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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
U S WEST, INC.
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(Name of Registrant as Specified In Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, Schedule of Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed: August 16, 1999
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[Qwest Logo] [U S WEST 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.
Qwest will issue approximately [____] billion shares of Qwest common stock to U
S WEST shareholders in the merger, based on outstanding U S WEST shares on
[______], 1999 and assuming an exchange ratio of _____, which corresponds to a
Qwest stock price of $______. These shares will represent approximately [__]% of
the outstanding shares of Qwest common stock after the merger. Qwest shares held
by Qwest shareholders before the merger will represent approximately [___]% 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.
The dates, times and places of the meetings are:
For Qwest shareholders:
_________, _______, 1999
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For U S WEST shareholders:
__________, _______, 1999
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Joseph P. Nacchio Solomon D. Trujillo
Chairman and Chief Executive Officer Chairman of the Board, President
Qwest Communications International Inc. and Chief Executive Officer,
U S WEST, Inc.
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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 adequate. Any representation to the contrary is a criminal offense.
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Joint proxy statement/prospectus dated [_______], 1999 and first mailed
to shareholders on [_______], 1999.
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TABLE OF CONTENTS
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CHAPTER ONE - THE MERGER
QUESTIONS AND ANSWERS ABOUT THE
MERGER.......................................................................I-1
SUMMARY......................................................................I-2
The Companies.............................................................I-2
Merger Recommendations to Shareholders....................................I-2
The Merger................................................................I-2
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-16
Material Federal Income Tax Consequences of the
Merger................................................................I-21
Regulatory Matters Relating to the Merger................................I-22
Appraisal Rights.........................................................I-23
Federal Securities Laws Consequences; Stock
Transfer Restriction Agreements.......................................I-24
Accounting Treatment.....................................................I-24
Legal Proceedings........................................................I-25
INTERESTS OF OFFICERS AND DIRECTORS IN
THE MERGER...............................................................I-26
Qwest Board; Management..................................................I-26
Indemnification; Directors' and Officers'
Insurance.............................................................I-26
Qwest's Stock Options....................................................I-26
U S WEST's Stock and Stock Option Plans..................................I-27
U S WEST Long-Term Incentive Plan........................................I-28
U S WEST Executive Short-Term Incentive Plan.............................I-28
Retention Bonuses........................................................I-29
THE MERGER AGREEMENT........................................................I-30
Structure of the Merger..................................................I-30
Timing of Closing........................................................I-30
Merger Consideration.....................................................I-30
Treatment of U S WEST Stock Options......................................I-33
Exchange of Shares.......................................................I-33
Qwest Board and Board Committees.........................................I-33
Certain Covenants........................................................I-34
Representations and Warranties...........................................I-35
Conditions to the Completion of the Merger...............................I-36
Termination of the Merger Agreement......................................I-36
Other Expenses...........................................................I-39
Amendments and Waivers...................................................I-39
VOTING AGREEMENT............................................................I-40
Agreement to Vote........................................................I-40
Restrictions on Transfer.................................................I-40
Termination..............................................................I-40
THE GLOBAL AGREEMENTS.......................................................I-41
The Qwest-Global Agreement...............................................I-41
The U S WEST-Global Termination Agreement................................I-41
The Amendment to the U S WEST-Global Tender
Offer and Purchase Agreement..........................................I-41
The Qwest-Global Capacity Purchase Agreement.............................I-41
OPINIONS OF FINANCIAL ADVISORS..............................................I-42
Opinion of Financial Advisor to Qwest....................................I-42
Opinions of Financial Advisors to U S WEST...............................I-47
CHAPTER TWO - FINANCIAL INFORMATION
COMPARATIVE PER SHARE MARKET PRICE
AND DIVIDEND INFORMATION.................................................II-1
SELECTED FINANCIAL DATA.....................................................II-2
COMPARATIVE PER SHARE DATA..................................................II-7
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION....................................................II-8
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-5
CHAPTER FOUR - CERTAIN LEGAL
INFORMATION
COMPARISON OF U S WEST-QWEST
SHAREHOLDER RIGHTS.......................................................IV-1
Summary of Material Differences Between Current
Rights of U S WEST and Qwest Shareholders
and Rights Those Shareholders Will Have as
Qwest Shareholders Following the Merger...............................IV-1
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DESCRIPTION OF QWEST CAPITAL STOCK..........................................IV-4
Authorized Capital Stock.................................................IV-4
Qwest Common Stock.......................................................IV-4
Qwest Preferred Stock....................................................IV-4
Transfer Agent and Registrar.............................................IV-5
Stock Exchange Listing; Delisting and
Deregistration of U S WEST Common Stock...............................IV-5
INFORMATION REGARDING FORWARD-
LOOKING STATEMENTS.......................................................IV-5
LEGAL MATTERS...............................................................IV-7
EXPERTS.....................................................................IV-7
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
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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
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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 [__________], 1999 in _________, ________. The shareholder
meeting of U S WEST, Inc. ("U S WEST") will take place on [__________], 1999 in
_________, _________. 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 on the
merger. 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-[___]-[____]. U S WEST shareholders may
call 1-800-[___]-[____].
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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.
Merger Recommendations to Shareholders
To Qwest Shareholders:
If you are a Qwest shareholder, the Qwest Board believes the merger is
advisable, fair to you and in your best interest and recommends that you vote
FOR the approval of the merger agreement and the merger, including the issuance
of shares of Qwest common stock in the merger and the Qwest charter amendments
contemplated by the merger agreement.
To U S WEST Shareholders:
If you are a U S WEST shareholder, 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 approval of the merger agreement and 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-30)
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 Average Price (as defined below) is
between $28.26 and $39.90.
If the 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 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 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 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.
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Chapter One - The Merger
"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 before the
date on which all of the conditions to the closing of the merger have been
satisfied or waived.
You may call xxx-xxx-xxxx anytime after _______, __________, 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.
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-36)
The completion of the merger depends upon meeting a number of conditions,
including the following:
o approval by the Qwest and U S WEST shareholders;
o expiration or termination of the waiting period under the
Hart-Scott-Rodino Act and receipt of necessary approvals from the
Federal Communications Commission and certain state public utilities
commissions;
o absence of any law or court order prohibiting the merger;
o receipt of opinions of counsel to Qwest and U S WEST that the merger
will qualify as a tax-free reorganization;
o 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;
o material accuracy as of closing of the representations and warranties
made by the other party; and
o absence of an imposition by any regulatory authority of any condition,
requirement or restriction that would reasonably be expected to have a
material adverse effect on the combined company after the merger, or
would result in a reduction in aggregate revenues of Qwest and U S
WEST on a pro forma, combined basis or require a capital investment,
in each case in excess of certain amounts.
Termination of the Merger Agreement (see page I-36)
Either Qwest or U S WEST can terminate the merger agreement if any of the
following occurs:
o we do not complete the merger by July 30, 2000; however, the date will
be extended to December 31, 2000 if we have not closed by July 30,
2000 because the regulatory conditions specified in the merger
agreement have not been satisfied by that date; or
o Qwest or U S WEST shareholders do not give the required approvals; or
o a law or court order permanently prohibits the merger; or
o the other party breaches the merger agreement in a manner that renders
a condition to the merger incapable of being satisfied prior to July
30, 2000; or
o 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 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.
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Chapter One - 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-37)
U S WEST must pay Qwest a termination fee of $850 million in cash if:
o 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
o 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
o the merger agreement is terminated in circumstances where:
o U S WEST's shareholders do not vote in favor of the merger;
o a third party has made a proposal for an alternative transaction
involving U S WEST prior to the U S WEST shareholder vote; and
o within twelve months of the termination of the merger agreement U S
WEST enters into an agreement for an alternative transaction with any
third party; or
o 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.
Qwest must pay U S WEST a termination fee of $850 million in cash if:
o 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
o 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
o the merger agreement is terminated in circumstances where:
o Qwest's shareholders do not vote in favor of the merger;
o a third party has made a proposal for an alternative transaction
involving Qwest prior to the Qwest shareholder vote; and
o within twelve months of the termination of the merger agreement Qwest
enters into an agreement for an alternative transaction with any third
party; or
o 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-38)
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
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Chapter One - The Merger
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-33)
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-34)
Following the merger, Philip F. Anschutz, Joseph P. Nacchio and Solomon D.
Trujillo together will constitute the Office of the Chairman. The Office of the
Chairman will be responsible 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, except that any of Messrs. Anschutz,
Nacchio and Trujillo will have the right to bring any decision of the Office of
the Chairman to the Qwest Board. 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.
Executive Officers (see page I-34)
Upon the closing of 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.
Each of these twenty executive officers of Qwest and U S WEST will be mutually
agreed upon by Qwest and U S WEST before the closing of the merger.
Regulatory Approvals (see page I-22)
Completion of the merger will not occur until after we have received specified
regulatory approvals required for the transactions. The Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, provides that specified required
materials and information must be given to and reviewed by the Antitrust
Division of the Justice Department or the Federal Trade Commission. 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-26)
When you consider 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-21)
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 tax
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 the cash received as a result of
that election to the extent of the gain on that shareholder's U S WEST common
stock.
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Chapter One - The Merger
Voting Agreement (see page I-40)
Qwest's principal shareholder, Mr. Anschutz, has agreed to vote his 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. The terms of the voting agreement 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 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 July __, 1999, the last full trading day
before the mailing of this joint proxy statement/prospectus, Qwest common stock
closed at $_____ and U S WEST common stock closed at $-----.
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
Qwest will issue approximately [______] 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 approximately [___]% of the
outstanding Qwest common stock after the merger. This information is based on
the number of Qwest and U S WEST shares outstanding on ________, 1999, assumes
an exchange ratio of ____ (which corresponds to an Average Price of $________)
and does not take into account stock options or other equity-based awards or
other transactions involving the issuance of stock, including acquisitions.
Shareholder Votes Required to Approve the Merger
For Qwest shareholders: Approval of the merger, including the issuance of shares
of Qwest common stock in the merger and the Qwest charter amendments
contemplated by the merger agreement, requires the affirmative vote of at least
a majority of the outstanding shares of Qwest common stock.
For U S WEST shareholders: Approval of the merger requires the affirmative vote
of at least a majority of the outstanding shares of U S WEST common stock.
Opinions of Financial Advisors (see page I-42)
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
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Chapter One - The Merger
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-23)
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-24)
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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Chapter One - The Merger
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 Proposal
At the Qwest meeting, holders of Qwest common stock will be asked to vote
upon approval and adoption of the merger agreement and the merger, including
approval of the issuance of Qwest common stock in the merger and the Qwest
charter amendments contemplated by the merger agreement. We sometimes refer to
this proposal as the "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 approval and adoption of 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
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.
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Chapter One - The Merger
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 the control of the combined
company.
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. 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 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, a director
and Chairman of the Qwest 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
[-----------],
the record date for the Qwest and U S WEST meetings, and assuming an exchange
ratio of [mid-point of the range], upon completion of the merger, Mr. Anschutz
would beneficially own approximately [___]% 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 [_____________]% of the outstanding
shares of Qwest common stock. 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.
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Chapter One - The Merger
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 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
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Chapter One - The Merger
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.
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
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Chapter One - The Merger
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.
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.
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Chapter One - The Merger
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.
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 shareowners 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.
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Chapter One - The Merger
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 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.
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Chapter One - The Merger
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
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
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Chapter One - The Merger
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. 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.
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 through
electronic publishing. 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:
o 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."
o 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."
o 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
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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.
o 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.
o 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."
o 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 well as its outside legal
counsel and financial advisor and considered the following material factors,
among others:
o the reasons described above under "Our Reasons for the Merger" and the
risks described under "Risk Factors";
o 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;
o 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;
o 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";
o 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
o 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;
o 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;
o 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;
o the voting agreement of certain shareholders of Qwest which requires
them to vote in favor of the merger;
o 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;
o the reduction in the beneficial ownership of Qwest's principal
shareholder as a result of the merger;
o 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;
o 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 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;
o 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";
o 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
o 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."
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Chapter One - The Merger
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 and the Qwest charter amendments 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.
o the reasons described above under "Our Reasons for the Merger" and the
risks described under "Risk Factors";
o 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:
o 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;
o 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;
o 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
o 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;
o 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;
o 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;
o 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;
o 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;
o 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;
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Chapter One - The Merger
o 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;
o the likely impact of the merger on U S WEST's employees and customers;
o 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;
o the reduction in the termination fee payable to Global upon the
termination of the Global-U S WEST merger agreement;
o the effect of the merger on Qwest's existing joint ventures and other
relationships with third parties;
o the interests of officers and directors of U S WEST in the merger, as
described under "Interests of Officers and Directors in the Merger";
o 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;
o 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
o 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 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.
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Chapter One - 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:
o a shareholder who is not a citizen or resident of the United States,
o a financial institution or insurance company,
o a tax-exempt organization,
o a dealer or broker in securities,
o a shareholder that holds its U S WEST common stock as part of a hedge,
appreciated financial position, straddle or conversion transaction, or
o 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.
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.
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Chapter One - The Merger
Federal Income Tax Consequences to U S WEST Shareholders. For federal
income tax purposes:
o 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.
o 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.
o 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.
o 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
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
rules promulgated under the Hart- Scott-Rodino Act, the merger may not be
consummated until notifications have been given and certain information and
materials have been furnished to and reviewed by the Department of Justice and
the Federal Trade Commission and specified waiting period requirements have been
satisfied. In addition, 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
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Chapter One - The Merger
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 the antitrust review process will move rapidly or that a
challenge to the merger on antitrust grounds will not be made.
FCC Approval
Under the Communications Act of 1934, as amended, the prior approval of the
FCC is necessary before the merger may be consummated. In reviewing an
application for its approval of the merger, 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 merger, 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.
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
will file applications for consent to the merger in each state where such an
application 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
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Chapter One - The Merger
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 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. We have included as Annex F to this joint proxy
statement/prospectus the pertinent provisions of Delaware law addressing
appraisal rights.
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.
I-24
<PAGE>
Chapter One - The Merger
Legal Proceedings
On July 22, 1999, a 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 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. The defendants believe that the claims asserted in the
action are without merit and intend to vigorously defend the action.
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: (a)
requiring defendants to act in accordance with their fiduciary duties by
considering any bona fide proposal which would maximize shareholder value; (b)
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; (c) preventing defendants from using a shareholder
rights plan to impede any bona fide offer for U S WEST; (d) enjoining the
consummation of the proposed Global-U S WEST merger until all alternatives are
explored; (e) 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 (f) requiring defendants to pay damages to plaintiffs. The
defendants intend to vigorously defend these actions.
I-25
<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, Chairman of the Qwest Board, will become Non-Executive
Chairman of the Qwest Board, Joseph P. Nacchio, Chairman and Chief Executive
Officer of Qwest, will continue as Chairman and Chief Executive Officer of
Qwest, and Solomon D. Trujillo, Chairman of the Board, President and Chief
Executive Officer of U S WEST, 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
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, 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 whose vesting will accelerate as a result of the merger and
the estimated value of such options, assuming the merger is completed on June
30, 2000.
I-26
<PAGE>
Chapter One - The Merger
<TABLE>
<CAPTION>
Number of Unvested Aggregate Value of
Qwest Options that Unvested Options that
Accelerate as a Result Accelerate as a Result
Name of the Merger(1) of the Merger(2)
---- ---------------------- ----------------------
<S> <C> <C>
Lewis O. Wilks......................................
Stephen M. Jacobsen.................................
Robert S. Woodruff..................................
All other executive officers as a group.............
- -------------------
<FN>
<F1>
(1) This represents the number estimated to be unvested as of June 30, 2000.
<F2>
(2) The estimated value of unvested options shown in this table assumes a
hypothetical price of Qwest common stock of $___ per share.
</FN>
</TABLE>
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 common stock of Qwest
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.
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 Number of
Name U S WEST Options(1) Unvested Options(2) Restricted Shares
---- -------------------- -------------------- -----------------
<S> <C> <C> <C>
Solomon D. Trujillo...........................
Mark Roellig..................................
James A. Smith................................
Allan R. Spies................................
Gregory M. Winn...............................
All other executive officers as a group.......
- -------------------
<FN>
<F1>
(1) The number of unvested U S WEST options estimated to be outstanding as of
June 30, 2000.
<F1>
(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.
</FN>
</TABLE>
Unvested options and restricted stock awarded to U S WEST directors prior to
the announcement of the proposed merger will also vest and become
unrestricted.
I-27
<PAGE>
Chapter One - 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. For any DEUs issued in the calendar year of the change of
control (i.e., the year 2000), the total dividend payout will be determined as
if the change of control occurred on the date on which the pre-set performance
period is scheduled to end, calculated on a pro rata basis for the time elapsed
in that calendar year. 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 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>
Estimated Future Payments Under
Non-Stock Priced-Based Plan(1)
--------------------------------
Performance
Period Until
Number of Maturation
Name Units or Payout Threshold Target($) Maximum($)
- ---- --------- ------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Solomon D. Trujillo......1998
Gregory M. Winn..........1998
Allan R. Spies...........1998
Mark Roellig.............1998
James A. Smith...........1998
- -------------------
<FN>
<F1>
(1) Estimated future payouts assume a quarterly dividend rate of $0.535 per
share over the performance period. Any changes to the quarterly dividend
rate would vary the payouts.
</FN>
</TABLE>
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.
I-28
<PAGE>
Chapter One - The Merger
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 $_____ for Mr. Trujillo, $_____ for Mr.
Winn, $______ for Mr. Spies, $_____ for Mr. Roellig and $____ for Mr. Smith.
Retention Bonuses
U S WEST and Qwest have agreed in the merger agreement to adopt a retention
bonus program within thirty days after the signing of the merger agreement. The
bonus program may consist of cash payments, equity or other economic incentives.
I-29
<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 predict whether
the U S WEST Board will exercise its right to terminate the merger agreement if
the Walkaway Point were reached.
I-30
<PAGE>
Chapter One - The Merger
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
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 xxx-xxx-xxxx anytime after _______, __________, 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 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'
I-31
<PAGE>
Chapter One - The Merger
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:
o a number of shares of Qwest common stock equal to the "True Up
Exchange Ratio"; and
o an amount in cash equal to the "Per Share Cash True Up."
"Per Share Cash True Up" means the quotient of (x) the aggregate amount the
"Cash Amount" divided by (y) 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 (x) the difference between the exchange ratio
and 1.783 multiplied by (y) the number of outstanding shares of U S WEST common
stock 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.
"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.
For example, assuming the Average Price is _____, and Qwest and U S WEST
agree that Qwest will pay $_____ of the merger consideration in cash, each
shareholder of U S WEST common Stock will receive, for each share, [____] shares
of Qwest common stock and [____] in cash.
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>
True Up Total Value
Average Exchange Per Share per U S WEST
Price Ratio Cash True Up Share
------- -------- ------------ -------------
<S> <C> <C> <C> <C>
$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
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-32
<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 by-law 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.
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Chapter One - The Merger
Office of the Chairman
After the effective time of the merger, Qwest will have an Office of the
Chairman which will consist of three members: the Chief Executive
Officer/Chairman of U S WEST, the Chief Executive Officer/Chairman of Qwest and
Philip F. Anschutz. The Office of the Chairman will, through one of its members
so designated, chair all meetings of the Qwest Board and will have the 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 the two
officers who are also members of the Office of the Chairman) 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
Upon the closing of 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. Each of these twenty executive
officers of Qwest and U S WEST will be mutually agreed upon by Qwest and U S
WEST prior of the closing of the merger.
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 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.
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Chapter One - The Merger
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.
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:
o 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;
o 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
o 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.
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.
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Chapter One - The Merger
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:
o approval of the merger by the Qwest and U S WEST shareholders;
o expiration of the Hart-Scott-Rodino Act waiting period;
o absence of a legal prohibition on completion of the merger;
o absence of an imposition by any regulatory authority of any condition,
requirement or restriction that would reasonably be expected to have a
material adverse effect on the combined company after the merger, or
would result in a reduction in aggregate revenues of Qwest and U S
WEST on a pro forma, combined basis or require a capital investment,
in each case in excess of certain amounts;
o 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;
o approval for the listing on the Nasdaq National Market of the shares
of Qwest common stock to be issued in the merger;
o 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;
o 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;
o 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;
o performance in all material respects by the other party of the
obligations required to be performed by it at or prior to closing; and
o 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:
o The merger agreement may be terminated by mutual written consent of
Qwest and U S WEST.
o The merger agreement may be terminated by either Qwest or U S WEST if:
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Chapter One - The Merger
o 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
o Qwest or U S WEST shareholders fail to give the necessary approval of
the merger at a duly held meeting; or
o there is a final and nonappealable legal prohibition to closing the
merger; or
o 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
o 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.
o The merger agreement may be terminated by U S WEST if:
o 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
o 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:
o 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
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Chapter One - The Merger
o 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 Qwest its
approval or recommendation of the merger or recommended an alternative
acquisition transaction; or
o the merger agreement is terminated because the U S WEST shareholders
fail to approve the merger and:
o 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
o within 12 months of such termination, U S WEST enters into an
agreement with any third party with respect to an alternative
transaction; or
o 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:
o 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
o 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
o the merger agreement is terminated because the Qwest shareholders fail
to approve the merger and:
o 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
o within 12 months of such termination, Qwest enters into an agreement
with any third party with respect to an alternative transaction; or
o 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:
o 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;
o alter or change any term of the Qwest or U S WEST charter; or
o 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:
o extend the time for the performance of any of the obligations or other
acts of the other party;
o waive any inaccuracies in the representations and warranties contained
in the merger agreement; or
o 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. 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 __% of the
outstanding shares). 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:
o The completion of the merger; or
o 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
o The termination of the merger agreement by U S WEST; or
o July 18, 2001.
The voting agreement does not terminate 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 (x) 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 (y) 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:
o reviewed the merger agreement and related documents;
o 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;
o compared financial and securities data of Qwest and U S WEST with
various other companies whose securities are traded in public markets;
o reviewed the historical stock prices and trading volumes of Qwest
common stock and US WEST common stock;
o reviewed prices and premiums paid in other business combinations; and
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Chapter One - The Merger
o 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:
o Ameritech Corporation
o BellSouth Corporation
o Bell Atlantic Corporation
o 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 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.
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Chapter One - The Merger
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:
Target Acquiror
------ --------
o MCI Communications Corp. o WorldCom, Inc.
o GTE Corporation o Bell Atlantic Corporation
o Ameritech Corporation o SBC Communications, Inc.
o NYNEX Corporation o Bell Atlantic Corporation
o Pacific Telesis Group o SBC Communications, Inc.
o Aliant Communications o ALLTEL Corporation
o Anchorage Telephone Utility o Alaska Communication Systems, Inc.
o Century Telephone Enterprises, Inc. o Alaska Communication Systems, Inc.
o Lufkin-Conroe Communications Company o Texas Utilities Company
o Consolidated Communications, Inc. o McLeod USA Incorporated
o Teleport Communications Group Inc. o AT&T Corporation
o MFS Communications Company, Inc. o WorldCom, Inc.
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 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.
I-44
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Chapter One - The Merger
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:
Period Prior to Announcement
---------------------------------------
One Day One Week Four Weeks
------- -------- ----------
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
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 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:
Estimated 1999 Estimated 2000
Contribution Contribution
------------ ------------
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%
I-45
<PAGE>
Pro Forma Equity Ownership
---------------------------------
Stock Make- Cash Make-
Whole Whole
----------- ----------
U S WEST........... 56.9% 53.7%
Qwest.............. 43.1% 46.3%
Other Factors. In the course of preparing its opinion, DLJ considered and
reviewed other information and data, including:
o 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;
o 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;
o 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
o 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 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
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<PAGE>
Chapter One - The Merger
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
U S WEST financial advisor Location of their full opinion
- -------------------------- ------------------------------
Merrill Lynch Annex D
Lehman Brothers Annex E
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.
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:
o 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;
o did not constitute a recommendation to the U S WEST Board in
connection with their consideration of the merger agreement and the
merger;
o 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
I-47
<PAGE>
Chapter One - The Merger
o 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:
o reviewed certain publicly available business and financial information
relating to U S WEST and Qwest that Merrill Lynch deemed to be
relevant;
o 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;
o 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;
o 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;
o 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;
o compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Merrill Lynch deemed to be
relevant;
o participated in certain discussions and negotiations among
representatives of U S WEST and Qwest and their financial and legal
advisors;
o reviewed the potential pro forma impact of the merger;
o reviewed a draft of the merger agreement; and
o 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
I-48
<PAGE>
Chapter One - The Merger
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:
o the merger agreement and the specific terms of the merger;
o 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;
o 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;
o 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;
o 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;
o 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;
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<PAGE>
Chapter One - The Merger
o 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;
o third party research analysts' earnings estimates, valuation analyses,
target prices and investment recommendations for U S WEST and Qwest;
o a comparison of the financial terms of the merger with the financial
terms of certain other transactions that Lehman Brothers deemed
relevant;
o 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;
o the terms and conditions of the proposed merger of U S WEST with
Global; and
o 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 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.
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<PAGE>
Chapter One - The Merger
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.
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.
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Chapter One - The Merger
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 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:
Target Acquiror
------ --------
o Aliant Communications Inc. o ALLTEL Corporation
o GTE Corporation o Bell Atlantic Corporation
o Ameritech Corporation o SBC Communications Inc.
o Southern New England Telecommunications o SBC Communications Inc.
Corporation
o Pacific Telecom Inc. o CenturyTel, Inc.
o NYNEX Corporation o Bell Atlantic Corporation
o Pacific Telesis Group o SBC Communications Inc.
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Chapter One - The Merger
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
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
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Chapter One - The Merger
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 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
"Has" U S WEST "Gets"
------------- ----------------------------------------------------------------------------------------------
Without Synergies With Synergies
-------------------------------------------- ----------------------------------------------
Bottom of Collar Bottom of Collar
---------------------------- ------------------------------
Top of Collar Stock True-Up Cash True-Up Top of Collar Stock True-Up Cash True-Up
------------- ------------- ------------ ------------- ------------- ------------
<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.
I-54
<PAGE>
Chapter One - The Merger
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-55
<PAGE>
Chapter Two - Financial Information
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
--------------------------------- ------------------------------------
High Low Dividend High Low Dividend
------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
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 August 6) $35.938 $27.250 -- $60.250 $54.313 --
- ------------------
<FN>
<F1>
(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.
</FN>
</TABLE>
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 [____________], 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 $[________] and $[__________],
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>
(unaudited)
Six Months
Years Ended December 31, Ended June 30,
-------------------------------------------------------- ------------------
(in millions, except per share amounts)
1994 1995 1996 1997 1998(1) 1998 1999
------ ------ ------ ------ ------- ------ ------
<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
(unaudited)
As of December 31, As of June 30,
-------------------------------------------------------- ------------------
(in millions, except per share amounts)
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ ------
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
(unaudited)
Six Months
Ended
Years Ended December 31, June 30,
-------------------------------------------------------- ------------------
(in millions, except per share amounts)
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ ------
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,
II-2
<PAGE>
Chapter Two - Financial Information
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-3
<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").
II-4
<PAGE>
Chapter Two - Financial Information
<TABLE>
(Unaudited)
Six Months Ended
Year Ended December 31, June 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
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
</TABLE>
II-5
<PAGE>
Chapter Two - Financial Information
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
(Unaudited)
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ ------
(in millions, except per share amounts)
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
<FN>
- -------------------
<F1>
(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.
<F2>
(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.
<F3>
(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.
<F4>
(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) 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.
<F5>
(5) 1998 and 1999 debt includes $3,900 of Dex Indebtedness.
<F6>
(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.
<F7>
(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.
<F8>
* Information has not been presented.
</FN>
</TABLE>
II-6
<PAGE>
Chapter Two - Financial Information
QWEST COMMUNICATIONS INTERNATIONAL INC. AND U S WEST, INC.
COMPARATIVE PER SHARE DATA
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
At December 31, At June 30,
1998 1999
--------------- -----------
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
For the Year For the Six
Ended Months Ended
December 31, June 30,
1998 1999
--------------- -----------
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
- -------------------
<FN>
<F1>
(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.
</FN>
</TABLE>
II-7
<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 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
II-8
<PAGE>
Chapter Two - Financial Information
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-9
<PAGE>
Chapter Two - Financial Information
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>
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 $ 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-10
<PAGE>
Chapter Two - Financial Information
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>
Historical
------------------------
Pro Forma Pro Forma
Qwest(1) U S WEST(1) Adjustments Combined
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
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-11
<PAGE>
Chapter Two - Financial Information
QWEST COMMUNICATIONS INTERNATIONAL INC. AND U S WEST, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 1999
(Unaudited)
(Amounts in Millions)
<TABLE>
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-12
<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):
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
=======
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-13
<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 will be 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. 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. Annual amortization would
increase and net income would decrease by $85 million for a five year
reduction in the goodwill amortization period. As
II-14
<PAGE>
Chapter Two - Financial Information
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):
Increase in additional paid-in capital.......................... $ 20,438
Elimination of Qwest's accumulated deficit...................... 853
Elimination of accumulated other comprehensive income........... (122)
100
--------
Step-up to fair value................................. $ 21,269
========
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
the 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 gross
revenue synergies of more than $12 billion and 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 revenue
benefits 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 be 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.
o 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.
o 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.
o 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.
II-16
<PAGE>
Chapter Two - Financial Information
The projection and synergy estimates are based on certain assumptions
including, among others, that the merger will be completed by June 30, 2000, and
that we would receive approval under Section 271 of the Telecommunications Act
to provide interLATA services by December 31, 2001.
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--Potential
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 [________], 1999.
Matters Relating to the Meetings
<TABLE>
..................................................................................................................................
Qwest Meeting U S WEST Meeting
..................................................................................................................................
<S> <C> <C>
Time and Place: [________], 1999 [________], 1999
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
..................................................................................................................................
Purpose of Meeting is to 1. the proposal to approve and adopt 1. the proposal to approve and adopt
Vote on the the merger agreement and the the merger agreement and the merger
Following Items: merger, including the issuance of
Qwest common stock in the merger
and the Qwest charter amendments
contemplated by the merger
agreement
2. such other matters as may properly 2. such other matters as may properly
come before the Qwest meeting, come before the U S WEST meeting,
including the approval of any including the approval of any
adjournment of the meeting adjournment of the meeting
Record Date: The record date for shares entitled to vote The record date for shares entitled to vote
is [_______], 1999. is [_______], 1999.
..................................................................................................................................
Outstanding Shares Held As of ______________, there were As of ______________, there were
on Record Date: approximately ___________ outstanding ___________ outstanding shares of
shares of Qwest common stock. 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
record date, ________, 1999. business on the record date, ________,
1999.
Each share of Qwest common stock that Each share of U S WEST common stock
you own entitles you to one vote. that 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.
..................................................................................................................................
</TABLE>
<PAGE>
Chapter Three - Information about the Meetings and Voting
<TABLE>
<CAPTION>
<S> <C> <C>
..................................................................................................................................
Qwest Meeting U S WEST Meeting
..................................................................................................................................
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
vote at the meeting is a quorum. entitled to vote at the meeting is a
Abstentions and broker "non-votes" count quorum. Abstentions and broker "non-
as present for establishing a quorum. votes" count as present for establishing a
Shares held by Qwest in its treasury do quorum. Shares held by U S WEST in its
not count toward a quorum. treasury do not count toward a quorum.
A broker non-vote occurs on an item A broker non-vote occurs on an item
when a broker is not permitted to vote on when a broker is not permitted to vote on
that item without instruction from the that 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 [__________] shares of Qwest common [__________] shares of U S WEST
Owned by Qwest and stock, including exercisable options. common stock, including exercisable
U S WEST Directors and These shares represent in total options. These shares represent in total
Executive Officers as of approximately [___]% of the shares of approximately [___]% of the shares of
July __, 1999: Qwest common stock outstanding as of U S WEST common stock outstanding as
July __, 1999. of July __, 1999.
These individuals have indicated that they These individuals have indicated that they
will vote in favor of the Qwest proposal. will vote in favor of the U S WEST
proposal.
In addition, Qwest's principal
shareholder, Philip F. Anschutz, who as
of the date of this joint proxy
statement/prospectus beneficially owns
39% of the outstanding Qwest common
stock, has agreed to vote in favor of the
Qwest proposal.
..................................................................................................................................
</TABLE>
III-2
<PAGE>
Chapter Three - Information about the Meetings and Voting
Vote Necessary to Approve Qwest and U S WEST Proposals
Item Vote Necessary*
................................................................................
Merger Proposals Qwest: Approval of the Qwest proposal requires the
affirmative vote of at least a majority of the
outstanding shares of Qwest common stock.
Abstentions have the same effect as a vote
against.
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 U S WEST
proposal.
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.
How to Vote by Proxy
<TABLE>
<CAPTION>
...............................................................................................................
Qwest U S WEST
...............................................................................................................
<S> <C> <C>
By Telephone*: Call toll-free 1-___-___-____ and follow Call toll-free 1-___-___-____ and follow
the instructions. You will need to give the 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.__________.com and follow Go to www.__________.com and follow
the instructions. You will need to give the 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
III-3
<PAGE>
Chapter Three - Information about the Meetings and Voting
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.
If you submit your proxy but do not make specific choices, your proxy will
follow the Board's recommendations and vote your shares:
Qwest U S WEST
................................................................................
o "FOR" the Qwest proposal o "FOR" the U S WEST proposal
o "FOR" any proposal by the Qwest o "FOR" any proposal by the U S
Board to adjourn the Qwest WEST Board to adjourn the U S
meeting WEST meeting
o In its discretion as to any o In its discretion as to any
other business as may properly other business as may properly
come before the QWEST meeting come before the U S WEST meeting
Revoking Your Proxy. You may revoke your proxy before it is voted by:
o submitting a new proxy with a later date, including a proxy given by
telephone or internet,
o notifying your company's Secretary in writing before the meeting that
you have revoked your proxy, or
o 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 _________, ____, 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 is paying
[_________________] a fee of $[_______] plus expenses to help with the
solicitation. U S WEST is paying [_______________] a fee of $[_______] plus
expenses to help with the solicitation.
III-4
<PAGE>
Chapter Three - Information about the
Meetings and Voting
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.
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-5
<PAGE>
CHAPTER FOUR
CERTAIN LEGAL INFORMATION
COMPARISON OF U S WEST-QWEST 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 and
the governance arrangements agreed to by Qwest and U S WEST for the three-year
period following completion of the merger. See "The Merger--The Merger
Agreement" on I-30. 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.
Summary of Material Differences Between Current Rights of U S WEST and Qwest
Shareholders and Rights
Those Shareholders Will Have as Qwest Shareholders Following the Merger
<TABLE>
...............................................................................................................................
U S WEST Shareholder Rights Qwest Shareholder Rights
...............................................................................................................................
<S> <C> <C>
Authorized The authorized capital stock of U S WEST The authorized capital stock of Qwest is as
Capital Stock: consists of 2 billion shares of common stock set forth under "Description of Qwest
and 200 million shares of preferred stock. Capital Stock--Authorized Capital Stock"
below.
...............................................................................................................................
Number of The U S WEST Board currently consists of The Qwest Board currently consists of 12
Directors: 11 directors. 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.
...............................................................................................................................
Classification of The U S WEST Board is divided into three Qwest does not currently have a classified
Board of classes as nearly equal in number of board. The Qwest bylaws currently require
Directors: directors as possible, with each class serving that all directors be elected at each annual
a staggered three-year term. meeting of shareholders for a term of one
year.
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.
...............................................................................................................................
</TABLE>
IV-1
<PAGE>
Chapter Four - Certain Legal Information
<TABLE>
<CAPTION>
<S> <C> <C>
...............................................................................................................................
U S WEST Shareholder Rights Qwest Shareholder Rights
...............................................................................................................................
Removal of U S WEST directors may be removed from Qwest directors may be removed from
Directors: office only with cause (as defined below) office with or without cause by the
and only then by the affirmative vote of the affirmative vote of holders of at least a
holders of at least 80% of the shares of majority of the shares of Qwest common
U S WEST common stock. "Cause" means stock.
the willful and continuous failure of a
director to substantially perform duties to If the merger is completed, Qwest directors
U S WEST or the willful engaging in gross will be able to be removed only with cause
misconduct materially and demonstrably and then only by the affirmative vote of the
injurious to U S WEST. holders of at least 80% of the shares of
Qwest common stock.
...............................................................................................................................
Shareholder U S WEST shareholders may not act by Qwest shareholders currently may act by
Action by Written written consent in lieu of a meeting of written consent in lieu of a meeting of
Consent: shareholders. shareholders.
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 Special The U S WEST charter provides that only The Qwest bylaws currently provide that the
Meetings of the U S WEST Board and the Chairman of Qwest Board, the Chairman of the Qwest
Shareholders: the U S WEST Board may each call a Board and holders of at least 25% of the
special meeting of U S WEST shareholders. shares of Qwest common stock may each
call a special 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.
...............................................................................................................................
Amendment of The U S WEST bylaws may be amended by The Qwest bylaws currently may be
Charter and the affirmative vote of at least two-thirds of amended by the affirmative vote of at least a
Bylaws: the U S WEST directors then in office. The majority of the Qwest directors then in
U S WEST bylaws may also be amended by office. The Qwest bylaws may also be
the affirmative vote of the holders of at least amended by the affirmative vote of a
80% of the shares of U S WEST common majority of the votes cast by the holders of
stock. Qwest common stock.
The U S WEST charter generally may be The Qwest charter currently may be
amended by the affirmative vote of the amended by the affirmative vote of the
holders of at least a majority of the shares majority of the votes cast by the holders of
U S WEST common stock. Qwest common stock.
However, amendments of the U S WEST If the merger is completed, the Qwest
charter relating to (i) classification of the restated charter and amended and restated
U S WEST Board, (ii) removal of bylaws will only be able to be amended by
U S WEST directors, (iii) shareholder the Qwest directors and shareholders to the
actions and meetings and (iv) requirements same extent as the U S WEST charter and
for amendments of the U S WEST charter bylaws currently may be amended.
and bylaws require the affirmative vote of
the holders of at least 80% of the shares of
U S WEST common stock.
...............................................................................................................................
</TABLE>
IV-2
<PAGE>
Chapter Four - Certain Legal Information
<TABLE>
<CAPTION>
<S> <C> <C>
...............................................................................................................................
U S WEST Shareholder Rights Qwest Shareholder Rights
...............................................................................................................................
Shareholder U S WEST has entered into a Rights Qwest does not have ashareholder rights
Rights Plan: Agreement, dated as of June 1, 1998, plan. While Qwest has no present intention
between U S WEST and State Street Bank to adopt a shareholder rights plan either
and Trust Company, as Rights Agent, as before or after the merger, the Qwest Board,
amended, pursuant to which U S WEST has pursuant to its authority to issue preferred
issued rights, exercisable only upon the stock, could do so without shareholder
occurrence of certain events, to purchase its approval at any future time. See
Series A Junior Participating Preferred "Description of Qwest Capital
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
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, $.01 par value, and 25 million shares of
preferred stock, $.01 par value.
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 mergers
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 June 30, 1999, 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 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
IV-4
<PAGE>
Chapter Four - Certain Legal Information
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
[_________________] is the transfer agent and registrar for the Qwest
common stock.
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:
o 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,
o Qwest's plans to complete its communications network, and
o 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.
The most important facts that could prevent Qwest from achieving its stated
goals include, but are not limited to, the following:
o Qwest's failure to construct its communications network on schedule
and on budget;
o 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;
IV-5
<PAGE>
Chapter Four - Certain Legal Information
o potential fluctuation in quarterly results;
o volatility of stock price;
o intense competition in the communications services market;
o dependence on new product development;
o Qwest's ability to achieve year 2000 compliance;
o rapid and significant changes in technology and markets;
o adverse changes in the regulatory or legislative environment affecting
Qwest's business;
o failure to maintain necessary rights of way; and
o failure to complete the merger with U S WEST 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:
o 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;
o changes in demand for U S WEST's products and services, including
optional custom calling features;
o higher than anticipated employee levels, capital expenditures and
operating expenses (such as costs associated with interconnection and
Year 2000 remediation);
o the loss of significant customers;
IV-6
<PAGE>
Chapter Four - Certain Legal Information
o 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;
o a change in economic conditions in the various markets served by U S
WEST's operations;
o higher than anticipated start-up costs associated with new business
opportunities;
o delays in U S WEST's ability to begin offering interLATA long-distance
services;
o consumer acceptance of broadband services, including telephony, data,
video and wireless services;
o delays in the development of anticipated technologies, or the failure
of such technologies to perform according to expectations; and
o timing and completion of the recently announced merger with Qwest.
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.
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
IV-7
<PAGE>
Chapter Four - Certain Legal Information
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, 1997 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-8
<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 in Washington, D.C., 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 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.
V-1
<PAGE>
Chapter Five - Additional Information for Shareholders
<TABLE>
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 21, 1999, June 22, 1999, June 23, 1999,
June 29, 1999 and July 20, 1999
Amendment No. 1 to Registration Statement on Form S-4 (File Filed on December 10, 1998
No. 333-65095)
The description of Qwest common stock set forth in the Filed on May 28, 1997
Registration Statement on Form 8-A
U S WEST SEC Filings (File No. 1-14087) Period
...................................................................................................................
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
Proxy Statement on Schedule 14A Filed on March 24, 1999
Tender Offer Statement on Schedule 14D-1 and Schedule 13D Filed on May 21, 1999, as amended May 24,
1999, June 7, 1999, June 11, 1999, June 18,
1999, June 18, 1999, June 21, 1999, June 24,
1999, and June 29, 1999
The description of U S WEST common stock set forth in the Filed on May 1, 1998 (as amended on May 12,
Registration Statement on Form 8-A 1998) and May 12, 1998
</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 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:
V-2
<PAGE>
Chapter Five - Additional Information for Shareholders
Qwest Communications U S WEST, Inc.
International Inc. 1801 California Street
700 Qwest Tower Denver, Colorado 80202
555 Seventeenth Street Tel: (303) 672-2700
Denver, Colorado 80202
Tel: (303) 992-1400
If you would like to request documents from us, please do so by __________,
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 proposal 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
________, 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
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ANNEX A
AGREEMENT AND PLAN OF MERGER
Dated as of July 18, 1999
between
U S WEST, INC.
and
QWEST COMMUNICATIONS INTERNATIONAL INC.
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TABLE OF CONTENTS
Page
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ARTICLE 1
THE MERGER
Section 1.01 The Merger .....................................................1
Section 1.02 Effective Time .................................................2
Section 1.03 Effect of the Merger ...........................................2
Section 1.04 Certificate of Incorporation; Bylaws of the Surviving
Corporation ....................................................2
ARTICLE 2
EFFECT OF MERGER ON STOCK AND OPTIONS
Section 2.01 Conversion of Securities .......................................2
Section 2.02 Conversion .....................................................2
Section 2.03 Exchange of Shares .............................................4
Section 2.04 Transfer Books .................................................6
Section 2.05 No Fractional Share Certificates ...............................6
Section 2.06 Certain Adjustments ............................................7
Section 2.07 By-Laws of the Surviving Corporation ...........................7
Section 2.08 Articles of Incorporation of the Surviving Corporation .........9
Section 2.09 Cash Election Procedures .......................................9
Section 2.10 Alternative Structure .........................................10
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF QWEST
Section 3.01 Organization and Qualification; Subsidiaries ..................10
Section 3.02 Certificate of Incorporation and Bylaws .......................10
Section 3.03 Capitalization ................................................11
Section 3.04 Authority Relative to this Agreement ..........................12
Section 3.05 No Conflict; Required Filings and Consents ....................12
Section 3.06 SEC Filings; Financial Statements .............................13
Section 3.07 Absence of Certain Changes or Events ..........................13
Section 3.08 Litigation ....................................................14
Section 3.09 No Violation of Law; Permits ..................................14
Section 3.10 Joint Proxy Statement .........................................14
Section 3.11 Employee Matters; ERISA .......................................15
Section 3.12 Labor Matters .................................................17
Section 3.13 Environmental Matters .........................................17
Section 3.14 Board Action; Vote Required; Applicability of Section 203......18
Section 3.15 Opinion of Financial Advisor ..................................18
Section 3.16 Brokers .......................................................18
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Section 3.17 Tax Matters ...................................................19
Section 3.18 Intellectual Property .........................................19
Section 3.19 Insurance .....................................................20
Section 3.20 Ownership of Securities .......................................20
Section 3.21 Certain Contracts .............................................20
Section 3.22 Licenses ......................................................20
Section 3.23 Year 2000 .....................................................21
Section 3.24 Foreign Corrupt Practices and International Trade Sanctions ...21
Section 3.25 Disclosure of Qwest Plans .....................................21
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF U S WEST
Section 4.01 Organization and Qualification; Subsidiaries ..................21
Section 4.02 Certificate of Incorporation and Bylaws .......................22
Section 4.03 Capitalization ................................................22
Section 4.04 Authority Relative to this Agreement ..........................23
Section 4.05 No Conflict; Required Filings and Consents ....................23
Section 4.06 SEC Filings; Financial Statements .............................24
Section 4.07 Absence of Certain Changes or Events ..........................25
Section 4.08 Litigation ....................................................25
Section 4.09 No Violation of Law; Permits ..................................25
Section 4.10 Joint Proxy Statement .........................................25
Section 4.11 Employee Matters; ERISA .......................................26
Section 4.12 Labor Matters .................................................28
Section 4.13 Environmental Matters .........................................28
Section 4.14 Board Action; Vote Required; U S WEST Rights Plan;
Applicability of Section 203; Termination of Global
Merger Agreement ..............................................29
Section 4.15 Opinions of Financial Advisors ................................29
Section 4.16 Brokers .......................................................29
Section 4.17 Tax Matters ...................................................30
Section 4.18 Intellectual Property .........................................30
Section 4.19 Insurance .....................................................30
Section 4.20 Ownership of Securities .......................................31
Section 4.21 Certain Contracts .............................................31
Section 4.22 Licenses ......................................................31
Section 4.23 Year 2000 .....................................................32
Section 4.24 Foreign Corrupt Practices and International Trade
Sanctions .....................................................32
ARTICLE 5
CONDUCT OF INDEPENDENT BUSINESSES PENDING THE MERGER
Section 5.01 Transition Planning ...........................................32
Section 5.02 Conduct of Business in the Ordinary Course ....................32
Section 5.03 No Solicitation ...............................................36
Section 5.04 Subsequent Financial Statements ...............................37
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Section 5.05 Control of Operations .........................................38
ARTICLE 6
ADDITIONAL AGREEMENTS
Section 6.01 Joint Proxy Statement and the Registration Statement ..........38
Section 6.02 Qwest and U S WEST Stockholders' Meetings and
Consummation of the Merger ....................................38
Section 6.03 Additional Agreements .........................................40
Section 6.04 Notification of Certain Matters ...............................42
Section 6.05 Access to Information .........................................42
Section 6.06 Public Announcements ..........................................43
Section 6.07 Cooperation ...................................................43
Section 6.08 Indemnification, Directors' and Officers' Insurance ...........43
Section 6.09 Employee Benefit Plans ........................................44
Section 6.10 Commercially Reasonable Efforts ...............................44
Section 6.11 NASDAQ Listing ................................................44
Section 6.12 Management ....................................................44
Section 6.13 No Shelf Registration .........................................44
Section 6.14 Affiliates ....................................................45
Section 6.15 Blue Sky ......................................................45
Section 6.16 Tax-Free Reorganization .......................................45
Section 6.17 Interim Dividend Policy .......................................45
Section 6.18 Dividend Policy ...............................................45
Section 6.19 Permitted Acquisitions ........................................45
Section 6.20 Equal Management ..............................................46
ARTICLE 7
CONDITIONS TO THE MERGER
Section 7.01 Conditions to Obligations of Each Party to Effect the Merger ..46
Section 7.02 Additional Conditions to Obligations of Qwest .................47
Section 7.03 Additional Conditions to Obligations of U S WEST ..............48
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
Section 8.01 Termination ...................................................49
Section 8.02 Effect of Termination .........................................50
Section 8.03 Amendment .....................................................52
Section 8.04 Waiver ........................................................52
ARTICLE 9
DEFINITIONS
Section 9.01 Certain Definitions ...........................................52
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ARTICLE 10
GENERAL PROVISIONS
Section 10.01 Non-Survival of Representations, Warranties and Agreements ....55
Section 10.02 Notices .......................................................55
Section 10.03 Expenses ......................................................56
Section 10.04 Headings ......................................................56
Section 10.05 Severability ..................................................56
Section 10.06 Entire Agreement; No Third-Party Beneficiaries ................56
Section 10.07 Assignment ....................................................56
Section 10.08 Governing Law .................................................57
Section 10.09 Submission to Jurisdiction; Waivers ...........................57
Section 10.10 Counterparts ..................................................57
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SCHEDULES
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 Affiliates
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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."
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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 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.
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(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 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
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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 Sections 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.
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
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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 of 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 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.
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(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 Sections 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").
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(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, 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 By-Laws of the Surviving Corporation. The ByLaws 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
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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 Directors 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;
(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.
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(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."; and
(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.
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
(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
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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 merge 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
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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.
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
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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 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
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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, 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,
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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 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
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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
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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, 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
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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 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
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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.
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
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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 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
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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.
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
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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
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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.
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
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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.
(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
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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
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.
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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 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
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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
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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 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
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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.
(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
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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.
(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
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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 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
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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
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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
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
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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 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
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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);
(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
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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, 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;
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(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
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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 (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 XE "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.
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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 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'
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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 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
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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 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
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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
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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.
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
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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).
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
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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.
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
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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.
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).
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(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 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
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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;
(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
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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 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
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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.
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"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.
"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.
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<PAGE>
"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.
"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;
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<PAGE>
(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.
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
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<PAGE>
(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
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.
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<PAGE>
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.
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<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.
U S WEST, INC.
By: /s/ Solomon D. Trujillo
---------------------------------
Name: Solomon D. Trujillo
Title: Chairman, President and
Chief Executive Officer
QWEST COMMUNICATIONS
INTERNATIONAL INC.
By: /s/ Joseph P. Nacchio
---------------------------------
Name: Joseph P. Nacchio
Title: Chairman and Chief
Executive Officer
<PAGE>
INDEX OF DEFINED TERMS
Term
Page
- ----
Acquiring Person...........................................................29
Acquisitions...............................................................45
Affiliate..................................................................52
Agreement..................................................................52
Alternative Structure......................................................10
Alternative Transaction....................................................37
Average Price...............................................................3
blue sky...................................................................13
Board of Directors..........................................................7
Cash Alternative Notice.....................................................9
Cash Amount.................................................................9
Cash True-Up................................................................9
Closing....................................................................41
Closing Date...............................................................41
Code.......................................................................53
Common Shares Trust.........................................................6
Confidentiality Agreement..................................................43
Control....................................................................53
controlled by..............................................................53
Conversion Ratio............................................................3
Delaware Law...............................................................53
Determination Period........................................................3
Disqualified Rights.........................................................3
Disqualified Shares.........................................................3
Distributing Co............................................................53
Dividend...................................................................45
Effective Time..............................................................2
Environmental Law..........................................................18
ERISA......................................................................15
Excess Shares...............................................................6
Exchange Act...............................................................53
Exchange Agent..............................................................4
Exchange Fund...............................................................5
Exchange-Distribution......................................................53
FCC........................................................................53
GAAP.......................................................................53
Global.....................................................................29
Global Merger Agreement....................................................29
Global Share Amount........................................................51
Global Termination Fee.....................................................51
Index-1
<PAGE>
Governmental or Regulatory Authority.......................................53
Hazardous Substances.......................................................18
HSR Act....................................................................53
Incremental Capital Investment Amount......................................42
Intellectual Property......................................................19
IRS........................................................................15
Joint Proxy Statement......................................................15
Knowledge..................................................................53
Legal Requirements.........................................................14
Lehman Brothers............................................................29
Material Adverse Effect....................................................53
Maximum Revenue Reduction Amount...........................................42
Merger......................................................................1
Merger Consideration........................................................3
Merrill Lynch..............................................................29
NASDAQ......................................................................3
Note Repayment Amount......................................................51
NYSE........................................................................6
Parent.....................................................................10
Parties.....................................................................1
Party.......................................................................1
Party Representatives......................................................43
PBGC.......................................................................16
Per Share Cash True Up.....................................................10
Permits....................................................................14
Person.....................................................................54
Pre-Surrender Dividends.....................................................5
Qwest.......................................................................1
Qwest Acquisition Agreement................................................39
Qwest Benefit Plans........................................................15
Qwest Cash Election.........................................................9
Qwest Common Stock..........................................................2
Qwest Communications International Inc......................................9
Qwest Contracts............................................................20
Qwest Equity Rights........................................................11
Qwest Intellectual Property................................................19
Qwest Licenses.............................................................20
Qwest Right.................................................................3
Qwest SEC Reports..........................................................13
Qwest Stockholder Approval.................................................39
Qwest Stockholders' Meeting................................................38
Qwest Subsequent Determination.............................................39
Qwest Subsidiary...........................................................54
Index-2
<PAGE>
Qwest Superior Proposal....................................................39
Qwest Warrants.............................................................11
Registration Statement.....................................................15
Required Regulatory Approvals..............................................41
Rights Agreement...........................................................29
SEC.........................................................................3
Securities Act.............................................................54
Significant Subsidiary.....................................................54
Subsidiary.................................................................54
Systems....................................................................54
Tax........................................................................54
Tax Returns................................................................54
Taxes......................................................................54
Telecom Act................................................................13
Termination Agreement......................................................50
Termination Date...........................................................49
Third Party................................................................37
Transition Committee.......................................................32
True Up Exchange Ratio.....................................................10
U S WEST....................................................................1
U S WEST Acquisition Agreement.............................................40
U S WEST Benefit Plans.....................................................26
U S WEST Common Stock.......................................................3
U S WEST Contracts.........................................................31
U S WEST Equity Rights.....................................................22
U S WEST Intellectual Property.............................................30
U S WEST Licenses..........................................................31
U S WEST Right..............................................................3
U S WEST SEC Reports.......................................................24
U S WEST Stockholder Approval..............................................40
U S WEST Stockholders' Meeting.............................................39
U S WEST Subsequent Determination..........................................40
U S WEST Subsidiary........................................................54
U S WEST Superior Proposal.................................................40
U S WEST Termination Fee...................................................51
under common control with..................................................53
Voting Agreement............................................................1
Year 2000 Compliant........................................................54
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 Shareholders 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 Shareholders 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
<PAGE>
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 such Shareholders 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 Shareholders
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
-2-
<PAGE>
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 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.
-3-
<PAGE>
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) 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 Persons 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
-4-
<PAGE>
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 successors (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.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
this 18th day of July, 1999.
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
-----------------------------
<PAGE>
EXHIBIT A
Shareholder Name Amount of Shares
- ---------------- ----------------
Anshutz Company 287,089,328
Anschutz Family Investment 17,200,000 shares issuable
Company LLC upon exercise of a warrant
<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.
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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 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
By: /s/ Louis P. Friedman
-----------------------------
Louis P. Friedman
Managing Director
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ANNEX D
(Letterhead of Merrill Lynch)
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;
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(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;
(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
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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, Inc.
<PAGE>
ANNEX E
[Letterhead of Lehman Brothers]
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
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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 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.
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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 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.
Very truly yours,
LEHMAN BROTHERS INC.
By: /s/ George H. Young III
------------------------------
George H. Young III
Managing Director
<PAGE>
ANNEX F
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
Section 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 Section Section
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
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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.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 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
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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 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 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.
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(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, 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.
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(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.
(1) 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.
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