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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-8519
CINCINNATI BELL INC.
DBA
BROADWING INC.
An Ohio I.R.S. Employer
Corporation No. 31-1056105
201 East Fourth Street, Cincinnati, Ohio 45202
Telephone Number 513 397-9900
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Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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Common Shares (par value $0.01 per share) New York Stock Exchange
Preferred Share Purchase Rights Cincinnati Stock Exchange
6.75% Preferred Shares New York Stock Exchange
7.25% Preferred Shares New York Stock Exchange
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Securities requested pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
At February 25, 2000, there were 202,550,808 Common Shares outstanding.
At February 25, 2000, the aggregate market value of the voting shares owned
by non-affiliates was $5,880,482,640.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's definitive proxy statement dated March 17, 2000
issued in connection with the annual meeting of shareholders (Part III)
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TABLE OF CONTENTS
PART I
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Page
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Item 1. Business ................................................................................ 1
Item 2. Properties .............................................................................. 9
Item 3. Legal Proceedings ....................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders ..................................... 9
Item 4A. Executive Officers of the Registrant .................................................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ................... 12
Item 6. Selected Financial Data ................................................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .............................. 28
Item 8. Financial Statements and Supplementary Schedules ........................................ 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .... 57
PART III
Item 10. Directors and Executive Officers of the Registrant ...................................... 57
Item 11. Executive Compensation .................................................................. 57
Item 12. Security Ownership of Certain Beneficial Owners and Management .......................... 57
Item 13. Certain Relationships and Related Transactions .......................................... 57
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ........................ 58
Signatures ......................................................................................... 63
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This report contains trademarks, service marks and registered marks of the
Company and its subsidiaries, as indicated.
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PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
STATEMENT
Form 10-K contains "forward-looking" statements, as defined in the Private
Securities Litigation Reform Act of 1995, that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about the beliefs and expectations of the Company
and its subsidiaries, are forward-looking statements. These statements involve
potential risks and uncertainties; therefore, actual results may differ
materially. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they were
made. The Company does not undertake any obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Important factors that may affect these expectations include, but are not
limited to: changes in the overall economy; changes in competition in markets in
which the Company and its subsidiaries operate; advances in telecommunications
technology; the ability of the Company to generate sufficient cash flow to fund
its business plan and expand its fiber-optic network; changes in the
telecommunications regulatory environment; changes in the demand for the
services and products of the Company and its subsidiaries; the ability of the
Company and its subsidiaries to introduce new service and product offerings in a
timely and cost effective basis; and integration of the Company's new Broadwing
Communications subsidiary.
Part I
ITEM 1. BUSINESS
GENERAL
As a result of its merger with IXC Communications Inc., Cincinnati Bell
Inc., an Ohio corporation, announced it would begin doing business as Broadwing
Inc. ("the Company") on November 15, 1999.
The Company is a diversified telecommunications services holding company.
The Company's segments are strategic business units that offer distinct products
and services to targeted market segments of customers.
The Local Communications segment provides local service, network access,
data networking, Internet-based services, sales of communications equipment,
local toll, and other ancillary telecommunications services through its
Cincinnati Bell Telephone ("CBT") and ZoomTown.com ("ZT") subsidiaries. These
two subsidiaries function as a fully integrated wireline communications
provider.
The Broadband segment utilizes an advanced fiber-optic network to provide
data transport, Internet, private line, switched access and other services.
Additionally, network capacity is leased (in the form of indefeasible
right-to-use agreements) to other telecommunications providers and to Internet
service providers.
The Wireless segment comprises the operations of Cincinnati Bell Wireless
LLC (an 80%-owned venture with AT&T Wireless PCS, Inc.), which provides advanced
digital personal communications services to customers in its Cincinnati and
Dayton, Ohio operating areas.
The Directory segment comprises the operations of Cincinnati Bell Directory,
which publishes Yellow Pages directories and sells directory advertising and
informational services in Cincinnati Bell Telephone's franchise area. These
services are available to the customer in the form of traditional printed
directories, an Internet-based service known as "Cincinnati Exchange," and on
CD-Rom.
Other Communications combines the Cincinnati Bell Long Distance (CBLD) (also
doing business as Cincinnati Any Distance), Cincinnati Bell Supply (CBS), and
Broadwing IT Consulting segments. CBLD resells long distance, voice, data, frame
relay, and Internet access services to small- and medium-sized business and
residential customers in a six-state area of the midwest. CBS sells new
computers and resells telecommunications equipment. Broadwing IT Consulting
provides network integration and consulting services as well as the sale of
related equipment.
The Company is incorporated under the laws of Ohio and has its principal
executive offices at 201 East Fourth Street, Cincinnati, Ohio 45202 (telephone
number (513) 397-9900).
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STRATEGY
The Company believes that its reputation for service quality, well-regarded
brand name, telecommunications industry knowledge and focus, and marketing and
provisioning expertise can be successfully transferred to a national audience
via its newly acquired, nationwide fiber-optic network and Internet backbone.
Additionally, the Company seeks to expand on its existing capabilities by
partnering with targeted industry leaders with different capabilities such as
Cisco Systems, PSINet, ZeroPlus.com, Corvis, Lucent Technologies and AT&T.
By leveraging these competitive strengths, the Company believes that it can
increase the market penetration of its existing services, effectively market new
services, establish and deliver its data network solutions and wireless
capabilities, and capture the full benefit of its strategic relationships.
The Company is focusing its efforts on several key initiatives:
- use its advanced telecommunications network consisting of
more than 18,000 total fiber route miles to facilitate the
widespread deployment of high-speed data transport
services,
- stimulate and service the demand for wireless
communications services,
- maintain market share in voice communications,
- create unique product-bundling solutions from the products
and services of its subsidiaries.
LOCAL COMMUNICATIONS
Local Communications services are provided by the Company's Cincinnati Bell
Telephone (CBT) and ZoomTown.com subsidiaries. CBT's product and service
offerings are generally classified into three major categories: local service,
network access, and other services. Revenues from this segment were 66%, 81% and
80%, respectively, of consolidated Company revenues for 1999, 1998 and 1997.
CBT provides telecommunications services to business and residential
customers in the Cincinnati metropolitan market area. This market is about 2,400
square miles located approximately within a 25-mile radius of Cincinnati and it
includes all or significant parts of four counties of southwestern Ohio, six
counties in northern Kentucky and two counties in southeastern Indiana.
Approximately 98% of Cincinnati Bell Telephone's network access lines are in one
local access transport area.
Local service revenues are primarily from end-user charges for use of the
public switched telephone network and for value-added services and
custom-calling features. These services are provided to business and residential
customers and represented 57% of CBT's total revenues for 1999. Network access
revenues accounted for 25% of CBT's 1999 revenues and are from interexchange
carriers for access to CBT's local communications network and from business
customers for customized access arrangements. Other services represent the
remaining 18% of CBT's 1999 revenues and are for the sale of telecommunications
equipment, Internet access, sales and installation of communications equipment,
commissions from sales agency agreements and other ancillary services.
CBT has successfully leveraged its embedded network investment to provide
value-added services and unique product bundling packages, resulting in
additional revenue with minimal incremental costs. CBT's plant, equipment and
network are modern and capable of handling new service offerings as they are
developed. Of its network access lines, 97% are served by digital switches, 100%
have ISDN capability and 100% have Signaling System 7 capability, which supports
enhanced features such as Caller ID, Call Trace and Call Return. The network
also includes more than 2,800 route miles of fiber-optic cable, with nine rings
of cable equipped with SONET technology linking Cincinnati's downtown and other
major business centers. These SONET rings offer increased reliability and
redundancy to CBT's major business customers. CBT's capital investment has been
held relatively constant in recent years, normally ranging between $130 million
and $150 million per year. However, the Company's desire to facilitate
widespread deployment of its high-speed digital subscriber line service
(Zoomtown) and equip its entire network for these types of high-speed data
transport services has required, and will continue to require, additional
capital investment.
In order to maintain its network, CBT relies on readily available supplies
from a variety of external vendors. Since the majority of CBT's revenues result
from use of the public switched telephone network, its operations follow no
particular seasonal pattern. CBT's franchise area is granted under regulatory
authority, and is subject to increasing competition from a variety of
competitors. CBT is not aware of any regulatory initiative that would restrict
the franchise area in which it is able
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to operate. A significant portion of its revenues are derived from pricing plans
that require regulatory overview and approval. In recent years, these pricing
plans have resulted in decreasing or fixed rates for some services, offset by
price increases and more flexibility for other services. As of December 31,
1999, 42 companies were certified to offer telecommunications services in CBT's
local franchise area and have sought interconnection agreements with CBT (13 of
which are still in negotiations). CBT seeks to maintain competitive advantage
over these carriers through its service quality, technologically equivalent or
superior network, innovative products and services, creative bundling ideas for
product and customer billing, and value pricing. CBT continues to report net
gains in access lines in spite of this increased level of competition.
CBT had approximately 1,055,000 network access lines in service on December
31, 1999, an increase of 2.1% or 22,000 lines from December 31, 1998.
Approximately 68% of CBT's network access lines serve residential customers and
32% serve business customers. In addition, voice-grade equivalents, a measure
used to express the sale of higher-bandwidth services, increased 34% and 40% in
1999 and 1998, respectively.
BROADBAND
The Broadband segment was created as a result of the Company's merger with
IXC Communications, Inc. (IXC) on November 9, 1999, and reflects the operations
of Broadwing Communications Inc. (formerly IXC) from that date forward.
Broadband revenues constituted only 8.8% of consolidated Company revenues in
1999, which does not fully reflect this segment's importance to the Company's
future operations.
Broadwing Communications Inc. is a nationwide provider of data and voice
communications services. These services are provided over approximately 16,000
route miles of fiber optic transmission facilities. Revenues for the Broadband
segment come chiefly from its private line and switched services, categories
constituting 46.3% and 48.9%, respectively, of Broadband segment revenues in the
post-merger period.
Private line services provided by this segment represent the long-haul
transmission of voice, data and Internet traffic over dedicated circuits, and
are provided under bulk contracts with customers. Additionally, the private-line
category includes revenues resulting from indefeasible right-to-use ("IRU")
agreements. IRU agreements typically cover a fixed period of time and represent
the lease of network fibers. The Company currently maintains enough network
capacity and believes that the sale of IRU agreements has no negative impact on
its ability to carry traffic for its retail customers. IRU agreements are
standard practice among Broadwing Communication's competitors.
Switched services represent billed minutes per use for long distance
services and consist of sales to both retail and wholesale customers. The
Company currently believes that the best opportunity for switched services
margin improvement lies with its retail customers. Accordingly, the Company is
de-emphasizing the sale of switched services to wholesale customers. In the
post-merger period, revenues from wholesale customers represented 42% of
switched services revenue, a significantly smaller percentage than reported for
the comparable 1998 period.
Data and Internet services represent the sale of high-speed data transport
services such as frame relay, Internet access, and Internet-based services such
as Web hosting to retail customers. In the post-merger period, these revenues
constituted a relatively small 4.8% of Broadband segment revenues. However, the
Company envisions a growing market for these types of services and it expects
that the Data and Internet category will provide a greater share of Broadband
segment revenues in the future.
The centerpiece of the Broadband segment is its next-generation, fiber-optic
network. This network is not yet fully constructed, and will require significant
expenditures to complete and to maintain. The construction of this network
relies on a supply of readily-available materials and supplies from an
established group of vendors. Construction of the network also relies on the
ability to secure and retain land and rights-of-way for the location of network
facilities, and the Company may incur significant future expenditures in order
to remove these facilities upon expiration of these rights-of-way agreements.
Since revenues from this segment are conditioned primarily on telephone
usage and the ratable recognition of contract revenues, its operations follow no
particular seasonal pattern. However, this segment does receive a significant
portion of its revenues from a relatively small group of interexchange carriers
that are capable of constructing their own network facilities.
In order to satisfy the contractual commitments that Broadwing has entered
into with respect to IRU agreements, approximately 1,700 fiber route miles must
still be constructed at an estimated cost of $82 million.
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Prices and rates for this segment's services offerings are primarily
established through contractual agreements. Accordingly, they are influenced
by marketplace conditions such as the number of competitors, availability of
comparable service offerings, and the amount of fiber network capacity
available from these competitors. Broadwing faces significant competition
from other fiber-based telecommunications companies such as Level 3
Communications, Qwest Communications International, Global Crossings and
Williams Communications. These companies have similarly equipped fiber
networks, are well-financed, and have enjoyed certain competitive advantages
over Broadwing Communications in the past. Broadwing Communications is
confident that it is able to match these competitors on the basis of
technology and is currently pursuing dramatic improvement with regard to
critical processes, systems, and the execution of its business strategy.
WIRELESS
The Wireless Segment comprises the operations of Cincinnati Bell Wireless
LLC, an 80%-owned venture with AT&T PCS, Inc. The Company acquired its 80%
ownership interest from AT&T PCS on December 31, 1998.
Revenues for the Wireless segment arise primarily from two sources:
provision of wireless communications services to its subscribers and the sale
of handsets and associated equipment and accessories. In 1999, approximately
88% of revenues for the segment were from services and the remaining 12% were
from equipment sales and other. The Wireless segment as a whole contributed
8.1% of current year consolidated Company revenues and also supplied more
than 37% of the growth in consolidated revenues versus the prior year.
Service revenues are generated through subscriber use of the Company's
wireless communications network. This network is maintained by the Company
with respect to the Greater Cincinnati and Dayton, Ohio operating areas with
wireless calls beyond these areas being terminated on AT&T PCS' national
wireless network. Service revenues are generated through a variety of rate
plans, which typically include a fixed number of minutes for a flat monthly
rate, with additional minutes being charged at a per-minute-of-use rate.
Additional revenues are generated by this segment when subscribers of other
wireless providers initiate wireless calls using their own handsets on the
Company's network. However, significant expenses are also incurred by this
segment as its own wireless subscribers use their handsets in the operating
territory of other wireless providers.
Nearly all service revenues are primarily generated on a post-paid basis,
in that subscribers pay in arrears, based on usage. In October 1999, the
Company introduced a new prepaid wireless service known as i-Wireless-SM-.
This service is targeted primarily at youth and allows for the purchase of a
specific number of minutes, in advance, at a fixed price. Since this service
leverages the Company's existing network and requires no billing
capabilities, it does not require significant incremental capital investment.
Sales of handsets and associated equipment take place primarily at the
Company's retail locations, which consist of store locations and kiosks in
high-traffic shopping malls and commercial buildings in the Cincinnati and
Dayton, Ohio areas. The Company sells handsets and equipment from a variety
of vendors; the Nokia brand is most popular with its customers. The Company
maintains a supply of equipment and does not envision any shortages that
would compromise its ability to add new customers. Unlike service revenues
(which are a function of wireless handset usage), some degree of seasonality
is experienced with respect to sales of equipment. Reasons for this
phenomenon are two-fold: (1) handsets and equipment are often given as gifts
during holiday seasons, and (2) the Company focuses a considerable amount of
its marketing and promotional efforts towards these seasons. In order to
attract customers, handsets are typically subsidized by the Company, i.e.,
sold for less than direct costs. This is a typical practice in the wireless
industry.
The Wireless segment offers its services over a digital wireless network
using Time Division Multiple Access (TDMA) technology. The Company believes
that TDMA technology is sufficiently robust to meet the existing needs of its
customers and to enable it to introduce new products and services as part of
its business plan. As previously mentioned, this segment is reliant on AT&T
PCS' national network for calls outside of its Greater Cincinnati and Dayton,
Ohio operating areas. The Company believes that AT&T PCS will maintain its
national digital wireless network in a form and manner that will allow
Cincinnati Bell Wireless to attract and retain customers.
Rates and prices for this segment are determined as a function of
marketplace conditions. As such, rates can and will be influenced by the
pricing plans of as many as six active wireless service competitors. As
evidenced by its record of attracting and retaining customers since its entry
into the wireless business in 1998, the Company believes that its combination
of technology, pricing and customer service enable it to succeed in its
current operating environment. The Wireless segment has both consumer and
business customers and does not believe that the loss of any one customer or
small group of customers would have a material impact on its operations.
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Given that this venture is jointly owned with AT&T PCS, net income or
losses generated by this segment are shared between Cincinnati Bell Wireless
and AT&T PCS in accordance with respective ownership percentages. As a
result, 19.9% of the adjusted net income or loss for this segment is
reflected as minority interest income or loss in the Company's Consolidated
Statements of Income and Comprehensive Income (Loss).
DIRECTORY
The Directory segment is comprised of the operations of Cincinnati Bell
Directory, which publishes Yellow Pages directories and sells directory
advertising and informational services in Cincinnati Bell Telephone's
franchise area. These services are available to more than 1.2 million
residential and business customers in the form of traditional printed
directories, an Internet-based service known as "Cincinnati Exchange," and on
CD-Rom.
The majority of the revenues for this segment come from publishing, and
it is the Company's practice to recognize revenues, and associated direct
expenses over the lifespan of the respective publications (generally twelve
months). Revenues for this segment constituted 7%, 8% and 9%, respectively,
of consolidated Company revenues for 1999, 1998 and 1997. Primary expenses of
this segment are sales commissions paid to sales agents and printing costs
associated with its directory publications.
OTHER COMMUNICATIONS
Other Communications combines the operations of the Cincinnati Bell Long
Distance, Cincinnati Bell Supply, and Broadwing IT Consulting segments.
Revenues for this segment constituted 12% of consolidated Company revenues
for 1999 and each of the preceding two years.
Cincinnati Bell Long Distance Inc. (CBLD)
CBLD is an integrated communications provider that resells long distance
telecommunications services and products as well as voice mail and paging
services mainly in Ohio, Indiana, Michigan, Kentucky and Pennsylvania. CBLD
is licensed, however, as a long distance provider in every state except
Alaska. Its principal market focus is small-and medium-sized business and
residential customers. CBLD augments its high-quality long-distance services
with calling plans, network features and enhanced calling services to create
customized packages of communications services for its clients. CBLD has
added new data communications services for business customers, including
high-speed dedicated and dial-up Internet access services and other
high-speed data transport using frame relay technology. The operations of
CBLD were integrated into Broadwing Communications in January 2000. Also in
January 2000 CBLD started doing business as Cincinnati Bell Any Distance.
Cincinnati Bell Supply Company (CBS)
CBS markets telecommunications and computer equipment. Its principal
market is the secondary market for refurbished telecommunications systems,
including AT&T and Lucent branded systems. CBS's competitors include vendors
of new and used computer and communications equipment operating regionally
and across the nation. The Company is finalizing plans to sell or exit this
business in 2000 as it does not fit the Company's long-term strategic plan.
Broadwing IT Consulting
Broadwing IT Consulting provides network integration and consulting
services as well as the sale of related equipment. Its principal market is
small- to medium-sized businesses. Competitors include Intranet hardware
vendors, wiring vendors and other network integration and consulting
businesses. The operations of Broadwing IT Consulting were integrated into
Broadwing Communications in January 2000.
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RISK FACTORS
INCREASED COMPETITION COULD COMPROMISE CBT'S PROFITABILITY AND CASH FLOW
LOCAL
With regard to local markets, CBT continues to be the predominate
provider of voice and data communications in the Greater Cincinnati and
Northern Kentucky areas. This business is becoming increasingly
competitive. CBT offers modern telecommunications services (such as its
ZoomTown-SM- high-speed Asynchronous Digital Subscriber Line (ADSL) service
and its FUSE-Registered Trademark- Internet access services) to its local
customers, but faces competition from cable modem and Internet access
providers. The Company believes CBT will face greater competition as more
competitors surface and focus additional resources on the Greater Cincinnati
and Northern Kentucky metropolitan areas.
With the exception of Broadwing Communications (discussed below under
"National"), the Company's other subsidiaries operate in a largely local
or regional area, and each of these subsidiaries face significant
competition. CBD's competitors are directory services companies,
newspapers and other media advertising services providers in the
Cincinnati metropolitan market area. CBD now competes with its former
sales representative for Yellow Pages directory customers; such
competition may affect CBD's ability to grow or maintain profits and
revenues. CBLD's competitors include interexchange carriers and certain
local telecommunications services companies. CBS's competitors include
vendors of new and used communications and computer equipment, operating
regionally and across the nation. Cincinnati Bell Wireless, LLC is one of
six active wireless service providers in the Cincinnati and Dayton
metropolitan market areas, most of which are nationally known and well
financed. Broadwing IT Consulting provides network integration and
consulting services and competes with a variety of Intranet hardware
vendors, wiring vendors and other integration and consulting businesses.
The Company's inability to succeed against these competitors would
compromise its profitability and cash flow. This would result in increased
reliance on borrowed funds and could affect its ability to continue
expansion of its national fiber-optic and regional wireless networks.
NATIONAL
The addition of the Broadwing Communications subsidiary presents the
Company with significant opportunities to reach a nationwide customer base
and provide new services to local customers. However, the Company's success
in this regard will depend on its ability to meet customers' price, quality
and customer service expectations. With entry into this national market, the
Company now faces competition from well-managed and well-financed companies
such as Level 3 Communications, Qwest Communications International, Global
Crossings, and Williams Communications. As with competition in the local
arena, the Company's failure against these competitors could compromise its
ability to continue construction of its network, which could have a material
adverse effect on its business, financial condition and results of
operations.
Competition from other national providers could also have another
effect on the Company. The current and planned fiber network capacity of
these and other competitors could result in decreasing prices even as the
demand for high-bandwidth services increases. Most of these competitors have
announced plans to expand, or are currently in the process of expanding,
their networks. Increased network capacity and traffic optimization could
place downward pressure on prices, thereby making it difficult for the
Company to maintain profit margins.
INSUFFICIENCY OF CASH FLOW FOR PLANNED INVESTING AND FINANCING ACTIVITIES
WILL RESULT IN A SUBSTANTIAL AMOUNT OF INDEBTEDNESS
The Company's recent history of generating sufficient cash flow in
order to provide for investing and financing needs has changed. Prior to
1998, the Company consisted largely of mature businesses that benefited from
a local telephone franchise, an embedded customer base and relative freedom
from competition.
The growth in demand for wireless, data and Internet-based
communications, however, has made it necessary and prudent for the Company
to diversify into these new businesses. Entering these businesses requires
the Company to explore new markets in an attempt to reach new customers, and
has resulted in substantial start-up costs, net operating losses and a drain
on cash flow. The need to continue construction of the Company's fiber-optic
network in support of these services will require a significant amount of
additional funding, aggregating to approximately $1.8 billion over the next
three years.
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In order to provide for these cash requirements, the Company has
obtained a $2.1 billion credit facility from a group of 24 banking and
non-banking institutions. The Company anticipates that it will
substantially increase its indebtedness in 2000 under this credit facility
in order to provide for net operating losses, to fund its capital
investment program, and to refinance existing debt.
The Company will not be able to provide for its anticipated growth
without borrowing from this credit facility. The ability to borrow from
this credit facility is predicated on the Company's ability to satisfy
certain debt covenants that have been negotiated with lenders. Failure to
satisfy these debt covenants could severely constrain the Company's
ability to borrow from the credit facility without receiving a waiver from
these lenders. If the Company were unable to continue the construction of
its fiber-optic network, current and potential customers could be lost to
competitors, which could have a material adverse effect on its business,
financial condition and results of operations.
NETWORK EXPANSION IS DEPENDENT ON ACQUIRING AND MAINTAINING RIGHTS-OF-WAY
AND PERMITS
The expansion of the Company's network also depends on acquiring
rights-of-way and required permits from railroads, utilities and
governmental authorities on satisfactory terms and conditions and on
financing such expansion. In addition, after the network is completed and
required rights and permits are obtained, the Company cannot guarantee
that it will be able to maintain all of the existing rights and permits.
If the Company were to fail to obtain rights and permits or were to lose a
substantial number of rights and permits, it could have a material adverse
effect on its business, financial condition and results of operations.
A SIGNIFICANT AMOUNT OF CAPITAL EXPENDITURES WILL BE REQUIRED TO FUND
EXPANSION OF THE NETWORK
The Company is committed to the expansion of its nationwide
fiber-optic network, the widespread deployment of high-speed data
transport services in its local telephone franchise area and continued
infrastructure development for its wireless business. These initiatives
will require a considerable amount of funding.
The Company's annual capital expenditures for its local
Telecommunications business ranged between $100 million and $160 million
over the last four years. In 1999, growth of the wireless business and
capital spending in the post-merger period more than doubled these amounts
(to nearly $400 million in the current year). The Company's current plans
call for more than $800 million in capital spending in 2000 in order to
continue expansion of the fiber optic network. Heavy capital spending is
also planned in subsequent years, with the Company planning to spend
nearly $1 billion over the succeeding two-year period.
The Company believes that it is imperative to invest heavily in its
network in order to offer leading-edge products and services to its
customers. Failure to construct and maintain such a network would leave
the Company vulnerable to customer loss to other fiber-optic network
providers, and would cause slower than anticipated growth. This would have
a material adverse effect on our business, financial condition and results
of operations.
REGULATORY INITIATIVES MAY IMPACT THE COMPANY'S PROFITABILITY
The Company's most profitable subsidiary, CBT, is subject to
regulatory oversight of varying degrees at both the state and federal
level. Regulatory initiatives that would put CBT at a competitive
disadvantage or mandate lower rates for its services could result in lower
profitability and cash flow for the Company, thereby increasing its
reliance on borrowed funds. This could potentially compromise the
expansion of its national fiber-optic network and development of its
wireless business.
A further discussion of specific regulatory matters pertaining to the
Company and its operations is contained in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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CAPITAL ADDITIONS
The capital additions of the Company are primarily for its fiber-optic
transmission facilities, telephone plant in its local service area, and for
development of the infrastructure for its wireless business. As a result of
these expenditures, the Company expects to be able to introduce new products
and services, respond to competitive challenges and increase its operating
efficiency and productivity.
The following is a summary of capital additions for the years 1995
through 1999:
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Dollars in Millions
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Local Telephone Fiber-Optic Wireless Total Capital
Operations Transmission Facilities Infrastructure Other Additions
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1999 $152.2 $165.0 $ 55.9 $ 8.3 $381.4
1998 $134.9 -- $2.2 $ 6.5 $143.6
1997 $140.0 -- -- $18.4 $158.4
1996 $101.4 -- -- $ 4.9 $106.3
1995 $ 90.3 -- -- $ 2.5 $ 92.8
</TABLE>
The total investment in local telephone operations plant increased from
approximately $1,447 million at December 31, 1994, to approximately $1,856
million at December 31, 1999, after giving effect to retirements but before
deducting accumulated depreciation at either date.
Capital additions for 2000 are estimated to be approximately $800
million, excluding any acquisitions that may occur in 2000.
EMPLOYEES
At December 31, 1999, the Company and its subsidiaries had approximately
6,000 employees. CBT had approximately 2,000 employees covered under a
collective bargaining agreement with the Communications Workers of America,
which is affiliated with the AFL-CIO. The collective bargaining agreement
expires in May 2002.
BUSINESS SEGMENT INFORMATION
The amounts of revenues, intersegment revenues, EBITDA, assets, capital
additions, depreciation and amortization attributable to each of the business
segments of the Company for the year ended December 31, 1999, are set forth
in Note 15 of the Notes to Financial Statements contained in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
8
<PAGE>
ITEM 2. PROPERTIES
The property of the Company is principally composed of its nationwide
fiber-optic transmission system, telephone plant in its local telephone
franchise area, and the infrastructure associated with its wireless business
in the Greater Cincinnati and Dayton, Ohio operating areas. As this
investment is extensive and geographically dispersed, it does not lend itself
to description by character and location of principal units. Each of the
Company's subsidiaries maintains some investment in furniture and office
equipment, computer equipment and associated operating system software,
leasehold improvements and other assets. Facilities leased as part of an
operating lease arrangement are expensed as incurred and are not included in
the totals below.
With regard to its local telephone operations, substantially all of the
central office switching stations are owned and situated on land owned by the
Company. Some business and administrative offices are located in rented
facilities, some of which are treated as capitalized leases and included in
the "Furniture, fixtures, vehicles and other" caption below. Fiber-optic
transmission facilities consist largely of fiber-optic cable, associated
optronics and the land and rights-of-way necessary to place these facilities.
The wireless infrastructure consists primarily of transmitters, receivers,
towers, antennae and associated land and rights-of-way.
The gross investment in fiber-optic transmission facilities, telephone
plant, wireless infrastructure and other property, in millions of dollars, at
December 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land and rights of way $ 155.9 $ 5.0
Buildings and leasehold improvements 428.3 164.0
Telephone plant 1,697.2 1,438.5
Transmission system 1,074.4 65.9
Furniture, fixtures, vehicles and other 225.7 187.4
Construction in process 232.0 12.4
----- ----
Total $3,813.5 $1,873.2
======== ========
</TABLE>
Properties of the Company are divided between operating segments as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Local Communications 48.7% 92.9%
Broadband 46.0% --
Wireless 4.5% 5.8%
Other Communications 0.8% 1.3%
---- ----
Total 100.0% 100.0%
====== ======
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item is included in Note 19 of the Notes
to Financial Statements that are contained in Item 8, "Financial Statements
and Supplementary Data."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
On October 29, 1999, the Company conducted a special meeting of its
security holders in order to vote on the issuance of the Company's common
stock to stockholders of IXC in the merger of IXC and a subsidiary of the
Company. This was the only item submitted for a vote of security holders
during this special meeting. The Company's shareholders approved the merger,
with 82,156,679 common shares (87.04%) voting in favor of the merger,
12,238,220 common shares (12.04%) voting against the merger, and 1,417,918
common shares abstaining from the vote.
9
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT (DURING 1999)
The names, ages and positions of the executive officers of the Company as of
12/31/99 are as follows:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
James D. Kiggen (a) 67 Chairman of the Board
Richard G. Ellenberger (a)(b)(d) 46 President and Chief Executive Officer
John T. LaMacchia (a)(b)(c) 57 President and Chief Executive Officer
Kevin W. Mooney 41 Executive Vice President and Chief
Financial Officer
Thomas E. Taylor 53 General Counsel and Secretary
Richard S. Pontin 46 President and Chief Operating Officer of
Broadwing Communications Inc.
John F. Cassidy 45 President, Cincinnati Bell Enterprises
Jack J. Mueller 43 President, Cincinnati Bell Telephone
</TABLE>
- ------------------------------
(a) Member of the Board of Directors
(b) Member of the Executive Committee
(c) Effective February 28, 1999, Mr. LaMacchia resigned as President and
Chief Executive Officer of the Company but continues to serve as a
Director of the Company.
(d) Effective March 1, 1999, upon Mr. LaMacchia's resignation, Mr.
Ellenberger became President and Chief Executive Officer of the
Company.
Officers are elected annually but are removable at the discretion of the
Board of Directors.
JAMES D. KIGGEN, Chairman of the Board of the Company since January 1, 1999;
Chairman of the Board of Xtek, Inc., 1985-1999; Chief Executive Officer of
Xtek, Inc., 1985-1998; President of Xtek, Inc., 1985-1995. Director of Fifth
Third Bancorp and its subsidiary, Fifth Third Bank, and The United States
Playing Card Company.
RICHARD G. ELLENBERGER, President and Chief Executive Officer of the Company
since March 1, 1999; Chief Operating Officer of the Company since September
1, 1998; President and Chief Executive Officer of CBT since June, 1997; Chief
Executive Officer of XLConnect, 1996-1997; President, Business Services of
MCI Telecommunications, 1995-1996; Senior Vice President, Worldwide Sales of
MCI Telecommunications, 1994-1995; Senior Vice President, Branch Operations
of MCI Telecommunications, 1993-1994; Vice President, Southeast Region of MCI
Telecommunications, 1992-1993.
JOHN T. LAMACCHIA, President and Chief Executive Officer of CellNet Data
Systems, Inc. since May 1999, President and Chief Executive Officer of the
Company, 1993 - February 28, 1999; President and Chief Operating Officer of
the Company, 1988-1993; Chairman of Cincinnati Bell Telephone, 1993 - 1999.
Director of The Kroger Company, Burlington Resources Inc. and CellNet Data
Systems, Inc.
KEVIN W. MOONEY, Executive Vice President and Chief Financial Officer of the
Company since September 1, 1998; Senior Vice President and Chief Financial
Officer of CBT since January 1998; Vice President and Controller of the
Company, September 1996 to January 1998; Vice President of Financial Planning
and Analysis of the Company, January 1994 to September 1996; Director of
Financial Planning and Analysis of the Company, 1990-1994.
THOMAS E. TAYLOR, General Counsel and Secretary of the Company since
September 1998; Senior Vice President and General Counsel of Cincinnati Bell
Telephone from August 1996 to present; Partner at law firm of Frost & Jacobs
from July 1987 to August 1996.
10
<PAGE>
RICHARD S. PONTIN, President and Chief Operating Officer of Broadwing
Communications since November 1999; President and Chief Operating Officer of
Cincinnati Bell Telephone, April 1999 to November 1999; Vice President,
Engineering & Operations of Nextel Communications, 1997 to 1999; Vice
President, National Accounts, MCI Communications, 1996; Vice President Data
Services, MCI Communications, 1994-1996; Vice President, Global Alliances,
MCI Communications, 1992-1994.
JOHN F. CASSIDY, President, Cincinnati Bell Enterprises since August, 1999;
President of Cincinnati Bell Wireless since 1996; Senior Vice President,
National Sales & Distribution of Rogers Cantel in Canada from 1992-1996.
JACK J. MUELLER, President of Cincinnati Bell Telephone since November 1999;
General Manager of Cincinnati Bell Telephone's Residential and Business
Markets February 1999-November 1999; President and CEO of Cincinnati Bell
Directory 1996-1999; Vice President of Cincinnati Bell Directory 1990-1996.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS.
MARKET INFORMATION
The Company's common shares (symbol: BRW) are listed on the New York
Stock Exchange and on the Cincinnati Stock Exchange. As of February 25, 2000,
there were approximately 127,000 holders of record of the 202,550,808
outstanding common shares of the Company. The high and low sales prices* and
dividends declared per common share** each quarter for the last two fiscal
years are listed below:
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
<S> <C> <C> <C> <C> <C>
1999 HIGH $ 23 7/16 $ 26 1/2 $ 26 1/2 $ 37 7/8
LOW $ 16 1/16 $ 19 5/8 $ 16 5/16 $ 18 3/4
DIVIDEND DECLARED $ .10 $ .10 $ -- $ --
1998 High $ 14 11/16 $ 15 5/8 $ 13 9/16 $ 15 7/16
Low $ 12 9/16 $ 11 11/16 $ 9 7/16 $ 8 13/16
Dividend Declared $ .10 $ .10 $ .10 $ .10
- ------------------------------
</TABLE>
Effective November 15, 1999, the ticker symbol for the Company's common
shares changed to BRW from CSN.
* Prices adjusted to reflect distribution of shares of Convergys
Corporation on December 31, 1998.
** Dividends discontinued after quarterly dividend declared on June 21,
1999.
DIVIDENDS
The Company discontinued its dividend payment on its common shares
effective after the second quarter 1999 dividend payment in August 1999. The
Company does not intend to pay dividends on its common shares in the
foreseeable future. Furthermore, the Company's future ability to pay
dividends is restricted by certain covenants and agreements pertaining to
outstanding indebtedness. The Company is required to pay dividends on its 6
3/4% and 7 1/4% preferred shares, and is paying dividends in cash rather than
shares of Broadwing Communications 12 1/2% preferred shares on February 15,
2000.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Millions of dollars except per share amounts 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $1,131.1 $ 885.1 $834.5 $779.8 $736.0
Costs and expenses, less depreciation and amortization 795.4 595.1 539.8 507.9 478.7
----- ----- ----- ----- -----
EBITDA (a) 335.7 290.0 294.7 271.9 257.3
Depreciation and amortization 181.0 111.1 124.3 121.0 116.3
Restructuring and other charges (credits) (b) 10.9 (1.1) (21.0) (29.7) 131.6
----- ----- ----- ----- -----
Operating income 143.8 180.0 191.4 180.6 9.4
Equity loss in unconsolidated entities 15.3 27.3 -- -- --
Minority interest and other income (expense) 4.5 (2.4) (2.7) 0.5 (9.1)
Interest expense 61.7 24.2 30.1 27.9 45.4
----- ----- ----- ----- -----
Income (loss) before income taxes, extraordinary items
and cumulative effect of change in accounting principle 71.3 126.1 158.6 153.2 (45.1)
Income taxes 33.3 44.3 56.3 53.7 (16.0)
----- ----- ----- ----- -----
Income (loss) from continuing operations 38.0 81.8 102.3 99.5 (29.1)
Income from discontinued operations, net of taxes (c) -- 69.1 91.3 85.5 3.8
----- ----- ----- ----- -----
Income (loss) before extraordinary items 38.0 150.9 193.6 185.0 (25.3)
Extraordinary items and cumulative effect of
change in accounting principle (d) (6.6) (1.0) (210.0) -- (7.0)
----- ----- ----- ----- -----
Net income (loss) 31.4 149.9 (16.4) 185.0 (32.3)
Dividends and accretion applicable to preferred stock 2.1 -- -- -- --
----- ----- ----- ----- -----
Net income (loss) applicable to common shareholders $29.3 $149.9 $(16.4) $185.0 $(32.3)
----- ----- ----- ----- -----
Basic earnings (loss) per common share:
Income (loss) from continuing operations $ .25 $ .60 $ .76 $ .74 $ (.22)
Income from discontinued operations, net of taxes -- .51 .67 .64 .03
Extraordinary items, net of taxes (.05) (.01) (1.55) -- (.05)
Income (loss) $ .20 $ 1.10 $ (.12) $ 1.38 $ (.24)
Diluted earnings (loss) per common share:
Income (loss) from continuing operations $ .24 $ .59 $ .74 $ .73 $ (.22)
Income from discontinued operations, net of taxes -- .50 .67 .62 .03
Extraordinary items, net of taxes (.04) (.01) (1.53) -- (.05)
Income (loss) $ .20 $ 1.08 $ (.12) $ 1.35 $ (.24)
Dividends declared per common share $ .20 $ .40 $ .40 $ .40 $ .40
Weighted average common shares (millions)
Basic 144.3 136.0 135.2 133.9 132.0
Diluted 150.7 138.2 137.7 137.2 133.5
FINANCIAL POSITION
Total assets (c) (d) $ 6,508.6 $ 1,041.0 $ 1,275.1 $ 1,415.9 $ 1,363.8
Long-term debt $ 2,136.0 $ 366.8 $ 268.0 $ 271.2 $ 370.0
Redeemable Preferred stock $ 228.6 -- -- -- --
Total debt $ 2,145.2 $ 553.0 $ 399.5 $ 409.0 $ 423.7
Common shareowners' equity (c) (d) $ 2,132.8 $ 142.1 $ 579.7 $ 634.4 $ 478.1
Cash flow from continuing operations $ 313.9 $ 212.3 $ 197.4 $ 132.0 $ 151.5
</TABLE>
(a) EBITDA represents operating income before depreciation, amortization, and
restructuring and related charges or credits. 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 the Company'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.
(b) See Note 3 of Notes to Financial Statements.
(c) See Note 12 of Notes to Financial Statements.
(d) See Notes 13 and 5 of Notes to Financial Statements.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND RESULTS AND OPERATIONS
Broadwing Inc. (the Company) is a full-service provider of wireline and
wireless telecommunications services that conducts its operations through the
following reportable segments:
LOCAL COMMUNICATIONS -- The Company provides local service, network access,
long distance, data and Internet, ADSL, transport, and payphone services, as
well as sales of communications equipment to customers in southwestern Ohio,
northern Kentucky and southeastern Indiana. Services are marketed and
delivered via the Company's Cincinnati Bell Telephone (CBT) and ZoomTown.com
(ZT) subsidiaries.
BROADBAND -- The Company utilizes its advanced fiber-optic network to provide
data transport, Internet services, private line, switched access, and other
services nationwide. This segment also leases network capacity in the form of
indefeasable right-to-use agreements ("IRUs"). These services are offered
through the Company's new subsidiary, Broadwing Communications, Inc.
(formerly IXC Communications, Inc.).
WIRELESS -- The Wireless segment includes the Company's Cincinnati Bell
Wireless subsidiary (an 80%-owned venture with AT&T Wireless PCS, Inc.) which
provides advanced digital personal communications to customers in its Greater
Cincinnati and Dayton, Ohio operating areas.
DIRECTORY -- The Company sells directory advertising and information services
through printed directories and the Internet, primarily to business customers
in its Local Communications segment service area. This segment's most
identifiable product is the Yellow Pages directory produced by the Company's
Cincinnati Bell Directory (CBD) subsidiary.
OTHER COMMUNICATIONS -- Other Communications combines several of the
Company's other segments: Cincinnati Bell Long Distance (CBLD) , Cincinnati
Bell Supply (CBS), and Broadwing IT Consulting. CBLD resells long distance,
voice, data, frame relay, and Internet access services to small- and
medium-sized business and residential customers throughout a six-state region
of the midwest. CBS sells new computers and resells telecommunications
equipment in the secondary market, and Broadwing IT Consulting provides
network integration and consulting services.
This report and the related consolidated financial statements and
accompanying notes contain certain forward-looking statements that involve
potential risks and uncertainties. The Company's future results could differ
materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed herein. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to review or update these forward-looking
statements or to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
- -------------------------------------------------------------------------------
CONSOLIDATED OVERVIEW
The Company is now a full-service, local and national provider of data and
voice telecommunications services, and a regional provider of wireless
communications services. Upon its November 9, 1999 merger with IXC
Communications, Inc. (hereinafter referred to as "the Merger"), the Company
acquired a high-speed fiber-optic network capable of providing private line,
switched access, data, Internet-based, and other advanced communications
services. This complements the strong service offerings that were provided on a
local or regional basis (local service, long distance, data transport, Internet
access and related communications equipment) primarily in the Cincinnati area.
The national network has also contributed an important new source of revenue and
cash flow to the Company: the sale of IRUs.
The Company seeks to provide world-class service on a national level by
combining two sets of strengths: its well-regarded brand name and reputation for
service in its regional franchise area and its newly acquired, nationwide
fiber-optic network and Internet backbone. The Company further enhances these
capabilities by partnering with targeted industry leaders such as Cisco Systems,
PSINet, ZeroPlus.com, Lucent Technologies and AT&T.
14
<PAGE>
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
In 1999, the Company transformed itself from a provider of local
communications services into a national provider of voice and data
communications. The transition began in 1998 with the spin-off of Convergys
Corporation, a former subsidiary that held the Company's information and
customer management businesses, and was solidified with the acquisition of
IXC and its high-speed, fiber optic network and national presence. The
acquisition of an 80% interest in the wireless business from AT&T-PCS on
December 31, 1998 also added significant growth to our local and regional
service offerings.
The Merger and the acquisition of the wireless business from AT&T-PCS had
a significant impact on 1999 operating results. Of the $246 million in
additional revenues in 1999, more than 77% (or $190 million) came from these
new businesses. While the Company continues to expand its product and service
offerings, as well as its geographic footprint, all previously existing
segments reported strong results. Revenues from Local Communications
increased 4%, or $31.7 million, Directory grew 2%, or $1.3 million, and Other
Communications grew 24%, or $25.2 million. The growth in the Other
Communications segments was due to the expansion of the sale of
communications equipment and the addition of the network integration and
consulting business through an acquisition in November 1998.
Costs and expenses, excluding depreciation, amortization and special
charges, were $795.4 million, up $200.3 million, or 34%. Of this increase,
$98.7 million was due to the Merger and $116.2 million was due to Cincinnati
Bell Wireless, which became a consolidated entity upon completion of the
acquisition of the wireless business from AT&T-PCS on December 31, 1998.
Excluding these two additions, operating expenses were down $14.6 million
from the prior year. EBITDA margins excluding Broadwing Communications and
Cincinnati Bell Wireless increased 5.5 percentage points. Depreciation and
amortization expense increased $69 million over 1998, with $47 million as a
result of the Merger and $14 million attributable to the wireless business.
In December 1999, the Company's management approved restructuring plans
which included initiatives to integrate operations of the Company and
Broadwing Communications improve service delivery, and reduce the Company's
expense structure. Total restructuring costs and impairments of $18.6 million
were recorded in the fourth quarter related to these initiatives. The $18.6
million consisted of $7.7 million relating to Broadwing Communications
(recorded as a component of the preliminary purchase price allocation) and
$10.9 million relating to the Company (recorded as a cost of operations). The
$10.9 million relating to the Company consisted of restructuring and other
liabilities in the amount of $9.5 million and related asset impairments in
the amount of $1.4 million.
The Company's estimated restructuring costs were based on management's
best estimate of those costs based on available information. The
restructuring costs accrued in 1999 included the costs of involuntary
employee separation benefits related to 347 employees (263 Broadwing
Communication employees and 84 other employees). As of December 31, 1999,
approximately 1% of the employee separations had been completed for a total
cash expenditure of $0.4 million. Employee separation benefits include
severance, medical and other benefits, and primarily affect customer support,
infrastructure, and the Company's long distance operations. The restructuring
plans also included costs associated with the closure of a variety of
technical and customer support facilities, the decommissioning of certain
switching equipment, and the termination of contracts with vendors.
In connection with the restructuring plan, the Company performed a review
of its long-lived assets to identify any potential impairments in accordance
with SFAS 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of." Accordingly, the Company recorded a $1.4 million charge as an
expense of operations, resulting from the abandonment and write-off of
certain assets including duplicate network equipment. In total, we expect
these restructuring related activities to result in cash outlays of $14.8
million and non-cash items of $3.8 million. The Company expects that most of
the restructuring actions will be completed by December 31, 2000.
Operating income decreased by $36.2 million from the prior year
reflecting the losses of the Broadband and Wireless segments which were $46.5
million and $40.3 million, respectively. Also included in operating income
was the $10.9 million charge for business restructuring mentioned above.
Excluding these items, operating income increased by $57.4 million due
primarily to the operations of the Local Communications segment.
The Company recorded equity losses in unconsolidated entities in both
years. In 1999, the Company recorded a 13% share of the operating losses of
IXC due to its ownership of IXC common stock from August 16, 1999 to the
November 9, 1999 closing date of the Merger. In 1998, the Company recorded a
$27.3 million loss on its wireless venture with AT&T-PCS because
15
<PAGE>
it agreed to fund its proposed share of the wireless business losses from
inception to the close of the acquisition on December 31, 1998. The Company
managed the operations of the venture while awaiting regulatory approval of
the acquisition. As mentioned above, the results for this business are
consolidated in Company operations in 1999.
Minority interest and other income (expense) resulted in income of $4.5
million for the year, a $6.0 million increase over 1998. Of this amount, $9.3
million of minority interest income was recorded as AT&T PCS' 19.9% share in
the losses of our wireless subsidiary. This was partially offset by $6.9
million in preferred stock dividends accreted to the 12.5% preferred
stockholders of Broadwing Communications and treated as minority interest.
Remaining amounts in this category are largely attributable to interest
income.
Interest expense increased significantly in 1999, owing to higher average
debt levels associated with the Merger, the issuance of $400 million in 6 3/4%
Convertible Subordinated Notes in July 1999, and the amortization of debt
issuance costs and bank commitment fees associated with the Company's new
$2.1 billion credit facility and these convertible subordinated notes. Of the
$37.5 million increase in interest expense, $13.4 million is attributable to
the operations of the Wireless business and approximately $24.0 million is
related to the Merger.
Income taxes decreased $11 million, or 25%, in comparison to the prior
year, as a function of lower pre-tax income and the offsetting impact of
nondeductible expenses such as goodwill amortization and preferred stock
dividends.
Extraordinary items related to the early extinguishment of debt affected
results for each year. In 1999, costs related to the early extinguishment of
Broadwing Communications' debt as a result of the Merger resulted in a $6.6
million charge, net of taxes. The spin-off of Convergys Corporation in 1998
reduced the borrowing capacity that was needed from the Company's
then-existing credit facility and some debt and a portion of that credit
facility were retired, resulting in a $1.0 million extraordinary charge, net
of tax.
As a result of the above, income from continuing operations decreased
from $81.8 million to $38.0 million and earnings per common share (EPS) from
continuing operations decreased from $.60 in 1998 to $.25 in 1999. Excluding
the Merger, EPS from continuing operations would have been $.82, a 37%
increase over 1998.
Discontinued Operations for 1995 through 1998 includes the results of the
Convergys Corporation (Convergys), the billing and customer management
operations that were divested on December 31, 1998 through a tax free
spin-off.
1998 COMPARED TO 1997
Revenues were $885.1 million, up 6% from $834.5 million in 1997,
primarily as a result of increased activities in Local Communications
segment. Increases in the Company's suite of custom calling services, through
bundling of services as well a pay-per-use option, and increased data
transport services accounted for a majority of the increase.
Costs and expenses, less depreciation, amortization and special charges,
were $595.1 million, up 10% from $539.8 million in 1998. Of this increase $10
million, or 20%, was due to an increase Y2K and regulator mandated costs.
Other increases were primarily due to increased headcount and higher wages.
As a result, the EBITDA margin decreased two percentage points to 33%.
Income from continuing operations in 1998 was $81.8 million, or $.59 per
common share, compared with $102.3 million, or $.74 per common share in 1997.
In 1998, the Company recognized $1.1 million in special credits resulting
from the 1995 business restructuring, compared with $21.0 million in 1997
(see Note 3 of Notes to Financial Statements). The Company also recorded a
$27.3 million loss on its wireless venture in 1998, while no such loss was
recorded in 1997. Excluding special credits and the wireless dilution, income
from continuing operations on a per common share basis was $.72 in 1998
compared with $.64 in 1997.
Extraordinary items affected both years. In 1998, retirement of long-term
debt and a portion of a credit facility resulted in an extraordinary charge
of $1.0 million, net of taxes. In 1997, the discontinuation of Statement of
Financial Accounting Standard No. 71,"Accounting for the Effects of Certain
Types of Regulation," at CBT resulted in a non-cash charge of $210.0 million
after-tax.
16
<PAGE>
- -------------------------------------------------------------------------------
LOCAL COMMUNICATIONS
The Local Communications segment provides local service, network access,
(including high-speed data transport), long distance, data and Internet, ADSL
transport, sales of communications equipment, and other ancillary
telecommunications services through its Cincinnati Bell Telephone (CBT) and
ZoomTown.com (ZT) subsidiaries. These two subsidiaries function as a fully
integrated, wireline communications provider.
<TABLE>
<CAPTION>
% Change % Change
($ in millions) 1999 1998 99 vs. 98 1997 98 vs. 97
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Local service $426.4 $407.9 5 $386.2 6
Network access 185.3 180.9 2 170.0 6
Other services 138.4 129.6 7 113.9 14
----- ----- -----
Total 750.1 718.4 4 670.1 7
Costs and expenses:
Cost of providing service 282.0 296.6 (5) 267.6 11
Selling, general and
administrative expense 142.7 152.4 (6) 145.6 5
Y2K and regulator-mandated 4.6 21.5 (79) 10.6 103
--- ------ -------
Total 429.3 470.5 (9) 423.8 11
EBITDA $320.8 $247.9 29 $246.3 1
EBITDA margin 42.8% 34.5% 24 36.8% (6)
Access lines (thousands) 1,055 1,033 2 1,005 3
VGEs (thousands) 518 387 34 276 40
</TABLE>
1999 COMPARED TO 1998
The Local Communications segment posted another strong performance in
1999, with revenues and EBITDA increasing by 4% and 29% respectively. The
combination of revenue growth and a focus on cost control efforts resulted in
an 8.3 percentage point increase in EBITDA margin.
REVENUES
Revenues of $750.1 million were 4% higher than the $718.4 million
recorded in the prior year, owing to growth in all categories. The local
service category provided most of the revenue growth for the segment, growing
5% for the year, or nearly $19 million. Within this category, growth came
primarily from new product bundling offers (e.g. Complete
Connections-Registered Trademark- added 110,000 subscribers within the year),
new products (e.g. the Zoomtown-SM- ADSL product launched late in 1998 grew to
18,000 subscribers by December 31, 1999), and data transport. These services,
in the aggregate, contributed more than 80% of the increase for this
category, or $15 million. Access line growth was responsible for the
remainder of the increase, with a 2% increase in lines contributing
approximately $4 million in additional revenue for the year.
Network access revenues were 2% higher, or $4.4 million. The sale of high
capacity digital services (expressed in voice grade equivalents, or VGEs)
increased 34%, resulting in approximately $13 million in new revenues for the
category. The Company also realized approximately $5 million in additional
revenues due to the recovery of mandated telecommunications costs. In spite
of a 7% increase in access minutes of use, switched access revenues were
approximately $14 million lower due to decreased per-minute rates initiated
as part of the Company's Commitment 2000 program in Ohio and the optional
incentive rate regulation at the Federal level.
Other services revenue increased approximately $9 million, or 7%, for the
year, with the Company's FUSE-Registered Trademark- Internet access service
contributing more than $2 million of the increase (a 44% revenue growth for
this service). Other increases in the category are attributable to higher
rent and facilities collocation revenue ($6 million). A lower provision for
loss on receivables in the current year also contributed to the revenue
increase in the current year.
17
<PAGE>
COSTS AND EXPENSES
Excluding depreciation, amortization and special charges, costs and
expenses of $429.3 million were $41.2 million less than the prior year,
representing a 9% decrease.
Costs of providing services decreased by nearly $15 million for the year,
$8 million of which is attributable to lower expenditures for payroll and
temporary labor sources resulting from CBT's continuing efforts at increasing
productivity. These efforts have resulted in a 4% increase in access lines
per employee since the beginning of 1999.
Selling, general and administrative expenses decreased by nearly $10
million versus the prior year. Advertising expense increased approximately $1
million for the year in support of new calling services bundles and the
Company's ZoomTown ADSL service. Consulting and contract services were
approximately $7 million less, due to lower usage of external labor sources.
Computer programming expenses and right-to-use fees decreased approximately
$14 million for the year, due to a reduction in projects initiated and the
capitalization of approximately $10 million in internal use software as
required by AICPA Statement of Position 98-1. These expense decreases were
somewhat offset by approximately $14 million in increases related to
materials and supplies, rent, and reciprocal compensation to Internet service
providers.
Year-2000 programming expenses were approximately $6 million lower than
in the prior year, reflecting the progress previously made on critical
systems and the conclusion of remediation efforts by year-end. No mandated
telecommunications costs were incurred in 1999 since the local portability
and interconnection requirements were met in the prior year (when the Company
incurred nearly $11 million of such costs).
As a result of the revenue increase and expense decrease detailed above,
EBITDA grew from $247.9 million in 1998 to $320.8 million in 1999, a 29%
increase.
1998 COMPARED TO 1997
The Local Communications segment showed strong performance in 1998,
enjoying the benefits of continued growth in access lines, voice grade
equivalents and value-added services, such as Caller ID and other custom
calling features. This, in combination with increased usage of the Company's
network on a minutes-of-use basis, contributed significantly to the increase
in revenue over 1997.
REVENUES
Revenues increased $48.3 million, or 7%. Local service revenues increased
$21.7 million, primarily due to access line growth of 3% and increased usage
of the Company's suite of custom calling services.
Network access revenues increased $10.9 million, or 6%. This was
primarily due to growth in high-capacity digital service and an associated
40% increase in voice grade equivalents. Minutes of use increased 7% along
with an increase in end-user access charges, but these were offset by a
reduction of interstate per-minute rates instituted by the Federal
Communications Commission (FCC) and by a reduction in intrastate rates
instituted as part of the Company's "Commitment 2000" plan as approved by the
Public Utilities Commission of Ohio.
Revenues from other services increased $15.7 million, or 14%. Revenues
from the Company's National Payphone Clearinghouse business and commissions
associated with the deregulation of the public payphone business increased
$6.9 million in 1998. The Company's FUSE-Registered Trademark- Internet
access service increased $2.6 million in 1998. The remainder of the increase
in this category is attributable to equipment and wiring sales and network
integration and consulting revenues, partially offset by increased
uncollectible expense of $4.3 million.
COSTS AND EXPENSES
Excluding depreciation and amortization, costs and expenses increased
$35.7 million, or 9%. Approximately $12 million of the increase was
attributable to higher headcount and associated wages. Right-to-use fees for
network switching systems decreased by more than $2 million but were offset
by increased expenditures for contract and consulting services. Expenses also
increased approximately $5 million due to mandated charges to fund universal
service initiatives and $2 million for increased advertising.
Year-2000 programming expenses totaled $10.9 million, representing nearly
a $7 million increase. Regulator-mandated interconnection and local number
portability expenses totaled $10.6 million in 1998, over $4 million more than
the prior year.
18
<PAGE>
- -------------------------------------------------------------------------------
BROADBAND
IXC became a subsidiary of the Company on November 9, 1999 as a result
of the Merger. Subsequent to the acquisition date, the Company changed the
name of IXC to Broadwing Communications, Inc. (Broadwing Communications).
Operations of the Broadwing Communications subsidiary comprise the Broadband
segment and are included in the Company's financial results prospectively
from November 9, 1999. For purposes of comparability, portions of the
following discussion assume the Broadband segment existed from January 1,
1998. These references will generally include a reference to Pro Forma
results.
The Broadband segment utilizes an advanced, expansive, fiber-optic
network to provide data transport, Internet services, private line, switched
access, and other services. Broadwing Communication's network-based delivery
solutions are designed to address the speed and capacity requirements of the
global telecommunications market. Excess network capacity is also leased (in
the form of IRUs) to other telecommunications and Internet service providers.
<TABLE>
<CAPTION>
Post-merger Pro Forma % Change
----------- --------- --------
($ in millions) 1999 1999 1998 1999 vs 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Private Line $45.8 $304.3 $225.4 35
Switched Services 48.4 312.1 414.4 (25)
Data and Internet 4.8 23.5 9.0 161
Other -- 27.3 19.8 38
----- ---- ----
Total 99.0 667.2 668.6 n/m
Cost and expenses:
Cost of providing service 60.7 427.1 433.3 (1)
Selling, general and
administrative expense 38.1 248.7 144.5 72
---- ----- -----
Total 98.8 675.8 577.8 17
EBITDA $ 0.2 $(8.6) $90.8 (109)
EBITDA margin n/m (1) 14 (107)
</TABLE>
1999 COMPARED TO 1998
REVENUES
Broadband revenues totaled $99 million in the post-merger period. On a
Pro Forma 1999 basis, revenues were $667.2 million compared to $668.6 million
in 1998. The reduction in switched services revenues of $102 million resulted
from the strategic decision to de-emphasize the wholesale switched services
business, and was offset by increases in all of Broadwing Communications'
other service offerings. Private line revenues increased $78.9 million, or
35%, on a Pro Forma basis as a result of an increase in other carriers
utilizing Broadwing Communication's next-generation broadband network . Data
and Internet revenues increased $14.5 million, or 161%, as these services
became a primary focus in 1999.
COSTS AND EXPENSES
Broadband costs and expenses, excluding depreciation and amortization
expenses of $46.7 million, were $98.8 million in 1999. Of this amount, $60.7
million was for cost of providing services and $38.1 million was for selling,
general and administrative expenses. Broadband's gross margin was 39% and
EBITDA was $0.2 million.
On a Pro Forma basis, costs and expenses, excluding depreciation,
amortization and special charges, were $98 million, or 17% greater than the
prior year. Costs of providing services decreased by over $6 million, or 1%,
due mainly to a $22.5 million decrease in access costs. This reduction was a
direct result of Broadwing Communications making greater utilization of its
fiber optic network as well as the reduction in minutes of use caused by the
decision to de-emphasize the switched wholesale business. The decrease in
access costs was offset somewhat by an increase in transmission and Internet
expenses of $16.4 million. Gross margin increased to 36% in 1999 due mainly
to Broadwing's greater focus on higher margin products such as private line
and data and Internet.
19
<PAGE>
Selling, general and administrative expenses increased by $104.0 million,
or 72%, versus the prior year. This increase is due in part to increased
staffing required to support, sell and market the expanded fiber optic
network. Broadwing Communications is migrating from focusing on network
construction to sales and marketing as the network increased from
approximately 9,300 to 15,700 fiber route miles during 1999. Headcount
increased by approximately 600 in 1999 versus 1998, 60% of which were in
sales positions and the remaining 40% was for network operations.
- -------------------------------------------------------------------------------
WIRELESS
The Wireless segment comprises the operations of Cincinnati Bell Wireless
LLC (an 80%-owned venture with AT&T Wireless PCS, Inc.), which provides
advanced digital personal communications services and sales of related
communications equipment to customers in its Greater Cincinnati and Dayton,
Ohio operating areas.
On December 31, 1998, the Company acquired an 80% ownership interest in
this business. Accordingly, current year results for the wireless business
are reflected in the operating results of the Company beginning January 1,
1999. The agreement between Cincinnati Bell Wireless and AT&T PCS specified
that, prior to the acquisition, the Company and AT&T PCS would operate under
an interim agreement whereby losses would be funded in the same percentages
as the proposed venture. In 1998, this resulted in a loss of $27.3 million,
which was recorded as an equity loss in unconsolidated entities.
<TABLE>
<CAPTION>
($ in millions) 1999
- ---------------------------------------------
<S> <C>
Revenues $91.4
Costs and expenses:
Cost of providing service 58.6
Selling, general and
administrative expense 58.4
----
Total 117.0
EBITDA $(25.6)
EBITDA margin (28.0)%
Net Income $(28.5)
</TABLE>
REVENUES
Revenues for this segment have been increasing steadily over the course
of 1999, with a year-end total of $91.4 million. The vast majority of
revenues for this segment, or $80 million, were service revenues. An
additional $13 million in revenues were derived from the sale of handsets and
associated accessories. Service revenues are growing on the basis of
increasing subscribership (95,000 and 56,000 postpaid customers were added in
1999 and 1998, respectively) generating an average monthly revenue per user
(ARPU) of $65 and low customer churn of 1.43% per month. Although it did not
drive significant growth in service revenues, the launch of CBW's new
i-wireless-SM- prepaid service added 11,000 new subscribers in the fourth
quarter of 1999.
COSTS AND EXPENSES
The costs of providing service is primarily comprised of incollect
expense (whereby CBW incurs costs associated with its subscribers using their
handset while in the territory of another wireless service provider), network
operations costs, interconnection expenses and cost of equipment sales. These
costs were 64% of revenue in 1999.
Selling, general and administrative expenses include the high cost of
customer acquisition, including the subsidy of customer handsets,
advertising, distribution and promotional expenses. With the significant
growth of the wireless business, these costs totaled $46 million, or a cost
per gross addition (CPGA) of $376 for postpaid subscribers, and contributed
heavily to our EBITDA loss of $25.6 million.
The $28.5 million net loss for the current year (which includes interest
and income tax expense, offset by the minority share of the net loss) was
dilutive to the Company's earnings in the amount of $.19 per common share.
20
<PAGE>
- -------------------------------------------------------------------------------
DIRECTORY SERVICES
The Directory segment is comprised of the operations of the Company's
Cincinnati Bell Directory subsidiary, which publishes Yellow Pages
directories and sells directory advertising and informational services in
Cincinnati Bell Telephone's franchise area. These services are available to
the customer in the form of traditional printed directory, an Internet-based
service known as "Cincinnati Exchange," and on CD-Rom.
The majority of the revenues for this segment come from publishing, and
it is the Company's practice to recognize revenues, and associated direct
expenses, over the lifespan of the respective publications (generally twelve
months). Primary expenses of this segment are sales commissions paid to sales
agents and printing costs associated with its directory publications.
<TABLE>
<CAPTION>
% Change % Change
($ in millions) 1999 1998 99 vs. 98 1997 98 vs. 97
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $74.2 $72.9 2 $72.9 --
Costs and expenses:
Cost of providing service 27.5 27.8 (1) 29.8 (7)
Selling, general and
administrative expense 19.5 19.7 (1) 18.2 8
------- ------- -------
Total 47.0 47.5 48.0
EBITDA $27.2 $25.4 7 $24.9 2
EBITDA margin 36.7% 34.8% 5 34.1% 2
</TABLE>
1999 COMPARED TO 1998
REVENUES
Revenues of $74.2 million exceeded results of the prior year by
approximately $1 million, or 2%, as the positive outcome of the 1999 sales
campaign began to materialize. The majority of the growth for this segment
($0.6 million) came from local advertisers, with an additional $0.3 million
coming from the national advertisers.
COSTS AND EXPENSES
Costs and expenses of $47.0 million were virtually unchanged for the
year, decreasing by $0.5 million, or 1%, due primarily to lower sales
commissions. Printing costs and other SG&A expenses were held constant the
prior year.
EBITDA of $27.2 million was $1.8 million higher, or 7%, than in the prior
year. EBITDA margin of 36.7% represents a five percent improvement over the
34.8% margin recorded in the prior year.
1998 COMPARED TO 1997
REVENUES
Despite the arrival of full-scale competition in our market area during
1998, the Directory segment managed to preserve its revenue stream versus
1997. While some degree of competitive loss was felt from two new
competitors, one of which was previously a sales agent for the Company,
revenues were maintained as a result of the introduction of new listing
options that resulted in additional revenues.
COSTS AND EXPENSES
Costs and expenses in 1998 were virtually unchanged in comparison to the
prior year. Sales commissions decreased as a result of slightly lower sales
volume and a renegotiated commission rate. Advertising spending increased as
new campaigns were designed to preserve market share and stimulate demand for
value-added listings.
21
<PAGE>
- -------------------------------------------------------------------------------
OTHER COMMUNICATIONS SERVICES
Other Communications combines the Cincinnati Bell Long Distance (CBLD),
Cincinnati Bell Supply (CBS), and Broadwing IT Consulting (formerly
EnterpriseWise) segments. CBLD resells long distance, voice, data, frame
relay, and Internet access services to small- and medium-sized business and
residential customers in a regional area consisting mainly of six states. CBS
sells new computers and resells telecommunications equipment in the secondary
market, and Broadwing IT Consulting provides network integration and
consulting services as well as the sale of related equipment.
<TABLE>
<CAPTION>
% Change % Change
($ in millions) 1999 1998 99 vs. 98 1997 98 vs. 97
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $131.3 $106.1 24 $ 101.7 4
Cost and expenses:
Cost of providing service 93.1 66.3 40 63.9 4
Selling, general and
administrative expense 35.2 24.8 42 20.3 22
--------- ------- --------
Total 128.3 91.1 41 84.2 8
EBITDA $3.0 $15.0 (80) 17.5 (14)
EBITDA margin 2.3% 14.1% (84) 17.2% (18)
</TABLE>
1999 COMPARED TO 1998
REVENUES
Revenues were up $25.2 million, or 24%, in 1999. CBS accounted for $9.8
million of the revenue increase as a result of sales of communication
equipment through its existing sales force and its new call center. Broadwing
IT Consulting provided additional revenue of $14.3 million, of which slightly
more than half was derived from the sale of hardware. CBLD contributed $1.7
million increase in revenues as decreases in its existing voice products were
offset by sales of new data and Internet services.
COSTS AND EXPENSES
Costs and expenses increased 41% or $37.2 million. Costs of providing
services accounted for approximately $27 million of this increase. Of this,
$13 million was attributable to costs of materials and hardware associated
with sales, $5 million was for employee-related expenses associated with the
network integration consulting business added in November 1998, and the
remainder was for increased cost of service in the new and existing CBLD
services.
SG&A expenses were approximately $10 million higher than in the prior
year, the majority of which can be attributed to employee costs associated
with entry into new businesses. These were incurred by all subsidiaries
within this segment, with CBLD incurring the largest increase ($5 million)
due to its introduction of data transport, high-speed Internet, and local
exchange services. An additional $4.2 million in SG&A expense is attributable
to Broadwing IT Consulting, a business that had minimal effect on 1998
operations due to its acquisition by the Company late in that year. CBS
incurred approximately $1 million in additional SG&A costs this year in order
to establish a new call center in support of a sales agency arrangement it
has with Lucent Technologies.
For these operations combined, EBITDA of $3 million was $12 million less
than the prior year for the reasons noted above.
Coincident with the merger, the Company performed a strategic
reassessment of its business unit structure. As a result, the Company is
finalizing plans to sell, or exit, the CBS business in 2000 as it does not
fit with the Company's long-term strategic plan. Also, the operations of CBLD
and Broadwing IT Consulting were integrated into Broadwing Communications in
January 2000.
22
<PAGE>
1998 COMPARED TO 1997
REVENUES
Revenues increased $4.4 million, or 4%. CBLD contributed a substantial
gain in revenues over the prior year, adding $10 million of revenue as a
result of increased subscribership and usage. CBS reported a $5.6 million
decline in its revenues, due to the reduction in sales volume with a major
customer and lower salvage prices on reclaimed materials for resale.
COSTS AND EXPENSES
Costs and expenses increased $6.9 million, or 8%. CBLD experienced
increased selling and administrative expenses to acquire new subscribers and
enter the data market with the introduction of frame relay service and
Internet access. CBS reported lower product costs due to the decreased sales
volume previously discussed.
- -------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased $69 million over 1998, of
which $47 million was a result of the Merger and $14 million was attributable
to the wireless business. The Company anticipates depreciation and
amortization expense to be approximately $470 million in 2000 due to a full
year of the merged company results.
- -------------------------------------------------------------------------------
INTEREST EXPENSE
<TABLE>
<CAPTION>
% Change % Change
($ in millions) 1999 1998 99 vs. 98 1997 98 vs. 97
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$61.7 $24.2 155 $30.1 (20)
</TABLE>
1999 COMPARED TO 1998
Interest expense increased significantly in 1999, owing to higher average
debt levels associated with the Merger, the issuance of $400 million in 6 3/4%
convertible subordinated notes in July 1999, and the amortization of debt
issuance costs and bank commitment fees associated with the Company's new
$2.1 billion credit facility and these convertible subordinated notes.
Of the $37.5 million increase in interest expense, $13.4 million is
attributable to the operations of the Wireless business and approximately
$24.0 million is related to the Merger.
1998 COMPARED TO 1997
Interest expense declined in 1998 due to lower weighted average interest
rates and an increase in interest during construction in 1998.
- -------------------------------------------------------------------------------
INCOME TAXES
<TABLE>
<CAPTION>
% Change % Change
($ in millions) 1999 1998 99 vs. 98 1997 98 vs. 97
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income taxes $33.3 $44.3 (25) $56.3 (21)
Effective tax rate 46.7% 35.1% 33 35.5% (1)
</TABLE>
1999 COMPARED TO 1998 AND 1998 COMPARED TO 1997
Income tax expense decreased in 1999 primarily due to lower overall
pretax income resulting from higher pre-tax losses generated by the Wireless
segment and pre-tax losses generated by the new Broadband segment. The
Company's previous effective tax rate of approximately 35% will not be
sustainable for future periods due to significant levels of non-deductible
expense such as goodwill amortization and minority interest dividends.
The 1998 decrease (versus 1997) was the result of lower pre-tax income,
primarily due to the wireless venture loss. The effective tax rates between
these two years were comparable.
23
<PAGE>
- -------------------------------------------------------------------------------
EXTRAORDINARY ITEMS, NET OF TAXES
<TABLE>
<CAPTION>
% Change % Change
($ in millions) 1999 1998 99 vs. 98 1997 98 vs. 97
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$6.6 $1.0 n/m $210.0 --
</TABLE>
1999 COMPARED TO 1998 AND 1998 COMPARED TO 1997
Extraordinary items affected both years. In 1999, costs related to the
early extinguishment of debt as a result of the Merger resulted in a $6.6
million charge, net of taxes. In 1998, the spin-off of Convergys resulted in
the retirement of debt and a portion of a then-existing credit facility,
resulting in a $1.0 million charge, net of tax.
In 1997, the Company discontinued the application of SFAS 71 which
resulted in an extraordinary, non-cash charge of $210.0 million, net of
income taxes.
- -------------------------------------------------------------------------------
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
CAPITAL INVESTMENT, RESOURCES AND LIQUIDITY
The Company continued its transformation from a wireline voice
communications provider focused on its local franchise to a nationwide
provider of data and voice communications and a regional provider of wireless
services. As a result, the financing needs of the Company have changed
significantly. Although the Company generated positive cash flow from
operations in 1999, and expects to again in 2000, capital expenditures and
other investing needs will increase the Company's borrowings.
In anticipation of these funding needs, the Company eliminated the
dividend payment on common stock and issued $400 million in 6 3/4%
convertible subordinated notes. The proceeds of these notes were used to
affect the Merger, namely to purchase shares of IXC for cash and to purchase
treasury shares of the Company's common stock.
In order to provide for these cash requirements and other general
corporate purposes, the Company also obtained a $2.1 billion credit facility
from a group of 24 lending institutions. The credit facility consists of $900
million in revolving credit and $750 million in term loans from banking
institutions and $450 million in term loans from non-banking institutions. At
December 31, 1999, the Company had drawn approximately $755 million from the
credit facility in order to refinance its existing debt and debt assumed as
part of the Merger. In January 2000, the Company borrowed approximately $400
million in order to redeem the majority of the outstanding 9% senior
subordinated notes assumed during the Merger as part of a tender offer. This
tender offer was required under the terms of the note indenture due to the
change in control provision and resulted in an extraordinary loss of $4
million, net of tax. Accordingly, the Company has approximately $900 million
in additional borrowing capacity under this facility as of the date of this
report. Separately, the Company also has ownership position in four publicly
traded companies. The value of these holdings was $928.4 million as of
December 31, 1999. The sale of these securities are subject to limitations
including registration rights.
The interest rates to be charged on borrowings from this credit facility
can range from 100 to 225 basis points above the London Interbank Offering
Rate (LIBOR), depending on the Company's credit rating. The current borrowing
rate is approximately 200 basis points. The Company will incur banking fees
in association with this credit facility ranging from 37.5 basis points to 75
basis points, applied to the unused amount of borrowings of the facility.
The Company is also subject to financial covenants in association with
the credit facility. These financial covenants require that the Company
maintain certain debt to EBITDA ratios, debt to total capitalization ratios,
fixed and floating rate debt ratios and interest coverage ratios. This
facility also contains certain covenants which, among other things, restrict
the Company's ability to incur additional debt, pay dividends, repurchase
Company common stock, and sell assets or merge with another company.
24
<PAGE>
As a result of the Merger the Company's corporate credit ratings were
downgraded in 1999. As of the date of this filing, the Company maintains the
following credit ratings:
<TABLE>
<CAPTION>
Duff & Phelps Moody's
Entity Description Standard and Poor's Credit Rating Service Investor Service
- ------ ----------- ------------------- --------------------- ----------------
<C> <S> <C> <C> <C>
BRW Corporate Credit Rating BB+ BB+ Ba2
CBT Corporate Credit Rating BB+ BBB+ Baa3
</TABLE>
Capital expenditures to maintain and grow the nationwide fiber network,
complete the wireless network expansion, and maintain the local Cincinnati
network are expected to be approximately $805 million in 2000, consistent
with $816 million on a Pro Forma basis in 1999.
BALANCE SHEET
Nearly all balance sheet categories have increased significantly from the
prior year due to the Merger. Cash and cash equivalents increased by $70
million over the prior year largely from the receipt of approximately $76
million in cash on December 30, 1999 related to an IRU agreement with PSINet.
The increase in accounts receivable and related allowances are primarily a
result of the Merger. The increase in the reserve percentage reflects
accruals for disputes and bad debts arising as a result of provisioning
issues and the de-emphasis of the switched wholesale business at Broadwing
Communications. In addition to the Merger, property, plant and equipment
increased due to the Company's investment in its wireless and local
communications business. Goodwill and other intangibles increased by nearly
$2.2 billion and $0.4 billion, respectively, nearly all of which was related
to the Merger. Investments in unconsolidated entities represents equity
investments in PSINet, Applied Theory, PurchasePro.com, and ZeroPlus.com
(which have been adjusted to market value in accordance with SFAS 115). The
increases to short-term and long-term debt are attributable to the issuance
of $400 million in 6 3/4% convertible subordinated notes and the refinancing
of long-term debt upon the Merger. The current and long-term amounts
associated with unearned revenues relate to the sale of IRU agreements.
In 1999, the $405 million dollar increase in the Minority Interest
caption is attributable to 12 1/2% preferred shares previously issued by IXC.
Effective with the Merger, the Company replaced the previously existing 6 3/4%
and 7 1/4% preferred stock issues at IXC with its own preferred stock. These
preferred stock issues were reflected at fair value upon the Merger date, and
have resulted in the addition of approximately $229 million and $129 million,
respectively, in additional redeemable and non-redeemable preferred stock.
Additional paid in capital increased during 1999 primarily from the issuance
of approximately 68 million new shares of common stock in the Merger. The
increase in accumulated other comprehensive income is largely attributable to
unrealized holding gains (net of tax) on the equity investments previously
discussed. Also, the Company engaged in a share repurchase program that
reduced shareholders' equity by $145 million.
CASH FLOW
The cash provided by operating activities of $314 million was $102
million higher than in the prior year. The increase was largely attributable
to a $75 million increase in unearned revenues related to IRU agreements.
The Company engaged in several investment activities of significance in
1999, several of which were related to the Merger. Capital expenditures of
approximately $381 million represented a $238 million increase over the prior
year, with Broadwing Communications spending $165 million in the post-merger
period and a $53 million increase related to infrastructure development for
the wireless business. The Company also capitalized $10 million in software
development costs in 1999 pursuant to its adoption of AICPA Statement of
Position 98-1.
In the current year, net cash paid for acquisitions totaled $247 million,
$233 million of which was attributable to the Merger. Remaining expenditures
for acquisitions represented additional investment in the wireless business
and the purchase of a long distance reseller. The purchase of the marketable
securities of two unaffiliated e-commerce vendors required an additional $13
million in cash.
The Company incurred net debt of $429 million more than in the prior
year, of which $400 million was issued to Oak Hill Capital Partners in July
1999 in the form of 6.75% convertible subordinated debentures (see Note 5 of
Notes to Financial Statements). Dividends paid to shareholders of $46 million
in 1999 were $9 million less than in the prior year. The Company received an
additional $37 million versus the prior year from the exercise of employee
stock options. The Company also used $145 million in 1999 in order to
purchase shares of its own common stock as part of a share repurchase program.
25
<PAGE>
REGULATORY MATTERS AND COMPETITIVE TRENDS
FEDERAL - In February 1996, Congress enacted the Telecommunications Act of
1996 (the 1996 Act), the primary purpose of which was to introduce greater
competition into the market for telecommunications services. Since February
1996, the Federal Communications Commission (FCC) has initiated numerous
rulemaking proceedings to adopt regulations pursuant to the 1996 Act. The
1996 Act and the FCC's rulemaking proceedings can be expected to impact CBT's
in-territory local exchange operations in the form of greater competition.
However, these statutes and regulations also create opportunities for the
Company to expand the scope of its operations, both geographically and in
terms of products and services offered.
OHIO - CBT's alternative regulation case dealing with the rates CBT can
charge to competitive local exchange carriers for unbundled network elements
is pending. The PUCO issued its decision on the methodology CBT must use to
calculate these rates on November 4, 1999. On January 20, 2000, the PUCO
denied all parties' requests for rehearing except for one issue regarding
nonrecurring charges. CBT was required to submit new cost studies by February
28, 2000. After a period for review of the studies and resolution of any
disputes, CBT is to file a tariff implementing the resulting rates.
KENTUCKY - On June 29, 1998, CBT filed an application with the Public Service
Commission of Kentucky (PSCK) seeking approval of an alternative regulation
plan similar to the Commitment 2000 plan approved by the PUCO in Ohio. On
January 25, 1999, the PSCK issued an order approving the Kentucky alternative
regulation plan with certain modifications. One of the modifications was the
adoption of an earnings-sharing provision whereby customers would receive
one-half of earnings on equity in excess of 13.5%. The PSCK also ordered that
residential rates be frozen for three years and required rate reductions of
approximately $3 million per year versus current rates. On February 12, 1999,
CBT filed a petition seeking rehearing of the PSCK's January 25, 1999 order.
On July 26, 1999, the PSCK issued an order which eliminated the automatic
earnings-sharing provision and revised the required rate reductions to $2.3
million per year, instead of the $3 million per year previously ordered.
BUSINESS OUTLOOK
Evolving technology, the preferences of consumers, the legislative and
regulatory initiatives of policy makers and the convergence of other
industries with the telecommunications industry are causes for increasing
competition. The range of communications services, the equipment available to
provide and access such services, and the number of competitors offering such
services continue to increase. These initiatives and developments could make
it difficult for the Company to maintain current revenue and profit levels.
CBT's current and potential competitors include other incumbent local
exchange carriers, wireless services providers, interexchange carriers,
competitive local exchange carriers and others. To date, CBT has signed
various interconnection agreements with competitors and approximately 7,200
net access lines have been transferred to competitors.
Broadwing Communications faces significant competition from other
fiber-based telecommunications companies such as Level 3 Communications,
Qwest Communications International, Global Crossings and Williams
Communications. These companies have, in the past, enjoyed a competitive
advantage over Broadwing Communications due to better business execution. The
Company feels that Broadwing Communications is well equipped to match these
competitors on the basis of technology and has been working to improve on
critical processes, systems and the execution of its business strategy.
The Company's other subsidiaries face intense competition in their
markets, principally from larger companies. These subsidiaries primarily seek
to differentiate themselves by leveraging the strength and recognition of the
Company's brand equity, by providing customers with superior service and by
focusing on niche markets and opportunities to develop and market customized
packages of services. CBD's competitors are directory services companies,
newspapers and other media advertising services providers in the Cincinnati
metropolitan market area. CBD now competes with its former sales
representative for Yellow Pages directory customers. This competition may
affect CBD's ability to grow or maintain profits and revenues. CBW is one of
six active wireless service providers in the Cincinnati and Dayton, Ohio
metropolitan market areas. CBS's competitors include vendors of new and used
computer and communications equipment operating regionally and across the
nation. Broadwing IT Consulting competes with Intranet hardware vendors,
wiring vendors, and other network integration and consulting businesses.
26
<PAGE>
The Merger is a response to these competitive pressures and represents a
belief that the Company's reputation for quality service and innovative
products can be successfully exported outside of its local franchise area.
The Company plans to blend its provisioning and marketing expertise with
Broadwing Communications' next-generation fiber-optic network in order to
introduce advanced calling and data transport services throughout the U.S.
The Company intends to retain market share with respect to its current
service offerings and pursue rapid growth in data transport services. The
Company also expects that each of its current subsidiaries will benefit from
this business combination through the addition of new potential customers,
sales channels and markets.
CONTINGENCIES
In the normal course of business, the Company is subject to various
regulatory proceedings, lawsuits, claims and other matters. Such matters are
subject to many uncertainties and outcomes are not predictable with
assurance. However, the Company believes that the resolution of such matters
for amounts in excess of those reflected in the consolidated financial
statements would not likely have a materially adverse effect on the Company's
financial condition.
YEAR-2000 READINESS
In order to ready its network and customer support systems for the Year
2000 (Y2K), the Company incurred expenses of $4.6 million and $10.9 million
in 1999 and 1998 respectively. Year 2000 preparations were completed as
planned, and as a result of this preparedness, major impacts to the Company
and its customers were avoided. Some degree of minor difficulty was
experienced with regard to customer payment issues, but these are considered
insignificant and have been resolved or are currently being resolved.
RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 1999, the Company adopted AICPA Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 requires the capitalization of certain
expenditures for software that is purchased or internally developed for use
in the business. As compared to prior years when these types of expenditures
were expensed as incurred, the 1999 adoption of SOP 98-1 resulted in the
capitalization of $10 million of internal use software development costs,
which are being amortized over a three-year period.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards requiring that a derivative instrument be recorded in the
balance sheet as either an asset or liability, measured at its fair value.
SFAS 133 has been subsequently amended through the release of SFAS 137, which
provides for a deferral of the effective date of SFAS 133 to all fiscal years
beginning after June 15, 2000. As a result, implementation of SFAS 133 is not
mandatory for the Company until January 1, 2001. Management is currently
assessing the impact of SFAS 133 on the Company's results of operations, cash
flows and financial position.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements. In SAB 101, the SEC Staff expresses its views regarding the
appropriate recognition of revenue with regard to a variety of circumstances,
some of which are of particular relevance to the Company. The Company is
currently evaluating SAB 101 to determine its impact on the financial
statements.
BUSINESS DEVELOPMENT
In order to enhance shareowner value, the Company actively reviews
opportunities for acquisitions, divestitures and strategic partnerships.
27
<PAGE>
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes. To manage
its exposure to interest rate changes, the Company uses a combination of
variable rate short-term and fixed rate long-term financial instruments. The
Company may, from time to time, employ a small number of financial
instruments to manage its exposure to fluctuations in interest rates. The
Company does not hold or issue derivative financial instruments for trading
purposes or enter into interest rate transactions for speculative purposes.
Management is reviewing steps necessary to mitigate this exposure.
Interest Rate Risk Management - The Company's objective in managing its
exposure to interest rate changes is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs.
The following table describes the financial instruments that were held by
the Company at December 31, 1999, excluding the PSINet forward sale and
capital leases:
<TABLE>
<CAPTION>
($ in millions) 2000-2002 2003 Thereafter Total Fair Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-term debt $20.0 $20.0 $1,917.0 $1,957.0 $1,805.0
Average interest rate 4.4% 6.2% 7.7% 7.5% --
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
<S> <C>
Consolidated Financial Statements:
Report of Management .................................................................29
Report of Independent Accountants ....................................................29
Consolidated Statements of Income and Comprehensive Income (Loss) ....................30
Consolidated Balance Sheets ..........................................................31
Consolidated Statements of Cash Flows ................................................32
Consolidated Statements of Shareowners' Equity .......................................33
Notes to Consolidated Financial Statements ...........................................34
Financial Statement Schedule:
For each of the three years in the period ended December 31, 1999:
II - Valuation and Qualifying Accounts .................................... 62
</TABLE>
Financial statements and financial statement schedules other than that
listed above have been omitted because the required information is contained
in the financial statements and notes thereto, or because such schedules are
not required or applicable.
28
<PAGE>
- -------------------------------------------------------------------------------
REPORTS OF MANAGEMENT AND INDEPENDENT ACCOUNTANTS BROADWING INC.
REPORT OF MANAGEMENT
The management of Cincinnati Bell Inc. dba Broadwing Inc. is responsible
for the information and representations contained in this report. Management
believes that the financial statements have been prepared in accordance with
generally accepted accounting principles and that the other information in
this report is consistent with those statements. In preparing the financial
statements, management is required to include amounts based on estimates and
judgments that it believes are reasonable under the circumstances.
In meeting its responsibility for the reliability of the financial
statements, management maintains a system of internal accounting controls,
which is continually reviewed and evaluated. Our internal auditors monitor
compliance with the system of internal controls in connection with their
program of internal audits. However, there are inherent limitations that
should be recognized in considering the assurances provided by any system of
internal accounting controls. Management believes that its system provides
reasonable assurance that assets are safeguarded and that transactions are
properly recorded and executed in accordance with management's authorization,
that the recorded accountability for assets is compared with the existing
assets at reasonable intervals, and that appropriate action is taken with
respect to any differences. Management also seeks to assure the objectivity
and integrity of its financial data by the careful selection of its managers,
by organization arrangements that provide an appropriate division of
responsibility, and by communications programs aimed at assuring that its
policies, standards and managerial authorities are understood throughout the
organization.
The financial statements have been audited by PricewaterhouseCoopers LLP,
independent accountants. Their audit was conducted in accordance with
auditing standards generally accepted in the United States.
The Audit and Finance Committee of the Board of Directors, which is
composed of five directors who are not employees, meets periodically with
management, the internal auditors and PricewaterhouseCoopers LLP to review
their performance and responsibilities and to discuss auditing, internal
accounting controls and financial reporting matters. Both the internal
auditors and the independent accountants periodically meet alone with the
Audit and Finance Committee and have access to the Audit and Finance
Committee at any time.
KEVIN W. MOONEY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND THE
SHAREOWNERS OF CINCINNATI BELL INC. DBA BROADWING INC.
In our opinion, the accompanying consolidated financial statements listed
in the accompanying index present fairly, in all material respects, the
financial position of Cincinnati Bell Inc. dba Broadwing Inc. (the Company)
and its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, in 1999
the Company adopted AICPA Statement of Position 98-1 and changed its method
of accounting for internal use software development costs.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Cincinnati, Ohio
March 8, 2000
29
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(LOSS) BROADWING INC.
<TABLE>
<CAPTION>
Millions of dollars except per share amounts Year ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $1,131.1 $885.1 $834.5
- -----------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Costs of providing services and products sold 508.7 369.6 344.6
Selling, general and administrative 286.7 225.5 195.2
Depreciation and amortization 181.0 111.1 124.3
Restructuring and other charges (credits) 10.9 (1.1) (21.0)
------ --------- --------
OPERATING INCOME 143.8 180.0 191.4
------ --------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Loss in Unconsolidated Entities 15.3 27.3 --
Minority Interest and Other Income (Expense), Net 4.5 (2.4) (2.7)
Interest Expense 61.7 24.2 30.1
----- ------- -------
Income from Continuing Operations Before Income Taxes 71.3 126.1 158.6
Income Taxes 33.3 44.3 56.3
------ ------- -------
Income from Continuing Operations 38.0 81.8 102.3
Income from Discontinued Operations, Net of Taxes -- 69.1 91.3
----- ------- ------
Income Before Extraordinary Items 38.0 150.9 193.6
Extraordinary Items, Net of Taxes (6.6) (1.0) (210.0)
------- -------- -------
NET INCOME (LOSS) 31.4 149.9 (16.4)
Dividends and Accretion Applicable to Preferred Stock 2.1 -- --
------ -------- -------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $29.3 $ 149.9 $(16.4)
------ -------- -------
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $31.4 $ 149.9 $(16.4)
Other Comprehensive Income (Loss), Net of Tax:
Unrealized gain on investments 170.0 -- --
Currency translation adjustments -- (4.8) (1.6)
Additional minimum pension liability adjustment 3.6 (2.5) 0.8
------- --------- --------
Total other comprehensive income (loss) 173.6 (7.3) (0.8)
------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $205.0 $ 142.6 $(17.2)
------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS (LOSS) PER COMMON SHARE
Income from Continuing Operations $ .25 $ .60 $ .76
Income from Discontinued Operations, Net of Taxes -- .51 .67
Extraordinary Items, Net of Taxes (.05) (.01) (1.55)
-------- --------- ---------
Net Income (Loss) $ .20 $ 1.10 $ (.12)
-------- --------- ---------
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Income from Continuing Operations $ .24 $ .59 $ .74
Income from Discontinued Operations, Net of Taxes -- .50 .67
Extraordinary Items, Net of Taxes (.04) (.01) (1.53)
-------- --------- ---------
Net Income (Loss) $ .20 $ 1.08 $ (.12)
-------- --------- ---------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (MILLIONS)
Basic 144.3 136.0 135.2
Diluted 150.7 138.2 137.7
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
CONSOLIDATED BALANCE SHEETS BROADWING INC.
<TABLE>
<CAPTION>
Millions of dollars at December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 80.0 $ 10.1
Receivables, less allowances of $53.6 and $12.0 231.0 138.0
Material and supplies 30.3 16.9
Deferred income tax benefits 35.9 13.8
Prepaid expenses and other current assets 36.2 18.6
------- --------
Total current assets 413.4 197.4
Property, Plant and Equipment, Net 2,500.9 698.2
Goodwill and Other Intangibles, Net 2,679.9 103.3
Investments in Other Entities 843.3 2.5
Deferred Charges and Other Assets 71.1 39.6
------- -------
Total Assets $6,508.6 $1,041.0
-------- --------
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities, Redeemable Preferred Stock, and Shareowners' Equity
Current Liabilities
Short-term debt $ 9.2 $ 186.2
Accounts payable 230.5 57.9
Current portion of unearned revenue and customer deposits 82.6 26.8
Accrued taxes 88.3 40.6
Other current liabilities 157.5 93.8
----- ----
Total current liabilities 568.1 405.3
Long-Term Debt, less current portion 2,136.0 366.8
Unearned Revenue, less current portion 633.5 --
Deferred Income Taxes 221.8 6.3
Other Long-Term Liabilities 153.8 91.5
----- ----
Total liabilities 3,713.2 869.9
Minority Interest 434.0 29.0
7 1/4% Convertible Preferred Stock, redeemable, $.01 par value; authorized -
5,000,000 shares of all classes of Preferred Stock; 1,058,380 shares issued
and outstanding at December 31, 1999 (aggregate liquidation preference
of $105.8 at December 31, 1999) 228.6 --
Commitments and Contingencies
Shareowners' Equity
6 3/4% Cumulative Convertible Preferred Stock, $.01 par value; authorized -
5,000,000 shares of all classes of Preferred Stock; 155,250 shares issued
and outstanding at December 31, 1999 129.4 --
Common shares, $.01 par value; 480,000,000 shares authorized;
208,678,058 and 136,381,509 shares issued 2.1 1.4
Additional paid-in capital 1,979.5 147.4
Retained earnings -- --
Accumulated other comprehensive income (loss) 166.9 (6.7)
Common stock in treasury, at cost
1999 - 7,805,800 shares, 1998 - no shares (145.1) --
------ -------
Total shareowners' equity 2,132.8 142.1
------- -------
Total Liabilities, Redeemable Preferred Stock and Shareowners' Equity $6,508.6 $1,041.0
-------- --------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS BROADWING INC.
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $31.4 $ 149.9 $(16.4)
Less: income from discontinued operations, net of taxes -- (69.1) (91.3)
----- ------- ------
Income (loss) from continuing operations 31.4 80.8 (107.7)
Adjustments to reconcile income (loss) from continuing operations to net
cash provided by (used in) operating activities:
Depreciation 159.9 110.5 123.9
Amortization 21.1 0.6 0.4
Restructuring and related charges (credits) 10.6 (1.1) (21.0)
Provision for loss on receivables 28.5 15.8 7.3
Extraordinary items, net of taxes 6.6 1.0 210.0
Non-cash interest expense 15.8 1.9 (6.4)
Minority interest (3.0) -- --
Equity loss in unconsolidated entities 15.3 27.3 --
Change in operating assets and liabilities net of effects from
acquisitions:
Decrease (increase) in receivables (3.4) (24.9) (26.3)
Decrease (increase) in prepaid expenses and other current assets (16.7) 2.1 (7.4)
Increase (decrease) in accounts payable (17.1) 40.9 45.1
Increase (decrease) in other current liabilities 46.3 (7.5) (43.2)
Increase in unearned revenues 75.0 -- --
Increase (decrease) in deferred income taxes (24.7) (12.8) (4.1)
Decrease (increase) in other assets and liabilities, net (31.7) (22.3) 26.8
------ ----- ----
Net cash provided by operating activities of continuing operations 313.9 212.3 197.4
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (381.4) (143.6) (158.4)
Payments for acquisitions, net of cash acquired (247.0) (165.6) --
Purchase of marketable securities (12.8) -- --
Other investing activities, net -- -- 4.6
------ ----- -----
Net cash used in investing activities of continuing operations (641.2) (309.2) (153.8)
------ ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 1,175.0 150.0 --
Repayment of long-term debt (221.2) (51.2) (99.6)
Short-term borrowings, net (371.4) 54.7 109.5
Debt issuance costs (31.5) -- --
Issuance of common shares-exercise of stock options 37.0 0.3 9.1
Purchase of treasury shares (145.1) -- --
Dividends paid (45.6) (54.4) (54.3)
------ ----- -----
Net cash provided by (used in) financing activities of continuing operations 397.2 99.4 (35.3)
----- ------
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by discontinued operations -- (0.2) (0.2)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ 69.9 $ 2.3 $ 8.1
Cash and cash equivalents at beginning of year 10.1 7.8 (0.3)
---- -------- --------
Cash and cash equivalents at end of year $ 80.0 $ 10.1 $ 7.8
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY BROADWING INC.
<TABLE>
<CAPTION>
6 3/4% Cumulative
Convertible Preferred Accumulated
Stock Common Stock Treasury Stock Additional Other
---------------- ---------------- ---------------- Paid-In Retained Comprehensive
Dollars and shares in millions Shares Amount Shares Amount Shares Amount Capital Earnings Income Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 -- -- 135.1 $1.4 -- -- $346.8 $293.5 $(7.3) $634.4
Shares issued under shareowner
and employee plans -- -- 1.0 -- -- -- 17.7 (0.8) -- 16.9
Net loss -- -- -- -- -- -- -- (16.4) -- (16.4)
Additional minimum pension
liability adjustment -- -- -- -- -- -- -- -- 0.8 0.8
Currency translation
adjustments -- -- -- -- -- -- -- -- (1.6) (1.6)
Dividends on common shares,
$.40 per share -- -- -- -- -- -- -- (54.4) -- (54.4)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 -- -- 136.1 1.4 -- -- 364.5 221.9 (8.1) 579.7
Shares issued under shareowner
and employee plans -- -- 0.3 -- -- -- -- -- -- --
Net income -- -- -- -- -- -- -- 149.9 -- 149.9
Additional minimum pension
liability adjustment -- -- -- -- -- -- -- -- (2.5) (2.5)
Currency translation
adjustments -- -- -- -- -- -- -- -- (4.8) (4.8)
Restricted stock issuance -- -- -- -- -- -- (4.9) -- -- (4.9)
Dividends on common shares,
$.40 per share -- -- -- -- -- -- -- (54.6) -- (54.6)
Spin-off of Convergys -- -- -- -- -- -- (212.2) (317.2) 8.7 (520.7)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 -- -- 136.4 1.4 -- -- 147.4 -- (6.7) 142.1
Shares issued under shareowner
and employee plans -- -- 3.2 -- -- -- 46.3 -- -- 46.3
Net income -- -- -- -- -- -- -- 31.4 -- 31.4
Additional minimum pension
liability adjustment -- -- -- -- -- -- -- -- 3.6 3.6
Unrealized gain on investments -- -- -- -- -- -- -- -- 170.0 170.0
Restricted stock amortization -- -- 0.7 -- -- -- 5.1 -- -- 5.1
Dividends:
Common Shares, at
$.20 per share -- -- -- -- -- -- -- (27.5) -- (27.5)
Preferred Shares -- -- -- -- -- -- 1.8 (3.9) -- (2.1)
Equity issued in connection
with Merger 0.2 129.4 68.4 0.7 -- -- 1,778.9 -- -- 1,909.0
Treasury shares repurchased -- -- -- -- (7.8) (145.1) -- -- -- (145.1)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 0.2 $129.4 208.7 $ 2.1 (7.8) $(145.1) $1,979.5 $ -- $166.9 $2,132.8
===== ====== ===== ===== ===== ======== ======== ====== ====== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company provides diversified communications services through
businesses in four material segments: Local Communications, Broadband,
Wireless, and Directory. On November 9, 1999 the Company merged with IXC
Communications in a transaction accounted for as a purchase. Accordingly,
IXC's operations (renamed Broadwing Communications) have been included in the
consolidated financial statements for all periods subsequent to November 9,
1999 (See Note 2).
BASIS OF CONSOLIDATION -- The consolidated financial statements include the
consolidated accounts of Cincinnati Bell Inc. dba Broadwing Inc. (the
Company), and its majority owned subsidiaries in which the Company exercises
control. Less-than-majority-owned subsidiaries are accounted for using the
equity method. For equity method investments, the Company's share of income
is calculated according to the Company's equity ownership. Any differences
between the carrying amount of an investment and the amount of the underlying
equity in the net assets of the investee are amortized over the expected life
of the asset. Investments over which we do not exercise significant influence
are reported at fair value. Significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
USE OF ESTIMATES -- Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported. Actual results
could differ from those estimates.
CASH EQUIVALENTS -- Cash equivalents consist of short-term, highly liquid
investments with original maturities of three months or less.
MATERIALS AND SUPPLIES -- Materials and supplies are carried at the lower of
average cost or market.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost. The Company's provision for depreciation of telephone plant is
determined on a straight-line basis using the whole life and remaining life
methods. As a result of the discontinuation of SFAS 71 in the fourth quarter
of 1997, CBT recognized shorter, more economically realistic lives than those
prescribed by regulators and increased its accumulated depreciation balance
by $309.0 million (see Note 13). Provision for depreciation of other property
is based on the straight-line method over the estimated useful life. Repairs
and maintenance expense items are generally charged to expense as incurred.
Telephone plant is retired at its original cost, net of cost of removal and
salvage, and is charged to accumulated depreciation. For other property,
plant and equipment, retired or sold, the gain or loss is recognized in other
income.
LONG-LIVED ASSETS, OTHER ASSETS AND GOODWILL -- Deferred financing costs are
costs incurred in connection with obtaining long-term financing; such costs
are amortized as interest expense over the terms of the related debt
agreements. Certain costs incurred with the connection of customers to the
switched long distance network (deferred network costs) are amortized on a
straight-line basis over two years. Goodwill resulting from the purchase of
businesses and other intangibles are recorded at cost and amortized on a
straight-line basis from 5 to 40 years. Broadwing reviews the carrying value
of long-lived assets and goodwill for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. An impairment loss would be recognized when estimated future
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition are less than its carrying amount, with the loss
measured based on discounted expected cash flows.
REVENUE RECOGNITION -- Local service revenues are billed monthly, in advance,
with revenues being recognized when earned. Remaining revenues (with the
exception of those described below) are billed and recognized as services are
provided. Directory segment revenues and related directory costs are
generally deferred and recognized over the life of the associated directory,
normally twelve months. Indefeasible right-to-use agreements, or IRUs,
represent the lease of excess network capacity and are recorded as unearned
revenue at the earlier of the acceptance of the applicable portion of the
network by the customer or the receipt of cash. Associated IRU revenue is
then recognized over the life of the agreement as services are provided,
beginning on the date of customer acceptance. IRU and related maintenance
revenue are included in the private line category for the Broadband segment.
34
<PAGE>
ADVERTISING -- Costs related to advertising are expensed as incurred and
amounted to $22.3 million, $11.1 million, and $8.1 million in 1999, 1998, and
1997, respectively.
FIBER EXCHANGE AGREEMENTS -- In connection with the fiber optic network
expansion, the Company entered into various agreements to exchange fiber
usage rights. Non-monetary exchanges of fiber usage are recorded at the cost
of the asset transferred or, if applicable, the fair value of the asset
received. The Company accounts for agreements with other carriers to exchange
fiber for capacity by recognizing the fair value of the revenue earned and
expense incurred under the respective agreements. Exchange agreements
accounted for non-cash revenue and expense (in equal amounts) of $2.7 million
in 1999.
INCOME TAXES -- The provision for income taxes consists of an amount for
taxes currently payable and a provision for tax consequences deferred to
future periods using the liability method. For financial statement purposes,
deferred investment tax credits are being amortized as a reduction of the
provision for income taxes over the estimated useful lives of the related
property, plant and equipment.
STOCK-BASED COMPENSATION -- Compensation cost is measured under the intrinsic
value method. Pro forma disclosures of net income and earnings per share are
presented as if the fair value method had been applied.
FINANCIAL INSTRUMENTS -- In the normal course of business, the Company may,
from time to time, employ a small number of financial instruments to manage
its exposure to fluctuations in interest rates. The Company does not hold or
issue derivative financial instruments for trading purposes.
REGULATORY ACCOUNTING -- In the fourth quarter of 1997, the Company
discontinued accounting under Statement of Financial Accounting Standards
(SFAS) 71, "Accounting for the Effects of Certain Types of Regulation," at
Cincinnati Bell Telephone (see Note 13).
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to the current classifications with no effect on financial results.
RECENTLY ISSUED ACCOUNTING STANDARDS -- On January 1, 1999, the Company
adopted AICPA Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
the capitalization of certain expenditures for software that is purchased or
internally developed for use in the business. As compared to prior years when
these types of expenditures were expensed as incurred, the 1999 adoption of
SOP 98-1 resulted in the capitalization of $10 million of internal use
software development costs, which are being amortized over a three-year
period.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards requiring that a derivative instrument be recorded in the
balance sheet as either an asset or liability, measured at its fair value.
SFAS 133 has been subsequently amended through the release of SFAS 137, which
provides for a deferral of the effective date of SFAS 133 to all fiscal years
beginning after June 15, 2000. As a result, implementation of SFAS 133 is not
mandatory for the Company until January 1, 2001. Management is currently
assessing the impact of SFAS 133 on the Company's results of operations, cash
flows and financial position.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements." In SAB 101, the SEC Staff expresses its views regarding the
appropriate recognition of revenue with regard to a variety of circumstances,
some of which are of particular relevance to the Company. The Company is
currently evaluating SAB 101 to determine its impact on the financial
statements.
2. ACQUISITIONS
IXC COMMUNICATIONS INC.:
On November 9, 1999, the Company merged with IXC Communications, Inc.
(the Merger). Under the terms of the Merger, each share of IXC common stock
was exchanged for 2.0976 shares of the Company's common stock. The aggregate
purchase price of $2.2 billion consisted of (all numbers approximate): $0.3
billion in cash for the purchase of five million shares of IXC stock from GE
Capital Pension Trust; the issuance of 68 million shares of the Company's
common stock valued at $1.6 billion, 155,000 shares of 6 3/4% convertible
preferred stock valued at $0.1 billion; and the issuance of 14 million
options to purchase Broadwing common stock valued at $0.2 billion. These
options were issued coincident with the merger to replace the then
outstanding and unexercised options exercisable for shares of IXC common
stock. These options were granted on the same
35
<PAGE>
terms and conditions as the IXC options, except that the exercise price and
the number of shares issuable upon exercise were divided and multiplied,
respectively, by 2.0976. The Merger was accounted for as a purchase and,
accordingly, the operating results of IXC (Broadwing Communications) have
been included in the Company's consolidated financial statements since the
Merger date of November 9, 1999.
The cost of the Merger has been preliminarily allocated to the assets
acquired and liabilities assumed according to their estimated fair values at
the acquisition date and is subject to adjustment when the assumptions
relating to the asset and liability valuations are finalized. In addition,
the allocation may be impacted by changes in pre-acquisition contingencies
identified during the allocation period by the Company relating to certain
environmental, litigation, and other matters. The results of a preliminary
allocation of the purchase price are as follows:
Fair market value adjustments:
<TABLE>
<S> <C>
Property, Plant & Equipment $ 207.0
Other intangibles 397.0
Debt (168.0)
Deferred tax Liabilities (113.0)
Other 7.0
- -------------------------------------------------------------------------------
Subtotal $330.0
- -------------------------------------------------------------------------------
Goodwill $2,187.5
- -------------------------------------------------------------------------------
Total $2,517.5
- -------------------------------------------------------------------------------
</TABLE>
The amount allocated to goodwill represents the excess of price paid over
the fair value of assets realized and liabilities assumed in the Merger. These
amounts will be amortized to expense over a 30-year period.
CINCINNATI BELL WIRELESS:
On December 31, 1998 the Company paid approximately $162 million in cash
to AT&T PCS in exchange for an 80% interest in the Wireless business,
including a PCS license and other assets and liabilities. The goodwill,
licenses, and other intangibles related to this purchase were approximately
$96 million and are being amortized to expense on a straight-line basis over
a 20- to 40-year period.
The following summarized unaudited Pro forma financial information
assumes both the Merger and the acquisition of the wireless business occurred
at the beginning of each year:
<TABLE>
<CAPTION>
Millions of dollars (except per share amounts) Year ended December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $1,699.4 $1,572.0
EBITDA 326.8 341.8
Loss from continuing operations (349.5) (202.7)
Net Loss $(356.1) $(140.2)
- --------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations per common share $(1.76) $(1.02)
Loss per common share $(1.79) $(.72)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
These unaudited Pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the Merger and the acquisition
of the wireless business had occurred on January 1, 1998.
36
<PAGE>
3. RESTRUCTURING AND OTHER CHARGES (CREDITS)
1999 RESTRUCTURING PLAN
In December 1999, the Company's management approved restructuring plans
which included initiatives to integrate operations of the Company and Broadwing
Communications, improve service delivery, and reduce the Company's expense
structure. Total restructuring costs and impairments of $18.6 million were
recorded in the fourth quarter related to these initiatives. The $18.6 million
consisted of $7.7 million relating to Broadwing Communications (recorded as a
component of the preliminary purchase price allocation) and $10.9 million
relating to the Company (recorded as a cost of operations). The $10.9 million
relating to the Company consisted of restructuring and other liabilities in the
amount of $9.5 million and related asset impairments in the amount of $1.4
million. The restructuring related liabilities recorded in the fourth quarter of
1999 were comprised of the following:
<TABLE>
<CAPTION>
Broadwing,excluding
Millions of dollars Broadwing Communications Broadwing Communications Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee separations $6.0 $2.2 $8.2
Facility closure costs 2.3 2.1 4.4
Relocation --- 0.2 0.2
Other exit costs 1.2 3.2 4.4
------ ------ ------
Total accrued restructuring costs $ 9.5 $ 7.7 $ 17.2
------ ------ ------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's estimated restructuring costs were based on management's best
estimate of those costs based on available information. The restructuring costs
accrued in 1999 included the costs of involuntary employee separation benefits
related to 347 employees (263 Broadwing Communication employees and 84 other
employees). As of December 31, 1999, approximately 1% of the employee
separations had been completed for a total cash expenditure of $0.4 million.
Employee separation benefits include severance, medical and other benefits, and
primarily affect customer support, infrastructure, and the Company's long
distance operations. The restructuring plans also included costs associated with
the closure of a variety of technical and customer support facilities, the
decommissioning of certain switching equipment, and the termination of contracts
with vendors.
In connection with the restructuring plan, the Company performed a review of
our long-lived assets to identify any potential impairments in accordance with
SFAS 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed
of." Accordingly, the Company recorded a $1.4 million charge as an expense of
operations, resulting from the abandonment of certain assets including duplicate
network equipment.
In total, the Company expects these restructuring related activities to
result in cash outlays of $14.8 million and non-cash items of $3.8 million, and
that most of the restructuring actions will be completed by December 31, 2000.
1995 RESTRUCTURING PLAN
In 1995, the Company implemented a restructuring plan to provide for the
voluntary and involuntary separation of more than 1,300 employees. The Company
recorded charges of $131.6 million to reflect the cost of this plan. The Company
recorded $21 million of non-cash pension settlement gains in 1997 and reversed
$1.1 million in restructuring liabilities in 1998 upon substantial completion of
the 1995 restructuring plan.
37
<PAGE>
- -------------------------------------------------------------------------------
4. INVESTMENTS IN OTHER ENTITIES
Investments in Equity Method Securities - The Company holds a 27% ownership
investment in Applied Theory. The book value and market value of this investment
at December 31, 1999 were $61.0 million and $157.1 million, respectively.
Investments in Marketable Securities - Investments held in PSINet, Purchase
Pro and ZeroPlus.com are classified as an "available-for-sale" securities under
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115).
Accordingly, the Company recorded these investments at fair value and recorded
the unrealized holding gains net of tax in comprehensive income, and adjusted
the carrying value of these investments. The book value and related market value
of these securities were $524.3 million and $771.3 million, respectively, as of
December 31, 1999.
- -------------------------------------------------------------------------------
5. DEBT
Debt Consists of the Following:
<TABLE>
<CAPTION>
Millions of dollars at December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Debt:
Commercial paper -- $185.5
Current maturities of long-term debt $9.2 0.7
---- ------
Total short-term debt $9.2 $186.2
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt
Bank Notes $755.0 --
9.0% Senior subordinated notes 450.0 --
6.75% Convertible notes 412.0 --
Various CBT Notes 290.0 $290.0
7.25% Senior subordinated notes 50.0 50.0
PSINet forward sale 133.9 --
Capital lease obligations 37.0 26.8
Other 8.1 --
- --------------------------------------------------------------------------------------------------------------------------------
Total long-term debt $2,136.0 $366.8
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Average balances of short-term debt and related interest rates for the last
three years are as follows:
<TABLE>
<CAPTION>
Millions of dollars 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average amounts of short-term debt
outstanding during the year* $190.0 $87.5 $64.2
Maximum amounts of short-term debt
at any month-end during the year $230.0 $185.5 $129.5
Weighted average interest rate
during the year** 4.9% 5.6% 5.7%
</TABLE>
* Amounts represent the average daily face amount of notes.
** Weighted average interest rates are computed by dividing the daily average
face amount of notes into the aggregate related interest expense.
38
<PAGE>
9% SENIOR SUBORDINATED NOTES
In 1998 IXC issued $450.0 million of 9% senior subordinated notes due 2008
("the 9% notes"). The 9% notes are general unsecured obligations and are
subordinate in right of payment to all existing and future senior indebtedness
and other liabilities of our subsidiaries. The indenture related to the 9% notes
requires us to comply with various financial and other covenants and restricts
the Company from incurring certain additional indebtedness.
In January 2000, $404 million of these 9% notes were redeemed through a
tender offer as a result of the change of control terms of the bond indenture.
As a result, the Company recorded an extraordinary charge for the debt
extinguishment of approximately $4.4 million, net of taxes.
6.75% CONVERTIBLE NOTES
In July 1999, the Company issued $400 million of 10-year, convertible
subordinated debentures to Oak Hill Capital Partners, L.P. These notes are
convertible into common stock of the Company at a price of $29.89 per common
share at the option of the holder. For as long as this debt is outstanding,
these notes bear a coupon rate of 6.75% per annum, with the associated interest
expense being added to the debt principal amount. Through December 31, 1999, the
Company has recorded $12.0 million in interest expense and has adjusted the
carrying amount of the debt accordingly.
PSINET FORWARD SALE
The Company's investment in PSINet consists of 21.6 million shares after
adjusting for their February 2000 two-for-one stock split. In June and July
1999, Broadwing Communications received approximately $111.8 million
representing amounts from a financial institution in connection with two prepaid
forward sale contracts on six million shares of the PSINet common stock. This
amount is accounted for as notes payable and is collateralized by these six
million shares of PSINet common stock owned by the Company. Each forward-sale
obligation for three million shares of PSINet stock may be settled at specified
dates in the first and second quarter of 2002 for a maximum amount of three
million shares of PSINet stock, or at the Company's option, the equivalent value
in cash. Since it is the Company's current intention to settle these obligations
in PSINet stock, the carrying amount of the liability is marked-to-market each
period with an offsetting adjustment to the "unrealized gain on investments"
caption within other comprehensive income.
BANK NOTES
In November 1999, the Company obtained a $2.1 billion credit facility from a
group of 24 lending institutions. The credit facility consists of $900 million
in revolving credit and $750 million in term loans from banking institutions and
$450 million in term loans from non-banking institutions. At December 31, 1999,
the Company had drawn approximately $755 million from the credit facility in
order to refinance its existing debt and debt assumed as part of the Merger. In
January 2000, the Company borrowed approximately $400 million in order to redeem
the outstanding 9% Senior Subordinated Notes assumed during the Merger as part
of a tender offer. This tender offer was required under the terms of the bond
indenture due to the change in control provision. Accordingly, the Company has
approximately $900 million in additional borrowing capacity under this facility
as of the date of this report. This facility's financial covenants require that
the Company maintain certain debt to EBITDA ratios, debt to capitalization
ratios, fixed to floating rate debt ratios and interest coverage ratios. This
facility also contains covenants which, among other things, restrict the
Company's ability to incur additional debt, pay dividends, repurchase Company
common stock, sell assets or merge with another company.
The interest rates to be charged on borrowings from this credit facility can
range from 100 to 225 basis points above the London Interbank Offering Rate
(LIBOR), depending on the Company's credit rating. The current borrowing rate is
approximately 200 basis points. The Company will incur banking fees in
association with this credit facility ranging from 37.5 basis points to 75 basis
points, applied to the unused amount of borrowings of the facility.
39
<PAGE>
Annual maturities of long-term debt and minimum payments under capital leases
for the five years subsequent to December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Millions of dollars at December 31 1999
- -----------------------------------------------------------------------
<S> <C>
Debentures/Notes
Year of Maturity
2000 $ --
2001 --
2002 20.0
2003 20.0
2004 --
2005 325.0
Thereafter 1,592.0
- -----------------------------------------------------------------------
Subtotal 1,957.0
PSINet Forward Sale 133.9
Capital leases and other 45.1
- -----------------------------------------------------------------------
Total $2,136.0
- -----------------------------------------------------------------------
</TABLE>
Interest expense recognized on the Company's debt is as follows:
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense:
Long-term debt $55.8 $ 20.8 $ 23.2
Short-term debt 5.5 4.9 6.1
Other 0.4 (1.5) 0.8
- ---------------------------------------------------------------------------------------------
Total $61.7 $ 24.2 $ 30.1
- ---------------------------------------------------------------------------------------------
</TABLE>
Interest capitalized during 1999, 1998 and 1997 was $3.8 million, $1.9
million and $1.3 million, respectively.
Extraordinary items related to the early extinguishment of debt affected
both years. In 1999, costs related to the early extinguishment of Broadwing
Communications' debt as a result of to the Merger resulted in a $6.6 million
charge, net of taxes. The spin-off of Convergys Corporation in 1998 reduced
the borrowing capacity that was needed from the Company's then-existing
credit facility and some debt and a portion of that credit facility were
retired, resulting in a $1.0 million extraordinary charge, net of tax.
- ------------------------------------------------------------------------------
6. MINORITY INTEREST
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Minority interest consists of:
12.5% Exchangeable Preferred Stock $418.2 $ --
Minority Interest in Cincinnati Bell
Wireless held by AT&T PCS 13.1 29.0
Other 2.7
- ---------------------------------------------------------------------------------
Total $434.0 $29.0
- ---------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
Broadwing Communications has outstanding approximately $400 million, or
400,000 shares of 12 1/2% Junior Exchangeable Preferred Stock (12 1/2%
Preferreds). The 12 1/2% Preferreds are mandatorily redeemable on August 15,
2009 at a price equal to their liquidation preference ($1,000 a share), plus
accrued and unpaid dividends. Dividends on the 12 1/2% Preferreds are
currently being effected through additional shares of the 12 1/2% Preferreds.
This option is available to the Company until February 15, 2001, at which
time all dividends are required to be paid in cash. The Company converted to
a cash pay option for these dividends on February 15, 2000. Dividends on the
12 1/2% Preferreds are classified as minority interest expense in the
Consolidated Statements of Income and Comprehensive Income. At the Merger
date, and as part of purchase accounting, the 12 1/2% Preferreds were
adjusted to fair market value which exceeds the redemption value. As such,
the accretion of the difference between the new carrying value and the
mandatory redemption value is treated as an offsetting reduction to minority
interest expense.
AT&T PCS maintains a 19.9% ownership in the Company's Cincinnati Bell
Wireless (CBW) subsidiary. The balance is adjusted as a function of AT&T PCS'
19.9% share of the adjusted net income (or loss) of CBW, with an offsetting
amount being reflected in the Consolidated Statements of Income and
Comprehensive Income under the caption "Minority Interest and Other Income
(Expense), Net."
- ------------------------------------------------------------------------------
7. COMMON AND PREFERRED SHARES
COMMON SHARES
Par value of the common shares is $.01 per share. At December 31, 1999
and 1998, common shares outstanding were 200.9 million and 136.4 million,
respectively. Common shares outstanding at December 31, 1999 include the
issuance of 68.4 million shares in association with the Merger. In July 1999,
the Company's Board of Directors approved a share repurchase program
authorizing the repurchase of as much as $200 million in common shares of the
Company. As of December 31, 1999, the Company had repurchased approximately
7.8 million shares of Company common stock at a cost of $145 million.
COMMON SHARE PURCHASE RIGHTS PLAN
In the first quarter of 1997, the Company's Board of Directors adopted a
Share Purchase Rights Plan by granting a dividend of one preferred share
purchase right for each outstanding common share to shareowners of record at
the close of business on May 2, 1997. Under certain conditions, each right
entitles the holder to purchase one-thousandth of a Series A Preferred Share.
The rights cannot be exercised or transferred apart from common shares,
unless a person or group acquires 15% or more of the Company's outstanding
common shares. The rights will expire May 2, 2007, if they have not been
redeemed.
PREFERRED SHARES
The Company is authorized to issue up to four million voting preferred
shares and one million nonvoting preferred shares.
In connection with the Merger, the Company issued 155,250 shares of 6 3/4%
cumulative convertible preferred stock. The 6 3/4% convertible preferred
stock can be converted at any time at the option of the holder into common
stock of the Company. The conversion rate is 28.84 shares of Company common
stock per share of 6 3/4% convertible preferred stock. Dividends on the 6 3/4%
convertible preferred stock are payable quarterly in arrears in cash or
common stock.
Also in connection with the Merger, the Company issued approximately $100
million (1,074,000 shares) of 7 1/4% junior convertible preferred stock due
2007. As of the date of this report 1,058,380 shares remain outstanding. The
7 1/4% convertible preferred stock is convertible at the option of the Holder
into shares of common stock at a conversion rate of 8.94 shares of common
stock for each share of 7 1/4% convertible preferred stock. The shares are
redeemable at a price of 104.83% on April 3, 2000. On March 31, 2007, the
7 1/4% convertible preferred stock must be redeemed at a price equal to the
liquidation preference ($100 per share) plus accrued and unpaid dividends. If
paid in kind, dividends accrue at 8 3/4%. The difference between the carrying
value of the 7 1/4% convertible preferred stock and its redemption value is
being accreted to additional paid-in-capital through the mandatory redemption
date, and this accretion is included in dividends and accretion applicable to
preferred stock. Since this preferred stock is mandatorily redeemable, it is
not classified within shareowners' equity.
41
<PAGE>
- ------------------------------------------------------------------------------
8. EARNINGS PER COMMON SHARE
Basic earnings per common share are based upon the weighted average
number of common shares outstanding during the period. Diluted earnings per
common share reflects the potential dilution that would occur if common stock
equivalents were exercised. The following table is a reconciliation of the
numerators and denominators of the basic and diluted earnings per common
share computations for income from continuing operations, before
extraordinary items, for the following periods:
<TABLE>
<CAPTION>
Shares and dollars
in millions (except
per share amounts) Year ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Income from continuing operations $38.0 $81.8 $102.3
Preferred Stock dividends 2.1 -- --
Numerator for basic earnings per common
share and earnings per common share
assuming dilution - income
applicable to common shareowners $35.9 $81.8 $102.3
- ------------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings
per common share - weighted average
common shares 144.3 136.0 135.2
Potential dilution:
Stock options 5.6 1.7 1.9
Stock-based compensation .8 .5 .6
arrangements
- ------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings
per common share 150.7 138.2 137.7
- ------------------------------------------------------------------------------------------------------------------
Basic earnings from continuing
operations per common share $.25 $.60 $.76
- ------------------------------------------------------------------------------------------------------------------
Earnings from continuing
operations per common share
assuming dilution $.24 $.59 $.74
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 4,107,471 weighted average shares of common stock at
an average of $20.75 per share were outstanding during the year ended
December 31, 1999, but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price
of the common shares. The 6 3/4% convertible debentures and 7 1/4%
convertible preferred stocks are also excluded from the diluted EPS
calculation because they are anti-dilutive. The inclusion of the convertible
debentures and preferred stocks would have added 13.8 million and 9.5 million
shares, respectively, to the denominator of the EPS calculation.
42
<PAGE>
- ------------------------------------------------------------------------------
9. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $52.3 $51.1 $57.3
State and local 6.9 7.6 4.3
----- ----- -----
Total current 59.2 58.7 61.6
Deferred:
Federal (21.2) (12.1) (5.0)
State and local (3.5) (0.7) 0.9
----- ----- -----
Total deferred (24.7) (12.8) (4.1)
Investment tax credits (1.2) (1.6) (1.2)
----- ----- -----
Total $33.3 $44.3 $56.3
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Income taxes decreased $11 million in comparison to the prior year as a
function of lower pre-tax income and the offsetting impact of nondeductible
expenses such as goodwill amortization and preferred stock dividends.
The following is a reconciliation of the statutory Federal income tax rate
with the effective tax rate for each year:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal income tax benefit 3.4 3.3 0.9
Amortization of non-deductible
intangible assets 4.6 -- --
Dividends on preferred stock 3.2 -- --
Investment and research tax credits (0.9) (1.6) (1.5)
Other differences 1.4 (1.6) 1.1
---- ---- ----
Effective rate 46.7% 35.1% 35.5%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The income tax effects relating to other comprehensive income components
were $104.0 million in 1999. These tax impacts were not significant in 1998
and 1997.
The components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
Millions of dollars at December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loss carryforwards $ 126.2 ---
Unearned revenues 193.9 ---
Investment in subsidiaries 46.5 9.6
Other 80.0 39.3
------- -----
Total deferred tax asset $ 446.6 $48.9
- --------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization $ 400.8 $22.3
Unrealized gain on investments 227.1 --
Other 4.6 --
------- -----
Total deferred tax liabilities $ 632.5 $22.3
------- -----
Net deferred tax (liability) asset $(185.9) $26.6
- --------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
The Company recorded gross deferred tax assets of approximately $346.3
million and gross deferred tax liabilities of approximately $484.3 million
upon the Merger. Tax loss carryforwards will generally expire between 2001
and 2018. U.S. tax laws limit the annual utilization of tax loss
carryforwards of acquired entities. These limitations should not materially
impact the utilization of the tax carryforwards.
- ------------------------------------------------------------------------------
10. EMPLOYEE BENEFIT PLANS
PENSIONS AND POST-RETIREMENT PLANS
The Company sponsors three noncontributory defined benefit pension plans:
one for eligible management employees, one for non-management employees and
one supplementary, nonqualified, unfunded plan for certain senior managers.
The pension benefit formula for the management plan is a cash balance
plan; the pension benefit is determined by a combination of
compensation-based credits and annual guaranteed interest credits. The
non-management pension is also a cash balance plan; the pension benefit is
determined by a combination of service and job-classification-based credits
and annual interest credits. Benefits for the supplementary plan are based on
years of service and eligible pay. Funding of the management and
non-management plans is achieved through contributions to an irrevocable
trust fund. The contributions are determined using the aggregate cost method.
The Company uses the projected unit credit cost method for determining
pension cost for financial reporting purposes. It accounts for certain
benefits provided under early retirement packages, discussed in Note 3 as a
special termination benefit.
The Company also provides health care and group life insurance benefits
for retirees with a service pension. The Company funds its group life
insurance benefits through Retirement Funding Accounts and funds health care
benefits using Voluntary Employee Benefit Association (VEBA) trusts. It is
the Company's practice to fund amounts as deemed appropriate from time to
time. Contributions are subject to IRS limitations developed using the
aggregate cost method. The associated plan assets are primarily equity
securities and fixed income investments. The Company recorded an accrued
post-retirement benefit liability of $44.9 million at December 31, 1999.
The following information relates to all Company non-contributory
defined-benefit pension plans, post-retirement healthcare, and life insurance
benefit plans.
Effective January 1, 1999, after the spin-off of Convergys, pension
assets were divided between the pension trusts of the Company and Convergys
so that each company's plans had the required assets to meet the minimum
requirements set forth in applicable benefit and tax regulations. The
remaining assets in excess of the minimum requirements were divided between
the pension trusts of the Company and Convergys in accordance with the
Employee Benefits Agreement between the two companies.
44
<PAGE>
Pension and post-retirement benefit cost are as follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement and Other Benefits
----------------------- ---------------------------------
Millions of dollars Year ended December 31 1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost (benefits earned
during the period) $6.0 $4.8 $ 3.7 $1.8 $1.5 $1.3
Interest cost on projected
benefit obligation 30.3 18.1 20.0 14.4 15.3 15.2
Expected return on plan assets (37.8) (23.3) (23.0) (10.3) (9.4) (7.3)
- --------------------------------------------------------------------------------------------------------------------------------
Settlement gains -- -- (21.0) -- -- --
Curtailment loss -- 1.4 0.2 -- -- --
Amortization of:
Transition (asset)/obligation (2.4) (1.3) (1.5) 4.9 4.9 4.9
Prior service cost 1.5 0.7 0.7 0.3 0.2 0.2
Net (gain)/loss 0.3 0.3 0.3 (0.3) (0.2) (0.1)
- --------------------------------------------------------------------------------------------------------------------------------
Actuarial net pension cost (income) $ (2.1) $ 0.7 $ (20.6) $ 10.8 $ 12.3 $ 14.2
-------- ------- ------- ------- ------- -------
</TABLE>
Reconciliation of the beginning and ending balance of the plans' funded
status were:
<TABLE>
<CAPTION>
Pension Benefits Postretirement and Other Benefits
Millions of dollars Year ended December 31 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1 $476.5 $457.5 $234.8 $222.3
Service cost 6.0 4.8 1.8 1.5
Interest cost 30.2 18.1 14.4 15.2
Amendments 8.9 1.4 (0.4) --
Actuarial (gain) loss (44.1) 34.3 (34.1) 12.3
Curtailment -- 0.9 -- --
Benefits paid (42.8) (40.5) (15.3) (16.5)
------ ------ ------ ------
Benefit obligation at December 31 $434.7 $476.5 $201.2 $234.8
------ ------ ------ ------
Change in plan assets:
Fair value of plan assets at January 1 $579.3 $543.2 $127.9 $112.1
Actual return on plan assets 125.0 71.8 9.3 17.5
Employer contribution 4.7 4.8 13.4 14.8
Benefits paid (42.8) (40.5) (15.3) (16.5)
------ ------ ------ ------
Fair value of plan assets at December 31 $666.2 $579.3 $135.3 $127.9
------ ------ ------ ------
Reconciliation to Balance Sheet:
Funded status $231.5 $102.8 $(65.9) $(106.9)
Unrecognized transition asset (12.0) (14.4) 62.9 68.6
Unrecognized prior service cost 26.6 19.2 2.7 2.6
Unrecognized net gain (237.1) (105.5) (44.6) (11.8)
- --------------------------------------------------------------------------------------------------------------------------------
Net amount recognized $9.0 $2.1 $(44.9) $(47.5)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
The combined net prepaid benefit expense consists of:
<TABLE>
<CAPTION>
Pension Benefits
---------------------
Millions of dollars Year ended December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prepaid benefit cost $42.0 $38.2
Accrued benefit liability (39.1) (44.2)
Intangible asset 1.3 1.2
Accumulated other comprehensive income 4.8 6.9
------- -------
Net amount recognized $ 9.0 $ 2.1
------- -------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999 and 1998, Pension plan assets include $51.4 million
in Company common stock and $52.8 million in Company and Convergys common
stocks, respectively.
The following are the weighted average assumptions as of December 31:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- ------------------------
At December 31 1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate - projected
benefit obligation 7.75 % 6.50% 7.00% 7.75% 6.50% 7.00%
Expected long-term rate of return
on Pension and VEBA plan assets 8.25 % 8.25% 8.25% 8.25% 8.25% 8.25%
Expected long-term rate of return
on retirement fund account assets -- -- -- 8.00% 8.00% 8.00%
Future compensation growth rate 4.50 % 4.00% 4.00% 4.50% 4.00% 4.00%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The assumed health care cost trend rate used to measure the
post-retirement health benefit obligation at December 31, 1999, was 7.43% and
is assumed to decrease gradually to 4.5% by the year 2004. In addition, a one
percentage point change in assumed health care cost trend rates would have
the following effect on the post-retirement benefit costs and obligation:
<TABLE>
<CAPTION>
Millions of dollars 1% Increase 1% Decrease
- ---------------------------------------------------------------------------------
<S> <C> <C>
1999 service and interest costs $ 0.5 $ (0.4)
Post-retirement benefit obligation
at December 31, 1999 $ 6.6 $ (5.8)
- ---------------------------------------------------------------------------------
</TABLE>
SAVINGS PLANS
The Company sponsors several defined contribution plans covering
substantially all employees. The Company's contributions to the plans are
based on matching a portion of the employee contributions or on a percentage
of employee earnings or net income for the year. Total Company contributions
to the defined contribution plans were $4.5 million, $4.0 million and $3.4
million for 1999, 1998, and 1997, respectively. These amounts exclude $6.8
million and $5.8 million in 1998 and 1997 respectively, related to the
spin-off of Convergys.
- ------------------------------------------------------------------------------
11. STOCK-BASED COMPENSATION PLANS
During 1999 and in prior years, certain employees of the Company were
granted stock options and other stock-based awards under the Company's
Long-Term Incentive Plan (Company LTIP). Under the Company LTIP, options are
granted with exercise prices that are no less than market value of the stock
at the grant date. Generally, stock options have ten-year terms and vesting
terms of three to five years. There were no Company stock appreciation rights
granted or outstanding during the three-year period ended December 31, 1999.
The number of shares authorized and available for grant (excluding those
granted in the Merger) under this plan were approximately 20 million and 8
million, respectively at December 31, 1999.
46
<PAGE>
Effective December 31, 1998, awards outstanding under the Company LTIP
were modified such that, for each Company option or share award, the holder
also received a Convergys option or share award pursuant to Convergys'
Long-Term Incentive Plan (Convergys LTIP). These Convergys stock options or
share awards have the same vesting provisions, option periods and other terms
and conditions as the original Company options. In addition, upon completion
of the Merger, the historic IXC options were exchanged for Company options
with the same vesting provisions, option periods, and other terms and
conditions of the original IXC options.
The Company follows the disclosure-only provisions of SFAS 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion 25 and related interpretations in accounting for its plans. If
the Company had elected to recognize compensation cost for the issuance of
the Company or Convergys options to employees based on the fair value at the
grant dates for awards consistent with the method prescribed by SFAS 123, net
income and earnings per share would have been impacted as follows:
<TABLE>
<CAPTION>
Millions of dollars Year ended
except per share amounts December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $31.4 $149.9 $(16.4)
- --------------------------------------------------------------------------------------------------------------
Pro forma compensation expense,
net of tax benefits (7.8) (2.1) (5.1)
Total pro forma $23.6 $147.8 $(21.5)
- --------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share:
As reported $ .20 $ 1.08 $ (.12)
Pro forma $ .14 $ 1.06 $ (.16)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The pro forma effect on net income (loss) for all periods shown above is
not representative of the pro forma effect on net income in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to 1995. In addition, the pro forma disclosure
for all periods shown does not take into consideration pro forma IXC option
grants prior to the Merger. Additionally, the pro forma disclosure for 1998
includes incremental compensation expense based on the difference in the fair
value of the replacement options issued at the date of the distribution to
employees who held Company options.
The weighted average fair values at the date of grant for the Company
options granted to employees during 1999 and 1998 were $8.40 and $8.73,
respectively. Such amounts were estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield -- 1.4% 1.8%
Expected volatility 48.0% 25.0% 29.9%
Risk-free interest rate 6.4% 5.7% 6.2%
Expected holding
period -- years 4 4 4
- --------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
Presented below is a summary of the status of outstanding Company stock
options issued to employees, the issuance of Convergys options to Company option
holders at the date of distribution, and related transactions:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Company options held by
employees at January 1, 1997 2,518 $13.14
Granted 357 $30.01
Exercised (196) $10.08
Forfeited/expired (15) $23.90
- ---------------------------------------------------------------------------------------------------
Company options held by
employees at December 31, 1997 2,664 $17.16
Granted 374 $31.25
Exercised (124) $12.02
Forfeited/expired (80) $28.26
- ---------------------------------------------------------------------------------------------------
Company options held by
employees at December 31, 1998 2,834 $20.33
Effect of Convergys Split 4,450 $11.61
- ---------------------------------------------------------------------------------------------------
Company options held by
employees at January 1, 1999 7,284 $8.72
Granted in IXC acquisition 14,583 $15.78
Granted to employees 11,341 $19.38
Exercised (3,198) $11.57
Forfeited/expired (1,308) $17.55
- ---------------------------------------------------------------------------------------------------
Company options held by
employees at December 31, 1999 28,702 $15.81
- ---------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes the status of Company stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Shares in thousands Options Outstanding Options Exercisable
-------------------------------------------- -------------------------------
Weighted Average
Range of Remaining Contractual Weighted Average Weighted Average
Exercise Prices Shares Life in Years Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.440 to $12.981 7,785 6.14 $8.02 5,802 $6.80
$12.994 to $16.781 11,150 9.11 $16.13 2,515 $15.38
$17.500 to $25.406 7,993 9.36 $20.18 2,169 $20.48
$25.450 to $31.563 1,774 6.08 28.36 520 26.80
----- ----- ------ -----
Total 28,702 $15.81 11,006 $12.40
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Restricted stock awards during 1999, 1998 and 1997 were 739,250 shares,
320,000 shares, and 126,000 shares, respectively. The weighted average market
value of the shares on the grant date were $17.37 in 1999 and, on a pre-spin-off
basis, $32.59, and $29.48 in 1998 and 1997, respectively. Restricted stock
awards generally vest within one to five years. Total compensation expense for
restricted stock awards during 1999, 1998, and 1997 was $5.7 million, $.6
million and $.6 million, respectively.
48
<PAGE>
On January 4, 1999, the Company announced stock option grants to each of its
approximately 3,500 employees. According to the terms of this program, stock
option grant recipients remaining with the Company until January 4, 2002, can
exercise their options to purchase up to 500 common shares each. The exercise
price for these options is $16.75 per share, the average of the opening and
closing prices for the Company's common stock on the date of the grant. This
plan includes a provision for option grants to future employees, in smaller
amounts and at an exercise price based on the month of hire. Grant recipients
must exercise their options prior to January 4, 2009. The Company does not
expect a significant amount of dilution as a result of this grant.
12. DISCONTINUED OPERATIONS
On December 31, 1998, the Company completed the tax-free spin-off of its
Convergys subsidiary by distributing shares of Convergys common stock to Company
shareowners on a one-for-one basis, resulting in a $520.7 million reduction in
the Company's common shareowners' equity in 1998.
For 1998 and all prior periods, the consolidated financial statements have
been restated to reflect the disposition of Convergys as discontinued
operations. Accordingly, the revenues, costs and expenses, assets and
liabilities, and cash flows of Convergys have been reported as discontinued
operations in the financial statements.
Summarized financial information for the discontinued operations is as follows:
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RESULTS OF OPERATIONS
Revenues $1,387.3 $922.3
Income before income taxes 118.3 138.3
Income taxes 49.2 47.0
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 69.1 $ 91.3
FINANCIAL POSITION
Current assets $ 360.5 $265.8
Total assets 1,450.9 654.4
Current liabilities 697.9 216.7
Total liabilities 930.2 223.6
Net assets of discontinued operations $ 520.7 $430.8
</TABLE>
Income before income taxes includes allocated interest expense of $33.7
million and $5.4 million in 1998 and 1997, respectively. Interest expense was
allocated based on the capital structure of Convergys anticipated at the date of
distribution and the Company's weighted average interest rates. The effective
tax rates for discontinued operations were 42% and 34%, respectively.
In 1998 and 1997, the Company had revenues from Convergys of $10.1 million
and $18.6 million, respectively, resulting from the provision of communications
and other services.
In 1998 and 1997, the Company incurred costs for services provided by
Convergys of $49.8 million and $49.6 million, respectively, resulting from
billing and customer management services.
The Company and Convergys entered into the Plan of Reorganization and
Distribution Agreement (the Plan) dated July 20, 1998. The Plan provided, among
other things, that the Company indemnify Convergys for all liabilities arising
from the Company's business and operations and for all contingent liabilities
related to the Company's business and operations otherwise assigned to the
Company. The Plan provided for the equal sharing of contingent liabilities not
allocated to one of the companies. In addition, the Company has a number of
other agreements with Convergys regarding federal, state and local tax
allocation and sharing, employee benefits, general services, billing and
information services provided to the Company by Convergys, and
telecommunications support services provided by the Company to Convergys.
49
<PAGE>
13. DISCONTINUATION OF SFAS 71
In the fourth quarter of 1997, the Company determined that the application
of SFAS 71, "Accounting for the Effects of Certain Types of Regulation", was no
longer appropriate as a result of changes in CBT's competitive and regulatory
environment. Accordingly, the application of SFAS 71 was discontinued at CBT,
resulting in an extraordinary non-cash charge of $210.0 million, which is net of
a related tax benefit of $129.2 million.
The components of the charge are as follows:
<TABLE>
<CAPTION>
Millions of dollars
- --------------------------------------------------------------------------------
<S> <C>
Reduction in plant-related balances $327.7
Elimination of other net regulatory assets and liabilities 11.5
- --------------------------------------------------------------------------------
Total pre-tax charge $339.2
Total after-tax charge $210.0
- --------------------------------------------------------------------------------
</TABLE>
The change in plant balances primarily represents an increase in accumulated
depreciation of $309.0 million for the removal of an embedded regulatory asset
resulting from the use of regulatory lives for depreciation of plant assets
which have typically been longer than the estimated economic lives. The
adjustment was supported by a discounted cash flow analysis which estimated
amounts of plant that may not be recoverable from future cash flows. The
adjustment also included elimination of accumulated depreciation reserve
deficiencies recognized by regulators and amortized as part of depreciation
expense and an adjustment of approximately $9.5 million to fully depreciate
analog switching equipment scheduled for replacement.
The discontinuance of SFAS 71 also required CBT to eliminate from its
balance sheet the effects of any other actions of regulators that had been
recognized as assets and liabilities pursuant to SFAS 71, but would not have
been recognized as assets and liabilities by enterprises in general. Prior to
the discontinuance of SFAS 71, CBT had recorded deferred income taxes (and a
regulatory asset) based upon the cumulative amount of income tax benefits
previously flowed through to ratepayers. The discontinuation of SFAS 71 at CBT
had no effect on the accounting for the Company's other subsidiaries.
50
<PAGE>
14. ADDITIONAL FINANCIAL INFORMATION
BALANCE SHEET
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1999 1998 Depreciable Lives (Yrs.)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROPERTY PLANT AND EQUIPMENT, NET:
Land and rights of way $ 155.9 $ 5.0 0 - 30
Buildings and Leasehold Improvements 428.3 164.0 5 - 40
Telephone Plant 1,697.2 1,438.5 6 - 29
Transmission system 1,074.4 65.9 5 - 20
Furniture, vehicles, and other 225.7 187.4 8 - 15
Construction in Process 232.0 12.4 --
- --------------------------------------------------------------------------------------------------------------------------------
3,813.5 1,873.2
Less: Accumulated depreciation 1,312.6 1,175.0
- --------------------------------------------------------------------------------------------------------------------------------
Property Plant and Equipment, Net $2,500.9 $ 698.2
- --------------------------------------------------------------------------------------------------------------------------------
Millions of dollars Year ended December 31 1999 1998 Amortization Lives (Yrs.)
- --------------------------------------------------------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLES:
Goodwill $2,247.7 $ 94.6 5 - 40
Assembled workforce 24.0 -- 2 - 4
Installed customer base 373.0 -- 2 - 20
Other Intangibles 60.6 14.3 3 - 40
- --------------------------------------------------------------------------------------------------------------------------------
2,705.3 108.9
Less: Accumulated amortization (25.4) (5.6)
- --------------------------------------------------------------------------------------------------------------------------------
Goodwill and Other Intangibles $2,679.9 $ 103.3
- --------------------------------------------------------------------------------------------------------------------------------
Millions of dollars Year ended December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
OTHER CURRENT LIABILITIES:
Accrued payroll and benefits $ 48.9 $ 33.9
Accrued interest 18.8 15.1
Accrued restructuring costs 30.2 0.5
Other current liabilities 59.6 44.3
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 157.5 $ 93.8
- --------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain on investments $ 170.0 --
Additional minimum pension liability (3.1) (6.7)
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 166.9 $ (6.7)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF CASH FLOWS
Millions of dollars Year ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PAID FOR:
Interest (net of amount capitalized) $ 53.8 $ 26.8 $29.6
Income taxes (net of refunds) $ 40.2 $ 81.4 $82.8
NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock, warrants and options
issued in purchase of business $1,909.0 -- --
Preferred stock dividends $ 12.0 -- --
Accretion of preferred stock $ 2.4 -- --
Fiber exchange agreements $ 2.7 -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
15. BUSINESS SEGMENT INFORMATION
The Company is organized on the basis of products and services. The
Company's segments are strategic business units that offer distinct products and
services and are aligned with specific subsidiaries of the Company. The Company
operates in the five business segments described below.
The Local Communications segment provides local, long distance, data
networking and transport, Internet and payphone services, as well as sales of
communications equipment, in southwestern Ohio, northern Kentucky, and
southeastern Indiana. Services are marketed and sold to both residential and
business customers and delivered via the Company's Cincinnati Bell Telephone and
Zoomtown.com subsidiaries.
The Broadband segment utilizes an advanced, fiber-optic network to provide
private line, switched access, data transport, Internet-based, and other
services to end user customers. Additionally, excess network capacity is leased
(in the form of indefeasible right-to-use agreements) to other
telecommunications providers and to Internet service providers.
The Wireless segment holds the Company's Cincinnati Bell Wireless subsidiary
(an 80%-owned venture with AT&T Wireless PCS, Inc.) which provides advanced
digital personal communications and sales of related communications equipment to
customers in its Greater Cincinnati and Dayton, Ohio operating areas.
The Directory segment sells directory advertising and information services
primarily to business customers in the aforementioned area. This segment's
identifiable product is the Yellow Pages directory delivered via the Company's
Cincinnati Bell Directory subsidiary.
Other Communications combines the operations of Cincinnati Bell Long
Distance (CBLD), Cincinnati Bell Supply (CBS), and Broadwing IT Consulting
segments. CBLD resells long distance, voice, data, frame relay, and Internet
access services to small- and medium-sized business customers in a regional area
consisting mainly of six states. CBS sells new computers and resells
telecommunications equipment in the secondary market, and Broadwing IT
Consulting provides network integration and consulting services.
The Company evaluates performance of its segments and allocates resources to
them based on EBITDA (earnings before interest, taxes, depreciation,
amortization, and restructuring and other charges/credits). EBITDA is commonly
used in the communications industry to measure operating performance. EBITDA is
not intended to represent cash flows for the periods. Because EBITDA is not
calculated identically by all companies, the amounts presented for the Company
may not be comparable to similarly titled measures of other companies.
The Company generally accounts for intersegment sales and transfers as if
the sales or transfers were to third parties, i.e., at current market prices.
The accounting policies of the business segments are the same as those described
in Accounting Policies (see Note 1). Certain corporate administrative expenses
have been allocated to segments based upon the nature of the expense.
52
<PAGE>
<TABLE>
<CAPTION>
Millions of dollars Year ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Local Communications $ 750.1 $ 718.4 $ 670.1
Broadband 99.0 -- --
Wireless 91.4 -- --
Directory 74.2 72.9 72.9
Other Communications 131.3 106.1 101.7
Intersegment (14.9) (12.3) (10.2)
- --------------------------------------------------------------------------------------------------------------------------------
Total $1,131.1 $ 885.1 $ 834.5
- --------------------------------------------------------------------------------------------------------------------------------
INTERSEGMENT REVENUES
Local Communications $ 6.8 $ 6.8 $ 6.0
Broadband -- -- --
Wireless -- -- --
Directory 0.4 0.4 --
Other Communications 7.7 5.1 4.2
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 14.9 $ 12.3 $ 10.2
- --------------------------------------------------------------------------------------------------------------------------------
EBITDA
Local Communications $ 320.8 $ 247.9 $ 246.3
Broadband 0.2 -- --
Wireless (25.6) (0.8) (2.8)
Directory 27.2 25.5 25.0
Other Communications 3.0 14.6 17.2
Corporate and Eliminations 10.1 2.8 9.0
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 335.7 $ 290.0 $ 294.7
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Local Communications $ 781.4 $ 749.5 $ 706.4
Broadband 5,154.0 -- --
Wireless 268.4 212.1 --
Directory 26.9 28.4 30.6
Other Communications 55.7 35.2 32.6
Corporate and Eliminations 222.2 15.8 74.7
- --------------------------------------------------------------------------------------------------------------------------------
Total $6,508.6 $1,041.0 $ 844.3
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL ADDITIONS
Local Communications $ 152.2 $ 134.9 $ 140.0
Broadband 165.0 -- --
Wireless 55.9 2.2 1.5
Directory 0.2 0.1 --
Other Communications 8.1 3.9 5.6
Corporate -- 2.5 11.3
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 381.4 $ 143.6 $ 158.4
- --------------------------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Local Communications $ 113.8 $ 106.2 $ 120.6
Broadband 46.7 -- --
Wireless 14.3 -- --
Directory 0.1 0.1 --
Other Communications 6.1 3.7 3.3
Corporate -- 1.1 0.4
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 181.0 $ 111.1 $ 124.3
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate, where
practicable, the fair value of each class of financial instruments:
Cash and cash equivalents, and short-term debt -- the carrying amount
approximates fair value because of the short-term maturity of these instruments.
Accounts receivable and accounts payable - the carrying amounts reported in
the balance sheets for accounts receivable and accounts payable approximate fair
value.
Notes receivable - the carrying amounts reported in the balance sheet for
notes receivable approximate fair value because of the short-term nature of the
notes and because their interest rates are comparable to current rates.
Long-term debt -- the fair value is estimated based on year-end closing
market prices of the Company's debt and of similar liabilities. The carrying
amounts at December 31, 1999, and 1998 were $1,957.0 million and $340.0 million,
respectively. The estimated fair values at December 31, 1999 and 1998 were
$1,805.0 million and $355.1 million, respectively. Long-term debt also includes
the forward sale of six million shares of PSINet common stock, as further
described in Note 5. The Company is adjusting the carrying amount of this
liability as required by the forward sale agreement. The carrying amount of this
obligation at December 31, 1999 was $133.9 million.
Convertible preferred stock - the fair values of the 7 1/4% Convertible
Preferred Stock and the 12 1/2% Exchangeable Preferred Stock were $285.8 million
and $435.5 million, respectively, and were based on the trading values of these
items at December 31, 1999.
Interest rate risk management --The Company is exposed to the impact of
interest rate changes. The Company's objective is to manage the impact of
interest rate changes on earnings and cash flows and to lower its overall
borrowing costs. The Company continuously monitors the ratio of variable to
fixed interest rate debt to maximize its total return. As of December 31, 1999,
approximately 61% of debt was long-term, fixed-rate debt and approximately 39%
was bank loans with variable interest rates.
17. CINCINNATI BELL TELEPHONE COMPANY
The following summarized financial information is for the Company's consolidated
wholly owned subsidiary, Cincinnati Bell Telephone Company:
<TABLE>
<CAPTION>
INCOME STATEMENT
Millions of dollars Year ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $750.1 $ 718.4 $ 670.1
Costs and expenses $544.2 $ 576.6 $ 523.3
Net income before extraordinary item $119.3 $ 81.7 $ 85.2
Net income (loss) $119.3 $ 81.1 $ (124.8)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
BALANCE SHEET
Millions of dollars at December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $148.5 $ 151.6
Telephone plant - net 606.9 580.8
Other noncurrent assets 26.0 17.1
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $781.4 $ 749.5
- --------------------------------------------------------------------------------------------------------------------------------
Current liabilities $161.6 $ 144.2
Noncurrent liabilities 45.1 38.7
Long-term debt 322.0 317.1
Shareowner's equity 252.7 249.5
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareowner's equity $781.4 $ 749.5
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
All adjustments necessary for a fair statement of income for each period have
been included.
<TABLE>
<CAPTION>
Millions of dollarsexcept
per common share amounts 1st 2nd 3rd 4th Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
REVENUES $ 242.2 $ 253.6 $ 262.4 $ 372.9 $ 1,131.1
EBITDA $ 77.6 $ 84.4 $ 91.6 $ 82.1 $ 335.7
OPERATING INCOME $ 45.3 $ 51.8 $ 58.3 $ (11.6) $ 143.8
INCOME FROM:
CONTINUING
OPERATIONS $ 24.7 $ 28.3 $ 25.8 $ (40.8) $ 38.0
EXTRAORDINARY ITEM $ - $ - $ - $ (6.6) $ (6.6)
NET INCOME $ 24.7 $ 28.3 $ 25.8 $ (47.4) $ 31.4
BASIC EARNINGS
PER COMMON SHARE $ .18 $ .21 $ .19 $ (.29) $ .20
DILUTED EARNINGS
PER COMMON SHARE $ .18 $ .20 $ .19 $ (.29) $ .20
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1999, the extraordinary item was for the early
extinguishment of long-term debt associated with the Merger. This reduced net
income by $6.6 million, or $.04 per common share, net of tax. The third quarter
results have been restated to reflect an equity share of IXC's losses as part of
the step acquisition that was finalized on November 9, 1999.
<TABLE>
<CAPTION>
Millions of dollars except
per common share amounts 1st 2nd 3rd 4th Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Revenues $216.5 $219.5 $222.6 $ 226.5 $ 885.1
EBITDA $ 68.1 $ 66.5 $ 75.5 $ 79.9 $ 290.0
Operating Income $ 41.2 $ 39.5 $ 47.1 $ 52.2 $ 180.0
Income from:
Continuing
Operations $ 22.5 $ 16.1 $ 21.0 $ 22.2 $ 81.8
Discontinued
Operations,
Net of Taxes $ 0.3 $ 26.4 $ 27.4 $ 15.0 $ 69.1
Extraordinary Item $ -- $ -- $ -- $ (1.0) $ (1.0)
Net Income $ 22.8 $ 42.5 $ 48.4 $ 36.2 $ 149.9
Basic Earnings
Per Common Share $ .17 $ .31 $ .36 $ .26 $ 1.10
Diluted Earnings
Per Common Share $ .16 $ .31 $ .35 $ .26 $ 1.08
</TABLE>
In the fourth quarter of 1998, the extraordinary items were for the early
extinguishment of long-term debt and a portion of a credit facility. Net of tax,
this reduced net income by $1.0 million or $.01 per common share.
55
<PAGE>
19. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain facilities and equipment used in its
operations. Total rental expenses were approximately $23.4 million, $11.7
million and $10.5 million in 1999, 1998 and 1997, respectively.
At December 31, 1999, the total minimum annual rental commitments under
noncancelable leases are as follows:
<TABLE>
<CAPTION>
Operating Capital
Millions of dollars Leases Leases
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $49.9 $ 7.5
2001 36.1 7.5
2002 27.8 7.4
2003 24.1 4.5
2004 10.6 4.7
Thereafter 20.1 36.3
- --------------------------------------------------------------------------------------------------------------------------------
Total $168.6 67.9
Amount representing interest 32.0
- --------------------------------------------------------------------------------------------------------------------------------
Present value of net minimum lease payments $35.9
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMMITMENTS
In order to satisfy the contractual commitments that Broadwing has
entered into with respect to IRU agreements, approximately 1,700 fiber route
miles must be constructed at an approximate cost of $82 million.
CONTINGENCIES
In the normal course of business, the Company is subject to various
regulatory proceedings, lawsuits, claims and other matters. Such matters are
subject to many uncertainties and outcomes are not predictable with assurance.
The Company, as well as certain former members of IXC's board of
directors, has been named as a defendant in five stockholder class action
suits filed in the Delaware Court of Chancery (the Court). These suits were
filed in July 1999 and pertain to the Company's recently completed merger
with IXC. The complaints allege, among other things, that the defendants
breached their fiduciary duties to IXC's former stockholders by failing to
maximize stockholder value in connection with entering into the merger
agreement and sought a court order enjoining completion of the merger. In an
October 27, 1999 ruling, the Court denied plaintiffs' request for a
preliminary injunction. The Merger has since closed and management believes
that the performance of the Company's share price has rendered plaintiffs'
arguments moot. While these suits currently remain outstanding and subject to
further litigation, the Company does not believe any of plaintiffs' arguments
have merit. The Company intends to continue exploring all available options
to bring this matter to a close, including discussions toward a possible
settlement.
A total of twenty-seven Equal Employment Opportunity Commission ("EEOC")
charges were filed beginning in September 1999 by current Broadwing
Telecommunications Inc. employees located in the Houston office (formerly
Coastal Telephone, acquired by IXC in May 1999) alleging sexual harassment,
race discrimination and retaliation. The Company is continuing its
investigation of these charges and is cooperating with the EEOC. Many
employee interviews have been conducted by the EEOC and discovery is ongoing
at the present time.
In the course of closing Merger, the Company became aware of IXC's
possible non-compliance with reporting requirements under certain federal
environmental statutes. Since it was impossible to conduct a thorough
investigation of all IXC facilities within the 10-day period required to take
advantage of the EPA's self-policing policy, IXC, by letter dated November 8,
1999, elected to voluntarily disclose its possible non-compliance to the EPA.
By letter dated January 19, 2000, the EPA determined that IXC appears to have
satisfied the "prompt disclosure" requirement of the self-policing policy,
and established a deadline of May 1, 2000 for the Company to complete its
environmental audit of all IXC facilities and report any violations to the
Agency. The Company intends to complete its environmental audit of these
facilities within the time frame established by the
56
<PAGE>
EPA and take whatever corrective actions are indicated.
The Company believes that the resolution of such matters for amounts in
excess of those reflected in the consolidated financial statements would not
likely have a materially adverse effect on the Company's financial condition.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements with accountants on any accounting or financial
disclosure or auditing scope or procedure occurred during the period covered
by this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item regarding directors of Broadwing
can be found in the Proxy Statement for the Company's 2000 Annual Meeting of
Shareholders, dated March 17, 2000, and incorporated herein by reference.
Information regarding executive officers required by Item 401 of
Regulation S-K is furnished in a separate disclosure in Part I of this report
under the caption "Executive Officers of the Registrant" since the registrant
did not furnish such information in its definitive proxy statement prepared
in accordance with Schedule 14A.
ITEMS 11 AND 12. EXECUTIVE COMPENSATION AND SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information required by these items can be found in the Proxy
Statement for the Company's 2000 Annual Meeting of Shareholders dated March
17, 2000, and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
57
<PAGE>
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
Exhibits identified in parenthesis below, on file with the Securities and
Exchange Commission ("SEC"), are incorporated herein by reference as exhibits
hereto.
<TABLE>
<CAPTION>
Exhibit
Number DESCRIPTION
<S> <C>
(2.1)(a) Agreement and Plan of Merger, dated as of July 20,
1999, among Cincinnati Bell Inc., an Ohio
corporation, IXC Communications, Inc., a Delaware
corporation, and Ivory Merger Inc., a Delaware
corporation. (Exhibit 2.1 to Form 8-K date of report
July 23, 1999, File No. 1-8519).
(2.1)(b) Amendment No. 1 dated as of October 13, 1999, among
Cincinnati Bell Inc., an Ohio corporation, IXC
Communications, Inc. a Delaware corporation, and
Ivory Merger, Inc. a Delaware corporation, to the
Agreement and Plan of Merger dated as of July 23,
1999, among Cincinnati Bell Inc., IXC Communications,
Inc. and Ivory Merger Inc. (Exhibit 2.1 to Form 8-K,
date of report October 14, 1999 File No. 1-8519).
(3)(a) Amended Articles of Incorporation effective November
9, 1989. (Exhibit (3)(a) to Form 10-K for 1989, File
No. 1-8519).
(3)(b)+ Certificate of Amendment by the Board of Directors to
the Amended Articles of Incorporation including the
description of each of the Cincinnati Bell 7 1/4%
Junior Convertible Preferred Shares Due 2007 and the
Cincinnati Bell 6 3/4% Cumulative Convertible
Preferred Shares effective November 9, 1999.
(3)(c) Amended Regulations of the registrant. (Exhibit 3.2
to Registration Statement No. 2-96054).
(4)(a) Provisions of the Amended Articles of Incorporation
and the Amended Regulations of the registrant which
define the rights of holders of Common Shares and the
Preferred Shares are incorporated by reference to
such Amended Articles filed as Exhibits (3)(a) and
3(b) hereto and such Amended Regulations filed as
Exhibit (3)(c) hereto.
(4)(b)(i) Rights Agreement dated as of April 29, 1997, between
the Company and The Fifth Third Bank which includes
the form of Certificate of Amendment to the Amended
Articles of Incorporation of the Company as Exhibit
A, the form of Rights Certificate as Exhibit B and
the Summary of Rights to Purchase Preferred Stock as
Exhibit C (Exhibit 4.1 to the Company's Registration
Statement on Form 8-A filed on May 1, 1997).
(4)(b)(ii) Amendment No. 1 to the Rights Agreement dated as of
July 20, 1999, between the Company and The Fifth
Third Bank (Exhibit 1 to Amendment No. 1 of the
Company's Registration Statement on Form 8-A filed on
August 6, 1999).
(4)(b)(iii) Amendment No. 2 to the Rights Agreement dated as of
November 2, 1999, between the Company and The Fifth
Third Bank (Exhibit 1 to Amendment No. 2 of the
Company's Registration Statement on Form 8-A filed on
November 8, 1999).
(4)(c)(i) Indenture dated July 1, 1993, between Cincinnati Bell
Inc., Issuer, and The Bank of New York, Trustee, in
connection with $50,000,000 of Cincinnati Bell Inc.
7 1/4% Notes Due June 15, 2023. (Exhibit 4-A to Form
8-K, date of report July 12, 1993, File No. 1-8519).
(4)(c)(ii) Indenture dated August 1, 1962, between Cincinnati
Bell Telephone Company and Bank of New York, Trustee
(formerly, The Central Trust Company was trustee), in
connection with $20,000,000 of Cincinnati Bell
Telephone Company Forty Year 4 3/8% Debentures, Due
August 1, 2002. (Exhibit 4(c)(iii) to Form 10-K for
1992, File No. 1-8519).
58
<PAGE>
(4)(c)(iii) Indenture dated as of October 27, 1993, among
Cincinnati Bell Telephone Company, as Issuer,
Cincinnati Bell Inc., as Guarantor, and The Bank of
New York, as Trustee. (Exhibit 4-A to Form 8-K, date
of report October 27, 1993, File No. 1-8519).
(4)(c)(iv) Indenture dated as of November 30, 1998 among
Cincinnati Bell Telephone Company, as Issuer,
Cincinnati Bell Inc., as Guarantor, and The Bank of
New York, as Trustee. (Exhibit 4-A to Form 8-K, date
of report November 30, 1998, File No. 1-8519).
(4)(c)(v) Investment Agreement dated as of July 21, 1999, among
Cincinnati Bell, Oak Hill Capital Partners L.P. and
certain related parties of Oak Hill (Exhibit 4.9 to
Form S-4 filed on September 13,1999, File No.
1-8519).
(4)(c)(vi) Indenture dated as of July 21, 1999 among Cincinnati
Bell Inc., and The Bank of New York, as Trustee
(Exhibit 4.10 to Form S-3 filed on November 10,
19999, File No. 1-8519).
(4)(c)(vii) No other instrument which defines the rights of
holders of long term debt of the registrant is filed
herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to this regulation, the
registrant hereby agrees to furnish a copy of any
such instrument to the SEC upon request. (4)(b)(ii)
Amendment No. 1 to the Rights Agreement dated as of
July 20, 1999, between the Company and The Fifth
Third Bank (Exhibit 1 to Amendment No. 1 of the
Company's Registration Statement on Form 8-A filed on
August 6, 1999).
(10)(i)(1) Credit Agreement dated as of November 9, 1999 among
Cincinnati Bell and IXCS as the Borrowers, Cincinnati
Bell as Parent Guarantor, the Initial Lenders,
Initial Issuing Banks and Swing Line Banks named
herein, Bank of America, N.A., as Syndication Agent,
Citicorp USA, Inc., as Administrative Agent, Credit
Suisse First Boston and The Bank of New York, as
Co-Documentation Agents, PNC Bank, N.A., as Agent and
Salomon Smith Barney Inc. and Banc of America
Securities LLC, as Joint Lead Arrangers. (Exhibit
10.1 to Form 8-K, date of report November 12, 1999,
File No. 1-8519).
(10)(iii)(A)(1)* Short Term Incentive Plan of Cincinnati Bell Inc., as
amended January 1, 1995. (Exhibit (10)(iii)(A)(1)(i)
to Form 10-K for 1995, File No. 1-8519).
(10)(iii)(A)(2)* Cincinnati Bell Inc. Deferred Compensation Plan for
Outside Directors, as amended and restated effective
February 1, 1999. (Exhibit (10)(iii)(A)(2) to Form
10-K for 1998, File No. 1-8519).
(10)(iii)(A)(3)(i)* Cincinnati Bell Inc. Pension Program, as amended
effective November 4, 1991. (Exhibit
(10)(iii)(A)(4)(ii) to Form 10-K for 1994, File No.
1-8519).
(10)(iii)(A)(3)(ii)* Cincinnati Bell Pension Program, as amended and
restated effective March 3, 1997. (Exhibit
(10)(iii)(A)(3)(ii) to Form 10-K for 1997, File No.
1-8519).
(10)(iii)(A)(4)* Employment Agreement dated January 1, 1999 between
the Company and Richard G. Ellenberger. (Exhibit
(10)(iii)(A)(9) to Form 10-K for 1998, File No.
1-8519).
(10)(iii)(A)(5)* Employment Agreement effective January 1, 1999
between the Company and Kevin W. Mooney. (Exhibit
(10)(iii)(A)(ii) to Form 10-K for 1998, File No.
1-8519).
(10)(iii)(A)(6)* Employment Agreement dated January 1, 1999 between
the Company and Thomas E. Taylor. (Exhibit
(10)(iii)(A)(12) to Form 10-K for 1998, File No.
1-8519).
(10)(iii)(A)(7)* Employment Agreement effective April 9, 1999 between
the Company and Richard S. Pontin. (Exhibit
(10)(iii)(A)(1) to Form 10-Q for the quarter ended
June 30, 1999, File No. 1-8519).
(10)(iii)(A)(8)*+ Employment Agreement dated January 1, 1999 between
the Company and John F. Cassidy.
(10)(iii)(A)(9)* Cincinnati Bell Inc. Executive Deferred Compensation
Plan, as amended and restated effective October 25,
1998. (Exhibit (10)(iii)(A)(13) to Form 10-K for
1998, File No. 1-8519).
(10)(iii)(A)(10)* Cincinnati Bell Inc. 1997 Long Term Incentive Plan.
(Exhibit (10)(iii)(A)(14)(iii) to Form 10-K for 1997,
File No. 1-8519).
59
<PAGE>
(10)(iii)(A)(11)* Cincinnati Bell Inc. 1997 Stock Option Plan for
Non-Employee Directors, as revised and restated
effective February 1, 1999. (Exhibit (10)(iii)(A)(15)
to Form 10-K for 1998, File No. 1-8519).
(10)(iii)(A)(12)* Cincinnati Bell Inc. 1989 Stock Option Plan. (Exhibit
(10)(iii)(A)(14) to Form 10-K for 1989, File No.
1-8519).
(12)+ Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Dividends.
(21)+ Subsidiaries of the Registrant.
(23)+ Consent of Independent Accountants.
(24)+ Powers of Attorney.
(27.1, 27.2, 27.3) Financial Data Schedules.
</TABLE>
+ Filed herewith.
* Management contract or compensatory plan required to be filed as
an exhibit pursuant to Item 14(c) of Form 10-K.
The Company will furnish, without charge, to a security holder upon
request, a copy of the Proxy Statement, portions of which are incorporated by
reference, and will furnish any other exhibit at cost.
60
<PAGE>
REPORTS ON FORM 8-K.
Form 8-K, date of report October 13, 1999, reporting that certain
sections of the Company's merger agreement with IXC Communications, Inc. had
been amended in response to a decision of the Delaware Court of Chancery in
the case of Phelps Dodge Corporation vs. Cyprus Amax Minerals Company. The
Company's merger agreement with IXC Communications, Inc was previously filed
in a Form 8-K, date of report July 23, 1999.
Form 8-K, date of report October 22, 1999, reporting on the Company's
results of operations for the three months ended September 30, 1999.
Form 8-K, date of report November 8, 1999, setting forth certain
historical financial statements of the Company's merger partner, IXC
Communications, Inc.
Form 8-K, date of report November 12, 1999, reporting that the Company's
merger with IXC Communications, Inc. was successfully completed on November
9, 1999.
Form 8-K, date of report December 30, 1999, setting forth certain
historical financial statements of IXC Communications, Inc.
Form 8-K, date of report December 30, 1999, setting forth certain
proforma historical financial statements of the Company and IXC
Communications, Inc.
61
<PAGE>
SCHEDULE II
BROADWING INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged Balance
Beginning Charged to to Other At End
of Period Expenses Accounts Deductions of Period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year 1999 $12.0 $21.1 $51.6(a) $31.1(b) $53.6
Year 1998 $ 9.1 $18.1 $11.0(a) $26.2(b) $12.0
Year 1997 $ 6.1 $12.2 $ 5.5(a) $14.7(b) $ 9.1
RESERVES RELATED TO BUSINESS RESTRUCTURING
Year 1999 $ .5 $10.9 $33.9(c) $15.1 $30.2
Year 1998 $ 5.3 $ -- $ -- $ 4.8 $ .5
Year 1997 $ 8.7 $ -- $ -- $ 3.4 $ 5.3
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Primarily includes amounts previously written off which were
credited directly to this account when recovered and an allocation of the
purchase price for receivables purchased from Interexchange Carriers. In
1999, amounts include $45.3 million assumed on 11/9/99 as part of the
Company's merger with IXC Communications, Inc. (IXC).
(b) Primarily includes amounts written off as uncollectible.
(c) Includes amounts assumed as part of the Company's merger with IXC.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CINCINNATI BELL INC.
March 17, 2000 By /s/Kevin W. Mooney
Kevin W. Mooney
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Principal Executive Officer;
President, Chief Executive
RICHARD G. ELLENBERGER* Officer and Director
- ---------------------------------
Richard G. Ellenberger
Principal Accounting and
Financial Officer;
KEVIN W. MOONEY* Executive Vice President and Chief Financial Officer
- ---------------------------------
Kevin W. Mooney
PHILLIP R. COX* Director
- ---------------------------------
Phillip R. Cox
J. TAYLOR CRANDALL* Director
- ---------------------------------
J. Taylor Crandall
WILLIAM A. FRIEDLANDER* Director
- ---------------------------------
William A. Friedlander
KAREN M. HOGUET* Director
- ---------------------------------
Karen M. Hoguet
RICHARD D. IRWIN* Director
- ---------------------------------
Richard D. Irwin
JAMES D. KIGGEN* Chairman of the Board and Director
- ---------------------------------
James D. Kiggen
JOHN T. LAMACCHIA* Director
- ---------------------------------
John T. LaMacchia
DANIEL J. MEYER* Director
- ---------------------------------
Daniel J. Meyer
MARY D. NELSON* Director
- ---------------------------------
Mary D. Nelson
DAVID B. SHARROCK* Director
- ---------------------------------
David B. Sharrock
JOHN M. ZRNO* Director
- ---------------------------------
John M. Zrno
*By: /s/ Kevin W. Mooney March 17, 2000
Kevin W. Mooney
as attorney-in-fact and on his behalf
as Chief Financial Officer
</TABLE>
63
<PAGE>
Exhibit (3)(b)
CERTIFICATE OF AMENDMENT
BY THE BOARD OF DIRECTORS
TO THE
AMENDED ARTICLES OF INCORPORATION OF
CINCINNATI BELL INC.
Thomas E. Taylor, who is the General Counsel and Secretary of
Cincinnati Bell Inc., an Ohio corporation, hereby certifies that at a meeting
of the board of directors of Cincinnati Bell Inc., duly called and held on
October 26, 1999, the following resolution was unanimously adopted pursuant
to Section 1701.70(B) of the Ohio Revised Code:
RESOLVED, that, pursuant to the authority vested in the
Board of Directors of the corporation in accordance with the
provisions of the Ohio General Corporation Law, as amended, and by
Article Fourth of the corporation's Amended Articles of
Incorporation, such Article Fourth is amended as follows:
(i) (a) All references to "100" in Paragraph 9 thereto are
deleted and (b) the number "1000" is substituted therefor.
(ii) A new Paragraph 11 and a new Paragraph 12 are added
providing for a series of 7 1/4% Junior Convertible Preferred Shares
Due 2007 and a series of 6 3/4% Cumulative Convertible Preferred
Shares, respectively, and that the designations and the authorized
number of shares of, and the relative rights, preferences and
limitations of, each such series are as set forth on Annexes 1 and
2, respectively, hereto.
IN WITNESS WHEREOF, the above named officer, acting for and on
behalf of the corporation, has hereunto subscribed his name on November 5,
1999.
By:
----------------------------------
Title: General Counsel and Secretary
ANNEX 1
11. Of the 4,000,000 Voting Preferred Shares of the corporation, 1,400,000
shall constitute a series of Voting Preferred Shares designated as 7 1/4%
Junior Convertible Preferred Shares Due 2007 (the "7 1/4% Preferred Shares")
with a Liquidation Preference of $100 per share (the "Liquidation
Preference"), and have, subject and in addition to the other provisions of
this Article Fourth, the following relative rights, preferences and
limitations:
<PAGE>
(1) RANK. The 7 1/4% Preferred Shares will, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, rank (i) senior
to all classes of Common Shares and to each other class or series of
Preferred Shares established hereafter by the Board of Directors, the terms
of which do not expressly provide that it ranks senior to, or on a parity
with, the 7 1/4% Preferred Shares as to dividend rights and rights on
liquidation, winding-up and dissolution of the corporation (collectively
referred to, together with all classes of Common Shares of the corporation,
as "Junior Shares"); (ii) on a parity with each other class or series of
Preferred Shares established hereafter by the Board of Directors, the terms
of which expressly provide that such class or series will rank on a parity
with the 7 1/4% Preferred Shares as to dividend rights and rights on
liquidation, winding-up and dissolution of the corporation (collectively
referred to as "Parity Shares"); and (iii) junior to each class or series of
Preferred Shares established hereafter by the Board of Directors, the terms
of which hereafter established classes or series expressly provide that such
class or series will rank senior to the 7 1/4% Preferred Shares as to
dividend rights or rights on liquidation, winding-up and dissolution of the
corporation (collectively referred to as "Senior Shares"). The corporation
may not authorize, create or increase the authorized amount of any class or
series of Senior Shares without the approval of the Holders of at least
two-thirds of the outstanding 7 1/4% Preferred Shares, voting as one class.
All claims of the Holders of the 7 1/4% Preferred Shares, including claims
with respect to dividend payments, redemption payments, mandatory repurchase
payments or rights upon liquidation, winding-up or dissolution of the
corporation, shall rank junior to the claims of the holders of any debt of
the corporation and all other creditors of the corporation.
(2) DIVIDENDS. (i) Holders of the outstanding 7 1/4% Preferred
Shares will be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, dividends on each 7 1/4%
Preferred Share at a rate per annum equal to 7 1/4% of the Liquidation
Preference of such share payable quarterly (each such quarterly period being
herein called a "Dividend Period").
In addition to the dividends described in the preceding sentence, a Holder of
any outstanding 7 1/4% Preferred Shares will be entitled to (A) additional
dividends (the "Additional Dividends"), when, as and if declared by the Board
of Directors, out of funds legally available therefor, with respect to the
7 1/4% Preferred Shares, which Additional Dividends shall accrue as follows if
such Holder becomes unable to sell or transfer outstanding 7 1/4% Preferred
Shares (including Common Shares received upon conversion of the 7 1/4%
Preferred Shares) without filing a registration statement under the
Securities Act (such event a "Registration Default") and (B) a dividend in an
additional amount (the "Supplemental Dividend"), to the extent not previously
paid on the 7 1/4% Preferred Shares, equal to all accumulated and unpaid
dividends on the shares of IXC 7 1/4% Preferred Stock (as defined)
outstanding on the effective date of the merger of Ivory Merger Inc., a
wholly-owned Subsidiary of the corporation ("Ivory Merger"), with and into
IXC Communications, Inc. ("IXC"), pursuant to which outstanding shares of IXC
7 1/4% Preferred Stock were converted into the right to receive 7 1/4%
Preferred Shares. The Supplemental Dividend, until paid by the corporation on
the 7 1/4% Preferred Shares, shall for all purposes of this Article Fourth be
deemed included with the accrued and unpaid dividends on the 7 1/4% Preferred
Shares.
Additional Dividends shall accrue on 7 1/4% Preferred Shares which trigger a
Registration Default from and including the date on which any such
Registration Default shall occur, but
2
<PAGE>
excluding the date on which such Registration Default has been cured, at a
rate of 7 3/4% per annum.
A Registration Default shall be deemed not to have occurred if (x) the Holder
is an "affiliate" as defined under the Securities Act, (y) such Registration
Default has occurred solely as a result of (1) the filing of a post-effective
amendment to the S-4 Registration Statement (as defined) or (2) other
material events with respect to the corporation that would need to be
described in the S-4 Registration Statement or the related prospectus and (z)
in the case of clause (2), the corporation proceeds promptly and in good
faith to amend or supplement the S-4 Registration Statement and related
prospectus to describe such events unless the corporation has determined in
good faith that there are material legal or commercial impediments in doing
so; PROVIDED, HOWEVER, that in the case of clauses (y) and (z), if such
Registration Default occurs for a continuous period in excess of 45 days,
Additional Dividends shall be payable in accordance with the immediately
preceding paragraphs of this paragraph (2)(i) from the day such Registration
Default initially occurs until such Registration Default is cured.
Any amounts of Additional Dividends due pursuant to this paragraph (2)(i) or
pursuant to the proviso contained in the preceding sentence, and any amounts
of Supplemental Dividends due pursuant to this paragraph 2(i) will be payable
on the regular dividend payment dates with respect to the 7 1/4% Preferred
Shares and on the same terms and conditions and subject to the same
limitations as pertain at such time for the payment of regular dividends. The
amount of Additional Dividends will be determined by multiplying the
applicable Additional Dividends rate by the aggregate liquidation preference
of the outstanding 7 1/4% Preferred Shares, multiplied by a fraction, the
numerator of which is the number of days such Additional Dividend rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
All dividends on the 7 1/4% Preferred Shares, including Additional Dividends
and Supplemental Dividends, to the extent accrued, shall be cumulative,
whether or not earned or declared, on a daily basis from the Issue Date or,
in the case of additional 7 1/4% Preferred Shares issued in payment of a
dividend, from the date of issuance of such additional 7 1/4% Preferred
Shares, and shall be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year (each a "Dividend Payment Date"),
to Holders of record on the March 15, June 15, September 15 and December 15
immediately preceding the relevant Dividend Payment Date. All dividends shall
be payable in cash; PROVIDED, HOWEVER, that to the extent and for so long as
the corporation is prohibited by the terms of any of its indebtedness then
outstanding of the corporation or any agreement or instrument to which the
corporation is then subject, from paying cash dividends on the 7 1/4%
Preferred Shares, such dividends will accrue on each share at the rate per
annum equal to 8 3/4% of the Liquidation Preference per share (instead of the
7 1/4% rate set forth in the first paragraph of this paragraph (2)(i))
(together with any Additional Dividends then payable and the Supplemental
Dividend, which for purposes of this paragraph shall be payable at a rate of
0.50% over and above the 8 3/4% rate) payable through the issuance of a
number of additional shares (rounded to the nearest whole share) of 7 1/4%
Preferred Shares (the "Additional Shares") equal to the dividend amount on
such share divided by the Liquidation Preference of such Additional Shares on
the relevant Dividend Payment Date. Except as provided herein, accrued and
unpaid dividends, if any, will not bear interest or bear dividends thereon.
3
<PAGE>
(ii) All dividends paid with respect to the 7 1/4% Preferred Shares
pursuant to paragraph (2)(i) shall be paid pro rata to the Holders entitled
thereto.
(iii) No full dividends may be declared or paid or set apart for
the payment of dividends by the corporation on any Parity Shares for any
period unless full cumulative dividends in respect of each Dividend Period
ending on or before such period shall have been or contemporaneously are
declared and paid (or are deemed declared and paid) in full or declared and,
if payable in cash, a sum in cash sufficient for such payment is set apart
for such payment on the 7 1/4% Preferred Shares. If full dividends are not so
paid, the 7 1/4% Preferred Shares will share dividends pro rata with the
Parity Shares.
(iv) The corporation will not (A) declare, pay or set apart funds
for the payment of any dividend or other distribution with respect to any
Junior Shares or (B) redeem, purchase or otherwise acquire for consideration
any Junior Shares through a sinking fund or otherwise, unless (1) all accrued
and unpaid dividends with respect to the 7 1/4% Preferred Shares and any
Parity Shares at the time such dividends are payable have been paid or funds
have been set apart for payment of such dividends and (2) sufficient funds
have been paid or set apart for the payment of the dividend for the current
dividend period with respect to the 7 1/4% Preferred Shares and any Parity
Shares. As used herein, the term "dividend" does not include dividends
payable solely in Junior Shares on Junior Shares or in options, warrants or
rights to holders of Junior Shares to subscribe or purchase any Junior Shares.
(v) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any optional redemption may be declared and paid
at any time, without reference to any regular Dividend Payment Date, to
Holders of record on such date, not more than 45 days prior to the payment
thereof, as may be fixed by the Board of Directors of the corporation.
(vi) Dividends payable on the 7 1/4% Preferred Shares for any period
other than a Dividend Period shall be computed on the basis of a 360-day year
consisting of twelve 30-day months and the actual number of days elapsed in
the period for which payable. Dividends payable on the 7 1/4% Preferred
Shares for a full Dividend Period will be computed by dividing the per annum
dividend rate by four.
(vii) Certificates of Common Shares relating to 7 1/4% Preferred
Shares surrendered for conversion by a registered Holder during the period
from the close of business on any regular record date next preceding any
Dividend Payment Date to the opening of business on such Dividend Payment
Date (except 7 1/4% Preferred Shares called for redemption on a Redemption
Date within such period) must be accompanied by payment in cash of an amount
equal to the accrued but unpaid dividends thereon which such registered
Holder is to receive on such Dividend Payment Date with respect to the 7 1/4%
Preferred Shares so surrendered.
(3) LIQUIDATION PREFERENCE. (i) Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the corporation, Holders of 7 1/4%
Preferred Shares will be entitled to be paid, out of the assets of the
corporation available for distribution to its shareholders, the Liquidation
Preference of the outstanding 7 1/4% Preferred Shares, plus, without
duplication, an
4
<PAGE>
amount in cash equal to all accumulated and unpaid dividends (whether or not
earned or declared and including Additional Dividends and Supplemental
Dividends, if any) thereon to the date fixed for liquidation, dissolution or
winding-up of the corporation (including an amount equal to a prorated
dividend for the period from the last Dividend Payment Date to the date fixed
for liquidation, dissolution or winding-up of the corporation that would have
been payable had the 7 1/4% Preferred Shares been the subject of an Optional
Redemption on such date) before any distribution is made on any Junior
Shares. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the corporation, the amounts payable with respect to the 7 1/4%
Preferred Shares and all Parity Shares are not paid in full, the 7 1/4%
Preferred Shares and the Parity Shares will share equally and ratably (in
proportion to the respective amounts that would be payable on such 7 1/4%
Preferred Shares and the Parity Shares, respectively, if all amounts payable
thereon had been paid in full) in any distribution of assets of the
corporation to which each is entitled. After payment of the full amount of
the Liquidation Preference of the outstanding 7 1/4% Preferred Shares (and,
if applicable, an amount equal to a prorated dividend), the Holders of 7 1/4%
Preferred Shares will not be entitled to any further participation in any
distribution of assets of the corporation.
(ii) For the purposes of this paragraph (3), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the corporation nor the consolidation or merger of the corporation with or
into one or more other entities shall be deemed to be a liquidation,
dissolution or winding-up of the corporation.
(4) REDEMPTION. (i) OPTIONAL REDEMPTION. (A) The 7 1/4% Preferred
Shares shall not be redeemable prior to April 3, 2000. On or after April 3,
2000, each 7 1/4% Preferred Share may be redeemed (subject to the legal
availability of funds therefor) at any time, in whole or in part, at the
option of the corporation, at the redemption prices (expressed as a
percentage of the Liquidation Preference of such share) set forth below,
plus, without duplication, an amount in cash equal to all accrued and unpaid
Liquidated Damages and all accrued and unpaid dividends to the date fixed for
redemption (the "Optional Redemption Date") (including the Supplemental
Dividend and an amount in cash equal to a prorated dividend for the period
from the Dividend Payment Date immediately prior to the Optional Redemption
Date) (the "Optional Redemption Price"). Notwithstanding the foregoing, prior
to April 1, 2002, the corporation shall only have the option to redeem 7 1/4%
Preferred Shares if, during the period of 30 consecutive Trading Days ending
on the Trading Day immediately preceding the date that the Redemption Notice
is mailed to Holders, the Closing Bid Price for the Common Shares exceeded
150% of the Conversion Price effective on the date of such Redemption Notice
for at least 20 of such Trading Days. If redeemed during the 12-month period
beginning April 1 of each of the years set forth below (or in the case of the
year 2000, April 3), the Optional Redemption Price per share shall be the
applicable percentage of the Liquidation Preference of such share set forth
below plus, without duplication, in each case, an amount in cash equal to all
accrued and unpaid Liquidated Damages and all accrued and unpaid dividends
(including an amount equal to a prorated dividend from the immediately
preceding Dividend Payment Date to the Optional Redemption Date), if any, to
the Optional Redemption Date:
<TABLE>
<CAPTION>
YEAR IN WHICH REDEMPTION OCCURS PERCENTAGE
<S> <C>
2000 ....................................104.83%
5
<PAGE>
2001 ....................................104.03%
2002 ....................................103.22%
2003 ....................................102.42%
2004 ....................................101.61%
2005 ....................................100.81%
2006 ....................................100.00%
</TABLE>
(B) In the event of a redemption of only a portion of the
outstanding 7 1/4% Preferred Shares, the corporation shall effect such
redemption on a pro rata basis, except that the corporation may redeem all of
the shares held by Holders of fewer than 100 shares (or all of the shares
held by Holders who would hold less than 100 shares as a result of such
redemption), as may be determined by the corporation.
(ii) MANDATORY REDEMPTION. Each 7 1/4% Preferred Share (if not
earlier redeemed or converted) shall be subject to mandatory redemption in
whole (to the extent of lawfully available funds therefor) on March 31, 2007
(the "Mandatory Redemption Date") at a price equal to 100% of the Liquidation
Preference of such share, plus, without duplication, all accrued and unpaid
Liquidated Damages and all accrued and unpaid dividends thereon (including
the Supplemental Dividend and an amount equal to a prorated dividend thereon
from the immediately preceding Dividend Payment Date to the Mandatory
Redemption Date), if any, to the Mandatory Redemption Date (the "Mandatory
Redemption Price").
(iii) PROCEDURE FOR REDEMPTION. (A) On and after the Optional
Redemption Date or the Mandatory Redemption Date, as the case may be
(the"Redemption Date"), unless the corporation defaults in the payment of the
applicable redemption price, dividends will cease to accumulate on 7 1/4%
Preferred Shares called for redemption and all rights of Holders of such
shares will terminate except for the right to receive the Optional Redemption
Price or the Mandatory Redemption Price, as the case may be, without
interest; PROVIDED, HOWEVER, that if a notice of redemption shall have been
given as provided in paragraph (iii)(B) and the funds necessary for
redemption (including the Supplemental Dividend and an amount in respect of
all dividends that will accrue to the Redemption Date) shall have been
segregated and irrevocably set apart by the corporation, in trust for the
benefit of the Holders of the shares called for redemption, then dividends
shall cease to accumulate on the Redemption Date on the shares to be redeemed
and, at the close of business on the day on which such funds are segregated
and set apart, the Holders of the shares to be redeemed shall, with respect
to the shares to be redeemed, cease to be shareholders of the corporation and
shall be entitled only to receive the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be, for such shares without
interest from the Redemption Date.
(B) With respect to a redemption pursuant to paragraph (4)(i) or
(4)(ii), the corporation will send a written notice of redemption by first
class mail to each Holder of record of 7 1/4% Preferred Shares, not fewer
than 15 days nor more than 60 days prior to the Redemption Date at its
registered address (the "Redemption Notice"); PROVIDED, HOWEVER, that no
failure to give such notice nor any deficiency therein shall affect the
validity of the procedure for the redemption of any 7 1/4% Preferred Shares
to be redeemed except as to the Holder or Holders to whom the corporation has
failed to give said notice or except as to the Holder or Holders whose notice
was defective. The Redemption Notice shall state:
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<PAGE>
(1) whether the redemption is pursuant to paragraph (4)(i) or
(4)(ii) hereof;
(2) the Optional Redemption Price or the Mandatory Redemption
Price, as the case may be;
(3) whether all or less than all the outstanding 7 1/4%
Preferred Shares are to be redeemed and the total number of
7 1/4% Preferred Shares being redeemed;
(4) the Redemption Date;
(5) that the Holder is to surrender to the corporation, in the
manner, at the place or places and at the price designated,
his certificate or certificates representing the 7 1/4%
Preferred Shares to be redeemed; and
(6) that dividends on the 7 1/4% Preferred Shares to be
redeemed shall cease to accumulate on such Redemption Date
unless the corporation defaults in the payment of the
Optional Redemption Price or the Mandatory Redemption
Price, as the case may be.
(C) Each Holder of 7 1/4% Preferred Shares shall surrender the
certificate or certificates representing such 7 1/4% Preferred Shares to the
corporation, duly endorsed (or otherwise in proper form for transfer, as
determined by the corporation), in the manner and at the place designated in
the Redemption Notice, and on the Redemption Date the full Optional
Redemption Price or Mandatory Redemption Price, as the case may be, for such
shares shall be payable in cash to the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event that less than all of
the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(5) VOTING RIGHTS. (i) Each Holder of 7 1/4% Preferred Shares,
except as required under Ohio law or as set forth in paragraphs (ii) and
(iii) below, shall be entitled to one vote for each 7 1/4% Preferred Share
held by such Holder on any matter required or permitted to be voted upon by
the shareholders of the corporation.
(ii) (A) If (1) dividends on the 7 1/4% Preferred Shares are in
arrears and unpaid for six or more Dividend Periods (whether or not
consecutive) (a "Dividend Default"); or (2) the corporation fails to redeem
the 7 1/4% Preferred Shares on March 31, 2007, or fails to otherwise
discharge any redemption obligation with respect to the 7 1/4% Preferred
Shares, then the number of directors constituting the Board of Directors will
be increased by two and the Holders of the outstanding 7 1/4% Preferred
Shares (together with the holders of Parity Shares upon which like rights
have been conferred and are exercisable), voting separately and as a class,
shall have the right and power to elect such two additional directors. Each
such event described in clause (1) or (2) above is a "Voting Rights
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<PAGE>
Triggering Event". A Voting Rights Triggering Event shall not be deemed to
have occurred if at the time of such event there are less than 200,000
outstanding 7 1/4% Preferred Shares.
(B) The voting rights set forth in subparagraph (5)(ii)(A) above
will continue until such time as (x) in the case of a Dividend Default, all
dividends in arrears on the 7 1/4% Preferred Shares are paid in full in cash,
(y) in all other cases, any failure, breach or default giving rise to such
Voting Rights Triggering Event is remedied or waived by the Holders of at
least two-thirds of the outstanding 7 1/4% Preferred Shares or (z) at any
time there are less than 200,000 outstanding 7 1/4% Preferred Shares, at
which time the term of any directors elected pursuant to the provisions of
subparagraph (5)(ii)(A) above shall terminate and the number of directors
constituting the Board of Directors shall be decreased by two (until the
occurrence of any subsequent Voting Rights Triggering Event). At any time
after voting power to elect directors shall have become vested and be
continuing in the Holders of 7 1/4% Preferred Shares (together with the
holders of Parity Shares upon which like rights have been conferred and are
exercisable) pursuant to subparagraph (5)(ii)(A) hereof, or if vacancies
shall exist in the offices of directors elected by such holders, a proper
officer of the corporation may, and upon the written request of the Holders
of record of at least 25% of the outstanding 7 1/4% Preferred Shares or the
holders of 25% of the outstanding Parity Shares upon which like rights have
been confirmed and are exercisable addressed to the Secretary of the
corporation shall, call a special meeting of the Holders of 7 1/4% Preferred
Shares and the holders of such Parity Shares for the purpose of electing the
directors which such holders are entitled to elect pursuant to the terms
hereof; PROVIDED, HOWEVER, that no such special meeting shall be called if
the next annual meeting of shareholders of the corporation is to be held
within 60 days after the voting power to elect directors shall have become
vested, in which case such meeting shall be deemed to have been called for
such next annual meeting. If such meeting shall not be called by a proper
officer of the corporation within 20 days after personal service to the
Secretary of the corporation at its principal executive offices, then the
Holders of record of at least 25% of the outstanding 7 1/4% Preferred Shares
or the holders of 25% of the Parity Shares upon which like rights have been
confirmed and are exercisable may designate in writing one of their members
to call such meeting at the expense of the corporation, and such meeting may
be called by the person so designated upon the notice required for the annual
meetings of shareholders of the corporation and shall be held at the place
for holding the annual meetings of shareholders. Any holder of 7 1/4%
Preferred Shares or such Parity Shares so designated shall have, and the
corporation shall provide, access to the lists of Holders of 7 1/4% Preferred
Shares and the holders of such Parity Shares to be called pursuant to the
provisions hereof. If no special meeting of the Holders of 7 1/4% Preferred
Shares and the holders of such Parity Shares is called as provided in this
paragraph (5)(ii), then such meeting shall be deemed to have been called for
the next annual meeting of shareholders of the corporation or special meeting
of the holders of any other capital shares of the corporation.
8
<PAGE>
(C) At any meeting held for the purposes of electing directors at
which the Holders of 7 1/4% Preferred Shares (together with the holders of
Parity Shares upon which like rights have been conferred and are exercisable)
shall have the right, voting together as a separate class, to elect directors
as aforesaid, the presence in person or by proxy of the Holders of at least a
majority in voting power of the outstanding 7 1/4% Preferred Shares (and such
Parity Shares) shall be required to constitute a quorum thereof.
(D) Any vacancy occurring in the office of a director elected by the
Holders of 7 1/4% Preferred Shares (and such Parity Shares) may be filled by
the remaining director elected by the Holders of 7 1/4% Preferred Shares (and
such Parity Shares) unless and until such vacancy shall be filled by the
Holders of 7 1/4% Preferred Shares (and such Parity Shares).
(iii) (A) So long as any of the 7 1/4% Preferred Shares are
outstanding, the corporation will not authorize, create or increase the
authorized amount of any class or series of Senior Shares without the
affirmative vote of Holders of at least two-thirds of the outstanding 7 1/4%
Preferred Shares, voting as one class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting.
(B) So long as any 7 1/4% Preferred Shares are outstanding, the
corporation will not amend this Article Fourth so as to affect adversely the
specified rights, preferences, privileges or voting rights of Holders of
7 1/4% Preferred Shares or to authorize the issuance of any additional 7 1/4%
Preferred Shares (except to authorize the issuance of additional 7 1/4%
Preferred Shares to be paid as dividends on the 7 1/4% Preferred Shares, for
which no vote shall be necessary) without the affirmative vote of Holders of
at least two-thirds of the issued and outstanding shares of 7 1/4% Preferred
Shares, voting as one class, given in person or by proxy, either in writing
or by resolution adopted at an annual or special meeting.
(C) Except as set forth in paragraph (5)(iii)(A) or (B) above or as
otherwise required by Ohio law, (x) the creation, authorization or issuance
of any Junior Shares, Parity Shares or Senior Shares, including the
designation of a series of 7 1/4% Preferred Shares, or (y) the increase or
decrease in the amount of authorized capital shares of any class, including
Preferred Shares, shall not require the vote of Holders of 7 1/4% Preferred
Shares and shall not be deemed to affect adversely the rights, preferences,
privileges or voting rights of Holders of 7 1/4% Preferred Shares.
(iv) In any case in which the Holders of 7 1/4% Preferred Shares
shall be entitled to vote pursuant to this paragraph (5) or pursuant to Ohio
law, each Holder of 7 1/4% Preferred Shares entitled to vote with respect to
such matters shall be entitled to one vote for each 7 1/4% Preferred Share
held.
(6) CONVERSION. (i) At any time, at the option of the Holder
thereof, any 7 1/4% Preferred Share may be converted at the Liquidation
Preference thereof into fully paid and nonassessable Common Shares
(calculated as to each conversion to the nearest 1/100 of a share), at the
Conversion Price, determined as hereinafter provided, in effect at the time
of conversion. Such conversion right shall expire at the close of business on
the Mandatory Redemption Date.
9
<PAGE>
In the event a 7 1/4% Preferred Share is called for optional redemption, such
conversion right in respect of the 7 1/4% Preferred Share so called shall
expire at the close of business on the applicable Optional Redemption Date,
unless the corporation defaults in making the payment due upon redemption.
The price at which Common Shares shall be delivered upon conversion (herein
called the "Conversion Price") shall be initially $11.18 per Common Share.
The Conversion Price shall be adjusted in certain instances as provided in
paragraph (6)(iv) and paragraph (6)(v).
(ii) In order to exercise the conversion privilege, the Holder of
any 7 1/4% Preferred Shares to be converted shall surrender the certificate
for such 7 1/4% Preferred Shares, duly endorsed or assigned to the
corporation or in blank, at the office of the Transfer Agent or at any office
or agency of the corporation maintained for that purpose, accompanied by
written notice to the corporation in the form of Exhibit B that the Holder
elects to convert such 7 1/4% Preferred Shares or, if fewer than all of the
7 1/4% Preferred Shares represented by a single share certificate are to be
converted, the number of shares represented thereby to be converted. Except
as provided in paragraph (2)(vii), no payment or adjustment shall be made
upon any conversion on account of any dividends accrued on the 7 1/4%
Preferred Shares surrendered for conversion or on account of any dividends on
the Common Shares issued upon conversion. Such notice shall also contain the
office or the address to which the corporation should deliver Common Shares
issuable upon conversion (and any other payments or certificates related
thereto). Except as provided in paragraph (2)(vii), in no event shall the
corporation be obligated to pay any converting Holder any unpaid dividend,
whether or not in arrears, on converted shares or any dividends on the Common
Shares issued upon such conversion.
7 1/4% Preferred Shares shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of 7 1/4% Preferred
Shares for conversion in accordance with the foregoing provisions, and at
such time the rights of the Holders of such 7 1/4% Preferred Shares as
Holders shall cease, and the person or persons entitled to receive the Common
Shares issuable upon conversion shall be treated for all purposes as the
record holder or holders of such Common Shares at such time. As promptly as
practicable on or after the conversion date, the corporation shall issue and
shall deliver to such office or agency as the converting Holder shall have
designated in its written notice to the corporation a certificate or
certificates for the number of full Common Shares issuable upon conversion,
together with payment in lieu of any fraction of a share, as provided in
paragraph (6)(iii) hereof.
In the case of any conversion of fewer than all of the 7 1/4% Preferred
Shares evidenced by a certificate, upon such conversion the corporation shall
execute and the Transfer Agent shall authenticate and deliver to the Holder
thereof (at the address designated by such Holder), at the expense of the
corporation, a new certificate or certificates representing the number of
unconverted 7 1/4% Preferred Shares.
(iii) No fractional Common Shares shall be issued upon the
conversion of a 7 1/4% Preferred Share. If more than one 7 1/4% Preferred
Share shall be surrendered for conversion at one time by the same Holder, the
number of full Common Shares which shall be issuable upon conversion thereof
shall be computed on the basis of the aggregate 7 1/4% Preferred Shares so
surrendered. Instead of any fractional Common Share which would otherwise be
issuable upon
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<PAGE>
conversion of any 7 1/4% Preferred Share, the corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to the same
fraction of the closing price (as defined in paragraph (6)(iv)(7)) per Common
Share at the close of business on the Business Day prior to the day of
conversion.
(iv) The Conversion Price shall be adjusted from time to time by the
corporation as follows:
(1) If the corporation shall hereafter pay a dividend or make a
distribution in Common Shares to all holders of any outstanding class or
series of Common Shares of the corporation, the Conversion Price in effect at
the opening of business on the date following the date fixed for the
determination of shareholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of Common Shares
outstanding at the close of business on the Record Date (as defined in
paragraph (6)(iv)(7)) fixed for such determination and the denominator shall
be the sum of such number of outstanding shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day
following the Record Date. If any dividend or distribution of the type
described in this paragraph (6)(iv)(1) is declared but not so paid or made,
the Conversion Price shall again be adjusted to the Conversion Price which
would then be in effect if such dividend or distribution had not been
declared.
(2) If the corporation shall offer or issue rights or warrants to
all holders of its outstanding Common Shares entitling them to subscribe for
or purchase Common Shares at a price per share less than the Current Market
Price (as defined in paragraph (6)(iv)(7)) on the Record Date fixed for the
determination of shareholders entitled to receive such rights or warrants,
the Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect at the opening of
business on the date after such Record Date by a fraction of which the
numerator shall be the number of Common Shares outstanding at the close of
business on the Record Date plus the number of Common Shares which the
aggregate offering price of the total number of Common Shares subject to such
rights or warrants would purchase at such Current Market Price and of which
the denominator shall be the number of Common Shares outstanding at the close
of business on the Record Date plus the total number of additional Common
Shares subject to such rights or warrants for subscription or purchase. Such
adjustment shall become effective immediately after the opening of business
on the day following the Record Date fixed for determination of shareholders
entitled to purchase or receive such rights or warrants. To the extent that
Common Shares are not delivered pursuant to such rights or warrants, upon the
expiration or termination of such rights or warrants the Conversion Price
shall again be adjusted to be the Conversion Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made on the basis of delivery of only the number of Common Shares
actually delivered. If such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such date fixed for the determination of
shareholders entitled to receive such rights or warrants had not been fixed.
In determining whether any rights or warrants entitle the holders to
subscribe for or purchase Common Shares at less than such Current Market
Price, and in determining the aggregate offering price of such shares of
Common Shares, there shall be taken into account any consideration received
for such rights or warrants,
11
<PAGE>
with the value of such consideration, if other than cash, to be determined by
the Board of Directors.
(3) If the outstanding Common Shares shall be subdivided into a
greater number of Common Shares, the Conversion Price in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, if the
outstanding Common Shares shall be combined into a smaller number of Common
Shares, the Conversion Price in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes
effective.
(4) If the corporation shall, by dividend or otherwise, distribute
to all holders of its Common Shares of any class of capital stock of the
corporation (other than any dividends or distributions to which paragraph
(6)(iv)(1) applies) or evidences of its indebtedness, cash or other assets
(including securities, but excluding any rights or warrants of a type
referred to in paragraph (6)(iv)(2) and excluding dividends and distributions
paid exclusively in cash and excluding any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or consolidation to
which paragraph (6)(v) applies) (the foregoing hereinafter in this paragraph
(6)(iv)(4) called the "Distributed Securities"), then, in each such case, the
Conversion Price shall be reduced so that the same shall be equal to the
price determined by multiplying the Conversion Price in effect immediately
prior to the close of business on the Record Date (as defined in paragraph
(6)(iv)(7)) with respect to such distribution by a fraction of which the
numerator shall be the Current Market Price (determined as provided in
paragraph (6)(iv)(7)) of the Common Shares on such date less the fair market
value (as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) on such
date of the portion of the Distributed Securities so distributed applicable
to one Common Share and the denominator shall be such Current Market Price,
such reduction to become effective immediately prior to the opening of
business on the day following the Record Date; PROVIDED, HOWEVER, that, in
the event the then fair market value (as so determined) of the portion of the
Distributed Securities so distributed applicable to one Common Share is equal
to or greater than the Current Market Price on the Record Date, in lieu of
the foregoing adjustment, adequate provision shall be made so that each
Holder of 7 1/4% Preferred Shares shall have the right to receive upon
conversion of a 7 1/4% Preferred Share (or any portion thereof) the amount of
Distributed Securities such Holder would have received had such Holder
converted such 7 1/4% Preferred Share (or portion thereof) immediately prior
to such Record Date. If such dividend or distribution is not so paid or made,
the Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such dividend or distribution had not been
declared. If the Board of Directors determines the fair market value of any
distribution for purposes of this paragraph (6)(iv)(4) by reference to the
actual or when issued trading market for any securities comprising all or
part of such distribution, it must in doing so consider the prices in such
market over the same period used in computing the Current Market Price
pursuant to paragraph (6)(iv)(7) to the extent possible.
Rights or warrants distributed by the corporation to all holders of Common
Shares entitling the holders thereof to subscribe for or purchase shares of
the corporation's capital stock (either
12
<PAGE>
initially or under certain circumstances), which rights or warrants, until
the occurrence of a specified event or events ("Dilution Trigger Event"): (i)
are deemed to be transferred with such Common Shares; (ii) are not
exercisable; and (iii) are also issued in respect of future issuances of
Common Shares, shall be deemed not to have been distributed for purposes of
this paragraph (6)(iv)(4) (and no adjustment to the Conversion Price under
this paragraph (6)(iv)(4) shall be required) until the occurrence of the
earliest Dilution Trigger Event, whereupon such rights and warrants shall be
deemed to have been distributed and an appropriate adjustment to the
Conversion Price under this paragraph (6)(iv)(4) shall be made. If any such
rights or warrants, including any such existing rights or warrants
distributed prior to the date hereof, are subject to subsequent events, upon
the occurrence of each of which such rights or warrants shall become
exercisable to purchase different securities, evidences of indebtedness or
other assets, then the occurrence of each such event shall be deemed to be
such date of issuance and record date with respect to new rights or warrants
(and a termination or expiration of the existing rights or warrants without
exercise by the holder thereof). In addition, in the event of any
distribution (or deemed distribution) of rights or warrants, or any Dilution
Trigger Event with respect thereto, that was counted for purposes of
calculating a distribution amount for which an adjustment to the Conversion
Price under this paragraph (6)(iv)(4) was made, (1) in the case of any such
rights or warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Price shall be readjusted
upon such final redemption or repurchase to give effect to such distribution
or Dilution Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase price received
by a holder or holders of Common Shares with respect to such rights or
warrants (assuming such holder had retained such rights or warrants), made to
all holders of Common Shares as of the date of such redemption or repurchase,
and (2) in the case of such rights or warrants which shall have expired or
been terminated without exercise by any holders thereof, the Conversion Price
shall be readjusted as if such rights and warrants had not been issued.
Notwithstanding any other provision of this paragraph (6)(iv)(4) to the
contrary, capital stock, rights, warrants, evidences of indebtedness, other
securities, cash or other assets (including, without limitation, any rights
distributed pursuant to any shareholder rights plan) shall be deemed not to
have been distributed for purposes of this paragraph (6)(iv)(4) if the
corporation makes proper provision so that each Holder of 7 1/4% Preferred
Shares who converts a 7 1/4% Preferred Share (or any portion thereof) after
the date fixed for determination of shareholders entitled to receive such
distribution shall be entitled to receive upon such conversion, in addition
to the Common Shares issuable upon such conversion, the amount and kind of
such distributions that such holder would have been entitled to receive if
such holder had, immediately prior to such determination date, converted such
7 1/4% Preferred Share into Common Shares.
For purposes of this paragraph (6)(iv)(4) and paragraphs (6)(iv)(1) and (2),
any dividend or distribution to which this paragraph (6)(iv)(4) is applicable
that also includes Common Shares, or rights or warrants to subscribe for or
purchase Common Shares to which paragraph (6)(iv)(2) applies (or both), shall
be deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, cash, assets, shares of capital stock, rights or warrants other
than (A) such Common Shares or (B) rights or warrants to which paragraph
(6)(iv)(2) applies (and any Conversion Price reduction required by this
paragraph (6)(iv)(4) with respect to such dividend or distribution shall then
be made) immediately followed by (2) a dividend or distribution of such
Common Shares or such rights or warrants (and any further Conversion Price
reduction required
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by paragraph (6)(iv)(1) and (2) with respect to such dividend or distribution
shall then be made), except that (1) the Record Date of such dividend or
distribution shall be substituted as "the Record Date fixed for the
determination of shareholders entitled to receive such dividend or other
distribution", "Record Date fixed for such determination" and "Record Date"
within the meaning of paragraph (6)(iv)(1) and as "the Record Date fixed for
the determination of shareholders entitled to receive such rights or
warrants", "the date fixed for the determination of the shareholders entitled
to receive such rights or warrants" and "such Record Date" within the meaning
of paragraph (6)(iv)(2), and (2) any Common Shares included in such dividend
or distribution shall not be deemed "outstanding at the close of business on
the date fixed for such determination" within the meaning of paragraph
(6)(iv)(1).
(5) If the corporation shall, by dividend or otherwise, distribute
to all holders of its Common Shares cash (excluding any cash that is
distributed upon a merger or consolidation to which paragraph (6)(v) applies
or as part of a distribution referred to in paragraph (6)(iv)) in an
aggregate amount that, combined together with (1) the aggregate amount of any
other such distributions to all holders of its Common Shares made exclusively
in cash within the 12 months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to this
paragraph (6)(iv)(5) has been made, and (2) the aggregate of any cash plus
the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board
of Directors) of consideration payable in respect of any tender offer by the
corporation or a Subsidiary of the corporation for all or any portion of the
Common Shares concluded within the 12 months preceding the date of payment of
such distribution, and in respect of which no adjustment pursuant to
paragraph (6)(iv)(4) has been made, exceeds 12.5% of the product of the
Current Market Price (determined as provided in paragraph (6)(iv)(7)) on the
Record Date with respect to such distribution times the number of Common
Shares outstanding on such date, then, and in each such case, immediately
after the close of business on such date, the Conversion Price shall be
reduced so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on such
Record Date by a fraction (i) the numerator of which shall be equal to the
Current Market Price on the Record Date less an amount equal to the quotient
of (x) the excess of such combined amount over such 12.5% amount divided by
(y) the number of Common Shares outstanding on the Record Date and (ii) the
denominator of which shall be equal to the Current Market Price on such
Record Date; PROVIDED, HOWEVER, that, if the portion of the cash so
distributed applicable to one Common Share is equal to or greater than the
Current Market Price of the Common Shares on the Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each Holder of
7 1/4% Preferred Shares shall have the right to receive upon conversion of a
7 1/4% Preferred Share (or any portion thereof) the amount of cash such
Holder would have received had such Holder converted such 7 1/4% Preferred
Share (or portion thereof) immediately prior to such Record Date. If such
dividend or distribution is not so paid or made, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect if
such dividend or distribution had not been declared.
(6) If a tender or exchange offer made by the corporation or any of its
Subsidiaries for all or any portion of the Common Shares expires and such
tender or exchange offer (as amended upon the expiration thereof) requires
the payment to shareholders (based on the acceptance (up to any maximum
specified in the terms of the tender offer) of Purchased Shares (as defined
below)) of
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an aggregate consideration having a fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and described in
a resolution of the Board of Directors) that, combined together with (1) the
aggregate of the cash plus the fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors), as of the expiration of such tender
offer, of consideration payable in respect of any other tender offers, by the
corporation or any of its Subsidiaries for all or any portion of the Common
Shares expiring within the 12 months preceding the expiration of such tender
offer and in respect of which no adjustment pursuant to this paragraph
(6)(iv)(6) has been made and (2) the aggregate amount of any distributions to
all holders of the Common Shares made exclusively in cash within 12 months
preceding the expiration of such tender offer and in respect of which no
adjustment pursuant to paragraph (6)(iv)(5) has been made, exceeds 12.5% of
the product of the Current Market Price (determined as provided in paragraph
(6)(iv)(7)) as of the last time (the "Expiration Time") tenders could have
been made pursuant to such tender offer (as it may be amended) times the
number of Common Shares outstanding (including any tendered shares) at the
Expiration Time, then, and in each such case, immediately prior to the
opening of business on the day after the date of the Expiration Time, the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the close of business on the date of the Expiration Time by a fraction of
which the numerator shall be the number of Common Shares outstanding
(including any tendered shares) at the Expiration Time multiplied by the
Current Market Price of the Common Shares on the Trading Day next succeeding
the Expiration Time and the denominator shall be the sum of (x) the fair
market value (determined as aforesaid) of the aggregate consideration payable
to shareholders based on the acceptance (up to any maximum specified in the
terms of the tender offer) of all shares validly tendered and not withdrawn
as of the Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the product of
the number of Common Shares outstanding (less any Purchased Shares) at the
Expiration Time and the Current Market Price of the Common Shares on the
Trading Day next succeeding the Expiration Time, such reduction (if any) to
become effective immediately prior to the opening of business on the day
following the Expiration Time. If the corporation is obligated to purchase
shares pursuant to any such tender offer, but the corporation is permanently
prevented by applicable law from effecting any such purchases or all such
purchases are rescinded, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such tender offer had
not been made. If the application of this paragraph (6)(iv)(6) to any tender
offer would result in an increase in the Conversion Price, no adjustment
shall be made for such tender offer under this paragraph (6)(iv)(6).
(7) For purposes of this paragraph (6)(iv), the following terms shall
have the meaning indicated:
"closing price" with respect to any securities on any day means the closing
price on such day or, if no such sale takes place on such day, the average of
the reported high and low prices on such day, in each case on The Nasdaq
National Market or the New York Stock Exchange, as applicable, or, if such
security is not listed or admitted to trading on such national market or
exchange, on the principal national securities exchange or quotation system
on which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange
or quotation system, the average of the high and low prices
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of such security on the over-the-counter market on the day in question as
reported by the National Quotation Bureau Incorporated or a similar generally
accepted reporting service, or, if not so available, in such manner as
furnished by any New York Stock Exchange member firm selected from time to
time by the Board of Directors for that purpose, or a price determined in
good faith by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors.
"Current Market Price" means the average of the daily closing prices per
Common Share for the 10 consecutive trading days immediately prior to the
date in question; PROVIDED, HOWEVER, that (A) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the Conversion
Price pursuant to paragraphs (6)(iv)(1), (2), (3), (4), (5) or (6) occurs
during such 10 consecutive trading days, the closing price for each trading
day prior to the "ex" date for such other event shall be adjusted by
multiplying such closing price by the same fraction by which the Conversion
Price is so required to be adjusted as a result of such other event, (B) if
the "ex" date for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the Conversion
Price pursuant to paragraphs (6)(iv)(1), (2), (3), (4), (5) or (6) occurs on
or after the "ex" date for the issuance or distribution requiring such
computation and prior to the day in question, the closing price for each
trading day on and after the "ex" date for such other event shall be adjusted
by multiplying such closing price by the reciprocal of the fraction by which
the Conversion Price is so required to be adjusted as a result of such other
event and (C) if the "ex" date for the issuance or distribution requiring
such computation is prior to the day in question, after taking into account
any adjustment required pursuant to clause (A) or (B) of this proviso, the
closing price for each trading day on or after such "ex" date shall be
adjusted by adding thereto the amount of any cash and the fair market value
(as determined by the Board of Directors in a manner consistent with any
determination of such value for purposes of paragraphs (6)(iv)(4) or (5),
whose determination shall be conclusive and described in a resolution of the
Board of Directors) of the evidence of indebtedness, shares of capital stock
or assets being distributed applicable to one Common Share as of the close of
business on the day before such "ex" date. For purposes of any computation
under paragraph (6)(vi), the Current Market Price on any date shall be deemed
to be the average of the daily closing prices per Common Share for such day
and the next two succeeding trading days; PROVIDED, HOWEVER, that, if the
"ex" date for any event (other than the tender offer requiring such
computation) that requires an adjustment to the Conversion Price pursuant to
paragraph (6)(iv)(1), (2), (3), (4), (5) or (6) occurs on or after the
Expiration Time for the tender or exchange offer requiring such computation
and prior to the day in question, the closing price for each trading day on
and after the "ex" date for such other event shall be adjusted by multiplying
such closing price by the reciprocal of the fraction by which the Conversion
Price is so required to be adjusted as a result of such other event. For
purposes of this paragraph, the term "ex" date (I) when used with respect to
any issuance or distribution, means the first date on which the Common Shares
trade regular way on the relevant exchange or in the relevant market from
which the closing price was obtained without the right to receive such
issuance or distribution, (II) when used with respect to any subdivision or
combination of Common Shares, means the first date on which the Common Shares
trade regular way on such exchange or in such market after the time at which
such subdivision or combination becomes effective and (III) when used with
respect to any tender or exchange offer means the first date on which the
Common Shares trade regular way on such exchange or in such market after the
Expiration Time of such offer.
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Notwithstanding the foregoing, whenever successive adjustments to the
Conversion Price are called for pursuant to this paragraph (6)(iv), such
adjustments shall be made to the Current Market Price as may be necessary or
appropriate to effectuate the intent of this paragraph (6)(iv) and to avoid
unjust or inequitable results, as determined in good faith by the Board of
Directors.
"fair market value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Record Date" shall mean, with respect to any dividend, distribution or other
transaction or event in which the holders of Common Shares have the right to
receive any cash, securities or other property or in which the Common Shares
(or other applicable security) are exchanged for or converted into any
combination of cash, securities or other property, the date fixed for
determination of shareholders entitled to receive such cash, securities or
other property (whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
(8) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such
price; PROVIDED, HOWEVER, that any adjustments which by reason of this
paragraph (6)(iv)(8) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
paragraph (6)(iv)(8) shall be made by the corporation and shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may
be. No adjustment need be made for a change in the par value or no par value
of the Common Shares.
(9) Whenever the Conversion Price is adjusted as herein provided, the
corporation shall promptly file with the Transfer Agent an Officers'
Certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the corporation shall prepare a
notice of such adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which each adjustment becomes effective and
shall mail such notice of such adjustment of the Conversion Price to each
Holder of 7 1/4% Preferred Shares at such Holder's last address appearing on
the register of Holders maintained for that purpose within 20 days of the
effective date of such adjustment. Failure to deliver such notice shall not
affect the legality or validity of any such adjustment.
(10) In any case in which this paragraph (6)(iv) provides that an
adjustment shall become effective immediately after a Record Date for an
event, the corporation may defer until the occurrence of such event issuing
to the Holder of any 7 1/4% Preferred Share converted after such Record Date
and before the occurrence of such event the additional Common Shares issuable
upon such conversion by reason of the adjustment required by such event over
and above the Common Shares issuable upon such conversion before giving
effect to such adjustment.
(11) For purposes of this paragraph (6)(iv), the number of Common
Shares at any time outstanding shall not include shares held in the treasury
of the corporation but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of Common Shares. The corporation
shall not pay any dividend or make any distribution on Common Shares held in
the treasury of the corporation.
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(v) In case of any consolidation of the corporation with, or merger of
the corporation into, any other corporation, or in case of any merger of
another corporation into the corporation (other than a merger which does not
result in any reclassification, conversion, exchange or cancelation of
outstanding Common Shares of the corporation), or in case of any conveyance
or transfer of the properties and assets of the corporation substantially as
an entirety, the Holder of each outstanding 7 1/4% Preferred Share shall have
the right thereafter, during the period such 7 1/4% Preferred Shares shall be
convertible as specified in paragraph (6)(i), to convert such 7 1/4%
Preferred Shares only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance or transfer
by a holder of the number of Common Shares of the corporation into which such
7 1/4% Preferred Share might have been converted immediately prior to such
consolidation, merger, conveyance or transfer, assuming such holder of Common
Shares of the corporation failed to exercise his rights of election, if any,
as to the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance or transfer (provided that, if
the kind or amount of securities, cash and other property receivable upon
such consolidation, merger, conveyance or transfer is not the same for each
Common Share of the corporation in respect of which such rights of election
shall not have been exercised ("nonelecting share"), then for the purpose of
this paragraph (6)(v) the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance or transfer
by each nonelecting share shall be deemed to be the kind and amount so
receivable per share by a plurality of the nonelecting shares). Such
securities shall provide for adjustments which, for events subsequent to the
effective date of the triggering event, shall be as nearly equivalent as may
be practicable to the adjustments provided for in this paragraph (6)(v). The
above provisions of this Section shall similarly apply to successive
consolidations, mergers, conveyances or transfers.
(vi) In case:
(1) the corporation shall declare a dividend (or any other distribution)
on its Common Shares payable otherwise than in cash out of its earned
surplus; or
(2) the corporation shall authorize the granting to all holders of its
Common Shares of rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any other rights; or
(3) of any reclassification of the Common Shares of the corporation
(other than a subdivision or combination of its outstanding Common Shares),
or of any consolidation or merger to which the corporation is a party and for
which approval of any shareholders of the corporation is required, or the
sale or transfer of all or substantially all the assets of the corporation; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding-up of the corporation; then the corporation shall cause to be filed
with the Transfer Agent and at each office or agency maintained for the
purpose of conversion of the 7 1/4% Preferred Shares, and shall cause to be
mailed to all Holders at their last addresses as they shall appear in the
7 1/4% Preferred Shares Register, at least 20 days (or 10 days in any case
specified in clause (1) or (2) above) prior to the applicable date
hereinafter specified, a notice stating (x) the date on which a record is to
be taken for the purpose of such dividend, distribution, rights or warrants,
or, if a record is not to be taken,
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the date as of which the holders of Common Shares of record to be entitled to
such dividend, distribution, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up of the corporation is
expected to become effective, and the date as of which it is expected that
holders of Common Shares of record shall be entitled to exchange their Common
Shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up of the corporation. Failure to give the notice
requested by this Section or any defect therein shall not affect the legality
or validity of any dividend, distribution, right, warrant, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up
of the corporation, or the vote upon any such action.
(vii) The corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Shares
(or out of its authorized Common Shares held in the treasury of the
corporation), for the purpose of effecting the conversion of the 7 1/4%
Preferred Shares, the full number of Common Shares then issuable upon the
conversion of all outstanding 7 1/4% Preferred Shares.
(viii) The corporation will pay any and all document, stamp or similar
issue or transfer taxes that may be payable in respect of the issue or
delivery of Common Shares on conversion of the 7 1/4% Preferred Shares
pursuant hereto. The corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issue and
delivery of Common Shares in a name other than that of the Holder of the
7 1/4% Preferred Shares or the 7 1/4% Preferred Shares to be converted, and no
such issue or delivery shall be made unless and until the person requesting
such issue has paid to the corporation the amount of any such tax, or has
established to the satisfaction of the corporation that such tax has been
paid.
(ix) (1) Notwithstanding any other provision in the preceding paragraphs
to the contrary, if any Change in Control occurs then, if the corporation
does not elect to make a Change in Control Offer, the Conversion Price in
effect shall be adjusted immediately after such Change in Control as
described below. In addition, in the event of a Common Shares Change in
Control (as defined in this paragraph (6)(ix)), each 7 1/4% Preferred Share
shall be convertible solely into common shares of the kind received by
holders of Common Shares as the result of such Common Shares Change in
Control. For purposes of calculating any adjustment to be made pursuant to
this paragraph in the event of a Change in Control, immediately after such
Change in Control:
(A) in the case of a Non-Stock Change in Control (as defined in this
paragraph (6)(ix)), the Conversion Price shall thereupon become the lower of
(x) the Conversion Price in effect immediately prior to such Non-Stock Change
in Control, but after giving effect to any other prior adjustments, and (y)
the result obtained by multiplying the greater of the Applicable Price (as
defined in this paragraph (6)(ix)) or the then applicable Reference Market
Price (as defined in this paragraph (6)(ix)) by a fraction of which the
numerator shall be $100.00 and the denominator shall be the then current
Optional Redemption Price per share; and
(B) in the case of a Common Shares Change in Control, the Conversion
Price in effect immediately prior to such Common Shares Change in Control,
but after giving effect to any prior adjustments, shall thereupon be adjusted
by multiplying such Conversion Price by a fraction, of which the numerator
shall be the Purchaser Shares Price (as defined in this paragraph (6)(ix))
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and the denominator shall be the Applicable Price; PROVIDED, HOWEVER, that in
the event of a Common Shares Change in Control in which (x) 100% of the value
of the consideration received by a holder of Common Shares is common stock of
the successor, acquiror, or other third party (and cash, if any, is paid with
respect to any fractional interests in such common stock resulting from such
Common Shares Change in Control) and (y) all of the Common Shares will have
been exchanged for, converted into, or acquired for, common stock (and cash
with respect to fractional interests) of the successor, acquiror or other
third party, the Conversion Price in effect immediately prior to such Common
Shares Change in Control shall thereupon be adjusted by multiplying such
Conversion Price by a fraction, of which the numerator shall be one (1) and
the denominator shall be the number of shares of common stock of the
successor, acquiror, or other third party received by a holder of one Common
Share as a result of such Common Shares Change in Control.
(2) For purposes of this paragraph (ix), the following terms shall have
the meanings indicated:
"Applicable Price" means (i) in the event of a Non-Stock Change in Control in
which the holders of the Common Shares receive only cash, the amount of cash
received by the holder of one Common Share and (ii) in the event of any other
Non-Stock Change in Control or any Common Shares Change in Control, the
average of the Closing Bid Prices for the Common Shares during the ten
Trading Days prior to and including the record date for the determination of
the holders of Common Shares entitled to receive cash, securities, property
or other assets in connection with such Non-Stock Change in Control or Common
Shares Change in Control or, if there is no such record date, the date upon
which the holders of the Common Shares shall have the right to receive such
cash, securities, property or other assets, in each case, as adjusted in good
faith by the Board of Directors to appropriately reflect any of the events
referred to in paragraph (6)(iv)(1) through (6).
"Common Shares Change in Control" means any Change in Control in which more
than 50% of the value (as determined in good faith by the Board of Directors
of the corporation) of the consideration received by holders of Common Shares
consists of common stock that for each of the ten consecutive Trading Days
referred to in the preceding paragraph has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on The Nasdaq National Market; PROVIDED, HOWEVER, that a
Change in Control shall not be a Common Shares Change in Control unless
either (i) the corporation continues to exist after the occurrence of such
Change in Control and the outstanding 7 1/4% Preferred Shares continue to
exist as outstanding 7 1/4% Preferred Shares or (ii) not later than the
occurrence of such Change in Control, the outstanding 7 1/4% Preferred Shares
are converted into or exchanged for shares of convertible preferred stock of
a corporation succeeding to the business of the corporation (which shall
include a corporation that is the direct or indirect owner of all the equity
interests of the surviving corporation in the merger) (hereinafter, a
"successor"), which convertible preferred stock has powers, preferences and
relative, participating, optional or other rights, and qualifications,
limitations and restrictions, substantially similar to those of the 7 1/4%
Preferred Shares.
"Non-Stock Change in Control" means any Change in Control other than a Common
Shares Change in Control.
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"Purchaser Shares Price" means, with respect to any Common Shares Change in
Control, the product of (i) the number of shares of common stock received in
such Common Shares Change of Control for each Common Share and (ii) the
average of the per share Closing Prices for the common stock received in such
Common Shares Change in Control for the ten consecutive Trading Days prior to
and including the record date for the determination of the holders of Common
Shares entitled to receive such common stock, or if there is no such record
date, the date upon which the holders of the Common Shares shall have the
right to receive such common stock, in each case, as adjusted in good faith
by the Board of Directors to appropriately reflect any of the events referred
to in paragraph (6)(iv)(1) through (6); PROVIDED, HOWEVER, that if no such
Closing Prices exist, then the Purchaser Shares Price shall be set at a price
determined in good faith by the Board of Directors of the corporation.
"Reference Market Price" shall initially mean $6.44 (which is equal to $13.50
divided by 2.096 (which is the exchange ratio for shares of common stock of
IXC in the Agreement and Plan of Merger, dated as of July 20, 1999 among the
corporation, Ivory Merger, Inc. and IXC)), and in the event of any adjustment
to the conversion prices other than as a result of a Change in Control, the
Reference Market Price shall also be adjusted so that the ratio of the
Reference Market Price to the Conversion Price after giving effect to any
such adjustment shall always be the same as the ratio of $6.44 to the initial
Conversion Price set forth in paragraph (6)(i).
(7) CHANGE IN CONTROL. (i) Upon the occurrence of a Change of Control
(the date of such occurrence being the "Change in Control Date"), the
corporation shall be obligated to (1) purchase all or a portion of each
Holder's 7 1/4% Preferred Shares in cash pursuant to the offer described in
paragraph (7)(iii) (the "Change of Control Offer") at a purchase price equal
to 100% of the Liquidation Preference, plus, without duplication, all accrued
and unpaid Liquidated Damages and all accrued and unpaid dividends, if any,
to the Change of Control Payment Date, including an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the Change of Control Payment Date to the Change of Control Payment
Date or (2) adjust the conversion price as provided under paragraph (6)(ix).
(ii) Prior to the mailing of the notice referred to in paragraph
(7)(iii), but in any event within 15 days following the date on which the
corporation knows or reasonably should have known that a Change in Control
has occurred, the corporation covenants that it shall promptly determine if
the purchase of the 7 1/4% Preferred Shares would violate or constitute a
default under any indebtedness of the corporation.
(iii) Within 15 days following the date on which the corporation knows
or reasonably should have known that a Change in Control has occurred, the
corporation must send, by first-class mail, postage prepaid, a notice to each
Holder of 7 1/4% Preferred Shares. Such notice shall state whether the Change
of Control Offer would be permitted under any indebtedness of the
corporation, and if permitted, such notice shall contain all instructions and
materials necessary to enable such Holders to tender 7 1/4% Preferred Shares
pursuant to the Change of Control Offer. If the Change of Control Offer would
be permitted under any indebtedness of the corporation, such notice shall
state:
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(A) that a Change of Control has occurred, that the Change of Control
Offer is being made pursuant to this paragraph (7) and that all 7 1/4%
Preferred Shares validly tendered and not withdrawn will be accepted for
payment;
(B) the purchase price (including the amount of accrued dividends, if
any) and the purchase date (which must be no earlier than 30 days nor later
than 75 days from the date such notice is mailed, other than as may be
required by law) (the "Change of Control Payment Date");
(C) that any 7 1/4% Preferred Shares not tendered will continue to
accrue dividends;
(D) that, unless the corporation defaults in making payment therefor,
any 7 1/4% Preferred Share accepted for payment pursuant to the Change of
Control Offer shall cease to accrue dividends after the Change of Control
Payment Date;
(E) that Holders electing to have any 7 1/4% Preferred Shares purchased
pursuant to a Change of Control Offer will be required to surrender such
7 1/4% Preferred Shares, properly endorsed for transfer, together with such
other customary documents as the corporation and the Transfer Agent may
reasonably request to the Transfer Agent and registrar for the 7 1/4%
Preferred Shares at the address specified in the notice prior to the close of
business on the Business Day prior to the Change of Control Payment Date;
(F) that Holders will be entitled to withdraw their election if the
corporation receives, not later than five Business Days prior to the Change
of Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the number of 7 1/4% Preferred Shares
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such 7 1/4% Preferred Shares purchased;
(G) that Holders whose 7 1/4% Preferred Shares are purchased only in
part will be issued a new certificate representing the unpurchased 7 1/4%
Preferred Shares; and
(H) the circumstances and relevant facts regarding such Change of
Control. If the Change of Control Offer would not be permitted under any
indebtedness of the corporation, such notice shall state the Conversion Price
as adjusted pursuant to paragraph (6)(ix).
(iv) The corporation will comply with any tender offer rules under the
Exchange Act which then may be applicable, including Rules 13e-4 and 14e-1,
in connection with any offer required to be made by the corporation to
repurchase the 7 1/4% Preferred Shares as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with provisions of this Article Fourth, the corporation shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Article Fourth by virtue thereof.
(v) On the Change of Control Payment Date the corporation shall (A)
accept for payment the 7 1/4% Preferred Shares validly tendered pursuant to
the Change of Control Offer, (B) pay to the Holders of shares so accepted the
purchase price therefor in cash and (C) cancel and retire each surrendered
certificate. Unless the corporation defaults in the payment for the 7 1/4%
Preferred Shares tendered pursuant to the Change of Control Offer, dividends
will cease to accrue with
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respect to the 7 1/4% Preferred Shares tendered and all rights of Holders of
such tendered shares will terminate, except for the right to receive payment
therefor, on the Change of Control Payment Date.
(vi) To accept the Change of Control Offer, the Holder of a 7 1/4%
Preferred Share shall deliver, on or before the 10th day prior to the Change
of Control Payment Date, written notice to the corporation (or an agent
designated by the corporation for such purpose) of such Holder's acceptance,
together with certificates evidencing the 7 1/4% Preferred Shares with
respect to which the Change of Control Offer is being accepted, duly endorsed
for transfer.
(8) REISSUANCE OF 7 1/4% PREFERRED SHARES. 7 1/4% Preferred Shares that
have been issued and reacquired in any manner, including shares purchased or
redeemed or exchanged, shall not be reissued as 7 1/4% Preferred Shares and
shall (upon compliance with any applicable provisions of the laws of Ohio)
have the status of authorized and unissued Preferred Shares undesignated as
to series and may be redesignated and reissued as part of any series of
Preferred Shares (except as otherwise provided by Ohio law); PROVIDED,
HOWEVER, that so long as any 7 1/4% Preferred Shares are outstanding, any
issuance of such shares must be in compliance with the terms hereof.
(9) BUSINESS DAY. If any payment, redemption or exchange shall be
required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately
succeeding Business Day.
(10) LIMITATION ON MERGERS AND ASSET SALES. The corporation may not
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all its assets to, any person unless: (1) the successor,
transferee or lessee (if not the corporation) is organized and existing under
the laws of the United States of America or any State thereof or the District
of Columbia and the 7 1/4% Preferred Shares shall be converted into or
exchanged for and shall become shares of such successor, transferee or
lessee, having in respect of such successor, transferee or lessee
substantially the same powers, preference and relative participating,
optional or other special rights and the qualifications, limitations or
restrictions thereon, that the 7 1/4% Preferred Shares had immediately prior
to such transaction; and (2) the corporation delivers to the Transfer Agent
an Officers' Certificate and an Opinion of Counsel stating that such
consolidation, merger or transfer complies with this Article Fourth. The
successor, transferee or lessee will be the successor company.
(11) CERTIFICATES. (i) FORM AND DATING. The 7 1/4% Preferred Shares
certificate may have notations, legends or endorsements required by law,
stock exchange rule, agreements to which the corporation is subject, if any,
or usage (provided that any such notation, legend or endorsement is in a form
acceptable to the corporation). Each 7 1/4% Preferred Shares certificate
shall be dated the date of its authentication. The terms of the 7 1/4%
Preferred Shares certificate set forth in Exhibit A are part of the terms of
this Article Fourth.
(ii) EXECUTION AND AUTHENTICATION. Two Officers shall sign the 7 1/4%
Preferred Shares certificates for the corporation by manual or facsimile
signature. The corporation's seal shall be impressed, affixed, imprinted or
reproduced on the 7 1/4% Preferred Shares certificates and may be in
facsimile form.
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If an Officer whose signature is on the 7 1/4% Preferred Shares certificates
no longer holds that office at the time the Transfer Agent authenticates the
7 1/4% Preferred Shares certificates, the 7 1/4% Preferred Shares
certificates shall be valid nevertheless.
A 7 1/4% Preferred Share shall not be valid until an authorized signatory of
the Transfer Agent manually signs the certificate of authentication on the
7 1/4% Preferred Shares certificates. The signature shall be conclusive
evidence that the 7 1/4% Preferred Shares have been authenticated under this
Article Fourth.
The Transfer Agent shall authenticate and deliver 1,400,000 7 1/4% Preferred
Shares for original issue upon a written order of the corporation signed by
two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of the corporation. In addition, the Transfer Agent shall
authenticate and deliver, from time to time, Additional Shares for original
issue upon order of the corporation signed by two Officers or by an Officer
or either an Assistant Treasurer or Assistant Secretary of the corporation.
Such orders shall specify the number of 7 1/4% Preferred Shares to be
authenticated and the date on which the original issue of 7 1/4% Preferred
Shares is to be authenticated.
The Transfer Agent may appoint an authenticating agent reasonably
acceptable to the corporation to authenticate the 7 1/4% Preferred Shares.
Unless limited by the terms of such appointment, an authenticating agent may
authenticate 7 1/4% Preferred Shares whenever the Transfer Agent may do so.
Each reference in this Article Fourth to authentication by the Transfer Agent
includes authentication by such agent. An authenticating agent has the same
rights as the Transfer Agent or agent for service of notices and demands.
(iii) TRANSFER AND EXCHANGE. (A) TRANSFER AND EXCHANGE OF 7 1/4%
PREFERRED SHARES. When 7 1/4% Preferred Shares certificates are presented to
the Transfer Agent with a request to register the transfer of such 7 1/4%
Preferred Shares or to exchange such 7 1/4% Preferred Shares certificates for
an equal number of 7 1/4% Preferred Shares certificates of other authorized
denominations, the Transfer Agent shall register the transfer or make the
exchange as requested if its reasonable requirements for such transaction are
met; PROVIDED, HOWEVER, that the 7 1/4% Preferred Shares certificates
surrendered for transfer or exchange shall be duly endorsed or accompanied by
a written instrument of transfer in form reasonably satisfactory to the
corporation and the Transfer Agent, duly executed by the Holder thereof or
its attorney duly authorized in writing.
(B) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF 7 1/4%
PREFERRED SHARES. (1) To permit registrations of transfers and exchanges, the
corporation shall execute and the Transfer Agent shall authenticate 7 1/4%
Preferred Shares certificates as required pursuant to the provisions of this
paragraph (iii).
(2) All 7 1/4% Preferred Shares certificates issued upon any
registration of transfer or exchange of 7 1/4% Preferred Shares certificates
shall be the valid obligations of the corporation, entitled to the same
benefits under this Article Fourth as the 7 1/4% Preferred Shares
certificates surrendered upon such registration of transfer or exchange.
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(3) Prior to due presentment for registration of transfer of any 7 1/4%
Preferred Shares, the Transfer Agent and the corporation may deem and treat
the person in whose name such 7 1/4% Preferred Shares are registered as the
absolute owner of such 7 1/4% Preferred Shares and neither the Transfer Agent
nor the corporation shall be affected by notice to the contrary.
(4) No service charge shall be made to a Holder for any registration of
transfer or exchange upon surrender of any 7 1/4% Preferred Shares
certificate at the office of the Transfer Agent maintained for that purpose.
However, the corporation may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of 7 1/4% Preferred Shares certificates.
(iv) REPLACEMENT CERTIFICATES. If a mutilated 7 1/4% Preferred Shares
certificate is surrendered to the Transfer Agent or if the Holder of a 7 1/4%
Preferred Shares certificate claims that the 7 1/4% Preferred Shares
certificate has been lost, destroyed or wrongfully taken, the corporation
shall issue and the Transfer Agent shall countersign a replacement 7 1/4%
Preferred Shares certificate if the reasonable requirements of the Transfer
Agent and of section 8-405 of the Uniform Commercial Code as in effect in the
State of New York are met. If required by the Transfer Agent or the
corporation, such Holder shall furnish an indemnity bond sufficient in the
judgment of the corporation and the Transfer Agent to protect the corporation
and the Transfer Agent from any loss which either of them may suffer if a
7 1/4% Preferred Shares certificate is replaced. The corporation and the
Transfer Agent may charge the Holder for their expenses in replacing a 7 1/4%
Preferred Shares certificate.
(v) CANCELATION. (A) In the event the corporation shall purchase or
otherwise acquire 7 1/4% Preferred Shares certificates, the same shall
thereupon be delivered to the Transfer Agent for cancelation.
(B) The Transfer Agent and no one else shall cancel and destroy all
7 1/4% Preferred Shares certificates surrendered for transfer, exchange,
replacement or cancelation and deliver a certificate of such destruction to
the corporation unless the corporation directs the Transfer Agent to deliver
canceled 7 1/4% Preferred Shares certificates to the corporation. The
corporation may not issue new 7 1/4% Preferred Shares certificates to replace
7 1/4% Preferred Shares certificates to the extent they evidence 7 1/4%
Preferred Shares which the corporation has purchased or otherwise acquired.
(12) CERTAIN DEFINITIONS. As used in this Article Fourth, the following
terms shall have the following meanings (and (1) terms defined in the
singular have comparable meanings when used in the plural and vice versa, (2)
"including" means including without limitation, (3) "or" is not exclusive and
(4) an accounting term not otherwise defined has the meaning assigned to it
in accordance with United States generally accepted accounting principles as
in effect on the Issue Date and all accounting calculations will be
determined in accordance with such principles), unless the content otherwise
requires:
"BUSINESS DAY" means each day which is not a Legal Holiday.
"CAPITAL SHARE" of any person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated)
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equity of such person, including any Preferred Shares, but excluding any debt
securities convertible into or exchangeable for such equity.
"CHANGE IN CONTROL" or "CHANGE OF CONTROL" means: (i) the sale, lease,
transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the corporation and its Subsidiaries taken
as a whole to any "person" (as such term is used in section 13(d)(3) of the
Exchange Act), (ii) the adoption of a plan relating to the liquidation or
dissolution of the corporation, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" (as defined above), (other than officers,
directors and shareholders of the corporation and their affiliates on the
date of this Certificate of Amendment) becomes the beneficial owner (as
determined in accordance with Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of more than 50% of the voting shares of the
corporation or (iv) the first day on which a majority of the members of the
Board of Directors (excluding the directors elected pursuant to paragraph (f)
are not Continuing Directors).
"CLOSING BID PRICE" means on any day the last reported bid price on such day,
or in case no bid takes place on such day, the average of the reported
closing bid and asked prices, in each case on the New York Stock Exchange or,
if the stock is not quoted on such exchange, on The Nasdaq National Market or
the principal national securities exchange on which such stock is listed or
admitted to trading, or if not listed or admitted to trading on The Nasdaq
National Market or any national securities exchange, the average of the
closing bid and asked prices as furnished by any independent registered
broker-dealer firm, selected by the corporation for that purpose.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors who (i) was a member of such Board of Directors on the
date of this Certificate of Amendment or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time
of such nomination or election.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, a Voting Rights Triggering Event.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HOLDERS" means the registered holders from time to time of the 7 1/4%
Preferred Shares.
"ISSUE DATE" means the date on which the 7 1/4% Preferred Shares are
initially issued.
"IXC 7 1/4% PREFERRED STOCK" means 7 1/4% Junior Convertible Preferred Stock
Due 2007, par value $.01 per share, of IXC that was converted into the right
to receive 7 1/4% Preferred Shares pursuant to the Agreement and Plan of
Merger dated as of July 20, 1999, by and among the corporation, Ivory Merger
and IXC.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
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"LIQUIDATED DAMAGES" means, with respect to any 7 1/4% Preferred Shares, the
Additional Dividends and Supplemental Dividends then accrued, if any, on such
share pursuant to paragraph (2).
"OFFICER" means the Chairman of the Board of Directors, the President, any
Vice President, the Treasurer, the Secretary or any Assistant Secretary of
the corporation.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Transfer Agent. The counsel may be an employee of or
counsel to the corporation or the Transfer Agent.
"PERSON" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"PREFERRED SHARES" means, as applied to the Capital Shares of any
corporation, Capital Shares of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution
of assets upon any voluntary or involuntary liquidation or dissolution of
such corporation, over Capital Shares of any other class of such corporation.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"S-4 REGISTRATION STATEMENT" means the S-4 Registration Statement on Form S-4
under the Securities Act of 1933, dated September 13, 1999, with respect to
the 7 1/4% Preferred Shares filed with the SEC. The S-4 Registration
Statement was filed pursuant to the Agreement and Plan of Merger dated as of
July 20, 1999, by and among the corporation, Ivory Merger Inc. and IXC
Communications, Inc.
"SUBSIDIARY" means any corporation, association, partnership, limited
liability company or other business entity of which more than 50% of the
total voting power of shares of capital stock or other interests entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by the corporation, the corporation and
one or more Subsidiaries or one or more Subsidiaries and any partnership the
sole general partner or the managing partner of which the corporation or any
Subsidiary or the only general partners of which are the corporation and one
or more Subsidiaries or one or more Subsidiaries.
"TRADING DAY" means, in respect of any securities exchange or securities
market, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any
day on which securities are not traded on the applicable securities exchange
or in the applicable securities market.
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"TRANSFER AGENT" means the transfer agent for the 7 1/4% Preferred Shares
appointed by the corporation.
"VOTING SHARES" of a corporation means all classes of Capital Shares of such
corporation then outstanding and normally entitled to vote in the election of
directors.
EXHIBIT A
FORM OF CONVERTIBLE PREFERRED SHARE
FACE OF SECURITY
Certificate Number Number of Shares of Convertible
Preferred Shares
[ ] [ ]
CUSIP NO.: [ ]
7 1/4% Junior Convertible Preferred Shares Due
2007 (without par value) (liquidation
preference $100
per share of 7 1/4% Preferred Shares)
of
Cincinnati Bell Inc.
Cincinnati Bell Inc., an Ohio corporation (the "corporation"),
hereby certifies that [ ] (the "Holder") is the registered owner of fully
paid and non-assessable preferred securities of the corporation designated
the 7 1/4% Junior Convertible Preferred Shares Due 2007 (without par value)
(liquidation preference $100 per share of 7 1/4% Preferred Shares) (the "7 1/4%
Preferred Shares"). The 7 1/4% Preferred Shares are transferable on the
books and records of the Registrar, in person or by a duly authorized
attorney, upon surrender of this certificate duly endorsed and in proper form
for transfer. The designation, rights, privileges, restrictions, preferences
and other terms and provisions of the 7 1/4% Preferred Shares represented
hereby are issued and shall in all respects be subject to the provisions of
the Cincinnati Bell Amended Articles of Incorporation dated [ ], as the same
may be amended from time to time (the "Articles"). Capitalized terms used
herein but not defined shall have the meaning given them in the Articles. The
corporation will provide a copy of the Articles to a Holder without charge
upon written request to the corporation at its principal place of business.
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Reference is hereby made to select provisions of the 7 1/4%
Preferred Shares set forth on the reverse hereof, and to the Articles, which
select provisions and the Articles shall for all purposes have the same
effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the
Articles and is entitled to the benefits thereunder.
Unless the Transfer Agent's Certificate of Authentication hereon has
been properly executed, these shares of 7 1/4% Preferred Shares shall not be
entitled to any benefit under the Articles or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the corporation has executed this certificate
this [ ] day of [ ], [ ].
CINCINNATI BELL INC.,
By:
Name:
Title:
[Seal]
By:
------------------------------------
Name:
Title:
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TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the 7 1/4% Preferred Shares referred to in the within
mentioned ArticleS.
Dated: [ ], [ ]
[THE FIFTH THIRD BANK]
as Transfer Agent,
By:
-----------------------------------
Authorized Signatory
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REVERSE OF SECURITY
Dividends on each 7 1/4% Preferred Share shall be payable at a rate
per annum set forth in the face hereof or as provided in the Articles
(including Additional Dividends).
The 7 1/4% Preferred Shares shall be redeemable as provided in the
Articles. The 7 1/4% Preferred Shares shall be convertible into the
corporation's Common Shares in the manner and according to the terms set
forth in the Articles.
As required under Ohio law, the corporation shall furnish to any
Holder upon request and without charge, a full summary statement of the
designations, voting rights preferences, limitations and special rights of
the shares of each class or series authorized to be issued by the corporation
so far as they have been fixed and determined and the authority of the Board
of Directors to fix and determine the designations, voting rights,
preferences, limitations and special rights of the class and series of shares
of the corporation.
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EXHIBIT B
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Convertible, Preferred Shares)
The undersigned hereby irrevocably elects to convert (the "Conversion") 7 1/4%
Junior Convertible Preferred Shares (the "7 1/4% Preferred Shares"),
represented by stock certificate No(s).________ (the "7 1/4% Preferred Shares
Certificates") into shares of common stock ("Common Shares") of Cincinnati
Bell Inc. (the "corporation") according to the conditions of the
corporation's Amended Articles of Incorporation (the "Articles"), as of the
date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates.* No fee
will be charged to the Holder for any Conversion, except for transfer taxes,
if any. A copy of each 7 1/4% Preferred Shares Certificate is attached hereto
(or evidence of loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Shares issuable to the undersigned upon
conversion of the 7 1/4% Preferred Shares shall be made pursuant to
registration of the Common Shares under the Securities Act of 1933 (the
"Act"), or pursuant to any exemption from registration under the Act.
Any Holder, upon the exercise of its conversion rights in accordance with the
terms of the Articles and the 7 1/4% Preferred Shares, agrees to be bound by
the terms of the Registration Rights Agreement.
Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in or pursuant to the Articles.
Date of Conversion:
Applicable Conversion Price:
Number of shares of Convertible
Preferred Shares to be Converted:
Number of shares of
Common Shares to be Issued:
Signature:
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Name:
Address:**
Fax No.:
*The corporation is not required to issue shares of Common Shares until the
original 7 1/4% Preferred Shares Certificate(s) (or evidence of loss, theft
or destruction thereof) to be converted are received by the corporation or
its Transfer Agent. The corporation shall issue and deliver shares of Common
Shares to an overnight courier not later than three business days following
receipt of the original 7 1/4% Preferred Shares Certificate(s) to be
converted.
**Address where shares of Common Shares and any other payments or
certificates shall be sent by the corporation.
ANNEX 2
12. Of the 4,000,000 Voting Preferred Shares of the corporation, 155,250
shall constitute a series of Voting Preferred Shares designated as 6 3/4%
Cumulative Convertible Preferred Shares (the "6 3/4% Preferred Shares") with
a Liquidation Preference of $1,000 per share (the "Liquidation Preference"),
and have, subject and in addition to the other provisions of this Article
Fourth, the following relative rights, preferences and limitations:
(1) ISSUE DATE. The date the 6 3/4% Preferred Shares are first issued is
referred to as the "Issue Date".
(2) RANK. The 6 3/4% Preferred Shares will, rank (i) PARI PASSU in right
of payment with the corporation's 7 1/4% Junior Convertible Preferred Shares
Due 2007 (the "7 1/4% Preferred Shares") and each other class of Capital
Shares or series of Preferred Shares established hereafter by the Board of
Directors, the terms of which expressly provide that such class or series
ranks on a parity with the 6 3/4% Preferred Shares as to dividend rights and
rights on liquidation, dissolution and winding-up of the corporation
(collectively referred to as "Parity Securities"); (ii) junior in right of
payment to any Senior Securities (as defined) as to dividends and upon
liquidation, dissolution or winding-up of the corporation and (iii) senior in
right of payment as to dividend rights and upon liquidation, dissolution or
winding-up of the corporation to the Common Shares or any Capital Shares of
the corporation that expressly provide that they will rank junior to the
6 3/4% Preferred Shares as to dividend rights or rights on liquidation,
winding-up and dissolution of the corporation (collectively referred to as
"Junior Securities"). The corporation may not authorize, create (by way of
reclassification or otherwise) or issue
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any class or series of Capital Shares of the corporation ranking senior in
right of payment as to dividend rights or upon liquidation, dissolution or
winding-up of the corporation to the 6 3/4% Preferred Shares ("Senior
Securities") or any obligation or security convertible or exchangeable into,
or evidencing a right to purchase, shares of any class or series of Senior
Securities without the affirmative vote or consent of the Holders of at least
66 2/3% of the outstanding 6 3/4% Preferred Shares.
(3) DIVIDENDS. The Holders of the 6 3/4% Preferred Shares will be
entitled to receive, when, as and if dividends are declared by the Board of
Directors out of funds of the corporation legally available therefor,
cumulative preferential dividends from the Issue Date of the 6 3/4% Preferred
Shares accruing at the rate of $67.50 per 6 3/4% Preferred Share per annum,
or $16.875 per 6 3/4% Preferred Share per quarter, payable quarterly in
arrears on January 1, April 1, July 1, and October 1 of each year or, if any
such date is not a Business Day, on the next succeeding Business Day (each, a
"Dividend Payment Date"), to the Holders of record as of the next preceding
December 15, March 15, June 15, and September 15 (each, a "Record Date"). In
addition to the dividends described in the preceding sentence, a Holder of
any outstanding 6 3/4% Preferred Shares will be entitled to a dividend in an
additional amount (the "Supplemental Dividend"), to the extent not previously
paid on the 6 3/4% Preferred Shares, equal to all accumulated and unpaid
dividends on the shares of IXC 6 3/4% Preferred Stock (as defined)
outstanding on the effective date of the merger of Ivory Merger Inc., a
wholly-owned subsidiary of the corporation ("Ivory Merger"), with and into
IXC Communications, Inc. ("IXC"), pursuant to which outstanding shares of IXC
6 3/4% Preferred Stock were converted into the right to receive 6 3/4%
Preferred Shares. The Supplemental Dividend, until paid by the corporation,
shall for all purposes of this 6 3/4% Article Fourth be deemed included with
the accrued and unpaid dividends on the 6 3/4% Preferred Shares. Accrued but
unpaid dividends, if any, may be paid on such dates as determined by the
Board of Directors. Dividends will be payable in cash except as set forth
below. Dividends payable on the 6 3/4% Preferred Shares will be computed on
the basis of a 360-day year of twelve 30-day months and will be deemed to
accrue on a daily basis. Dividends (other than the Supplemental Dividend)
may, at the option of the corporation, be paid in Common Shares if, and only
if, the documents governing the corporation's indebtedness that exist on the
Issue Date then prohibit the payment of such dividends in cash. If the
corporation elects to pay dividends in Common Shares, the number of Common
Shares to be distributed will be calculated by dividing the amount of such
dividend otherwise payable in cash by 95% of the arithmetic average of the
Closing Price (as defined) for the five Trading Days (as defined) preceding
the Dividend Payment Date. The 6 3/4% Preferred Shares will not be redeemable
unless all dividends (including the Supplemental Dividend) accrued through
such redemption date shall have been paid in full. Notwithstanding anything
to the contrary herein contained, the corporation shall not be required to
declare or pay a dividend if another person (including, without limitation,
any of its subsidiaries) pays an amount to the Holders equal to the amount of
such dividend on behalf of the corporation and, in such event, the dividend
will be deemed paid for all purposes.
Dividends on the 6 3/4% Preferred Shares (including the Supplemental
Dividend) will accrue whether or not the corporation has earnings or profits,
whether or not there are
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funds legally available for the payment of such dividends and whether or not
dividends are declared. Dividends will accumulate to the extent they are not
paid on the Dividend Payment Date for the quarter to which they relate.
Accumulated unpaid dividends (including the Supplemental Dividend) will
accrue and cumulate at a rate of 6.75% per annum. The corporation will take
all reasonable actions required or permitted under Ohio law to permit the
payment of dividends on the 6 3/4% Preferred Shares.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding 6 3/4% Preferred Share
with respect to any dividend period unless all dividends for all preceding
dividend periods (including the Supplemental Dividend) have been declared and
paid upon, or declared and a sufficient sum set apart for the payment of such
dividend upon, all outstanding 6 3/4% Preferred Shares. Unless full
cumulative dividends on all outstanding 6 3/4% Preferred Shares (including
the Supplemental Dividend) due for all past dividend periods shall have been
declared and paid, or declared and a sufficient sum for the payment thereof
set apart, then: (i) no dividend (other than a dividend payable solely in
shares of Junior Securities or options, warrants or rights to purchase Junior
Securities) shall be declared or paid upon, or any sum set apart for the
payment of dividends upon, any shares of Junior Securities; (ii) no other
distribution shall be declared or made upon, or any sum set apart for the
payment of any distribution upon, any shares of Junior Securities; (iii) no
shares of Junior Securities shall be purchased, redeemed or otherwise
acquired or retired for value (excluding an exchange for shares of other
Junior Securities or a purchase, redemption or other acquisition from the
proceeds of a substantially concurrent sale of Junior Securities) by the
corporation or any of its Subsidiaries; and (iv) no monies shall be paid into
or set apart or made available for a sinking or other like fund for the
purchase, redemption or other acquisition or retirement for value of any
shares of Junior Securities by the corporation or any of its Subsidiaries.
Holders of the 6 3/4% Preferred Shares will not be entitled to any dividends,
whether payable in cash, property or stock, in excess of the full cumulative
dividends as herein described.
(4) LIQUIDATION PREFERENCE. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the corporation
after payment in full of the Liquidation Preference (and any accrued and
unpaid dividends) on any Senior Securities, each Holder of 6 3/4% Preferred
Shares shall be entitled, on an equal basis with the holders of the 7 1/4%
Preferred Shares and any other outstanding Parity Securities, to payment out
of the assets of the corporation available for distribution of the
Liquidation Preference per 6 3/4% Preferred Share held by such Holder, plus
an amount equal to the accrued and unpaid dividends (if any), Liquidated
Damages (as defined) (if any) and the Supplemental Dividend (if any) on the
6 3/4% Preferred Shares to the date fixed for liquidation, dissolution, or
winding-up of the corporation before any distribution is made on any Junior
Securities, including, without limitation, Common Shares of the corporation.
After payment in full of the Liquidation Preference and an amount equal to
the accrued and unpaid dividends, Liquidated Damages (if any) and the
Supplemental Dividend (if any) to which Holders of the 6 3/4% Preferred
Shares are entitled, such Holders will not be entitled to any further
participation in any distribution of assets of the corporation. However,
neither the voluntary sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially
all of the
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property or assets of the corporation nor the consolidation or merger of the
corporation with or into one or more corporations will be deemed to be a
voluntary or involuntary liquidation, dissolution or winding-up of the
corporation, unless such sale, conveyance, exchange, transfer, consolidation
or merger shall be in connection with a liquidation, dissolution or
winding-up of the affairs of the corporation or reduction or decrease in
capital stock.
(5) REDEMPTION. The 6 3/4% Preferred Shares may not be redeemed at the
option of the corporation on or prior to April 5, 2000. After April 5, 2000
the corporation may redeem the 6 3/4% Preferred Shares (subject to the legal
availability of funds therefor). Notwithstanding the foregoing, prior to
April 1, 2002, the corporation shall only have the option to redeem the 6 3/4%
Preferred Shares if, during the period of 30 consecutive Trading Days ending
on the Trading Day immediately preceding the date that the notice of
redemption is mailed to Holders, the Closing Price for the Common Shares
exceeded $75 divided by the Conversion Rate effective on the date of such
notice for at least 20 of such Trading Days. Subject to the immediately
preceding sentence, the 6 3/4% Preferred Shares may be redeemed, in whole or
in part, at the option of the corporation after April 5, 2000, at the
redemption prices specified below (expressed as percentages of the
Liquidation Preference thereof), in each case, together with an amount equal
to accrued and unpaid dividends on the 6 3/4% Preferred Shares (excluding any
declared dividends for which the Record Date has passed), Liquidated Damages
(if any) and the Supplemental Dividend (if any) to the date of redemption,
upon not less than 15 nor more than 60 days' prior written notice, if
redeemed during the period commencing on April 5, 2000 to March 31, 2001 at
105.40%, and thereafter during the 12-month period commencing on April 1 of
each of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION RATE
<S> <C>
2001..................................................104.73%
2002..................................................104.05%
2003..................................................103.38%
2004..................................................102.70%
2005..................................................102.03%
2006..................................................101.35%
2007..................................................100.68%
2008 and thereafter...................................100.00%
</TABLE>
Except as provided in the preceding sentence, no payment or allowance will be
made for accrued dividends on any of the 6 3/4% Preferred Shares called for
redemption.
On and after any date fixed for redemption (the "Redemption Date"), provided
that the corporation has made available at the office of the Transfer Agent a
sufficient amount of cash to effect the redemption, dividends will cease to
accrue on the 6 3/4% Preferred Shares called for redemption (except that, in
the case of a Redemption Date after a dividend payment Record Date and prior
to the related Dividend Payment Date, Holders of the 6 3/4% Preferred Shares
on the dividend payment Record Date will be entitled on such Dividend Payment
Date to receive the dividend payable on such shares), such shares shall no
longer be deemed to be outstanding and all rights of the Holders of such
shares
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<PAGE>
as Holders of 6 3/4% Preferred Shares shall cease except the right to receive
the cash deliverable upon such redemption, without interest from the
Redemption Date.
In the event of a redemption of only a portion of the 6 3/4% Preferred Shares
then outstanding, the corporation shall effect such redemption on a pro rata
basis, except that the corporation may redeem all of the shares held by
Holders of fewer than 100 shares (or all of the shares held by Holders who
would hold less than 100 shares as a result of such redemption), as may be
determined by the corporation.
With respect to a redemption pursuant hereto, the corporation will send a
written notice of redemption by first class mail to each Holder of record of
the 6 3/4% Preferred Shares, not fewer than 15 days nor more than 60 days
prior to the Redemption Date at its registered address (the "Redemption
Notice"); PROVIDED, HOWEVER, that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for the
redemption of the 6 3/4% Preferred Shares to be redeemed except as to the
Holder or Holders to whom the corporation has failed to give said notice or
except as to the Holder or Holders whose notice was defective. The Redemption
Notice shall state:
a. the redemption price;
b. whether all or less than all the outstanding 6 3/4% Preferred Shares are
to be redeemed and the total number of 6 3/4% Preferred Shares being redeemed;
c. the Redemption Date;
d. that the Holder is to surrender to the corporation, in the manner, at the
place or places and at the price designated, his certificate or certificates
representing the 6 3/4% Preferred Shares to be redeemed; and
e. that dividends on the 6 3/4% Preferred Shares to be redeemed shall cease
to accumulate on such Redemption Date unless the corporation defaults in the
payment of the redemption price.
Each Holder of the 6 3/4% Preferred Shares shall surrender the certificate or
certificates representing such 6 3/4% Preferred Shares to the corporation,
duly endorsed (or otherwise in proper form for transfer, as determined by the
corporation), in the manner and at the place designated in the Redemption
Notice, and on the Redemption Date the full redemption price for such shares
shall be payable in cash to the person whose name appears on such certificate
or certificates as the owner thereof, and each surrendered certificate shall
be canceled and retired. In the event that less than all of the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(6) VOTING RIGHTS. Each Holder of record of the 6 3/4% Preferred
Shares, except as required under Ohio law or as provided in paragraph (6) and
in paragraphs (2), (8) and (13) hereof, will be entitled to one vote for each
6 3/4% Preferred Share held by such
37
<PAGE>
Holder on any matter required or permitted to be voted upon by the
shareholders of the corporation.
Upon the accumulation of accrued and unpaid dividends on the outstanding
6 3/4% Preferred Shares in an amount equal to six full quarterly dividends
(whether or not consecutive) (together with any event with a similar effect
pursuant to the terms of any other series of Preferred Shares upon which like
rights have been conferred, a "Voting Rights Triggering Event"), the number
of members of the corporation's Board of Directors will be immediately and
automatically increased by two (unless previously increased pursuant to the
terms of any other series of Preferred Shares upon which like rights have
been conferred), and the Holders of a majority of the outstanding 6 3/4%
Preferred Shares, voting together as a class (pro rata, based on Liquidation
Preference) with the holders of any other series of Preferred Shares upon
which like rights have been conferred and are exercisable, will be entitled
to elect two members to the Board of Directors of the corporation. Voting
rights arising as a result of a Voting Rights Triggering Event will continue
until such time as all dividends in arrears on the 6 3/4% Preferred Shares
are paid in full. Notwithstanding the foregoing, however, such voting rights
to elect directors will expire when the number of outstanding 6 3/4%
Preferred Shares is reduced to 13,500 or less.
In the event such voting rights expire or are no longer exercisable because
dividends in arrears have been paid in full, the term of any directors
elected pursuant to the provisions of this paragraph 6 above shall terminate
forthwith and the number of directors constituting the Board of Directors
shall be immediately and automatically decreased by two (until the occurrence
of any subsequent Voting Rights Triggering Event). At any time after voting
power to elect directors shall have become vested and be continuing in
Holders of the 6 3/4% Preferred Shares (together with the holders of any
other series of Preferred Shares upon which like rights have been conferred
and are exercisable) pursuant to this paragraph 6, or if vacancies shall
exist in the offices of directors elected by such holders, a proper officer
of the corporation may, and upon the written request of Holders of record of
at least 25% of the outstanding 6 3/4% Preferred Shares or holders of 25% of
outstanding shares of any other series of Preferred Shares upon which like
rights have been conferred and are exercisable addressed to the Secretary of
the corporation shall call a special meeting of Holders of the 6 3/4%
Preferred Shares and the holders of such other series of Preferred Shares for
the purpose of electing the directors which such holders are entitled to
elect pursuant to the terms hereof; PROVIDED, HOWEVER, that no such special
meeting shall be called if the next annual meeting of shareholders of the
corporation is to be held within 60 days after the voting power to elect
directors shall have become vested (or such vacancies arise, as the case may
be), in which case such meeting shall be deemed to have been called for such
next annual meeting. If such meeting shall not be called, pursuant to the
provision of the immediately preceding sentence, by a proper officer of the
corporation within 20 days after personal service to the Secretary of the
corporation at its principal executive offices, then Holders of record of at
least 25% of the outstanding 6 3/4% Preferred Shares or holders of 25% of
shares of any other series of Preferred Shares upon which like rights have
been conferred and are exercisable may designate in writing one of their
members to call such meeting at the expense of the corporation, and such
meeting may be called by the person so designated
38
<PAGE>
upon the notice required for the annual meetings of shareholders of the
corporation and shall be held at the place for holding the annual meetings of
shareholders. Any Holder of the 6 3/4% Preferred Shares or such other series
of Preferred Shares so designated shall have, and the corporation shall
provide, access to the lists of Holders of the 6 3/4% Preferred Shares and
the holders of such other series of Preferred Shares for any such meeting of
the holders thereof to be called pursuant to the provisions hereof. If no
special meeting of Holders of the 6 3/4% Preferred Shares and the holders of
such other series of Preferred Shares is called as provided in this paragraph
6, then such meeting shall be deemed to have been called for the next meeting
of shareholders of the corporation.
At any meeting held for the purposes of electing directors at which Holders
of the 6 3/4% Preferred Shares (together with the holders of any other series
of Preferred Shares upon which like rights have been conferred and are
exercisable) shall have the right, voting together as a separate class, to
elect directors as aforesaid, the presence in person or by proxy of Holders
of at least a majority in voting power of the outstanding 6 3/4% Preferred
Shares (and such other series of Preferred Shares) shall be required to
constitute a quorum thereof.
Any vacancy occurring in the office of a director elected by Holders of the
6 3/4% Preferred Shares (and such other series of Preferred Shares) may be
filled by the remaining director elected by Holders of the 6 3/4% Preferred
Shares (and such other series of Preferred Shares) unless and until such
vacancy shall be filled by Holders of the 6 3/4% Preferred Shares (and such
other series of Preferred Shares).
So long as any 6 3/4% Preferred Shares are outstanding, the corporation will
not amend this Article Fourth so as to affect adversely the specified rights,
preferences, privileges or voting rights of Holders of the 6 3/4% Preferred
Shares or to authorize the issuance of any additional 6 3/4% Preferred Shares
without the affirmative vote of Holders of at least two-thirds of the issued
and outstanding 6 3/4% Preferred Shares, voting as one class, given in person
or by proxy, either in writing or by resolution approved at an annual or
special meeting.
Except as set forth above and otherwise required by applicable law, the
creation, authorization or issuance of any shares of any Junior Securities,
Parity Securities or Senior Securities, or the increase or decrease in the
amount of authorized Capital Shares of any class, including Preferred Shares,
shall not require the affirmative vote or consent of Holders of the 6 3/4%
Preferred Shares and shall not be deemed to affect adversely the rights,
preferences, privileges or voting rights of the 6 3/4% Preferred Shares.
In any case in which the Holders of the 6 3/4% Preferred Shares shall be
entitled to vote pursuant hereto or pursuant to Ohio law, each Holder of the
6 3/4% Preferred Shares entitled to vote with respect to such matters shall
be entitled to one vote for each 6 3/4% Preferred Share held by such Holder.
(7) CONVERSION RIGHTS. The 6 3/4% Preferred Shares will be convertible
at the option of the Holder, into Common Shares at any time, unless
previously redeemed or repurchased, at a conversion rate of 28.838 Common
Shares per 6 3/4% Preferred Share
39
<PAGE>
(as adjusted pursuant to the provisions hereof, the "Conversion Rate")
(subject to the adjustments described below). The right to convert a 6 3/4%
Preferred Share called for redemption or delivered for repurchase will
terminate at the close of business on the Redemption Date for such 6 3/4%
Preferred Shares or at the time of the repurchase, as the case may be.
The right of conversion attaching to any 6 3/4% Preferred Share may be
exercised by the Holder thereof by delivering the certificate for such share
to be converted to the office of the Transfer Agent, or any agency or office
of the corporation maintained for that purpose, accompanied by a duly signed
and completed notice of conversion in form reasonably satisfactory to the
Transfer Agent of the corporation, such as that which is set forth in Exhibit
B hereto. The conversion date will be the date on which the share certificate
and the duly signed and completed notice of conversion are so delivered. As
promptly as practicable on or after the conversion date, the corporation will
issue and deliver to the Transfer Agent a certificate or certificates for the
number of full Common Shares issuable upon conversion, with any fractional
shares rounded up to full shares or, at the corporation's option, payment in
cash in lieu of any fraction of a share, based on the Closing Price of the
Common Shares on the Trading Day preceding the conversion date. Such
certificate or certificates will be delivered by the Transfer Agent to the
appropriate Holder on a book-entry basis or by mailing certificates
evidencing the additional shares to the Holders at their respective addresses
set forth in the register of Holders maintained by the Transfer Agent. All
Common Shares issuable upon conversion of the 6 3/4% Preferred Shares will be
fully paid and nonassessable and will rank PARI PASSU with the other Common
Shares outstanding from time to time. Any 6 3/4% Preferred Shares surrendered
for conversion during the period from the close of business on any Record
Date to the opening of business on the next succeeding Dividend Payment Date
must be accompanied by payment of an amount equal to the dividends payable on
such Dividend Payment Date on the 6 3/4% Preferred Shares being surrendered
for conversion. No other payment or adjustment for dividends, or for any
dividends in respect of Common Shares, will be made upon conversion. The
holders of Common Shares issued upon conversion will not be entitled to
receive any dividends payable to holders of Common Shares as of any record
time before the close of business on the conversion date.
The Conversion Rate shall be adjusted from time to time by the corporation as
follows:
a. If the corporation shall hereafter pay a dividend or make a distribution
in Common Shares to all holders of any outstanding class or series of Common
Shares of the corporation, the Conversion Rate in effect at the opening of
business on the date following the date fixed for the determination of
shareholders entitled to receive such dividend or other distribution shall be
increased by multiplying such Conversion Rate by a fraction of which the
denominator shall be the number of Common Shares outstanding at the close of
business on the Record Date (as defined below) fixed for such determination
and the numerator shall be the sum of such number of outstanding shares and
the total number of shares constituting such dividend or other distribution,
such increase to become effective immediately after the opening of business
on the day following the Record Date. If any dividend or distribution of the
type described in this provision (a) is declared but not so paid or made, the
Conversion Rate shall again be
40
<PAGE>
adjusted to the Conversion Rate which would then be in effect if such
dividend or distribution had not been declared.
b. If the outstanding Common Shares shall be subdivided into a greater number
of Common Shares, the Conversion Rate in effect at the opening of business on
the day following the day upon which such subdivision becomes effective shall
be proportionately increased and, conversely, if the outstanding Common
Shares shall be combined into a smaller number of Common Shares, the
Conversion Rate in effect at the opening of business on the day following the
day upon which such combination becomes effective shall be proportionately
reduced, such increase or reduction, as the case may be, to become effective
immediately after the opening of business on the day following the day upon
which such subdivision or combination becomes effective.
c. If the corporation shall offer or issue rights, options or warrants to all
holders of its outstanding Common Shares entitling them to subscribe for or
purchase Common Shares at a price per share less than the Current Market
Price (as defined below) on the Record Date fixed for the determination of
shareholders entitled to receive such rights or warrants, the Conversion Rate
shall be adjusted so that the same shall equal the rate determined by
multiplying the Conversion Rate in effect at the opening of business on the
date after such Record Date by a fraction of which the denominator shall be
the number of Common Shares outstanding at the close of business on the
Record Date plus the number of Common Shares which the aggregate offering
price of the total number of Common Shares subject to such rights, options or
warrants would purchase at such Current Market Price and of which the
numerator shall be the number of Common Shares outstanding at the close of
business on the Record Date plus the total number of additional Common Shares
subject to such rights, options or warrants for subscription or purchase.
Such adjustment shall become effective immediately after the opening of
business on the day following the Record Date fixed for determination of
shareholders entitled to purchase or receive such rights or warrants. To the
extent that Common Shares are not delivered pursuant to such rights, options
or warrants, upon the expiration or termination of such rights or warrants
the Conversion Rate shall again be adjusted to be the Conversion Rate which
would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made on the basis of delivery of only the number of
Common Shares actually delivered. If such rights or warrants are not so
issued, the Conversion Rate shall again be adjusted to be the Conversion Rate
which would then be in effect if such date fixed for the determination of
shareholders entitled to receive such rights or warrants had not been fixed.
In determining whether any rights or warrants entitle the holders to
subscribe for or purchase Common Shares at less than such Current Market
Price, and in determining the aggregate offering price of such Common Shares,
there shall be taken into account any consideration received for such rights
or warrants, with the value of such consideration, if other than cash, to be
determined by the Board of Directors.
d. If the corporation shall, by dividend or otherwise, distribute to all
holders of its Common Shares of any class of Capital Stock of the corporation
(other than any dividends or distributions to which provision (a) of this
paragraph applies) or evidences of its indebtedness, cash or other assets
(including securities, but excluding any rights or
41
<PAGE>
warrants of a type referred to in paragraph (c) of this paragraph) (the
foregoing hereinafter called the "Distributed Securities"), then, in each
such case, the Conversion Rate shall be increased so that the same shall be
equal to the rate determined by multiplying the Conversion Rate in effect
immediately prior to the close of business on the Record Date (as defined
below) with respect to such distribution by a fraction of which the
denominator shall be the Current Market Price (determined as provided in
provision g(i) of this paragraph) of the Common Shares on such date less the
Fair Market Value (as defined below) on such date of the portion of the
Distributed Securities so distributed applicable to one Common Share and the
numerator shall be such Current Market Price, such increase to become
effective immediately prior to the opening of business on the day following
the Record Date; PROVIDED, HOWEVER, that, in the event the then Fair Market
Value (as so determined) of the portion of the Distributed Securities so
distributed applicable to one Common Share is equal to or greater than the
Current Market Price on the Record Date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each Holder of the 6 3/4% Preferred
Shares shall have the right to receive upon conversion of a 6 3/4% Preferred
Share (or any portion thereof) the amount of Distributed Securities such
Holder would have received had such Holder converted such 6 3/4% Preferred
Share (or portion thereof) immediately prior to such Record Date. If such
dividend or distribution is not so paid or made, the Conversion Rate shall
again be adjusted to be the Conversion Rate which would then be in effect if
such dividend or distribution had not been declared. If the Board of
Directors determines the Fair Market Value of any distribution for purposes
hereof by reference to the actual or when issued trading market for any
securities comprising all or part of such distribution, it must in doing so
consider the prices in such market over the same period used in computing the
Current Market Price pursuant to provision g(i) of this paragraph to the
extent possible.
Rights or warrants distributed by the corporation to all holders of Common
Shares entitling the holders thereof to subscribe for or purchase shares of
the corporation's Capital Stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a specified
event or events ("Dilution Trigger Event"): (i) are deemed to be transferred
with such Common Shares; (ii) are not exercisable; and (iii) are also issued
in respect of future issuances of Common Shares, shall be deemed not to have
been distributed for purposes of this provision (d) (and no adjustment to the
Conversion Rate under this provision (d) shall be required) until the
occurrence of the earliest Dilution Trigger Event, whereupon such rights and
warrants shall be deemed to have been distributed and an appropriate
adjustment to the Conversion Rate under this provision (d) shall be made. If
any such rights or warrants, including any such existing rights or warrants
distributed prior to the date hereof, are subject to subsequent events, upon
the occurrence of each of which such rights or warrants shall become
exercisable to purchase different securities, evidences of indebtedness or
other assets, then the occurrence of each such event shall be deemed to be
such date of issuance and record date with respect to new rights or warrants
(and a termination or expiration of the existing rights or warrants without
exercise by the holder thereof). In addition, in the event of any
distribution (or deemed distribution) of rights or warrants, or any Dilution
Trigger Event with respect thereto, that was counted for purposes of
calculating a distribution amount for which an adjustment to the Conversion
Rate under this provision (d) was made, (1) in
42
<PAGE>
the case of any such rights or warrants which shall all have been redeemed or
repurchased without exercise by any holders thereof, the Conversion Rate
shall be readjusted upon such final redemption or repurchase to give effect
to such distribution or Dilution Trigger Event, as the case may be, as though
it were a cash distribution, equal to the per share redemption or repurchase
price received by a holder or holders of Common Shares with respect to such
rights or warrants (assuming such holder had retained such rights or
warrants), made to all holders of Common Shares as of the date of such
redemption or repurchase, and (2) in the case of such rights or warrants
which shall have expired or been terminated without exercise by any holders
thereof, the Conversion Rate shall be readjusted as if such rights and
warrants had not been issued.
Notwithstanding any other provision of this provision (d) to the contrary,
Capital Stock, rights, warrants, evidences of indebtedness, other securities,
cash or other assets (including, without limitation, any rights distributed
pursuant to any shareholder rights plan) shall be deemed not to have been
distributed for purposes of this provision (d) if the corporation makes
proper provision so that each Holder of 6 3/4% Preferred Shares who converts
a 6 3/4% Preferred Share (or any portion thereof) after the date fixed for
determination of shareholders entitled to receive such distribution shall be
entitled to receive upon such conversion, in addition to the Common Shares
issuable upon such conversion, the amount and kind of such distributions that
such Holder would have been entitled to receive if such Holder had,
immediately prior to such determination date, converted such 6 3/4% Preferred
Share into Common Shares.
For purposes of this provision (d), provision (a) and provision (b), any
dividend or distribution to which this provision (d) is applicable that also
includes Common Shares, or rights or warrants to subscribe for or purchase
Common Shares to which provision (b) applies (or both), shall be deemed
instead to be (1) a dividend or distribution of the evidences of
indebtedness, cash, assets, shares of Capital Stock, rights or warrants other
than (A) such Common Shares or (B) rights or warrants to which provision (b)
applies (and any Conversion Rate increase required by this provision (d) with
respect to such dividend or distribution shall then be made) immediately
followed by (2) a dividend or distribution of such Common Shares or such
rights or warrants (and any further Conversion Rate increase required by
provisions (a) and (b) with respect to such dividend or distribution shall
then be made), except that (1) the Record Date of such dividend or
distribution shall be substituted as "the Record Date fixed for the
determination of shareholders entitled to receive such dividend or other
distribution", "Record Date fixed for such determination" and "Record Date"
within the meaning of provision (a) and as "the Record Date fixed for the
determination of shareholders entitled to receive such rights or warrants",
"the date fixed for the determination of the shareholders entitled to receive
such rights or warrants" and "such Record Date" within the meaning of
provision (b), and (2) any Common Shares included in such dividend or
distribution shall not be deemed "outstanding at the close of business on the
date fixed for such determination" within the meaning of provision (a).
e. If the corporation shall, by dividend or otherwise, distribute to all
holders of its Common Shares cash (excluding any cash that is part of a
distribution referred to in provision (d)) in an aggregate amount that,
combined together with (1) the aggregate
43
<PAGE>
amount of any other such distributions to all holders of its Common Shares
made exclusively in cash within the 12 months preceding the date of payment
of such distribution, and in respect of which no adjustment pursuant to this
provision (e) has been made and (2) the aggregate of any cash plus the Fair
Market Value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of Directors)
of consideration payable in respect of any tender offer by the corporation or
a Subsidiary of the corporation for all or any portion of the Common Shares
concluded within the 12 months preceding the date of payment of such
Distribution, and in respect of which no adjustment pursuant to provision (d)
has been made, exceeds 10% of the product of the Current Market Price
(determined as provided below) on the Record Date with respect to such
distribution times the number of Common Shares outstanding on such date,
then, and in each such case, immediately after the close of business on such
date, the Conversion Rate shall be increased so that the same shall equal the
price determined by multiplying the Conversion Rate in effect immediately
prior to the close of business on such Record Date by a fraction (i) the
denominator of which shall be equal to the Current Market Price on the Record
Date less an amount equal to the quotient of (x) the excess of such combined
amount over such 10% amount divided by (y) the number of Common Shares
outstanding on the Record Date and (ii) the numerator of which shall be equal
to the Current Market Price on such Record Date; PROVIDED, HOWEVER, that, if
the portion of the cash so distributed applicable to one Common Share is
equal to or greater than the Current Market Price of the Common Shares on the
Record Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Holder of 6 3/4% Preferred Shares shall have the right to
receive upon conversion of each 6 3/4% Preferred Share (or any portion
thereof) the amount of cash such Holder would have received had such Holder
converted such 6 3/4% Preferred Share (or portion thereof) immediately prior
to such Record Date. If such dividend or distribution is not so paid or made,
the Conversion Rate shall again be adjusted to be the Conversion Rate which
would then be in effect if such dividend or distribution had not been
declared.
f. If a tender or exchange offer made by the corporation or any of its
Subsidiaries for all or any portion of Common Shares expires and such tender
or exchange offer (as amended upon the expiration thereof) requires the
payment to shareholders (based on the acceptance (up to any maximum specified
in the terms of the tender offer) of Purchased Shares (as defined below)) of
an aggregate consideration having a Fair Market Value that, combined together
with (1) the aggregate of the cash plus the Fair Market Value, as of the
expiration of such tender offer, of consideration payable in respect of any
other tender offers, by the corporation or any of its subsidiaries for all or
any portion of the Common Shares expiring within the 12 months preceding the
expiration of such tender offer and in respect of which no adjustment
pursuant to this provision (f) has been made and (2) the aggregate amount of
any distributions to all holders of the Common Shares made exclusively in
cash within 12 months preceding the expiration of such tender offer and in
respect of which no adjustment pursuant to provision (e) has been made,
exceeds 10% of the product of the Current Market Price as of the last time
(the "Expiration Time") tenders could have been made pursuant to such tender
offer (as it may be amended) times the number of Common Shares outstanding
(including any tendered shares) at the Expiration Time, then, and in each
such case, immediately prior to the
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opening of business on the day after the date of the Expiration Time, the
Conversion Rate shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Rate in effect immediately prior to
the close of business on the date of the Expiration Time by a fraction of
which the denominator shall be the number of Common Shares outstanding
(including any tendered shares) at the Expiration Time multiplied by the
Current Market Price of the Common Shares on the Trading Day next succeeding
the Expiration Time and the numerator shall be the sum of (x) the Fair Market
Value of the aggregate consideration payable to shareholders based on the
acceptance (up to any maximum specified in the terms of the tender offer) of
all shares validly tendered and not withdrawn as of the Expiration Time (the
shares deemed so accepted, up to any such maximum, being referred to as the
"Purchased Shares") and (y) the product of the number of Common Shares
outstanding (less any Purchased Shares) at the Expiration Time and the
Current Market Price of the Common Shares on the Trading Day next succeeding
the Expiration Time, such reduction (if any) to become effective immediately
prior to the opening of business on the day following the Expiration Time. If
the corporation is obligated to purchase shares pursuant to any such tender
offer, but the corporation is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the
Conversion Rate shall again be adjusted to be the Conversion Rate which would
then be in effect if such tender offer had not been made. If the application
of this provision (f) to any tender offer would result in a decrease in the
Conversion Rate, no adjustment shall be made for such tender offer under this
provision (f). The corporation may make voluntary increases in the Conversion
Rate in addition to those required in the foregoing provisions, provided that
each such increase is in effect for at least 20 calendar days.
In addition, in the event that any other transaction or event occurs as to
which the foregoing Conversion Rate adjustment provisions are not strictly
applicable but the failure to make any adjustment would adversely affect the
conversion rights represented by the 6 3/4% Preferred Shares in accordance
with the essential intent and principles of such provisions, then, in each
such case, either (i) the corporation will appoint an investment banking firm
of recognized national standing, or any other financial expert that does not
(or whose directors, officers, employees, affiliates or shareholders do not)
have a direct or material indirect financial interest in the corporation or
any of its Subsidiaries, who has not been, and, at the time it is called upon
to give independent financial advice to the corporation, is not (and none of
its directors, officers, employees, affiliates or shareholders are) a
promoter, director or officer of the corporation or any of its subsidiaries,
which will give their opinion upon or (ii) the Board of Directors shall, in
its sole discretion, determine consistent with the Board of Directors'
fiduciary duties to the holders of the corporation's Common Shares, the
adjustment, if any, on a basis consistent with the essential intent and
principles established in the foregoing Conversion Rate adjustment
provisions, necessary to preserve, without dilution, the conversion rights
represented by the 6 3/4% Preferred Shares. Upon receipt of such opinion or
determination, the corporation will promptly mail a copy thereof to the
Holders of the 6 3/4% Preferred Shares and will, subject to the fiduciary
duties of the Board of Directors, make the adjustments described therein.
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The corporation will provide to Holders of the 6 3/4% Preferred Shares
reasonable notice of any event that would result in an adjustment to the
Conversion Rate pursuant to this section so as to permit the Holders to
effect a conversion of the 6 3/4% Preferred Shares into Common Shares prior
to the occurrence of such event.
g. For purposes of this paragraph, the following terms shall have the meaning
indicated:
i. "Current Market Price" means the average of the daily closing prices per
Common Shares for the 10 consecutive trading days immediately prior to the
date in question.
ii. "Fair Market Value" shall mean the amount which a willing buyer would pay
a willing seller in an arm's-length transaction, under usual and ordinary
circumstances and after consideration of all available uses and purposes
without any compulsion upon the seller to sell or the buyer to buy, as
determined by the Board of Directors, whose determination shall be made in
good faith and shall be conclusive and described in a resolution of the Board
of Directors.
iii. "Record Date" shall mean, with respect to any dividend, distribution or
other transaction or event in which the holders of Common Shares have the
right to receive any cash, securities or other property or in which the
Common Shares (or other applicable security) are exchanged for or converted
into any combination of cash, securities or other property, the date fixed
for determination of shareholders entitled to receive such cash, securities
or other property (whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
h. No adjustment in the Conversion Rate shall be required unless such
adjustment would require an increase or decrease of at least 1% in such rate;
PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph are
not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this paragraph shall be
made by the corporation and shall be made to the nearest cent or to the
nearest one hundredth of a share, as the case may be. No adjustment need be
made for a change in the par value or no par value of the Common Shares.
i. Whenever the Conversion Rate is adjusted as herein provided, the
corporation shall promptly file with the Transfer Agent an Officers'
Certificate setting forth the Conversion Rate after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the corporation shall prepare a
notice of such adjustment of the Conversion Rate setting forth the adjusted
Conversion Rate and the date on which each adjustment becomes effective and
shall mail such notice of such adjustment of the Conversion Rate to each
Holder of the 6 3/4% Preferred Shares at such Holder's last address appearing
on the register of Holders maintained for that purpose within 20 days of the
effective date of such adjustment. Failure to deliver such notice shall not
affect the legality or validity of any such adjustment.
j. In any case in which this paragraph provides that an adjustment shall
become effective immediately after a Record Date for an event, the
corporation may defer until the occurrence of such event issuing to the
Holder of any 6 3/4% Preferred Shares converted
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after such Record Date and before the occurrence of such event the additional
Common Shares issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Shares issuable upon such
conversion before giving effect to such adjustment.
k. For purposes of this paragraph, the number of Common Shares at any time
outstanding shall not include shares held in the treasury of the corporation
but shall include shares issuable in respect of scrip certificates issued in
lieu of fractions of Common Shares. The corporation shall not pay any
dividend or make any distribution on Common Shares held in the treasury of
the corporation.
(8) CERTAIN COVENANTS.
a. TRANSACTIONS WITH AFFILIATES
Without the affirmative vote or consent of the Holders of a majority of the
outstanding 6 3/4% Preferred Shares, the corporation will not, and will not
permit any of its Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the corporation or the relevant Subsidiary than those that
would have been obtained in a comparable transaction by the corporation or
such Subsidiary with an unrelated Person and (ii) the corporation files in
its minute books with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved
by a majority of the members of the Board of Directors that are disinterested
as to such Affiliate Transaction.
As used herein, "Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
The provisions of the foregoing paragraph shall not prohibit (i) any issuance
of securities, or other payments, awards or grants in cash, securities or
otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (ii)
the grant of stock options or similar rights to employees and directors of
the corporation pursuant to plans approved by the Board of Directors, (iii)
any employment or consulting arrangement or agreement entered into by the
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corporation or any of its Subsidiaries in the ordinary course of business and
consistent with the past practice of the corporation or such Subsidiary, (iv)
the payment of reasonable fees to directors of the corporation and its
Subsidiaries who are not employees of the corporation or its Subsidiaries,
(v) any Affiliate Transaction between the corporation and a Subsidiary
thereof or between such Subsidiaries (for purposes of this paragraph,
"Subsidiary" includes any entity deemed to be an Affiliate because the
corporation or any of its Subsidiaries own securities in such entity or
controls such entity), or (vi) transactions between IXC or any subsidiary
thereof specifically contemplated by the PSINet Agreement dated as of July
22, 1997 between a subsidiary of IXC and PSINet, as amended as of the date
hereof.
b. PAYMENTS FOR CONSENT
Neither the corporation nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
dividend or other distribution, fee or otherwise, to any Holder of 6 3/4%
Preferred Shares for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of this Article Fourth or the 6 3/4%
Preferred Shares unless such consideration is offered to be paid and is paid
to all Holders of the 6 3/4% Preferred Shares that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
c. REPORTS
Whether or not required by the rules and regulations of the SEC, so long as
any 6 3/4% Preferred Shares are outstanding, the corporation will furnish to
the Holders of the 6 3/4% Preferred Shares (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the SEC on Forms 10-Q and 10-K if the corporation were required to file such
Forms, including "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only,
a report thereon by the corporation's certified independent accountants and
(ii) all information that would be required to be contained in a current
report on Form 8-K if the corporation were required to file such reports. In
the event the corporation has filed any such report with the SEC, it will not
be obligated to separately furnish the report to any Holder unless and until
such Holder requests a copy of the report. In addition, whether or not
required by the rules and regulations of the SEC, the corporation will file a
copy of all such information and reports with the SEC for public availability
(unless the SEC will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
(9) MERGER, CONSOLIDATION OR SALE OF ASSETS OF THE CORPORATION. In the
event that the corporation is party to any Fundamental Change or transaction
(including, without limitation, a merger other than a merger that does not
result in a reclassification, conversion, exchange or cancellation of Common
Shares), consolidation, sale of all or substantially all of the assets of the
corporation, recapitalization or reclassification of Common Shares (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of a
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subdivision or combination of Common Shares) or any compulsory share exchange
(each of the foregoing, including any Fundamental Change, being referred to
as a "Transaction"), the corporation will be obligated, subject to applicable
provisions of state law, either to offer (a "Repurchase Offer") to purchase
all of the 6 3/4% Preferred Shares on the date (the "Repurchase Date") that
is 75 days after the date the corporation gives notice of the Transaction, at
a price (the "Repurchase Price") equal to $1,000.00 per 6 3/4% Preferred Share,
together with an amount equal to accrued and unpaid dividends on the 6 3/4%
Preferred Shares through the Repurchase Date or to adjust the Conversion Rate
as described below. If a Repurchase Offer is made, the corporation shall
deposit, on or prior to the Repurchase Date, with a paying agent an amount of
money sufficient to pay the aggregate Repurchase Price of the 6 3/4%
Preferred Shares which is to be paid on the Repurchase Date.
On or before the 15th day after the corporation knows or reasonably should
know that a Transaction has occurred, the corporation will be required to
mail to all Holders a notice of the occurrence of such Transaction and
whether or not the documents governing the corporation's indebtedness permit
at such time a Repurchase Offer, and, as applicable, either the new
Conversion Rate (as adjusted at the option of the corporation) or the date by
which the Repurchase Offer must be accepted, the Repurchase Price for the
6 3/4% Preferred Shares and the procedures which the Holder must follow to
accept the Repurchase Offer. To accept the Repurchase Offer, the Holder of a
6 3/4% Preferred Share will be required to deliver, on or before the 10th day
prior to the Repurchase Date, written notice to the corporation (or an agent
designated by the corporation for such purpose) of Holder's acceptance,
together with the certificates evidencing the 6 3/4% Preferred Shares with
respect to which the offer is being accepted, duly endorsed for transfer.
In the event the corporation does not make a Repurchase Offer with respect to
a Transaction and such Transaction results in Common Shares being converted
into the right to receive, or being exchanged for, (i) in the case of any
Transaction other than a Transaction involving a Common Shares Fundamental
Change (as defined below) (and subject to funds being legally available for
such purpose under applicable law at the time of such conversion),
securities, cash or other property, each 6 3/4% Preferred Share shall
thereafter be convertible into the kind and, in the case of a Transaction
which does not involve a Fundamental Change (as defined below), amount of
securities, cash and other property receivable upon the consummation of such
Transaction by a holder of that number of Common Shares into which a 6 3/4%
Preferred Share was convertible immediately prior to such Transaction or (ii)
in the case of a Transaction involving a Common Shares Fundamental Change,
each 6 3/4% Preferred Share shall thereafter be convertible (in the manner
described therein) into common stock of the kind received by holders of
Common Shares (but in each case after giving effect to any adjustment
discussed below relating to a Fundamental Change if such Transaction
constitutes a Fundamental Change), other than as required by Ohio law.
If any Fundamental Change occurs, then the Conversion Rate in effect will be
adjusted immediately after such Fundamental Change as described below. In
addition, in the event of a Common Shares Fundamental Change, each share of
the 6 3/4% Preferred
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Shares shall be convertible solely into common stock of the kind received by
holders of Common Shares as a result of such Common Shares Fundamental Change.
The Conversion Rate in the case of any Transaction involving a Fundamental
Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined below), the
Conversion Rate will thereupon become the higher of (A) the Conversion Rate
in effect immediately prior to such Non-Stock Fundamental Change, but after
giving effect to any other prior adjustments effected, and (B) a fraction,
the numerator of which is (x) the redemption rate for one 6 3/4% Preferred
Share if the redemption date were the date of such Non-Stock Fundamental
Change (or, for the twelve-month period commencing April 1, 1999, 106.075%),
multiplied by $1,000 plus (y) the amount of any then-accrued and unpaid
dividends on one 6 3/4% Preferred Share, and the denominator of which is the
greater of the Applicable Price or the then applicable Reference Market
Price; and
(ii) in the case of a Common Shares Fundamental Change, the Conversion Rate
in effect immediately prior to such Common Shares Fundamental Change, but
after giving effect to any other prior adjustments effected, will thereupon
be adjusted by multiplying such Conversion Rate by a fraction of which the
denominator will be the Purchaser Stock Price (as defined below) and the
numerator will be the Applicable Price; PROVIDED, HOWEVER, that in the event
of a Common Shares Fundamental Change in which (A) 100% of the value of the
consideration received by a holder of Common Shares is common stock of the
successor, acquiror, or other third party (and cash, if any, is paid only
with respect to any fractional interests in such common stock resulting from
such Common Shares Fundamental Change) and (B) all Common Shares will have
been exchanged for, converted into, or acquired for common stock (and cash
with respect to fractional interests) of the successor, acquiror, or other
third party, the Conversion Rate in effect immediately prior to such Common
Shares Fundamental Change will thereupon be adjusted by multiplying such
Conversion Rate by the number of shares of common stock of the successor,
acquirer, or other third party received by a holder of one Common Share as a
result of such Common Shares Fundamental Change.
The term "Applicable Price" means (i) in the case of a Non-Stock Fundamental
Change in which the holders of Common Shares receive only cash, the amount of
cash received by the holder of one Common Share and (ii) in the event of any
other Non-Stock Fundamental Change or any Common Shares Fundamental Change,
the average of the Closing Price (as defined below) for Common Shares during
the ten Trading Days prior to the record date for the determination of the
holders of Common Shares entitled to receive such securities, cash, or other
property in connection with such Non-Stock Fundamental Change or Common
Shares Fundamental Change or, if there is no such record date, the date upon
which the holders of Common Shares shall have the right to receive such
securities, cash, or other property (such record date or distribution date
being hereinafter referred to as the "Entitlement Date") in each case as
adjusted in good faith by the corporation to appropriately reflect any of the
events referred to above.
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The term "Common Shares Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of the corporation) of the consideration received by holders of
Common Shares consists of common stock that for each of the ten consecutive
Trading Days prior to the Entitlement Date has been admitted for listing or
admitted for listing subject to notice of issuance on a national securities
exchange or quoted on the Nasdaq National Market; provided, however, that a
Fundamental Change shall not be a Common Shares Fundamental Change unless
either (i) the corporation continues to exist after the occurrence of such
Fundamental Change and the outstanding 6 3/4% Preferred Shares continue to
exist as outstanding 6 3/4% Preferred Shares or (ii) not later than the
occurrence of such Fundamental Change, the outstanding 6 3/4% Preferred
Shares are converted into or exchanged for convertible Preferred Shares of an
entity succeeding to the business of the corporation or a subsidiary thereof,
which convertible Preferred Shares has powers, preferences, and relative,
participating, optional, or other rights and qualifications, limitations, and
restrictions, substantially similar to those of the 6 3/4% Preferred Shares.
The term "Fundamental Change" means the occurrence of any Transaction or
event in connection with a plan pursuant to which all or substantially all
Common Shares shall be exchanged for, converted into, acquired for, or
constitute solely the right to receive securities, cash, or other property
(whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization, or
otherwise), provided, that, in the case of a plan involving more than one
such Transaction or event, for purposes of adjustment of the Conversion Rate,
such Fundamental Change shall be deemed to have occurred when substantially
all Common Shares shall be exchanged for, converted into, or acquired for or
constitute solely the right to receive securities, cash, or other property,
but the adjustment shall be based upon the consideration that a holder of
Common Shares received in such Transaction or event as a result of which more
than 50% of Common Shares shall have been exchanged for, converted into, or
acquired or constitute solely the right to receive securities, cash, or other
property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Shares Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Shares
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Shares Fundamental Change for the ten consecutive
Trading Days prior to and including the Entitlement Date, as adjusted in good
faith by the corporation to appropriately reflect any of the events referred
to above.
The term "Reference Market Price" shall initially mean $18.51 (which is equal
to $38.79 divided by 2.096 (which is the exchange ratio for shares of common
stock of IXC in the Agreement and Plan of Merger dated as of July 20, 1999
among the corporation, Ivory Merger and IXC)), and in the event of any
adjustment of the Conversion Rate other than as a result of a Non-Stock
Fundamental Change, the Reference Market Price shall also be adjusted so that
the ratio of the Reference Market Price to the Conversion Rate after
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giving effect to any such adjustment shall always be the same as the ratio of
the initial Reference Market Price to the initial Conversion Rate.
In case (1) the corporation shall declare a dividend (or any other
distribution) on its Common Shares payable otherwise than in cash out of its
earned surplus, (2) the corporation shall authorize the granting to all
holders of its Common Shares of rights or warrants to subscribe for or
purchase any shares of Capital Stock of any class or of any other rights, (3)
of any reclassification of the Common Shares of the corporation (other than a
subdivision or combination of its outstanding Common Shares), (4) of any
consolidation or merger to which the corporation is a party and for which
approval of any shareholders of the corporation is required, (5) of the sale
or transfer of all or substantially all the assets of the corporation, or (6)
of the voluntary or involuntary dissolution, liquidation or winding-up of the
corporation, then the corporation shall cause to be filed with the Transfer
Agent and at each office or agency maintained for the purpose of conversion
of the 6 3/4% Preferred Shares, and shall cause to be mailed to all Holders
at their last addresses as they shall appear in the 6 3/4% Preferred Shares
Register, at least 20 days (or 10 days in any case specified in clause (1) or
(2) above) prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Shares of record to be
entitled to such dividend, distribution, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up of the
corporation is expected to become effective, and the date as of which it is
expected that holders of Common Shares of record shall be entitled to
exchange their Common Shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up of the corporation. Failure
to give the notice requested by this paragraph or any defect therein shall
not affect the legality or validity of any dividend, distribution, right,
warrant, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up of the corporation, or the vote upon
any such action. The corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Shares (or out of its authorized Common Shares held in the treasury of
the corporation), for the purpose of effecting the conversion of the 6 3/4%
Preferred Shares, the full number of Common Shares then issuable upon the
conversion of all outstanding 6 3/4% Preferred Shares.
The corporation will pay any and all document, stamp or similar issue or
transfer taxes that may be payable in respect of the issue or delivery of
Common Shares on conversion of the 6 3/4% Preferred Shares pursuant hereto.
The corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
Common Shares in a name other than that of the Holder of a 6 3/4% Preferred
Share or 6 3/4% Preferred Shares to be converted, and no such issue or
delivery shall be made unless and until the Person requesting such issue has
paid to the corporation the amount of any such tax, or has established to the
satisfaction of the corporation that such tax has been paid.
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(10) REISSUANCE OF THE 6 3/4% PREFERRED SHARES. 6 3/4% Preferred Shares
redeemed for or converted into Common Shares or that have been reacquired in
any manner shall not be reissued as 6 3/4% Preferred Shares and shall (upon
compliance with any applicable provisions of Ohio law) have the status of
authorized and unissued Preferred Shares undesignated as to series and may be
redesignated and reissued as part of any series of Preferred Shares (except
as provided by Ohio law); PROVIDED, however, that so long as any 6 3/4%
Preferred Shares are outstanding, any issuance of such shares must be in
compliance with the terms hereof.
(11) BUSINESS DAY. If any payment, redemption or exchange shall be required
by the terms hereof to be made on a day that is not a Business Day, such
payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
(12) AMENDMENT, SUPPLEMENT AND WAIVER. Except as set forth in paragraph (6),
the corporation may amend this Paragraph 12 to Article Fourth with the
affirmative vote of the Holders of a majority of the outstanding 6 3/4%
Preferred Shares (including votes obtained in connection with a tender offer
or exchange offer for the 6 3/4% Preferred Shares) and, except as otherwise
provided by applicable law, any past default or failure to comply with any
provision of this Article Fourth may also be waived with the consent of such
Holders. Notwithstanding the foregoing and except as set forth in paragraph
(6), however, without the consent of each Holder affected, an amendment or
waiver may not (with respect to any 6 3/4% Preferred Shares held by a
non-consenting Holder): (i) alter the voting rights with respect to the 6 3/4%
Preferred Shares or reduce the number of 6 3/4% Preferred Shares whose
Holders must consent to an amendment, supplement or waiver, (ii) reduce the
Liquidation Preference of the 6 3/4% Preferred Shares or adversely alter the
provisions with respect to the redemption of the 6 3/4% Preferred Shares,
(iii) reduce the rate of or change the time for payment of dividends on the
6 3/4% Preferred Shares, (iv) waive a default in the payment of dividends
(including the Supplemental Dividend) or Liquidated Damages on the 6 3/4%
Preferred Shares, (v) make any 6 3/4% Preferred Share payable in money other
than United States dollars, (vi) make any change in the provisions of
Paragraph 12 to Article Fourth relating to waivers of the rights of Holders
of the 6 3/4% Preferred Shares to receive either the Liquidation Preference,
Liquidated Damages (if any), the Supplemental Dividend (if any) or dividends
on the 6 3/4% Preferred Shares or (vii) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of the
6 3/4% Preferred Shares, the corporation may (to the extent permitted by, and
subject to the requirements of, Ohio law) amend or supplement this Paragraph
12 to Article Fourth to cure any ambiguity, defect or inconsistency, to
provide for uncertificated 6 3/4% Preferred Shares in addition to or in place
of certificated 6 3/4% Preferred Shares, to make any change that would
provide any additional rights or benefits to the Holders of the 6 3/4%
Preferred Shares or to make any change that the Board of Directors
determines, in good faith, is not materially adverse to Holders of the 6 3/4%
Preferred Shares.
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(13) FORM S-4 REGISTRATION STATEMENT; LIQUIDATED DAMAGES. Pursuant to the
Agreement and Plan of Merger dated as of July 20, 1999, by and among the
corporation, Ivory Merger and IXC. (the "Merger Agreement"), the corporation
has filed with the SEC on September 13, 1999, and the SEC has declared
effective, a Registration Statement on Form S-4 under the Securities Act (the
"S-4 Registration Statement") with respect to the 6 3/4% Preferred Shares,
Depositary Shares representing a one-twentieth interest in a 6 3/4% Preferred
Share ("the Depositary Shares") and Common Shares issuable upon conversion
thereof or paid as dividends thereon (collectively, the "S-4 Registered
Securities"), thereby providing that a holder thereof will be able to sell or
transfer such S-4 Registered Securities without filing a registration
statement under the Securities Act.
The corporation will use its best efforts to maintain the effectiveness of
the S-4 Registration Statement until all S-4 Registered Securities that are
not held by affiliates of the corporation (A) may be resold without
restriction under Rule 144 of the Securities Act or (B) have been sold
pursuant to the S-4 Registration Statement (subject to the corporation's
right to notify Holders that the Prospectus contained therein ceases to be
accurate and complete as a result of material business developments for up to
120 days during such three-year period, provided that (x) no single period
may exceed 45 days and (y) such periods in the aggregate may not exceed 60
days in any calendar year). If a holder of S-4 Restricted Securities that is
not an affiliate of the corporation becomes unable to sell or transfer
outstanding S-4 Registered Securities without filing a registration statement
under the Securities Act (such event a "Registration Default"), then the
corporation will pay Liquidated Damages to such holder with respect to the
first 45-day period immediately following the occurrence of such Registration
Default in an amount equal to $0.25 per year per Depositary Share ($5.00 per
year per $ 1,000 in Liquidation Preference of the 6 3/4% Preferred Shares)
held by such Holder. The amount of the Liquidated Damages will increase by an
additional $2.50 per year per $1,000 in Liquidation Preference of the 6 3/4%
Preferred Shares with respect to any subsequent period until any Registration
Default has been cured. In addition, Holders of 6 3/4% Preferred Shares which
are S-4 Registered Securities may receive Liquidated Damages with respect to
Common Shares which are S-4 Registered Securities issued in lieu of paying
dividends in cash. The Liquidated Damages amount per Common Share will be
equal to the Liquidated Damages per 6 3/4% Preferred Share, divided by the
Conversion Rate. All accrued Liquidated Damages will be paid by the
corporation, to the extent permitted by applicable law, on each Dividend
Payment Date and, to the extent the net dividend payable on such date may be
paid through the issuance of Common Shares, may be paid in Common Shares
(valued on the same basis as for the dividend then payable). Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will
cease. Notwithstanding anything to the contrary herein contained, during any
period, the corporation will not be required to pay Liquidated Damages with
respect to more than one Registration Default.
(14) TRANSFER AND EXCHANGE. When a 6 3/4% Preferred Share certificate is
presented to the Transfer Agent with a request to register the transfer of
such 6 3/4% Preferred Share or to exchange 6 3/4% Preferred Shares for an
equal number of 6 3/4% Preferred Shares of other authorized denominations,
the Transfer Agent shall register the
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transfer or make the exchange as requested if its reasonable requirements for
such transaction are met and such transfer or exchange is in compliance with
applicable laws or regulations.
(15) CERTAIN DEFINITIONS. As used in this paragraph 12 of Article Fourth, the
following terms shall have the following meanings (and (1) terms defined in
the singular have comparable meanings when used in the plural and vice versa,
(2) "including" means including without limitation, (3) "or" is not exclusive
and (4) an accounting term not otherwise defined has the meaning assigned to
it in accordance with United States generally accepted accounting principles
as in effect on the Issue Date and all accounting calculations will be
determined in accordance with such principles), unless the content otherwise
requires:
"BOARD OF DIRECTORS" mean the Board of Directors of the corporation or any
committee thereof duly authorized to act on behalf of the Board.
"BUSINESS DAY" means each day which is not a legal holiday.
"CAPITAL STOCK" of any person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such person, including any
Preferred Shares, but excluding any debt securities convertible into or
exchangeable for such equity.
"CLOSING PRICE" means on any day the reported last bid price on such day, or
in case no sale takes place on such day, the average of the reported closing
bid and asked prices on the principal national securities exchange on which
such stock is listed or admitted to trading, or if not listed or admitted to
trading on any national securities exchange, the average of the closing bid
and asked prices as furnished by any independent registered broker-dealer
firm, selected by the corporation for that purpose, in each case adjusted for
any stock split during the relevant period.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, a Voting Rights Triggering Event.
"HOLDERS" means the registered holders from time to time of the 6 3/4%
Preferred Shares and the Depositary Shares.
"LIQUIDATED DAMAGES" means, with respect to any 6 3/4% Preferred Share, the
additional amounts payable pursuant to paragraph 13 hereof.
"OFFICERS' CERTIFICATE" means a certificate signed by two officers of the
corporation.
"PERSON" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
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"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY" means any corporation, association, partnership, limited
liability company or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by the corporation, the corporation and
one or more Subsidiaries or one or more Subsidiaries and any partnership the
sole general partner or the managing partner of which the corporation or any
Subsidiary or the only general partners of which are the corporation and one
or more Subsidiaries or one or more Subsidiaries.
"TRADING DAY" means, in respect of any securities exchange or securities
market, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any
day on which securities are not traded on the applicable securities exchange
or in the applicable securities market.
"TRANSFER AGENT" means the transfer agent for the 6 3/4% Preferred Shares
appointed by the corporation.
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EXHIBIT A
FORM OF THE 6 3/4 PREFERRED SHARES
FACE OF SECURITY
Certificate Number Number of Shares
of Convertible Preferred Shares
[ ] [ ]
CUSIP NO.: [ ]
6 3/4% Cumulative Convertible
(par value $0.0 1) (liquidation preference $ 1,000
per share of 6 3/4% Preferred Shares
of
Cincinnati Bell Inc.
Cincinnati Bell Inc., an Ohio corporation (the
"corporation"), hereby certifies that [ ] (the "Holder") is the registered
owner of fully paid and non-assessable preferred securities of the
corporation designated the 6 3/4% Cumulative Convertible Preferred Shares
(without par value) (liquidation preference $1,000 per share of the 6 3/4%
Preferred Shares) (the "6 3/4% Preferred Shares"). The shares of the 6 3/4%
Preferred Shares are transferable on the books and records of the Registrar,
in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer. The designation,
rights, privileges, restrictions, preferences and other terms and provisions
of the 6 3/4% Preferred Shares represented hereby are issued and shall in all
respects be subject to the provisions of the Amended Articles of
Incorporation of the corporation, as the same may be amended from time to
time (the "Articles"). Capitalized terms used herein but not defined shall
have the meaning given them in the Articles. The corporation will provide a
copy of the Articles to a Holder without charge upon written request to the
corporation at its principal place of business.
Reference is hereby made to select provisions of the 6 3/4%
Preferred Shares set forth on the reverse hereof, and to the Articles, which
select provisions and the Articles shall for all purposes have the same
effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by
the Articles and is entitled to the benefits thereunder.
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Unless the Transfer Agent's Certificate of Authentication
hereon has been properly executed, these shares of the 6 3/4% Preferred
Shares shall not be entitled to any benefit under the Articles or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the corporation has executed this
certificate this [ ] day of [ ], [ ].
CINCINNATI BELL INC.
By:
Name:
Title:
[Seal]
By:
Name:
Title:
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TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the 6 3/4% Preferred Shares
referred to in the within mentioned Articles.
Dated: [ ], [ ]
[THE FIFTH THIRD BANK]
as Transfer Agent,
By:
Authorized Signatory
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REVERSE OF SECURITY
Dividends on each share of the 6 3/4% Preferred Shares
shall be payable at a rate per annum set forth in the face hereof or as
provided in the Articles.
The shares of the 6 3/4% Preferred Shares shall be
redeemable as provided in the Articles. The shares of the 6 3/4% Preferred
Shares shall be convertible into the corporation's Common Shares in the
manner and according to the terms set forth in the Articles.
As required under Ohio law, the corporation shall furnish
to any Holder upon request and without charge, a full summary statement of
the designations, voting rights preferences, limitations and special rights
of the shares of each class or series authorized to be issued by the
corporation so far as they have been fixed and determined and the authority
of the Board of Directors to fix and determine the designations, voting
rights, preferences, limitations and special rights of the class and series
of shares of the corporation.
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EXHIBIT B
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Convertible Preferred Shares)
The undersigned hereby irrevocably elects to convert (the "Conversion")
shares of the 6 3/4% Cumulative Convertible Preferred Shares (the "6 3/4%
Preferred Shares"), represented by stock certificate No(s).--(the "6 3/4%
Preferred Share Certificates") into shares of common stock ("Common Shares")
of Cincinnati Bell Inc. (the "corporation") according to the conditions of
the Amended Articles of Incorporation of the corporation (the "Articles"), as
of the date written below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates.*
No fee will be charged to the holder for any conversion, except for transfer
taxes, if any. A copy of each 6 3/4% Preferred Share Certificate is attached
hereto (or evidence of loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Shares issuable to the undersigned upon
conversion of the 6 3/4% Preferred Shares shall be made pursuant to
registration of the Common Shares under the Securities Act of 1933 (the
"Act"), or pursuant to any exemption from registration under the Act.
Any holder, upon the exercise of its conversion rights in accordance with the
terms of the Article Fourth and the 6 3/4% Preferred Shares, agrees to be
bound by the terms of the Registration Rights Agreement.
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Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in or pursuant to the Articles.
Date of Conversion:
Applicable Conversion Rate:
Number of shares of Convertible
Preferred Shares to be Converted:
Number of shares of Common Shares to be Issued:
Signature:
Name:
Address:**
Fax No.:
* The corporation is not required to issue shares of Common Shares until the
original 6 3/4% Preferred Share Certificate(s) (or evidence of loss, theft
or destruction thereof) to be converted are received by the corporation or
its Transfer Agent. The corporation shall issue and deliver shares of
Common Shares to an overnight courier not later than three business days
following receipt of the original 6 3/4% Preferred Share Certificate(s) to
be converted.
** Address where shares of Common Shares and any other payments or
certificates shall be sent by the corporation.
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Exhibit (10)(iii)(A)(8)
EMPLOYMENT AGREEMENT
This Agreement is made as of the Effective Date between Cincinnati Bell
Inc., an Ohio corporation ("Employer"), and John F. Cassidy ("Employee").
For purposes of this Agreement, "Effective Date" means the date following the
day which Employer distributes to its shareholders all of the common shares
of Convergys Corporation owned by Employer after the initial public offering
of Convergys Corporation common shares.
Employer and Employee agree as follows:
1. EMPLOYMENT. By this Agreement, Employer and Employee set forth the
terms of Employer's employment of Employee on and after the Effective Date.
Any prior agreements or understandings with respect to Employee's employment
by Employer, including Employee's Employment Agreement with Cincinnati Bell
Telephone Company dated April 8, 1996, are canceled as of the Effective Date.
Notwithstanding the preceding sentence, all stock options granted to
Employee prior to the Effective Date shall continue in effect in accordance
with their respective terms and shall not be modified, amended or canceled by
this Agreement.
2. TERM OF AGREEMENT. The term of this Agreement initially shall be the
four year period commencing on the Effective Date. On the third anniversary
of the Effective Date and on each subsequent anniversary of the Effective
Date, the term of this Agreement automatically shall be extended for a period
of one additional year. Notwithstanding the foregoing, the term of this
Agreement is subject to termination as provided in Section 13.
3. DUTIES.
A. Employee will serve as President Cincinnati Bell Wireless of
Employer or in such other equivalent capacity as may be designated by the
President of Employer. Employee will report to the Chief Operating Officer
of Employer or to such other officer as the President of Employer may direct.
B. Employee shall furnish such managerial, executive, financial,
technical, and other skills, advice, and assistance in operating employer and
its Affiliates as Employer may reasonably request. For purposes of this
Agreement, "Affiliate" means each corporation which is a member of a
controlled group of corporations (within the meaning of section 1563(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) which includes
Employer.
C. Employee shall also perform such other duties, consistent with the
provisions of Section 3.A., as are reasonably assigned to Employee by the
President of Employer.
<PAGE>
D. Employee shall devote Employee's entire time, attention, and
energies to the business of Employer and its Affiliates. The words "entire
time, attention, and energies" are intended to mean that Employee shall
devote Employee's full effort during reasonable working hours to the business
of Employer and its Affiliates and shall devote at least 40 hours per week to
the business of Employer and its Affiliates. Employee shall travel to such
places as are necessary in the performance of Employee's duties.
4. COMPENSATION.
A. Employee shall receive a base salary (the "Base Salary") of at
least $190,000 per year, payable not less frequently than monthly, for each
year during the term of this Agreement, subject to proration for any partial
year. Such Base Salary, and all other amounts payable under this Agreement,
shall be subject to withholding as required by law.
B. In addition to the Base Salary, Employee shall be entitled to
receive an annual bonus (the "Bonus") for each calendar year for which
services are performed under this Agreement. Any Bonus for a calendar year
shall be payable after the conclusion of the calendar year in accordance with
Employer's regular bonus payment policies. Each year, Employee shall be
given a Bonus target of not less than $70,000 subject to proration for a
partial year.
C. On at least an annual basis, Employee shall receive a formal
performance review and be considered for Base Salary and/or Bonus target
increases.
5. EXPENSES. All reasonable and necessary expenses incurred by Employee in
the course of the performance of Employee's duties to Employer shall be
reimbursable in accordance with Employer's then current travel and expense
policies.
6. BENEFITS.
A. While Employee remains in the employ of Employer, Employee shall be
entitled to participate in all of the various employee benefit plans and
programs, or equivalent plans and programs, which are made available to
similarly situated officers of Employer, including the benefits set forth in
Attachment A.
B. Notwithstanding anything contained herein to the contrary, the Base
Salary and Bonuses otherwise payable to Employee shall be reduced by any
benefits paid to Employee by Employer under any disability plans made
available to Employee by Employer.
C. As of the Effective Date, Employee shall be granted options to
purchase 30,000 common shares of Employer under Employer's 1997 Long Term
Incentive Plan. In each year of this Agreement after 1998, Employee will be
granted stock options under Employer's 1997 Long Term Incentive Plan or any
similar plan made available to employees of Employer.
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D. As of the Effective Date, Employee shall receive a restricted stock
award of 40,000 common shares of Employee. Such award shall be made under
Employer's 1997 Long Term Incentive Plan on the terms set forth in Attachment
B.
E. A supplemental, non-qualified pension will be provided to Employee
by Employer in accordance with this Section 6(G).
(i) If Employee's employment with Employer terminates on or after
April 8, 2001 and prior to April 7, 2006, Employee's non-qualified pension
shall be equal to that portion of Employee's accrued pension under Employer's
Management Pension Plan ("CBMPP") which is attributable to Employee's first
five years of service with Employer.
(ii) If Employee's employment with Employer terminates on or after
April 8, 2006, the non-qualified pension shall be equal to that portion of
Employee's accrued pension under CBMPP which is attributable to Employee's
first ten years of service with Employer.
(iii) Employee's non-qualified pension under this Section 6(E)
shall be paid in one lump sum within 90 days after Employee's termination of
employment. If Employee's employment with Employer terminates by reason of
Employee's death, the non-qualified pension shall be paid to Employee's
Estate.
(iv) Nothing contained in this section 6(G) shall be construed to
give Employee any right to continued employment except under the express
terms of this Agreement. The provision of this section 6(G) shall survive the
term of Employee's employment under this Agreement.
7. CONFIDENTIALITY. Employer and its Affiliates are engaged in the
telecommunications industry within the U.S. Employee acknowledges that in
the course of employment with the Employer, Employee will be entrusted with
or obtain access to information proprietary to the Employer and its
Affiliates with respect to the following (all of which information is
referred to hereinafter collectively as the "Information"); the organization
and management of Employer and its Affiliates; the names, addresses, buying
habits, and other special information regarding past, present and potential
customers, employees and suppliers of Employer and its Affiliates; customer
and supplier contracts and transactions or price lists of Employer, its
Affiliates and their suppliers; products, services, programs and processes
sold, licensed or developed by the Employer or its Affiliates; technical
data, plans and specifications, present and/or future development projects of
Employer and its Affiliates; financial and/or marketing data respecting the
conduct of the present or future phases of business of Employer and its
Affiliates; computer programs, systems and/or software; ideas, inventions,
trademarks, business information, know-how, processes, improvements, designs,
redesigns, discoveries and developments of Employer and its Affiliates; and
other information considered confidential by any of the Employer, its
Affiliates or customers or suppliers of Employer, its Affiliates. Employee
agrees to retain the Information in absolute
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confidence and not to disclose the Information to any person or organization
except as required in the performance of Employee's duties for Employer,
without the express written consent of Employer; provided that Employee's
obligation of confidentiality shall not extend to any Information which
becomes generally available to the public other than as a result of
disclosure by Employee.
8. NEW DEVELOPMENTS. All ideas, inventions, discoveries, concepts,
trademarks, or other developments or improvements, whether patentable or not,
conceived by the Employee, alone or with others, at any time during the term
of Employee's employment, whether or not during working hours or on
Employer's premises, which are within the scope of or related to the business
operations of Employer or its Affiliates ("New Developments"), shall be and
remain the exclusive property of Employer. Employee shall do all things
reasonably necessary to ensure ownership of such New Developments by
Employer, including the execution of documents assigning and transferring to
Employer, all of Employee's rights, title and interest in and to such New
Developments, and the execution of all documents required to enable Employer
to file and obtain patents, trademarks, and copyrights in the United States
and foreign countries on any of such New Developments.
9. SURRENDER OF MATERIAL UPON TERMINATION. Employee hereby agrees that
upon cessation of Employee's employment, for whatever reason and whether
voluntary or involuntary, Employee will immediately surrender to Employer all
of the property and other things of value in his possession or in the
possession of any person or entity under Employee's control that are the
property of Employer or any of its Affiliates, including without any
limitation all personal notes, drawings, manuals, documents, photographs, or
the like, including copies and derivatives thereof, relating directly or
indirectly to any confidential information or materials or New Developments,
or relating directly or indirectly to the business of Employer or any of its
Affiliates.
10. REMEDIES.
A. Employer and Employee hereby acknowledge and agree that the
services rendered by Employee to Employer, the information disclosed to
Employee during and by virtue of Employee's employment, and Employee's
commitments and obligations to Employer and its Affiliates herein are of a
special, unique and extraordinary character, and that the breach of any
provision of this Agreement by Employee will cause Employer irreparable
injury and damage, and consequently the Employer shall be entitled to, in
addition to all other remedies available to it, injunctive and equitable
relief to prevent a breach of Sections 7, 8, 9, 11 and 12 of this Agreement
and to secure the enforcement of this Agreement.
B. Except as provided in Section 10.A., the parties agree to submit to
final and binding arbitration any dispute, claim or controversy, whether for
breach of this Agreement or for violation of any of Employee's statutorily
created or protected rights, arising between the parties that either party
would have been otherwise entitled to file or
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<PAGE>
pursue in court or before any administrative agency (herein "claim"), and
waives all right to sue the other party.
(i) This agreement to arbitrate and any resulting arbitration
award are enforceable under and subject to the Federal Arbitration Act, 9
U.S.C. Section 1 et seq. ("FAA"). If the FAA is held not to apply for any
reason then Ohio Revised Code Chapter 2711 regarding the enforceability of
arbitration agreements and awards will govern this Agreement and the
arbitration award.
(ii) (a) All of a party's claims must be presented at a single
arbitration hearing. Any claim not raised at the arbitration hearing is
waived and released. The arbitration hearing will take place in Cincinnati,
Ohio.
(b) The arbitration process will be governed by the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA") except to the extent they are modified by this Agreement.
(c) Employee has had an opportunity to review the AAA rules
and the requirements that Employee must pay a filing fee for which the
Employer has agreed to split on an equal basis.
(d) The arbitrator will be selected from a panel of
arbitrators chosen by the AAA in White Plains, New York. After the filing of
a Request for Arbitration, the AAA will send simultaneously to Employer and
Employee an identical list of names of five persons chosen from the panel.
Each party will have 10 days from the transmittal date in which to strike up
to two names, number the remaining names in order of preference and return
the list to the AAA.
(e) Any pre-hearing disputes will be presented to the
arbitrator for expeditious, final and binding resolution.
(f) The award of the arbitrator will be in writing and will
set forth each issue considered and the arbitrator's finding of fact and
conclusions of law as to each such issue.
(g) The remedy and relief that may be granted by the
arbitrator to Employee are limited to lost wages, benefits, cease and desist
and affirmative relief, compensatory, liquidated and punitive damages and
reasonable attorney's fees, and will not include reinstatement or promotion.
If the arbitrator would have awarded reinstatement or promotion, but for the
prohibition in this Agreement, the arbitrator may award front pay. The
arbitrator may assess to either party, or split, the arbitrator's fee and
expenses and the cost of the transcript, if any, in accordance with the
arbitrator's determination of the merits of each party's position, but each
party will bear any cost for its witnesses and proof.
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(h) Employer and Employee recognize that a primary benefit
each derives from arbitration is avoiding the delay and costs normally
associated with litigation. Therefore, neither party will be entitled to
conduct any discovery prior to the arbitration hearing except that: (i)
Employer will furnish Employee with copies of all non-privileged documents in
Employee's personnel file; (ii) if the claim is for discharge, Employee will
furnish Employer with records of earnings and benefits relating to Employee's
subsequent employment (including self-employment) and all documents relating
to Employee's efforts to obtain subsequent employment; (iii) the parties will
exchange copies of all documents they intend to introduce as evidence at the
arbitration hearing at least 10 days prior to such hearing; (iv) Employee
will be allowed (at Employee's expense) to take the depositions, for a period
not to exceed four hours each, of two representatives of Employer, and
Employer will be allowed (at its expense) to depose Employee for a period not
to exceed four hours; and (v) Employer or Employee may ask the arbitrator to
grant additional discovery to the extent permitted by AAA rules upon a
showing that such discovery is necessary.
(i) Nothing herein will prevent either party from taking the
deposition of any witness where the sole purpose for taking the deposition is
to use the deposition in lieu of the witness testifying at the hearing and
the witness is, in good faith, unavailable to testify in person at the
hearing due to poor health, residency and employment more than 50 miles from
the hearing site, conflicting travel plans or other comparable reason.
(j) Arbitration must be requested in writing no later than 6
months from the date of the party's knowledge of the matter disputed by the
claim. A party's failure to initiate arbitration within the time limits
herein will be considered a waiver and release by that party with respect to
any claim subject to arbitration under this Agreement.
(k) Employer and Employee consent that judgment upon the
arbitration award may be entered in any federal or state court that has
jurisdiction.
(l) Except as provided in Section 10.A., neither party will
commence or pursue any litigation on any claim that is or was subject to
arbitration under this Agreement.
(m) All aspects of any arbitration procedure under this
Agreement, including the hearing and the record of the proceedings, are
confidential and will not be open to the public, except to the extent the
parties agree otherwise in writing, or as may be appropriate in any
subsequent proceedings between the parties, or as may otherwise be
appropriate in response to a governmental agency or legal process.
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11. COVENANT NOT TO COMPETE. For purposes of this Section 11 only, the term
"Employer" shall mean, collectively, Employer and each of its Affiliates.
During the two-year period following termination of Employee's employment
with Employer for any reason (or if this period is unenforceable by law, then
for such period as shall be enforceable) Employee will not engage in any
business offering services related to the current business of Employer,
whether as a principal, partner, joint venture, agent, employee, salesman,
consultant, director or officer, where such position would involve Employee
in any business activity in competition with Employer. This restriction will
be limited to the geographical area where Employer is then engaged in such
competing business activity or to such other geographical area as a court
shall find reasonably necessary to protect the goodwill and business of the
Employer.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable
by law, then for such period as shall be enforceable) Employee will not
interfere with or adversely affect, either directly or indirectly, Employer's
relationships with any person, firm, association, corporation or other entity
which is known by Employee to be, or is included on any listing to which
Employee had access during the course of employment as a customer, client,
supplier, consultant or employee of Employer and that Employee will not
divert or change, or attempt to divert or change, any such relationship to
the detriment of Employer or to the benefit of any other person, firm,
association, corporation or other entity.
During the two-year period following termination of Employee's
employment with Employer for any reason (or if this period is unenforceable
by law, then for such period as shall be enforceable) Employee shall not,
without the prior written consent of Employer, accept employment, as an
employee, consultant, or otherwise, with any company or entity which is a
customer or supplier of Employer at any time during the final year of
Employee's employment with Employer.
Employee will not, during or at any time within three years after the
termination of Employee's employment with Employer, induce or seek to induce,
any other employee of Employer to terminate his or her employment
relationship with Employer.
12. GOODWILL. Employee will not disparage Employer or any of its Affiliates
in any way which could adversely affect the goodwill, reputation and business
relationships of Employer or any of its Affiliates with the public generally,
or with any of their customers, suppliers or employees. Employer will not
disparage Employee.
13. TERMINATION.
A. (i) Employer or Employee may terminate this Agreement upon
Employee's failure or inability to perform the services required hereunder
because of any physical or mental infirmity for which Employee receives
disability benefits under any disability benefit plans made available to
Employee by Employer (the "Disability Plans"),
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over a period of one hundred twenty consecutive working days during any
twelve consecutive month period (a "Terminating Disability").
(ii) If Employer or Employee elects to terminate this Agreement in
the event of a Terminating Disability, such termination shall be effective
immediately upon the giving of written notice by the terminating party to the
other.
(iii) Upon termination of this Agreement on account of Terminating
Disability, Employer shall pay Employee Employee's accrued compensation
hereunder, whether Base Salary, Bonus or otherwise (subject to offset for any
amounts received pursuant to the Disability Plans), to the date of
termination. For as long as such Terminating Disability may exist, Employee
shall continue to be an employee of Employer for all other purposes and
Employer shall provide Employee with disability benefits and all other
benefits according to the provisions of the Disability Plans and any other
Employer plans in which Employee is then participating.
(iv) If the parties elect not to terminate this Agreement upon an
event of a Terminating Disability and Employee returns to active employment
with Employer prior to such a termination, or if such disability exists for
less than one hundred twenty consecutive working days, the provisions of this
Agreement shall remain in full force and effect.
B. This Agreement terminates immediately and automatically on the
death of the Employee, provided, however, that the Employee's estate shall be
paid Employee's accrued compensation hereunder, whether Base Salary, Bonus or
otherwise, to the date of death.
C. Employer may terminate this Agreement immediately, upon written
notice to Employee, for Cause. For purposes of this Agreement, Employer
shall have "Cause" to terminate this Agreement only if Employer's Board of
Directors determines that there has been fraud, misappropriation or
embezzlement on the part of Employee.
D. Employer may terminate this Agreement immediately, upon written
notice to Employee, for any reason other than those set forth in Sections
13.A., B. and C.; provided, however, that Employer shall have no right to
terminate under this Section 13.D. within two years after a Change in
Control. In the event of a termination by Employer under this Section
13.D., Employer shall, within five days after the termination, pay Employee
an amount equal to the greater of (i) two times the sum of the annual Base
Salary rate in effect at the time of termination plus the Bonus target in
effect at the time of termination or (ii) if the Current Term is longer than
two years, the sum of the Base Salary for the remainder of the Current Term
(at the rate in effect at the time of termination) plus the Bonus targets (at
the amount in effect at the time of termination) for each calendar year
commencing or ending during the remainder of the Current Term (subject to
proration in the case of any calendar year ending after the Current Term).
For the remainder of the Current Term, Employer shall continue to provide
Employee with medical, dental, vision and life insurance coverage comparable
to the medical, dental, vision and life insurance coverage in effect for
Employee immediately prior to the termination; and, to the extent that
Employee would have been eligible for any post-retirement medical, dental,
vision or life insurance benefits from Employer if Employee
8
<PAGE>
had continued in employment through the end of the Current Term, Employer
shall provide such post-retirement benefits to Employee after the end of the
Current Term. All stock options shall become immediately exercisable (and
Employee shall be afforded the opportunity to exercise them), the
restrictions applicable to all restricted stock shall lapse and any long term
awards shall be paid out at target. In addition, Employee shall be entitled
to receive, as soon as practicable after termination, an amount equal to the
sum of (i) any forfeitable benefits under any qualified or nonqualified
pension, profit sharing, 401(k) or deferred compensation plan of Employer or
any Affiliate which would have vested prior to the end of the Current Term if
Employee's employment had not terminated plus (ii) if Employee is
participating in a qualified or nonqualified defined benefit plan of Employer
or any Affiliate at the time of termination, an amount equal to the present
value of the additional vested benefits which would have accrued for Employee
under such plan if Employee's employment had not terminated prior to the end
of the Current Term and if Employee's annual Base Salary and Bonus target had
neither increased nor decreased after the termination. For purposes of this
Section 13.D., "Current Term" means the longer of (i) the two year period
beginning at the time of termination or (ii) the unexpired term of this
Agreement at the time of the termination, determined as provided in Section 2
but assuming that there is no automatic extension of the Agreement term after
the termination. For purposes of this Section 13.D. and Section 13.E.,
"Change in Control" means a change in control as defined in Employer's 1997
Long Term Incentive Plan.
E. This Agreement shall terminate automatically in the event that
there is a Change in Control and Employee's employment with Employer is
actually or constructively terminated by Employer within two years after the
Change in Control for any reason other than those set forth in Sections
13.A., B. and C. For purposes of the preceding sentence, a "constructive"
termination of Employee's employment shall be deemed to have occurred if,
without Employee's consent, there is a material reduction in Employee's
authority or responsibilities or if there is a reduction in Employee's Base
Salary or Bonus target from the amount in effect immediately prior to the
Change in Control or if Employee is required by Employer to relocate from the
city where Employee is residing immediately prior to the Change in Control.
In the event of a termination under this Section 13.E., Employer shall pay
Employee an amount equal to two times the sum of the annual Base Salary rate
in effect at the time of termination plus the Bonus target in effect at the
time of termination, all stock options shall become immediately exercisable
(and Employee shall be afforded the opportunity to exercise them), the
restrictions applicable to all restricted stock shall lapse and any long term
awards shall be paid out at target. For the remainder of the Current Term,
Employer shall continue to provide Employee with medical, dental, vision and
life insurance coverage comparable to the medical, dental, vision and life
insurance coverage in effect for Employee immediately prior to the
termination; and, to the extent that Employee would have been eligible for
any post-retirement medical, dental, vision or life insurance benefits from
Employer if Employee had continued in employment through the end of the
Current Term, Employer shall provide such post-retirement benefits to
Employee after the end of the Current Term. Employee's accrued benefit under
any nonqualified pension or deferred compensation plan maintained by Employer
or any Affiliate shall become immediately vested and nonforfeitable and
Employee also shall be entitled to receive a payment equal to the sum of (i)
any forfeitable benefits under any qualified pension or
9
<PAGE>
profit sharing or 401(k) plan maintained by Employer or any Affiliate plus
(ii) if Employee is participating in a qualified or nonqualified defined
benefit plan of Employer or any Affiliate at the time of termination, an
amount equal to the present value of the additional benefits which would have
accrued for Employee under such plan if Employee's employment had not
terminated prior to the end of the Current Term and if Employee's annual Base
Salary and Bonus target had neither increased nor decreased after the
termination. Finally, to the extent that Employee is deemed to have received
an excess parachute payment by reason of the Change in Control, Employer
shall pay Employee an additional sum sufficient to pay (i) any taxes imposed
under section 4999 of the Code plus (ii) any federal, state and local taxes
applicable to any taxes imposed under section 4999 of the Code. For purposes
of this Section 13.E., "Current Term" means the longer of (i) the two
year period beginning at the time of termination or (ii) the unexpired term
of this Agreement at the time of the termination, determined as provided in
Section 2 but assuming that there is no automatic extension of the Agreement
term after the termination.
F. Employee may resign upon 60 days' prior written notice to Employer.
In the event of a resignation under this Section 13.F., this Agreement shall
terminate and Employee shall be entitled to receive Employee's Base Salary
through the date of termination, any Bonus earned but not paid at the time of
termination and any other vested compensation or benefits called for under any
compensation plan or program of Employer.
G. Employee may retire (a) upon six months' prior written notice to
Employer at any time after Employee has attained age 55 and completed at least
ten years of service with Employer and its Affiliates or (b) on such earlier
date as may be approved by the President of Employer. In the event of a
retirement under this Section 13.G., this Agreement shall terminate and Employee
shall be entitled to receive Employee's Base Salary through the date of
termination and any Bonus earned but not paid at the time of termination. In
addition, Employee shall be entitled to receive any compensation or benefits
made available to retirees under Employer's standard policies and programs,
including retiree medical and life insurance benefits, a prorated Bonus for the
year of termination, and the right to exercise options after retirement.
H. Upon termination of this Agreement as a result of an event of
termination described in this Section 13 and except for Employer's payment of
the required payments under this Section 13 (including any Base Salary accrued
through the date of termination, any Bonus earned for the year preceding the
year in which the termination occurs and any nonforfeitable amounts payable
under any employee plan), all further compensation under this Agreement shall
terminate.
I. The termination of this Agreement shall not amend, alter or modify the
rights and obligations of the parties under Sections 7, 8, 9, 10, 11, and 12
hereof, the terms of which shall survive the termination of this Agreement.
10
<PAGE>
14. ASSIGNMENT. As this is an agreement for personal services involving a
relation of confidence and a trust between Employer and Employee, all rights
and duties of Employee arising under this Agreement, and the Agreement
itself, are non-assignable by Employee.
15. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if in writing, and if delivered personally or
by certified mail to Employee at Employee's place of residence as then
recorded on the books of Employer or to Employer at its principal office.
16. WAIVER. No waiver or modification of this Agreement or the terms
contained herein shall be valid unless in writing and duly executed by the
party to be charged therewith. The waiver by any party hereto of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by such party.
17. GOVERNING LAW. This agreement shall be governed by the laws of the
State of Ohio.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by Employer. There are no
other contracts, agreements or understandings, whether oral or written,
existing between them except as contained or referred to in this Agreement.
19. SEVERABILITY. In case any one or more of the provisions of this
Agreement is held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or other enforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provisions have never been contained
herein.
20. SUCCESSORS AND ASSIGNS. Subject to the requirements of Paragraph 14
above, this Agreement shall be binding upon Employee, Employer and Employer's
successors and assigns.
21. CONFIDENTIALITY OF AGREEMENT TERMS. The terms of this Agreement shall
be held in strict confidence by Employee and shall not be disclosed by
Employee to anyone other than Employee's spouse, Employee's legal counsel,
and Employee's other advisors, unless required by law. Further, except as
provided in the preceding sentence, Employee shall not reveal the existence
of this Agreement or discuss its terms with any person (including but not
limited to any employee of Employer or its Affiliates) without the express
authorization of the President of Employer. To the extent that the terms of
this Agreement have been disclosed by Employer, in a public filing or
otherwise, the confidentiality requirements of this Section 21 shall no
longer apply to such terms.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CINCINNATI BELL INC.
By: ____________________________________
JOHN F. CASSIDY
________________________________________
12
<PAGE>
Attachment A
EMPLOYEE BENEFITS
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
Automobile Allowance $850 per month
- ------------------------------------------------------------------------------
Cellular Telephone Yes
- ------------------------------------------------------------------------------
Executive Deferred Compensation Plan Yes
- ------------------------------------------------------------------------------
Group Accident Life $250,000
- ------------------------------------------------------------------------------
Legal/Financial/Insurance Allowance $3,500 per year
- ------------------------------------------------------------------------------
Parking Yes
- ------------------------------------------------------------------------------
Annual Physical Yes
- ------------------------------------------------------------------------------
Short Term Disability Supplement Yes
- ------------------------------------------------------------------------------
Travel Insurance (Spouse) $50,000
- ------------------------------------------------------------------------------
Vacation 5 weeks per year
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BROADWING INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
(MILLIONS OF DOLLARS)
1999 1998 1997 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pretax income from continuing operations before
adjustment for minority interests in consolidated
subsidiaries or income or loss from equity investees $ 151.5 $ 181.5 $ 192.6 $ 184.1 $ 4.3
-------------------------------------------------------------
FIXED CHARGES:
Interest expense, etc. 65.5 24.2 30.1 27.9 45.4
Appropriate portion of rentals 7.7 3.9 3.9 3.0 4.0
Preferred stock dividends of majority
subsidiaries 4.0 - - - -
-------------------------------------------------------------
Total Fixed Charges 77.2 28.1 34.0 30.9 49.4
-------------------------------------------------------------
Pretax income (loss) from continuing operations
before adjustment for minority interests in
consolidated subsidiaries or income or loss
from equity investees plus fixed charges $ 228.7 $ 209.6 $ 226.6 $ 215.0 $ 53.7
=============================================================
Preferred dividend requirements $ 2.1 $ - $ - $ - $ -
Total Fixed Charges 77.2 28.1 34.0 30.9 49.4
-------------------------------------------------------------
Total Fixed Charges and preferred dividends $ 79.3 $ 28.1 $ 34.0 $ 30.9 $ 49.4
=============================================================
Ratio of earnings to combined fixed charges
and preferred dividends 1.9 6.5 5.7 6.0 -
=============================================================
Coverage Deficiency $ 45.1
</TABLE>
<PAGE>
Subsidiaries of the Registrant
(as of February 29, 2000)
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation
- ---------- -------------
<S> <C>
Cincinnati Bell Telephone Company Ohio
Cincinnati Bell Telecommunications Services Inc. Ohio
Cincinnati Bell Network Solutions Inc. Ohio
EnterpriseWise IT Consulting LLC Ohio
Cincinnati Bell Long Distance Inc. Ohio
Cincinnati Bell Supply Company Ohio
Cincinnati Bell Directory Inc. Ohio
Cincinnati Bell Wireless Company Ohio
Cincinnati Bell Wireless LLC Ohio
ZoomTown.com Inc. Ohio
Broadwing Holdings Inc. Delaware
Broadwing Communications Inc. Delaware
(formerly IXC Communications, Inc.)
Broadwing Communications Services Inc. Delaware
(formerly IXC Communications Services, Inc.)
Broadwing Telecommunications Inc. Delaware
(formerly Eclipse Telecommunications, Inc.)
Atlantic States Microwave Transmission Company Nevada
Broadwing Communications Services of Virginia Inc. Virginia
(formerly IXC Communications Services of Virginia, Inc.)
Central States Microwave Transmission Company Ohio
<PAGE>
Subsidiaries of the Registrant (continued)
(as of February 29, 2000)
Delaware Capital Provisioning, Inc. Delaware
DPNET, Inc. Delaware
Eastern Telecom of Washington D.C., Inc. Virginia
IXC Business Services LLC Delaware
IXC International, Inc. Delaware
IXC Internet Services, Inc. Delaware
IXC Leasing LLC Delaware
IXC Merger Sub, Inc. Delaware
Mutual Signal Corp. New York
Mutual Signal Corporation of Michigan New York
Mutual Signal Holding Corporation Delaware
Network Advanced Services, Inc. Louisiana
Network Evolutions, Inc. Virginia
Progress International, LLC Texas
Rio Grande Transmission, Inc. Delaware
Telecom Engineering, Inc. Texas
The Data Place, Inc. Delaware
Tower Communication System Corp. Ohio
West Texas Microwave Company Texas
Western States Microwave Transmission Company Nevada
Marca Tel S.A. de C.V. Mexico
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 33-29332), Form S-8 (File No. 33-60209), Form
S-8 (File No. 33-1462), Form S-8 (File No. 33-1487), Form S-8 (File No.
33-29331), Form S-8 (File No. 33-36381), Form S-8 (File No. 33-36380), Form
S-14 (File No. 2-82253), Form S-8 (File No. 333-38743), Form S-8 (File No.
333-28381), Form S-8 (File No. 333-38763), Form S-8 (File No. 333-28385),
Form S-8 (File No. 333-77011), Form S-3 (File No. 333-90711), the
post-effective Amendment No. 1 on Form S-8 to Form S-4 (File No. 333-86971)
as filed on November 9, 1999 and the post-effective Amendment No. 2 on Form
S-8 to Form S-4 (File No. 333-86971) as filed on November 30, 1999 relating
to the financial statements and financial statement schedule, which appears
in this Form 10-K.
PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 17, 2000
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
10th day of January, 2000.
/s/ Richard D. Irwin
----------------------------------
Richard D. Irwin
Director
STATE OF CONNECTICUT )
) SS:
COUNTY OF Fairfield )
-----------
On the 10th day of February, 2000, personally appeared before me
Richard D. Irwin, to me known and known to me to be the person described in and
who executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of January, 2000.
/s/ Barbara F. Sage
---------------------------------
Notary Public
My Commission Exp. July 31, 2003
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th
day of February, 2000.
/s/ John M. Zrno
----------------------------
John Zrno
Director
STATE OF TEXAS )
) SS:
COUNTY OF TRAVIS )
On the 10th day of February, 2000, personally appeared before me John
Zrno, to me known and known to me to be the person described in and who executed
the foregoing instrument, and he duly acknowledged to me that he executed and
delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of February, 2000.
/s/ Marie E. Casar
--------------------------
Notary Public
[SEAL]
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26
day of January, 2000.
/s/ J. Taylor Crandall
------------------------------
J. Taylor Crandall
Director
STATE OF CALIFORNIA )
) SS: [SEAL]
COUNTY OF SAN MATEO )
------------
On the 26 day of January, 2000, personally appeared before me J.
Taylor Crandall, to me known and known to me to be the person described in and
who executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 26 day of January, 2000.
/s/ Tonia Baker
--------------------------------
Notary Public
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th
day of February, 2000.
/s/ David B. Sharrock
----------------------------------
David B. Sharrock
Director
STATE OF TEXAS )
) SS:
COUNTY OF TRAVIS )
On the 10th day of February, 2000, personally appeared before me David
B. Sharrock, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of February, 2000.
/s/ Marie E. Casar
--------------------------------
Notary Public
[SEAL]
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, her attorneys for her and in her name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as she
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th
day of February, 2000.
/s/ Mary D. Nelson
-------------------------------------
Mary D. Nelson
Director
STATE OF TEXAS )
) SS:
COUNTY OF TRAVIS )
On the 10th day of February, 2000, personally appeared before me Mary
D. Nelson, to me known and known to me to be the person described in and who
executed the foregoing instrument, and she duly acknowledged to me that she
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of February, 2000.
/s/ Marie E. Casar
--------------------------------
Notary Public
[SEAL]
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th
day of February, 2000.
/s/ John T. LaMacchia
---------------------------------
John T. LaMacchia
Director
STATE OF TEXAS )
) SS:
COUNTY OF TRAVIS )
On the 10th day of February, 2000, personally appeared before me John
T. LaMacchia, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of February, 2000.
/s/ Marie E. Casar
--------------------------------
Notary Public
[SEAL]
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th
day of February, 2000.
/s/ Daniel J. Meyer
--------------------------------
Daniel J. Meyer
Director
STATE OF TEXAS )
) SS:
COUNTY OF TRAVIS )
On the 10th day of February, 2000, personally appeared before me Daniel
J. Meyer, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of February, 2000.
/s/ Marie E. Casar
--------------------------------
Notary Public
[SEAL]
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, her attorneys for her and in her name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as she
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 10th
day of February, 2000.
/s/ Karen M. Hoguet
-------------------------------
Karen M. Hoguet
Director
STATE OF TEXAS )
) SS:
COUNTY OF TRAVIS )
On the 10th day of February, 2000, personally appeared before me Karen
M. Hoguet, to me known and known to me to be the person described in and who
executed the foregoing instrument, and she duly acknowledged to me that she
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of February, 2000.
/s/ Marie E. Casar
--------------------------------
Notary Public
[SEAL]
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th
day of February, 2000.
/s/ William A. Friedlander
---------------------------------
William A. Friedlander
Director
STATE OF TEXAS )
) SS:
COUNTY OF TRAVIS )
On the 10th day of February, 2000, personally appeared before me
William A. Friedlander, to me known and known to me to be the person described
in and who executed the foregoing instrument, and he duly acknowledged to me
that he executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of February, 2000.
/s/ Marie E. Casar
--------------------------------
Notary Public
[SEAL]
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is an officer and a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th
day of February, 2000.
/s/ Richard G. Ellenberger
----------------------------------
Richard G. Ellenberger
Officer and Director
STATE OF TEXAS )
) SS:
COUNTY OF TRAVIS )
On the 10th day of February, 2000, personally appeared before me
Richard G. Ellenberger, to me known and known to me to be the person described
in and who executed the foregoing instrument, and he duly acknowledged to me
that he executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of February, 2000.
/s/ Marie E. Casar
--------------------------------
Notary Public
[SEAL]
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th
day of February, 2000.
/s/ Phillip R. Cox
-------------------------------
Phillip R. Cox
Director
STATE OF TEXAS )
) SS:
COUNTY OF TRAVIS )
On the 10th day of February, 2000, personally appeared before me
Phillip R. Cox, to me known and known to me to be the person described in and
who executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of February, 2000.
/s/ Marie E. Casar
--------------------------------
Notary Public
[SEAL]
<PAGE>
POWER OF ATTORNEY
WHEREAS, Cincinnati Bell Inc. d/b/a Broadwing Inc., an Ohio corporation
(hereinafter referred to as the "Company"), proposes shortly to file with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, an
annual report on Form 10-K for the year ended December 31, 1999; and
WHEREAS, the undersigned is a director of the Company;
NOW, THEREFORE, the undersigned hereby constitutes and appoints,
Richard G. Ellenberger, Kevin W. Mooney and Thomas E. Taylor, and each of them
singly, his attorneys for him and in his name, place and stead, and in his
office and capacity in the Company, to execute and file such annual report on
Form 10-K, and thereafter to execute and file any amendments or supplements
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th
day of February, 2000.
/s/ James D. Kiggen
---------------------------------
James D. Kiggen
Chairman of the Board of Directors
STATE OF TEXAS )
) SS:
COUNTY OF TRAVIS )
On the 10th day of February, 2000, personally appeared before me James
D. Kiggen, to me known and known to me to be the person described in and who
executed the foregoing instrument, and he duly acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
Witness my hand and official seal this 10th day of February, 2000.
/s/ Marie E. Casar
--------------------------------
Notary Public
[SEAL]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<PP&E> 3,813,500
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228,600
129,400
<COMMON> 2,100
<OTHER-SE> 2,001,300
<TOTAL-LIABILITY-AND-EQUITY> 6,508,600
<SALES> 0
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<CGS> 0
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<INTEREST-EXPENSE> 61,700
<INCOME-PRETAX> 71,300
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<INCOME-CONTINUING> 38,000
<DISCONTINUED> 0
<EXTRAORDINARY> 6,600
<CHANGES> 0
<NET-INCOME> 31,400
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
