreement
has been duly executed and delivered by U S WEST and, assuming the due
authorization, execution and delivery thereof by the other Parties, constitutes
a legal, valid and binding obligation of U S WEST, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting the rights and
remedies of creditors generally and to general principles of equity (regardless
of whether considered in a proceeding in equity or at law).
SECTION 4.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Except as
listed on Schedule 4.05 hereto or as described in subsection (b) below, the
execution and delivery of this Agreement by U S WEST does not, and the
performance of this Agreement by U S WEST will not, (i) violate or conflict with
the Certificate of Incorporation or Bylaws of U S WEST, (ii) conflict with or
violate any law, regulation, court order, judgment or decree applicable to U S
WEST or any of its Significant Subsidiaries or by which any of their respective
property is bound or affected, (iii) violate or conflict with the Certificate of
Incorporation or Bylaws of any of U S WEST's Subsidiaries, or (iv) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of U S WEST or any of its
Subsidiaries pursuant to, or result in the loss of any material benefit or
right, including the benefit of any standstill agreement, or result in an
acceleration of any rights or amounts due resulting from a change of control or
otherwise, or require the consent of any other party to any contract,
instrument, permit, license or franchise to which U S WEST or any of its
Significant Subsidiaries is a party or by which U S WEST, any of such
Subsidiaries or any of their respective property is bound or affected, except,
in the case of clauses (ii), (iii), and (iv) above, for conflicts, violations,
breaches, defaults, rights, results or consents which, individually or in the
aggregate, would not have a Material Adverse Effect on U S WEST.
(b) Except for applicable requirements, if any, of state, local, District of
Columbia, or foreign regulatory laws and commissions, the Federal Communications
Commission, the Exchange Act, the premerger notification requirements of the HSR
Act, filing and recordation of appropriate merger or other documents as required
by Delaware Law and any filings required pursuant to any state securities or
"blue sky" laws or the rules of any applicable stock exchanges, neither U S WEST
nor any of its Significant Subsidiaries is required to submit any notice, report
or other filing with any Governmental or Regulatory Authority in connection with
the execution, delivery or performance of this Agreement. Except as set forth in
the immediately preceding sentence, no waiver, consent, approval or
authorization of any Governmental or Regulatory Authority is required to be
obtained by U S WEST or any of its Significant Subsidiaries in connection with
its execution, delivery or performance of this Agreement.
SECTION 4.06 SEC FILINGS; FINANCIAL STATEMENTS. (a) U S WEST has filed all
forms, reports and documents required to be filed with the SEC since June 12,
1998, and has heretofore delivered or made available to Qwest, in the form filed
with the SEC, together with any amendments thereto, its (i) Annual Reports on
Form 10-K for the fiscal year ended December 31, 1998, (ii) all proxy statements
relating to U S WEST's meetings of stockholders (whether annual or special) held
since June 12, 1998, (iii) Quarterly Reports on Form l0-Q for the fiscal quarter
ended March 31, 1999 and (iv) all other reports or registration statements filed
by U S WEST with the SEC since June 12, 1998 (collectively, the "U S WEST SEC
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REPORTS"). The U S WEST SEC Reports (i) were prepared substantially in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations promulgated under each of such
respective acts, and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) The financial statements, including all related notes and schedules,
contained in the U S WEST SEC Reports (or incorporated by reference therein)
fairly present the consolidated financial position of U S WEST and its
Subsidiaries as at the respective dates thereof and the consolidated results of
operations and cash flows of U S WEST and its Subsidiaries for the periods
indicated in accordance with GAAP applied on a consistent basis throughout the
periods involved (except for changes in accounting principles disclosed in the
notes thereto) and subject in the case of interim financial statements to normal
year-end adjustments.
SECTION 4.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the U S WEST SEC Reports filed prior to the date hereof and on Schedule 4.07,
since December 31, 1998, and except as permitted by this Agreement or consented
to hereunder, U S WEST and its Subsidiaries have not incurred any material
liability, except in the ordinary course of their businesses consistent with
their past practices, and there has not been any change, or any event involving
a prospective change, in the business, financial condition or results of
operations of U S WEST or any of its Subsidiaries which has had, or is
reasonably likely to have, a Material Adverse Effect on U S WEST, and U S WEST
and its Subsidiaries have conducted their respective businesses in the ordinary
course consistent with their past practices.
SECTION 4.08 LITIGATION. There are no claims, actions, suits, proceedings
or investigations pending or, to U S WEST's Knowledge, threatened against U S
WEST or any of its Subsidiaries, or any properties or rights of U S WEST or any
of its Subsidiaries, before any Governmental or Regulatory Authority as to which
there is a reasonable likelihood of an adverse judgment or determination against
U S WEST or any of its Subsidiaries, except for those that are not, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect on U S
WEST, or prevent or materially delay the ability of U S WEST to consummate the
transactions contemplated by this Agreement, except as set forth on Schedule
4.08 hereto. With respect to Tax matters, litigation shall not be deemed
threatened unless a Tax authority has delivered a written notice of deficiency
to U S WEST or any of its Subsidiaries.
SECTION 4.09 NO VIOLATION OF LAW; PERMITS. The business of U S WEST and
its Subsidiaries is not being conducted in violation of any Legal Requirements
or in violation of any Permits, except for possible violations none of which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on U S WEST. Except as disclosed in U S WEST SEC Reports
and as set forth in the U S WEST SEC Reports and on Schedule 4.09 hereto, no
investigation, review or proceeding by any Governmental or Regulatory Authority
(including, without limitation, any stock exchange or other self regulatory
body) with respect to U S WEST or its Subsidiaries in relation to any alleged
violation of law or regulation is pending or, to U S WEST's Knowledge,
threatened, nor has any Governmental or Regulatory Authority (including, without
limitation, any stock exchange or other self regulatory body) indicated an
intention to conduct the same, except for such investigations which, if they
resulted in adverse findings, would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on U S WEST. Except
as set forth in the U S WEST SEC Reports and on Schedule 4.09 hereto, neither U
S WEST nor any of its Subsidiaries is subject to any cease and desist or other
order, judgment, injunction or decree issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or has adopted any board resolutions at the request of, any
Governmental or Regulatory Authority that materially restricts the conduct of
its business or which would reasonably be expected to have a Material Adverse
Effect on U S WEST, nor has U S WEST or any of its Subsidiaries been advised
that any Governmental or Regulatory Authority is considering issuing or
requesting any of
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the foregoing. None of the representations and warranties made in this Section
4.09 are being made with respect to Environmental Laws.
SECTION 4.10 JOINT PROXY STATEMENT. None of the information supplied or to
be supplied by or on behalf of U S WEST for inclusion or incorporation by
reference in the Registration Statement will, at the time the Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by or on behalf of U S WEST for inclusion
or incorporation by reference in the Joint Proxy Statement will, at the dates
mailed to stockholders and at the times of the Qwest stockholders' meeting and
the U S WEST stockholders' meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Registration Statement and the
Joint Proxy Statement (except for information relating solely to Qwest) will
comply as to form in all material respects with the provisions of the Securities
Act and the Exchange Act and the rules and regulations promulgated thereunder.
SECTION 4.11 EMPLOYEE MATTERS; ERISA. Except as set forth on Schedule
4.11:
(a) Schedule 4.11 contains a true and complete list of all employee
benefit plans covering present or former employees or directors of U S WEST
and of each of its Subsidiaries or their beneficiaries, or providing
benefits to such persons in respect of services provided to any such entity,
or with respect to which U S WEST or any of its Subsidiaries has, or has
had, an obligation to contribute or any other liability, including, but not
limited to, any employee benefit plans within the meaning of Section 3(3) of
ERISA, any deferred compensation, bonus, stock option, restricted stock,
incentive, profit sharing, retirement, savings, medical, health, life
insurance, disability, sick leave, cafeteria or flexible spending, vacation,
unemployment compensation, severance or change in control agreements,
arrangements, programs, policies or plans and any other benefit arrangements
or payroll practice (collectively, the "U S WEST BENEFIT PLANS"), whether
funded or unfunded, insured or uninsured, written or unwritten.
(b) All contributions and other payments required to be made by U S WEST
or any of its Subsidiaries to or under any U S WEST Benefit Plan (or to any
person pursuant to the terms thereof) have been made or the amount of such
payment or contribution obligation has been reflected in the U S WEST
Financial Statements.
(c) Each of the U S WEST Benefit Plans intended to be "qualified" within
the meaning of Section 401(a) of the Code has been determined by the IRS to
be so qualified, and, to U S WEST's Knowledge, no circumstances exist that
could reasonably be expected by U S WEST to adversely affect such
qualification. U S WEST is in compliance in all material respects with, and
each of the U S WEST Benefit Plans complies in form with, and is and has
been operated in all material respects in compliance with, all applicable
Legal Requirements, including, without limitation, ERISA and the Code. No
assets of U S WEST or any of its Subsidiaries are subject to liens arising
under ERISA or the Code on account of any U S WEST Benefit Plan, neither U S
WEST nor any of its Subsidiaries has been required to provide any security
under Sections 401(a)(29) or 412(f) of the Code, or under Section 307 of
ERISA, and no event has occurred that could give rise to any such lien or a
requirement to provide such security.
(d) With respect to the U S WEST Benefit Plans, individually and in the
aggregate, no event has occurred and, to U S WEST's Knowledge, there does
not now exist any condition or set of circumstances, that could subject U S
WEST or any of its Subsidiaries to any material liability arising under the
Code, ERISA or any other applicable Legal Requirements (including, without
limitation, any liability to any such plan or the PBGC), or under any
indemnity agreement to which U S WEST or any of its Subsidiaries is a party,
excluding liability for benefit claims and funding obligations payable
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in the ordinary course. No U S WEST Benefit Plan subject to Title IV of
ERISA has terminated, nor has a "reportable event" (within the meaning of
Section 4043 of ERISA) occurred with respect to any such plan (other than
such events with respect to which the reporting requirement has been waived
by regulation).
(e) None of the U S WEST Benefit Plans that are "welfare plans" within
the meaning of Section 3(1) of ERISA (i) provides for any post-employment or
retiree benefits other than continuation coverage required to be provided
under Section 4980B of the Code, Part 6 of Title I of ERISA or applicable
state law, or (ii) has provided any disqualified benefit, within the meaning
of Section 4976 of the Code, with respect to which an excise tax has been,
or could be, imposed.
(f) U S WEST has made available to Qwest a true and correct copy of each
current or last, in the case where there is no current, expired collective
bargaining agreement to which U S WEST or any of its Subsidiaries is a party
or under which U S WEST or any of its Subsidiaries has obligations and
copies of the following documents with respect to each U S WEST Benefit
Plan, where applicable, (i) all plan documents governing such plan and the
most recent summary plan description furnished to employees, (ii) the three
(3) most recent annual reports filed with the IRS, (Form 5500-series),
including all schedules and attachments thereto, (iii) each related trust
agreement or other funding arrangement (including all amendments to each
such agreement), (iv) the most recent determination of the IRS with respect
to the qualified status of such U S WEST Benefit Plan, and any
currently-pending application for such a letter, (v) the most recent
actuarial report or valuation, and (vi) written description of unwritten U S
WEST Benefit Plans.
(g) Except as set forth on Schedule 4.11 hereto as made available to
Qwest prior to the date hereof, (i) the consummation or announcement of any
transaction contemplated by this Agreement will not (either alone or upon
the occurrence of any additional or further acts or events) result in any
(a) payment (whether of severance pay or otherwise) becoming due from U S
WEST or any of its Subsidiaries to any officer, employee, former employee or
director thereof or to the trustee under any "rabbi trust" or similar
arrangement, (b) benefit under any U S WEST Benefit Plan being established
or becoming accelerated, vested or payable, or (c) "reportable event" (as
defined in Section 4043 of ERISA) with respect to a U S WEST Benefit Plan
subject to Title IV of ERISA, and (ii) neither U S WEST nor any of its
Subsidiaries is a party to (a) any management, employment, deferred
compensation, severance (including any payment, right or benefit resulting
from a change in control), bonus or other contract for personal services
with any current or former officer, director or employee (whether or not
characterized as a plan for purposes of ERISA), (b) any consulting contract
with any person who prior to entering into such contract was a director or
officer of U S WEST or any of its Subsidiaries, or (c) any plan, agreement,
arrangement or understanding similar to any of the items described in clause
(ii)(a) or (b) of this sentence.
(h) The consummation or announcement of any transaction contemplated by
this Agreement will not (either alone or upon the occurrence of any
additional or further acts or events) result in the disqualification of any
of the U S WEST Benefit Plans intended to be qualified under, result in a
prohibited transaction or breach of fiduciary duty under, or otherwise
violate, ERISA or the Code.
(i) Neither U S WEST nor any of its Subsidiaries nor any of their
directors, officers, employees or agents, nor any "party in interest" or
"disqualified person", as such terms are defined in Section 3 of ERISA and
Section 4975 of the Code, with respect to any U S WEST Benefit Plan, has
engaged in or been a party to any "prohibited transaction", as such term is
defined in Section 4975 of the Code or Section 406 of ERISA, which is not
otherwise exempt, which could result in the imposition of either a penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code upon U S WEST or its Subsidiaries, or which could
constitute a breach of fiduciary duty which could result in liability on the
part of U S WEST or any of its Subsidiaries.
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(j) No U S WEST Benefit Plan has incurred any "accumulated funding
deficiency" (as defined in Section 412 of the Code or Part 3 of Title I of
ERISA), whether or not waived. Neither U S WEST nor any of its Subsidiaries
has incurred, and none of such entities reasonably expects to incur, any
material liability to the PBGC with respect to any U S WEST Benefit Plan.
Neither U S WEST nor any of its Subsidiaries is a party to, contributes to,
or is required to contribute to, and neither has incurred or reasonably
expects to incur, any withdrawal liability with respect to, any
"multiemployer plan" (as defined in Section 3(37) of ERISA). No U S WEST
Benefit Plan is a "multiple employer plan", within the meaning of the Code
or ERISA.
SECTION 4.12 LABOR MATTERS. Except as set forth on Schedule 4.12, neither
U S WEST nor any of its Subsidiaries is the subject of any pending material
proceeding asserting that it or any of its Subsidiaries has committed an unfair
labor practice or seeking to compel it to bargain with any labor union or labor
organization, nor is any such proceeding pending or, to U S WEST's Knowledge,
threatened, except in each case as would not, individually or in the aggregate,
be reasonably likely to have a Material Adverse Effect on U S WEST.
SECTION 4.13 ENVIRONMENTAL MATTERS. Except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect on U S WEST, or would not otherwise require disclosure pursuant
to the Securities Act, or are listed on Schedule 4.13 hereto, (i) each of U S
WEST and its Subsidiaries has complied and is in compliance with all applicable
Environmental Laws; (ii) the properties currently owned or operated by it or any
of its Subsidiaries (including soils, groundwater, surface water, buildings or
other structures) are not contaminated with any Hazardous Substances; (iii)
Hazardous Substances were not present, disposed, released or otherwise deposited
on, under, at or from the properties formerly owned or operated by it or any of
its Subsidiaries during the period of ownership or operation by it or any of its
Subsidiaries; (iv) neither it nor any of its Subsidiaries is subject to
liability for any Hazardous Substance disposal or contamination on any third
party property; (v) neither it nor any of its Subsidiaries has been associated
with any release or threat of release of any Hazardous Substance; (vi) neither
it nor any of its Subsidiaries has received any notice, demand, threat, letter,
claim or request for information alleging that it or any of its Subsidiaries may
be in violation of or liable under any Environmental Law (including any claims
relating to electromagnetic fields or microwave transmissions); (vii) neither it
nor any of its Subsidiaries is subject to any orders, decrees, injunctions or
other arrangements with any Governmental or Regulatory Authority or is subject
to any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; and (viii)
there are no circumstances or conditions involving it or any of its Subsidiaries
that could reasonably be expected to result in any claims, liability,
investigations, costs or restrictions on the ownership, use, or transfer of any
of its properties pursuant to any Environmental Law.
SECTION 4.14 BOARD ACTION; VOTE REQUIRED; U S WEST RIGHTS PLAN;
APPLICABILITY OF SECTION 203; TERMINATION OF GLOBAL MERGER AGREEMENT. (a) The
Board of Directors of U S WEST has unanimously determined that the transactions
contemplated by this Agreement are in the best interests of U S WEST and its
stockholders and has resolved to recommend to such stockholders that they vote
in favor thereof.
(b) The approval of this Agreement and the Merger by a majority of the votes
entitled to be cast by all holders of U S WEST Common Stock is the only vote of
the holders of any class or series of the capital stock of U S WEST required to
approve this Agreement, the Merger and the other transactions contemplated
hereby.
(c) The provisions of Section 203 of Delaware Law will not, assuming the
accuracy of the representations contained in Section 3.20 hereof (without giving
effect to the knowledge qualification therein), apply to this Agreement or any
of the transactions contemplated hereby.
(d) The Board of Directors of U S WEST have taken all actions necessary to
render Article IX of the U S WEST Certificate of Incorporation inapplicable to
the transactions contemplated hereby.
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(e) The Rights Agreement dated as of June 1, 1998 between U S WEST and State
Street Bank and Trust Company (the "RIGHTS AGREEMENT") has been amended so as to
provide that (x) none of Qwest or any of its Subsidiaries will be an "Acquiring
Person" thereunder and (y) the changes pursuant to Amendment No. 1 to the Rights
Agreement have been cancelled in their entirety.
(f) The Agreement and Plan of Merger dated as of May 16, 1999 (the "GLOBAL
MERGER AGREEMENT") between U S WEST and Global Crossing Ltd. ("GLOBAL") has been
duly terminated.
SECTION 4.15 OPINIONS OF FINANCIAL ADVISORS. U S WEST has received the
opinions of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MERRILL
LYNCH"), and Lehman Brothers Inc. ("LEHMAN BROTHERS"), dated the date hereof,
and each to the effect that, as of such date, the Merger Consideration is fair
from a financial point of view to the holders of U S WEST Common Stock.
SECTION 4.16 BROKERS. Except for Merrill Lynch and Lehman Brothers, the
arrangements with which have been disclosed to Qwest prior to the date hereof,
who have been engaged by U S WEST, no broker, finder or investment banker is
entitled to any brokerage, finder's, investment banking or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of U S WEST or any of its
Subsidiaries.
SECTION 4.17 TAX MATTERS. Except as set forth on Schedule 4.17 attached
hereto and except to the extent that the failure of the following
representations to be true would not have a Material Adverse Effect on U S WEST:
(a) All Tax Returns required to be filed by U S WEST or its Subsidiaries
on or prior to the Effective Time have been or will be timely filed with the
appropriate Governmental or Regulatory Authorities and are or will be
correct in all respects, and all Taxes due by U S WEST or its Subsidiaries
on or prior to the Effective Time have been, or will be, timely paid;
(b) All unpaid Taxes in respect of U S WEST or its Subsidiaries with
respect to taxable periods ending on or prior to the Effective Time or with
respect to taxable periods that begin before the Effective Time and end
after the Effective Time, to the extent such Taxes are attributable to the
portion of such period ending at the Effective Time, have been or will be
adequately reflected as a liability on the books of U S WEST or its
Subsidiaries on or prior to the Effective Time;
(c) There are no liens (except for statutory liens for current Taxes not
yet due and payable) against any domestic or foreign assets of U S WEST or
any of its Subsidiaries resulting from any unpaid Taxes;
(d) No audit or other proceeding with respect to Taxes due from U S WEST
or any of its Subsidiaries, or any Tax Return of U S WEST or any of its
Subsidiaries, is pending, threatened in writing, or being conducted by any
Governmental or Regulatory Authority; and
(e) No extension of the statute of limitations on the assessment of any
Taxes has been granted by U S WEST or any of its Subsidiaries and is
currently in effect.
SECTION 4.18 INTELLECTUAL PROPERTY. U S WEST and its Subsidiaries have all
right, title and interest in, or a valid and binding license to use, all
Intellectual Property that is individually or in the aggregate material to the
conduct of the businesses of U S WEST and its Subsidiaries taken as a whole ("U
S WEST INTELLECTUAL PROPERTY"). Except as disclosed in Schedule 4.18, U S WEST
and its Subsidiaries (i) have not defaulted in any material respect under any
license to use U S WEST Intellectual Property, (ii) are not the subject of any
proceeding or litigation for infringement of any third party Intellectual
Property, (iii) have no Knowledge of circumstances that would be reasonably
expected to give rise to any such proceeding or litigation, and (iv) have no
Knowledge of circumstances that are causing or would be reasonably expected to
cause the loss or impairment of U S WEST Intellectual Property, other than a
default, proceeding, litigation, loss or impairment that is not having or would
not be reasonably expected to have, individually
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or in the aggregate, a Material Adverse Effect on the conduct of the businesses
of U S WEST and its Subsidiaries taken as a whole.
SECTION 4.19 INSURANCE. Except as set forth on Schedule 4.19 hereto, each
of U S WEST and each of its Significant Subsidiaries is insured with financially
responsible insurers in such amounts and against such risks and losses as are
customary for companies conducting the business as conducted by U S WEST and its
Subsidiaries during such time period. U S WEST maintains self-insurance programs
as described on Schedule 4.19. Except as set forth on such Schedule 4.19, since
January 1, 1998, neither U S WEST nor any of its Subsidiaries has received
notice of cancellation or termination with respect to any material insurance
policy of U S WEST or its Subsidiaries which has not been cured. The insurance
policies of U S WEST and its Subsidiaries are valid and enforceable policies.
SECTION 4.20 OWNERSHIP OF SECURITIES. Except as set forth on Schedule
4.20, as of the date hereof, neither U S WEST nor, to U S WEST's Knowledge, any
of its affiliates or associates (as such terms are defined under the Exchange
Act), (a) beneficially owns, directly or indirectly, or is party to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, shares of capital stock of Qwest, which in
the aggregate represent ten percent (10%) or more of the outstanding shares of
Qwest Common Stock (other than shares held by U S WEST Benefit Plans) nor (b) is
an "Interested Stockholder" of Qwest within the meaning of Section 203 of
Delaware Law. Except as set forth on Schedule 4.20 hereto, U S WEST owns no
shares of Qwest Common Stock which would constitute Disqualified Shares.
SECTION 4.21 CERTAIN CONTRACTS. Except as set forth on Schedule 4.21, all
material contracts required to be described in Item 601(b)(10) of Regulation S-K
to which U S WEST or its Subsidiaries is a party or may be bound have been filed
as exhibits to, or incorporated by reference in, U S WEST's Annual Report on
Form 10-K for the year ended December 31, 1998. Schedule 4.21 lists all material
joint venture or strategic alliance agreements to which U S WEST is a party. All
contracts, licenses, consents, royalty or other agreements which are material to
U S WEST and its Subsidiaries, taken as a whole, to which U S WEST or any of its
Subsidiaries is a party (the "U S WEST CONTRACTS") are valid and in full force
and effect on the date hereof except to the extent they have previously expired
in accordance with their terms or to the extent such invalidity would not have a
Material Adverse Effect on U S WEST, and, to U S WEST's Knowledge, neither U S
WEST nor any of its Subsidiaries has violated any provision of, or committed or
failed to perform any act which with or without notice, lapse of time or both
would constitute a default under the provisions of, any U S WEST Contract,
except for defaults which, individually and in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect on U S WEST.
Schedule 4.21 separately identifies each U S WEST Contract which contains a
change-in-control or similar type provision which will be "triggered" and/or
require a consent as a result of the transactions contemplated hereby.
SECTION 4.22 LICENSES. U S WEST and each of its Subsidiaries are the
authorized legal holders or otherwise has rights to all material Permits and
licenses and operating rights necessary for the operation of their businesses as
presently operated (collectively, the "U S WEST LICENSES"). All U S WEST
Licenses were duly obtained and are validly issued and in full force and effect.
U S WEST is in compliance in all respects with the Communications Act of 1934,
as amended, and the rules, regulations and policies of the FCC and all
applicable Governmental or Regulatory Authorities except for such failure to
comply which would not have a Material Adverse Effect on U S WEST. There is not
now pending and, to U S WEST's Knowledge, there is not threatened, in each case
as of the date hereof, any action by or before the FCC or any Governmental or
Regulatory Authority to revoke, suspend, cancel, rescind or modify in any
material respect any of the U S WEST Licenses. Schedule 4.22 sets forth a
complete list of all U S WEST Licenses.
SECTION 4.23 YEAR 2000. U S WEST has (i) initiated a review and assessment
of all areas within its and each of its existing Subsidiaries' business and
operations that could be adversely affected by a failure of any of its Systems
to be Year 2000 Compliant, (ii) developed a plan and timeline for addressing
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Year 2000 compliance on a timely basis, and (iii) to date, implemented that plan
in accordance with that timetable. Subject to the qualification contained in the
U S WEST SEC Reports, based on the foregoing, to U S WEST's Knowledge, all
Systems that are material to its or any of its Subsidiaries' business or
operations are reasonably expected on a timely basis to be Year 2000 Compliant.
SECTION 4.24 FOREIGN CORRUPT PRACTICES AND INTERNATIONAL TRADE
SANCTIONS. To U S WEST's Knowledge, neither U S WEST, nor any of its
Subsidiaries, nor any of their respective directors, officers, agents, employees
or any other Persons acting on their behalf has, in connection with the
operation of their respective businesses, (i) used any corporate or other funds
for unlawful contributions, payments, gifts or entertainment, or made any
unlawful expenditures relating to political activity to government officials,
candidates or members of political parties or organizations, or established or
maintained any unlawful or unrecorded funds in violation of Section 104 of the
Foreign Corrupt Practices Act of 1977, as amended, or any other similar
applicable foreign, federal or state law, (ii) paid, accepted or received any
unlawful contributions, payments, expenditures or gifts, or (iii) violated or
operated in noncompliance with any export restrictions, anti-boycott
regulations, embargo regulations or other applicable domestic or foreign laws
and regulations except in each case which would not have a Material Adverse
Effect on U S WEST.
ARTICLE 5
CONDUCT OF INDEPENDENT BUSINESSES PENDING THE MERGER
SECTION 5.01 TRANSITION PLANNING. A six-person committee (the "TRANSITION
COMMITTEE"), the members of which will be designated within 10 business days
from the date hereof, shall be established promptly following the date hereof to
coordinate the numerous administrative matters necessary to consummate the
Merger. If any of such persons is unable to serve on the Transition Committee
for any reason, then Qwest and U S WEST shall take such action as may be
required so that the Transition Committee consists of three (3) persons
designated by each of Qwest and U S WEST. The Transition Committee shall be
responsible for coordinating all aspects of administrative planning and
implementation relating to the Merger and the other transactions contemplated
hereby. The affirmative vote of four (4) members of the Transition Committee
shall be required for such committee to take action.
SECTION 5.02 CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Each of Qwest and
U S WEST covenants and agrees that, between the date hereof and the Effective
Time, unless the Transition Committee shall otherwise consent in writing, and
except as described on Schedule 5.02 hereto or as otherwise expressly
contemplated hereby, the business of such Party and its Subsidiaries shall be
conducted only in, and such entities shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice and
all Legal Requirements and Permits; and each of Qwest and U S WEST and their
respective Subsidiaries will use their commercially reasonable efforts to
preserve substantially intact their business organizations, to keep available
the services of those of their present officers, employees and consultants who
are integral to the operation of their businesses as presently conducted and to
preserve their present relationships with significant customers and suppliers
and with other persons with whom they have significant business relations;
provided, however, that no action by Qwest or U S WEST or its Subsidiaries with
respect to matters specifically addressed by any other provision of this Section
5.02 shall be deemed a breach of this sentence unless such action would
constitute a breach of one or more of such other provisions. By way of
amplification and not limitation, unless the Transition Committee shall
otherwise consent in writing, and except as set forth on Schedule 5.02 hereto or
as otherwise expressly contemplated by this Agreement, each of Qwest and U S
WEST agrees on behalf of itself and its Subsidiaries that they will not, between
the date hereof and the Effective Time, directly or indirectly, do any of the
following without the prior written consent of the other:
(a) (i) except for (a) the issuance of shares of Qwest Common Stock and
U S WEST Common Stock in the ordinary course of business and in a manner
consistent with past practice in amounts not exceeding the amounts set forth
in Schedule 5.02 in order to satisfy obligations under employee benefit
plans disclosed in Schedule 3.03 or 4.03 and U S WEST Equity Rights or Qwest
Equity Rights
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issued thereunder and under existing dividend reinvestment plans, (b) grants
of stock options with respect to Qwest Common Stock or U S WEST Common Stock
to employees as set forth on Schedule 5.02 hereto in the ordinary course of
business and in a manner consistent with past practice, (c) issuances of
equity securities as set forth on Schedule 5.02, (d) the issuance of
securities by a Subsidiary to any Person which is directly or indirectly
wholly-owned by Qwest or U S WEST (as the case may be), or (e) liens granted
to secure indebtedness permitted by Schedule 5.02: issue, sell, pledge,
dispose of, encumber, authorize, or propose the issuance, sale, pledge,
disposition, encumbrance or authorization of any shares of capital stock of
any class, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of capital stock of, or any other
ownership interest in, such Party or any of its Subsidiaries; (ii) amend or
propose to amend the Certificate of Incorporation or Bylaws (or other
comparable organizational document) of such Party or any of its
Subsidiaries, or adopt, amend or propose to amend any stockholder rights
plan or related rights agreement; (iii) split, combine or reclassify any
outstanding shares of Qwest Common Stock or U S WEST Common Stock, or
declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise with respect to shares of Qwest Common Stock or
U S WEST Common Stock, except pursuant to Section 6.17; (iv) redeem,
purchase or otherwise acquire or offer to redeem, purchase or otherwise
acquire any shares of its capital stock, except that Qwest shall be
permitted to acquire shares of Qwest Common Stock and U S WEST shall be
permitted to acquire shares of U S WEST Common Stock, from time to time in
open market transactions, consistent with past practice and in compliance
with Legal Requirements and the provisions of any applicable employee
benefit plan, program or arrangement, for issuance upon the exercise of
options and other rights granted, and the lapsing of restrictions, under
such Party's respective employee benefit plans, programs and arrangements
and dividend reinvestment plans and, in the case of U S WEST, under any
stock repurchase programs previously authorized and announced or otherwise
set forth in Schedule 5.02 hereof; (v) authorize or propose or enter into
any contract, agreement, commitment or arrangement with respect to any of
the matters prohibited by this Section 5.02(a); or (vi) with respect to
Qwest, its Subsidiaries, affiliates, agents and employees, take any action
which may reasonably be expected to effect, change or manipulate the Average
Price, including but not limited to (x) purchases or sales of Qwest Common
Stock, and (y) public announcements other than normal earnings announcements
or announcements made in the ordinary course of business;
(b) (i) except as permitted by Schedule 5.02 hereto, and acquisitions
pursuant to 6.19 hereof, acquire (by merger, consolidation, or acquisition
of stock or assets) any corporation, partnership or other business
organization or division thereof or make or increase any investment in
another entity (other than an entity which is a wholly-owned Subsidiary of
such Party as of the date hereof and other than incorporation of a
wholly-owned Subsidiary) or joint ventures in connection with network
buildouts, and investments in customers in the ordinary course of business
and investments permitted by Schedule 5.02; (ii) except in the ordinary
course of business and in a manner consistent with past practice or as may
be required by, or in accordance with, law or any Governmental or Regulatory
Authority in order to permit or facilitate the consummation of the
transactions contemplated hereby, sell, pledge, dispose of, or encumber or
authorize or propose the sale, pledge, disposition or encumbrance of any
assets of such Party or any of its Subsidiaries, except for transactions
permitted by Schedule 5.02 and acquisitions pursuant to Section 6.19 hereof;
(iii) except in the ordinary course of business and in a manner consistent
with past practice and all Legal Requirements and Permits, authorize or make
capital expenditures; (iv) except as permitted by Schedule 5.02 and
acquisitions pursuant to Section 6.19 hereof, enter into any other
agreement, contract or commitment except (1) in the ordinary course of
business of operating the existing businesses of Qwest or U S WEST, as the
case may be, or (2) in accordance with the then current business plan for
any of the other existing businesses of Qwest or U S WEST, as the case may
be; or (v) authorize or enter into any contract, agreement, commitment or
arrangement with respect to any of the matters prohibited by this Section
5.02(b);
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(c) incur indebtedness (from that shown on its balance sheet as of
December 31, 1998) except (i) as permitted by Schedule 5.02 hereto and (ii)
refinancing of existing indebtedness;
(d) enter into (i) leveraged derivative contracts (defined as contracts
that use a factor to multiply the underlying index exposure), or (ii) other
derivative contracts except for the purpose of hedging known interest rate
and foreign exchange exposures or otherwise reducing such Party's cost of
financing, provided, however, that employee stock ownership plans and other
pension and deferred compensation plans of Qwest or U S WEST may enter into
derivative contracts as part of their ordinary course investment strategy;
(e) take any action with respect to the grant of any severance or
termination pay, or stay, bonus, or other incentive arrangements (otherwise
than pursuant to Benefit Plans and policies of such Party in effect on the
date hereof or in the ordinary course of such Party's business) or with
respect to any increase in benefits payable under its severance or
termination pay policies, or stay, bonus or other incentive arrangements in
effect on the date hereof, if all such actions taken were to result, in the
payment, or the obligation to pay, of an amount, in any particular case, in
excess of the amount permitted by Schedule 5.02;
(f) except, in each case, as listed on Schedule 5.02, make any payments
(except in the ordinary course of business and in amounts and in a manner
consistent with past practice or as otherwise required by Legal Requirements
or the provisions of any Qwest Benefit Plan or U S WEST Benefit Plan, as the
case may be) under any Qwest Benefit Plan or any U S WEST Benefit Plan, as
the case may be, to any director or officer of, or independent contractor or
consultant to, such Party or any of its Subsidiaries, adopt or otherwise
materially amend (except for amendments required or made advisable by Legal
Requirements) any Qwest Benefit Plan or U S WEST Benefit Plan, as the case
may be (other than any such adoption or amendment which affects retirees
generally as a group), or enter into or amend any employment or consulting
agreement of the type which would be required to be disclosed hereunder
pursuant to Section 3.11 hereof with respect to Qwest or Section 4.11 hereof
with respect to U S WEST, or grant or establish any new awards under any
such existing Qwest Benefit Plan or U S WEST Benefit Plan or agreement with
respect to officers or directors (except in the ordinary course of business
and in amounts and in a manner consistent with past practice);
(g) file any material amended Tax Returns, settle any material Tax
audits or other proceedings, other than in connection with currently pending
proceedings or subsequent related proceedings, or change in any material
respect (i) its method of tax accounting or tax practice or (ii) its
accounting policies, methods or procedures, except as required by GAAP; (h)
take any action which could reasonably be expected to materially adversely
affect or delay the ability of any of the Parties to obtain any approval of
any Governmental or Regulatory Authority required to consummate the
transactions contemplated hereby;
(i) take any action that would prevent or impede the Merger from
qualifying for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code;
(j) other than pursuant to this Agreement, take any action to cause the
shares of their respective Common Stock to cease to be quoted on any of the
stock exchanges on which such shares are now quoted;
(k) (i) issue SARs, new performance shares, restricted stock, or similar
equity based rights, except as set forth in Section 5.02(a) and except in
the ordinary course of business and in a manner consistent with past
practice and as set forth on Schedule 5.02; (ii) materially modify any
actuarial cost method, assumption or practice used in determining benefit
obligations, annual expense and funding for any Benefit Plan, except to the
extent required by GAAP; (iii) materially modify the investment philosophy
of the Benefit Plan trusts or maintain an asset allocation which is not
consistent with such philosophy, subject to any ERISA fiduciary obligation;
(iv) subject to any ERISA fiduciary obligation,
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enter into any outsourcing agreement, or any other material contract
relating to the Benefit Plans or management of the Benefit Plan trusts,
provided that U S WEST and Qwest may enter into any such contracts that may
be terminated within two years; (v) offer any new or extend any existing
retirement incentive, "window" or similar benefit program; (vi) grant any ad
hoc pension increase; (vii) establish any new or fund any existing "rabbi"
or similar trust (except in accordance with the current terms of such
trust), or enter into any other arrangement for the purpose of securing
non-qualified benefits or deferred compensation; (viii) adopt or implement
any corporate owned life insurance; or (ix) adopt, implement or maintain any
"split dollar" life insurance program;
(l) except as provided in Schedule 5.02, agree to enter into any merger,
reorganization, share exchange, business combination or similar transaction
pursuant to which the stockholders of U S WEST or Qwest, as applicable, will
receive any consideration (whether payable in cash, securities, property or
other consideration) in exchange for their shares of Qwest Common Stock or U
S WEST Common Stock, as applicable; or
(m) authorize or enter into any contract, agreement, commitment or
arrangement with respect to any of the matters prohibited by this Section
5.02(b).
Qwest and U S WEST agree that any written approval obtained under this
Section 5.02 may be relied upon by a Party if signed by a member of the
Transition Committee appointed by the other Party.
SECTION 5.03 NO SOLICITATION. (a) From and after the date hereof, Qwest
and U S WEST shall not, nor shall they permit any of their respective
Subsidiaries to, nor shall they authorize or permit any of their respective
officers, directors or employees to, and shall use their commercially reasonable
efforts to cause any investment banker, financial advisor, attorney, accountants
or other representatives retained by them or any of their respective
Subsidiaries not to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or knowingly
take any other action designed to facilitate, any Alternative Transaction (as
hereinafter defined), or (ii) participate in any discussions regarding any
Alternative Transaction; PROVIDED, HOWEVER, that if, at any time prior to the
time the Qwest Stockholders' Approval or the U S WEST Stockholders' Approval is
obtained, the Board of Directors of Qwest or U S WEST, as the case may be,
determines in good faith, that to provide such information or to participate in
such negotiations or discussions is reasonably likely to result in a Qwest
Superior Proposal or a U S WEST Superior Proposal (as such terms are defined in
Section 6.02 hereof), as the case may be, that was not initially solicited by it
and that did not otherwise result from a breach of this Section 5.03, U S WEST
or Qwest, as applicable, may, subject to the Party receiving the Qwest Superior
Proposal or U S WEST Superior Proposal, as the case may be, giving the other
Party written notice of its intention to do so, after obtaining a
confidentiality agreement substantially similar to the Confidentiality Agreement
dated July 8, 1999 between the Parties, (x) furnish information with respect to
Qwest or U S WEST, as the case may be, and (y) engage in discussion and
negotiations regarding such proposal. Each of Qwest and U S WEST shall promptly
notify the other Party orally and in writing of any request for information or
of any proposal in connection with an Alternative Transaction, the material
terms and conditions of such request or proposal and the identity of the person
making such request or proposal. Each of Qwest and U S WEST will keep the other
Party reasonably informed of the status (including amendments or proposed
amendments) of such request or proposal on a current basis. Each of Qwest and U
S WEST shall immediately cease and terminate any existing solicitation,
initiation, encouragement activity, discussion or negotiation with any persons
conducted heretofore by them or their representatives with respect to the
foregoing.
(b) Each of Qwest and U S WEST (i) agrees not to release any Third Party (as
defined in Section 5.03(c)) from, or waive any provision of, or fail to enforce,
any standstill agreement or similar agreement to which it is a party related to,
or which could affect, an Alternative Transaction and agrees that either Party
shall be entitled to enforce the other Party's rights and remedies under and in
connection with such agreements (provided Qwest shall have no such right with
respect to the Global Merger Agreement) and
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(ii) acknowledges that the provisions of clause (i) are an important and
integral part of this Agreement. Nothing contained in this Section 5.03 or in
Section 6.02 shall prohibit either Party (i) from taking and disclosing to its
stockholders a position contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated
under the Exchange Act, or (ii) from making any disclosure to its stockholders
if, in the good faith judgment of the Board of Directors of such Party, after
receipt of advice from outside counsel, failure to disclose would result in a
reasonable likelihood that such Board of Directors would breach its duties to
such Party's stockholders under applicable law.
(c) For purposes of this Agreement, "ALTERNATIVE TRANSACTION" means a
proposal or intended proposal, regarding any of (i) a transaction or series of
transactions pursuant to which any person (or group of persons) other than a
Party and its Subsidiaries (a "THIRD PARTY") acquires or would acquire, directly
or indirectly, beneficial ownership (as defined in Rule 13d-3 under the Exchange
Act) of more than twenty percent (20%) of the outstanding shares of Qwest or U S
WEST, as the case may be, whether from Qwest of U S WEST, as the case may be, or
pursuant to a tender offer or exchange offer or otherwise, (ii) any acquisition
or proposed acquisition of, or business combination with U S WEST or any of its
Significant Subsidiaries, or Qwest or any of its Significant Subsidiaries, as
applicable, by a merger or other business combination (including any so-called
"merger-of-equals" and whether or not U S WEST or any of its Significant
Subsidiaries or Qwest or any of its Significant Subsidiaries, as the case may
be, is the entity surviving any such merger or business combination), or (iii)
any other transaction pursuant to which any Third Party acquires or would
acquire, directly or indirectly, control of assets (including for this purpose
the outstanding equity securities of Subsidiaries of U S WEST or Qwest, as the
case may be, and any entity surviving the merger or business combination
including any of them) of U S WEST or any of its Subsidiaries or Qwest or any of
its Subsidiaries, as the case may be, for consideration equal to twenty percent
(20%) or more of the fair market value of all of the outstanding shares of U S
WEST Common Stock or twenty percent (20%) or more of the fair market value of
all of the outstanding shares of Qwest Common Stock, as the case may be, on the
date of this Agreement.
SECTION 5.04 SUBSEQUENT FINANCIAL STATEMENTS. Prior to the Effective Time,
each of Qwest and U S WEST will timely file with the SEC, each Annual Report on
Form 10-K, Quarterly Report on Form 10-Q and Current Report on Form 8-K required
to be filed by such Party under the Exchange Act and the rules and regulations
promulgated thereunder and will promptly deliver to the other copies of each
such report filed with the SEC. As of their respective dates, none of such
reports shall contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The respective audited financial statements and unaudited interim
financial statements of each of Qwest and U S WEST, as the case may be, included
in such reports will fairly present the financial position of such Party and its
Subsidiaries as at the dates thereof and the results of their operations and
cash flows for the periods then ended in accordance with GAAP applied on a
consistent basis and, subject, in the case of unaudited interim financial
statements, to normal year-end adjustments and any other adjustments described
therein.
SECTION 5.05 CONTROL OF OPERATIONS. Nothing contained in this Agreement
shall give U S WEST, directly or indirectly, the right to control or direct
Qwest's operations prior to the Effective Time. Nothing contained in this
Agreement shall give Qwest, directly or indirectly, the right to control or
direct U S WEST's operations prior to the Effective Time. Prior to the Effective
Time, each of U S WEST and Qwest shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over their
respective operations.
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.01 JOINT PROXY STATEMENT AND THE REGISTRATION STATEMENT. (a) As
promptly as practicable after the execution and delivery of this Agreement,
Qwest and U S WEST will prepare and file with the
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SEC the Joint Proxy Statement and Registration Statement, or an amendment
thereto, and Qwest U S WEST shall use all reasonable efforts to have the Joint
Proxy Statement and Registration Statement declared effective by the SEC under
the Securities Act, and promptly thereafter shall mail to the holders of record
of shares of U S WEST Common Stock and Qwest Common Stock, the Joint Proxy
Statement; PROVIDED, HOWEVER, that Qwest and U S WEST shall not mail or
otherwise furnish the Joint Proxy Statement to their respective stockholders
unless and until:
(i) they have received notice from the SEC that the Registration
Statement is effective under the Securities Act;
(ii) Qwest shall have received a letter of its independent accountants,
dated a date within two (2) business days prior to the date of the first
mailing of the Joint Proxy Statement, and addressed to Qwest, in form and
substance reasonably satisfactory to Qwest and customary in scope and
substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements on Form S-4 with
respect to the financial statements of U S WEST included in the Joint Proxy
Statement and the Registration Statement; and
(iii) U S WEST shall have received a letter of its independent
accountants, dated a date within two (2) business days prior to the date of
the first mailing of the Joint Proxy Statement, and addressed to U S WEST,
in form and substance reasonably satisfactory to U S WEST and customary in
scope and substance for "cold comfort" letters delivered by independent
public accountants in connection with registration statements on Form S-4
with respect to the financial statements of Qwest included in the Joint
Proxy Statement and the Registration Statement.
(b) The Parties will cooperate in the preparation of the Joint Proxy
Statement and the Registration Statement and in having the Registration
Statement declared effective as soon as practicable.
SECTION 6.02 QWEST AND U S WEST STOCKHOLDERS' MEETINGS AND CONSUMMATION OF
THE MERGER. (a) As promptly as practicable after the Registration Statement is
declared effective under the Securities Act, Qwest shall duly give notice of,
convene and hold a meeting of its stockholders (the "QWEST STOCKHOLDERS'
MEETING") in accordance with Delaware Law for the purposes of obtaining the
approval of Qwest stockholders required to approve this Agreement and the other
transactions contemplated hereby (the "QWEST STOCKHOLDER APPROVAL") and shall,
subject to the provisions of Section 6.02(b) hereof, through its Board of
Directors, recommend to its stockholders the approval and adoption of this
Agreement and the other transactions contemplated hereby and shall use its
commercially reasonable efforts to obtain the Qwest Stockholder Approval.
(b) Neither the Board of Directors of Qwest nor any committee thereof shall
(i) except as expressly permitted by this Section 6.02(b), withdraw, qualify or
modify, or propose publicly to withdraw, qualify or modify, in a manner adverse
to U S WEST, the approval or recommendation of such Board of Directors or such
committee of this Agreement, the Merger and the transactions contemplated
hereby, (ii) approve or recommend, or propose publicly to approve or recommend,
any Alternative Transaction, or (iii) cause Qwest to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar agreement
(each, a "QWEST ACQUISITION AGREEMENT") related to any Alternative Transaction.
Notwithstanding the foregoing, in the event that prior to the time the Qwest
Stockholder Approval is obtained, Qwest receives a Qwest Superior Proposal (as
defined below), the Board of Directors of Qwest may (subject to this and the
following sentences) inform Qwest stockholders that it no longer believes that
the transactions contemplated by this Agreement are advisable and no longer
recommends approval of this Agreement and the transactions contemplated hereby
(a "QWEST SUBSEQUENT DETERMINATION"), but only at a time that is after the fifth
business day following U S WEST's receipt of written notice advising U S WEST
that the Board of Directors of Qwest has received a Qwest Superior Proposal
specifying the material terms and conditions of such Qwest Superior Proposal
(and including a copy thereof with all accompanying documentation, if in
writing), identifying the person making such Qwest Superior Proposal and stating
that it intends to make a Qwest Subsequent Determination. After providing such
notice, Qwest shall provide a
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reasonable opportunity to U S WEST to make such adjustments in the terms and
conditions of this Agreement as would enable Qwest to proceed with its
recommendation to its stockholders without a Qwest Subsequent Determination;
PROVIDED, HOWEVER, that any such adjustment shall be at the discretion of the
Parties at the time. For purposes of this Agreement, a "QWEST SUPERIOR PROPOSAL"
means any proposal (on its most recently amended or modified terms, if amended
or modified) made by a Third Party to enter into an Alternative Transaction
which the Board of Directors of Qwest determines in its good faith judgment
(based on, among other things, the advice of a financial advisor of nationally
recognized reputation) to be more favorable to Qwest's stockholders than the
transactions contemplated by this Agreement taking into account all relevant
factors (including whether, in the good faith judgment of the Board of Directors
of Qwest, after obtaining the advice of a financial advisor of nationally
recognized reputation, the Third Party is reasonably able to finance the
transaction, and any proposed changes to this Agreement that may be proposed by
U S WEST in response to such Alternative Transaction). Qwest shall submit this
Agreement to its stockholders at the Qwest Stockholders' Meeting even if the
Board of Directors of Qwest shall have made a Qwest Subsequent Determination.
(c) As promptly as practicable after the Registration Statement is declared
effective under the Securities Act, U S WEST shall duly give notice of, convene
and hold a meeting of its stockholders (the "U S WEST STOCKHOLDERS' MEETING") in
accordance with Delaware Law, for the purposes of obtaining the approval of U S
WEST Stockholders required to approve this Agreement and the transactions
contemplated hereby (the "U S WEST STOCKHOLDER APPROVAL") and shall, subject to
the provisions of Section 6.02(d) hereof, through its Board of Directors,
recommend to its stockholders the approval and adoption of this Agreement, the
Merger and the other transactions contemplated hereby and shall use its
commercially reasonable efforts to obtain the U S WEST Stockholder Approval.
(d) Neither the Board of Directors of U S WEST nor any committee thereof
shall (i) except as expressly permitted by this Section 6.02(d), withdraw,
qualify or modify, or propose publicly to withdraw, qualify or modify, in a
manner adverse to Qwest, the approval or recommendation of such Board of
Directors or such committee of this Agreement and the transactions contemplated
hereby, (ii) approve or recommend, or propose publicly to approve or recommend,
any Alternative Transaction, or (iii) cause U S WEST to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar agreement
(each, a "U S WEST ACQUISITION AGREEMENT") related to any Alternative
Transaction. Notwithstanding the foregoing, in the event that prior to the time
U S WEST Stockholder Approval is obtained, U S WEST receives a U S WEST Superior
Proposal (as defined below), the Board of Directors of U S WEST may (subject to
this and the following sentences) inform U S WEST stockholders that it no longer
believes that the transactions contemplated by this Agreement are advisable and
no longer recommends approval of this Agreement and the transactions
contemplated hereby (a "U S WEST SUBSEQUENT DETERMINATION"), but only at a time
that is after the fifth business day following Qwest's receipt of written notice
advising Qwest that the Board of Directors of U S WEST has received a U S WEST
Superior Proposal specifying the material terms and conditions of such U S WEST
Superior Proposal (and including a copy thereof with all accompanying
documentation, if in writing), identifying the person making such U S WEST
Superior Proposal and stating that it intends to make a U S WEST Subsequent
Determination. After providing such notice, U S WEST shall provide a reasonable
opportunity to Qwest to make such adjustments in the terms and conditions of
this Agreement as would enable U S WEST to proceed with its recommendation to
its stockholders without a U S WEST Subsequent Determination; PROVIDED, HOWEVER,
that any such adjustment shall be at the discretion of the Parties at the time.
For purposes of this Agreement, a "U S WEST SUPERIOR PROPOSAL" means any
proposal (on its most recently amended or modified terms, if amended or
modified) made by a Third Party to enter into an Alternative Transaction which
the Board of Directors of U S WEST determines in its good faith judgment (based
on, among other things, the advice of a financial advisor of nationally
recognized reputation) to be more favorable to U S WEST's stockholders than the
transactions contemplated by this Agreement taking into account all relevant
factors (including whether, in the good faith judgment of the Board of Directors
of U S WEST, after obtaining the advice of a financial advisor of nationally
recognized reputation, the Third
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Party is reasonably able to finance the transaction, and any proposed changes to
this Agreement that may be proposed by Qwest in response to such Alternative
Transaction). U S WEST shall submit this Agreement to its stockholders at the U
S WEST Stockholders' Meeting even if the Board of Directors of U S WEST shall
have made a U S WEST Subsequent Determination.
SECTION 6.03 ADDITIONAL AGREEMENTS. (a) Upon the terms and subject to the
conditions hereof and as soon as practicable after the conditions set forth in
Article 7 hereof have been fulfilled or waived, each of the Parties shall
execute in the manner required by Delaware Law and deliver to and file with the
Secretary of State of the State of Delaware such instruments and agreements as
may be required by Delaware Law, and the Parties shall take all such other and
further actions as may be required by law, to make the Merger effective. Prior
to the filings referred to in this Section 6.03(a), a closing (the "CLOSING")
will be held at the offices of Cadwalader, Wickersham & Taft (or such other
place as the Parties may agree) for the purpose of confirming all the foregoing.
The Closing will take place upon the fulfillment or waiver of all of the
conditions to closing set forth in Article 7 of this Agreement, or as soon
thereafter as practicable (the date of the Closing being herein referred to as
the "CLOSING DATE").
(b) Each of the Parties will comply in all material respects with all Legal
Requirements in connection with its execution, delivery and performance of this
Agreement and the transactions contemplated hereby. Each of Qwest and U S WEST
shall promptly prepare and file a Premerger Notification in accordance with the
HSR Act, shall promptly comply with any requests for additional information, and
shall use its commercially reasonable efforts to obtain termination of the
waiting period thereunder as promptly as practicable.
(c) Each of U S WEST and Qwest shall:
(i) take or cause to be taken and to do or cause to be done prior to the
Effective Time all things necessary, proper or advisable to ensure
compliance with the Telecom Act and all other Legal Requirements or Permits,
and to obtain in a timely manner all necessary Permits or waivers from,
approvals or consents of, or declarations, registrations or filings with,
and all expirations of waiting periods imposed by, any Governmental or
Regulatory Authority which are necessary for the consummation of the
transactions contemplated hereby, other than such of the foregoing the
failure of which to obtain would not prevent or materially delay the
consummation of the transactions contemplated hereby or have a Material
Adverse Effect on U S WEST or Qwest (the "REQUIRED REGULATORY APPROVALS"),
including, without limitation:
(1) the amendment of this Agreement as may be necessary, proper or
advisable in order to ensure compliance with the Telecom Act and all
other Legal Requirements or Permits;
(2) the divestiture, sale or termination of any services, activities
or interests in order to comply with restrictions contained in the
Telecom Act or in any other Legal Requirements or Permits including,
without limitation, those restrictions relating to long distance service,
electronic publishing or manufacturing;
(3) the divestiture, sale or restructuring of any joint ventures with
or ownership interests in Third Parties or the termination of any
commercial relationships with Third Parties to comply with restrictions
contained in the Telecom Act or in any other Legal Requirements or
Permits including, without limitation, those restrictions relating to
long distance, electronic publishing or manufacturing;
(4) in determining which actions need to be taken pursuant to
subsections (2) and (3) above, the Parties shall give priority to
obtaining the Required Regulatory Approvals on an expedited basis, and
shall refrain from taking or adopting positions that are likely to result
in substantial additional regulatory proceedings or otherwise delay the
granting of the Required Regulatory Approvals; and
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(ii) take or cause to be taken and to do or cause to be done prior
to the Effective Time all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
Nothing contained in this Section 6.02(c) shall require U S WEST or Qwest to
consent to: (1) any restriction, limitation, or obligation with respect to the
businesses of U S WEST or Qwest or any sale or disposition of any assets of U S
WEST or Qwest which is reasonably expected to result in, directly or indirectly,
a reduction in aggregate proportional revenues of U S WEST and Qwest on a pro
forma, combined basis for the last four fiscal quarters prior to the Closing
Date (the "MAXIMUM REVENUE REDUCTION AMOUNT") in excess of the amount set forth
on the letter of understanding dated July 18, 1999 or (2) the occurrence of any
additional capital investment (which has an IRR of less than ten percent (10%)
as determined in the sole discretion of U S WEST) as a result of, or in order
to, obtain any Required Regulatory Approval (the "INCREMENTAL CAPITAL INVESTMENT
AMOUNT") in excess of the amount set forth in the letter of understanding dated
July 18, 1999.
SECTION 6.04 NOTIFICATION OF CERTAIN MATTERS. Each of Qwest and U S WEST
shall give prompt notice to the other of the following:
(a) the occurrence or nonoccurrence of any event whose occurrence or
nonoccurrence would be likely to cause either (i) any representation or
warranty contained in this Agreement to be untrue, inaccurate or incomplete
in any material respect at any time from the date hereof to the Effective
Time, in which case such Party shall promptly update and deliver to the
other Party any Schedules hereto which require an update to remain true,
accurate and complete, or (ii) directly or indirectly, any Material Adverse
Effect on such Party;
(b) any material failure of such Party, or any officer, director,
employee or agent of any thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
(c) any facts relating to such Party which would make it necessary or
advisable to amend the Joint Proxy Statement or the Registration Statement
in order to make the statements therein not misleading or to comply with
applicable law; PROVIDED, HOWEVER, that the delivery of any notice pursuant
to this Section 6.04 shall not limit or otherwise affect the remedies
available hereunder to the Party receiving such notice; and
(d) its becoming aware of any facts, event or other information which
reveals or indicates that the consummation of the Merger would or may result
in any illegality, forfeiture or loss on the part of either U S WEST or any
of its Subsidiaries, or Qwest or any of its Subsidiaries.
SECTION 6.05 ACCESS TO INFORMATION. (a) From the date hereof to the
Effective Time, each of Qwest and U S WEST shall, and shall cause its respective
Subsidiaries, and its and their officers, directors, employees, auditors,
counsel and agents to afford the officers, employees, auditors, counsel and
agents of the other Party reasonable access during regular business hours to
such Party's and its Subsidiaries' officers, employees, auditors, counsel,
agents, properties, offices and other facilities and to all of their respective
books and records, and shall furnish the other with all financial, operating and
other data and information as such other Party may reasonably request.
(b) Each of Qwest and U S WEST agrees that all non-public, confidential
information so received from the other Party shall be deemed received pursuant
to the confidentiality agreement, dated as of July 8, 1999, between Qwest and U
S WEST (the "CONFIDENTIALITY AGREEMENT") and such Party shall, and shall cause
its Subsidiaries and each of its and their respective officers, directors,
employees, financial advisors, attorneys, accountants, consultants and agents
("PARTY REPRESENTATIVES") to, comply with the provisions of the Confidentiality
Agreement with respect to such information, and the provisions of the
Confidentiality Agreement are hereby incorporated herein by reference with the
same effect as if fully set forth herein.
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SECTION 6.06 PUBLIC ANNOUNCEMENTS. Qwest and U S WEST shall develop a
joint communications plan and each Party shall use all commercially reasonable
efforts to ensure that all press releases and other public statements with
respect to the transactions contemplated hereby shall be consistent with such
joint communications plan or, to the extent inconsistent therewith, shall have
received the prior written approval of the other Parties.
SECTION 6.07 COOPERATION. (a) Upon the terms and subject to the conditions
hereof, each of the Parties agrees to cooperate with each other (i) to take or
cause to be taken all actions and to do or cause to be done all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement and (ii) to obtain all necessary waivers, consents and approvals
from any Governmental or Regulatory Authority or other Person, including
Required Regulatory Approvals and (iii) to effect all necessary filings under
the Securities Act, the Exchange Act and the HSR Act or any other Legal
Requirements or Permits. The Parties shall (i) cooperate in responding to
inquiries from, and making presentations to, Governmental or Regulatory
Authorities; (ii) promptly inform the other Party of any material oral or
written communication received by such Party from, or given by such party to any
Governmental or Regulatory Authority and of any material communication received
or given in connection with any proceeding by a private Party, in each case
regarding any of the transactions contemplated hereby; and (iii) consult with
each other in advance of any meeting or conference with, or of making any filing
or other written submission to, any such Governmental or Regulatory Authority
or, in connection with any proceeding by a private party, with any other Person,
and to the extent permitted by the applicable Governmental or Regulatory
Authority or other Person, give the other Party the opportunity to attend and
participate in such meetings and conferences, or to review and approve any such
filing or other written submission, in each case regarding the Merger.
(b) Each of U S WEST and Qwest shall cooperate with each other to eliminate
or reduce to the extent possible any illegality, forfeiture or loss of which one
may have notified the other pursuant to Section 6.04(d) in order to permit the
consummation of the Merger.
SECTION 6.08 INDEMNIFICATION, DIRECTORS' AND OFFICERS' INSURANCE. For a
period of six (6) years after the Effective Time, (a) the Surviving Corporation
shall maintain in effect the current provisions regarding indemnification of
officers and directors contained in the charter and bylaws of U S WEST and Qwest
and each of their respective Subsidiaries and any directors, officers or
employees indemnification agreements of U S WEST and Qwest and their respective
Subsidiaries, (b) the Surviving Corporation shall maintain in effect the current
policies of directors' and officers' liability insurance and fiduciary liability
insurance maintained by U S WEST and Qwest, respectively (provided that Qwest
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured in any material respect) with respect to claims
arising from facts or events which occurred on or before the Effective Time, and
(c) the Surviving Corporation shall indemnify the directors and officers of U S
WEST and Qwest, respectively, to the fullest extent to which U S WEST and Qwest
are permitted to indemnify such officers and directors under their respective
charters and bylaws and applicable law.
SECTION 6.09 EMPLOYEE BENEFIT PLANS. Except as otherwise provided herein
or set forth on Schedule 5.02, Qwest and U S WEST agree that, unless otherwise
mutually agreed, the Surviving Corporation (and its Subsidiaries) may, but shall
have no obligation to, maintain the U S WEST Benefit Plans and the Qwest Benefit
Plans as separate plans after the Effective Time with respect to employees
covered by such plans immediately prior to the Effective Time. The Parties Agree
that the benefits provided pursuant to U S WEST's severance and retention
programs and agreements, as specifically set forth in Schedule 5.02, will be
provided in accordance with the terms of those programs and agreements.
SECTION 6.10 COMMERCIALLY REASONABLE EFFORTS. Each of Qwest and U S WEST
shall use its commercially reasonable efforts to obtain the opinions referred to
in Sections 7.02(d), 7.03(d) and 7.03(e).
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SECTION 6.11 NASDAQ LISTING. Qwest shall use its commercially reasonable
efforts to cause, prior to the Effective Time, the shares of Qwest Common Stock
to be issued in the Merger and the shares of Qwest Common Stock to be issued
upon the exercise of the U S WEST Rights to be approved for listing on NASDAQ,
effective upon official notice of issuance.
SECTION 6.12 MANAGEMENT. (a) The Chief Executive Officer of Qwest shall be
appointed the initial Chief Executive Officer of the Surviving Corporation and
the Chief Executive Officer of U S WEST shall be appointed the initial President
of the Broadband Local and Wireless Division of the Surviving Corporation. The
Chief Executive Officer of Qwest, the Chief Executive Officer of U S WEST and
Philip F. Anschutz shall serve as initial Chairmen of the Board of Directors and
as members of the Office of the Chairman of the Surviving Corporation.
(b) The executive positions of the Surviving Corporation listed on Schedule
6.12(b) will be appointed jointly by the Chief Executive Officer of Qwest, Chief
Executive Officer of U S WEST and Philip F. Anschutz.
(c) The headquarters of the Surviving Corporation will be 1801 California
Street, Denver, Colorado.
SECTION 6.13 NO SHELF REGISTRATION. Qwest shall not be required to amend
or maintain the effectiveness of the Registration Statement for the purpose of
permitting resale of the shares of Qwest received pursuant hereto by the Persons
who may be deemed to be "affiliates" of Qwest or U S WEST within the meaning of
Rule 145 promulgated under the Securities Act. The shares of Qwest Common Stock
issuable upon exercise of options pursuant to Section 2.02(b) hereof shall be
registered under the Securities Act and such registration shall be effective at
the time of issuance.
SECTION 6.14 AFFILIATES. U S WEST (i) has disclosed to Qwest on Schedule
6.14 hereof all persons who are, or may be, as of the date hereof its Affiliates
for purposes of Rule 145 under the Securities Act, and (ii) shall use all
commercially reasonable efforts to cause each person who is identified as its
"affiliate" on Schedule 6.14 to deliver to Qwest as promptly as practicable but
in no event later than the Closing Date, a signed agreement substantially in the
form previously agreed to by Qwest and U S WEST. U S WEST shall notify Qwest
from time to time of any other persons who then are, or may be, such an
"affiliate" and use all commercially reasonable efforts to cause each additional
person who is identified as an "affiliate" to execute a signed agreement as set
forth in this Section 6.14.
SECTION 6.15 BLUE SKY. Qwest and U S WEST will use their commercially
reasonable efforts to obtain prior to the Effective Time all necessary state
securities or "blue sky" Permits and approvals required to permit the
distribution of the shares of Qwest Common Stock to be issued in accordance with
the provisions of this Agreement.
SECTION 6.16 TAX-FREE REORGANIZATION. Each of the Parties will use its
commercially reasonable efforts, and each agrees to cooperate with the other
Parties and provide one another with such documentation, information and
materials, as may be reasonably necessary, proper or advisable, to cause the
Merger to qualify for U.S. federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code.
SECTION 6.17 INTERIM DIVIDEND POLICY. Except as set forth on Schedule
6.17, Qwest shall not, without the prior written consent of U S WEST, declare,
set aside or pay any dividend or distribution payable in cash, stock, property
or otherwise (a "DIVIDEND") with respect to shares of Qwest Common Stock. U S
WEST shall be permitted, without the prior written consent of Qwest, to declare
and pay Dividends with respect to shares of U S WEST Common Stock in the
ordinary course of business and in a manner consistent with past practice not in
excess of the amounts set forth on Schedule 6.17.
SECTION 6.18 DIVIDEND POLICY. Following the Closing, the Surviving
Corporation shall declare and pay initially quarterly dividends with respect to
its common stock of $0.0125 per share.
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SECTION 6.19 PERMITTED ACQUISITIONS. During the period from the date of
this Agreement through the Closing Date, each of Qwest and U S WEST may engage
in acquisition transactions taking the form of a stock acquisition, asset
acquisition, merger or similar type or form of transaction ("ACQUISITIONS");
PROVIDED, HOWEVER, that such transactions comply with this Section 6.19. Each of
Qwest and U S WEST may engage in Acquisitions provided that the value of the
aggregate consideration payable by such Party in such Acquisitions shall not
exceed $1,000,000,000 (including assumptions of debt). Any Acquisitions in
excess of such amount shall require the prior written consent of the other
party. Additionally, U S WEST may engage in like kind asset swaps of telephone
exchanges of equivalent value.
SECTION 6.20 EQUAL MANAGEMENT. Subject to the Board of Directors of the
Surviving Corporation or its affiliates, each of U S WEST and Qwest agree for a
period of one (1) year following the Effective Time that the twenty (20) most
senior policy-making executives of the Surviving Corporation shall be
substantially equally represented by officers of U S WEST and Qwest, and U S
WEST and Qwest shall be proportionally represented at each level of senior
management.
SECTION 6.21 QWEST EQUITY INCENTIVE PLAN. Qwest and U S WEST hereby agree
that Qwest shall increase the number of shares of Qwest Common Stock eligible
for award under the Qwest Equity Incentive Plan from and after the Effective
Time to an amount equal to the lesser of (x) 200 million and (y) 10% of the
total number of shares of Qwest Common Stock outstanding as of the close of
business on the date on which the Effective Time occurs, in each case reduced by
the number of shares of Qwest Common Stock issuable upon the exercise of U S
WEST Rights and Qwest options (other than Qwest options awarded under the Qwest
Equity Incentive Plan) outstanding as of the close of business on the date on
which the Effective Time occurs.
ARTICLE 7
CONDITIONS TO THE MERGER
SECTION 7.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each Party to effect the Merger shall be
subject to the following conditions:
(a) STOCKHOLDER APPROVAL. The Merger and this Agreement shall have
been approved and adopted by the requisite vote of the stockholders of U S
WEST and this Agreement, the Merger and the issuance of Qwest Common Stock
pursuant to the Merger shall have been approved by the requisite vote of the
stockholders of Qwest, in each case in accordance with Delaware Law and the
rules of the NYSE and the NASDAQ, as applicable;
(b) LEGALITY. No federal, state or foreign statute, rule, regulation,
executive order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any Governmental or Regulatory Authority which is
in effect and has the effect of (i) making the Merger illegal or otherwise
prohibiting the consummation of the Merger, or (ii) creating a Material
Adverse Effect on the Surviving Corporation; PROVIDED, HOWEVER, all Required
Regulatory Approvals are governed by Section 7.01(g) below;
(c) HSR ACT. Any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(d) REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall
have become effective prior to the mailing by each of Qwest and U S WEST of
the Joint Proxy Statement to its respective stockholders, no stop order
suspending the effectiveness of the Registration Statement shall then be in
effect, and no proceedings for that purpose shall then be threatened by the
SEC or shall have been initiated by the SEC and not concluded or withdrawn;
(e) BLUE SKY. All state securities or "blue sky" Permits or approvals
required to carry out the transactions contemplated hereby shall have been
received;
(f) STOCK EXCHANGE LISTING. The shares of Qwest Common Stock to be
issued in the Merger shall have been duly approved for listing on NASDAQ,
subject to official notice of issuance;
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(g) REGULATORY MATTERS. All Required Regulatory Approvals shall be in
full force and effect; PROVIDED, HOWEVER, that a Required Regulatory
Approval shall not be deemed to have been obtained if in connection with the
grant thereof there shall have been an imposition by any Governmental or
Regulatory Authority of any condition, requirement, restriction or change of
regulation, or any other action directly or indirectly related to such grant
taken by such Governmental or Regulatory Authority, which would reasonably
be expected to cause the Maximum Revenue Reduction Amount or Incremental
Capital Investment Amount to be exceeded.
SECTION 7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF QWEST. The
obligations of Qwest to effect the Merger are also subject to the fulfillment of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of U S WEST set forth in this Agreement shall have been true and correct on
the date hereof and, without giving effect to any materiality qualifications
or limitations therein, on and as of the Closing Date as though made on the
Closing Date (except to the extent that any representation or warranty
expressly speaks as of an earlier date, in which case it shall be true and
correct as of such date) except (i) for changes permitted under Section 5.02
hereof or otherwise contemplated by this Agreement, and (ii) for such
failures to be true and correct which in the aggregate would not reasonably
be expected to result in a Material Adverse Effect on U S WEST.
(b) AGREEMENTS AND COVENANTS. U S WEST shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or before the
Effective Time; PROVIDED, HOWEVER, that for purposes of this Section 7.02(b)
only, such agreements and covenants shall be deemed to have been complied
with unless the failure or failures of such agreements and covenants to have
been complied with (without regard to materiality qualifiers contained
therein), individually or in the aggregate, results or would reasonably be
expected to result in a Material Adverse Effect on Qwest, either with or
without giving effect to the Merger, or a material adverse effect on the
consummation of the transactions contemplated hereby.
(c) CERTIFICATES. Qwest shall have received a certificate of an
executive officer of U S WEST to the effect set forth in paragraphs (a) and
(b) above.
(d) TAX OPINION. Qwest shall have received an opinion of Davis Polk &
Wardwell, dated as of the Closing Date, in form and substance reasonably
satisfactory to Qwest, on the basis of the facts, representations and
assumptions set forth or referred to in such opinion, that the Merger will
be treated for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code and that each of Qwest and U S
WEST will be a party to the reorganization within the meaning of Section
368(a) of the Code. In rendering such opinion, Davis Polk & Wardwell may
require and shall be entitled to rely upon customary representations of
officers of Qwest and U S WEST.
(e) SPIN-OFF TAX OPINION. Qwest shall have received a copy of the
opinion delivered by Cadwalader, Wickersham & Taft to U S WEST pursuant to
Section 7.03 (e).
(f) CONSENTS UNDER U S WEST AGREEMENTS. U S WEST shall have obtained
the consent or approval of any Person whose consent or approval shall be
required under any agreement or instrument in order to permit the
consummation of the transactions contemplated hereby except those which the
failure to obtain would not, individually or in the aggregate, have a
Material Adverse Effect on U S WEST or Qwest.
SECTION 7.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF U S WEST. The
obligations of U S WEST to effect the Merger are also subject to the fulfillment
of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Qwest set forth in this Agreement shall have been true and correct on the
date hereof and, without giving effect to any materiality qualifications or
limitations therein, on and as of the Closing Date as though made on the
Closing Date (except to the extent that any representation or warranty
expressly speaks as of an
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earlier date, in which case it shall be true and correct as of such date)
except (i) for changes permitted under Section 5.02 hereof or otherwise
contemplated by this Agreement, and (ii) for such failures to be true and
correct which in the aggregate would not reasonably be expected to result in
a Material Adverse Effect on Qwest.
(b) AGREEMENTS, COVENANTS. Qwest shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or before the Effective
Time; PROVIDED, HOWEVER, that for purposes of this Section 7.03(b) only,
such agreements and covenants shall be deemed to have been complied with
unless the failure or failures of such agreements and covenants to have been
complied with (without regard to materiality qualifiers contained therein),
individually or in the aggregate, results or would reasonably be expected to
result in a Material Adverse Effect on U S WEST, either with or without
giving effect to the Merger, or a material adverse effect on the
consummation of the transactions contemplated hereby.
(c) CERTIFICATES. U S WEST shall have received a certificate of an
executive officer of Qwest to the effect set forth in paragraphs (a) and (b)
above.
(d) TAX OPINION. U S WEST shall have received an opinion of
Cadwalader, Wickersham & Taft, dated as of the Closing Date, in form and
substance reasonably satisfactory to U S WEST, on the basis of the facts,
representations and assumptions set forth or referred to in such opinion,
that the consummation of the Merger will be treated for U.S. federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code and that each of Qwest and U S WEST will be a party to the
reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, Cadwalader, Wickersham & Taft may require and shall
be entitled to rely upon customary representations of officers of U S WEST
and Qwest.
(e) SPIN-OFF TAX OPINION. U S WEST shall have received an opinion of
Cadwalader, Wickersham & Taft, dated as of the Closing Date, in form and
substance reasonably satisfactory to U S WEST, on the basis of the facts,
representations and assumptions set forth or referred to in such opinion,
that the Merger pursuant to this Agreement will not affect the tax-free
qualification of the Exchange-Distribution under Section 355 of the Code. In
rendering such opinion, Cadwalader, Wickersham & Taft may require and shall
be entitled to rely upon customary representations of officers of U S WEST
and Qwest.
(f) CONSENTS UNDER QWEST AGREEMENTS. Qwest shall have obtained the
consent or approval of any Person whose consent or approval shall be
required under any agreement or instrument in order to permit the
consummation of the transactions contemplated hereby except those which the
failure to obtain would not, individually or in the aggregate, have a
Material Adverse Effect on U S WEST or Qwest.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 TERMINATION. This Agreement may be terminated at any time
before the Effective Time, in each case as authorized by the respective Board of
Directors of Qwest or U S WEST:
(a) By mutual written consent of each of Qwest and U S WEST;
(b) By either Qwest or U S WEST if the Merger shall not have been
consummated on or before July 30, 2000 (the "TERMINATION DATE"); PROVIDED,
HOWEVER, that the right to terminate this Agreement under this Section
8.01(b) shall not be available to any Party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before the Termination Date;
and PROVIDED FURTHER, however, that if on the Termination Date the
conditions to the Closing set forth in Sections 7.01(c) or 7.01(g) shall not
have been fulfilled, but all other conditions to the Closing shall be
fulfilled or shall be capable of being fulfilled, then the Termination Date
shall be automatically extended to December 31, 2000;
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(c) By either Qwest or U S WEST if any Governmental or Regulatory
Authority shall have issued an order, decree or ruling or taken any other
action (which order, decree or ruling the Parties shall use their
commercially reasonable efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable;
(d) (i) By Qwest, (a) if U S WEST shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach
or failure to perform (1) is incapable of being cured by U S WEST prior
to the Termination Date, and (2) renders any condition under Sections
7.01 or 7.02 incapable of being satisfied prior to the Termination Date,
or (b) if a condition under Sections 7.01 or 7.02 to Qwest's obligations
hereunder is incapable of being satisfied prior to the Termination Date;
(ii) By U S WEST, (a) if Qwest shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach
or failure to perform (1) is incapable of being cured by Qwest prior to
the Termination Date, and (2) renders any condition under Sections 7.01
or 7.03 incapable of being satisfied prior to the Termination Date, or
(b) if a condition under Sections 7.01 or 7.03 to U S WEST's obligation
hereunder is incapable of being satisfied prior to the Termination Date;
(e) By either Qwest or U S WEST if the Board of Directors of the other
or any committee of the Board of Directors of the other (i) shall fail to
include in the Joint Proxy Statement its recommendation without modification
or qualification that its stockholders approve this Agreement and the
Merger, (ii) shall withdraw or modify in any adverse manner its approval or
recommendation of this Agreement or the Merger, (iii) shall approve or
recommend any Alternative Transaction or (iv) shall resolve to take any of
the actions specified in this Section 8.01(e);
(f) By either Qwest or U S WEST if the Qwest Stockholder Approval or the
U S WEST Stockholder Approval shall fail to have been obtained at a duly
held stockholders meeting of either of such companies, including any
adjournments thereof; or
(g) By U S WEST, if (i) the Average Price is less than $22.00, or (ii)
at any time prior to the Closing Date the closing price for Qwest Common
Stock on NASDAQ is below $22.00 for any 20 consecutive trading days and
within 5 business days of the end of such period U S WEST has notified Qwest
of such termination.
SECTION 8.02 EFFECT OF TERMINATION. (a) In the event of termination of
this Agreement as provided in Section 8.01 hereof, this Agreement shall
forthwith become void and there shall be no liability on the part of any of the
Parties, except (i) as set forth in this Section 8.02 and in Sections 3.16,
4.16, 6.05, and 10.03 hereof, and (ii) nothing herein shall relieve any Party
from liability for any willful breach hereof.
(b) If this Agreement (i) is terminated by Qwest pursuant to Section 8.01(e)
hereof, (ii) could have been (but was not) terminated by Qwest pursuant to
Section 8.01(e) hereof and is subsequently terminated by U S WEST or Qwest
pursuant to Section 8.01(f) because of the failure to obtain the U S WEST
Stockholder Approval, (iii) (a) could not have been terminated by Qwest pursuant
to Section 8.01(e) hereof but is subsequently terminated by U S WEST or Qwest
pursuant to Section 8.01(f) because of the failure to obtain the U S WEST
Stockholder Approval, (b) at any time after the date of this Agreement and prior
to the U S WEST Stockholders' Meeting there shall have been (or been renewed or
continued) an offer or proposal for, an announcement of any intention with
respect to (including the filing of a statement of beneficial ownership on
Schedule 13D discussing the possibility of or reserving the right to engage in),
or any agreement with respect to, a transaction that would constitute an
Alternative Transaction (as defined in Section 5.03(c) hereof) except that for
the purposes of this Section 8.02(b), the applicable percentage in clause (i) of
such definition shall be fifty percent (50%), and (c) within twelve (12) months
after the termination of this Agreement, U S WEST enters into a definitive
agreement with any Third Party with respect to an Alternative Transaction or
(iv) is terminated by Qwest as a result of
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U S WEST's material breach of Section 6.01, 6.02(c) or Section 6.02(d) hereof
which in the case of Section 6.01 and Section 6.02(c) only, is not cured within
thirty (30) days after notice thereof to U S WEST, U S WEST shall pay to Qwest a
termination fee of $850 million plus in the case of (i), (ii) or (iii) of the
first sentence of this Section 8.02 (b) only, repay to Qwest an amount equal to
one half of the cash amount paid to Global by U S WEST pursuant to the
Termination Agreement (the "TERMINATION AGREEMENT") between U S WEST and Global
dated as of July 18, 1999 (the "GLOBAL TERMINATION FEE") in cash, together with
interest thereon, at a rate equal to the London Interbank Offered Rate plus .15%
from the date hereof to the date such amount is due pursuant to this Agreement
(collectively, the "NOTE REPAYMENT AMOUNT"), reflecting repayment of one half of
the principal and interest on the note evidencing funds transferred by a
subsidiary of Qwest to U S WEST on the date hereof to pay the cash amount paid
to Global by U S WEST pursuant to the Termination Agreement (which amount in the
event of the termination of this Agreement will be repaid only on the terms and
to the extent set forth in this Section 8.02(b) with respect to the Note
Repayment Amount (and not in excess of one half of the the Note Repayment
Amount). If this Agreement is terminated for any reason (other than as described
in the case of (i), (ii) or (iii) of the first sentence of this Section 8.02
(b)), Qwest shall deliver to U S WEST, at Qwest's election, either (x) 2,231,076
shares of Global common stock (subject to any adjustment for reclassification,
recapitalization, split-up, combination or exchange of Global common stock after
the date hereof) (the "GLOBAL SHARE AMOUNT") or (y) an amount in cash equal to
the average closing price of Global common stock for the five trading days
preceding the date of such termination multiplied by the Global Share Amount. If
this Agreement is terminated for any reason described in (i), (ii) or (iii) of
the first sentence of this Section 8.02 (b), Qwest shall deliver to U S WEST, at
Qwest's election, either (x) 1,115,538 shares of Global common stock (subject to
any adjustment for reclassification, recapitalization, split-up, combination or
exchange of Global common stock after the date hereof) or (y) one-half of an
amount in cash equal to the average closing price of Global common stock for the
five trading days preceding the date of such termination multiplied by the
Global Share Amount. For the avoidance of doubt, in the event the Note Repayment
Amount is not paid when due, interest on the Note Repayment Amount shall be paid
thereon from the due date to the date of the repayment pursuant to the
provisions of Section 8.02 (e) and not pursuant to the provisions of Section
8.02 (b).
(c) If this Agreement (i) is terminated by U S WEST pursuant to Section
8.01(e) hereof, (ii) could have been (but was not) terminated by U S WEST
pursuant to Section 8.01(e) hereof and is subsequently terminated by Qwest or U
S WEST pursuant to Section 8.01(f) because of the failure to obtain the Qwest
Stockholder Approval, (iii) (a) could not have been terminated by U S WEST
pursuant to Section 8.01(e) hereof but is subsequently terminated by Qwest or U
S WEST pursuant to Section 8.01(f) because of the failure to obtain the Qwest
Stockholder Approval, (b) at any time after the date of this Agreement and prior
to the Qwest Stockholders' Meeting there shall have been an offer or proposal
for, an announcement of any intention with respect to (including the filing of a
statement of beneficial ownership on Schedule 13D discussing the possibility of
or reserving the right to engage in), or any agreement with respect to, a
transaction that would constitute an Alternative Transaction (as defined in
Section 5.03(c) hereof) except that for the purposes of this Section 8.02(c),
the applicable percentage in clause (i) of such definition shall be fifty
percent (50%) involving Qwest or any of Qwest's Subsidiaries, and (c) within
twelve (12) months after the termination of this Agreement, Qwest enters into a
definitive agreement with any Third Party with respect to an Alternative
Transaction or (iv) is terminated by U S WEST as a result of Qwest's material
breach of Section 6.01, Section 6.02(a) or Section 6.02(b) hereof which, in the
case of Section 6.01 and Section 6.02(a) only, is not cured within thirty (30)
days after notice thereof to Qwest, Qwest shall pay to U S WEST a termination
fee of $850 million (the "U S WEST TERMINATION FEE").
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(d) Each termination fee payable under Sections 8.02(b) or (c) above and
Note Repayment Amount payable under Section 8.02(b) above shall be payable in
cash, payable no later than one business day following the delivery of notice of
termination to the other Party, or, if such fee shall be payable pursuant to
clause (iii) of Section 8.02(b), such fee shall be payable no later than one
business day following the day such Party enters into the definitive agreement
referenced in such clause (iii).
(e) Qwest and U S WEST agree that the agreements contained in Sections
8.02(b) and (c) above are an integral part of the transactions contemplated by
this Agreement and constitute liquidated damages and not a penalty. If one Party
fails to promptly pay to the other any fee due under such Sections 8.02(b) or
(c), then the defaulting Party shall pay the costs and expenses (including legal
fees and expenses) in connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment, together with interest
on the amount of any unpaid fee at the publicly announced prime rate of
Citibank, N.A., from the date such fee was required to be paid.
SECTION 8.03 AMENDMENT. This Agreement may be amended by the Parties
pursuant to a writing adopted by action taken by all of the Parties at any time
before the Effective Time; PROVIDED, HOWEVER, that, after approval of this
Agreement by the stockholders of Qwest or U S WEST, whichever shall occur first,
no amendment may be made which would (a) alter or change the amount or kinds of
consideration to be received by the holders of U S WEST Common Stock or Qwest
Common Stock upon consummation of the Merger, (b) alter or change any term of
the Certificate of Incorporation of Qwest or U S WEST, or (c) alter or change
any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of any class or series of securities of Qwest
or U S WEST. This Agreement may not be amended except by an instrument in
writing signed by the Parties.
SECTION 8.04 WAIVER. At any time before the Effective Time, any Party may
(a) extend the time for the performance of any of the obligations or other acts
of the other Parties, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a Party to any such extension or waiver shall be
valid only as against such Party and only if set forth in an instrument in
writing signed by such Party.
ARTICLE 9
DEFINITIONS
SECTION 9.01 CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
"AFFILIATE" of a Person means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned Person.
"AGREEMENT" means this Agreement and Plan of Merger, together with all
of its schedules and exhibits.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
Treasury regulations promulgated thereunder.
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH") means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether
through the ownership of stock, as trustee or executor, by contract or
credit arrangement or otherwise.
"DELAWARE LAW" means the Delaware General Corporation Law, as amended.
"DISTRIBUTINGCO" means MediaOne Group, Inc., a Delaware corporation and
the holder of all of the U S WEST Common Stock prior to the
Exchange-Distribution.
A-42
<PAGE>
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as the same
may be amended from time to time.
"EXCHANGE-DISTRIBUTION" means (i) DistributingCo's exchange on June 12,
1998 with the holders of DistributingCo Communications Group Common Stock of
U S WEST Common Stock for DistributingCo Communications Group Common Stock
and (ii) DistributingCo's distribution on June 12, 1998 of U S WEST Common
Stock to holders of DistributingCo Media Group Common Stock.
"FCC" means the United States Federal Communications Commission.
"GAAP" means United States generally accepted accounting principles.
"GOVERNMENTAL OR REGULATORY AUTHORITY" means any domestic or foreign,
national, federal, state, county, city, local or other administrative,
legislative, regulatory or other governmental authority, commission, agency,
court of competent jurisdiction or other judicial entity, tribunal,
arbitrator, office, principality, registry (including, but not limited to,
with respect to patents, trademarks, designs, or copyrights), legislative or
regulatory body, instrumentality, or non-governmental, quasi-governmental,
or private agency, commission or authority or any arbitral tribunal
exercising any regulatory or taxing authority.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as the same may be amended from time to time.
"KNOWLEDGE" of any Party means the actual knowledge of the executive
officers of such Party.
"MATERIAL ADVERSE EFFECT" means any change in or effect on the business
of the referenced Person or any of its Subsidiaries that is or will be
materially adverse to the business, operations (including the income
statement), management, properties (including intangible properties),
condition (financial or otherwise), assets, liabilities or regulatory status
of such referenced corporation and its Subsidiaries taken as a whole, but
shall not include the effects of changes that are generally applicable in
(i) the telecommunications industry, (ii) the United States economy, or
(iii) the United States securities markets.
"PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, entity or group (as defined in the Exchange
Act) or a Governmental or Regulatory Authority.
"SECURITIES ACT" means the Securities Act of 1933, as the same may be
amended from time to time.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary which on the date of
determination is a "SIGNIFICANT SUBSIDIARY" within the meaning of Rule
1-02(w) of Regulation S-X promulgated under the Exchange Act.
"SUBSIDIARY," "QWEST SUBSIDIARY," or "U S WEST SUBSIDIARY" means any
Person on the date of determination of which Qwest or U S WEST, as the case
may be (either alone or through or together with any other Subsidiary or
Subsidiaries), owns, directly or indirectly, more than fifty percent (50%)
of the stock or other equity interests the holders of which are generally
entitled to vote for the election of the Board of Directors or other
governing body of such Person.
"TAX" or "TAXES" means any U.S. federal, state or local or foreign taxes
of any kind, including, without limitation, those on or measured by or
referred to as income, gross receipts, capital, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, value added, property or windfall
profits taxes, customs, duties, or similar fees, assessments, or charges of
any kind whatsoever, together with any interest and any penalties, additions
to tax, or additional amounts thereon.
A-43
<PAGE>
"TAX RETURNS" means any U.S. federal, state or local or foreign return,
report, or statement required to be filed with any Governmental or
Regulatory Authority with respect to Taxes.
"YEAR 2000 COMPLIANT" means, with respect to any computer hardware,
software, databases, automated systems or other computer and
telecommunications equipment owned or used by a Person, or included or
incorporated in such Person's products ("SYSTEMS"), that such Systems are
designed to be used prior to, during and after the calendar year 2000 A.D.
and will (i) operate normally, (ii) record, process, calculate, compare,
sequence, or use dates properly, (iii) accurately determine intervals
between and time elapsed among dates before, within and after such year, and
(iv) otherwise operate without error relating to date data, specifically
including any error relating to, or the product of, date data which
represents or references different centuries or more than one century.
Without limiting the generality of the foregoing, "YEAR 2000 COMPLIANT"
means that such Person's Systems:
(i) will not abnormally terminate, malfunction or stop processing
upon encountering date data either from before, within or after such
year;
(ii) will properly identify leap years and process related date
data;
(iii) have been designed to ensure Year 2000 Compliance, including,
but not limited to, recognizing and recording the proper century
associated with date data and properly calculating same century and
multi-century formulas and date values;
(iv) include user interfaces that properly display, record and
accept date data in single century and multi-century cases; and
(v) properly send date data to, receive date data from, any other
hardware, software and systems with which such Systems normally operate
and interact, including on-site backup, hot-site companion and disaster
recovery systems, as well as properly recording, retaining and
manipulating such date data; PROVIDED, HOWEVER, that such other hardware,
software and Systems are themselves Year 2000 Compliant.
A-44
<PAGE>
ARTICLE 10
GENERAL PROVISIONS
SECTION 10.01 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01 hereof, as the case may be, except that (a) the
agreements set forth in Article 1 and Sections 2.03, 2.04, 2.05, 2.06, 6.08 and
6.12 hereof shall survive the Effective Time indefinitely, (b) the agreements
and representations set forth in Sections 3.10, 3.16, 4.10, 4.16, 6.05(b), 8.02
and 10.03 hereof shall survive termination indefinitely, and (c) nothing
contained herein shall limit any covenant or agreement of the Parties which by
its terms contemplates performance after the Effective Time.
SECTION 10.02 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight courier or sent by telecopy, to the Parties at the following
addresses or telecopy numbers (or at such other address or telecopy number for a
Party as shall be specified by like notice):
(a) if to Qwest:
Qwest Communications International Inc.
700 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
Attention: Chief Financial Officer
Facsimile: (303) 992-1798
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Dennis S. Hersch, Esq.
Joseph R. Rinaldi, Esq.
Facsimile: (212) 450-4800
(b) if to U S WEST:
U S WEST, Inc.
1801 California Street
Denver, Colorado 80202
Attention: Mark Roellig, Esq.
Facsimile: (303) 298-8763
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038-4892
Attention: Dennis J. Block, Esq.
Facsimile: (212) 504-6666
SECTION 10.03 EXPENSES. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such costs and
expenses, except that those expenses incurred in connection with the printing of
A-45
<PAGE>
the Joint Proxy Statement and the Registration Statement, as well as the filing
fees related thereto and any filing fee required in connection with the filing
of Premerger Notifications under the HSR Act, shall be shared equally by Qwest
and U S WEST.
SECTION 10.04 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.05 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, then all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any Party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the Parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the maximum extent
possible.
SECTION 10.06 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, the Voting Agreement and the Confidentiality Agreement constitute the
entire agreement and, except as expressly set forth herein, supersedes any and
all other prior agreements and undertakings, both written and oral, among the
Parties, or any of them, with respect to the subject matter hereof and, except
for Section 6.08 (Indemnification, Directors' and Officers' Insurance) and
Section 6.12 (Governance; Name), is not intended to confer upon any person other
than Qwest, U S WEST, and, after the Effective Time, their respective
stockholders, any rights or remedies hereunder.
SECTION 10.07 ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 10.08 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware
applicable to contracts executed in and to be performed entirely within that
State, without regard to the conflicts of laws provisions thereof.
SECTION 10.09 SUBMISSION TO JURISDICTION; WAIVERS. Each of the parties
hereof irrevocably agrees that any legal action or proceeding with respect to
this Agreement or for recognition and enforcement of any judgment in respect
hereof brought by the other party hereto or its successors or assigns may be
brought and determined in the courts of the State of Delaware, and each of the
parties hereto hereby irrevocable submits with regard to any such action or
proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of the parties hereto hereby irrevocably waives, and agrees not to assert, by
way of motion, as a defense, counterclaim or otherwise, in any action or
proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to serve in accordance with this Section 10.09, (b) that
it or its property is exempt or immune from jurisdiction of any such court or
from any legal process commenced in such courts (whether through service of
notice, attachment prior to judgment, attachment in aid of execution of
judgment, execution of judgment or otherwise), and (c) to the fullest extent
permitted by the applicable law, that (i) the suit, action or proceeding in such
court is brought in an inconvenient forum, (ii) the venue of such suit, action
or proceeding is improper and (iii) this Agreement, or the subject mater hereof,
may not be enforced in or by such courts.
SECTION 10.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different Parties in separate counterparts, each of
which when executed shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
A-46
<PAGE>
IN WITNESS WHEREOF, U S WEST and Qwest have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
<TABLE>
<S> <C> <C>
U S WEST, INC.
By: /s/ SOLOMON D. TRUJILLO
Name: --------------------------------------
Title: Solomon D. Trujillo
Chairman, President and Chief Executive
Officer
QWEST COMMUNICATIONS
INTERNATIONAL INC.
By: /s/ JOSEPH P. NACCHIO
Name: --------------------------------------
Title: Joseph P. Nacchio
Chairman and Chief Executive Officer
</TABLE>
A-47
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Acquisitions.............................................................................................. A-37
Affiliate................................................................................................. A-42
Agreement................................................................................................. A-42
Alternative Structure..................................................................................... A-8
Alternative Transaction................................................................................... A-30
Average Price............................................................................................. A-3
Board of Directors........................................................................................ A-6
blue sky.................................................................................................. A-10
Cash Alternative Notice................................................................................... A-7
Cash Amount............................................................................................... A-8
Cash True-Up.............................................................................................. A-7
Closing................................................................................................... A-33
Closing Date.............................................................................................. A-33
Code...................................................................................................... A-42
Common Shares Trust....................................................................................... A-5
Confidentiality Agreement................................................................................. A-34
Control................................................................................................... A-42
controlled by............................................................................................. A-42
Conversion Ratio.......................................................................................... A-3
Delaware Certificate...................................................................................... A-1
Delaware Law.............................................................................................. A-42
Determination Period...................................................................................... A-3
Disqualified Rights....................................................................................... A-2
Disqualified Shares....................................................................................... A-2
DistributingCo............................................................................................ A-42
Dividend.................................................................................................. A-36
Effective Time............................................................................................ A-1
Environmental Law......................................................................................... A-14
ERISA..................................................................................................... A-12
Excess Shares............................................................................................. A-5
Exchange Act.............................................................................................. A-43
Exchange Agent............................................................................................ A-4
Exchange Fund............................................................................................. A-4
Exchange-Distribution..................................................................................... A-43
FCC....................................................................................................... A-43
GAAP...................................................................................................... A-43
Global.................................................................................................... A-24
Global Merger Agreement................................................................................... A-24
Global Share Amount....................................................................................... A-41
Global Termination Fee.................................................................................... A-41
Governmental or Regulatory Authority...................................................................... A-43
Hazardous Substances...................................................................................... A-14
HSR Act................................................................................................... A-43
Incremental Capital Investment Amount..................................................................... A-34
</TABLE>
Index-1
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Intellectual Property..................................................................................... A-16
IRS....................................................................................................... A-12
Joint Proxy Statement..................................................................................... A-12
Knowledge................................................................................................. A-43
Legal Requirements........................................................................................ A-11
Lehman Brothers........................................................................................... A-24
Material Adverse Effect................................................................................... A-43
Maximum Revenue Reduction Amount.......................................................................... A-34
Merger.................................................................................................... A-1
Merger Consideration...................................................................................... A-3
Merrill Lynch............................................................................................. A-24
NASDAQ.................................................................................................... A-3
Note Repayment Amount..................................................................................... A-41
Parent.................................................................................................... A-8
Parties................................................................................................... A-1
Party..................................................................................................... A-1
Party Representatives..................................................................................... A-34
PBGC...................................................................................................... A-13
Per Share Cash True Up.................................................................................... A-8
Permits................................................................................................... A-11
Person.................................................................................................... A-43
Pre-Surrender Dividends................................................................................... A-4
Qwest..................................................................................................... A-1
Qwest Acquisition Agreement............................................................................... A-31
Qwest Benefit Plans....................................................................................... A-12
Qwest Cash Election....................................................................................... A-7
Qwest Common Stock........................................................................................ A-2
Qwest Communications International Inc.................................................................... A-7
Qwest Contracts........................................................................................... A-16
Qwest Equity Rights....................................................................................... A-9
Qwest Intellectual Property............................................................................... A-15
Qwest Licenses............................................................................................ A-17
Qwest Right............................................................................................... A-2
Qwest SEC Reports......................................................................................... A-10
Qwest Stockholder Approval................................................................................ A-31
Qwest Stockholders' Meeting............................................................................... A-31
Qwest Subsequent Determination............................................................................ A-31
Qwest Subsidiary.......................................................................................... A-43
Qwest Superior Proposal................................................................................... A-32
Qwest Warrants............................................................................................ A-9
Registration Statement.................................................................................... A-12
Required Regulatory Approvals............................................................................. A-33
Rights Agreement.......................................................................................... A-24
SEC....................................................................................................... A-2
Securities Act............................................................................................ A-43
</TABLE>
Index-2
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Significant Subsidiary.................................................................................... A-43
Subsidiary................................................................................................ A-43
Surviving Corporation..................................................................................... A-1
Systems................................................................................................... A-44
Tax....................................................................................................... A-43
Tax Returns............................................................................................... A-44
Taxes..................................................................................................... A-43
Telecom Act............................................................................................... A-10
Termination Agreement..................................................................................... A-41
Termination Date.......................................................................................... A-39
Third Party............................................................................................... A-30
Transition Committee...................................................................................... A-26
True Up Exchange Ratio.................................................................................... A-8
U S WEST.................................................................................................. A-1
U S WEST Acquisition Agreement............................................................................ A-32
U S WEST Benefit Plans.................................................................................... A-21
U S WEST Common Stock..................................................................................... A-2
U S WEST Contracts........................................................................................ A-25
U S WEST Equity Rights.................................................................................... A-18
U S WEST Intellectual Property............................................................................ A-24
U S WEST Licenses......................................................................................... A-25
U S WEST Right............................................................................................ A-2
U S WEST SEC Reports...................................................................................... A-19
U S WEST Stockholder Approval............................................................................. A-32
U S WEST Stockholders' Meeting............................................................................ A-32
U S WEST Subsequent Determination......................................................................... A-32
U S WEST Subsidiary....................................................................................... A-43
U S WEST Superior Proposal................................................................................ A-32
U S WEST Termination Fee.................................................................................. A-41
under common control with................................................................................. A-42
Voting Agreement.......................................................................................... A-1
Year 2000 Compliant....................................................................................... A-44
</TABLE>
Index-3
<PAGE>
ANNEX B
VOTING AGREEMENT
Agreement dated as of July 18, 1999 among each of the shareholders listed on
the signature page hereto (each, a "Shareholder") and U S WEST, Inc., a Delaware
corporation (the "Company").
(A) Capitalized terms used herein and not otherwise defined shall have the
meaning assigned such terms in the Agreement and Plan of Merger dated as of July
18, 1999 between the Company and Qwest Communications International Inc.
("Qwest") (the "Merger Agreement").
(B) U S WEST has agreed to enter into the Merger Agreement only if the
parties hereto enter into this Voting Agreement.
Accordingly, the parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER. Each Shareholder
hereby represents and warrants, severally and not jointly, to the Company, with
respect to itself, as follows:
(a) TITLE. As of July 12, 1999, such Shareholder beneficially owns the
number of shares, or warrants to acquire such shares, as the case may be,
set forth after such Shareholder's name on EXHIBIT A attached hereto, of
common stock, $0.01 par value per share, of Qwest (with respect to each
Shareholder, the shares of common stock of Qwest beneficially owned by such
Shareholder or warrants to acquire common stock of Qwest beneficially owned
by such Shareholder, or shares of common stock of Qwest into which options
or warrants beneficially owned by such Shareholder is exercisable, as the
case may be, specified after such Shareholder's name on Exhibit A hereto
shall be referred to herein as the "Shares"). Such Shareholder owns the
Shares free and clear of all liens, claims, options, charges or other
encumbrances.
(b) RIGHT TO VOTE. Such Shareholder has (subject only in the case of
warrants or options to the exercise of such warrants or options into shares
of common stock of Qwest) full legal power, authority and right to vote all
Shares in favor of approval and adoption of the Merger Agreement and the
transactions contemplated by the Merger Agreement without the consent or
approval of, or any other action on the part of, any other person or entity.
Without limiting the generality of the foregoing, except for this Agreement
or as otherwise permitted by this Agreement, such Shareholder has not
entered into any voting agreement with any person or entity with respect to
any Shares, granted any person or entity any proxy (revocable or
irrevocable) or power of attorney with respect to any Shares, deposited any
Shares in a voting trust or entered into any arrangement or agreement with
any person or entity limiting or affecting its legal power, authority or
right to vote the Shares in favor of the transactions contemplated by the
Merger Agreement. As of the date of the Qwest Stockholders' Meeting, except
for this Agreement or as otherwise permitted by this Agreement and, with
respect to warrants or options which constitute Shares, subject only to the
exercise of such warrants or options into shares of common stock of Qwest,
such Shareholder will have full legal power, authority and right to vote all
Shares beneficially owned by such Shareholder in favor of the approval of
the transactions contemplated by the Merger Agreement without the consent or
approval of, or any other action on the part of, any other person or entity.
From and after the date hereof, except as otherwise permitted by this
Agreement, such Shareholder will not commit any act that could restrict or
otherwise affect such legal power, authority and right to vote all Shares in
favor of the transactions contemplated by the Merger Agreement. Without
limiting the generality of the foregoing, except as otherwise permitted by
this Agreement, from and after the date hereof, such Shareholder will not
enter into any voting agreement with any person or entity with respect to
any of the Shares, grant any person or entity any proxy (revocable or
irrevocable) or power of attorney with respect to any of the Shares, deposit
any of the Shares in a voting trust or otherwise enter into any agreement or
arrangement limiting or affecting
B-1
<PAGE>
such Shareholder's legal power, authority or right to vote the Shares in
favor of the approval of the transactions contemplated by the Merger
Agreement (other than this Agreement).
(c) AUTHORITY. Such Shareholder has full legal power, authority and
right to execute and deliver, and to perform its obligations under, this
Agreement. This Agreement has been duly and validly executed and delivered
by such Shareholder and constitutes a valid and binding agreement of such
Shareholder enforceable against such Shareholder in accordance with its
terms, subject to (i) bankruptcy, insolvency, moratorium and other similar
laws now or hereafter in effect relating to or affecting creditors rights
generally and (ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
(d) CONFLICTING INSTRUMENTS. Neither the execution and delivery of
this Agreement nor the performance by such Shareholder of its agreements and
obligations hereunder will result in any breach or violation of, or be in
conflict with or constitute a default under, any term of any agreement,
judgment, injunction, order, decree, law, regulation or arrangement to which
such Shareholder is a party or by which such Shareholder (or any of its
assets) is bound, except for any such breach, violation, conflict or default
which, individually or in the aggregate, would not impair or affect such
Shareholder's ability to perform its obligations under this Agreement.
2. RESTRICTION ON TRANSFER; OTHER RESTRICTIONS. Such Shareholder shall not
transfer (as defined below) record ownership or beneficial ownership, or both,
of any Shares, except in each case to the extent permitted below. Such
Shareholder may transfer record ownership or beneficial ownership, or both, of
any Shares, and the Shares so transferred shall cease to be subject to this
Agreement; PROVIDED that if, as a result of such transfer, less than the Minimum
Amount (as defined below) would be subject to this Agreement, then the Person to
whom record ownership or beneficial ownership, or both, of such transferred
shares shall be transferred shall execute and deliver to the Company an
agreement reasonably acceptable to the Company by which such transferee agrees
that such transferred shares shall be Shares that are subject to this Agreement
and agrees to be bound by Sections 2, 3 and 4 of this Agreement with respect to
such transferred shares. For the purposes of this Agreement, the term (x)
"transfer" means a sale, an assignment, a grant, a transfer, a pledge, the
creation of a lien or other disposition of any Shares or any interest of any
nature in any Shares, including, without limitation, the beneficial ownership of
such Shares and (y) "Minimum Amount" means 250,000,000 shares of Qwest Common
Stock; PROVIDED that if prior to the termination of this Agreement the number of
outstanding shares of Qwest Common Stock shall be changed into a different
number of shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or if any dividend payable in stock or other
securities shall be declared on the Qwest common stock with a record date prior
to the date of termination of this Agreement, then the Minimum Amount shall be
adjusted accordingly.
(a) Notwithstanding anything in this Agreement to the contrary, such
Shareholder may pledge, or otherwise grant security in respect of, any Shares
held by such Shareholder in connection with any BONA FIDE lending or hedging or
other financing transaction entered into by such Shareholder and, upon any
foreclosure or other exercise of remedies in respect of such Shares, none of the
restrictions under this Agreement shall apply to such Shares or any Person
exercising such remedies or acquiring any interest in such Shares.
(b) Except as otherwise specifically provided herein, such Shareholder
further agrees not to take any action which may reasonably be expected to
effect, change or manipulate the trading prices of Qwest common stock.
3. AGREEMENT TO VOTE OF SHAREHOLDER. Such Shareholder hereby irrevocably
and unconditionally agrees to vote or to cause to be voted all Shares at the
Qwest Stockholders' Meeting and at any other annual or special meeting of
shareholders of Qwest or action by written consent where such matters arise (a)
in favor of the adoption of the Merger Agreement and the transactions
contemplated by the Merger Agreement, (b) against (i) approval of any proposal
made in opposition to or in competition with the
B-2
<PAGE>
Merger or any of the other transactions contemplated by the Merger Agreement,
(ii) any merger, consolidation, sale of assets, business combination, share
exchange, reorganization or recapitalization of Qwest or any of its
subsidiaries, with or involving any party other than the Company, (iii) any
liquidation or winding up of Qwest, (iv) any extraordinary dividend by Qwest,
(v) any change in the capital structure of Qwest (other than pursuant to the
Merger Agreement) and (vi) any other action that may reasonably be expected to
impede, interfere with, delay, postpone or attempt to discourage the Merger or
the other transactions contemplated by the Merger Agreement or result in a
breach of any of the covenants, representations, warranties or other obligations
or agreements of Qwest under the Merger Agreement which would materially and
adversely affect Qwest or its ability to consummate the transactions
contemplated by the Merger Agreement and (c) in favor of the election of
directors of Qwest, as the surviving corporation, contemplated by Section 2.07
of the Merger Agreement at each meeting of the stockholders of Qwest, as the
surviving corporation, where such directors are nominated subsequent to the
Effective Time. The obligations of the Shareholders specified in this Section 3
shall apply whether or not the Board of Directors of Qwest makes a Qwest
Subsequent Determination.
4. SATISFACTION OF CONDITIONS TO THE MERGERS. Each of the Shareholders
shall assist and cooperate with the parties to the Merger Agreement in doing all
things necessary, proper or advisable under applicable law as promptly as
practicable to consummate and make effective the Mergers and the other
transactions contemplated by the Merger Agreement and such Shareholder shall not
take any action that would or is reasonably likely to result in any of the
representations and warranties set forth in this Agreement being untrue or in
any of the conditions set forth in Article 7 of the Merger Agreement not being
satisfied.
5. INVALID PROVISIONS. If any provision of this Agreement shall be invalid
or unenforceable under applicable law, such provision shall be ineffective to
the extent of such invalidity or unenforceability only, without it affecting the
remaining provisions of this Agreement.
6. ADDITIONAL SHARES. If, after the date hereof, such Shareholder acquires
beneficial ownership of any additional shares of capital stock of Qwest (any
such shares, "Additional Shares"), including, without limitation, upon exercise
of any option, warrant or right to acquire Shares of capital stock of Qwest or
through any stock dividend or stock split, the provisions of this Agreement
applicable to the Shares shall be applicable to such Additional Shares as if
such Additional Shares had been Shares as of the date hereof. The provisions of
the immediately preceding sentence shall be effective with respect to Additional
Shares without action by any person or entity immediately upon the acquisition
by any Shareholder of beneficial ownership of such Additional Shares.
7. EXECUTED IN COUNTERPARTS. This Agreement may be executed in
counterparts each of which shall be an original with the same effect as if the
signatures hereto and thereto were upon the same instrument.
8. SPECIFIC PERFORMANCE. The parties hereto agree that if for any reason
any Shareholder fails to perform any of its agreements or obligations under this
Agreement irreparable harm or injury to the Company would be caused if or which
money damages would not be an adequate remedy. Accordingly, such Shareholder
agrees that, in seeking to enforce this Agreement against such Shareholder, the
Company shall be entitled, in addition to any other remedy available at law,
equity or otherwise, to specific performance and injunctive and other equitable
relief. The provisions of this Section 8 are without prejudice to any other
rights or remedies, whether at law or in equity, that the Company may have
against such Shareholder for any failure to perform any of its agreements or
obligations under this Agreement.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflicts of laws thereof.
10. AMENDMENTS; TERMINATION. (a) This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto.
B-3
<PAGE>
(b) The provisions of this Agreement (other than Section 3(c)) shall
terminate upon the earliest to occur of (i) the consummation of the Merger, (ii)
the date which is two years after the date hereof, (iii) the termination of the
Merger Agreement if, but only if, the Merger Agreement is terminated solely for
reasons that are not directly or indirectly related to the commencement of, or
any Person's direct or indirect indication of interest in making, a Qwest
Superior Proposal or (iv) the termination of the Merger Agreement by U S WEST.
Section 3(c) of this Agreement shall terminate on the date which is three years
after the date hereof.
(c) For purposes of this Agreement, the term "Merger Agreement" includes the
Merger Agreement, as the same may be modified or amended from time to time,
other than a modification or amendment to the Merger Agreement changing the
Merger Consideration or otherwise materially adversely affecting the rights of
Qwest shareholders.
11. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal successos (including, in the case of such Shareholder or any other
individual, any executors, administrators, estates, legal representatives and
heirs of such Shareholder or such individual) and permitted assigns; provided
that, except as otherwise provided in this Agreement, no party may assign,
delegate or otherwise transfer any of its rights or obligations, under this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
this 18(th) day of July, 1999.
<TABLE>
<S> <C> <C>
U S WEST, INC.
By: /s/ SOLOMON D. TRUJILLO
-----------------------------------------
Name: Solomon D. Trujillo
Title: Chairman, President and Chief
Executive Officer
ANSCHUTZ FAMILY INVESTMENT
COMPANY LLC
By: /s/ CRAIG D. SLATER
-----------------------------------------
Name: Craig D. Slater
Title: Executive Vice President
ANSCHUTZ COMPANY
By: /s/ CRAIG D. SLATER
-----------------------------------------
Name: Craig D. Slater
Title: Executive Vice President
</TABLE>
B-4
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
SHAREHOLDER NAME AMOUNT OF SHARES
- --------------------------------------------------------- -----------------------------------
<S> <C>
Anshutz Company.......................................... 287,089,328
Anschutz Family Investment Company LLC................... 17,200,000 shares issuable upon
exercise of a warrant
</TABLE>
B-5
<PAGE>
ANNEX C
[LETTERHEAD OF DLJ]
July 18, 1999
Board of Directors
Qwest Communications International Inc.
700 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
Dear Members of the Board:
You have requested our opinion as to the fairness from a financial point of
view to the holders of common stock of Qwest Communications International Inc.
("Qwest") of the Merger Consideration (defined below) provided for in the
Agreement and Plan of Merger, dated as of July 18, 1999 (the "Merger
Agreement"), between Qwest and U S WEST, Inc. ("U S WEST").
Pursuant to the Merger Agreement, among other things, (i) U S WEST will be
merged with and into Qwest (the "Merger") and (ii) each outstanding share of the
common stock, par value $0.01 per share, of U S WEST ("U S WEST Common Stock")
will be converted, subject to certain exceptions and the Qwest Cash Election
(defined below), into the right to receive that number of shares of the common
stock, par value $0.01 per share, of Qwest ("Qwest Common Stock") equal to (x)
$69.00 divided by the average of the volume weighted averages of the trading
prices of Qwest Common Stock on the NASDAQ National Market for the 15 trading
days randomly selected by Qwest and U S WEST from the 30 consecutive trading
days ending on the third trading day immediately preceding the date on which
certain conditions to the closing of the Merger are satisfied or waived (the
"Average Price"), if the Average Price is greater than or equal to $28.26 and
less than or equal to $39.90, (y) 2.44161, if the Average Price is less than
$28.26 or (z) 1.72932, if the Average Price is greater than $39.90. The Merger
Agreement further provides that if the Average Price is less than 38.70, Qwest
will have the right to elect to pay a portion of the Merger Consideration in
cash (the "Qwest Cash Election"), in an amount to be mutually agreed upon by
Qwest and U S WEST, in which event, in lieu of the consideration described
above, each holder of U S WEST Common Stock will be entitled to receive for each
share of U S WEST Common Stock, subject to certain exceptions, (i) a number of
shares of Qwest Common Stock equal to the True Up Exchange Ratio (as defined in
the Merger Agreement) and (ii) an amount of cash equal to the Per Share Cash
True Up (as defined in the Merger Agreement). The number of shares of Qwest
Common Stock, and in the case of the Qwest Cash Election the cash amount, into
which shares of U S WEST Common Stock will be so converted in the Merger is
referred to herein as the "Merger Consideration."
In arriving at our opinion, we have reviewed the Merger Agreement and
certain related documents. We also have reviewed certain financial and other
information that was publicly available or furnished to us by Qwest and U S
WEST, including information provided during discussions with Qwest and U S WEST.
Included in the information provided during discussions with Qwest and U S WEST
were certain financial projections of Qwest and U S WEST prepared by the
managements of Qwest and U S WEST. In addition, we have compared certain
financial and securities data of Qwest and U S WEST with various other companies
whose securities are traded in public markets, reviewed the historical stock
prices and trading volumes of Qwest Common Stock and U S WEST Common Stock,
reviewed prices and premiums paid in certain other business combinations, and
conducted such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by
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<PAGE>
Qwest, U S WEST or their respective representatives, or that was otherwise
reviewed by us. In particular, we have relied upon the estimates of the
managements of Qwest and U S WEST as to the operating synergies anticipated to
result from the proposed Merger. With respect to the financial projections
relating to Qwest and U S WEST supplied to us, we have relied on representations
that they have been reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the managements of Qwest and U S
WEST as to the future operating and financial performance of Qwest and U S WEST
and the operating synergies anticipated to result from the proposed Merger. We
have not assumed any responsibility for making any independent evaluation of any
assets or liabilities or for making any independent verification of any of the
information reviewed by us. We have assumed that in the course of obtaining the
necessary regulatory and third party consents for the proposed Merger and the
transactions contemplated thereby, no restriction will be imposed that will have
a material adverse effect on the contemplated benefits of the proposed Merger or
the transactions contemplated thereby. In addition, we have relied as to certain
legal matters on advice of counsel to Qwest.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which Qwest Common Stock will actually trade at any time. Our opinion
does not address the relative merits of the Merger Agreement or the proposed
Merger or other business strategies being considered by Qwest's Board of
Directors, nor does it address the Board's decision to proceed with the Merger
Agreement or the Merger. Our opinion does not constitute a recommendation to any
stockholder with respect to the Merger Agreement or the proposed Merger.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for Qwest in the past and has been compensated for
such services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that, as of the date hereof, the Merger Consideration is fair to
the holders of Qwest Common Stock from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<TABLE>
<S> <C> <C>
By: /s/ LOUIS P. FRIEDMAN
-----------------------------------------
Louis P. Friedman
Managing Director
</TABLE>
C-2
<PAGE>
ANNEX D
[LOGO]
July 18, 1999
Board of Directors
U S WEST, Inc.
1801 California Street
Denver, Colorado 80202
Members of the Board of Directors:
U S WEST, Inc. ("U S WEST") and Qwest Communications International Inc.
("Qwest") have entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which U S WEST will merge with and into Qwest in a
transaction (the "Merger") in which each outstanding share of common stock, par
value $.01 per share, of U S WEST ("U S WEST Common Stock") (other than shares
of U S WEST Common Stock owned by U S WEST or any of its subsidiaries) will be
converted into the number of shares of common stock, par value $.01 per share,
of Qwest ("Qwest Common Stock") (and possibly an amount in cash) as determined
in accordance with Sections 2.02 and 2.09 of the Merger Agreement (the "Merger
Consideration").
You have asked us whether, in our opinion, the Merger Consideration is fair
from a financial point of view to the holders of U S WEST Common Stock.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to U S WEST and Qwest that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of U S WEST and Qwest, as well as the amount and timing of the cost
savings and related expenses and synergies expected to result from the
Merger (the "Expected Synergies") furnished to us by U S WEST and
Qwest, respectively;
(3) Conducted discussions with members of senior management and
representatives of U S WEST and Qwest concerning the matters described
in clauses 1 and 2 above, as well as their respective businesses and
prospects before and after giving effect to the Merger and the Expected
Synergies;
(4) Reviewed the market prices and valuation multiples for shares of U S
WEST Common Stock and the Qwest Common Stock and compared them with
those of certain publicly traded companies that we deemed to be
relevant;
(5) Reviewed the results of operations of U S WEST and Qwest and compared
them with those of certain publicly traded companies that we deemed to
be relevant;
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
(7) Participated in certain discussions and negotiations among
representatives of U S WEST and Qwest and their financial and legal
advisors;
(8) Reviewed the potential pro forma impact of the Merger;
D-1
<PAGE>
(9) Reviewed the Merger Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of U S WEST or Qwest or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of U S WEST or Qwest. With
respect to the financial forecast information and the Expected Synergies
furnished to or discussed with us by U S WEST or Qwest, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of U S WEST's or Qwest's management as to the expected
future financial performance of U S WEST or Qwest, as the case may be, and the
Expected Synergies. We have further assumed that the Merger will be accounted
for as a purchase by U S WEST of Qwest under generally accepted accounting
principles and that it will qualify as a tax-free reorganization for U.S.
federal income tax purposes. We have also assumed that the final form of the
Merger Agreement will be substantially similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, to the Merger Agreement, will be imposed that will
have a material adverse effect on the contemplated benefits of the Merger.
We are acting as financial advisor to U S WEST in connection with the Merger
and will receive a fee from U S WEST for our services, a significant portion of
which is contingent upon the consummation of the Merger. In addition, U S WEST
has agreed to indemnify us for certain liabilities arising out of our
engagement. We are currently and have, in the past, provided financial advisory
and financing services to U S WEST and Qwest (and certain of their affiliates)
and may continue to do so and have received, and may receive, fees for the
rendering of such services. In addition, in the ordinary course of our business,
we may actively trade shares of U S WEST Common Stock and other securities of U
S WEST, as well as shares of Qwest Common Stock and other securities of Qwest,
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of U S
WEST. Our opinion does not address the merits of the underlying decision by U S
WEST to engage in the Merger and does not constitute a recommendation to any
shareholder of U S WEST as to how such shareholder should vote on the proposed
Merger or any matter related thereto. Also our opinion does not address the
relative merits, financial or otherwise, of the Merger as compared to any
alternative transaction or business strategy that may be available to U S WEST.
We are not expressing any opinion herein as to the prices at which the
shares of U S WEST Common Stock or Qwest Common Stock will trade following the
announcement or consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Merger Consideration is fair from a financial point of
view to the holders of U S WEST Common Stock.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
D-2
<PAGE>
ANNEX E
[LEHMAN BROTHERS LOGO]
July 18, 1999
Board of Directors
U S WEST, Inc.
1801 California Street
Denver, Colorado 80202
Members of the Board:
We understand that U S WEST, Inc. ("U S WEST" or the "Company") and Qwest
Communications International Inc. ("Qwest") intend to enter into an Agreement
and Plan of Merger (the "Merger Agreement") pursuant to which U S WEST will
merge with and into Qwest, with Qwest continuing as the surviving corporation
(the "Proposed Transaction"). In the Proposed Transaction, each share of the
Company's Common Stock (the "U S WEST Common Stock") will be converted into a
number of shares of Qwest's Common Stock (the "Qwest Common Stock") equal to the
Exchange Ratio (as defined below). The "Exchange Ratio" means (i) $69.00 divided
by (ii) the Qwest Price (as defined below); provided that if the Qwest Price is
less than $28.26, the Exchange Ratio will equal 2.44161 and if the Qwest Price
is greater than $39.90, the Exchange Ratio will equal 1.72932. The "Qwest Price"
means the volume-weighted average trading price per share of Qwest Common Stock
for the 15 trading days randomly selected from the 30 trading days ending on the
trading day immediately preceding the consummation of the Proposed Transaction.
If the Qwest Price is less than $38.70, Qwest will have the option of paying a
portion of the consideration to be issued per share of U S WEST Common Stock in
the Proposed Transaction in cash in lieu of shares of Qwest Common Stock, with
the actual amount of cash to be paid to be mutually agreed upon by U S WEST and
Qwest. In addition, U S WEST will have the right to terminate the Merger
Agreement if the trading price of the Qwest Common Stock is less than $22.00
during certain periods prior to the consummation of the Proposed Transaction.
The terms and conditions of the Proposed Transaction are set forth in more
detail in the Merger Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
holders of U S WEST Common Stock of the consideration to be offered to such
stockholders in the Proposed Transaction. We have not been requested to opine as
to, and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement and the specific terms of the Proposed Transaction; (2) publicly
available information concerning the Company and Qwest that we believe to be
relevant to our analysis, including without limitation, Forms 10-K of the
Company and Qwest for the fiscal year ended December 31, 1998 and Forms 10-Q of
the Company and Qwest for the three months ended March 31, 1999; (3) financial
and operating information with respect to the business, operations and prospects
of the Company furnished to us by the Company, including the expected results
for the three months ended June 30, 1999 and certain financial forecasts
prepared by the Company; (4) financial and operating information with respect to
the business, operations and prospects of Qwest furnished to us by Qwest,
including the expected results for the three months ended June 30, 1999 and
certain financial forecasts prepared by Qwest; (5) a trading history of the U S
WEST Common Stock from June 15, 1998 to the present and of the U S WEST
Communications Group Common Stock (the
E-1
<PAGE>
common stock of the Company's predecessor) from November 1, 1995 to June 12,
1998 and a comparison of these trading histories with those of other companies
that we deemed relevant; (6) a trading history of the Qwest Common Stock from
June 24, 1997 to the present and a comparison of this trading history with those
of other companies that we deemed relevant; (7) a comparison of the historical
financial results and present financial condition of the Company with those of
other companies that we deemed relevant and a comparison of the historical
financial results and present financial condition of Qwest with those of other
companies that we deemed relevant; (8) third party research analysts' earnings
estimates, valuation analyses, target prices and investment recommendations for
the Company and Qwest; (9) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other transactions that we
deemed relevant; (10) the potential pro forma financial effects of the Proposed
Transaction, including the cost savings, operating synergies and strategic
benefits expected by management of the Company and Qwest to result from a
combination of the businesses of the Company and Qwest; (11) the terms and
conditions of the proposed merger of U S WEST with Global Crossing Ltd. ("Global
Crossing"); and (12) such information relating to the business, operations and
prospects of Global Crossing and Global Crossing's common stock that we deemed
relevant. We also have had discussions with the managements of the Company and
Qwest concerning their respective businesses, operations, assets, financial
conditions and prospects and have undertaken such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of management of the Company and Qwest that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial forecasts of
the Company furnished to us by the Company, upon advice of the Company we have
assumed that such forecasts have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the management of the
Company as to the future financial performance of the Company and that the
Company will perform in accordance with such forecasts. In addition, with
respect to the financial forecasts of Qwest furnished to us by Qwest, upon
advice of U S WEST and Qwest we have assumed that such forecasts have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of Qwest as to the future financial performance
of Qwest and that Qwest will perform in accordance with such forecasts. With
respect to the cost savings, operating synergies and strategic benefits expected
by management of the Company and Qwest to result from a combination of the
businesses of U S WEST and Qwest, upon advice of the Company and Qwest we have
assumed that such cost savings, operating efficiencies and strategic benefits
will be realized substantially in accordance with such expectations. In arriving
at our opinion, we have not conducted a physical inspection of the properties
and facilities of the Company or Qwest and have not made or obtained any
evaluations or appraisals of the assets or liabilities of the Company or Qwest.
Upon advice of the Company and its legal advisors, we have assumed that the
receipt of shares of Qwest Common Stock by stockholders of U S WEST in the
Proposed Transaction will qualify as a tax-free transaction to U S WEST
stockholders. Upon advice of the Company and its legal advisors, we also have
assumed that consummation of the Proposed Transaction will not cause the
split-off by MediaOne Group, Inc. (formerly U S WEST, Inc.) of the Company on
June 12, 1998 to fail to qualify as a tax-free transaction. Our opinion
necessarily is based upon market, economic and other conditions as they exist
on, and can be evaluated as of, the date of this letter.
In addition, we do not express any opinion as to the prices at which shares
of the Qwest Common Stock may trade at any time prior to or following the
consummation of the Proposed Transaction and this opinion should not be viewed
as providing any assurance that the market value of the shares of Qwest Common
Stock to be held by the holders of U S WEST Common Stock after the consummation
of the Proposed Transaction will be in excess of the market value of the shares
of U S WEST Common Stock
E-2
<PAGE>
owned by such stockholders at any time prior to announcement of consummation of
the Proposed Transaction.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered to the holders of U S WEST Common Stock in the Proposed Transaction is
fair to such stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services, a portion of which
is contingent upon the consummation of the Proposed Transaction. In addition,
the Company has agreed to indemnify us for certain liabilities that may arise
out of the rendering of this opinion. We also have performed various investment
banking services for the Company and its predecessor in the past, and have
received customary fees for such services. In the ordinary course of our
business, we actively trade in the debt and equity securities of the Company and
Qwest for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
<TABLE>
<S> <C> <C>
Very truly yours,
LEHMAN BROTHERS
</TABLE>
E-3
<PAGE>
ANNEX F
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
F-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or
F-2
<PAGE>
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion,
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<PAGE>
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
F-4
<PAGE>
ANNEX G
QWEST COMMUNICATIONS INTERNATIONAL INC.
EQUITY INCENTIVE PLAN
(effective June 23, 1997)
(amended and restated, effective as of June 1, 1998)
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE 1
INTRODUCTION
SECTION 1.01. ESTABLISHMENT....................................................................... G-1
SECTION 1.02. PURPOSES............................................................................ G-1
SECTION 1.03. EFFECTIVE DATE; AMENDMENT........................................................... G-1
ARTICLE 2
DEFINITIONS
SECTION 2.01. DEFINITIONS......................................................................... G-1
SECTION 2.02. GENDER AND NUMBER................................................................... G-3
ARTICLE 3
PLAN ADMINISTRATION
SECTION 3.01. GENERAL............................................................................. G-3
SECTION 3.02. DELEGATION BY COMMITTEE............................................................. G-3
ARTICLE 4
STOCK SUBJECT TO THE PLAN
SECTION 4.01. NUMBER OF SHARES.................................................................... G-4
SECTION 4.02. OTHER SHARES OF STOCK............................................................... G-4
SECTION 4.03. ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC.................................... G-4
SECTION 4.04. OTHER DISTRIBUTIONS AND CHANGES IN THE STOCK........................................ G-4
SECTION 4.05. GENERAL ADJUSTMENT RULES............................................................ G-5
SECTION 4.06. DETERMINATION BY THE COMMITTEE, ETC................................................. G-5
ARTICLE 5
CORPORATE REORGANIZATION; CHANGE IN CONTROL
SECTION 5.01. REORGANIZATION OF QWEST............................................................. G-5
SECTION 5.02. REQUIRED NOTICE..................................................................... G-5
SECTION 5.03. ACCELERATION OF EXERCISABILITY...................................................... G-6
SECTION 5.04. CHANGE IN CONTROL OF QWEST.......................................................... G-6
SECTION 5.05. REORGANIZATION OF AFFILIATED CORPORATIONS........................................... G-6
ARTICLE 6
PARTICIPATION
ARTICLE 7
OPTIONS
SECTION 7.01. GRANT OF OPTIONS.................................................................... G-7
SECTION 7.02. STOCK OPTION CERTIFICATES........................................................... G-7
SECTION 7.03. RESTRICTIONS ON INCENTIVE OPTIONS................................................... G-10
SECTION 7.04. SHAREHOLDER PRIVILEGES.............................................................. G-10
</TABLE>
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<TABLE>
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<S> <C> <C>
ARTICLE 8
RESTRICTED STOCK AWARDS
SECTION 8.01. GRANT OF RESTRICTED STOCK AWARDS.................................................... G-10
SECTION 8.02. RESTRICTIONS........................................................................ G-10
SECTION 8.03. PRIVILEGES OF A STOCKHOLDER, TRANSFERABILITY........................................ G-11
SECTION 8.04. ENFORCEMENT OF RESTRICTIONS......................................................... G-11
ARTICLE 9
STOCK UNITS
ARTICLE 10
STOCK APPRECIATION RIGHTS
SECTION 10.01. PERSONS ELIGIBLE.................................................................... G-11
SECTION 10.02. TERMS OF GRANT...................................................................... G-11
SECTION 10.03. EXERCISE............................................................................ G-11
SECTION 10.04. NUMBER OF SHARES OR AMOUNT OF CASH.................................................. G-12
SECTION 10.05. EFFECT OF EXERCISE.................................................................. G-12
SECTION 10.06. TERMINATION OF SERVICES............................................................. G-12
ARTICLE 11
STOCK BONUSES
ARTICLE 12
OTHER COMMON STOCK GRANTS
ARTICLE 13
RIGHTS OF PARTICIPANTS
SECTION 13.01. SERVICE............................................................................. G-12
SECTION 13.02. NONTRANSFERABILITY.................................................................. G-12
SECTION 13.03. NO PLAN FUNDING..................................................................... G-13
ARTICLE 14
GENERAL RESTRICTIONS
SECTION 14.01. INVESTMENT REPRESENTATIONS.......................................................... G-13
SECTION 14.02. COMPLIANCE WITH SECURITIES LAWS..................................................... G-13
SECTION 14.03. CHANGES IN ACCOUNTING RULES......................................................... G-13
ARTICLE 15
OTHER EMPLOYEE BENEFITS
ARTICLE 16
PLAN AMENDMENT, MODIFICATION AND TERMINATION
ARTICLE 17
WITHHOLDING
SECTION 17.01. WITHHOLDING REQUIREMENT............................................................. G-14
SECTION 17.02. WITHHOLDING WITH STOCK.............................................................. G-14
</TABLE>
ii
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<TABLE>
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<S> <C> <C>
ARTICLE 18
REQUIREMENTS OF LAW
SECTION 18.01. REQUIREMENTS OF LAW................................................................. G-15
SECTION 18.02. FEDERAL SECURITIES LAW REQUIREMENTS................................................. G-15
SECTION 18.03. GOVERNING LAW....................................................................... G-15
ARTICLE 19
DURATION OF THE PLAN
</TABLE>
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<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC.
EQUITY INCENTIVE PLAN
ARTICLE 1
INTRODUCTION
SECTION 1.01. ESTABLISHMENT. Qwest Communications International Inc., a
Delaware corporation, effective June 23, 1997, established the Qwest
Communications International Inc. Equity Incentive Plan (the "PLAN") for certain
employees of the Company (as defined in subsection 2.1(f)) and certain
consultants to the Company. The Plan permits the grant of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, non-qualified stock options, restricted stock awards, stock
appreciation rights, stock bonuses, stock units and other stock grants to
certain key employees of the Company and to certain consultants to the Company.
SECTION 1.02. PURPOSES. The purposes of the Plan are to provide those who
are selected for participation in the Plan with added incentives to continue in
the long-term service of the Company and to create in such persons a more direct
interest in the future success of the operations of the Company by relating
incentive compensation to increases in shareholder value, so that the income of
those participating in the Plan is more closely aligned with the income of the
Company's shareholders. The Plan is also designed to provide a financial
incentive that will help the Company attract, retain and motivate the most
qualified employees and consultants.
SECTION 1.03. EFFECTIVE DATE; AMENDMENT. The initial effective date of the
Plan was June 23, 1997. The Plan is amended and restated, as of June 1, 1998.
The provisions of the Plan, as so amended and restated, shall apply to any Award
(as defined in subsection 2.1(b)) granted on or after June 1, 1998, and, to the
extent that the provisions of this amended and restated Plan do not adversely
affect the Award, shall also apply to Awards granted prior to June 1, 1998.
ARTICLE 2
DEFINITIONS
SECTION 2.01. DEFINITIONS. The following terms shall have the meanings set
forth below:
(a) "AFFILIATED CORPORATION" means any corporation or other entity that
is affiliated with Qwest through stock ownership or otherwise and is
designated as an "Affiliated Corporation" by the Board, provided, however,
that for purposes of Incentive Options granted pursuant to the Plan, an
"Affiliated Corporation" means any parent or subsidiary of the Company as
defined in Section 424 of the Code.
(b) "AWARD" means an Option, a Restricted Stock Award, a Stock
Appreciation Right, a Stock Unit, grants of Stock pursuant to Article XI or
other issuances of Stock hereunder.
(c) "BOARD" means the Board of Directors of Qwest.
(d) "CODE" means the Internal Revenue Code of 1986, as it may be amended
from time to time.
(e) "COMMITTEE" means a committee consisting of members of the Board who
are empowered hereunder to take actions in the administration of the Plan.
The Committee shall be so constituted at all times as to permit the Plan to
comply with Rule 16b-3 or any successor rule promulgated under the
Securities Exchange Act of 1934 (the "1934 ACT"). Except as provided in
Section 3.2, the Committee shall select Participants from Eligible Employees
and Eligible Consultants of the Company and shall determine the awards to be
made pursuant to the Plan and the terms and conditions thereof.
(f) "COMPANY" means Qwest and the Affiliated Corporations.
G-1
<PAGE>
(g) "DISABLED" or "DISABILITY" shall have the meaning given to such
terms in Section 22(e)(3) of the Code.
(h) "EFFECTIVE DATE" means the original effective date of the Plan, June
23, 1997.
(i) "ELIGIBLE EMPLOYEES" means those employees (including, without
limitation, officers and directors who are also employees) of the Company or
any subsidiary or division thereof, upon whose judgment, initiative and
efforts the Company is, or will become, largely dependent for the successful
conduct of its business. For purposes of the Plan, an employee is any
individual who provides services to the Company or any subsidiary or
division thereof as a common law employee and whose remuneration is subject
to the withholding of federal income tax pursuant to section 3401 of the
Code. Employee shall not include any individual (A) who provides services to
the Company or any subsidiary or division thereof under an agreement,
contract, or any other arrangement pursuant to which the individual is
initially classified as an independent contractor or (B) whose remuneration
for services has not been treated initially as subject to the withholding of
federal income tax pursuant to section 3401 of the Code even if the
individual is subsequently reclassified as a common law employee as a result
of a final decree of a court of competent jurisdiction or the settlement of
an administrative or judicial proceeding. Leased employees within the
meaning of section 414(n) of the Code shall not be treated as employees
under this Plan.
(j) "ELIGIBLE CONSULTANTS" means those consultants to the Company who
are determined, by the Committee, to be individuals whose services are
important to the Company and who are eligible to receive Awards, other than
Incentive Options, under the Plan.
(k) "FAIR MARKET VALUE" means the average of the mean between the bid
and the asked prices of the Stock or the closing price, as applicable, on
the Nasdaq National Market, the principal stock exchange or other market on
which the Stock is traded, over the five consecutive trading days ending on
a particular date or by such other method as the Committee, or the
individual or individuals to whom the Committee has delegated authority to
grant Awards, may specify at the time an Award is granted. If the price of
the Stock is not reported on any securities exchange or national market
system, the Fair Market Value of the Stock on a particular date shall be as
determined by the Committee. If, upon exercise of an Option, the exercise
price is paid by a broker's transaction as provided in subsection
7.2(g)(ii)(D), Fair Market Value, for purposes of the exercise, shall be the
price at which the Stock is sold by the broker.
(l) "INCENTIVE OPTION" means an Option designated as such and granted in
accordance with Section 422 of the Code.
(m) "NON-QUALIFIED OPTION" means any Option other than an Incentive
Option.
(n) "OPTION" means a right to purchase Stock at a stated or formula
price for a specified period of time. Options granted under the Plan shall
be either Incentive Options or Non-Qualified Options.
(o) "OPTION CERTIFICATE" shall have the meaning given to such term in
Section 7.2 hereof.
(p) "OPTION HOLDER" means a Participant who has been granted one or more
Options under the Plan.
(q) "OPTION PRICE" means the price at which each share of Stock subject
to an Option may be purchased, determined in accordance with subsection
7.2(b).
(r) "PARTICIPANT" means an Eligible Employee or Eligible Consultant
designated by the Committee from time to time during the term of the Plan to
receive one or more of the Awards provided under the Plan.
(s) "QWEST" means Qwest Communications International Inc. and any
successor thereto.
G-2
<PAGE>
(t) "RESTRICTED STOCK AWARD" means an award of Stock granted to a
Participant pursuant to Article VIII that is subject to certain restrictions
imposed in accordance with the provisions of such Section.
(u) "SHARE" means a share of Stock.
(v) "STOCK" means the $0.01 par value common stock of Qwest.
(w) "STOCK APPRECIATION RIGHT" means the right, granted by the Committee
pursuant to the Plan, to receive a payment equal to the increase in the Fair
Market Value of a Share of Stock subsequent to the grant of such Award.
(x) "STOCK BONUS" means either an outright grant of Stock or a grant of
Stock subject to and conditioned upon certain employment or performance
related goals.
(y) "STOCK UNIT" means a measurement component equal to the Fair Market
Value of one share of Stock on the date for which a determination is made
pursuant to the provisions of this Plan.
SECTION 2.02. GENDER AND NUMBER. Except when otherwise indicated by the
context, the masculine gender shall also include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.
ARTICLE 3
PLAN ADMINISTRATION
SECTION 3.01. GENERAL. The Plan shall be administered by the Committee. In
accordance with the provisions of the Plan, the Committee shall, in its sole
discretion, select the Participants from among the Eligible Employees and
Eligible Consultants, determine the Awards to be made pursuant to the Plan, the
number of Stock Units, Stock Appreciation Rights or shares of Stock to be issued
thereunder and the time at which such Awards are to be made, fix the Option
Price, period and manner in which an Option becomes exercisable, establish the
duration and nature of Restricted Stock Award restrictions, establish the terms
and conditions applicable to Stock Bonuses and Stock Units, and establish such
other terms and requirements of the various compensation incentives under the
Plan as the Committee may deem necessary or desirable and consistent with the
terms of the Plan. The Committee shall determine the form or forms of the
agreements with Participants that shall evidence the particular provisions,
terms, conditions, rights and duties of Qwest and the Participants with respect
to Awards granted pursuant to the Plan, which provisions need not be identical
except as may be provided herein; provided, however, that Eligible Consultants
shall not be eligible to receive Incentive Options. The Committee may from time
to time adopt such rules and regulations for carrying out the purposes of the
Plan as it may deem proper and in the best interests of the Company. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any agreement entered into hereunder in the
manner and to the extent it shall deem expedient and it shall be the sole and
final judge of such expediency. No member of the Committee shall be liable for
any action or determination made in good faith. The determinations,
interpretations and other actions of the Committee pursuant to the provisions of
the Plan shall be binding and conclusive for all purposes and on all persons.
SECTION 3.02. DELEGATION BY COMMITTEE. The Committee may, from time to
time, delegate, to specified officers of Qwest, the power and authority to grant
Awards under the Plan to specified groups of employees and consultants, subject
to such restrictions and conditions as the Committee, in its sole discretion,
may impose. The delegation shall be as broad or as narrow as the Committee shall
determine. To the extent that the Committee has delegated the authority to
determine certain terms and conditions of an Award, all references in the Plan
to the Committee's exercise of authority in determining such terms and
conditions shall be construed to include the Qwest officer or officers to whom
the Committee has delegated the power and authority to make such determination.
The power and authority to grant Awards to any employee or consultant who is
covered by Section 16(b) of the 1934 Act shall not be delegated by the
Committee.
G-3
<PAGE>
ARTICLE 4
STOCK SUBJECT TO THE PLAN
SECTION 4.01. NUMBER OF SHARES. The number of Shares that are authorized
for issuance under the Plan in accordance with the provisions of the Plan and
subject to such restrictions or other provisions as the Committee may from time
to time deem necessary shall not exceed 35,000,000, subject to the provisions
regarding changes in capital described below. The maximum number of Shares with
respect to which a Participant may receive Options and Stock Appreciation Rights
under the Plan in any calendar year is 20,000,000 Shares. The Shares may be
either authorized and unissued Shares or previously issued Shares acquired by
Qwest. This authorization may be increased from time to time by approval of the
Board and by the stockholders of Qwest if, in the opinion of counsel for Qwest,
stockholder approval is required. Shares of Stock that may be issued upon
exercise of Options or Stock Appreciation Rights, that are issued as Restricted
Stock Awards or Stock Bonuses, that are issued with respect to Stock Units, and
that are issued as incentive compensation or other Stock grants under the Plan
shall be applied to reduce the maximum number of Shares remaining available for
use under the Plan. Qwest shall at all times during the term of the Plan and
while any Options or Stock Units are outstanding retain as authorized and
unissued Stock at least the number of Shares from time to time required under
the provisions of the Plan, or otherwise assure itself of its ability to perform
its obligations hereunder.
SECTION 4.02. OTHER SHARES OF STOCK. Any shares of Stock that are subject
to an Option that expires or for any reason is terminated unexercised, any
shares of Stock that are subject to an Award (other than an Option) and that are
forfeited, and any shares of Stock withheld for the payment of taxes or received
by Qwest as payment of the exercise price of an Option shall automatically
become available for use under the Plan, provided, however, that no more than
20,000,000 shares of Stock may be awarded pursuant to Incentive Options.
SECTION 4.03. ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If Qwest
shall at any time increase or decrease the number of its outstanding Shares or
change in any way the rights and privileges of such Shares by means of the
payment of a stock dividend or any other distribution upon such shares payable
in Stock, or through a stock split, subdivision, consolidation, combination,
reclassification or recapitalization involving the Stock, then in relation to
the Stock that is affected by one or more of the above events, the numbers,
rights and privileges of the following shall be increased, decreased or changed
in like manner as if they had been issued and outstanding, fully paid and
nonassessable at the time of such occurrence: (i) the Shares as to which Awards
may be granted under the Plan and (ii) the Shares then included in each
outstanding Award granted hereunder.
SECTION 4.04. OTHER DISTRIBUTIONS AND CHANGES IN THE STOCK.
(a) Qwest shall at any time distribute with respect to the Stock assets or
securities of persons other than Qwest (excluding cash or distributions referred
to in Section 4.3), or
(b) Qwest shall at any time grant to the holders of its Stock rights to
subscribe pro rata for additional shares thereof or for any other securities of
Qwest, or
(c) there shall be any other change (except as described in Section 4.3) in
the number or kind of outstanding Shares or of any stock or other securities
into which the Stock shall be changed or for which it shall have been exchanged,
and if the Committee shall in its discretion determine that the event described
in subsection (a), (b), or (c) above equitably requires an adjustment in the
number or kind of Shares subject to an Option or other Award, an adjustment in
the Option Price or the taking of any other action by the Committee, including
without limitation, the setting aside of any property for delivery to the
Participant upon the exercise of an Option or the full vesting of an Award, then
such adjustments shall be made, or other action shall be taken, by the Committee
and shall be effective for all purposes of the Plan and on each outstanding
Option or Award that involves the particular type of stock for which a change
was effected. Notwithstanding the foregoing provisions of this Section 4.4,
pursuant to Section 8.3 below, a Participant holding Stock received as a
Restricted Stock Award shall have the right to receive all amounts,
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<PAGE>
including cash and property of any kind, distributed with respect to the Stock
after such Restricted Stock Award was granted upon the Participant's becoming a
holder of record of the Stock.
SECTION 4.05. GENERAL ADJUSTMENT RULES. No adjustment or substitution
provided for in this Article IV shall require Qwest to sell a fractional share
of Stock under any Option, or otherwise issue a fractional share of Stock, and
the total substitution or adjustment with respect to each Option and other Award
shall be limited by deleting any fractional share. In the case of any such
substitution or adjustment, the aggregate Option Price for the total number of
shares of Stock then subject to an Option shall remain unchanged but the Option
Price per share under each such Option shall be equitably adjusted by the
Committee to reflect the greater or lesser number of shares of Stock or other
securities into which the Stock subject to the Option may have been changed, and
appropriate adjustments shall be made to other Awards to reflect any such
substitution or adjustment.
SECTION 4.06. DETERMINATION BY THE COMMITTEE, ETC. Adjustments under this
Article IV shall be made by the Committee, whose determinations with regard
thereto shall be final and binding upon all parties thereto.
ARTICLE 5
CORPORATE REORGANIZATION; CHANGE IN CONTROL
SECTION 5.01. REORGANIZATION OF QWEST. Except as provided otherwise by the
Committee at the time an Award is granted, upon the occurrence of any of the
following events, if the notice required by Section 5.2 shall have first been
given, the Plan and all Options then outstanding hereunder shall automatically
terminate and be of no further force and effect whatsoever, and other Awards
then outstanding shall be treated as described in Sections 5.2 and 5.3, without
the necessity for any additional notice or other action by the Board or Qwest:
(a) the merger or consolidation of Qwest with or into another corporation or
other reorganization (other than a reorganization under the United States
Bankruptcy Code) of Qwest (other than a consolidation, merger, or reorganization
in which Qwest is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Stock); or (b) the sale or
conveyance of the property of Qwest as an entirety or substantially as an
entirety (other than a sale or conveyance in which the Qwest continues as
holding company of an entity or entities that conduct the business or business
formerly conducted by Qwest); or (c) the dissolution or liquidation of Qwest.
SECTION 5.02. REQUIRED NOTICE. At least 30 days' prior written notice of
any event described in Section 5.1 shall be given by Qwest to each Option Holder
and Participant unless (a) in the case of the events described in clauses (a) or
(b) of Section 5.1, Qwest, or the successor or purchaser, as the case may be,
shall make adequate provision for the assumption of the outstanding Options or
the substitution of new options for the outstanding Options on terms comparable
to the outstanding Options except that the Option Holder shall have the right
thereafter to purchase the kind and amount of securities or property or cash
receivable upon such merger, consolidation, other reorganization, sale or
conveyance by a holder of the number of Shares that would have been receivable
upon exercise of the Option immediately prior to such merger, consolidation,
sale or conveyance (assuming such holder of Stock failed to exercise any rights
of election and received per share the kind and amount received per share by a
majority of the non-electing shares), or (b) Qwest, or the successor or
purchaser, as the case may be, shall make adequate provision for the adjustment
of outstanding Awards (other than Options) so that such Awards shall entitle the
Participant to receive the kind and amount of securities or property or cash
receivable upon such merger, consolidation, other reorganization, sale or
conveyance by a holder of the number of Shares that would have been receivable
with respect to such Award immediately prior to such merger, consolidation,
other reorganization, sale or conveyance (assuming such holder of Stock failed
to exercise any rights of election and received per share the kind and amount
received per share by a majority of the non-electing shares). The provisions of
this Article V shall similarly apply to successive mergers, consolidations,
reorganizations, sales or conveyances. Such notice shall be deemed to have been
given when delivered
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personally to a Participant or when mailed to a Participant by registered or
certified mail, postage prepaid, at such Participant's address last known to the
Company.
SECTION 5.03. ACCELERATION OF EXERCISABILITY. Participants notified in
accordance with Section 5.2 may exercise their Options at any time before the
occurrence of the event requiring the giving of notice (but subject to
occurrence of such event), regardless of whether all conditions of exercise
relating to length of service, attainment of financial performance goals or
otherwise have been satisfied. Upon the giving of notice in accordance with
Section 5.2, all restrictions with respect to Restricted Stock and other Awards
shall lapse immediately, all Stock Units shall become payable immediately and
all Stock Appreciation Rights shall become exercisable. Any Options, Stock
Appreciation Rights or Stock Units that are not assumed or substituted under
clauses (a) or (b) of Section 5.2 that have not been exercised prior to the
event described in Section 5.1 shall automatically terminate upon the occurrence
of such event.
SECTION 5.04. CHANGE IN CONTROL OF QWEST.
(a) IN GENERAL. Unless provided otherwise by the Committee at the time of
the grant of an Award, upon a change in control of Qwest as defined in
subsection 5.4(b), then (i) all Options shall become immediately exercisable in
full during the remaining term thereof, and shall remain so, whether or not the
Participants to whom such Options have been granted remain employees or
consultants of the Company; (ii) all restrictions with respect to outstanding
Restricted Stock Awards shall immediately lapse; (iii) all Stock Units shall
become immediately payable; and (iv) all other Awards shall become immediately
exercisable or shall vest, as the case may be, without any further action or
passage of time.
(b) DEFINITION. For purposes of this Plan, a "change in control" shall be
deemed to have occurred if either (i) any individual, entity, or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act), other than
Anschutz Company, The Anschutz Corporation, any entity or organization
controlled by Philip F. Anschutz (collectively, the "ANSCHUTZ ENTITIES") or a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, acquires beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of fifty percent (50%) or more of either (A) the
then-outstanding shares of Stock ("OUTSTANDING SHARES") or (B) the combined
voting power of the then-outstanding voting securities of the Company entitled
to vote generally in the election of directors ("VOTING POWER") or (ii) at any
time during any period of three consecutive years (not including any period
prior to the Effective Date), individuals who at the beginning of such period
constitute the Board (and any new director whose election by the Board or whose
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
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 thereof.
SECTION 5.05. REORGANIZATION OF AFFILIATED CORPORATIONS. If an Affiliated
Corporation is merged or consolidated with another corporation (other than a
merger or consolidation pursuant to which the Affiliated Corporation continues
to be, or the continuing corporation is, affiliated with Qwest through stock
ownership or control), or if all or substantially all of the assets or more than
fifty percent (50%) of the stock of the Affiliated Corporation is acquired by
any other corporation, business entity or person (other than a transaction in
which the successor is affiliated with Qwest through stock ownership or
control), or in the case of a reorganization (other than a reorganization under
the United States Bankruptcy Code) including a divisive reorganization under
Section 355 of the Code, or liquidation of the Affiliated Corporation, the
Committee may, as to outstanding Awards, make appropriate provision for the
protection of outstanding Awards granted to Eligible Employees of, and Eligible
Consultants to, the affected Affiliated Corporation by (i) providing for the
assumption of outstanding Options or the substitution of new Options for
outstanding Options by the successor on terms comparable to the outstanding
Options, (ii) providing for the adjustment of outstanding Awards, or (iii)
taking such other action with respect to outstanding Awards as the Committee
deems appropriate.
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ARTICLE 6
PARTICIPATION
Participants in the Plan shall be those Eligible Employees who, in the
judgment of the Committee, are performing, or during the term of their incentive
arrangement will perform, vital services in the management, operation and
development of the Company, and significantly contribute, or are expected to
significantly contribute, to the achievement of long-term corporate economic
objectives. Eligible Consultants shall be selected from those non-employee
consultants to the Company who are performing services important to the
operation and growth of the Company. Participants may be granted from time to
time one or more Awards; provided, however, that the grant of each such Award
shall be separately approved by the Committee and receipt of one such Award
shall not result in automatic receipt of any other Award. Upon determination by
the Committee that an Award is to be granted to a Participant, written notice
shall be given to such person, specifying the terms, conditions, rights and
duties related thereto. Each Participant shall, if required by the Committee,
enter into an agreement with Qwest, in such form as the Committee shall
determine and which is consistent with the provisions of the Plan, specifying
such terms, conditions, rights and duties. Awards shall be deemed to be granted
as of the date specified in the grant resolution of the Committee, which date
shall be the date of any related agreement with the Participant. In the event of
any inconsistency between the provisions of the Plan and any such agreement
entered into hereunder, the provisions of the Plan shall govern.
ARTICLE 7
OPTIONS
SECTION 7.01. GRANT OF OPTIONS. Coincident with or following designation
for participation in the Plan, a Participant may be granted one or more Options.
The Committee in its sole discretion shall designate whether an Option is an
Incentive Option or a Non-Qualified Option; provided, however, that only
Non-Qualified Options may be granted to Eligible Consultants. The Committee may
grant both an Incentive Option and a Non-Qualified Option to an Eligible
Employee at the same time or at different times. Incentive Options and
Non-Qualified Options, whether granted at the same time or at different times,
shall be deemed to have been awarded in separate grants and shall be clearly
identified, and in no event shall the exercise of one Option affect the right to
exercise any other Option or affect the number of shares for which any other
Option may be exercised. An Option shall be considered as having been granted on
the date specified in the grant resolution of the Committee.
SECTION 7.02. STOCK OPTION CERTIFICATES. Each Option granted under the
Plan shall be evidenced by a written stock option certificate or agreement (an
"OPTION CERTIFICATE"). An Option Certificate shall be issued by Qwest in the
name of the Participant to whom the Option is granted (the "OPTION HOLDER") and
in such form as may be approved by the Committee. The Option Certificate shall
incorporate and conform to the conditions set forth in this Section 7.2 as well
as such other terms and conditions that are not inconsistent as the Committee
may consider appropriate in each case.
(a) NUMBER OF SHARES. Each Option Certificate shall state that it covers a
specified number of shares of Stock, as determined by the Committee.
(b) PRICE. The price at which each share of Stock covered by an Option may
be purchased shall be determined in each case by the Committee and set forth in
the Option Certificate, but, in the case of an Incentive Option, in no event
shall the price be less than 100 percent of the Fair Market Value of the Stock
on the date the Incentive Option is granted.
(c) DURATION OF OPTIONS; RESTRICTIONS ON EXERCISE. Each Option Certificate
shall state the period of time, determined by the Committee, within which the
Option may be exercised by the Option Holder (the "OPTION PERIOD"). The Option
Period must end, in all cases, not more than ten years from the date the Option
is granted. The Option Certificate shall also set forth any installment or other
restrictions on exercise of the Option during such period, if any, as may be
determined by the Committee. Each Option shall become exercisable (vest) over
such period of time, if any, or upon such events, as determined by the
Committee.
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(d) TERMINATION OF SERVICES, DEATH, DISABILITY, ETC. The Committee may
specify the period, if any, after which an Option may be exercised following
termination of the Option Holder's services. The effect of this subsection
7.2(d) shall be limited to determining the consequences of a termination and
nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the
Company's discretion with respect to the termination of any individual's
services. If the Committee does not otherwise specify, the following shall
apply:
(i) If the services of the Option Holder are terminated within the
Option Period for "cause", as determined by the Company, the Option shall
thereafter be void for all purposes. As used in this subsection 7.2(d),
"cause" shall mean willful misconduct, a willful failure to perform the
Option Holder's duties, insubordination, theft, dishonesty, conviction of a
felony or any other willful conduct that is materially detrimental to the
Company or such other cause as the Board in good faith reasonably determines
provides cause for the discharge of an Option Holder.
(ii) If the Option Holder becomes Disabled, the Option may be exercised
by the Option Holder within one year following the Option Holder's
termination of services on account of Disability (provided that such
exercise must occur within the Option Period), but not thereafter. In any
such case, the Option may be exercised only as to the shares as to which the
Option had become exercisable on or before the date of the Option Holder's
termination of services because of Disability.
(iii) If the Option Holder dies during the Option Period while still
performing services for the Company or within the one year period referred
to in (ii) above or the three-month period referred to in (iv) below, the
Option may be exercised by those entitled to do so under the Option Holder's
will or by the laws of descent and distribution within one year following
the Option Holder's death, (provided that such exercise must occur within
the Option Period), but not thereafter. In any such case, the Option may be
exercised only as to the shares as to which the Option had become
exercisable on or before the date of the Option Holder's death.
(iv) If the services of the Option Holder are terminated (which for this
purpose means that the Option Holder is no longer employed by the Company or
performing services for the Company) by the Company within the Option Period
for any reason other than cause, Disability or the Option Holder's death,
the Option may be exercised by the Option Holder within three months
following the date of such termination (provided that such exercise must
occur within the Option Period), but not thereafter. In any such case, the
Option may be exercised only as to the shares as to which the Option had
become exercisable on or before the date of termination of services.
(e) TRANSFERABILITY. Each Option shall not be transferable by the Option
Holder except by will or pursuant to the laws of descent and distribution. Each
Option is exercisable during the Option Holder's lifetime only by him or her, or
in the event of Disability or incapacity, by his or her guardian or legal
representative. The Committee may, however, provide at the time of grant or
thereafter that the Option Holder may transfer a Non-Qualified Option to a
member of the Option Holder's immediate family, a trust of which members of the
Option Holder's immediate family are the only beneficiaries, or a partnership of
which members of the Option Holder's immediate family or trusts for the sole
benefit of the Option Holder's immediate family are the only partners. Immediate
family means the Option Holder's spouse, issue (by birth or adoption), parents,
grandparents, and siblings (including half brothers and sisters and adopted
siblings). During the Option Holder's lifetime the Option Holder may not
transfer an Incentive Option under any circumstances.
(f) CONSIDERATION FOR GRANT OF OPTION. Each Option Holder agrees to remain
in the employment of the Company or to continue providing consulting services to
the Company, as the case may be, at the pleasure of the Company, for a
continuous period of at least one year after the date the Option is granted, at
the rate of compensation in effect on the date of such agreement or at such
changed rate as may be fixed, from time to time, by the Company. Nothing in this
paragraph shall limit or impair the Company's
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right to terminate the employment of any employee or to terminate the consulting
services of any consultant.
(g) EXERCISE, PAYMENTS, ETC.
(i) Manner of Exercise. The method for exercising each Option granted
hereunder shall be by delivery to Qwest of written notice specifying the
number of Shares with respect to which such Option is exercised. The
purchase of such Shares shall take place at the principal offices of Qwest
within thirty days following delivery of such notice, at which time the
Option Price of the Shares shall be paid in full by any of the methods set
forth below or a combination thereof. Except as set forth in the next
sentence, the Option shall be exercised when the Option Price for the number
of shares as to which the Option is exercised is paid to Qwest in full. If
the Option Price is paid by means of a broker's loan transaction described
in subsection 7.2(g)(ii)(D), in whole or in part, the closing of the
purchase of the Stock under the Option shall take place (and the Option
shall be treated as exercised) on the date on which, and only if, the sale
of Stock upon which the broker's loan was based has been closed and settled,
unless the Option Holder makes an irrevocable written election, at the time
of exercise of the Option, to have the exercise treated as fully effective
for all purposes upon receipt of the Option Price by Qwest regardless of
whether or not the sale of the Stock by the broker is closed and settled. A
properly executed certificate or certificates representing the Shares shall
be delivered to or at the direction of the Option Holder upon payment
therefor. If Options on less than all shares evidenced by an Option
Certificate are exercised, Qwest shall deliver a new Option Certificate
evidencing the Option on the remaining shares upon delivery of the Option
Certificate for the Option being exercised.
(ii) The exercise price shall be paid by any of the following methods or
any combination of the following methods at the election of the Option
Holder, or by any other method approved by the Committee upon the request of
the Option Holder:
(A) in cash;
(B) by certified check, cashier's check or other check acceptable to
the Company, payable to the order of Qwest;
(C) by delivery to Qwest of certificates representing the number of
shares then owned by the Option Holder, the Fair Market Value of which
equals the purchase price of the Stock purchased pursuant to the Option,
properly endorsed for transfer to Qwest; provided however, that no Option
may be exercised by delivery to Qwest of certificates representing Stock,
unless such Stock has been held by the Option Holder for more than six
months; for purposes of this Plan, the Fair Market Value of any shares of
Stock delivered in payment of the purchase price upon exercise of the
Option shall be the Fair Market Value as of the exercise date; the
exercise date shall be the day of delivery of the certificates for the
Stock used as payment of the Option Price; or
(D) by delivery to Qwest of a properly executed notice of exercise
together with irrevocable instructions to a broker to deliver to Qwest
promptly the amount of the proceeds of the sale of all or a portion of
the Stock or of a loan from the broker to the Option Holder required to
pay the Option Price.
(h) DATE OF GRANT. An Option shall be considered as having been granted on
the date specified in the grant resolution of the Committee.
(i) WITHHOLDING.
(I) NON-QUALIFIED OPTIONS. Upon exercise of an Option, the Option Holder
shall make appropriate arrangements with the Company to provide for the
amount of additional withholding required by Sections 3102 and 3402 of the
Code and applicable state income tax laws, including payment of such
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taxes through delivery of shares of Stock or by withholding Stock to be
issued under the Option, as provided in Article XVII.
(ii) INCENTIVE OPTIONS. If an Option Holder makes a disposition (as
defined in Section 424(c) of the Code) of any Stock acquired pursuant to the
exercise of an Incentive Option prior to the expiration of two years from
the date on which the Incentive Option was granted or prior to the
expiration of one year from the date on which the Option was exercised, the
Option Holder shall send written notice to the Company at the Company's
principal place of business of the date of such disposition, the number of
shares disposed of, the amount of proceeds received from such disposition
and any other information relating to such disposition as the Company may
reasonably request. The Option Holder shall, in the event of such a
disposition, make appropriate arrangements with the Company to provide for
the amount of additional withholding, if any, required by Sections 3102 and
3402 of the Code and applicable state income tax laws.
SECTION 7.03. RESTRICTIONS ON INCENTIVE OPTIONS.
(a) INITIAL EXERCISE. The aggregate Fair Market Value of the Shares with
respect to which Incentive Options are exercisable for the first time by an
Option Holder in any calendar year, under the Plan or otherwise, shall not
exceed $100,000. For this purpose, the Fair Market Value of the Shares shall be
determined as of the date of grant of the Option.
(b) TEN PERCENT STOCKHOLDERS. Incentive Options granted to an Option
Holder who is the holder of record of 10% or more of the outstanding Stock of
Qwest shall have an Option Price equal to 110% of the Fair Market Value of the
Shares on the date of grant of the Option and the Option Period for any such
Option shall not exceed five years.
SECTION 7.04. SHAREHOLDER PRIVILEGES. No Option Holder shall have any
rights as a shareholder with respect to any shares of Stock covered by an Option
until the Option Holder becomes the holder of record of such Stock, and no
adjustments shall be made for dividends or other distributions or other rights
as to which there is a record date preceding the date such Option Holder becomes
the holder of record of such Stock, except as provided in Article IV.
ARTICLE 8
RESTRICTED STOCK AWARDS
SECTION 8.01. GRANT OF RESTRICTED STOCK AWARDS. Coincident with or
following designation for participation in the Plan, the Committee may grant a
Participant one or more Restricted Stock Awards consisting of Shares of Stock.
The number of Shares granted as a Restricted Stock Award shall be determined by
the Committee.
SECTION 8.02. RESTRICTIONS. A Participant's right to retain a Restricted
Stock Award granted to him under Section 8.1 shall be subject to such
restrictions, including but not limited to his continuous employment by or
performance of services for the Company for a restriction period specified by
the Committee or the attainment of specified performance goals and objectives,
as may be established by the Committee with respect to such Award. The Committee
may in its sole discretion require different periods of service or different
performance goals and objectives with respect to different Participants, to
different Restricted Stock Awards or to separate, designated portions of the
Shares constituting a Restricted Stock Award. In the event of the death or
Disability of a Participant, or the retirement of a Participant in accordance
with the Company's established retirement policy, all required periods of
service and other restrictions applicable to Restricted Stock Awards then held
by him shall lapse with respect to a pro rata part of each such Award based on
the ratio between the number of full months of employment or services completed
at the time of termination of services from the grant of each Award to the total
number of months of employment or continued services required for such Award to
be fully nonforfeitable, and such portion of each such Award shall become fully
nonforfeitable. The remaining portion of each such
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Award shall be forfeited and shall be immediately returned to Qwest. If a
Participant's employment or consulting services terminate for any other reason,
any Restricted Stock Awards as to which the period for which services are
required or other restrictions have not been satisfied (or waived or accelerated
as provided herein) shall be forfeited, and all shares of Stock related thereto
shall be immediately returned to Qwest.
SECTION 8.03. PRIVILEGES OF A STOCKHOLDER, TRANSFERABILITY. A Participant
shall have all voting, dividend, liquidation and other rights with respect to
Stock in accordance with its terms received by him as a Restricted Stock Award
under this Article VIII upon his becoming the holder of record of such Stock;
provided, however, that the Participant's right to sell, encumber, or otherwise
transfer such Stock shall be subject to the limitations of Section 13.2.
SECTION 8.04. ENFORCEMENT OF RESTRICTIONS. The Committee shall cause a
legend to be placed on the Stock certificates issued pursuant to each Restricted
Stock Award referring to the restrictions provided by Sections 8.2 and 8.3 and,
in addition, may in its sole discretion require one or more of the following
methods of enforcing the restrictions referred to in Sections 8.2 and 8.3:
(a) Requiring the Participant to keep the Stock certificates, duly
endorsed, in the custody of Qwest while the restrictions remain in effect;
or
(b) Requiring that the Stock certificates, duly endorsed, be held in the
custody of a third party while the restrictions remain in effect.
ARTICLE 9
STOCK UNITS
A Participant may be granted a number of Stock Units determined by the
Committee. The number of Stock Units, the goals and objectives to be satisfied
with respect to each grant of Stock Units, the time and manner of payment for
each Stock Unit, and the other terms and conditions applicable to a grant of
Stock Units shall be determined by the Committee.
ARTICLE 10
STOCK APPRECIATION RIGHTS
SECTION 10.01. PERSONS ELIGIBLE. The Committee, in its sole discretion,
may grant Stock Appreciation Rights to Eligible Employees or Eligible
Consultants.
SECTION 10.02. TERMS OF GRANT. The Committee shall determine at the time
of the grant of a Stock Appreciation Right the time period during which the
Stock Appreciation Right may be exercised and any other terms that shall apply
to the Stock Appreciation Right.
SECTION 10.03. EXERCISE. A Stock Appreciation Right shall entitle a
Participant to receive a number of shares of Stock (without any payment to
Qwest, except for applicable withholding taxes), cash, or Stock and cash, as
determined by the Committee in accordance with Section 10.4 below. If a Stock
Appreciation Right is issued in tandem with an Option, except as may otherwise
be provided by the Committee, the Stock Appreciation Right shall be exercisable
during the period that its related Option is exercisable. A Participant desiring
to exercise a Stock Appreciation Right shall give written notice of such
exercise to Qwest, which notice shall state the proportion of Stock and cash
that the Participant desires to receive pursuant to the Stock Appreciation Right
exercised. Upon receipt of the notice from the Participant, Qwest shall deliver
to the person entitled thereto (i) a certificate or certificates for Stock and/
or (ii) a cash payment, in accordance with Section 10.4 below. The date Qwest
receives written notice of such exercise hereunder is referred to in this
Article X as the "exercise date". The delivery of Stock or cash received
pursuant to such exercise shall take place at the principal offices of Qwest
within 30 days following delivery of such notice.
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SECTION 10.04. NUMBER OF SHARES OR AMOUNT OF CASH. Subject to the
discretion of the Committee to substitute cash for Stock, or Stock for cash, the
number of Shares that may be issued pursuant to the exercise of a Stock
Appreciation Right shall be determined by dividing: (a) the total number of
Shares of Stock as to which the Stock Appreciation Right is exercised,
multiplied by the amount by which the Fair Market Value of one share of Stock on
the exercise date exceeds the Fair Market Value of one Share of Stock on the
date of grant of one Share of Stock Appreciation Right, by (b) the Fair Market
Value of one Share of Stock on the exercise date; provided, however, that
fractional shares shall not be issued and in lieu thereof, a cash adjustment
shall be paid. In lieu of issuing Stock upon the exercise of a Stock
Appreciation Right, the Committee in its sole discretion may elect to pay the
cash equivalent of the Fair Market Value of the Stock on the exercise date for
any or all of the Shares of Stock that would otherwise be issuable upon exercise
of the Stock Appreciation Right.
SECTION 10.05. EFFECT OF EXERCISE. If a Stock Appreciation Right is issued
in tandem with an Option, the exercise of the Stock Appreciation Right or the
related Option will result in an equal reduction in the number of corresponding
Options or Stock Appreciation Rights that were granted in tandem with such Stock
Appreciation Rights and Options.
SECTION 10.06. TERMINATION OF SERVICES. Upon the termination of the
services of a Participant, any Stock Appreciation Rights then held by such
Participant shall be exercisable within the time periods, and upon the same
conditions with respect to the reasons for termination of services, as are
specified in Section 7.2(d) with respect to Options.
ARTICLE 11
STOCK BONUSES
The Committee may award Stock Bonuses to such Participants, subject to such
conditions and restrictions, as it determines in its sole discretion. Stock
Bonuses may be either outright grants of Stock, or may be grants of Stock
subject to and conditioned upon certain employment or performance related goals.
ARTICLE 12
OTHER COMMON STOCK GRANTS
From time to time during the duration of this Plan, the Board may, in its
sole discretion, adopt one or more incentive compensation arrangements for
Participants pursuant to which the Participants may acquire shares of Stock,
whether by purchase, outright grant, or otherwise. Any such arrangements shall
be subject to the general provisions of this Plan and all shares of Stock issued
pursuant to such arrangements shall be issued under this Plan.
ARTICLE 13
RIGHTS OF PARTICIPANTS
SECTION 13.01. SERVICE. Nothing contained in the Plan or in any Award, or
other Award granted under the Plan shall confer upon any Participant any right
with respect to the continuation of his employment by, or consulting
relationship with, the Company, or interfere in any way with the right of the
Company, subject to the terms of any separate employment agreement or other
contract to the contrary, at any time to terminate such services or to increase
or decrease the compensation of the Participant from the rate in existence at
the time of the grant of an Award. Whether an authorized leave of absence, or
absence in military or government service, shall constitute a termination of
service shall be determined by the Committee at the time.
SECTION 13.02. NONTRANSFERABILITY. Except as provided otherwise at the
time of grant or thereafter, no right or interest of any Participant in an
Option, a Stock Appreciation Right, a Restricted Stock Award (prior to the
completion of the restriction period applicable thereto), a Stock Unit, or other
Award granted pursuant to the Plan, shall be assignable or transferable during
the lifetime of the Participant,
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either voluntarily or involuntarily, or subjected to any lien, directly or
indirectly, by operation of law, or otherwise, including execution, levy,
garnishment, attachment, pledge or bankruptcy. In the event of a Participant's
death, a Participant's rights and interests in Options, Stock Appreciation
Rights, Restricted Stock Awards, other Awards, and Stock Units shall, to the
extent provided in Articles VII, VIII, IX, X and XI, be transferable by will or
the laws of descent and distribution, and payment of any amounts due under the
Plan shall be made to, and exercise of any Options may be made by, the
Participant's legal representatives, heirs or legatees. Notwithstanding the
foregoing, the Option Holder may not transfer an Incentive Option during the
Option Holder's lifetime. If in the opinion of the Committee a person entitled
to payments or to exercise rights with respect to the Plan is disabled from
caring for his affairs because of mental condition, physical condition or age,
payment due such person may be made to, and such rights shall be exercised by,
such person's guardian, conservator or other legal personal representative upon
furnishing the Committee with evidence satisfactory to the Committee of such
status.
SECTION 13.03. NO PLAN FUNDING. Obligations to Participants under the Plan
will not be funded, trusteed, insured or secured in any manner. The Participants
under the Plan shall have no security interest in any assets of the Company, and
shall be only general creditors of the Company.
ARTICLE 14
GENERAL RESTRICTIONS
SECTION 14.01. INVESTMENT REPRESENTATIONS. Qwest may require any person to
whom an Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or
Stock Bonus is granted, as a condition of exercising such Option or Stock
Appreciation Right, or receiving such Restricted Stock Award, Stock Unit, or
Stock Bonus, to give written assurances in substance and form satisfactory to
Qwest and its counsel to the effect that such person is acquiring the Stock for
his own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as Qwest deems
necessary or appropriate in order to comply with Federal and applicable state
securities laws. Legends evidencing such restrictions may be placed on the Stock
certificates.
SECTION 14.02. COMPLIANCE WITH SECURITIES LAWS. Each Option, Stock
Appreciation Right, Restricted Stock Award, Stock Unit, and Stock Bonus grant
shall be subject to the requirement that, if at any time counsel to Qwest shall
determine that the listing, registration or qualification of the shares subject
to such Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or
Stock Bonus grant upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental or regulatory body, is
necessary as a condition of, or in connection with, the issuance or purchase of
shares thereunder, such Option, Stock Appreciation Right, Restricted Stock
Award, Stock Unit or Stock Bonus grant may not be accepted or exercised in whole
or in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained on conditions acceptable to the Committee.
Nothing herein shall be deemed to require Qwest to apply for or to obtain such
listing, registration or qualification.
SECTION 14.03. CHANGES IN ACCOUNTING RULES. Except as provided otherwise
at the time an Award is granted, notwithstanding any other provision of the Plan
to the contrary, if, during the term of the Plan, any changes in the financial
or tax accounting rules applicable to Options, Stock Appreciation Rights,
Restricted Stock Awards, Stock Units or other Awards shall occur which, in the
sole judgment of the Committee, may have a material adverse effect on the
reported earnings, assets or liabilities of Qwest, the Committee shall have the
right and power to modify as necessary, any then outstanding and unexercised
Options, Stock Appreciation Rights, outstanding Restricted Stock Awards,
outstanding Stock Units and other outstanding Awards as to which the applicable
services or other restrictions have not been satisfied.
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ARTICLE 15
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or Stock Appreciation Right, the sale of
shares received upon such exercise, the vesting of any Restricted Stock Award,
receipt of Stock Bonuses, distributions with respect to Stock Units, or the
grant of Stock shall not constitute "earnings" or "compensation" with respect to
which any other employee benefits of such employee are determined, including
without limitation benefits under any pension, profit sharing, 401(k), life
insurance or salary continuation plan.
ARTICLE 16
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time to time may amend or
modify the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the shareholders
if shareholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if Qwest, on the advice of counsel,
determines that shareholder approval is otherwise necessary or desirable. No
amendment, modification or termination of the Plan shall in any manner adversely
affect any Options, Stock Appreciation Rights, Restricted Stock Awards, Stock
Units, Stock Bonuses or other Award theretofore granted under the Plan, without
the consent of the Participant holding such Options, Stock Appreciation Rights,
Restricted Stock Awards, Stock Units, Stock Bonuses or other Awards.
ARTICLE 17
WITHHOLDING
SECTION 17.01. WITHHOLDING REQUIREMENT. Qwest's obligations to deliver
shares of Stock upon the exercise of any Option, or Stock Appreciation Right,
the vesting of any Restricted Stock Award, payment with respect to Stock Units,
or the grant of Stock shall be subject to the Participant's satisfaction of all
applicable federal, state and local income and other tax withholding
requirements.
SECTION 17.02. WITHHOLDING WITH STOCK. At the time the Committee grants an
Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, Stock
Bonus, other Award, or Stock or at any time thereafter, it may, in its sole
discretion, grant the Participant an election to pay all such amounts of tax
withholding, or any part thereof, by electing (a) to have Qwest withhold from
shares otherwise issuable to the Participant, shares of Stock having a value
equal to the amount required to be withheld or such lesser amount as may be
elected by the Participant; provided however, that the amount of Stock so
withheld shall not exceed the minimum amount required to be withheld under the
method of withholding that results in the smallest amount of withholding, or (b)
to transfer to Qwest a number of shares of Stock that were acquired by the
Participant more than six months prior to the transfer to Qwest and that have a
value equal to the amount required to be withheld or such lesser amount as may
be elected by the Participant. All elections shall be subject to the approval or
disapproval of the Committee. The value of shares of Stock to be withheld shall
be based on the Fair Market Value of the Stock on the date that the amount of
tax to be withheld is to be determined (the "TAX DATE"). Any such elections by
Participants to have shares of Stock withheld for this purpose will be subject
to the following restrictions:
(a) All elections must be made prior to the Tax Date.
(b) All elections shall be irrevocable.
(c) If the Participant is an officer or director of Qwest within the
meaning of Section 16 of the 1934 Act ("SECTION 16"), the Participant must
satisfy the requirements of such Section 16 and any applicable Rules
thereunder with respect to the use of Stock to satisfy such tax withholding
obligation.
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ARTICLE 18
REQUIREMENTS OF LAW
SECTION 18.01. REQUIREMENTS OF LAW. The issuance of Stock and the payment
of cash pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
SECTION 18.02. FEDERAL SECURITIES LAW REQUIREMENTS. If a Participant is an
officer or director of Qwest within the meaning of Section 16, Awards granted
hereunder shall be subject to all conditions required under Rule 16b-3, or any
successor rule promulgated under the 1934 Act, to qualify the Award for any
exception from the provisions of Section 16(b) of the 1934 Act available under
that Rule. Such conditions shall be set forth in the agreement with the
Participant which describes the Award or other document evidencing or
accompanying the Award.
SECTION 18.03. GOVERNING LAW. The Plan and all agreements hereunder shall
be construed in accordance with and governed by the laws of the State of
Delaware.
ARTICLE 19
DURATION OF THE PLAN
Unless sooner terminated by the Board of Directors, the Plan shall terminate
at the close of business on June 22, 2007, and no Option, Stock Appreciation
Right, Restricted Stock Award, Stock Unit, Stock Bonus, other Award or Stock
shall be granted, or offer to purchase Stock made, after such termination.
Options, Stock Appreciation Rights, Restricted Stock Awards, other Awards, and
Stock Units outstanding at the time of the Plan termination may continue to be
exercised, or become free of restrictions, or paid, in accordance with their
terms.
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ANNEX H
RESTATED CERTIFICATE OF INCORPORATION
OF
QWEST COMMUNICATIONS INTERNATIONAL INC.
ARTICLE 1
NAME
The name of the corporation is Qwest Communications International Inc. (the
"CORPORATION").
ARTICLE 2
ADDRESS OF REGISTERED OFFICE; NAME OF REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of its registered agent at
that address is The Corporation Trust Company.
ARTICLE 3
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law (the "CORPORATION LAW").
ARTICLE 4
POWERS
The Corporation shall have all powers that may now or hereafter be lawful
for a corporation to exercise under the Corporation Law.
ARTICLE 5
CAPITAL STOCK
SECTION 5.01. AUTHORIZATION. The aggregate number of shares of stock which
the Corporation shall have authority to issue is five billion two hundred
million (5,200,000,000) shares, of which five billion (5,000,000,000) shares
shall be shares of common stock having a par value of $0.01 per share (the
"COMMON STOCK"), and two hundred million (200,000,000) shares shall be shares of
a class of preferred stock having a par value of $1.00 per share (the "PREFERRED
STOCK") and issuable in one or more series as hereinafter provided. For purposes
of this Article 5, references to the "BOARD OF DIRECTORS" shall refer to the
Board of Directors of the Corporation, as established in accordance with Article
VI of the Certificate of Incorporation of the Corporation and references to "the
Certificate of Incorporation of the Corporation" shall refer to this Restated
Certificate of Incorporation as the same may be amended from time to time.
SECTION 5.02. COMMON STOCK. The shares of Common Stock of the Corporation
shall be of one and the same class. The holders of Common Stock shall have one
vote per share of Common Stock on all matters on which holders of Common Stock
are entitled to vote. Except as otherwise provided by law or by the terms of any
outstanding series of Preferred Stock, the entire voting power of the
stockholders of the Corporation shall be vested in the holders of Common Stock
of the Corporation, who shall be entitled to vote on any matter on which the
holders of stock of the Corporation shall, by law or by the provisions of the
Certificate of Incorporation or bylaws of the Corporation, be entitled to vote.
SECTION 5.03. PREFERRED STOCK. The Preferred Stock may be issued from time
to time in one or more series. The Board of Directors is authorized, by
resolution adopted and filed in accordance with law,
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to fix the number of shares in each series, the designation thereof, the voting
powers, preferences and relative, participating, optional or other special
rights thereof, and the qualifications or restrictions thereon, of each series
and the variations in such voting powers and preferences and rights as between
series. Any shares of any series of Preferred Stock purchased, exchanged,
converted or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock, without designation as to series, and may be reissued as part
of any series of Preferred Stock created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on issuance set
forth in this Certificate of Incorporation or in such resolution or resolutions.
ARTICLE 6
BOARD OF DIRECTORS
SECTION 6.01. NUMBER OF DIRECTORS. The number of Directors shall be fixed
by the bylaws of the Corporation, but shall not be less than six nor more than
seventeen.
SECTION 6.02. POWERS OF THE BOARD OF DIRECTORS. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors selected as provided by law and the Certificate of Incorporation and
the bylaws of the Corporation. In furtherance, and not in limitation, of the
powers conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to:
(a) adopt, amend, alter, change or repeal bylaws of the Corporation;
PROVIDED, HOWEVER, that no bylaw hereafter adopted shall invalidate any prior
act of the Corporation that would have been valid if such new bylaws had not
been adopted;
(b) subject to the bylaws as from time to time in effect, determine the
rules and procedures for the conduct of the business of the Board of Directors
and the management and direction by the Board of Directors of the business and
affairs of the Corporation, including the power to designate and empower
committees of the Board of Directors, to elect, or authorize the appointment of,
and empower officers and other agents of the Corporation, and to determine the
time and place of, the notice requirements for, and the manner of conducting,
Board meetings, as well as other notice requirements for, and the manner of
taking, Board action; and
(c) exercise all such powers and do all such acts as may be exercised or
done by the Corporation, subject to the provisions of the Corporation Law and
the Certificate of Incorporation and bylaws of the Corporation.
SECTION 6.03. CLASSIFIED BOARD OF DIRECTORS. The directors, other than
those who may be elected solely by the holders of shares of any class or series
of stock having a preference over the common stock of the Corporation as to
dividends or to distributions upon liquidation or dissolution and winding-up of
the Corporation pursuant to the terms of Article V of the Certificate of
Incorporation of the Corporation, shall be classified, with respect to the time
for which they severally hold office, into three classes, with each class to
hold office until its successors are elected and qualified. Subject to the
rights of the holders of any series of Preferred Stock, at each annual meeting
of the stockholders, the successors of the class of directors whose term expires
at that meeting shall be elected to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election.
SECTION 6.04. VACANCIES. Except as otherwise required by law and subject
to the rights of the holders of any series of Preferred Stock, any vacancy in
the Board of Directors for any reason and any newly created directorship
resulting by reason of any increase in the number of directors may be filled
only by the Board of Directors (and not by the stockholders), by resolution
adopted by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum (or by a sole remaining director);
PROVIDED, HOWEVER, that if not so filled, any such vacancy shall be filled by
the stockholders at the next annual meeting or at a special meeting called for
that purpose. Any director so appointed shall hold
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office until the next meeting of stockholders at which directors of the class
for which such director has been chosen are to be elected and until his or her
successor is elected and qualified.
SECTION 6.05. REMOVAL OF DIRECTORS. Except as may be provided in respect
of any series of Preferred Stock pursuant to Article 5 with respect to any
directors elected solely by the holders of such series of Preferred Stock, any
director (including all members of the Board of Directors) may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least 80% of the voting power of all of the shares of capital
stock of the Corporation then entitled to vote generally in the election of
directors, voting together as a single class. For the purposes of this Section
6.05, "CAUSE" shall mean the wilful and continuous failure of a director to
substantially perform such director's duties to the Corporation (other than any
such failure resulting from incapacity due to physical or mental illness) or the
wilful engaging by a director in gross misconduct materially and demonstrably
injurious to the Corporation.
ARTICLE 7
STOCKHOLDER ACTIONS AND MEETINGS OF STOCKHOLDERS
Subject to the rights of the holders of any series of Preferred Stock, any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at a duly called annual or special meeting of such holders and
may not be effected by written consent in lieu of a meeting of such holders.
Subject to the rights of the holders of any series of Preferred Stock, special
meetings of stockholders of the Corporation may be called only by the Chairman
of the Board of Directors of the Corporation or the Board of Directors pursuant
to a resolution adopted by a majority of the members of the Board of Directors
then in office. Elections of directors need not be by written ballot, unless
otherwise provided in the bylaws. For purposes of all meetings of stockholders,
a quorum shall consist of a majority of the shares entitled to vote at such
meeting of stockholders, unless otherwise required by law or, in respect of a
meeting of the holders of any series of Preferred Stock, by the provisions of
Section 5.03 of Article 6.05.
ARTICLE 8
LIMITATION ON LIABILITY OF DIRECTORS
No person shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, including
without limitation for serving on a committee of the Board of Directors;
PROVIDED, HOWEVER, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
arising under Section 174 of the Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. Any amendment,
repeal or modification of this Article 8 shall not adversely affect any right or
protection of a director of the Corporation existing hereunder with respect to
any act or omission occurring prior to such amendment, repeal or modification.
ARTICLE 9
CERTAIN BUSINESS COMBINATIONS
SECTION 9.01. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS. Except as
otherwise expressly provided in Section 9.02 of this Article, in addition to any
affirmative vote required by law or by any other provision of the Certificate of
Incorporation of the Corporation, the affirmative vote of the holders of not
less than 80% of the outstanding shares of "VOTING STOCK" (as hereinafter
defined) of the Corporation voting together as a single class shall be required
for the approval or authorization of any "BUSINESS
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COMBINATION" (as hereinafter defined) of the Corporation with any "RELATED
PERSON" (as hereinafter defined). For the purpose of this Article:
(a) The term "BUSINESS COMBINATION" shall mean (1) any merger or
consolidation of the Corporation or a Subsidiary (as hereinafter defined) of the
Corporation with or into a Related Person or of a Related Person with or into
the Corporation or a Subsidiary of the Corporation; (2) any sale, lease,
exchange, transfer, or other disposition, including, without limitation, a
mortgage or any other hypothecation or transfer as collateral, of all or any
"Substantial Part" (as hereinafter defined) of the assets either of the
Corporation (including, without limitation, any voting securities of a
Subsidiary) or of a Subsidiary of the Corporation to a Related Person; (3) the
issuance of any securities (other than by way of a distribution to stockholders
made pro rata to all holders of the class of stock to receive the distribution)
of the Corporation or a Subsidiary of the Corporation to a Related Person; (4)
the acquisition by the Corporation or a Subsidiary of the Corporation of any
securities of a Related Person; (5) any recapitalization that would have the
effect, directly or indirectly, of increasing the voting power of a Related
Person; (6) any merger of the Corporation into a Subsidiary of the Corporation;
or (7) any agreement, contract, or other arrangement providing for any of the
transactions described in this definition of "BUSINESS COMBINATION."
(b) The term "CONTINUING DIRECTOR" shall mean any member of the Board of
Directors who is neither Affiliated (as defined below) nor Associated (as
defined below) with the Related Person and who was a member of the Board of
Directors prior to the time that the Related Person became a Related Person, and
any successor of a Continuing Director who is recommended to succeed a
Continuing Directors then members of the Board of Directors.
(c) The term "RELATED PERSON" shall mean and include any individual,
corporation, partnership, or other person or entity which, together with its
"AFFILIATES" and "ASSOCIATES," "Beneficially Owns" (as hereinafter defined), in
the aggregate ten percent (10%) or more of the outstanding Voting Stock of the
Corporation, and any Affiliate or Associate of any such individual, corporation,
partnership, or other person or entity.
(d) The term "SUBSTANTIAL PART" shall mean more than 80% of the book value
of the total consolidated assets of the Corporation as reported in the
consolidated financial statements of the Corporation and its subsidiaries as of
the end of its most recent fiscal year ending prior to the time as of which a
"Substantial Part" is to be determined.
(e) The term "VOTING STOCK" shall mean all outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
of the Corporation and each reference to a percentage of shares of Voting Stock
shall refer to such percentage of the votes entitled to be cast by such shares.
(f) The terms "AFFILIATE" and "ASSOCIATE" shall have the meanings set forth
in Rule 12b-2 under the Securities Exchange Act of 1934, as in effect on the
Effective Date (as defined in subsection 2.6).
(g) The term "BENEFICIALLY OWNS" shall have the meaning set forth in Rule
13d-3 under the Securities Exchange Act of 1934, as in effect on the Effective
Date (as defined in subsection 2.6), PROVIDED, HOWEVER, that, any shares of
Voting Stock of the Corporation that any Related Person has the right to acquire
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, shall be deemed Beneficially Owned by the Related Person
whether immediately exercisable or exercisable within ten years of the date as
of which Beneficial Ownership is to be determined.
(h) The term "SUBSIDIARY" with respect to the Corporation shall mean any
corporation, partnership, limited liability company, business trust or similar
entity in which a majority of any class of any equity security is owned directly
or indirectly by the Corporation.
SECTION 9.02. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section
9.01 of this Article shall not be applicable to any particular Business
Combination and such Business Combination shall require only such affirmative
vote as may be required by law or by any other provision of this Certificate of
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Incorporation of the Corporation, if all of the conditions specified in either
of the following paragraphs (a) or (b) are met:
(a) the Business Combination shall have been approved by a vote of not less
than a majority of the Continuing Directors, or
(b) all of the following conditions shall have been met:
(i) The aggregate amount of cash and the Fair Market Value (as
hereinafter defined) as of the date of the consummation of the Business
Combination of the consideration, other than cash, to be received per share
by holders of Common Stock in such Business Combination shall be at least
equal to the highest of the following:
(a) if applicable, the highest price per share (including any
brokerage commissions, transfer taxes, and soliciting dealers' fees) paid
by the Related Person for any shares of Common Stock acquired by it (i)
within the two year period immediately prior to the first public
announcement of the proposal of the Business Combination (the
"ANNOUNCEMENT DATE") or (ii) in the transaction in which it became a
Related Person; or
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Related Person became a
Related Person (such latter date is referred to in this Article as the
"DETERMINATION DATE"), whichever is higher; and
(1) The aggregate amount of the cash and the Fair Market Value as
of the date of the consummation of the Business Combination of the
consideration, other than cash, to be received per share by holders
of shares of any class or series of outstanding Voting Stock, other
than Common Stock, shall be at least equal to the highest of the
following (it being intended that the requirements of this
subparagraph (B)(2) shall be required to be met with respect to every
class or series of outstanding capital stock of the Corporation other
than Common Stock, whether or not the Related Person has previously
acquired any shares of such class or series of Voting Stock):
(aa) if applicable, the highest per share price (including
any brokerage commission, transfer taxes, and soliciting dealers'
fees) paid by the Related Person for any shares of such class or
series of Voting Stock acquired by it (i) within the two year
period immediately prior to the Announcement Date or (ii) in the
transaction in which it became a Related Person, whichever is
higher; or
(bb) if applicable, the Redemption Price (as hereinafter
defined) of the shares of such class or series, or if such shares
have no Redemption Price, the highest amount per share which such
class or series would be entitled to receive upon liquidation of
the Corporation on the Announcement Date or the Determination
Date, whichever is higher; or
(cc) the Fair Market Value per share of such class or series
of Voting stock on the Announcement Date or on the Determination
Date, whichever is higher; and
(ii) the consideration to be received in such Business Combination
holders of each class or series of outstanding Voting Stock (including
Common stock) shall be in cash or in the same form as the Related Person has
previously paid for shares of such class or series of Voting Stock;
PROVIDED, HOWEVER, that if the Related Person has paid for shares of any
class or series of Voting Stock with varying forms of consideration, the
form of consideration for such class or series of Voting Stock shall be
either cash or the form used to acquire the largest number of shares of such
class or series of Voting Stock previously acquired by it; and
(iii) a proxy statement responsive to the requirements of the Securities
Exchange Act of 1934, as amended, shall have been mailed to public
stockholders of the Corporation for the purpose of soliciting stockholder
approval of the Business Combination and shall have contained at the front
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thereof, in a prominent place, any recommendations as to the advisability
(or inadvisability) of the Business Combination that the Continuing
Directors, or any of them, may choose to state and, if deemed advisable by a
majority of the Continuing Directors, an opinion of a reputable investment
banking firm as to the fairness (or not) of the terms of the Business
Combination, from the point of view of the remaining public stockholders of
the Corporation (such investment banking firm to be selected by a majority
of the Continuing Directors and to be paid a reasonable fee for their
services by the Corporation upon receipt of the opinion).
SECTION 9.03. CERTAIN DEFINITIONS AND ADDITIONAL PROVISIONS. For the
purposes of this Article:
(a) "FAIR MARKET VALUE" shall mean:
(i) in the case of stock, the highest closing sale price during the date
in question of a share of such stock on the Composite Tape for New York
Stock Exchange Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934, as amended, on which
such stock is listed, or, if such stock is not listed on any such exchange,
the highest closing bid quotation with respect to a share of such stock
during the 30-day period preceding the date in Market Value on the date in
question of a share of such stock as determined by the Continuing Directors
in good faith, which determination shall be final; and
(ii) in the case of property other than cash or stock, the Fair Market
Value of such property on the date in question as determined by the
Continuing Directors in good faith, which determination shall be final.
(b) The Board of Directors, with the approval of a majority of the total
number of Continuing Directors, shall have the power and duty to determine, on
the basis of information known to it after reasonable inquiry, all facts
necessary to determine compliance with this Article, including, without
limitation, (i) whether a person is a Related Person, (ii) the number of shares
of Voting Stock Beneficially Owned by any person, (iii) whether a person is an
Affiliate or Associate of another person, (iv) whether the applicable conditions
set forth in paragraph (B) of Section 9.02(b) have been met with respect to any
Business Combination, and (v) whether the proposed transaction is a Business
Combination. Any such determinations shall be final.
SECTION 9.04. AMENDMENT OF THIS ARTICLE. This Article may be amended,
altered, changed, or repealed only by the affirmative vote of the holders of at
least 80% of the outstanding shares of Voting Stock voting together as a single
class unless the proposed amendment, alteration, change, or repeal has been
recommended to the stockholders by the Board of Directors with the approval of
at least two-thirds of the Continuing Directors, in which event the proposed
amendment, alteration, change, or repeal shall require for approval the
affirmative vote of the holders of at least 66 2/3% of the outstanding shares of
Voting Stock, voting as a single class.
ARTICLE 10
BYLAWS
The Board of Directors shall have the power to adopt, amend, alter, change
or repeal bylaws of and for the Corporation by the affirmative vote of 66 2/3%
of the members then in office; PROVIDED, HOWEVER, that the first, third, and
fourth sentences of Section 3.02(a), the second sentence of Section 4.01,
Section 5.01(a), the second sentence of Section 5.02, Section 5.05 (except for
the third, fourth, and fifth sentences of the last paragraph thereof), the third
sentence of Section 5.13, the proviso in the first sentence of Article 10, and
the last sentence of Article 10 of the bylaws may only be amended or repealed by
an affirmative vote of 75% of the Board of Directors of the Corporation. The
affirmative vote of the holders of at least 80% of the voting power of all of
the shares of capital stock of the Corporation then entitled to vote generally
in the election of directors, voting together as a single class shall be
required to adopt, amend, alter, change or repeal bylaws of the Corporation
(notwithstanding the fact that approval by a
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lesser percentage may be permitted by the Corporation Law); PROVIDED, HOWEVER,
that the first, third, and fourth sentences of Section 3.02(a), the second
sentence of Section 4.01, Section 5.01(a), the second sentence of Section 5.02,
Section 5.05 (except for the third, fourth, and fifth sentences of the last
paragraph thereof), the third sentence of Section 5.13, the proviso in the first
sentence of Article 10, and the last sentence of Article 10 of the bylaws may be
amended or repealed by the affirmative vote of 75% of the then outstanding
shares of Common Stock.
ARTICLE 11
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation hereby reserves the right from time to time to amend, alter,
change or repeal any provision contained in the Certificate of Incorporation of
the Corporation in any manner permitted by the Corporation Law and all rights
and powers conferred upon stockholders, directors and officers herein are
granted subject to this reservation. In addition to any vote otherwise required
by law, and except as may otherwise be provided in Article 5 or 9 hereof, any
such amendment, alteration, change or repeal shall require approval of both (i)
the Board of Directors by the affirmative vote of a majority of the members then
in office and (ii) the holders of a majority of the voting power of all of the
shares of capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, except that any
proposal to amend, alter, change or repeal the provisions of Section 6.03 of
Article6, Section 6.05 of Article 6, Article 7, Article 10 and this Article 11
shall require the affirmative vote of the holders of 80% of the voting power of
all of the shares of capital stock of the Corporation entitled to vote generally
in the election of directors, voting together as a single class.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation which
restates, integrates and amends the provisions of the certificate of
incorporation of the Corporation, and which has been duly adopted by written
consent of the sole stockholder of the Corporation in accordance with the
provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law,
has been executed by [ ], its Corporate Secretary, this [ ]th day of
[ ], [ ].
QWEST COMMUNICATIONS INTERNATIONAL
INC.
By:
--------------------------------------
Name:
Title: Corporate Secretary
[All references to Series A Preferred Stock have been deleted since the combined
company after the merger will not have a shareholder rights plan.]
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ANNEX I
BYLAWS
OF
QWEST COMMUNICATIONS INTERNATIONAL INC.
ARTICLE 1
OFFICES
SECTION 1.01. REGISTERED OFFICE. The registered office of Qwest
Communications International Inc. (the "CORPORATION") in the State of Delaware
shall be at 1209 Orange Street, in the City of Wilmington, County of New Castle,
19801 and its registered agent at such address shall be The Corporation Trust
Company, or such other office or agent as the Board of Directors of the
Corporation (the "BOARD") shall from time to time select.
SECTION 1.02. OTHER OFFICES. The Corporation may also have an office or
offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
without the State of Delaware, as the Board may from time to time determine or
the business of the Corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 2.01. PLACE OF MEETING. All meetings of the stockholders of the
Corporation shall be held at the office of the Corporation or at such other
places, within or without the State of Delaware, as may from time to time be
fixed by the Board.
SECTION 2.02. ANNUAL MEETINGS. The annual meeting of the stockholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the first Friday of June in
each year, at an hour to be named in the notice of the meeting, unless such day
should fall on a legal holiday in the State of Colorado, in which event the
meeting shall be held on the next succeeding business day that is not a legal
holiday, or on such date and at such hour as shall from time to time be fixed by
the Board. Any previously scheduled annual meeting of the stockholders may be
postponed by action of the Board taken prior to the time previously scheduled
for such annual meeting of stockholders.
SECTION 2.03. SPECIAL MEETINGS. Except as otherwise required by law or the
Certificate of Incorporation of the Corporation (the "CERTIFICATE"), special
meetings of the stockholders for any purpose or purposes may be called by any
Chairman (as defined below), the Chief Executive Officer or a majority of the
entire Board. Only such business as is specified in the notice of any special
meeting of the stockholders shall come before such meeting.
SECTION 2.04. NOTICE OF MEETINGS. Except as otherwise provided by law,
written notice of each meeting of the stockholders, whether annual or special,
shall be given, either by personal delivery or by mail, not less than 10 nor
more than 60 days before the date of the meeting to each stockholder of record
entitled to notice of the meeting. If mailed, such notice shall be deemed given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. Each such notice shall state the place, date and hour of the
meeting, and the purpose or purposes for which the meeting is called. Notice of
any meeting of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy without protesting, prior to
or at the commencement of the meeting, the lack of proper notice to such
stockholder, or who shall sign a written waiver of notice thereof, whether
before or after such meeting. Notice of adjournment of a meeting of stockholders
need not be given if the time and place to which it is adjourned are announced
at such meeting, unless the adjournment is for more than 30 days or, after
adjournment, a new record date is fixed for the adjourned meeting.
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SECTION 2.05. QUORUM. Except as otherwise provided by law or by the
Certificate, the holders of a majority of the votes entitled to be cast by the
stockholders entitled to vote generally, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders; PROVIDED, HOWEVER, that in the case of any vote to be taken by
classes, the holders of a majority of the votes entitled to be cast by the
stockholders of a particular class shall constitute a quorum for the transaction
of business by such class.
SECTION 2.06. ADJOURNMENTS. The chairman of the meeting or the holders of
a majority of the votes entitled to be cast by the stockholders who are present
in person or by proxy may adjourn the meeting from time to time whether or not a
quorum is present. In the event that a quorum does not exist with respect to any
vote to be taken by a particular class, the chairman of the meeting or the
holders of a majority of the votes entitled to be cast by the stockholders of
such class who are present in person or by proxy may adjourn the meeting with
respect to the vote(s) to be taken by such class. At such adjourned meeting at
which a quorum may be present, any business may be transacted which might have
been transacted at the meeting as originally called.
SECTION 2.07. ORDER OF BUSINESS. (a) At each meeting of the stockholders,
any Chairman or, in the absence of all three members of the Office of the
Chairman, the Chief Executive Officer or, in the absence of the Chief Executive
Officer, such person as shall be selected by the Board shall act as chairman of
the meeting. The order of business at each such meeting shall be as determined
by the chairman of the meeting. The chairman of the meeting shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts and things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations on the time allotted to questions
or comments on the affairs of the Corporation, restrictions on entry to such
meeting after the time prescribed for the commencement thereof, and the opening
and closing of the voting polls.
(b) At any annual meeting of stockholders, only such business shall be
conducted as shall have been brought before the annual meeting (i) by or at the
direction of the chairman of the meeting, (ii) pursuant to the notice provided
for in Section 2.04 of this Article II or (iii) by any stockholder who is a
holder of record at the time of the giving of such notice provided for in this
Section 2.07, who is entitled to vote at the meeting and who complies with the
procedures set forth in this Section 2.07.
(c) For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation (the "SECRETARY"). To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 90 days prior
to the date of an annual meeting of stockholders. To be in proper written form,
a stockholder's notice to the Secretary shall set forth in writing as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (ii) the name
and address of the stockholder proposing such business and all persons or
entities acting in concert with the stockholder; (iii) the class and number of
shares of the Corporation which are beneficially owned by the stockholder and
all persons or entities acting in concert with such stockholder; and (iv) any
material interest of the stockholder in such business. The foregoing notice
requirements shall be deemed satisfied by a stockholder if the stockholder has
notified the Corporation of his or her intention to present a proposal at an
annual meeting and such stockholder's proposal has been included in a proxy
statement that has been prepared by management of the Corporation to solicit
proxies for such annual meeting; PROVIDED, however, that if such stockholder
does not appear or send a qualified representative to present such proposal at
such annual meeting, the Corporation need not present such proposal for a vote
at such meeting, notwithstanding that proxies in respect of such vote may have
been received by the Corporation. Notwithstanding anything in the bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 2.07. The chairman of
an annual meeting shall, if the facts warrant, determine that business was not
properly brought before the annual meeting in accordance with the provisions of
this Section 2.07
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and, if the chairman should so determine, the chairman shall so declare to the
annual meeting and any such business not properly brought before the annual
meeting shall not be transacted.
SECTION 2.08. LIST OF STOCKHOLDERS. It shall be the duty of the Secretary
or other officer who has charge of the stock ledger to prepare and make, at
least 10 days before each meeting of the stockholders, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares registered in
such stockholder's name. Such list shall be produced and kept available at the
times and places required by law.
SECTION 2.09. VOTING. (a) Except as otherwise provided by law or by the
Certificate, each stockholder of record of any class or series of capital stock
of the Corporation shall be entitled at each meeting of stockholders to such
number of votes for each share of such stock as may be fixed in the Certificate
or in the resolution or resolutions adopted by the Board providing for the
issuance of such stock, registered in such stockholder's name on the books of
the Corporation:
(1) on the date fixed pursuant to Section 7.06 of Article VII of these
bylaws as the record date for the determination of stockholders entitled to
notice of and to vote at such meeting; or
(2) if no such record date shall have been so fixed, then at the close
of business on the day next preceding the day on which notice of such
meeting is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held.
(b) Each stockholder entitled to vote at any meeting of stockholders may
authorize not in excess of three persons to act for such stockholder by proxy.
Any such proxy shall be delivered to the secretary of such meeting at or prior
to the time designated for holding such meeting. No such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period.
(c) At each meeting of the stockholders, all corporate actions to be taken
by vote of the stockholders (except as otherwise required by law and except as
otherwise provided in the Certificate or these bylaws) shall be authorized by a
majority of the votes cast by the stockholders entitled to vote thereon who are
present in person or represented by proxy, and where a separate vote by class is
required, a majority of the votes cast by the stockholders of such class who are
present in person or represented by proxy shall be the act of such class.
(d) Unless required by law or determined by the chairman of the meeting to
be advisable, the vote on any matter, including the election of directors, need
not be by written ballot. In the case of a vote by written ballot, each ballot
shall be signed by the stockholder voting, or by such stockholder's proxy.
SECTION 2.10. INSPECTORS. The chairman of the meeting shall appoint one or
more inspectors to act at any meeting of stockholders. Such inspectors shall
perform such duties as shall be specified by the chairman of the meeting.
Inspectors need not be stockholders. No director or nominee for the office of
director shall be appointed such inspector.
ARTICLE 3
BOARD OF DIRECTORS
SECTION 3.01. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of the Board, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by law or by the Certificate directed or required to be exercised or done by the
stockholders.
SECTION 3.02. NUMBER, QUALIFICATION AND ELECTION. (a) Upon the merger of
U S WEST, Inc. ("U S WEST") with and into the Corporation becoming effective
(the "Effective Time"), and thereafter until the third anniversary of the
Effective Time (the "Third Anniversary"), except as otherwise provided in the
Certificate, the total number of directors constituting the whole Board shall be
fourteen. After the Third Anniversary, the total number of directors
constituting the whole Board initially shall be fourteen and thereafter shall be
as determined from time to time by the Board, provided, however, that any
reduction in the total number of directors constituting the whole Board shall
not terminate the term of any
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director then in office. Initially upon the Effective Time, U S WEST shall have
designated seven members of the Board (the "U S WEST Designees") and the
Corporation shall have designated seven members of the Board (the "Corporation
Designees"). Upon and after the Effective Time, until the Third Anniversary: U S
WEST Designees shall have the right to nominate seven members of the Board and
Corporation Designees shall have the right to nominate seven members of the
Board; any vacancy created on the Board as a result of any such nominee leaving
the Board shall be filled by the remaining U S WEST Designees or Corporation
Designees, as applicable, on the Board who nominated such person leaving the
Board; and to the extent the Corporation has a classified Board, each class of
directors shall contain as even a number of U S WEST Designees and Corporation
Designees as possible.
(b) The directors, other than those who may be elected by the holders of
shares of any class or series of stock having a preference over the common stock
of the Corporation as to dividends or upon liquidation pursuant to the terms of
Article V of the Certificate or any resolution or resolutions providing for the
issuance of such stock adopted by the Board, shall be classified, with respect
to the time for which they severally hold office, into three classes as nearly
equal in number as possible, with each class to hold office until its successors
are elected and qualified. Subject to the rights of the holders of any class or
series of stock having a preference over the common stock of the Corporation as
to dividends or upon liquidation, at each such annual meeting of the
stockholders, the successors of the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.
(c) Each director shall be at least 21 years of age. Directors need not be
stockholders of the Corporation.
(d) In any election of directors held at a meeting of stockholders, the
persons receiving a plurality of the votes cast by the stockholders entitled to
vote thereon at such meeting who are present or represented by proxy, up to the
number of directors to be elected in such election, shall be deemed elected.
SECTION 3.03. NOTIFICATION OF NOMINATION. Subject to Section 3.02(a), and
subject to the rights of the holders of any class or series of stock having a
preference over the common stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the Board or by any
stockholder who is a stockholder of record at the time of giving of the notice
of nomination provided for in this Section 3.03 of this Article III and who is
entitled to vote for the election of directors. Any stockholder of record
entitled to vote for the election of directors at a meeting may nominate persons
for election as directors only if timely written notice of such stockholder's
intent to make such nomination is given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation (i) with respect to an election
to be held at an annual meeting of stockholders, not less than 90 days prior to
the date of such annual meeting and (ii) with respect to an election to be held
at a special meeting of stockholders for the election of directors, within 15
days following the public announcement of the date of such special meeting. Each
such notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination, of all persons or entities acting in concert
with the stockholder, and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or entities acting in concert
with the stockholder (naming such person or entities) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by the stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee been nominated,
or intended to be nominated, by the Board; (e) the class and number of shares of
the Corporation that are beneficially owned by the stockholder and all persons
or entities acting in concert with the stockholder; an (f) the consent of each
nominee to being named in a proxy statement as nominee and to serve as a
director of the Corporation if so elected. The chairman of the meeting may
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refuse to acknowledge the nomination of any person not made after compliance
with the foregoing procedure. Only such persons who are nominated in accordance
with the procedures set forth in this Section 3.03 of this Article III (or in
accordance with Section 3.02(a)) shall be eligible to serve as directors of the
Corporation.
SECTION 3.04. QUORUM AND MANNER OF ACTING. Except as otherwise provided by
law, the Certificate or these bylaws, a majority of the entire Board shall
constitute a quorum for the transaction of business at any meeting of the Board,
and, except as so provided, the vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. The
chairman of the meeting or a majority of the directors present may adjourn the
meeting to another time and place whether or not a quorum is present. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
SECTION 3.05. PLACE OF MEETING. The Board may hold its meetings at such
place or places within or without the State of Delaware as the Board may from
time to time determine or as shall be specified or fixed in the respective
notice or waivers of notice thereof.
SECTION 3.06. REGULAR MEETINGS. Regular meetings of the Board shall be
held at such times and places as the Office of the Chairman or the Board shall
from time to time by resolution determine. If any day fixed for a regular
meeting shall be a legal holiday under the laws of the place where the meeting
is to be held, the meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day.
SECTION 3.07. SPECIAL MEETINGS. Special meetings of the Board shall be
held whenever called by the Office of the Chairman or by a majority of the
directors.
SECTION 3.08. NOTICE OF MEETINGS. Notice of regular meetings of the Board
or of any adjourned meeting thereof need not be given. Notice of each special
meeting of the Board shall be given by overnight delivery service or mailed to
each director, in either case addressed to such director at such director's
residence or usual place of business, at least two days before the day on which
the meeting is to be held or shall be sent to such director at such place by
telegraph or telecopy or be given personally or by telephone, not later than the
day before the meeting is to be held, but notice need not be given to any
director who shall, either before or after the meeting, submit a signed waiver
of such notice or who shall attend such meeting without protesting, prior to or
at its commencement, the lack of notice to such director. Every such notice
shall state the time and place but need not state the purpose of the meeting.
SECTION 3.09. RULES AND REGULATIONS. The Board may adopt such rules and
regulations not inconsistent with the provisions of law, the Certificate or
these bylaws for the conduct of its meetings and management of the affairs of
the Corporation as the Board may deem proper.
SECTION 3.10. PARTICIPATION IN MEETING BY MEANS OF COMMUNICATION
EQUIPMENT. Any one or more members of the Board or any committee thereof may
participate in any meeting of the Board or of any such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
SECTION 3.11. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board or any committee thereof may be taken
without a meeting if all of the members of the Board or of any such committee
consent thereto in writing and the writing or writings are filed with the
minutes or proceedings of the Board or of such committee.
SECTION 3.12. RESIGNATIONS. Any director of the Corporation may at any
time resign by giving written notice to the Board, any Chairman, the Chief
Executive Officer, the President or the Secretary. Such resignation shall take
effect at the time specified therein or, if the time be not specified therein,
upon receipt thereof; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
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SECTION 3.13. REMOVAL OF DIRECTORS. Directors may be removed only as
provided in Section 5 of Article VI of the Certificate.
SECTION 3.14. VACANCIES. Subject to Section 3.02(a), and subject to the
rights of the holders of any class or series of stock having a preference over
the common stock of the Corporation as to dividends or upon liquidation, any
vacancies on the Board resulting from death, resignation, removal or other cause
shall only be filled by the Board by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board,
or by a sole remaining director, and newly created directorships resulting from
any increase in the number of directors shall be filled by the Board, or if not
so filled, by the stockholders at the next annual meeting thereof or at a
special meeting called for that purpose in accordance with Section 2.03 of
Article II of these bylaws. Any director elected in accordance with the
preceding sentence of this Section 3.14 of this Article III shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
SECTION 3.15. COMPENSATION. Each director, in consideration of such person
serving as a director, shall be entitled to receive from the Corporation such
amount per annum and such fees for attendance at meetings of the Board or of
committees of the Board, or both, as the Board shall from time to time
determine. In addition, each director shall be entitled to receive from the
Corporation reimbursement for the reasonable expenses incurred by such person in
connection with the performance of such person's duties as a director. Nothing
contained in this Section 3.15 of this Article III shall preclude any director
from serving the Corporation or any of its subsidiaries in any other capacity
and receiving proper compensation therefor.
ARTICLE 4
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 4.01. ESTABLISHMENT OF COMMITTEES OF THE BOARD OF DIRECTORS;
ELECTION OF MEMBERS OF COMMITTEES OF THE BOARD OF DIRECTORS; FUNCTIONS OF
COMMITTEES OF THE BOARD OF DIRECTORS. The Board may, in accordance with and
subject to the General Corporation Law of the State of Delaware, from time to
time establish committees of the Board to exercise such powers and authorities
of the Board, and to perform such other functions, as the Board may from time to
time determine. Upon and after the Effective Time, until the Third Anniversary,
U S WEST Designees and Corporation Designees will be represented equally on all
of the commitees of the Board.
SECTION 4.02. PROCEDURES; MEETINGS; QUORUM. Regular meetings of committees
of the Board, of which no notice shall be necessary, may be held at such times
and places as shall be fixed by resolution adopted by a majority of the members
thereof. Special meetings of any committee of the Board shall be called at the
request of a majority of the members thereof. Notice of each special meeting of
any committee of the Board shall be given by overnight delivery service or
mailed to each member, in either case addressed to such member at such member's
residence or normal place of business, at least two days before the day on which
the meeting is to be held or shall be sent to such members at such place by
telegraph or telecopy or be given personally or by telephone, not later than the
day before the meeting is to be held, but notice need not be given to any member
who shall, either before or after the meeting, submit a signed waiver of such
notice or who shall attend such meeting without protesting, prior to it or at
its commencement, the lack of such notice to such member. Any special meeting of
any committee of the Board shall be a legal meeting without any notice thereof
having been given, if all the members thereof shall be present thereat. Notice
of any adjourned meeting of any committee of the Board need not be given. Any
committee of the Board may adopt such rules and regulations not inconsistent
with the provisions of law, the Certificate or these bylaws for the conduct of
its meetings as such committee of the Board may deem proper. A majority of the
members of any committee of the Board shall constitute a quorum for the
transaction of business at any meeting, and the vote of a majority of the
members thereof present at any meeting at which a quorum is present shall be the
act of such committee. Each committee of the Board shall keep written minutes of
its proceedings and shall report on such proceedings to the Board.
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ARTICLE 5
OFFICERS
SECTION 5.01. NUMBER; TERM OF OFFICE. The officers of the Corporation
shall be such officers as the Board may from time to time determine, which (a)
upon and after the Effective Time, until the Third Anniversary, shall include an
Office of the Chairman, which initially upon the Effective Time will consist of
three members, namely, the person serving as Chief Executive Officer/Chairman of
U S WEST immediately prior to the Effective Time, the Chief Executive
Officer/Chairman of the Corporation immediately prior to the Effective Time, and
Philip F. Anschutz; and (b) may include a Chief Executive Officer, President,
Chief Financial Officer, General Counsel and one or more Vice Presidents
(including, without limitation, Assistant, Executive and Senior Vice Presidents)
and a Treasurer, Secretary and Controller and such other officers or agents with
such titles and such duties as the Board may from time to time determine, each
to have such authority, functions or duties as provided in these bylaws or as
the Board may from time to time determine, and each to hold office for such term
as may be prescribed by the Board and until such person's successor shall have
been chosen and shall qualify, or until such person's death or resignation, or
until such person's removal in the manner hereinafter provided. One person may
hold the offices and perform the duties of any two or more of said officers;
PROVIDED, HOWEVER, that no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument is required by law, the
Certificate or these bylaws to be executed, acknowledged or verified by two or
more officers. The Board may from time to time authorize any officer to appoint
and remove any such other officers and agents and to prescribe their powers and
duties. The Board may require any officer or agent to give security for the
faithful performance of such person's duties.
SECTION 5.02. REMOVAL. Any officer may be removed, either with or without
cause, by the Board at any meeting thereof or, except in the case of any officer
elected by the Board, by any superior officer upon whom such power may be
conferred by the Board. Upon and after the Effective Time, until the Third
Anniversary, notwithstanding anything else in these bylaws, only the Board shall
have the authority to remove from office and replace any member of the Office of
the Chairman.
SECTION 5.03. RESIGNATION. Any officer may resign at any time by giving
notice to the Board, the Chief Executive Officer or the Secretary. Any such
resignation shall take effect at the date of receipt of such notice or at any
later date specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 5.04. VACANCIES. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term in the manner prescribed in these bylaws for election to such
office.
SECTION 5.05. OFFICE OF THE CHAIRMAN; MEMBERS, POWERS AND DUTIES. Upon and
after the Effective Time, until the Third Anniversary, (i) the Office of the
Chairman will consist of three members, each of whom will individually be
considered a Chairman of the Corporation (each member individually, a
"CHAIRMAN"); and (ii) subject to the power and authority of the Board as
required by applicable law, the Office of the Chairman shall, through one of its
members so designated, chair all meetings of the Board and shall have the
exclusive power and final authority with respect to the following matters (to
the extent Board and/or stockholder action is not required by law):
(a) the approval of any acquisition or disposition of a business through a
merger, stategic acquisition or disposition, asset purchase or sale, joint
venture, partnership, lease arrangement or otherwise, in each case involving
aggregate sale or purchase proceeds of $25 million or more;
(b) the approval of any merger, consolidation or other similar type of
transaction between the Corporation and any third party;
(c) the setting of general corporate strategy and direction involving
approval of long term strategic plans and annual budgets and goals;
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(d) the allocation of capital resources including approval of the
Corporation's annual capital budget and any material amendment or deviation
therefrom; and
(e) the termination or any significant diminution of the responsibilities of
the officers in the eight most senior executive officers of the Corporation (or
its subsidiaries) other than any member of the Office of the Chairman.
Upon and after the Effective Time, until the Third Anniversary, to the
extent Board action is required with respect to any matter referred to in items
(a) through (e) above, the Office of the Chairman shall have the sole power and
authority to present such matters to the Board.
Upon and after the Effective Time, until the Third Anniversary, the Office
of the Chairman shall take action by a majority vote. Upon and after the
Effective Time, until the Third Anniversary, any Chairman shall have the right
to call a special meeting of the Board or at a regularly called meeting to
present any matter referred to in items (a) through (e) above for consideration
by the full Board. Unless otherwise precluded from doing so by these bylaws, any
Chairman may be a member of the committees of the Board. Any Chairman may be
designated by the Board as an officer of the Company and may be elected by the
Board as the Chief Executive Officer. In case of the absence or disability of
all three members of the Office of the Chairman or a vacancy in the Office of
the Chairman, Chief Executive Officer or, if none, the President shall exercise
all the powers and perform all the duties of the Office of the Chairman. Upon
and after the Effective Time, until the Third Anniversary, the Board shall set
the compensation of the members of the Office of the Chairman.
SECTION 5.06. CHIEF EXECUTIVE OFFICER; POWERS AND DUTIES. Subject to the
control of the Board, the Chief Executive Officer shall supervise and direct
generally all the business and affairs of the Corporation. Any document may be
signed by the Chief Executive Officer or any other person who may be thereunto
authorized by the Board or the Chief Executive Officer. The Chief Executive
Officer may appoint such assistant officers as are deemed necessary.
SECTION 5.07. PRESIDENT, EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS
AND VICE PRESIDENTS; POWERS AND DUTIES. The President shall be the chief
operating officer of the Corporation. The President and each Executive Vice
President, each Senior Vice President, and each Vice President shall have such
powers and perform such duties as may be assigned by the Board of Directors or
the Chief Executive Officer.
SECTION 5.08. SECRETARY AND ASSISTANT SECRETARIES; POWERS AND DUTIES. The
Secretary shall attend all meetings of the stockholders and the Board and shall
keep the minutes for such meetings in one or more books provided for that
purpose. The Secretary shall be custodian of the corporate records, except those
required to be in the custody of the Treasurer or the Controller, shall keep the
seal of the Corporation, and shall execute and affix the seal of the Corporation
to all documents duly authorized for execution under seal on behalf of the
Corporation, and shall perform all of the duties incident to the office of
Secretary, as well as such other duties as may be assigned by the Chief
Executive Officer or the Board.
The Assistant Secretaries shall perform such of the Secretary's duties as
the Secretary shall from time to time direct. In case of the absence or
disability of the Secretary or a vacancy in the office, an Assistant Secretary
designated by the Chief Executive Officer or by the Secretary, if the office is
not vacant, shall perform the duties of the Secretary.
SECTION 5.09. CHIEF FINANCIAL OFFICER; POWERS AND DUTIES. The Chief
Financial Officer shall be responsible for maintaining the financial integrity
of the Corporation, shall prepare the financial plans for the Corporation, and
shall monitor the financial performance of the Corporation and its subsidiaries,
as well as performing such other duties as may be assigned by the Chief
Executive Officer or the Board.
SECTION 5.10. TREASURER AND ASSISTANT TREASURERS; POWERS AND DUTIES. The
Treasurer shall have care and custody of the funds and securities of the
Corporation, shall deposit such funds in the name and to the credit of the
Corporation with such depositories as the Treasurer shall approve, shall
disburse the funds of the Corporation for proper expenses and dividends, and as
may be ordered by the Board, taking proper vouchers for such disbursements. The
Treasurer shall perform all of the duties incident to the office of Treasurer,
as well as such other duties as may be assigned by the Chief Executive Officer
or the Board.
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The Assistant Treasurers shall perform such of the Treasurer's duties as the
Treasurer shall from time to time direct. In case of the absence or disability
of the Treasurer or a vacancy in the office, an Assistant Treasurer designated
by the Chief Executive Officer or by the Treasurer, if the office is not vacant,
shall perform the duties of the Treasurer.
SECTION 5.11. GENERAL COUNSEL; POWERS AND DUTIES. The General Counsel
shall be the chief legal officer of the Corporation. The General Counsel shall
have such power and exercise such authority and provide such counsel to the
Corporation as deemed necessary or desirable to enforce the rights and protect
the property and integrity of the Corporation, shall also have the power,
authority, and responsibility for securing for the Corporation all legal advice,
service, and counseling, and shall perform all of the duties incident to the
office of General Counsel, as well as such other duties as may be assigned by
the Chief Executive Officer or the Board.
SECTION 5.12. CONTROLLER AND ASSISTANT CONTROLLERS; POWERS AND DUTIES. The
Controller shall be the chief accounting officer of the Corporation and shall
keep and maintain in good and lawful order all accounts required by law and
shall have sole control over, and ultimate responsibility for, the accounts and
accounting methods of the Corporation and the compliance of the Corporation with
all systems of accounts and accounting regulations prescribed by law. The
Controller shall audit, to such extent and at such times as may be required by
law or as the Controller may think necessary, all accounts and records of
corporate funds or property, by whomsoever kept, and for such purposes shall
have access to all such accounts and records. The Controller shall make and sign
all necessary and proper accounting statements and financial reports of the
Corporation, and shall perform all of the duties incident to the office of
Controller, as well as such other duties as may be assigned by the Chief
Executive Officer or the Board.
The Assistant Controllers shall perform such of the Controller's duties as
the Controller shall from time to time direct. In case of the absence or
disability of the Controller or a vacancy in the office, an Assistant Controller
designated by the Chief Executive Officer or the Controller, if the office is
not vacant, shall perform the duties of the Controller.
SECTION 5.13. SALARIES. Subject to the last sentence of Section 5.05, the
salaries of all officers of the Corporation shall be fixed by or in the manner
provided by the Board. Subject to the last sentence of Section 5.05, if
authorized by a resolution of the Board, the salary of any officer other than
the Chief Executive Officer may be fixed by the Chief Executive Officer or a
Committee of the Board. Upon and after the Effective Time, until the Third
Anniversary, the compensation committee of the Board shall have the right to
approve the filling of any vacancy created in any of the officer positions
(exclusive of the Office of the Chairman) as set forth in the letter of
understanding between U S WEST and the Corporation dated July 18, 1999 and the
setting of salary levels of such executives. No officer shall be disqualified
from receiving a salary by reason of also being a director of the Corporation.
ARTICLE 6
INDEMNIFICATION
SECTION 6.01. SCOPE OF INDEMNIFICATION. (a) The Corporation shall
indemnify an indemnified representative against any liability incurred in
connection with any proceeding in which the indemnified representative may be
involved as a party or otherwise, by reason of the fact that such person is or
was serving in an indemnified capacity, except to the extent that any such
indemnification against a particular liability is expressly prohibited by
applicable law or where a judgment or other final adjudication adverse to the
indemnified representative establishes, or where the Corporation determines,
that his or her acts or omissions (i) were in breach of such person's duty of
loyalty to the Corporation or its stockholders, (ii) were not in good faith or
involved intentional misconduct or a knowing violation of law, or (iii) resulted
in receipt by such person of an improper personal benefit. The rights granted by
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification, contribution, or advancement of expenses may be
entitled under any statute, certificate of incorporation, agreement, contract of
insurance, vote of stockholders or disinterested directors, or otherwise. The
rights of indemnification and advancement of expenses provided by or granted
pursuant to this Article shall continue as to a person who
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has ceased to be an indemnified representative in respect of matters arising
prior to such time and shall inure to the benefit of the heirs, executors,
administrators and personal representatives of such a person.
(b) If an indemnified representative is not entitled to indemnification with
respect to a portion of any liabilities to which such person may be subject, the
Corporation shall nonetheless indemnify such indemnified representative to the
maximum extent for the remaining portion of the liabilities.
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the indemnified representative is not entitled
to indemnification.
(d) To the extent permitted by law, the payment of indemnification provided
for by this Article, including the advancement of expenses pursuant to Section
6.02 of this Article VI, with respect to proceedings other than those brought by
or in the right of the Corporation, shall be subject to the conditions that the
indemnified representative shall give the Corporation prompt notice of any
proceeding, that the Corporation shall have complete charge of the defense of
such proceeding and the right to select counsel for the indemnified
representative, and that the indemnified representative shall assist and
cooperate fully in all matters respecting the proceeding and its defense or
settlement. The Corporation may waive any or all of the conditions set forth in
the preceding sentence. Any such waiver shall be applicable only to the specific
payment for which the waiver is made and shall not in any way obligate the
Corporation to grant such waiver at any future time. In the event of a conflict
of interest between the indemnified representative and the Corporation that
would disqualify the Corporation's counsel from representing the indemnified
representative under the rules of professional conduct applicable to attorneys,
it shall be the policy of the Corporation to waive any or all of the foregoing
conditions subject to such limitations or conditions as the Corporation shall
deem to be reasonable in the circumstances.
(e) For purposes of this Article:
(1) "INDEMNIFIED CAPACITY" means any and all past, present, or future
services by an indemnified representative in one or more capacities as a
director, officer, employee, or agent of the Corporation or, at the request
of the Corporation, as a director, officer, employee, agent, fiduciary, or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan, or other entity or enterprise; any indemnified representative
serving an affiliate of the Corporation in any capacity shall be deemed to
be doing so at the request of the Corporation;
(2) "AFFILIATE OF THE CORPORATION" means an entity that directly or
indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, the Corporation;
(3) "INDEMNIFIED REPRESENTATIVE" means any and all directors, officers,
and employees of the Corporation and any other person designated as an
indemnified representative by the Board;
(4) "LIABILITY" means any damage, judgment, amount paid in settlement,
fine, penalty, punitive damage, excise tax assessed with respect to an
employee benefit plan, or cost or expense of any nature (including, without
limitation, expert witness fees, costs of investigation, litigation and
appeal costs, attorneys' fees, and disbursements); and
(5) "PROCEEDING" means any threatened, pending, or completed action,
suit, appeal, or other proceeding of any nature, whether civil, criminal,
administrative, or investigative, whether formal or informal, whether
external or internal to the Corporation, and whether brought by or in the
right of the Corporation, a class of its security holders or otherwise.
SECTION 6.02. ADVANCING EXPENSES. All reasonable expenses incurred in good
faith by an indemnified representative in advance of the final disposition of a
proceeding described in Section 6.01 of this Article VI shall be advanced to the
indemnified representative by the Corporation. Before making any such advance
payment of expenses, the Corporation shall receive an undertaking by or on
behalf of the indemnified representative to repay such amount if it shall
ultimately be determined that such indemnified representative is not entitled to
be indemnified by the Corporation pursuant to this Article VI. No advance shall
be made by the Corporation if a determination is reasonably and promptly made by
a majority vote of
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disinterested directors, even if the disinterested directors constitute less
than a quorum, or (if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs) by independent legal counsel in a
written opinion, that, based upon the facts known to the Board or counsel at the
time such determination is made, the indemnified representative has acted in
such a manner as to permit or require the denial of indemnification pursuant to
the provisions of Section 6.01 of this Article VI.
ARTICLE 7
CAPITAL STOCK
SECTION 7.01. SHARE OWNERSHIP. (a) Holders of shares of stock of each
class of the Corporation shall be recorded on the books of the Corporation and
ownership of such stock shall be evidenced by a certificate or other form as
shall be approved by the Board. Certificates representing shares of stock of
each class, if any, shall be signed by, or in the name of, the Corporation by
any Chairman or the President, any Vice President and by the Secretary or any
Assistant Secretary or the Treasurer or any Assistant Treasurer of the
Corporation, and sealed with the seal of the Corporation, which may be a
facsimile thereof. Any or all such signatures may be facsimiles if countersigned
by a transfer agent or registrar. Although any officer, transfer agent or
registrar whose manual or facsimile signature is affixed to such a certificate
ceases to be such officer, transfer agent or registrar before such certificate
has been issued, it may nevertheless be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were still such at the
date of its issue.
(b) The stock ledger and blank share certificates shall be kept by the
Secretary or by a transfer agent or by a registrar or by any other officer or
agent designated by the Board.
SECTION 7.02. TRANSFER OF SHARES. Transfers of shares of stock of each
class of the Corporation shall be made only on the books of the Corporation by
the holder thereof, or by such holder's attorney thereunto authorized by a power
of attorney duly executed and filed with the Secretary or a transfer agent for
such stock, if any, and on surrender of the certificate or certificates, if any,
for such shares properly endorsed or accompanied by a duly executed stock
transfer power (or by proper evidence of succession, assignment or authority to
transfer) and the payment of any taxes thereon; provided, however, that the
Corporation shall be entitled to recognize and enforce any lawful restriction on
transfer. The person in whose name shares are registered on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation; PROVIDED, HOWEVER, that whenever any transfer of shares shall be
made for collateral security and not absolutely, and written notice thereof
shall be given to the Secretary or to such transfer agent, such fact shall be
stated in the entry of the transfer. No transfer of shares shall be valid as
against the Corporation, its stockholders and creditors for any purpose, except
to render the transferee liable for the debts of the Corporation to the extent
provided by law, until it shall have been entered in the stock records of the
Corporation by an entry showing from and to whom transferred.
SECTION 7.03. REGISTERED STOCKHOLDERS AND ADDRESSES OF
STOCKHOLDERS. (a) The Corporation shall be entitled to recognize the exclusive
right of a person registered on its records as the owner of shares of stock to
receive dividends and to vote as such owner, shall be entitled to hold liable
for calls and assessments a person registered on its records as the owner of
shares of stock, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares of stock on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
(b) Each stockholder shall designate to the Secretary or transfer agent of
the Corporation an address at which notices of meetings and all other corporate
notices may be delivered or mailed to such person, and, if any stockholder shall
fail to designate such address, corporate notices may be delivered to such
person by mail directed to such person at such person's post office address, if
any, as the same appears on the stock record books of the Corporation or at such
person's last known post office address.
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SECTION 7.04. LOST, DESTROYED AND MUTILATED CERTIFICATES. The Corporation
may issue to any holder of shares of stock the certificate for which has been
lost, stolen, destroyed or mutilated a new certificate or certificates for
shares, upon the surrender of the mutilated certificate or, in the case of loss,
theft or destruction of the certificate, upon satisfactory proof of such loss,
theft or destruction. The Board, or a committee designated thereby, or the
transfer agents and registrars for the stock, may, in their discretion, require
the owner of the lost, stolen or destroyed certificate, or such person's legal
representative, to give the Corporation a bond in such sum and with such surety
or sureties as they may direct to indemnify the Corporation and said transfer
agents and registrars against any claim that may be made on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
SECTION 7.05. REGULATIONS. The Board may make such additional rules and
regulations as it may deem expedient concerning the issue and transfer of shares
of stock of each class of the Corporation and may make such rules and take such
action as it may deem expedient concerning the issue of certificates in lieu of
certificates claimed to have been lost, destroyed, stolen or mutilated.
SECTION 7.06. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
or any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other action. A determination of stockholders entitled to notice of
or to vote at a meeting of the stockholders shall apply to any adjournment of
the meeting; PROVIDED, HOWEVER, that the Board may fix a new record date for the
adjourned meeting.
SECTION 7.07. TRANSFER AGENTS AND REGISTRARS. The Board may appoint, or
authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
ARTICLE 8
SEAL
The Board shall provide a corporate seal, which shall be in the form of a
circle and shall bear the full name of the Corporation and the words and figures
of "CORPORATE SEAL DELAWARE", or such other words or figures as the Board may
approve and adopt. The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or in any other manner reproduced.
ARTICLE 9
FISCAL YEAR
The fiscal year of the Corporation shall end on the 31st day of December in
each year.
ARTICLE 10
AMENDMENTS
Any bylaw may be adopted, repealed, altered or amended by two-thirds of the
entire Board at any meeting thereof; PROVIDED THAT notwithstanding anything else
in these bylaws, the first, third, and fourth sentences of Section 3.02(a), the
second sentence of Section 4.01, Section 5.01(a), the second sentence of Section
5.02, Section 5.05 (except for the third, fourth, and fifth sentences of the
last paragraph thereof), the third sentence of Section 5.13, this proviso in
this first sentence of Article 10, and the last sentence of Article 10 may only
be amended or repealed by an affirmative vote of three-fourths of the Board at
any meeting thereof. The stockholders of the Corporation shall have the power to
amend, alter or repeal any provision of these bylaws only to the extent and in
the manner provided in the Certificate.
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[LOGO]
[LOGO]
WSTNC-SP-99
<PAGE>
[LOGO]
PROXY CARD
- -----------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF SHAREHOLDERS ON NOVEMBER 2, 1999.
The undersigned hereby appoints Soloman D. Trujillo, Marilyn C. Nelson, Frank P.
Popoff and Mark Roellig, and each of them, proxies with the powers the
undersigned would possess if personally present, and with full power of
substitution, to vote all common shares of U S WEST of the undersigned on the
reverse side of this proxy at the Special Meeting to be held at the Auditorium
at Equitable Center, The Equitable Building, 787 7th Avenue, New York, New York,
beginning at 9:00 A.M., on November 2, 1999, and at any adjournments or
postponements thereof, upon all subjects that may properly come before the
Special Meeting including the matters described in the Joint Proxy
Statement/Prospectus furnished herewith. The undersigned hereby revokes any
previous proxies with respect to matters covered by this proxy.
This proxy, when properly executed, will be voted in the manner marked herein by
the undersigned shareholder. THE BOARD RECOMMENDS A VOTE FOR EACH OF THE
PROPOSALS. TO VOTE IN ACCORDANCE WITH THE BOARD'S RECOMMENDATIONS, JUST SIGN AND
RETURN THIS PROXY; NO BOXES NEED TO BE CHECKED.
If you are a participant in the U S WEST Shareowner Investment Plan, your proxy
card will cover both the number of full shares in your plan account and shares
registered in your name.
If you are a participant in the U S WEST Savings Plan/ESOP, your proxy card will
also serve as a voting instruction card for the trustees of the plans with
respect to the shares held in your accounts. The trustees will vote the shares
held in the plans for which proxies are not received (as well as shares held in
the suspense account of the plans) in the same proportion as the shares for
which proxies are received.
YOUR VOTE IS IMPORTANT. FAILURE TO SIGN AND RETURN THIS PROXY, OR ATTEND THE
SPECIAL MEETING AND VOTE BY BALLOT, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
THE MERGER PROPOSAL.
<PAGE>
[LOGO]
To vote for a proposal, mark the "FOR" box relating to the proposal. To vote
against a proposal, mark the "AGAINST" box relating to the proposal. To abstain
from voting for a proposal, mark the "ABSTAIN" box relating to the proposal. To
vote in accordance with the Board's recommendation, just sign and return this
proxy. No boxes need to be checked.
- --------------------------------------------------------------------------------
DIRECTORS RECOMMEND A VOTE "FOR"
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Approval and adoption of the Agreement and Plan of Merger dated as of July 18, 1999, as amended, between U S
WEST, Inc., a Delaware corporation, and Qwest Communications International Inc., a Delaware corporation, and the
merger. The merger agreement is attached to the accompanying Joint Proxy Statement/Prospectus as Annex A.
2. Approval of any proposal to adjourn or postpone the meeting.
3. In the discretion of the proxies, to vote upon such other business as may properly come before meeting, including
any adjournment or postponement thereof.
<CAPTION>
1.
For / / Against / / Abstain / /
2. For / / Against / / Abstain / /
3.
For / / Against / / Abstain / /
<CAPTION>
</TABLE>
Date ________________________, 1999
Sign here as name appears
x _________________________________
x _________________________________
Please sign this proxy and return
promptly whether or not you plan to
attend the Special Meeting.
WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN,
CORPORATE OFFICER OR PARTNER, PLEASE
GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN CORPORATE
NAME BY PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE
SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON. THIS PROXY VOTES
ALL SHARES HELD IN ALL CAPACITIES.
Mark here if you plan to attend the Special Meeting / /
