<PAGE>
Filed pursuant to Rule 424(b)5
Registration Numbers 33-57889,
33-57889-01, 33-57889-03
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 31, 1995)
[LOGO]
19,200,000 PREFERRED SECURITIES
U S WEST FINANCING II
8 1/4% TRUST ORIGINATED PREFERRED SECURITIES-SM- ("TOPRS-SM- ")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
U S WEST, INC.
------------
The 8 1/4% Trust Originated Preferred Securities (the "Preferred
Securities") offered hereby evidence preferred undivided beneficial interests in
the assets of U S WEST Financing II, a statutory business trust formed under the
laws of the State of Delaware ("U S WEST Financing"). U S WEST, Inc., a Delaware
corporation ("U S WEST"), will directly or indirectly own all the common
securities (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities") representing undivided beneficial interests in the
assets of U S WEST Financing. U S WEST Financing exists for the sole purpose of
issuing the Preferred Securities and Common Securities and investing the
proceeds thereof in an equivalent amount of 8 1/4% Subordinated Deferrable
Interest Notes due 2036 ("Subordinated Debt Securities") of U S WEST Capital
Funding, Inc., a Colorado corporation and wholly-owned subsidiary of U S WEST
("Capital Funding"). The Subordinated Debt Securities are fully and
unconditionally guaranteed (the "Debt Guarantee") on a subordinated basis as to
payment of principal, premium, if any, and interest by U S WEST. Upon an event
of default under the Declaration (as defined herein), the holders of the
Preferred Securities will have a preference over the holders of the Common
Securities with respect to payments in respect of distributions and payments
upon liquidation, redemption and otherwise.
(CONTINUED ON NEXT PAGE)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-6 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED
SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES.
The Preferred Securities have been approved for listing, subject to official
notice of issuance on the New York Stock Exchange, Inc. (the "New York Stock
Exchange"). Trading of the Preferred Securities on the New York Stock Exchange
is expected to commence within a 30 day period after the initial delivery of the
Preferred Securities. See "Underwriting."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING U S WEST
OFFERING PRICE (1) COMMISSION (2) FINANCING (3)(4)
<S> <C> <C> <C>
Per Preferred Security................. $25.00 (3) $25.00
Total.................................. $480,000,000 (3) $480,000,000
<FN>
(1) Plus accrued distributions, if any, from October 29, 1996.
(2) U S WEST, Capital Funding and U S WEST Financing have agreed to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in Subordinated Debt Securities, Capital
Funding has agreed to pay to the Underwriters as compensation
("Underwriters' Compensation") for their arranging the investment therein
of such proceeds, $.7875 per Preferred Security (or $15,120,000 in the
aggregate); provided, that such compensation for sales of 10,000 or more
Preferred Securities to a single purchaser will be $.50 per Preferred
Security. Therefore, to the extent of such sales, the actual amount of
Underwriters' Compensation will be less than the aggregate amount specified
in the preceding sentence. See "Underwriting."
(4) Expenses of the offering which are payable by Capital Funding are estimated
to be $665,000.
</TABLE>
------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company on or about October 29,
1996.
------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
INCORPORATED
SMITH BARNEY INC.
-------------------
The date of this Prospectus Supplement is October 24, 1996.
<PAGE>
- -SM- "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 8 1/4% of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year commencing December 31, 1996 ("distributions"). The payment of
distributions out of moneys held by U S WEST Financing, and payments on
liquidation of U S WEST Financing or the redemption of Preferred Securities, as
set forth below, are guaranteed by U S WEST (the "Preferred Securities
Guarantee") to the extent U S WEST Financing has funds available therefor as
described under "Description of the Preferred Securities Guarantees" in the
accompanying Prospectus. The obligations of U S WEST under the Preferred
Securities Guarantee are subordinate and junior in right of payment to all other
liabilities of U S WEST (other than U S WEST's guarantee of the 7.96% Trust
Originated Preferred Securities of U S WEST Financing I (the "7.96% TOPrS")),
including the Debt Guarantee, and PARI PASSU in right of payment with U S WEST's
guarantee of the 7.96% TOPrS and the most senior preferred stock issued by U S
WEST. The obligations of Capital Funding under the Subordinated Debt Securities
are subordinate and junior in right of payment to all present and future Senior
Indebtedness (as defined herein) of Capital Funding and are PARI PASSU in right
of payment with the 7.96% Subordinated Deferrable Interest Notes due 2025 issued
by Capital Funding to U S WEST Financing I in connection with the issuance by U
S WEST Financing I of the 7.96% TOPrS (the "7.96% Notes"), all of which is and
will be fully and unconditionally guaranteed by U S WEST. The obligations of U S
WEST under the Debt Guarantee are subordinate and junior in right of payment to
all present and future Senior Indebtedness of U S WEST, are effectively
subordinated and junior in right of payment to all present and future
indebtedness of U S WEST's subsidiaries and are PARI PASSU in right of payment
with U S WEST's guarantee of the 7.96% Notes. At June 30, 1996, on a pro forma
basis after giving effect to the consummation of the Continental Merger (as
defined herein), the aggregate amount of Senior Indebtedness of U S WEST and
indebtedness of U S WEST's consolidated subsidiaries that would have effectively
ranked senior to the Subordinated Debt Securities would have been approximately
$16 billion.
The distribution rate and the distribution and other payment dates for the
Preferred Securities will correspond to the interest rate and interest and other
payment dates on the Subordinated Debt Securities, which, together with the Debt
Guarantee, will be the sole assets of U S WEST Financing. As a result, if
principal or interest is not paid on the Subordinated Debt Securities, or
payments are not made under the Debt Guarantee, no amounts will be paid on the
Preferred Securities. If Capital Funding does not make principal or interest
payments on the Subordinated Debt Securities, and U S WEST does not make such
payments under the Debt Guarantee, U S WEST Financing will not have sufficient
funds to make distributions on the Preferred Securities, in which event the
Preferred Securities Guarantee will not apply to such distributions until U S
WEST Financing has sufficient funds available therefor.
Capital Funding has the right to defer payments of interest on the
Subordinated Debt Securities by extending the interest payment period on the
Subordinated Debt Securities, at any time, for up to 20 consecutive quarters
(each, an "Extension Period"). If interest payments are so deferred,
distributions will also be deferred. Despite such deferral, distributions will
continue to accrue with interest thereon (to the extent permitted by applicable
law) at an annual rate of 8 1/4% per annum, and during any Extension Period,
holders of Preferred Securities will be required to include deferred interest
income in their gross income for United States federal income tax purposes in
advance of receipt of the cash interest payments attributable to such deferred
income, regardless of their normal accounting method. There could be multiple
Extension Periods of varying lengths throughout the term of the Subordinated
Debt Securities. See "Description of the Subordinated Debt Securities and the
Debt Guarantee -- Options to Extend Interest Payment Period," "Risk Factors --
Option to Extend Interest Payment Period" and "Certain Federal Income Tax
Consequences -- Original Issue Discount, Premium and Market Discount."
The Subordinated Debt Securities are redeemable by Capital Funding (i) in
whole or in part, from time to time, on or after October 29, 2001 or (ii) at any
time, in whole or in part, upon the occurrence of a Special Event (as defined
herein). If Capital Funding redeems Subordinated Debt Securities, U S WEST
Financing must redeem Trust Securities having an aggregate liquidation amount
equal to the aggregate principal amount of the Subordinated Debt Securities so
redeemed at $25 per Trust Security plus accrued and unpaid distributions thereon
(the "Redemption Price") to the date fixed for redemption. See "Description of
the Preferred Securities -- Mandatory Redemption." The Preferred Securities will
be redeemed upon maturity of the Subordinated Debt Securities. The Subordinated
Debt Securities mature on October 29, 2036. At any time, U S WEST will have the
right to liquidate U S WEST Financing and cause the Subordinated Debt
Securities, together with the Debt Guarantees, to be distributed to the holders
of the Preferred Securities, on a pro rata basis, in liquidation of U S WEST
Financing. If the Subordinated Debt Securities are distributed to the holders of
the Preferred Securities, Capital Funding will use its best efforts to have the
Subordinated Debt Securities listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed. See "Description of
the Preferred Securities -- Special Event Redemption," "-- Distribution of the
Subordinated Debt Securities" and "Description of the Subordinated Debt
Securities and the Debt Guarantee."
In the event of the voluntary or involuntary dissolution, winding up or
termination of U S WEST Financing, the holders of the Preferred Securities will
be entitled to receive, for each Preferred Security, a liquidation amount of $25
plus accrued and unpaid distributions thereon (including interest thereon) to
the date of payment, unless in connection with such dissolution, the
Subordinated Debt Securities are distributed to the holders of the Preferred
Securities. See "Description of the Preferred Securities -- Liquidation
Distribution Upon Dissolution."
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 7.96% TOPRS AND
THE SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
On November 1, 1995, as part of the recapitalization described herein under
"Recent Developments -- Recapitalization," U S WEST changed its state of
incorporation from Colorado to Delaware through the merger of U S WEST, Inc., a
Colorado corporation and U S WEST's predecessor ("U S WEST Colorado"), with and
into U S WEST, with U S WEST continuing as the surviving corporation. As used
herein, unless the context otherwise requires, references to "U S WEST" refer to
U S WEST and U S WEST Colorado, its Colorado predecessor.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by U S WEST with the
Securities and Exchange Commission (the "Commission") (File No. 1-8611), are
incorporated herein by reference: (i) Annual Report on Form 10-K for the year
ended December 31, 1995, (ii) Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996 and June 30, 1996 and (iii) Current Reports on Form 8-K
dated February 12, 1996, February 29, 1996, April 4, 1996, May 1, 1996, June 10,
1996, July 29, 1996, October 7, 1996 and October 15, 1996. See "Incorporation of
Certain Documents by Reference" in the accompanying Prospectus.
S-2
<PAGE>
THE FOLLOWING INFORMATION CONCERNING U S WEST, CAPITAL FUNDING, U S WEST
FINANCING, THE PREFERRED SECURITIES, THE PREFERRED SECURITIES GUARANTEE, THE
SUBORDINATED DEBT SECURITIES AND THE DEBT GUARANTEE SUPPLEMENTS, AND SHOULD BE
READ IN CONJUNCTION WITH, THE INFORMATION CONTAINED IN THE ACCOMPANYING
PROSPECTUS. CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT HAVE THE SAME
MEANINGS AS IN THE ACCOMPANYING PROSPECTUS.
U S WEST, INC.
U S WEST is a diversified global communications company engaged in the
telecommunications, cable, wireless communications and directory and information
services businesses. U S WEST conducts its businesses through two groups: the U
S WEST Communications Group (the "Communications Group") and the U S WEST Media
Group (the "Media Group"). The Communications Group provides telecommunications
services to more than 25 million residential and business customers in the
states of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New
Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming
(collectively, the "Communications Group Region"). The Media Group is comprised
of (i) cable and telecommunications network businesses outside the
Communications Group Region and internationally, (ii) domestic and international
wireless communications network businesses and (iii) domestic and international
directory and information services businesses. U S WEST has two classes of
common stock: U S WEST Communications Group Common Stock, par value $.01 per
share (the "Communications Stock"), and U S WEST Media Group Common Stock, par
value $.01 per share (the "Media Stock"). The Communications Stock is intended
to reflect separately the performance of the Communications Group and the Media
Stock is intended to reflect separately the performance of the Media Group.
U S WEST CAPITAL FUNDING, INC.
Capital Funding is a wholly-owned subsidiary of U S WEST and was
incorporated under the laws of the State of Colorado in June 1986. Capital
Funding was incorporated for the sole purpose of providing financing to U S WEST
and its affiliates through the issuance of indebtedness guaranteed by U S WEST
and has no independent operations.
U S WEST FINANCING II
U S WEST Financing is a statutory business trust formed under Delaware law
pursuant to (i) a declaration of trust, dated as of March 1, 1995, executed by U
S WEST, as sponsor (the "Sponsor"), and the trustees of U S WEST Financing (the
"U S WEST Trustees") and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on March 1, 1995. Such declaration will be amended
and restated in its entirety (as so amended and restated, the "Declaration")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus Supplement and the accompanying Prospectus form a part.
The Declaration will be qualified as an indenture under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities. U S
WEST will directly or indirectly acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of U S WEST Financing. U S
WEST Financing exists for the exclusive purposes of (i) issuing the Trust
Securities representing undivided beneficial interests in the assets of U S WEST
Financing, (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debt Securities and the Debt Guarantee and (iii) engaging in only
those other activities necessary or incidental thereto.
Pursuant to the Declaration, the number of U S WEST Trustees will initially
be five. Three of the U S WEST Trustees (the "Regular Trustees") will be persons
who are employees or officers of, or affiliated with, U S WEST. The fourth
trustee will be a financial institution unaffiliated with U S WEST that will
serve as property trustee under the Declaration and as indenture trustee for
purposes of the Trust Indenture Act (the "Property Trustee"). The fifth U S WEST
Trustee will be a financial institution or an affiliate thereof which maintains
a principal place of business or residence in the State of Delaware (the
"Delaware Trustee"). The First National Bank of Chicago will act as the Property
Trustee and its affiliate will act as the Delaware Trustee until removed or
replaced by the holder of the Common Securities. The First National
S-3
<PAGE>
Bank of Chicago will also act as indenture trustee under the Preferred
Securities Guarantee (the "Preferred Guarantee Trustee"). See "Description of
the Preferred Securities Guarantees" in the accompanying Prospectus.
The Property Trustee will hold title to the Subordinated Debt Securities and
the Debt Guarantee for the benefit of the holders of the Trust Securities and
the Property Trustee will have the power to exercise all rights, powers and
privileges under the Indenture (as defined herein) as the holder of the
Subordinated Debt Securities and the Debt Guarantee. In addition, the Property
Trustee will maintain exclusive control of a segregated non-interest bearing
bank account (the "Property Account") to hold all payments made in respect of
the Subordinated Debt Securities and the Debt Guarantee for the benefit of the
holders of Trust Securities. The Property Trustee will make payments of
distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Preferred Guarantee Trustee will hold the Preferred Securities Guarantee for the
benefit of the holders of the Preferred Securities. U S WEST, as the direct or
indirect holder of all the Common Securities, will have the right to appoint,
remove or replace any U S WEST Trustee and to increase or decrease the number of
U S WEST Trustees, provided that the number of U S WEST Trustees shall be at
least three, a majority of which shall be Regular Trustees and that there always
will be an institutional trustee who satisfies the requirements of the Trust
Indenture Act. Capital Funding will pay all fees and expenses related to U S
WEST Financing and the offering of the Trust Securities, the payment of which
will be fully and unconditionally guaranteed by U S WEST. See "Description of
the Subordinated Debt Securities and the Debt Guarantee -- Miscellaneous."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred stock dividends from continuing operations of U S WEST for
the periods indicated. For the purpose of calculating this ratio, earnings
consist of income from continuing operations before income taxes and fixed
charges. Fixed charges include interest on indebtedness (excluding discontinued
operations), the portion of rentals representative of the interest factor and
preferred stock dividends.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
3.11 3.85 2.38 4.85 4.03 4.06 3.63
</TABLE>
RECENT DEVELOPMENTS
CONTINENTAL MERGER. On February 27, 1996, U S WEST announced a definitive
agreement to acquire Continental Cablevision, Inc. ("Continental"), the third
largest cable television system operator in the United States. The acquisition
by U S WEST of Continental will be effected in accordance with the terms of an
Agreement and Plan of Merger, dated as of February 27, 1996, as amended and
restated as of June 27, 1996, and as further amended as of October 7, 1996,
pursuant to which Continental will be merged with and into either U S WEST or a
wholly owned subsidiary of U S WEST (the "Continental Merger"). The aggregate
consideration to be paid by U S WEST to stockholders of Continental in the
Continental Merger will equal approximately $4.7 billion in value, consisting of
$1 billion in cash, $1 billion in liquidation value of shares of Series D
Convertible Preferred Stock ("Series D Preferred Stock"), par value $1.00 per
share, of U S WEST (with an estimated market value as of October 8, 1996 of
$927.5 million) and the remainder in shares of Media Stock. U S WEST will have
the right to increase the amount of cash to be paid to stockholders of
Continental to up to $1.5 billion, in which event the number of shares of Media
Stock to be issued in the Continental Merger would be reduced and the value of
the aggregate consideration to be paid to stockholders of Continental would be
increased to $4.8 billion. In addition, U S WEST will assume all of
S-4
<PAGE>
Continental's outstanding debt and other liabilities, which approximated $6.5
billion at June 30, 1996. Consummation of the Continental Merger, which is
subject to a number of conditions, including the approval of the stockholders of
Continental, is expected in November 1996. There can be no assurance that the
Continental Merger will be consummated. Following consummation of the
Continental Merger, the businesses of Continental and its subsidiaries will be
attributed to the Media Group.
In connection with U S WEST's announcement of the Continental Merger,
Standard & Poor's Rating Service lowered its rating of the senior unsecured
indebtedness of U S WEST and Capital Funding and its rating of the 7.96% TOPrS
from A+ to BBB+, Fitch lowered its rating of the senior unsecured indebtedness
of U S WEST and Capital Funding from A+ to BBB+ and its rating of the 7.96%
TOPrS from A to BBB and Duff & Phelps lowered its rating of the senior unsecured
indebtedness of U S WEST and Capital Funding from AA to BBB+ and its rating of
the 7.96% TOPrS from A- to BBB. In addition, Moody's Investors Service has
placed its rating of such securities under review, which may also result in a
downgrading.
RECAPITALIZATION. On November 1, 1995, U S WEST created the Communications
Stock, which is intended to reflect separately the performance of the
Communications Group, and the Media Stock, which is intended to reflect
separately the performance of the Media Group, and changed its state of
incorporation from Colorado to Delaware (the "Recapitalization"). The
Recapitalization was effected in accordance with the terms of an Agreement and
Plan of Merger, dated as of August 17, 1995, between U S WEST Colorado and U S
WEST pursuant to which (i) U S WEST Colorado was merged with and into U S WEST,
with U S WEST continuing as the surviving corporation and (ii) each outstanding
share of Common Stock, without par value, of U S WEST Colorado, was converted
into one share of Communications Stock and one share of Media Stock.
The Recapitalization was approved by U S WEST Colorado's shareholders at a
special meeting held on October 31, 1995. Implementation of the Recapitalization
has not resulted in the transfer of any assets from U S WEST or any of its
subsidiaries or altered the legal nature of U S WEST's obligations to its
creditors. Creditors of U S WEST, including the holders of the Preferred
Securities, will continue to benefit from the cash flow of the subsidiaries of U
S WEST comprising both the Communications Group and the Media Group, subject to
the satisfaction of obligations by such subsidiaries.
TELECOMMUNICATIONS ACT OF 1996. On February 8, 1996, President Clinton
signed the Telecommunications Act of 1996 (the "Telecommunications Act"), which
is intended to promote competition between local telephone companies,
long-distance carriers and cable television operators. The Telecommunications
Act replaces the Modification of Final Judgment, the antitrust consent decree
entered into in 1984 in connection with the divestiture by AT&T Corp. of its
local telephone businesses and the formation of U S WEST and the other regional
bell operating companies (the "RBOCs"). The Telecommunications Act permits local
telephone companies, long-distance carriers and cable television companies to
enter each other's lines of business. RBOCs will be permitted to provide
interLATA long distance services (long distance services between local access
and transport areas within their service regions) by opening their local
networks to facilities-based competition and satisfying a detailed list of
requirements, including permitting interconnection and number portability. The
Telecommunications Act will also eliminate most regulation of cable rates within
three years and lift the ban on cross-ownership between cable television and
telephone companies, thereby permitting the RBOCs to enter into the cable
business within their respective service regions so long as such entry is not
effected through the purchase of existing cable companies, except in rural
communities. In addition, the Telecommunications Act reaffirms the concept of
universal service and directs the Federal Communications Commission (the "FCC")
and state regulators to determine universal service funding policy. The FCC and
state regulators have been given the responsibility to interpret and oversee
implementation of the Telecommunications Act. On August 1, 1996, the FCC
established a framework of minimum national rules that will enable the FCC and
state regulators to begin implementation of local competition.
U S WEST/AIRTOUCH JOINT VENTURE. On July 25, 1994, U S WEST and AirTouch
Communications, Inc. ("AirTouch") announced an agreement to combine their
domestic cellular operations through a joint venture. On November 1, 1995, U S
WEST and AirTouch entered into Phase I of the joint venture pursuant to which U
S WEST and AirTouch are operating their domestic cellular properties separately
but are
S-5
<PAGE>
receiving centralized services from a wireless management company ("WMC") on a
contract basis. In Phase II of the joint venture, U S WEST and AirTouch will
contribute their domestic cellular businesses to WMC to form the third largest
cellular company in the United States (the "U S WEST/AirTouch Joint Venture").
The recent passage of the Telecommunications Act has removed significant
regulatory barriers and U S WEST expects that Phase II could be consummated by
the end of 1996 or in early 1997, subject to the receipt of certain regulatory
and other approvals.
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus Supplement and in the
accompanying Prospectus and should particularly consider the following matters:
RANKING OF SUBORDINATED OBLIGATIONS UNDER PREFERRED SECURITIES GUARANTEE,
SUBORDINATED DEBT SECURITIES AND DEBT GUARANTEE
U S WEST's obligations under the Preferred Securities Guarantee are
subordinate and junior in right of payment to all liabilities of U S WEST,
including the Debt Guarantee, and PARI PASSU with the most senior preferred
stock issued by U S WEST. The obligations of Capital Funding under the
Subordinated Debt Securities are subordinate and junior in right of payment to
all present and future Senior Indebtedness of Capital Funding, all of which are,
and will be, fully and unconditionally guaranteed by U S WEST. The obligations
of U S WEST under the Debt Guarantee are subordinate and junior in right of
payment to all present and future Senior Indebtedness of U S WEST and are
effectively subordinated and junior in right of payment to all present and
future indebtedness of U S WEST's subsidiaries. At June 30, 1996, on a pro forma
basis after giving effect to the consummation of the Continental Merger, the
aggregate amount of Senior Indebtedness of U S WEST and indebtedness of U S
WEST's consolidated subsidiaries that would have effectively ranked senior to
the Subordinated Debt Securities would have been approximately $16 billion.
There are no terms in the Preferred Securities, the Subordinated Debt
Securities, the Preferred Securities Guarantee or the Debt Guarantee that limit
the ability of U S WEST and its subsidiaries to incur additional indebtedness,
including indebtedness that ranks senior to the Preferred Securities Guarantee
and the Debt Guarantee. See "Description of the Preferred Securities Guarantees"
in the accompanying Prospectus and "Description of the Subordinated Debt
Securities and the Debt Guarantee -- Subordination."
RIGHTS UNDER THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee guarantees to the holders of the
Preferred Securities the payment of (i) any accrued and unpaid distributions
which are required to be paid on the Preferred Securities, to the extent U S
WEST Financing shall have funds available therefor, (ii) the Redemption Price,
including all accrued and unpaid distributions, with respect to Preferred
Securities called for redemption by U S WEST Financing, to the extent U S WEST
Financing has funds available therefor and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of U S WEST Financing (other than in
connection with the distribution of Subordinated Debt Securities to the holders
of Preferred Securities or a redemption of all of the Preferred Securities), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Preferred Securities to the date of payment, to the extent
U S WEST Financing has funds available therefor and (b) the amount of assets of
U S WEST Financing remaining available for distribution to holders of the
Preferred Securities in liquidation of U S WEST Financing. The holders of a
majority in liquidation amount of the Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Preferred Guarantee Trustee or to direct the exercise of any
trust or power conferred upon the Preferred Guarantee Trustee under the
Preferred Securities Guarantee. If the Preferred Guarantee Trustee fails to
enforce the Preferred Securities Guarantee, any holder of Preferred Securities
may institute a legal proceeding directly against U S WEST to enforce the
Preferred Guarantee Trustee's rights under the Preferred Securities Guarantee,
without first instituting a legal proceeding against U S WEST Financing, the
Preferred Guarantee Trustee or any other person or entity. If Capital Funding
were to default in its obligation to pay amounts payable on the Subordinated
Debt Securities and U S WEST were to default on its obligations under the Debt
Guarantee, U S WEST Financing would lack available funds for the payment of
distributions or amounts payable on redemption of
S-6
<PAGE>
the Preferred Securities or otherwise, and in such event holders of the
Preferred Securities would not be able to rely upon the Preferred Securities
Guarantee for payment of such amounts. Instead, holders of the Preferred
Securities would rely on the enforcement by the Property Trustee of its rights
as registered holder of the Subordinated Debt Securities against Capital Funding
pursuant to the terms of the Subordinated Debt Securities and against U S WEST
under the Debt Guarantee. See "Description of the Preferred Securities
Guarantees -- Status of the Preferred Securities Guarantees" in the accompanying
Prospectus and "Description of the Subordinated Debt Securities and the Debt
Guarantee -- Subordination." The Declaration provides that each holder of
Preferred Securities by acceptance thereof agrees to the provisions of the
Preferred Securities Guarantee and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as a holder of the
Subordinated Debt Securities and Debt Guarantee against Capital Funding and U S
WEST. In addition, the holders of a majority in aggregate liquidation amount of
the Preferred Securities will have the right to direct the time, method, and
place of conducting any proceeding for any remedy available to the Property
Trustee or to direct the exercise of any trust or power conferred upon the
Property Trustee under the Declaration, including the right to direct the
Property Trustee to exercise the remedies available to it as a holder of the
Subordinated Debt Securities and Debt Guarantee. If the Property Trustee fails
to enforce its rights under the Subordinated Debt Securities or the Debt
Guarantee, a holder of Preferred Securities may institute a legal proceeding
directly against Capital Funding or U S WEST to enforce the Property Trustee's
rights under the Subordinated Debt Securities or the Debt Guarantee, as the case
may be, without first instituting any legal proceeding against the Property
Trustee or any other person or entity, including, in the case of the Debt
Guarantee, against Capital Funding.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Capital Funding has the right under the Indenture to defer payments of
interest on the Subordinated Debt Securities by extending the interest payment
period at any time, and from time to time, on the Subordinated Debt Securities.
As a consequence of such an extension, quarterly distributions on the Securities
would be deferred (but despite such deferral would continue to accrue with
interest thereon) by U S WEST Financing during any such extended interest
payment period. Such right to extend the interest payment period for the
Subordinated Debt Securities is limited to a period not exceeding 20 consecutive
quarters. In the event that Capital Funding exercises this right to defer
payments of interest, then (a) U S WEST and Capital Funding shall not declare or
pay any dividend on, make any distributions with respect to, or redeem, purchase
or make a liquidation payment with respect to, any of its capital stock,
including, in the case of U S WEST, the Communications Stock and the Media
Stock, and (b) U S WEST and Capital Funding shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by U S WEST or Capital Funding
which rank pari passu with or junior to the Subordinated Debt Securities,
including the 7.96% Notes and the 7.96% Notes Guarantee (as defined herein);
provided, however, that restriction (a) above does not apply to any stock
dividends paid by U S WEST where the dividend stock is the same stock as that on
which the dividend is being paid. Prior to the termination of any such Extension
Period, Capital Funding may further extend the interest payment period, provided
that such Extension Period, together with all such previous and further
extensions thereof, may not exceed 20 consecutive quarters. Upon the termination
of any Extension Period and the payment of all amounts then due, Capital Funding
may select a new Extension Period, subject to the above requirements. See
"Description of the Preferred Securities -- Distributions" and "Description of
the Subordinated Debt Securities and the Debt Guarantee -- Option to Extend
Interest Payment Period."
In September 1995, U S WEST Financing I issued 24,000,000 of the 7.96% TOPrS
to the public. The proceeds of such issuance, together with the proceeds of the
issuance of common securities to U S WEST, were used by U S WEST Financing I to
purchase from Capital Funding $618,556,725 in aggregate principal amount of
7.96% Notes. The 7.96% Notes are guaranteed on a subordinated basis by U S WEST
(the "7.96% Notes Guarantee"). The Subordinated Debt Securities are pari passu
in right of payment with the 7.96% Notes and the Debt Guarantee is pari passu in
right of payment with the 7.96% Notes Guarantee. As a result, in the event
Capital Funding exercises its right to defer interest on the Subordinated Debt
S-7
<PAGE>
Securities, Capital Funding and U S WEST will be prohibited from making payments
on the 7.96% Notes and the 7.96% Notes Guarantee, respectively, and in the event
Capital Funding exercises its right to defer interest on the 7.96% Notes,
Capital Funding and U S WEST will be prohibited from making payments on the
Subordinated Debt Securities and the Debt Guarantee, respectively.
Capital Funding believes that the likelihood that it will exercise its right
to defer payments of interest is remote and that, therefore, the Preferred
Securities should not be considered to be issued with original issue discount
("OID") unless it actually exercises such deferral right. There is no assurance
that the Internal Revenue Service will agree with such position. See "Certain
Federal Income Tax Consequences -- Original Issue Discount, Premium and Market
Discount."
Should Capital Funding exercise its rights to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities,
regardless of its regular method of accounting, will accrue income for United
States federal income tax purposes in respect of the deferred interest allocable
to its Preferred Securities. As a result, during an Extension Period, holders of
Preferred Securities will recognize income for United States federal income tax
purposes in advance of the receipt of cash and will not receive the cash from U
S WEST Financing related to such income if such holder disposes of its Preferred
Securities prior to the record date for the date on which distributions of such
amounts are made. Capital Funding has no current intention of exercising its
right to defer payments of interest by extending the interest payment period on
the Subordinated Debt Securities. However, should Capital Funding determine to
exercise such right in the future, the market price of the Preferred Securities
is likely to be affected. A holder that disposes of its Preferred Securities
during an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Preferred Securities. In
addition, as a result of the existence of Capital Funding's right to defer
interest payments, the market price of the Preferred Securities (which represent
an undivided beneficial interest in the Subordinated Debt Securities) may be
more volatile than other securities on which original issue discount accrues
that do not have such rights. See "Certain Federal Income Tax Consequences --
Original Issue Discount, Premium and Market Discount."
SPECIAL EVENT REDEMPTION
Upon the occurrence of a Special Event, Capital Funding will have the right
to redeem the Subordinated Debt Securities, in whole or in part, in which event
Capital Funding will redeem the Trust Securities on a pro rata basis to the same
extent as the Subordinated Debt Securities are redeemed by Capital Funding. See
"Description of Preferred Securities -- Special Event Redemption."
DISTRIBUTION OF THE SUBORDINATED DEBT SECURITIES
At any time, U S WEST will have the right to terminate U S WEST Financing
and, after satisfaction of the liabilities of creditors of U S WEST Financing as
provided by applicable law, cause the Subordinated Debt Securities, together
with the Debt Guarantee, to be distributed to the holders of the Trust
Securities in the liquidation of U S WEST Financing. Under current United States
federal income tax law and interpretation, a distribution of the Subordinated
Debt Securities should not be a taxable event to the holders of the Preferred
Securities. Should there be a change in law, a change in legal interpretation, a
Special Event or other circumstances, however, the distribution could be a
taxable event to the holders of the Preferred Securities. See "United States
Federal Income Taxation -- Receipt of Subordinated Debentures or Cash Upon
Liquidation of U S WEST Financing." While U S WEST does not currently intend to
cause the liquidation of U S WEST Financing and the distribution of the
Subordinated Debt Securities, there is no restriction on its ability to do so. U
S WEST anticipates that it would consider exercising this right in the event
that the expenses associated with maintaining U S WEST Financing were
substantially greater than currently expected, such as if there were a Special
Event. U S WEST cannot predict the other circumstances under which this right
would be exercised.
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debt Securities that may be distributed in
exchange for Preferred Securities if a dissolution or liquidation of U S WEST
Financing were to occur. Accordingly, the Preferred Securities that an investor
may purchase, or the Subordinated Debt Securities that the investor may receive
on dissolution and liquidation of U S WEST Financing, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities
S-8
<PAGE>
offered hereby. Because holders of Preferred Securities will receive
Subordinated Debt Securities upon the election of U S WEST to liquidate U S WEST
Financing and cause the Subordinated Debt Securities to be distributed to the
holders of the Preferred Securities, prospective purchasers of Preferred
Securities are also making an investment decision with regard to the
Subordinated Debt Securities and should carefully review all the information
regarding the Subordinated Debt Securities contained herein and in the
accompanying Prospectus. See "Description of the Preferred Securities --
Distribution of the Subordinated Debt Securities" and "Description of the
Subordinated Debt Securities and the Debt Guarantee -- General."
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed certain tax law
changes (the "Proposed Legislation") that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations, such as the Subordinated Debt Securities, issued on or after
December 7, 1995. On March 29, 1996, Senate Finance Committee Chairman William
V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a
joint statement (the "Joint Statement") indicating their intent that the
Proposed Legislation, if adopted by either of the tax-writing committees of
Congress, would have an effective date that is no earlier than the date of
"appropriate Congressional action." Based upon the Joint Statement, if the
Subordinated Debt Securities are issued prior to the date of such "appropriate
Congressional action" with respect to the Proposed Legislation, it is expected
that if the Proposed Legislation were to be enacted, such legislation would not
apply to the Subordinated Debt Securities. There can be no assurances, however,
that the Proposed Legislation, if enacted, will not apply to the Preferred
Securities or that other legislation enacted after the date hereof will not
otherwise adversely affect the ability of Capital Funding to deduct the interest
payable on the Subordinated Debt Securities. Accordingly, there can be no
assurance that a Tax Event will not occur. See "Description of the Preferred
Securities -- Distribution of the Subordinated Debt Securities."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and will not
be entitled to vote to appoint, remove or replace, or to increase or decrease
the number of, U S WEST Trustees, which voting rights are vested exclusively in
the holder of the Common Securities.
TRADING PRICE OF PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debt Securities. A holder who uses the accrual method of accounting
for tax purposes (and a cash method holder, if the Subordinated Debt Securities
are deemed to have been issued with OID) and who disposes of his Preferred
Securities between record dates for payments of distributions thereon will be
required to include accrued but unpaid interest on the Subordinated Debt
Securities through the date of disposition in income as ordinary income (i.e.,
interest or, possibly, OID), and to add such amount to his adjusted tax basis in
his pro rata share of the underlying Subordinated Debt Securities deemed
disposed of. To the extent the selling price is less than the holder's adjusted
tax basis (which will include all accrued but unpaid interest), a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences -- Original Issue
Discount, Premium and Market Discount" and "-- Sale of Certificates."
FUTURE ACQUISITIONS
In connection with the Media Group's growth strategy, U S WEST from time to
time engages in preliminary discussions regarding acquisitions, dispositions and
other similar transactions. Any such transaction could involve, among other
things, the transfer of certain assets, businesses or interests, the issuance of
equity and/or the incurrence or assumption of indebtedness. The consideration of
any such transaction could have a material impact upon the financial condition
and results of operations of U S WEST. In addition, the incurrence of
indebtedness to fund any such transaction and/or the assumption of indebtedness
in connection with any such transaction could result in a downgrading of the
credit ratings of U S WEST and its subsidiaries and, as a result, have an
adverse effect upon the market value of the Preferred Securities. There is no
assurance that any such discussions will result in the consummation of any such
transaction.
S-9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
U S WEST SUMMARY HISTORICAL FINANCIAL DATA
The summary historical financial data below should be read in conjunction
with the financial statements and notes thereto included in U S WEST's Annual
Report on Form 10-K for the year ended December 31, 1995. See "Incorporation of
Certain Documents by Reference." The summary historical financial data at
December 31, 1995, 1994, 1993, 1992 and 1991 and for each of the five years
ended December 31, 1995 are derived from the consolidated financial statements
of U S WEST which have been audited by Coopers & Lybrand L.L.P., independent
certified public accountants. See "Experts." The summary historical financial
data at June 30, 1996 and 1995 and for the six months ended June 30, 1996 and
1995 are derived from the unaudited consolidated financial statements of U S
WEST, which have been prepared on the same basis as U S WEST's audited
consolidated financial statements and, in the opinion of management, contain all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for these
periods.
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
OR AS OF
JUNE 30, YEAR ENDED OR AS OF DECEMBER 31,
-------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- ------- -------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA
Sales and other revenues..................... $6,174 $5,722 $11,746 $10,953 $ 10,294 $ 9,823 $ 9,528
Income from continuing operations (1)........ 610 648 1,329 1,426 476 1,076 840
Net income (loss) (2)........................ 644 648 1,317 1,426 (2,806) (614) 553
Total assets................................. 25,289 24,193 25,071 23,204 20,680 23,461 23,375
Total debt (3)............................... 9,095 8,990 8,855 7,938 7,199 5,430 5,969
Shareowners' equity.......................... 8,217 7,679 7,948 7,382 5,861 8,268 9,587
Percentage of debt to total capital (3)...... 50.6% 53.8% 50.7% 51.6% 55.1% 39.6% 38.4%
Capital expenditures (3)..................... $1,561 $1,365 $3,140 $ 2,820 $ 2,441 $ 2,554 $ 2,425
OPERATING DATA
EBITDA (4)................................... $2,615 $2,451 $4,936 $ 4,559 $ 4,228 $ 3,963 $ 3,920
Telephone network access lines in service
(thousands)................................. 15,068 14,482 14,847 14,336 13,843 13,345 12,935
Billed telephone access minutes of use
(millions).................................. 30,894 28,058 57,305 52,275 48,123 44,369 41,701
Domestic cellular subscribers (thousands).... 1,701 1,165 1,463 968 601 415 300
Domestic cable television subscribers-- FCC
equivalents (thousands)..................... 508 474 490 459 -- -- --
Employees.................................... 61,399 61,448 61,047 61,505 60,778 63,707 65,829
</TABLE>
- ------------------------------
(1) For the first six months of 1996 and 1995 income from continuing operations
includes gains of $30 and $49, respectively on the sales of certain rural
telephone exchanges. 1995 income from continuing operations includes a gain
of $95 from the merger of U S WEST's joint venture interest in Telewest
Communications plc with SBC CableComms (UK), a gain of $85 on the sales of
certain rural telephone exchanges and a charge of $17 for expenses
associated with the Recapitalization. 1994 income from continuing operations
includes a gain of $105 on the partial sale of U S WEST's joint venture
interest in Telewest Communications plc, a gain of $41 on the sale of U S
WEST's paging operations and a gain of $51 on the sales of certain rural
telephone exchanges. 1993 income from continuing operations was reduced by a
restructuring charge of $610 and a charge of $54 for the cumulative effect
on deferred taxes of the 1993 federally mandated increase in income tax
rates. 1991 income from continuing operations was reduced by a restructuring
charge of $230.
(2) Net income for the first six months of 1996 inludes a gain of $34 for the
cumulative effect of the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." 1995 net income was
reduced by extraordinary items of $12 for the early extinguishment of debt.
1993 net income was reduced by extraordinary charges of $3,123 for the
discontinuance of SFAS No. 71 and $77 for the early extinguishment of debt.
1993 net income also includes a charge of $120 for U S WEST's decision to
discontinue the operations of its capital assets segment. 1992 net income
includes a
S-10
<PAGE>
charge of $1,793 for the adoption of SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" and SFAS No. 112
"Employers' Accounting for Postemployment Benefits." Discontinued operations
provided net income (loss) of $38, $103 and $(287) in 1993, 1992 and 1991,
respectively.
(3) Capital expenditures, debt and the percentage of debt to total capital
exclude the capital assets segment, which has been discontinued and is held
for sale.
(4) Earnings before interest, taxes, depreciation and amortization. EBITDA
excludes gains on sales of assets, restructuring charges and other income. U
S WEST considers EBITDA an important indicator of the operational strength
and performance of its businesses. EBITDA, however, should not be considered
as an alternative to operating or net income as an indicator of the
performance of U S WEST's businesses or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles.
S-11
<PAGE>
CONTINENTAL SUMMARY HISTORICAL FINANCIAL DATA
The summary consolidated historical financial data provided below should be
read in conjunction with the Consolidated Financial Statements of Continental
and the notes thereto incorporated by reference in U S WEST's Current Report on
Form 8-K, dated October 15, 1996, which is incorporated herein by reference. See
"Incorporation of Certain Documents by Reference." The summary historical
financial data at December 31, 1995 and for each of the three years ended
December 31, 1995 are derived from the Consolidated Financial Statements of
Continental which have been audited by Deloitte & Touche LLP, independent
certified accountants. See "Experts." The summary historical financial data at
June 30, 1996 and for the six months ended June 30, 1996 and 1995 are derived
from the unaudited Consolidated Financial Statements of Continental, which have
been prepared on the same basis as Continental's audited Consolidated Financial
Statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods.
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JUNE
30, YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------------
1996 1995 1995 1994 1993
----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA
Revenue....................................... $ 942,930 $ 650,048 $ 1,442,392 $ 1,197,977 $ 1,177,163
Operating, selling, general and administrative
expenses..................................... 556,360 375,178 837,241 672,884 649,571
Depreciation and amortization................. 231,696 148,412 341,171 283,183 279,009
Restricted stock purchase program(1).......... 8,654 5,905 12,005 11,316 11,004
----------- ---------- ------------ ------------ ------------
Operating income.............................. 146,220 120,553 251,975 230,594 237,579
Interest expense (net)........................ 233,578 166,314 363,826 315,541 282,252
Loss before extraordinary item and cumulative
effect of accounting change.................. (110,186) (33,067) (112,027) (68,576) (25,774)
Extraordinary item............................ -- -- -- (18,265) --
Cumulative effect of accounting change........ -- -- -- -- (184,996)
Net loss...................................... (110,186) (33,067) (112,027) (86,841) (210,770)
Preferred stock preferences................... (21,041) (19,347) (39,802) (36,800) (34,115)
----------- ---------- ------------ ------------ ------------
Loss applicable to common stockholders........ $ (131,227) $ (52,414) $ (151,829) $ (123,641) $ (244,885)
----------- ---------- ------------ ------------ ------------
----------- ---------- ------------ ------------ ------------
OTHER DATA
EBITDA(2)..................................... $ 386,570 $ 274,870 $ 605,151 $ 525,093 $ 527,592
Net cash provided from operating activities... 175,030 77,527 221,264 236,304 250,504
Capital expenditures.......................... 311,447 231,021 518,161 300,511 185,691
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
AS OF JUNE 30, AS OF DECEMBER 31,
1996 1995
------------------ ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Cash.................................................................. $ 27,056 $ 18,551
Total assets.......................................................... 5,284,734 5,080,593
Total debt............................................................ 5,604,137 5,285,159
Redeemable common stock............................................... 270,290 256,135
Stockholders' equity (deficiency)..................................... (1,319,133) (1,215,951)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
S-12
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE AS OF DECEMBER 31,
30, -------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CONTINENTAL SUBSCRIBER DATA FOR U.S. CABLE SYSTEMS
(3)
Homes passed by cable (4)............................ 7,243,000 7,191,000 5,372,000 5,192,000
Number of basic subscribers (5)...................... 4,234,000 4,190,000 3,081,000 2,895,000
Basic penetration (6)................................ 58.5% 58.3 % 57.4 % 55.8 %
Monthly cable revenue per average basic
subscriber (7)...................................... $ 37.06 $ 35.99 $ 35.06 $ 35.69
</TABLE>
- ------------------------------
(1) Represents the difference between the consideration paid by employees for
shares of Continental restricted common stock under Continental's Restricted
Stock Purchase Program and the fair market value of such shares (as
determined by the Continental Board of Directors) at the date of issuance,
amortized over such shares' vesting schedule.
(2) Operating income before depreciation and amortization and non-cash stock
compensation (Continental Restricted Stock Purchase Program expense). Based
on its experience in the cable television industry, Continental believes
that EBITDA and related measures of cash flow serve as important financial
analysis tools for measuring and comparing cable television companies in
several areas, such as liquidity, operating performance and leverage. EBITDA
should not be considered by the reader as an alternative to operating or net
income as determined in accordance with GAAP as an indicator of
Continental's performance or as an alternative to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of
liquidity.
(3) In reporting subscriber and other data for U.S. cable systems not controlled
or managed by Continental, only that portion of data corresponding to
Continental's percentage interest is included.
(4) Represents estimated dwelling units located sufficiently close to
Continental's cable plant to be practicably connected without any further
extension of principal transmission lines.
(5) A "basic subscriber" means a person who, at a minimum, subscribes to
Continental's Basic Broadcast Tier, which consists of broadcast television
signals available off-air locally, local origination channels and public,
educational and governmental access channels. Bulk subscribers are accounted
for on an "equivalent billing unit" basis, dividing aggregate Basic
Broadcast Tier revenues by the stated Basic Broadcast Tier rate.
(6) Basic subscribers as a percentage of homes passed by cable.
(7) Cable revenues (excluding DBS-service revenues) divided by the weighted
average number of basic subscribers for Continental's subsidiaries during
the twelve-month period ended December 31 for each year presented and the
six month period ended June 30, 1996.
S-13
<PAGE>
U S WEST SELECTED PRO FORMA FINANCIAL DATA
The following unaudited selected pro forma combined financial data of U S
WEST gives effect to the Continental Merger and related transactions, certain
acquisitions, dispositions and refinancings by Continental and the consummation
of the U S WEST/AirTouch Joint Venture. The unaudited selected pro forma
combined financial data are derived from, or prepared on a basis consistent
with, the unaudited pro forma condensed combined financial statements of U S
WEST and the notes thereto incorporated by reference in U S WEST's Current
Report on Form 8-K, dated October 15, 1996, which is incorporated herein by
reference. See "Incorporation of Certain Documents by Reference." This data is
presented for informational purposes only and is not necessarily indicative of
the combined results of operations or financial position that would have
occurred if the transactions had occurred at the beginning of each period
presented or on the dates indicated, nor is it necessarily indicative of the
future operating results or financial position of U S WEST. The data provided
below should be read in conjunction with the historical and pro forma financial
statements and the notes thereto of U S WEST and Continental included in the
documents incorporated by reference herein, including in U S WEST's Current
Report on Form 8-K, dated October 15, 1996. See "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
OR AS OF OR AS OF
JUNE 30, 1996 DECEMBER 31, 1995
----------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
FINANCIAL DATA
Sales and other revenues.................................................... $ 6,623 $ 12,646
Income from operations...................................................... 1,325 2,423
Income before extraordinary items and cumulative effect of change in
accounting principle....................................................... 382 928
Income before extraordinary items and cumulative effect of change in
accounting principle available for common stock............................ 356 877
Total assets................................................................ 39,148 --
Total debt.................................................................. 16,113 --
Shareowners' equity......................................................... 11,847 --
OPERATING DATA
EBITDA...................................................................... $ 2,828 $ 5,394
Telephone network access lines in service (thousands)....................... 15,068 14,847
Billed telephone access minutes of use (millions)........................... 30,894 57,305
Domestic cable television subscribers--FCC equivalents
(thousands)................................................................ 4,820 4,758
Employees................................................................... 71,729 71,042
</TABLE>
S-14
<PAGE>
CAPITALIZATION OF U S WEST
The following table sets forth, at June 30, 1996, (i) the unaudited
consolidated historical capitalization of U S WEST, (ii) the unaudited combined
pro forma capitalization of U S WEST without adjustment for the sale of the
Preferred Securities and (iii) the unaudited combined pro forma capitalization
of U S WEST, as adjusted to reflect the sale of the Preferred Securities and the
application of the estimated net proceeds thereof as described under "Use of
Proceeds." The pro forma capitalization gives effect to the Continental Merger
and related transactions, certain acquisitions, dispositions and refinancings by
Continental and the consummation of Phase II of the U S WEST/AirTouch Joint
Venture. The pro forma capitalization is presented for informational purposes
only and is not necessarily indicative of the future capitalization of U S WEST.
The table should be read in conjunction with the historical and pro forma
financial statements and notes thereto of U S WEST and Continental included in
the documents incorporated by reference herein, including in U S WEST's Current
Report on Form 8-K, dated October 15, 1996. See "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
AT JUNE 30, 1996
---------------------------------------
PRO FORMA AS
HISTORICAL PRO FORMA ADJUSTED
----------- ----------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Short-term debt.............................................. $ 1,735 $ 2,752 $ 2,288
----------- ----------- -------------
----------- ----------- -------------
Long-term debt............................................... $ 7,360 $ 13,361 $ 13,361
Company-obligated mandatorily redeemable preferred securities
of subsidiary trusts holding solely Company-guaranteed
debentures.................................................. 600 600 1,080
Preferred stock subject to mandatory redemption.............. 51 51 51
Total shareowners' equity (1)................................ 8,217 11,847 11,847
----------- ----------- -------------
Total capitalization......................................... $ 16,228 $ 25,859 $ 26,339
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
- ------------------------
(1) At June 30, 1996, (i) 2,000,000,000 shares of Communications Stock and
2,000,000,000 shares of Media Stock were authorized, (ii) 477,431,000 shares
of Communications Stock and 473,806,000 shares of Media Stock were
outstanding and (iii) 477,431,000 shares of Communications Stock and
630,949,000 shares of Media Stock would have been outstanding on a pro forma
basis (assuming 157,143,000 shares of Media Stock are issued in connection
with the Continental Merger). The pro forma capitalization gives effect to
the issuance of 20,000,000 shares of Series D Preferred Stock in connection
with the Continental Merger.
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ACCOUNTING TREATMENT
The financial statements of U S WEST Financing will be consolidated with U S
WEST's financial statements, with the Preferred Securities shown as
Company-obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely Company-guaranteed debentures.
USE OF PROCEEDS
The proceeds of the sale of the Preferred Securities will be invested by U S
WEST Financing in Subordinated Debt Securities of Capital Funding. Capital
Funding will apply the proceeds from the issuance of the Subordinated Debt
Securities primarily to the repayment of a portion of its commercial paper
indebtedness, though some of such proceeds may also be used for loans to U S
WEST and affiliates of U S WEST for general corporate purposes. For the fiscal
year ended December 31, 1995, Capital Funding's commercial paper carried a
weighted average interest cost of 6.0126%. For the six months ended June 30,
1996, Capital Funding's commercial paper carried a weighted average interest
cost of 5.3926%.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, the First National Bank of Chicago, will
act as the indenture trustee for purposes of compliance with the provisions of
the Trust Indenture Act. The terms of the Preferred Securities will include
those stated in the Declaration and those made part of the Declaration by the
Trust Indenture Act. The following summary of the principal terms and provisions
of the Preferred Securities does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the Declaration, a copy of which
is filed as an exhibit to the Registration Statement, of which this Prospectus
Supplement is a part, the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of U S
WEST Financing the Preferred Securities, which represent preferred undivided
beneficial interests in the assets of U S WEST Financing. All of the Common
Securities will be owned, directly or indirectly, by U S WEST. The Common
Securities rank pari passu, and payments will be made thereon on a pro rata
basis, with the Preferred Securities, except that upon the occurrence of a
Declaration Event of Default, the rights of the holders of the Common Securities
to receive payment of periodic distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Declaration does not permit the issuance by U S
WEST Financing of any securities other than the Trust Securities or the
incurrence of any indebtedness by U S WEST Financing. Pursuant to the
Declaration, the Property Trustee will own the Subordinated Debt Securities and
the Debt Guarantee for the benefit of the holders of the Trust Securities.
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of 8 1/4% of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon at
the rate per annum of 8 1/4% thereof. The term "distributions" as used herein
includes any such interest payable unless otherwise stated. The amount of
distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from October 29, 1996 and will be payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year, commencing December 31, 1996
when, as and if available for payment by the Property Trustee, except as
otherwise described below.
Capital Funding has the right under the Indenture to defer payments of
interest on the Subordinated Debt Securities by extending the interest payment
period from time to time on the Subordinated Debt Securities which, if
exercised, would defer quarterly distributions on the Preferred Securities
(though such
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distributions would continue to accrue with interest since interest would
continue to accrue on the Subordinated Debt Securities) during any Extension
Period. Such right to extend the interest payment period for the Subordinated
Debt Securities is limited to a period not exceeding 20 consecutive quarters for
any particular Extension Period. In the event that Capital Funding exercises
this right, then (a) U S WEST and Capital Funding shall not declare or pay any
dividend on, make any distributions with respect to, or redeem, purchase or make
a liquidation payment with respect to, any of its capital stock, including, in
the case of U S WEST, the Communications Stock and the Media Stock, and (b) U S
WEST and Capital Funding shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by U S WEST or Capital Funding which rank pari
passu with or junior to the Subordinated Debt Securities, including the 7.96%
Notes and the 7.96% Notes Guarantee; provided, however, that restriction (a)
above does not apply to any stock dividends paid by U S WEST where the dividend
stock is the same stock as that on which the dividend is being paid. Prior to
the termination of any such extension period, Capital Funding may further extend
the interest payment period, provided that such Extension Period together with
all such previous and further extensions thereof may not exceed 20 consecutive
quarters. Upon the termination of any Extension Period and the payment of all
amounts then due, Capital Funding may select a new Extension Period, subject to
the above requirements. See "Description of the Subordinated Debt Securities and
the Debt Guarantee -- Interest" and "-- Option to Extend Interest Payment
Period." If distributions are deferred, the deferred distributions and accrued
interest thereon shall be paid to holders of record of the Preferred Securities
as they appear on the books and records of U S WEST Financing on the record date
next following the termination of such deferral period.
Because the Subordinated Debt Securities are pari passu in right of payment
with the 7.96% Notes and the Debt Guarantee is pari passu in right of payment
with the 7.96% Notes Guarantee, during an Extension Period on the Subordinated
Debt Securities, Capital Funding and U S WEST will be prohibited from making
payments on the 7.96% Notes and the 7.96% Notes Guarantee, respectively, and
during an Extension Period on the 7.96% Notes, Capital Funding and U S WEST will
be prohibited from making payments on the Subordinated Debt Securities and the
Debt Guarantee, respectively.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that U S WEST Financing has funds available for the payment of
such distributions in the Property Account. U S WEST Financing's funds available
for distribution to the holders of the Preferred Securities will be limited to
payments received under the Subordinated Debt Securities and the Debt Guarantee.
See "Description of the Subordinated Debt Securities and the Debt Guarantee."
The payment of distributions out of moneys held by U S WEST Financing is
guaranteed by U S WEST to the extent set forth under "Description of the
Preferred Securities Guarantees" in the accompanying Prospectus.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of U S WEST Financing on the
relevant record dates, which, as long as the Preferred Securities remain in
book-entry only form, will be one Business Day (as defined herein) prior to the
relevant payment dates. Such distributions will be paid through the Property
Trustee, who will hold amounts received in respect of the Subordinated Debt
Securities and the Debt Guarantee in the Property Account for the benefit of the
holders of the Trust Securities. Subject to any applicable laws and regulations
and the provisions of the Declaration, each such payment will be made as
described under "-- Book-Entry Only Issuance -- The Depository Trust Company"
below. In the event the Preferred Securities shall not continue to remain in
book-entry only form, the Regular Trustees shall have the right to select
relevant record dates which shall be more than one Business Day prior to the
relevant payment dates. In the event that any date on which distributions are to
be made on the Preferred Securities is not a Business Day, then payment of the
distributions payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date. A "Business
Day" shall mean any day other than a day on which banking institutions in the
City of New York are authorized or required by law to close.
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MANDATORY REDEMPTION
The Subordinated Debt Securities will mature on October 29, 2036 and may be
redeemed, in whole or in part, at any time on or after October 29, 2001 or at
any time upon the occurrence of a Special Event. Upon the repayment of the
Subordinated Debt Securities, whether at maturity or upon redemption, the
proceeds from such repayment or payment shall simultaneously be applied to
redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Subordinated Debt Securities so repaid or
redeemed at the Redemption Price; provided that holders of Trust Securities
shall be given not less than 30 nor more than 60 days notice of such redemption.
See "Description of the Subordinated Debt Securities and the Debt Guarantee." In
the event that fewer than all of the outstanding Preferred Securities are to be
redeemed, the Preferred Securities will be redeemed PRO RATA as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company" below.
SPECIAL EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
to the effect that, as a result of (a) any amendment to, or change (including
any announced prospective change) in, the laws (or any regulations thereunder)
of the United States or any political subdivision or taxing authority thereof or
therein or (b) any amendment to, or change in, an interpretation or application
of such laws or regulations, there is more than an insubstantial risk that (i) U
S WEST Financing would be subject to United States federal income tax with
respect to income accrued or received on the Subordinated Debt Securities, (ii)
interest payable to U S WEST Financing on the Subordinated Debt Securities would
not be deductible by Capital Funding for United States federal income tax
purposes or (iii) U S WEST Financing would be subject to more than a DE MINIMIS
amount of other taxes, duties or other governmental charges, which change or
amendment becomes effective on or after the date of this Prospectus Supplement.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of a nationally recognized independent counsel to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority (a "Change
in 1940 Act Law"), there is more than an insubstantial risk that U S WEST
Financing is or will be considered an "investment company" which is required to
be registered under the Investment Company Act of 1940, as amended (the "1940
Act"), which Change in 1940 Act Law becomes effective on or after the date of
this Prospectus Supplement.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, Capital Funding
will have the right, upon not less than 30 nor more than 60 days notice, to
redeem the Subordinated Debt Securities in whole or in part for cash within 90
days following the occurrence of such Special Event, and, following such
redemption, Trust Securities with an aggregate liquidation amount equal to the
aggregate principal amount of the Subordinated Debt Securities so redeemed shall
be redeemed by U S WEST Financing at the Redemption Price on a pro rata basis.
DISTRIBUTION OF THE SUBORDINATED DEBT SECURITIES
At any time, U S WEST will have the right to terminate U S WEST Financing
and, after paying or making reasonable provision to pay all claims and
obligations of U S WEST Financing in accordance with the Trust Act, cause the
Subordinated Debt Securities to be distributed to the holders of the Preferred
Securities in liquidation of U S WEST Financing. Under current United States
federal income tax law and interpretation, a distribution of the Subordinated
Debt Securities should not be a taxable event to the holders of the Preferred
Securities. Should there be a change in law, a change in legal interpretation, a
Special Event or other circumstances, however, the distribution could be a
taxable event to the holders of the Preferred Securities. See "United States
Federal Income Taxation -- Receipt of Subordinated Debt Securities or Cash Upon
Liquidation of U S WEST Financing."
If Subordinated Debt Securities, together with the Debt Guarantee, are
distributed to the holders of the Preferred Securities, Capital Funding will use
its best efforts to have the Subordinated Debt Securities listed on the New York
Stock Exchange or on such other exchange as the Preferred Securities are then
listed.
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After the date for any distribution of Subordinated Debt Securities,
together with the Debt Guarantee, upon dissolution of U S WEST Financing, (i)
the Preferred Securities will no longer be deemed to be outstanding, (ii) the
depositary or its nominee, as the record holder of the Preferred Securities,
will receive a registered global certificate or certificates representing the
Subordinated Debt Securities and the Debt Guarantee to be delivered upon such
distribution and (iii) any certificates representing Preferred Securities not
held by the depositary or its nominee will be deemed to represent Subordinated
Debt Securities having an aggregate principal amount equal to the aggregate
stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distribution on, such Preferred Securities, until such certificates are
presented to Capital Funding or its agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debt Securities that may be distributed in
exchange for the Preferred Securities if a dissolution and liquidation of U S
WEST Financing were to occur. Accordingly, the Preferred Securities that an
investor may purchase, or the Subordinated Debt Securities that the investor may
receive on dissolution and liquidation of U S WEST Financing, may trade at a
discount to the price that the investor paid to purchase the Preferred
Securities offered hereby.
REDEMPTION PROCEDURES
U S WEST Financing may not redeem fewer than all of the outstanding
Preferred Securities unless all accrued and unpaid distributions have been paid
on all Preferred Securities for all quarterly distribution periods terminating
on or prior to the date of redemption.
If U S WEST Financing gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, provided that Capital Funding has paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Subordinated Debt Securities, U S WEST Financing
will irrevocably deposit with the depositary funds sufficient to pay the
applicable Redemption Price and will give the Depositary irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Preferred Securities. See "-- Book-Entry Only Issuance -- The Depository Trust
Company." If notice of redemption shall have been given and funds deposited as
required, then immediately prior to the close of business on the date of such
deposit, distributions will cease to accrue and all rights of holders of such
Preferred Securities so called for redemption will cease, except the right of
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price. In the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In
the event that payment of the Redemption Price in respect of Preferred
Securities is improperly withheld or refused and not paid either by U S WEST
Financing or by U S WEST pursuant to the Preferred Securities Guarantee,
distributions on such Preferred Securities will continue to accrue, from the
original redemption date to the actual date of payment, in which case the actual
payment date will be considered the date fixed for redemption for purposes of
calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities are
to be redeemed, the Preferred Securities will be redeemed pro rata as described
under "-- Book-Entry Only Issuance -- The Depository Trust Company" below.
Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), U S WEST or its affiliates
may, at any time and from time to time, purchase outstanding Preferred
Securities by tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of U S WEST Financing, the holders of the Preferred
Securities at that time will be entitled to receive out of the
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assets of U S WEST Financing, after paying or making reasonable provision to pay
all claims and obligations of U S WEST Financing in accordance with the Trust
Act, distributions in an amount equal to the aggregate of the stated liquidation
amount of $25 per Preferred Security plus accrued and unpaid distributions
thereon to the date of payment (the "Liquidation Distribution"), unless, in
connection with such liquidation, dissolution, winding-up or termination,
Subordinated Debt Securities in an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Preferred Securities have been distributed on a pro
rata basis to the holders of Preferred Securities after paying or making
reasonable provision to pay all claims and obligations of U S WEST Financing in
accordance with the Trust Act.
If, upon any such dissolution, the Liquidation Distribution can be paid only
in part because U S WEST Financing has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by U S WEST Financing on the Preferred Securities shall be paid on a pro rata
basis. The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the
Preferred Securities, except that if a Declaration Event of Default has occurred
and is continuing, the Preferred Securities shall have a preference over the
Common Securities.
Pursuant to the Declaration, U S WEST Financing shall terminate (i) on
September 30, 2051, the expiration of the term of U S WEST Financing, (ii) upon
the bankruptcy of U S WEST or Capital Funding, (iii) upon the filing of a
certificate of dissolution or its equivalent with respect to U S WEST or Capital
Funding, the filing of a certificate of cancellation with respect to U S WEST
Financing after having obtained (other than in connection with a dissolution of
U S WEST Financing pursuant to clause (iv)) the consent of the holders of at
least 66 2/3% in liquidation amount of the Trust Securities, voting together as
a single class, to file such certificate of cancellation, or the revocation of
the charter of U S WEST or Capital Funding and the expiration of 90 days after
the date of revocation without a reinstatement thereof, (iv) upon the
distribution of the Subordinated Debt Securities, together with the Debt
Guarantee, (v) upon the redemption of all of the Trust Securities or (vi) upon
the entry of a decree of a judicial dissolution of U S WEST, Capital Funding or
U S WEST Financing.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"), provided that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration, and therefore the Indenture.
Upon the occurrence of a Declaration Event of Default, the Property Trustee,
as the sole holder of the Subordinated Debt Securities, will have the right
under the Indenture to declare the principal of and interest on the Subordinated
Debt Securities to be immediately due and payable.
VOTING RIGHTS
Except as provided below, under the Trust Act, the Trust Indenture Act and
under "Description of the Preferred Securities Guarantees -- Modification of the
Preferred Securities Guarantees; Assignment" in the accompanying Prospectus and
as otherwise required by law and the Declaration, the holders of the Preferred
Securities will have no voting rights.
The holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or to direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as the holder
of the Subordinated Debt Securities and Debt Guarantees, to (i) exercise the
remedies available under the Indenture with respect to the Subordinated Debt
Securities and Debt Guarantee, (ii) waive any past Indenture Event of Default
which
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is waivable under Section 6.06 of the Base Indenture (as defined herein), or
(iii) exercise any right to rescind or annul a declaration that the principal of
all the Subordinated Debt Securities shall be due and payable, provided that
where a consent under the Indenture would require the consent of more than a
majority of the holders (a "Super-Majority") affected thereby, only the holders
of at least such Super-Majority of the Preferred Securities may direct the
Property Trustee to give such consent. If the Property Trustee fails to enforce
its rights under the Subordinated Debt Securities or the Debt Guarantee, a
holder of Preferred Securities may institute a legal proceeding directly against
Capital Funding or U S WEST to enforce the Property Trustee's rights under the
Subordinated Debt Securities or the Debt Guarantee, as the case may be, without
first instituting any legal proceeding against the Property Trustee or any other
person or entity, including, in the case of the Debt Guarantee, against Capital
Funding. The Property Trustee shall notify all holders of the Preferred
Securities of any notice of default received from the Debt Trustee with respect
to the Subordinated Debt Securities. Such notice shall state that such Indenture
Event of Default also constitutes a Declaration Event of Default. Except in the
case of directing the time, method and place of conducting a proceeding for a
remedy, the Property Trustee shall not take any action described in clauses (i),
(ii) or (iii) above unless the Property Trustee has obtained an opinion of tax
counsel to the effect that, as a result of such action, U S WEST Financing will
not be classified as other than a grantor trust for United States federal income
tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Debt Securities and the Debt Guarantee, is required under the
Indenture with respect to any amendment, modification or termination of the
Indenture, the Property Trustee shall request the direction of the holders of
the Trust Securities with respect to such amendment, modification or termination
and shall vote with respect to such amendment, modification or termination as
directed by a majority in liquidation amount of the Trust Securities, voting
together as a single class, provided that where a consent under the Indenture
would require the consent of a Super-Majority, the Property Trustee may only
give such consent at the direction of the holders of at least the proportion in
liquidation amount of the Trust Securities which the relevant Super-Majority
represents of the aggregate principal amount of the Subordinated Debt Securities
outstanding. The Property Trustee shall not take any such action in accordance
with the directions of the holders of the Trust Securities unless the Property
Trustee has obtained an opinion of tax counsel to the effect that, as a result
of such action, U S WEST Financing will not be classified as other than a
grantor trust for United States federal income tax purposes.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may be
given at a separate meeting of holders of Preferred Securities convened for such
purpose, at a meeting of all of the holders of Trust Securities or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Preferred
Securities will be required for U S WEST Financing to redeem and cancel
Preferred Securities or distribute Subordinated Debt Securities in accordance
with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities at such time that are owned by U S WEST or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, U S WEST shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
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Holders of the Preferred Securities will have no rights to appoint or remove
the U S WEST Trustees, who may be appointed, removed or replaced solely by U S
WEST, as the direct or indirect holder of all the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be amended or modified if approved and executed by a
majority of the Regular Trustees, provided that if any proposed amendment
provides for, or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or special rights of
the Trust Securities, whether by way of amendment to the Declaration or
otherwise or (ii) the dissolution, winding-up or termination of U S WEST
Financing other than pursuant to the terms of the Declaration, then the holders
of the Trust Securities as a single class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least 66 2/3% in liquidation amount of the Trust
Securities affected thereby, provided that if any amendment or proposal referred
to in clause (i) above would adversely affect only the Preferred Securities or
the Common Securities, then only the affected class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of 66 2/3% in liquidation amount of such class of Trust
Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause U S WEST
Financing to be characterized as other than a grantor trust for purposes of
United States federal income taxation, (ii) reduce or otherwise adversely affect
the powers of the Property Trustee or (iii) cause U S WEST Financing to be
deemed to be an "investment company" which is required to be registered under
the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
U S WEST Financing may not consolidate, amalgamate, merge with or into, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described below. U S WEST Financing may, with the consent of a majority of the
Regular Trustees and without the consent of the holders of the Trust Securities,
consolidate, amalgamate, merge with or into, or be replaced by a trust organized
as such under the laws of any State; provided, that (i) such successor entity
either (x) expressly assumes all of the obligations of U S WEST Financing under
the Trust Securities or (y) substitutes for the Preferred Securities other
securities having substantially the same terms as the Trust Securities (the
"Successor Securities") so long as the Successor Securities rank the same as the
Trust Securities rank with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) Capital Funding expressly
acknowledges a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Subordinated Debt Securities
and U S WEST expressly acknowledges such trustee of such successor entity as the
holder of the Debt Guarantee, (iii) the Preferred Securities or any Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Preferred Securities are then listed, (iv) such
merger, consolidation, amalgamation or replacement does not cause the Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the holders' interest in the new entity), (vi) such successor entity
has a purpose identical to that of U S WEST Financing, (vii) prior to such
merger, consolidation, amalgamation or replacement, U S WEST has received an
opinion of a nationally recognized independent counsel to U S WEST Financing
experienced in such matters to the effect that (A) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), and (B) following such merger,
consolidation, amalgamation or replacement, neither U S WEST Financing nor such
successor entity will be required to register as an investment company under the
1940 Act and (viii) U S WEST guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the Preferred
Securities Guarantee and the guarantee of the Common Securities. Notwithstanding
the foregoing, U S WEST Financing shall not, except with the consent of holders
of 100%
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in liquidation amount of the Trust Securities, consolidate, amalgamate, merge
with or into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger or replacement would cause U S WEST
Financing or the successor entity to be classified as other than a grantor trust
for United States federal income tax purposes.
PREFERRED SECURITIES GUARANTEE
The payment of distributions out of money held by U S WEST Financing, and
payments upon redemption of the Preferred Securities or liquidation of U S WEST
Financing, are guaranteed by U S WEST to the extent described under "Description
of the Preferred Securities Guarantees" in the accompanying Prospectus. The
Preferred Guarantee Trustee will hold the Preferred Securities Guarantee for the
benefit of the holders of the Preferred Securities. The Preferred Securities
Guarantee does not cover payment of distributions when U S WEST Financing does
not have sufficient available funds to pay such distributions. In such event,
the remedy of a holder of Preferred Securities is to direct the Property Trustee
to enforce its rights under the Subordinated Debt Securities and the Debt
Guarantee. See "Description of the Preferred Securities -- Voting Rights."
The following paragraph replaces the paragraph under the heading
"Description of the Preferred Securities Guarantees -- Certain Covenants of U S
WEST" in the accompanying Prospectus.
So long as any Preferred Securities remain outstanding, if there shall have
occurred a Declaration Event of Default or an event of default under the
Preferred Securities Guarantee, then (a) U S WEST shall not (and shall cause
Capital Funding not to) declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase or make a liquidation payment with respect
to, any of its capital stock, including, in the case of U S WEST, the
Communications Stock and the Media Stock, and (b) U S WEST shall not (and shall
cause Capital Funding not to) make any payment of interest, principal or
premium, if any on or repay, repurchase or redeem any debt securities (including
guarantees) issued by U S WEST or Capital Funding which rank pari passu with or
junior to the Subordinated Debt Securities.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Preferred Securities. The Preferred Securities will be issued only as fully
registered securities registered in the name of Cede & Co. (DTC's nominee). One
or more fully registered global Preferred Securities certificates will be
issued, representing in the aggregate the total number of Preferred Securities,
and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in a global Preferred Security.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the DTC
system is also available to others such as securities brokers and dealers, banks
and trust companies that clear through or maintain a custodial relationship with
a Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the Securities
and Exchange Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of
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each actual purchaser of each Preferred Securities ("Beneficial Owner") is in
turn to be recorded on the Direct and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased Preferred Securities. Transfers of ownership interests in the
Preferred Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Preferred
Securities, except in the event that use of the book-entry system for the
Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce pro rata the amount of
the interest of each Direct Participant in the Preferred Securities to be
redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to U S WEST Financing as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Preferred Securities are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by participants to Beneficial Owners will be governed by standing
instructions and customary practices, as in the case with securities held for
the account of customers in bearer form or registered in "street name," and will
be the responsibility of such Participant and not of DTC, U S WEST Financing,
Capital Funding or U S WEST, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of distributions to DTC is the
responsibility of U S WEST Financing, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred Security
will not be entitled to receive physical delivery of Preferred Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to U
S WEST Financing. Under such circumstances, in the event that a successor
securities depository is not obtained, Preferred Securities certificates are
required to be printed and delivered. Additionally, the Regular Trustees (with
the consent of U S WEST) may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary) with respect to the
Preferred Securities. In that event, certificates for the Preferred Securities
will be printed and delivered.
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The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that U S WEST and U S WEST Financing believe to
be reliable, but U S WEST and U S WEST Financing take no responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Property Trustee is under no obligation
to exercise any of the powers vested in it by the Declaration at the request of
any holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Preferred Securities will not be required to offer such
indemnity in the event such holders, by exercising their voting rights, direct
the Property Trustee to take any action following a Declaration Event of
Default.
U S WEST and certain of its affiliates maintain a deposit account and
banking relationship with the Property Trustee. The Property Trustee serves as
trustee under the Preferred Securities Guarantee. The Property Trustee also
serves as trustee under other indentures pursuant to which unsecured debt
securities of affiliates of U S WEST are outstanding.
REGISTRAR AND TRANSFER AGENT
In the event that the Preferred Securities do not remain in book-entry only
form, the following provisions would apply:
The Property Trustee will act as paying agent and may designate an
additional or substitute paying agent at any time.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of U S WEST Financing, but upon payment (with the giving
of such indemnity as U S WEST Financing or U S WEST may require) in respect of
any tax or other government charges which may be imposed in relation to it.
U S WEST Financing will not be required to register or cause to be
registered the transfer of Preferred Securities after such Preferred Securities
have been called for redemption.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate U S WEST
Financing in such a way so that U S WEST Financing will not be deemed to be an
"investment company" required to be registered under the 1940 Act or
characterized for United States federal income tax purposes as other than a
grantor trust. Capital Funding is authorized and directed to conduct its affairs
so that the Subordinated Debt Securities will be treated as indebtedness of
Capital Funding for United States federal income tax purposes. In this
connection, the Regular Trustees and Capital Funding are authorized to take any
action, not inconsistent with applicable law, the certificate of trust of U S
WEST Financing, the Declaration or the certificate of incorporation of Capital
Funding, that each of the Regular Trustees and Capital Funding determines in
their discretion to be necessary or desirable for such purposes, as long as such
action does not adversely affect the interests of the holders of the Preferred
Securities.
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES AND THE DEBT GUARANTEE
Set forth below is a description of the specific terms of the Subordinated
Debt Securities in which U S WEST Financing will invest with the proceeds of the
issuance and sale of the Trust Securities. This description supplements, and to
the extent inconsistent therewith replaces, the description of the general
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terms and provisions of the Subordinated Debt Securities set forth in the
accompanying Prospectus under the caption "Description of the Subordinated Debt
Securities and the Debt Guarantees." The following description does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, the description in the accompanying Prospectus and the Indenture (the "Base
Indenture"), dated as of September 6, 1995, among Capital Funding, U S WEST and
Norwest Bank Minnesota, National Association, as Trustee (the "Debt Trustee"),
as supplemented by a Second Supplemental Indenture, dated as of October 31,
1995, and a Third Supplemental Indenture, dated as of October 24, 1996 (the Base
Indenture, as so supplemented, is hereinafter referred to as the "Indenture"),
the forms of which are filed as an exhibit to the Registration Statement of
which the accompanying Prospectus form a part. Certain capitalized terms used
herein are defined in the Indenture.
At any time, U S WEST will have the right to liquidate U S WEST Financing
and cause Subordinated Debt Securities to be distributed to the holders of Trust
Securities in liquidation of U S WEST Financing. See "Description of the
Preferred Securities -- Distribution of the Subordinated Debt Securities."
If the Subordinated Debt Securities are distributed to the holders of the
Trust Securities, Capital Funding will use its best efforts to have the
Subordinated Debt Securities listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed.
GENERAL
The Subordinated Debt Securities will be issued as unsecured debt under the
Indenture. The Subordinated Debt Securities will be limited in aggregate
principal amount of $494,845,375, such amount being the sum of the aggregate
stated liquidation amount of the Preferred Securities and the capital
contributed by Capital Funding in exchange for the Common Securities (the "U S
WEST Payment").
The Subordinated Debt Securities are not subject to a sinking fund
provision. The entire principal amount of the Subordinated Debt Securities will
mature and become due and payable, together with any accrued and unpaid interest
thereon, including Additional Interest (as defined herein), if any, on October
29, 2036. The Subordinated Debt Securities will be fully and unconditionally
guaranteed on a subordinated basis as to principal, premium, if any, and
interest by U S WEST. See "Description of the Subordinated Debt Securities and
the Debt Guarantees -- Debt Guarantees" in the accompanying Prospectus.
If Subordinated Debt Securities are distributed to holders of the Preferred
Securities in liquidation of such holders' interests in U S WEST Financing, such
Subordinated Debt Securities will initially be issued as a Global Security (as
defined below). As described herein, under certain limited circumstances,
Subordinated Debt Securities may be issued in certificated form in exchange for
a Global Security. See "-- Book-Entry and Settlement." In the event Subordinated
Debt Securities are issued in certificated form, such Subordinated Debt
Securities will be in denominations of $25 and integral multiples thereof and
may be transferred or exchanged at the offices described below. Payments on
Subordinated Debt Securities issued as a Global Security will be made to the
depositary for the Subordinated Debt Securities. In the event Subordinated Debt
Securities are issued in certificated form, principal and interest will be
payable, the transfer of the Subordinated Debt Securities will be registrable
and Subordinated Debt Securities will be exchangeable for Subordinated Debt
Securities of other denominations of a like aggregate principal amount at the
corporate trust office of the Debt Trustee in New York, New York; provided, that
payment of interest may be made at the option of Capital Funding by check mailed
to the address of the persons entitled thereto.
SUBORDINATION
The Indenture provides that the Subordinated Debt Securities are
subordinated and junior in right of payment to all Senior Indebtedness of
Capital Funding and that the Debt Guarantee is subordinated and junior in right
of payment to all Senior Indebtedness of U S WEST. No payment of principal of
(including redemption and sinking fund payments), premium, if any, or interest
on, the Subordinated Debt Securities and no payment under the Debt Guarantee may
be made if any Senior Indebtedness of Capital Funding or U S WEST, as the case
may be, is not paid when due, any applicable grace period with respect to such
default has ended and such default has not been cured or waived or ceased to
exist, or if the maturity of any Senior Indebtedness of Capital Funding or U S
WEST, as the case may be, has been accelerated because of a
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default. Upon any distribution of assets of Capital Funding or U S WEST to
creditors upon any dissolution, winding-up, liquidation or reorganization,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all principal of, premium, if any, and interest due or to
become due on, all Senior Indebtedness of Capital Funding or U S WEST, as the
case may be, must be paid in full before the holders of Subordinated Debt
Securities or the Debt Guarantee are entitled to receive or retain any payment.
The rights of the holders of the Subordinated Debt Securities and the Debt
Guarantee will be subrogated to the rights of the holders of Senior Indebtedness
of Capital Funding or U S WEST, as the case may be, to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Subordinated Debt Securities or the Debt Guarantee, as the case may be, are paid
in full. In addition, the Subordinated Debt Securities and the Debt Guarantee
will rank at least pari passu with all other subordinated debt securities and
debt guarantees initially issued to other U S WEST Trusts or to other trusts,
partnerships or other entities affiliated with U S WEST in connection with an
issuance of securities similar to the Preferred Securities.
The term "Senior Indebtedness" means, with respect to Capital Funding or U S
WEST, (i) the principal, premium, if any, and interest in respect of (a)
indebtedness of such obligor for money borrowed and (b) indebtedness evidenced
by securities, debentures, bonds or other similar instruments issued by such
obligor including, without limitation, in the case of U S WEST, all obligations
under its Liquid Yield Option Notes due 2011; (ii) all capital lease obligations
of such obligor; (iii) all obligations of such obligor issued or assumed as the
deferred purchase price of property, all conditional sale obligations of such
obligor and all obligations of such obligor under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business); (iv) all obligations of such obligor for the reimbursement on any
letter of credit, banker's acceptance, security purchase facility or similar
credit transaction; (v) all obligations of the type referred to in clauses (i)
through (iv) above of other persons for the payment of which such obligor is
responsible or liable as obligor, guarantor or otherwise; and (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of such obligor (whether or
not such obligation is assumed by such obligor), except for (1) any such
indebtedness that is by its terms subordinated to or PARI PASSU with the
Subordinated Debt Securities or the Debt Guarantee, as the case may be, and (2)
any subordinated debt securities and debt guarantees initially issued to other U
S WEST Trusts or to other trusts, partnerships or other entities affiliated with
U S WEST in connection with an issuance of securities similar to the Preferred
Securities, including the 7.96% Notes and the 7.96% Notes Guarantee. Such Senior
Indebtedness shall continue to be Senior Indebtedness and be entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
which may be issued by Capital Funding or U S WEST. The Indenture also does not
limit the aggregate amount of indebtedness which may be issued by U S WEST's
subsidiaries. At June 30, 1996, on a pro forma basis after giving effect to the
consummation of the Continental Merger, the aggregate amount of Senior
Indebtedness of U S WEST and indebtedness of U S WEST's consolidated
subsidiaries was approximately $16 million.
OPTIONAL REDEMPTION
Capital Funding shall have the right to redeem the Subordinated Debt
Securities, in whole or in part, from time to time, on or after October 29,
2001, or at any time upon the occurrence of a Special Event as described under
"Description of the Preferred Securities -- Special Event Redemption," upon not
less than 30 nor more than 60 days' notice, at a redemption price equal to 100%
of the principal amount to be redeemed plus any accrued and unpaid interest,
including Additional Interest, if any, to the redemption date. If a partial
redemption of the Preferred Securities resulting from a partial redemption of
the Subordinated Debt Securities would result in the delisting of the Preferred
Securities, Capital Funding may only redeem the Subordinated Debt Securities in
whole.
INTEREST
Each Subordinated Debt Security shall bear interest at the rate of 8 1/4%
per annum from the original date of issuance, payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each
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year (each, an "Interest Payment Date"), commencing December 31, 1996, to the
person in whose name such Subordinated Debt Security is registered, subject to
certain exceptions, at the close of business on the Business Day next preceding
such Interest Payment Date. In the event the Subordinated Debt Securities shall
not continue to remain in book-entry only form, Capital Funding shall have the
right to select record dates which shall be more than one Business Day prior to
the Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period will be computed on the basis of
the actual number of days elapsed per 30-day month. In the event that any date
on which interest is payable on the Subordinated Debt Securities is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
OPTIONS TO EXTEND INTEREST PAYMENT PERIOD
Capital Funding shall have the right at any time, and from time to time,
during the term of the Subordinated Debt Securities to defer payments of
interest by extending the interest payment period for a period not exceeding 20
consecutive quarters, at the end of which Extension Period, Capital Funding
shall pay all interest then accrued and unpaid (including any Additional
Interest (as defined herein)) (together with interest thereon at the rate
specified for the Subordinated Debt Securities to the extent permitted by
applicable law); provided, that, during any such Extension Period, (a) U S WEST
and Capital Funding shall not declare or pay any dividend or, make any
distributions with respect to, or redeem, purchase or make a liquidation payment
with respect to, any of its capital stock, including, in the case of U S WEST,
the Communications Stock and the Media Stock, and (b) U S WEST and Capital
Funding shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any debt securities (including guarantees) issued
by U S WEST or Capital Funding which rank pari passu with or junior to the
Subordinated Debt Securities, including the 7.96% Notes and the 7.96% Notes
Guarantee; provided, however, that restriction (a) above does not apply to any
stock dividends paid by U S WEST where the dividend stock is the same stock as
that on which the dividend is being paid. Prior to the termination of any such
Extension Period, Capital Funding may further defer payments of interest by
extending the interest payment period, provided that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarters. Upon the termination of any Extension Period and the
payment of all amounts then due, Capital Funding may select a new Extension
Period, subject to the above requirements. No interest during an Extension
Period, except at the end thereof, shall be due and payable. Capital Funding has
no present intention of exercising its rights to defer payments of interest by
extending the interest payment period on the Subordinated Debt Securities. If
the Property Trustee shall be the sole holder of the Subordinated Debt
Securities, Capital Funding shall give the Regular Trustees and the Property
Trustee notice of its selection of such Extension Period one Business Day prior
to the earlier of (i) the date distributions on the Preferred Securities are
payable or (ii) the date the Regular Trustees are required to give notice to the
New York Stock Exchange or other applicable self-regulatory organization or to
holders of the Preferred Securities of the record date or the date such
distribution is payable, but in any event not less than one Business Day prior
to such record date. The Regular Trustees shall give notice of Capital Funding's
selection of such Extension Period to the holders of the Preferred Securities.
If the Property Trustee shall not be the sole holder of the Subordinated Debt
Securities, Capital Funding shall give the holders of the Subordinated Debt
Securities notice of its selection of such Extension Period ten Business Days
prior to the earlier of (i) the Interest Payment Date or (ii) the date Capital
Funding is required to give notice to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Subordinated Debt
Securities of the record or payment date of such related interest payment.
Because the Subordinated Debt Securities are pari passu in right of payment
with the 7.96% Notes and the Debt Guarantee is pari passu in right of payment
with the 7.96% Notes Guarantee, during an Extension Period on the Subordinated
Debt Securities, Capital Funding and U S WEST will be prohibited from making
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payments on the 7.96% Notes and the 7.96% Notes Guarantee, respectively, and
during an Extension Period on the 7.96% Notes, Capital Funding and U S WEST will
be prohibited from making payments on the Subordinated Debt Securities and the
Debt Guarantee, respectively.
ADDITIONAL INTEREST
If at any time U S WEST Financing shall be required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any such case, Capital Funding will pay as additional interest
("Additional Interest") such additional amounts as shall be required so that the
net amounts received and retained by U S WEST Financing after paying any such
taxes, duties, assessments or other governmental charges will be not less than
the amounts U S WEST Financing would have received had no such taxes, duties,
assessments or other governmental charges been imposed.
INDENTURE EVENTS OF DEFAULT
In case any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Subordinated Debt Securities, will have
the right to declare the principal of and the interest on the Subordinated Debt
Securities (including any Additional Interest, if any) and any other amounts
payable under the Indenture to be forthwith due and payable and to enforce its
other rights as a creditor with respect to the Subordinated Debt Securities. See
"Description of the Subordinated Debt Securities and the Debt Guarantees --
Events of Default" in the accompanying Prospectus for a description of the
Events of Default. An Indenture Event of Default also constitutes a Declaration
Event of Default. The holders of Preferred Securities in certain circumstances
have the right to direct the Property Trustee to exercise its rights as the
holder of the Subordinated Debt Securities and the Debt Guarantee. See
"Description of the Preferred Securities -- Declaration Events of Default" and
"-- Voting Rights."
CERTAIN COVENANTS
The following paragraphs replace the paragraphs under the heading
"Description of the Subordinated Debt Securities and the Debt Guarantees --
Certain Covenants" in the accompanying prospectus.
If (i) there shall have occurred any event that would constitute an
Indenture Event of Default or (ii) U S WEST shall be in default with respect to
its payment of any obligations under the Preferred Securities Guarantee or
Common Securities Guarantee, then (a) U S WEST and Capital Funding shall not
declare or pay any dividend on, make any distributions with respect to, or
redeem, purchase or make a liquidation payment with respect to, any of its
capital stock, including, in the case of U S WEST, the Communications Stock and
the Media Stock, and (b) U S WEST and Capital Funding shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by U S WEST or Capital Funding
which rank pari passu with or junior to the Subordinated Debt Securities;
provided, however, that restriction (a) above does not apply to any stock
dividends paid by U S WEST where the dividend stock is the same stock as that on
which the dividend is being paid.
If Capital Funding shall have given notice of its election to defer interest
on the Subordinated Debt Securities by extending the interest payment period as
provided in the Indenture and such period, or any extension thereof, shall be
continuing, then (a) U S WEST and Capital Funding shall not declare or pay any
dividend on, make any distributions with respect to, or redeem, purchase or make
a liquidation payment with respect to, any of its capital stock, including, in
the case of U S WEST, the Communications Stock and the Media Stock, and (b) U S
WEST and Capital Funding shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by U S WEST or Capital Funding which rank pari
passu with or junior to the Subordinated Debt Securities, including the 7.96%
Notes and the 7.96% Notes Guarantee; provided, however, that restriction (a)
above does not apply to any stock dividends paid by U S WEST where the dividend
stock is the same stock as that on which the dividend is being paid.
For so long as the Trust Securities remain outstanding, U S WEST will (i)
directly or indirectly maintain 100% ownership of the Common Securities;
provided, however, that any permitted successor of U S WEST under the Indenture
may succeed to U S WEST's ownership of the Common Securities and (ii) use its
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reasonable efforts to cause U S WEST Financing (a) to remain a statutory
business trust, except in connection with the distribution of the Subordinated
Debt Securities to the holders of Trust Securities in liquidation of U S WEST
Financing, the redemption of all of the Trust Securities or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and (b)
to otherwise continue to be classified as a grantor trust for United States
federal income tax purposes.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
voluntary or involuntary dissolution, winding-up or liquidation of U S WEST
Financing, the Subordinated Debt Securities will be issued in the form of one or
more global certificates (each, a "Global Security") registered in the name of
the depositary or its nominee. Except under the limited circumstances described
below, Subordinated Debt Securities represented by the Global Security will not
be exchangeable for, and will not otherwise be issuable as, Subordinated Debt
Securities in definitive form. The Global Securities described above may not be
transferred except by the depositary to a nominee of the depositary or by a
nominee of the depositary to the depositary or another nominee of the depositary
or to a successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Subordinated Debt
Securities in definitive form and will not be considered the holders (as defined
in the Indenture) thereof for any purpose under the Indenture, and no Global
Security representing Subordinated Debt Securities shall be exchangeable, except
for another Global Security of like denomination and tenor to be registered in
the name of the depositary or its nominee or to a successor depositary or its
nominee. Accordingly, each beneficial owner must rely on the procedures of the
depositary and, if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest, to exercise any rights
of a Holder under the Indenture.
THE DEPOSITARY. If Subordinated Debt Securities are distributed to holders
of Preferred Securities in liquidation of such holders' interests in U S WEST
Financing, DTC will act as securities depositary for the Subordinated Debt
Securities. For a description of DTC and the specific terms of the depository
arrangements, see "Description of the Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company." As of the date of this Prospectus
Supplement, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Preferred Securities apply in all material respects to any debt
obligations represented by one or more Global Securities held by DTC. Capital
Funding may appoint a successor to DTC or any successor depositary in the event
DTC or such successor depositary is unable or unwilling to continue as
depositary.
None of U S WEST, Capital Funding, U S WEST Financing, the Debt Trustee, any
paying agent and any other agent of U S WEST, Capital Funding or the Debt
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Security for such Subordinated Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES. A Global Security shall be
exchangeable for Subordinated Debt Securities registered in the names of persons
other than the depositary or its nominee only if (i) the depositary notifies
Capital Funding that it is unwilling or unable to continue as a depositary for
such Global Security and no successor depositary shall have been appointed, or
if at any time the depositary ceases to be a clearing agency registered under
the Securities Exchange Act of 1934, as amended, at a time when the depositary
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (ii) Capital Funding in its sole
discretion determines that such Global Security shall be so exchangeable or
(iii) there shall have occurred an Event of Default with respect to such
Subordinated Debt
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<PAGE>
Securities. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Subordinated Debt Securities registered in
such names as the depositary shall direct. It is expected that such instructions
will be based upon directions received by the depositary from its Participants
with respect to ownership of beneficial interests in such Global Security.
MISCELLANEOUS
The Indenture will provide that Capital Funding will pay all fees and
expenses related to (i) the offering of the Trust Securities and the
Subordinated Debt Securities, (ii) the organization, maintenance and dissolution
of U S WEST Financing, (iii) the retention of the U S WEST Trustees and (iv) the
enforcement by the Property Trustee of the rights of holders of Preferred
Securities. The payment of such fees and expenses will be fully and
unconditionally guaranteed by U S WEST.
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBT SECURITIES,
THE DEBT GUARANTEE AND THE PREFERRED SECURITIES GUARANTEE
As set forth in the Declaration, the sole purpose of U S WEST Financing is
to issue Trust Securities and invest the proceeds thereof in the Subordinated
Debt Securities.
As long as payments of interest and other payments are made when due on the
Subordinated Debt Securities, such payments will be sufficient to cover
distributions and payments due on the Trust Securities primarily because (i) the
aggregate principal amount of Subordinated Debt Securities will be equal to the
sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and interest and other payment dates on the Subordinated Debt
Securities will match the distribution rate and distribution and other payment
dates for the Preferred Securities; (iii) Capital Funding shall pay for all
costs and expenses of U S WEST Financing; and (iv) the Declaration provides that
the U S WEST Trustees shall not cause or permit U S WEST Financing to, among
other things, engage in any activity that is not consistent with the purposes of
U S WEST Financing.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by U S WEST as and to the extent set forth under
"Description of the Preferred Securities Guarantees" in the accompanying
Prospectus. If Capital Funding does not make interest payments on the
Subordinated Debt Securities purchased by U S WEST Financing and U S WEST does
not make payments under the Debt Guarantee, U S WEST Financing will not have
sufficient funds to pay distributions on the Preferred Securities. The Preferred
Securities Guarantee is a full and unconditional guarantee from the time of its
issuance, but does not apply to any payment of distributions unless and until U
S WEST Financing has sufficient funds for the payment of such distributions.
If Capital Funding fails to make interest or other payments on the
Subordinated Debt Securities when due (taking account of any Extension Period)
and U S WEST fails to make payments under the Debt Guarantee with respect to
such payments due on the Subordinated Debt Securities, the Declaration provides
a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Preferred Securities -- Voting
Rights," may direct the Property Trustee to enforce its rights under the
Subordinated Debt Securities and Debt Guarantee, including proceeding directly
against U S WEST to enforce the Debt Guarantee without first proceeding against
Capital Funding under the Subordinated Debt Securities. If the Property Trustee
fails to enforce its rights under the Subordinated Debt Securities or the Debt
Guarantee, a holder of Preferred Securities may institute a legal proceeding
directly against Capital Funding or U S WEST to enforce the Property Trustee's
rights under the Subordinated Debt Securities or the Debt Guarantee, as the case
may be, without first instituting any legal proceeding against the Property
Trustee or any other person or entity, including, in the case of the Debt
Guarantee, against Capital Funding.
If U S WEST fails to make payments under the Preferred Securities Guarantee,
the Preferred Securities Guarantee provides a mechanism whereby the holders of
the Preferred Securities may direct the Preferred Trustee to enforce its rights
thereunder. If the Preferred Guarantee Trustee fails to enforce the Preferred
Guarantee Securities Guarantee, any holder of Preferred Securities may institute
a legal proceeding directly
S-31
<PAGE>
against U S WEST to enforce the Preferred Guarantee Trustee's rights under the
Preferred Securities Guarantee, without first instituting a legal proceeding
against U S WEST Financing, the Preferred Guarantee Trustee or any other person
or entity.
U S WEST and U S WEST Financing believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by U S WEST of payments due on the Preferred Securities. See
"Description of the Preferred Securities Guarantees -- General" in the
accompanying Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the principal United States federal
income tax consequences of the purchase, ownership and disposition of the
Preferred Securities to a holder that is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized under
the laws of the United States or any state thereof or the District of Columbia
or an estate or trust the income of which is subject to United States federal
income taxation regardless of source (a "U.S. Holder"). This summary does not
address the United States federal income tax consequences to persons other than
U.S. Holders.
This summary is based on the United States federal income tax laws,
regulations and rulings and decisions now in effect, all of which are subject to
change, possibly on a retroactive basis. This summary does not address the tax
consequences applicable to investors that may be subject to special tax rules
such as banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of Preferred
Securities. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the Preferred Securities.
CLASSIFICATION OF U S WEST FINANCING
Upon the issuance of the Preferred Securities, Weil, Gotshal & Manges LLP,
counsel to U S WEST, Capital Funding and U S WEST Financing, will issue its
opinion (the "Tax Opinion") to the effect that, under then current law and
assuming full compliance with the terms of the Indenture and the Declaration
(and certain other documents), and based on certain facts and assumptions
contained in such opinion, U S WEST Financing will be classified, for United
States federal income tax purposes, as a grantor trust and not as an association
taxable as a corporation. In such case, each holder of Preferred Securities will
be treated as owning an undivided beneficial interest in the Subordinated Debt
Securities and each holder will be required to include in its gross income the
items of income realized with respect to its allocable share of those
Subordinated Debt Securities. Investors should be aware that the Tax Opinion
does not address any other issue and is not binding on the Internal Revenue
Service (the "Service") or the courts.
ORIGINAL ISSUE DISCOUNT, PREMIUM AND MARKET DISCOUNT
Final Treasury Regulations issued on June 16, 1996 generally provide that
stated interest on a debt instrument is not "qualified stated interest" and,
therefore, will give rise to original issue discount ("OID") unless such
interest is unconditionally payable in cash or in property (other than debt
instruments of the issuer) at least annually at a single fixed rate. Interest is
considered to be unconditionally payable only if reasonable legal remedies exist
to compel timely payment or the debt instrument otherwise provides terms and
conditions that make the likelihood of late payment (other than late payment
that occurs within a reasonable grace period) or non-payment a "remote
contingency."
Capital Funding has the right, at any time and from time to time during the
term of the Subordinated Debt Securities to defer payments of interest by
extending the interest payment period for a period not exceeding 20 consecutive
quarters. Unless the likelihood of exercise of such right to defer is remote,
the Subordinated Debt Securities would be issued with OID. During any Extension
Period, (a) U S WEST and
S-32
<PAGE>
Capital Funding will not be permitted to declare or pay any dividend on, make
any distributions with respect to, or redeem, purchase or make a liquidation
payment with respect to, any of its capital stock, including, in the case of U S
WEST, the Communications Stock and the Media Stock, and (b) U S WEST and Capital
Funding will not be permitted to make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by U S WEST or Capital Funding which rank pari
passu with or junior to the Subordinated Debt Securities (although restriction
(a) above will not apply to any stock dividends paid by U S WEST where the
dividend stock is the same stock as that on which the dividend is being paid).
See "Description of the Subordinated Debt Securities and the Debt Guarantee --
Option to Extend Interest Payment Period." Capital Funding currently believes
that the adverse impact that the imposition of such restrictions would have on U
S WEST and on the value of the equity securities of U S WEST makes the
likelihood of Capital Funding exercising its right to defer payments of interest
on the Subordinated Debt Securities remote. Accordingly, Capital Funding
believes that the stated interest on the Subordinated Debt Securities should be
considered unconditionally payable for purposes of the OID provisions of the
Internal Revenue Code of 1986, as amended (the "Code") and that the Subordinated
Debt Securities should not be considered to have been issued with OID. There can
be no assurance, however, that the Service will agree with such determination.
Moreover, if, notwithstanding the foregoing, Capital Funding does exercise
its right to defer payments of interest thereon, the Subordinated Debt
Securities will be considered to be retired and reissued for their adjusted
issue price at such time, and the Subordinated Debt Securities thereafter will
be considered to have been issued with OID. In such case, all the interest
payments thereafter payable will be treated as OID. If the payments were treated
as OID (either because Capital Funding exercises the right to defer interest
payments or because the exercise of such right was not remote at the time of
issuance), holders must include that discount in income on an economic accrual
basis before the receipt of cash attributable to the interest, regardless of
their method of tax accounting. The amount of OID that accrues in any quarter
will approximately equal the amount of the interest that accrues in that quarter
at the stated interest rate. In the event that the interest payment period is
extended, holders will accrue OID approximately equal to the amount of the
interest payment due at the end of the extended interest payment period on an
economic accrual basis over the length of the extended interest period.
Corporate holders of Preferred Securities will not be entitled to a
dividends-received deduction with respect to any income earned on the Preferred
Securities.
Holders of Preferred Securities other than a holder who purchased the
Preferred Securities upon original issuance may be considered to have acquired
their undivided interests in the Subordinated Debt Securities with market
discount or acquisition premium, as such phrases are defined for United States
federal income tax purposes. Such holders are advised to consult their tax
advisors as to the income tax consequences of the acquisition, ownership and
disposition of Preferred Securities.
RECEIPT OF SUBORDINATED DEBT SECURITIES OR CASH UPON LIQUIDATION OF U S WEST
FINANCING
As described under "Description of the Preferred Securities -- Distribution
of the Subordinated Debt Securities," Subordinated Debt Securities may be
distributed to holders in exchange for the Preferred Securities and in
liquidation of U S WEST Financing. Under current law, such a distribution would
be treated as a non-taxable event to each holder and each holder would receive
an aggregate tax basis in the Subordinated Debt Securities equal to such
holder's aggregate tax basis in its Preferred Securities. A holder's holding
period in the Subordinated Debt Securities so received in liquidation of U S
WEST Financing would include the period for which the Preferred Securities were
held by such holder.
SALES OF CERTIFICATES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the securities and the
amount realized on the sale (other than with respect to accrued and unpaid
interest which has not yet been included in income, which will be treated as
ordinary income). A holder's adjusted tax basis in the Preferred Securities
generally will be its initial purchase price increased by original issue
discount (if any) previously includible in such holder's gross income to the
date of disposition (and the accrual of market discount, if any, if an election
to accrue market discount in income currently is
S-33
<PAGE>
made) and decreased by payments received on the Preferred Securities. Except to
the extent noted above and subject to the market discount rules of the Code, any
such gain or loss generally will be capital gain or loss.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Subordinated Debt Securities. A holder who uses the accrual method of accounting
for tax purposes (and a cash method holder, if the Subordinated Debt Securities
are deemed to have been issued with OID) and who disposes of his Preferred
Securities between record dates for payments of distributions thereon will be
required to include accrued but unpaid interest on the Subordinated Debt
Securities through the date of disposition in income as ordinary income (i.e.,
interest or, possibly, OID), and to add such amount to his adjusted tax basis in
his pro rata share of the underlying Subordinated Debt Securities deemed
disposed of. To the extent the selling price is less than such holder's adjusted
tax basis (which will include all OID and accrued but unpaid interest), a holder
will recognize a capital loss. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
INFORMATION REPORTING TO HOLDERS
Subject to the qualifications discussed below, income on the Preferred
Securities will be reported to holders on Forms 1099, which forms are expected
to be mailed to holders of Preferred Securities by January 31 following each
calendar year.
U S WEST Financing will be obligated to report annually to Cede & Co., as
holder of record of the Preferred Securities, the interest (or OID) related to
the Subordinated Debt Securities for that year. U S WEST Financing currently
intends to report such information on Form 1099 prior to January 31 following
each calendar year even though U S WEST Financing is not legally required to
report to record holders until April 15 following each calendar year. The
Underwriters have indicated to U S WEST Financing that, to the extent that they
hold Preferred Securities as nominees for beneficial holders, they currently
expect to report to such beneficial holders on Forms 1099 by January 31
following each calendar year. Under current law, holders of Preferred Securities
who hold as nominees for beneficial holders will not have any obligation to
report information regarding the beneficial holders to U S WEST Financing. U S
WEST Financing, moreover, will not have any obligation to report to beneficial
holders who are not also record holders. Thus, beneficial holders of Preferred
Securities who hold their Preferred Securities through the Underwriters will
receive Forms 1099 reflecting the income on their Preferred Securities from such
nominee holders rather than U S WEST Financing.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's federal income tax, provided the required
information is provided to the Service.
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed the Proposed
Legislation, that would, among other things, generally deny corporate issuers a
deduction for interest in respect of certain debt obligations, such as the
Subordinated Debt Securities, issued on or after December 7, 1995. On March 29,
1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and
Means Committee Chairman Bill Archer issued the Joint Statement indicating their
intent that the Proposed Legislation, if adopted by either of the tax-writing
committees of Congress, would have an effective date that is no earlier than the
date of "appropriate Congressional action." Based upon the Joint Statement, if
the Subordinated Debt Securities are issued prior to the date of such
"appropriate Congressional action" with respect to the Proposed Legislation, it
is expected that if the Proposed Legislation were to be enacted, such
legislation would not apply to the Subordinated Debt Securities. There can be no
assurances, however, that the Proposed Legislation, if enacted, will not apply
to the Preferred Securities or that other legislation enacted
S-34
<PAGE>
after the date hereof will not otherwise adversely affect the ability of Capital
Funding to deduct the interest payable on the Subordinated Debt Securities. See
"Description of the Preferred Securities -- Distribution of the Subordinated
Debt Securities."
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
S-35
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), U S WEST Financing has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Dean Witter Reynolds Inc., A.G. Edwards &
Sons, Inc., PaineWebber Incorporated, Prudential Securities Incorporated and
Smith Barney Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase the number of Preferred Securities set forth
opposite its name below. In the Purchase Agreement, the several Underwriters
have agreed, subject to the terms and conditions set forth therein, to purchase
all the Preferred Securities offered hereby if any of the Preferred Securities
are purchased. In the event of default by an Underwriter, the Purchase Agreement
provides that, in certain circumstances, the purchase commitments of the
nondefaulting Underwriters may be increased or the Purchase Agreement may be
terminated.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITER SECURITIES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................................... 2,240,000
Dean Witter Reynolds Inc. ...................................................... 2,240,000
A.G. Edwards & Sons, Inc. ...................................................... 2,240,000
PaineWebber Incorporated........................................................ 2,240,000
Prudential Securities Incorporated.............................................. 2,240,000
Smith Barney Inc. .............................................................. 2,240,000
Robert W. Baird & Co. Incorporated.............................................. 180,000
Bear, Stearns & Co. Inc. ....................................................... 180,000
Alex. Brown & Sons Incorporated................................................. 180,000
Cowen & Company................................................................. 180,000
Dain Bosworth Incorporated...................................................... 180,000
Dillon, Read & Co. Inc. ........................................................ 180,000
Donaldson, Lufkin & Jenrette Securities Corporation............................. 180,000
EVEREN Securities, Inc. ........................................................ 180,000
The Ohio Company................................................................ 180,000
Oppenheimer & Co., Inc. ........................................................ 180,000
Piper Jaffray Inc. ............................................................. 180,000
Raymond James & Associates, Inc. ............................................... 180,000
Tucker Anthony Incorporated..................................................... 180,000
Wheat, First Securities, Inc. .................................................. 180,000
Advest, Inc. ................................................................... 90,000
Artemis Capital Group........................................................... 90,000
J.C. Bradford & Co. ............................................................ 90,000
JW Charles Securities, Inc. .................................................... 90,000
Craigie Incorporated............................................................ 90,000
Crowell, Weedon & Co. .......................................................... 90,000
Davenport & Co. of Virginia, Inc. .............................................. 90,000
D. A. Davidson & Co. ........................................................... 90,000
Fahnestock & Co. Inc. .......................................................... 90,000
Gibraltar Securities Co. ....................................................... 90,000
Gruntal & Co., Incorporated..................................................... 90,000
J.J.B. Hilliard, W. L. Lyons, Inc. ............................................. 90,000
Interstate/Johnson Lane Corporation............................................. 90,000
Janney Montgomery Scott Inc. ................................................... 90,000
Josephthal Lyon & Ross Incorporated............................................. 90,000
Kennedy, Cabot & Co. ........................................................... 90,000
Legg Mason Wood Walker, Incorporated............................................ 90,000
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITER SECURITIES
- -------------------------------------------------------------------------------- ------------
McDonald & Company Securities, Inc. ............................................ 90,000
<S> <C>
McGinn, Smith & Co., Inc. ...................................................... 90,000
Mesirow Financial, Inc. ........................................................ 90,000
Morgan Keegan & Company, Inc. .................................................. 90,000
David A. Noyes & Company........................................................ 90,000
Olde Discount Corporation....................................................... 90,000
Pryor, McClendon, Counts & Co., Inc. ........................................... 90,000
Ragen MacKenzie Incorporated.................................................... 90,000
Rauscher Pierce Refsnes, Inc. .................................................. 90,000
The Robinson-Humphrey Company, Inc. ............................................ 90,000
Roney & Co., LLC................................................................ 90,000
Scott & Stringfellow, Inc. ..................................................... 90,000
Muriel Siebert & Co., Inc. ..................................................... 90,000
Stifel, Nicolaus & Company, Incorporated........................................ 90,000
Stone & Youngberg............................................................... 90,000
Sutro & Co. Incorporated........................................................ 90,000
US Clearing Corp. .............................................................. 90,000
Utendahl Capital Partners, L.P. ................................................ 90,000
Yamaichi International (America), Inc. ......................................... 90,000
------------
Total................................................................. 19,200,000
------------
------------
</TABLE>
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price, as set forth on the cover
page of this Prospectus Supplement, and in part to certain securities dealers at
such price less a concession of $.50 per Preferred Security, provided that such
concession for sales of 10,000 or more Preferred Securities to any single
purchaser will be $.30 per Preferred Security. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $.40 per Preferred
Security to certain brokers and dealers. After the Preferred Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debt Securities of Capital
Funding, the Purchase Agreement provides that Capital Funding will agree to pay
as compensation ("Underwriters' Compensation") for the Underwriters' arranging
the investment therein of such proceeds, an amount in New York Clearing House
(next day) funds of $.7875 per Preferred Security (or $15,120,000 in the
aggregate) for the accounts of the several Underwriters, provided that such
compensation for sales of 10,000 or more Preferred Securities to any single
purchaser will be $.50 per Preferred Security. Therefore, to the extent of such
sales, the actual amount of Underwriter's Compensation will be less than the
aggregate amount specified in the preceding sentence.
During a period of 30 days from the date of the Prospectus Supplement,
neither U S WEST Financing, U S WEST nor Capital Funding will, without the prior
written consent of the Underwriters, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any Preferred
Securities, any security convertible into or exchangeable into or exercisable
for Preferred Securities or any equity securities substantially similar to the
Preferred Securities (except for any series of subordinated debt securities and
the Preferred Securities offered hereby).
The Preferred Securities have been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange. Trading of the Preferred
Securities on the New York Stock Exchange is expected to commence within a 30
day period after the initial delivery of the Preferred Securities. The
Representatives have advised U S WEST Financing that they intend to make a
market in the Preferred Securities prior to the
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<PAGE>
commencement of trading on the New York Stock Exchange. The Representatives will
have no obligation to make a market in the Preferred Securities, however, and
may cease market making activities, if commenced, at any time.
Prior to this offering, there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the New York Stock Exchange, the Underwriters will undertake to
sell lots of 100 or more Preferred Securities to a minimum of 400 beneficial
holders.
U S WEST, Capital Funding and U S WEST Financing have agreed to indemnify
the Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, U S WEST and its subsidiaries in the ordinary
course of business.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of U S WEST Financing by Morris,
Nichols, Arsht & Tunnell, Wilmington, Delaware, special Delaware counsel to U S
WEST Financing. The validity of the Subordinated Debt Securities, the Preferred
Securities Guarantee, the Debt Guarantee and certain matters relating thereto
will be passed upon on behalf of U S WEST and Capital Funding by Weil, Gotshal &
Manges LLP, New York, New York and on behalf of the Underwriters by Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York. Weil, Gotshal & Manges LLP
and Skadden, Arps, Slate, Meagher & Flom will rely on the opinion of Stephen E.
Brilz, Corporate Counsel and Assistant Secretary of U S WEST, as to all matters
of Colorado law. Certain United States federal income taxation matters will be
passed upon for U S WEST, Capital Funding and U S WEST Financing by Weil,
Gotshal & Manges LLP.
EXPERTS
The consolidated financial statements and the consolidated financial
statement schedule of U S WEST, Inc. and the combined financial statements of
the Communications Group and the Media Group as of December 31, 1994 and 1995
and for each of the three years in the period ended December 31, 1995 included
in U S WEST's Annual Report on Form 10-K for the year ended December 31, 1995
are incorporated herein by reference in reliance on the reports of Coopers &
Lybrand L.L.P., independent certified public accountants, given upon the
authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Continental Cablevision, Inc. and
its subsidiaries as of December 31, 1994 and 1995 and for each of the three
years in the period ended December 31, 1995 incorporated by reference herein
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report thereon and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report and
upon the authority of such firm as experts in accounting and auditing.
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<PAGE>
PROSPECTUS [LOGO]
$1,000,000,000
U S WEST CAPITAL FUNDING, INC.
SUBORDINATED DEBT SECURITIES
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF
PRINCIPAL, PREMIUM, IF ANY, AND INTEREST BY
U S WEST, INC.
------------
U S WEST FINANCING I
U S WEST FINANCING II
U S WEST FINANCING III
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
U S WEST, INC.
------------
U S WEST Capital Funding, Inc., a Colorado corporation ("Capital Funding")
and a wholly-owned subsidiary of U S WEST, Inc., a Delaware corporation ("U S
WEST"), may from time to time offer its subordinated debt securities (the
"Subordinated Debt Securities") in one or more series and in amounts, at prices
and on terms to be determined at the time of the offering. The Subordinated Debt
Securities when issued will be unsecured obligations of Capital Funding and will
be fully and unconditionally guaranteed as to payment of principal, premium, if
any, and interest by U S WEST (the "Debt Guarantees"). Capital Funding's
obligations under the Subordinated Debt Securities and U S WEST's obligations
under the Debt Guarantees will be subordinate and junior in right of payment to
certain other indebtedness of Capital Funding and U S WEST, respectively, as may
be described in an accompanying Prospectus Supplement (the "Prospectus
Supplement").
U S WEST Financing I, U S WEST Financing II and U S WEST Financing III
(each, a "U S WEST Trust"), each a statutory business trust formed under the
laws of Delaware, may from time to time offer preferred securities evidencing
undivided beneficial interests in the assets of the respective U S WEST Trust
("Preferred Securities"). The payment of periodic cash distributions
("distributions") with respect to Preferred Securities of each of the U S WEST
Trusts, out of moneys held by each of the U S WEST Trusts, and payments on
liquidation, redemption or otherwise with respect to such Preferred Securities
will be guaranteed by U S WEST to the extent described herein (each, a
"Preferred Securities Guarantee"). U S WEST's obligations under the Preferred
Securities Guarantees will be subordinate and junior in right of payment to all
other liabilities of U S WEST and PARI PASSU with the most senior preferred
stock issued by U S WEST. Subordinated Debt Securities may be issued and sold
from time to time in one or more series by Capital Funding to a U S WEST Trust
in connection with the investment of the proceeds from the offering of Preferred
Securities and Common Securities (as defined herein) of such U S WEST Trust. The
Subordinated Debt Securities subsequently may be distributed pro rata to holders
of Preferred Securities and Common Securities in connection with the dissolution
of such U S WEST Trust upon the occurrence of certain events as may be described
in the Prospectus Supplement.
Specific terms of the particular Subordinated Debt Securities of any series
or the Preferred Securities of any U S WEST Trust in respect of which this
Prospectus is being delivered (the "Offered Securities") will be set forth in
the accompanying Prospectus Supplement with respect to such series of
Subordinated Debt Securities or such Preferred Securities, which will describe,
without limitation and where applicable the following: (i) in the case of
Subordinated Debt Securities, the specific designation, aggregate principal
amount, denomination, maturity, premium, if any, interest rate (or the method of
determining such rate), if any, dates on which premium, if any, and interest, if
any, will be payable, any redemption provisions, any sinking fund provisions,
the initial public offering price, the subordination terms, any listing on a
securities exchange and any other terms and (ii) in the case of Preferred
Securities, the specific designation, number of Preferred Securities,
distribution rate (or the method of determining such rate), dates on which
distributions will be payable, liquidation amount, voting rights (if any), any
redemption provisions, terms for any conversion or exchange into other
securities (if any), the initial public offering price, any listing on a
securities exchange, and any other rights, preferences, privileges, limitations
and restrictions.
The Offered Securities may be offered in amounts, at prices and on terms to
be determined at the time of offering; provided, however, that the aggregate
initial public offering price of all Offered Securities shall not exceed
$1,000,000,000. The Prospectus Supplement relating to any series of Offered
Securities will contain information concerning certain United States federal
income tax considerations, if applicable to the Offered Securities.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF
SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
The date of this Prospectus is October 31, 1995.
<PAGE>
The Offered Securities will be sold directly, through agents, underwriters
or dealers as designated from time to time, or through a combination of such
methods. If agents or any dealers or underwriters are involved in the sale of
the Offered Securities in respect of which this Prospectus is being delivered,
the names of such agents, dealers or underwriters and any applicable commissions
or discounts will be set forth in or may be calculated from the Prospectus
Supplement with respect to such Offered Securities.
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED BY U S
WEST, CAPITAL FUNDING OR ANY OF THE U S WEST TRUSTS TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CAPITAL FUNDING, ANY OF THE U S
WEST TRUSTS OR U S WEST SINCE THE DATE HEREOF.
------------------------
U S WEST was incorporated in 1995 under the laws of the State of Delaware in
order to effect the Recapitalization Plan described herein under "Recent
Development". As part of the Recapitalization Plan, U S WEST changed its state
of incorporation from Colorado to Delaware on November 1, 1995 through the
merger of U S WEST, Inc., a Colorado corporation and U S WEST's, predecessor ("U
S WEST Colorado"), with and into U S WEST, with U S WEST continuing as the
surviving corporation. As used herein, unless the context otherwise requires,
references to "U S WEST" shall refer to U S WEST and U S WEST Colorado, its
Colorado predecessor.
AVAILABLE INFORMATION
U S WEST is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information concerning U S WEST can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and
other information concerning U S WEST may also be inspected at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and
the Pacific Stock Exchange, 301 Pine Street, San Francisco, California 94104,
the securities exchanges on which shares of U S WEST's common stock are listed.
Capital Funding, the U S WEST Trusts and U S WEST have filed with the
Commission a registration statement on Form S-3 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") relating
to the Offered Securities under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
No separate financial statements of Capital Funding or any of the U S WEST
Trusts have been included herein. U S WEST does not consider that such financial
statements would be material to holders of the Offered Securities because: (i)
Capital Funding and each U S WEST Trust is a direct or indirect wholly-owned
subsidiary of U S WEST, a reporting company under the Exchange Act, (ii) neither
Capital Funding nor any U S WEST Trust has any independent operations but exists
for the sole purpose of issuing, in the case of Capital Funding, debt securities
guaranteed by U S WEST, and, in the case of the U S WEST Trusts, securities
representing undivided beneficial interests in the assets of the U S WEST Trusts
and investing the proceeds thereof in Subordinated Debt Securities guaranteed by
U S WEST, and (iii) the obligations of Capital Funding under the Subordinated
Debt Securities are fully and unconditionally guaranteed by U S WEST, and the
obligations of each U S WEST Trust under the Trust Securities, to the extent
funds are available therefor, are fully and unconditionally guaranteed by U S
WEST. See "Description of the Preferred Securities Guarantees" and "Description
of the Subordinated Debt Securities and the Debt Guarantees."
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by U S WEST with the
Commission (File No. 1-8611) are incorporated herein by reference: (i) Annual
Report on Form 10-K for the year ended December 31, 1994, and (ii) Current
Reports on Form 8-K dated January 19, 1995, April 10, 1995, April 18, 1995, May
23, 1995 (as amended by Forms 8-K/A filed on July 12, 1995 and August 24, 1995),
June 20, 1995, July 28, 1995, September 22, 1995, September 28, 1995 and October
27, 1995.
All documents filed by U S WEST pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date any such document is filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in a Prospectus Supplement (or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein or therein) modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
U S WEST WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF
THE DOCUMENTS WHICH ARE INCORPORATED BY REFERENCE HEREIN, OTHER THAN EXHIBITS TO
SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
INTO SUCH DOCUMENTS). REQUESTS SHOULD BE DIRECTED TO INVESTOR RELATIONS, U S
WEST, INC., 7800 EAST ORCHARD ROAD, ENGLEWOOD, COLORADO 80111 (TELEPHONE NUMBER
(303) 793-6500).
------------------------
3
<PAGE>
U S WEST CAPITAL FUNDING, INC.
Capital Funding is a wholly-owned subsidiary of U S WEST and was
incorporated under the laws of the State of Colorado in June 1986. Capital
Funding was incorporated for the sole purpose of providing financing to U S WEST
and its affiliates through the issuance of indebtedness guaranteed by U S WEST.
The principal executive offices of Capital Funding are located at 7800 East
Orchard Road, Englewood, Colorado, 80111 (telephone number (303) 793-6500).
THE U S WEST FINANCING TRUSTS
Each of U S WEST Financing I, U S WEST Financing II and U S WEST Financing
III is a statutory business trust formed under Delaware law pursuant to (i) a
separate declaration of trust (each, a "Declaration") executed by U S WEST, as
sponsor for such trust (the "Sponsor") and the U S WEST Trustees (as defined
herein) of such trust and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on March 1, 1995. Each U S WEST Trust exists for the
exclusive purposes of (i) issuing the Preferred Securities and common securities
representing undivided beneficial interests in the assets of such Trust (the
"Common Securities" and, together with the Preferred Securities, the "Trust
Securities"), (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debt Securities and (iii) engaging in only those other activities
necessary or incidental thereto. All of the Common Securities will be directly
or indirectly owned by U S WEST. The Common Securities will rank pari passu, and
payments will be made thereon pro rata, with the Preferred Securities except
that upon an event of default under the Declaration, the rights of the holders
of the Common Securities to payment in respect of distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities. U S WEST will, directly or indirectly,
acquire Common Securities in an aggregate liquidation amount equal to 3% of the
total capital of each U S WEST Trust. Each U S WEST Trust has a term of
approximately 55 years, but may earlier terminate as provided in the
Declaration. Each U S WEST Trust's business and affairs will be conducted by the
trustees (the "U S WEST Trustees") appointed by U S WEST, as the direct or
indirect holder of all the Common Securities. The holder of the Common
Securities will be entitled to appoint, remove or replace any of, or increase or
reduce the number of, the U S WEST Trustees of a U S WEST Trust. The duties and
obligations of such U S WEST Trustees shall be governed by the Declaration of
such U S WEST Trust. A majority of the U S WEST Trustees (the "Regular
Trustees") of each U S WEST Trust will be persons who are employees or officers
of or affiliated with U S WEST. In certain limited circumstances set forth in a
Prospectus Supplement, the holders of a majority of the Preferred Securities
will be entitled to appoint one additional Regular Trustee, who need not be an
employee or officer of or otherwise affiliated with U S WEST. One U S WEST
Trustee of each U S WEST Trust will be a financial institution which will be
unaffiliated with U S WEST and which shall act as property trustee and as
indenture trustee for purposes of the Trust Indenture Act of 1939 (the "Trust
Indenture Act"), pursuant to the terms set forth in a Prospectus Supplement (the
"Property Trustee"). In addition, unless the Property Trustee maintains a
principal place of business in the State of Delaware, and otherwise meets the
requirements of applicable law, one U S WEST Trustee of each U S WEST Trust will
have its principal place of business or reside in the State of Delaware. Capital
Funding will pay all fees and expenses related to the U S WEST Trusts and the
offering of Trust Securities, the payment of which will be guaranteed by U S
WEST. The office of the Delaware Trustee for each U S WEST Trust in the State of
Delaware is 300 King Street, Wilmington, Delaware 19801. The principal place of
business of each U S WEST Trust shall be c/o U S WEST, Inc., 7800 East Orchard
Road, Englewood, Colorado 80111 (telephone number (303) 793-6500).
U S WEST, INC.
U S WEST is a diversified global communications company engaged in the
telecommunications, cable, wireless communications and multimedia content and
services businesses. U S WEST conducts its businesses through two groups: the U
S WEST Communications Group (the "Communications Group") and the U S WEST Media
Group (the "Media Group"). U S WEST has its principal executive offices at 7800
East Orchard Road, Englewood, Colorado 80111 (telephone number (303) 793-6500).
4
<PAGE>
The Communications Group provides telecommunications services to more than
25 million residential and business customers in the states of Arizona,
Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota,
Oregon, South Dakota, Utah, Washington and Wyoming (collectively, the
"Communications Group Region"). Such services include local telephone services,
exchange access services and certain long distance services, as well as various
new services, including Caller ID, voice messaging and high-speed data
networking services. The Communications Group also provides customer premise
equipment and certain communications services to business customers and
governmental agencies both inside and outside the Communications Group Region.
The Media Group is comprised of (i) cable and telecommunications network
businesses outside the Communications Group Region and internationally, (ii)
domestic and international wireless communications network businesses and (iii)
domestic and international multimedia content and services businesses. The Media
Group's cable and telecommunications businesses include domestic cable and
telecommunications businesses and investments outside of the Communications
Group Region, including U S WEST's cable systems in the Atlanta, Georgia
metropolitan area and its interest in Time Warner Entertainment Company, L.P,
and international cable and telecommunications investments, including U S WEST's
interest in TeleWest plc, the largest provider of combined cable and
telecommunications services in the United Kingdom. The Media Group provides
domestic wireless communications products and services, including cellular
services, to a rapidly growing customer base. U S WEST and AirTouch
Communications, Inc. have combined their domestic cellular properties to create
the third largest cellular company in the United States. The Media Group also
provides wireless communications services internationally through Mercury
One-2-One, the world's first Personal Communications Service, in the United
Kingdom. The Media Group's multimedia content and services businesses develop
and package content and information services, including telephone directories,
database marketing and other interactive services in domestic and international
markets.
RECENT DEVELOPMENT
On November 1, 1995, U S WEST created two classes of common stock that are
intended to reflect separately the performance of the Communications Group and
the Media Group and changed its state of incorporation from Colorado to Delaware
(the "Recapitalization Plan"). The Recapitalization Plan was effected in
accordance with the terms of an Agreement and Plan of Merger, dated as of August
17, 1995, between U S WEST Colorado and U S WEST pursuant to which (i) U S WEST
Colorado was merged with and into U S WEST, with U S WEST continuing as the
surviving corporation and (ii) each outstanding share of Common Stock, without
par value, of U S WEST Colorado was converted into one share of U S WEST
Communications Group Common Stock, par value $.01 per share, of U S WEST, which
is intended to reflect separately the performance of the Communications Group,
and one share of U S WEST Media Group Common Stock, par value $.01 per share, of
U S WEST, which is intended to reflect separately the performance of the Media
Group.
The Recapitalization Plan was approved by U S WEST Colorado's shareholders
at a special meeting held on October 31, 1995. Implementation of the
Recapitalization Plan has not resulted in the transfer of any assets from U S
WEST or any of its subsidiaries or altered the legal nature of U S WEST's
obligations to its creditors, including its obligations under the Debt
Guarantees or the Preferred Securities Guarantees. Creditors of U S WEST,
including the holders of Preferred Securities and Subordinated Debt Securities,
will continue to benefit from the cash flow of the subsidiaries comprising both
the Communications Group and the Media Group, subject to the satisfaction of
obligations by such subsidiaries. The Recapitalization Plan is not expected to
have any adverse impact on U S WEST's credit rating.
5
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges from
continuing operations of U S WEST for the periods indicated. For the purpose of
calculating this ratio, earnings consist of income before income taxes and fixed
charges. Fixed charges include interest on indebtedness (excluding discontinued
operations) and the portion of rentals representative of the interest factor.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
4.07 3.11 3.85 2.38 4.85 4.98 4.09
</TABLE>
USE OF PROCEEDS
Each U S WEST Trust will invest all proceeds received from the sale of its
Trust Securities in Subordinated Debt Securities.
Unless otherwise specified in the Prospectus Supplement, Capital Funding
will apply the net proceeds from the sale of the Subordinated Debt Securities to
its general funds to be used for loans to U S WEST and affiliates of U S WEST,
which will in turn use the funds for general corporate purposes, including the
reduction of short-term and long-term borrowings and other business
opportunities.
DESCRIPTION OF THE PREFERRED SECURITIES
Each U S WEST Trust may issue, from time to time, only one series of
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each U S WEST Trust authorizes the Regular
Trustees of such U S WEST Trust to issue on behalf of such U S WEST Trust one
series of Preferred Securities. The Declaration will be qualified as an
indenture under the Trust Indenture Act. The Preferred Securities will have such
terms, including distributions, redemption, voting, liquidation rights and such
other preferred, deferred or other special rights or such restrictions as shall
be set forth in the Declaration or made part of the Declaration by the Trust
Indenture Act. Reference is made to the Prospectus Supplement relating to the
Preferred Securities of a U S WEST Trust for specific terms, including (i) the
distinctive designation of such Preferred Securities; (ii) the number of
Preferred Securities issued by such U S WEST Trust; (iii) the annual
distribution rate (or method of determining such rate) for Preferred Securities
issued by such U S WEST Trust and the date or dates upon which such
distributions shall be payable; provided, however, that distributions on such
Preferred Securities shall be payable on a quarterly basis to holders of such
Preferred Securities as of a record date in each quarter during which such
Preferred Securities are outstanding; (iv) whether distributions on Preferred
Securities issued by such U S WEST Trust shall be cumulative, and, in the case
of Preferred Securities having such cumulative distribution rights, the date or
dates or method of determining the date or dates from which distributions on
Preferred Securities issued by such U S WEST Trust shall be cumulative; (v) the
amount or amounts which shall be paid out of the assets of such U S WEST Trust
to the holders of Preferred Securities of such U S WEST Trust upon voluntary or
involuntary dissolution, winding-up or termination of such U S WEST Trust; (vi)
the obligation, if any, of such U S WEST Trust to purchase or redeem Preferred
Securities issued by such U S WEST Trust and the price or prices at which, the
period or periods within which, and the terms and conditions upon which,
Preferred Securities issued by such U S WEST Trust shall be purchased or
redeemed, in whole or in part, pursuant to such obligation; (vii) the voting
rights, if any, of Preferred Securities issued by such U S WEST Trust in
addition to those required by law, including the number of votes per Preferred
Security and any requirement for the approval by the holders of Preferred
Securities, or of Preferred Securities issued by one or more U S WEST Trusts, or
of both, as a condition to specified action or amendments to the Declaration of
such U S WEST Trust; and (viii) any other relevant rights, preferences,
privileges, limitations or restrictions of Preferred Securities issued by such U
S WEST Trust not inconsistent with the Declaration of such U S WEST Trust or
with applicable law. All Preferred Securities offered hereby will be guaranteed
by
6
<PAGE>
U S WEST to the extent set forth below under "Description of the Preferred
Securities Guarantees." Any applicable United States federal income tax
considerations applicable to any offering of Preferred Securities will be
described in the Prospectus Supplement relating thereto.
In connection with the issuance of Preferred Securities, each U S WEST Trust
will issue one series of Common Securities. The Declaration of each U S WEST
Trust authorizes the Regular Trustees of such trust to issue on behalf of such U
S WEST Trust one series of Common Securities having such terms including
distributions, redemption, voting, liquidation rights or such restrictions as
shall be set forth therein. The terms of the Common Securities issued by a U S
WEST Trust will be substantially identical to the terms of the Preferred
Securities issued by such trust and the Common Securities will rank pari passu,
and payments will be made thereon pro rata, with the Preferred Securities except
that, upon an event of default under the Declaration, the rights of the holders
of the Common Securities to payment in respect of distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities. Except in certain limited
circumstances, the Common Securities will also carry the right to vote to
appoint, remove or replace any of the U S WEST Trustees of a U S WEST Trust. All
of the Common Securities of a U S WEST Trust will be directly or indirectly
owned by U S WEST.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Set forth below is a summary of information concerning the Preferred
Securities Guarantees which will be executed and delivered by U S WEST for the
benefit of the holders from time to time of Preferred Securities. Each Preferred
Securities Guarantee will be qualified as an indenture under the Trust Indenture
Act. The First National Bank of Chicago will act as indenture trustee under each
Preferred Securities Guarantee (the "Preferred Guarantee Trustee"). The terms of
each Preferred Securities Guarantee will be those set forth in such Preferred
Securities Guarantee and those made part of such Preferred Securities Guarantee
by the Trust Indenture Act. The summary does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its entirety
by reference to, the form of Preferred Securities Guarantee, which is filed as
an exhibit to the Registration Statement of which this Prospectus forms a part,
and the Trust Indenture Act. Each Guarantee will be held by the Preferred
Guarantee Trustee for the benefit of the holders of the Preferred Securities of
the applicable U S WEST Trust.
GENERAL
Pursuant to each Preferred Securities Guarantee, U S WEST will irrevocably
and unconditionally agree, to the extent set forth therein, to pay in full, to
the holders of the Preferred Securities issued by a U S WEST Trust, the
Guarantee Payments (as defined herein) (except to the extent paid by such U S
WEST Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which such U S WEST Trust may have or assert. The following
payments with respect to Preferred Securities issued by a U S WEST Trust, to the
extent not paid by such U S WEST Trust (the "Guarantee Payments"), will be
subject to the Preferred Securities Guarantee thereon (without duplication): (i)
any accrued and unpaid distributions which are required to be paid on such
Preferred Securities, to the extent such U S WEST Trust shall have funds
available therefor, (ii) the redemption price, including all accrued and unpaid
distributions (the "Redemption Price"), to the extent such U S WEST Trust has
funds available therefor with respect to any Preferred Securities called for
redemption by such U S WEST Trust and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of such U S WEST Trust (other than in
connection with the distribution of Subordinated Debt Securities to the holders
of Preferred Securities or the redemption of all of the Preferred Securities),
the lesser of (a) the aggregate of the liquidation amount and all accrued and
unpaid distributions on such Preferred Securities to the date of payment, to the
extent such U S WEST Trust has funds available therefor and (b) the amount of
assets of such U S WEST Trust remaining available for distribution to holders of
such Preferred Securities in liquidation of such U S WEST Trust. U S WEST's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by U S WEST to the holders of Preferred Securities or by
causing the applicable U S WEST Trust to pay such amounts to such holders.
7
<PAGE>
Each Preferred Securities Guarantee will be a full and unconditional
guarantee with respect to the Preferred Securities issued by the applicable U S
WEST Trust from the time of issuance of such Preferred Securities, but will not
apply to any payment of distributions except to the extent such U S WEST Trust
shall have funds available therefor. If Capital Funding does not make interest
payments on the Subordinated Debt Securities purchased by a U S WEST Trust and U
S WEST does not fulfill its obligations under the Debt Guarantee relating to
such Subordinated Debt Securities, such U S WEST Trust will not pay
distributions on the Preferred Securities issued by such U S WEST Trust and will
not have funds available therefor. See "Description of the Subordinated Debt
Securities and the Debt Guarantees -- Certain Covenants."
U S WEST has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the U S WEST Trusts with respect to the Common
Securities (the "Common Securities Guarantees") to the same extent as the
Preferred Securities Guarantee, except that upon an event of default under the
Indenture, holders of Preferred Securities shall have priority over holders of
Common Securities with respect to distributions and payments on liquidation,
redemption or otherwise.
CERTAIN COVENANTS OF U S WEST
In each Preferred Securities Guarantee, U S WEST will covenant that, so long
as any Preferred Securities issued by the applicable U S WEST Trust remain
outstanding, if there shall have occurred any event that would constitute an
event of default under such Preferred Securities Guarantee or the Declaration of
such U S WEST Trust, then (a) U S WEST shall not (and shall cause Capital
Funding and, if it is not a wholly-owned subsidiary of U S WEST, U S WEST
Communications, Inc. not to) declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase or make a liquidation payment
with respect to, any of its capital stock, and (b) U S WEST shall not (and shall
cause Capital Funding not to) make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by U S WEST or Capital Funding which rank pari
passu with or junior to such Subordinated Debt Securities.
MODIFICATION OF THE PREFERRED SECURITIES GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required),
each Preferred Securities Guarantee may be amended only with the prior approval
of the holders of not less than 66 2/3% in liquidation amount of the outstanding
Preferred Securities issued by the applicable U S WEST Trust. The manner of
obtaining any such approval of holders of such Preferred Securities will be as
set forth in an accompanying Prospectus Supplement. All guarantees and
agreements contained in a Preferred Securities Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of U S WEST and
shall inure to the benefit of the holders of the Preferred Securities of the
applicable U S WEST Trust then outstanding.
TERMINATION
Each Preferred Securities Guarantee will terminate as to the Preferred
Securities issued by the applicable U S WEST Trust upon full payment of the
Redemption Price of all Preferred Securities of such U S WEST Trust, upon
distribution of the Subordinated Debt Securities held by such U S WEST Trust to
the holders of the Preferred Securities of such U S WEST Trust or upon full
payment of the amounts payable in accordance with the Declaration of such U S
WEST Trust upon liquidation of such U S WEST Trust. Each Preferred Securities
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Preferred Securities issued by the applicable U
S WEST Trust must restore payment of any sums paid under such Preferred
Securities or such Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
the failure of U S WEST to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
relating to such Preferred Securities Guarantee have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Guarantee Trustee in respect of the such Preferred Securities
Guarantee or to direct the exercise of any trust or power conferred upon the
Preferred Guarantee Trustee
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under such Preferred Securities Guarantee. If the Preferred Guarantee Trustee
fails to enforce such Preferred Securities Guarantee, any holder of Preferred
Securities relating to such Preferred Securities Guarantee may institute a legal
proceeding directly against U S WEST to enforce the Preferred Guarantee
Trustee's rights under such Preferred Securities Guarantee, without first
instituting a legal proceeding against U S WEST, the Preferred Guarantee Trustee
or any other person or entity.
STATUS OF THE PREFERRED SECURITIES GUARANTEES
The Preferred Securities Guarantees will constitute unsecured obligations of
U S WEST and will rank (i) subordinate and junior in right of payment to all
other liabilities of U S WEST, including the Debt Guarantees, (ii) PARI PASSU
with the most senior preferred or preference stock now or hereafter issued by U
S WEST and with any guarantee now or hereafter entered into by U S WEST in
respect of any preferred or preference stock of any affiliate of U S WEST and
(iii) senior to U S WEST's common stock. The terms of the Preferred Securities
provide that each holder of Preferred Securities issued by such U S WEST Trust
by acceptance thereof agrees to the subordination provisions and other terms of
the Preferred Securities Guarantee relating thereto.
The Preferred Securities Guarantees will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to a Preferred Securities Guarantee, undertakes to perform only such
duties as are specifically set forth in such Preferred Securities Guarantee and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Preferred Guarantee Trustee is under no obligation to exercise
any of the powers vested in it by a Preferred Securities Guarantee at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby.
U S WEST and certain of its affiliates maintain a deposit account and
banking relationship with the Preferred Guarantee Trustee. The Preferred
Guarantee Trustee serves as trustee under other indentures pursuant to which
unsecured debt securities of affiliates of U S WEST are outstanding.
GOVERNING LAW
The Preferred Securities Guarantees will be governed by and construed in
accordance with the internal laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES AND THE DEBT GUARANTEES
Subordinated Debt Securities may be issued from time to time in one or more
series under an Indenture, dated as of September 6, 1995 among U S WEST, Capital
Funding and Norwest Bank Minnesota, National Association, as Trustee (the "Debt
Trustee"), as amended by a Supplemental Indenture, dated as of November 1, 1995,
pursuant to which U S WEST assumed the obligations of U S WEST Colorado
thereunder (as so amended, the "Indenture"). The terms of the Subordinated Debt
Securities will include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act. The following summary does
not purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Indenture, which is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part, and the Trust Indenture Act. Whenever particular provisions or defined
terms in the Indenture are referred to herein, such provisions or defined terms
are incorporated by reference herein. Section and Article references used herein
are references to provisions of the Indenture unless otherwise noted.
GENERAL
The Subordinated Debt Securities will be unsecured, subordinated obligations
of Capital Funding. The Indenture does not limit the aggregate principal amount
of Subordinated Debt Securities which may be issued thereunder and provides that
the Subordinated Debt Securities may be issued from time to time in
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one or more series. The Subordinated Debt Securities are issuable in one or more
series pursuant to an indenture supplemental to the Indenture or a resolution of
Capital Funding's Board of Directors or a special committee thereof (each, a
"Supplemental Indenture") (Section 2.01).
In the event Subordinated Debt Securities are issued to a U S WEST Trust or
a trustee of such trust in connection with the issuance of Trust Securities by
such U S WEST Trust, such Subordinated Debt Securities subsequently may be
distributed pro rata to the holders of such Trust Securities in connection with
the dissolution of such U S WEST Trust upon the occurrence of certain events
described in the Prospectus Supplement relating to such Trust Securities. Only
one series of Subordinated Debt Securities will be issued to a U S WEST Trust or
a trustee of such trust in connection with the issuance of Trust Securities by
such U S WEST Trust.
Reference is made to the Prospectus Supplement which will accompany this
Prospectus for the following terms of the series of Subordinated Debt Securities
being offered thereby: (i) the specific title of such Subordinated Debt
Securities; (ii) any limit on the aggregate principal amount of such
Subordinated Debt Securities; (iii) the date or dates on which the principal of
such Subordinated Debt Securities is payable and the right, if any, to extend
such date or dates; (iv) the rate or rates at which such Subordinated Debt
Securities will bear interest or the method of determination of such rate or
rates; (v) the date or dates from which such interest shall accrue, the interest
payment dates on which such interest will be payable or the manner of
determination of such interest payment dates and the record dates for the
determination of holders to whom interest is payable on any such interest
payment dates; (vi) the right, if any, to extend the interest payment periods
and the duration of such extension; (vii) the period or periods within which,
the price or prices at which, and the terms and conditions upon which, such
Subordinated Debt Securities may be redeemed, in whole or in part, at the option
of Capital Funding; (viii) the right and/or obligation, if any, of Capital
Funding to redeem or purchase such Subordinated Debt Securities pursuant to any
sinking fund or analogous provisions or at the option of the holder thereof and
the period or periods for which, the price or prices at which, and the terms and
conditions upon which, such Subordinated Debt Securities shall be redeemed or
purchased, in whole or part, pursuant to such right and/or obligation; (ix) the
terms of subordination; (x) the form of such Subordinated Debt Securities; (xi)
if other than denominations of $25 or any integral multiple thereof, the
denominations in which such Subordinated Debt Securities shall be issuable;
(xii) any and all other terms with respect to such series; and (xiii) whether
such Subordinated Debt Securities are issuable as a global security, and in such
case, the identity of the depositary. (Section 2.01).
The Indenture does not contain any provisions that afford holders of
Subordinated Debt Securities protection in the event of a highly leveraged
transaction involving U S WEST or Capital Funding.
DEBT GUARANTEES
The Indenture provides that U S WEST will fully and unconditionally
guarantee the due and punctual payment of the principal, premium, if any, and
interest on the Subordinated Debt Securities when and as the same shall become
due and payable, whether at maturity, upon redemption or otherwise. (Section
2.12) Since U S WEST is a holding company, the right of U S WEST and, hence, the
right of creditors of U S WEST (including the holders of the Subordinated Debt
Securities) to participate in any distribution of the assets of any subsidiaries
of U S WEST, whether upon liquidation, reorganization, or otherwise, is subject
to prior claims of creditors of the subsidiary, except to the extent that claims
of U S WEST itself as a creditor of a subsidiary may be recognized.
SUBORDINATION
The Subordinated Debt Securities will be subordinated and junior in right of
payment to certain other indebtedness of Capital Funding and the Debt Guarantees
will be subordinated and junior in right of payment to certain other
indebtedness of U S WEST to the extent set forth in the Prospectus Supplement
that will accompany this Prospectus.
CERTAIN COVENANTS
If Subordinated Debt Securities are issued to a U S WEST Trust or a trustee
of such trust in connection with the issuance of Trust Securities by such U S
WEST Trust and (i) there shall have occurred any event that
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would constitute an Event of Default or (ii) U S WEST shall be in default with
respect to its payment of any obligations under the related Preferred Securities
Guarantee or Common Securities Guarantee, then (a) U S WEST and Capital Funding
shall not (and, if it is not a wholly-owned subsidiary of U S WEST, U S WEST
shall cause U S WEST Communications, Inc. not to) declare or pay any dividend
on, make any distributions with respect to, or redeem, purchase or make a
liquidation payment with respect to, any of its capital stock, and (b) U S WEST
and Capital Funding shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by U S WEST or Capital Funding which rank pari
passu with or junior to such Subordinated Debt Securities.
If Subordinated Debt Securities are issued to a U S WEST Trust or a trustee
of such trust in connection with the issuance of Trust Securities by such U S
WEST Trust and Capital Funding shall have given notice of its election to defer
payments of interest on such Subordinated Debt Securities by extending the
interest payment period as provided in the Indenture and such period, or any
extension thereof, shall be continuing, then (a) U S WEST and Capital Funding
shall not (and, if it is not a wholly-owned subsidiary of U S WEST, U S WEST
shall cause U S WEST Communications, Inc. not to) declare or pay any dividend
on, make any distributions with respect to, or redeem, purchase or make a
liquidation payment with respect to, any of its capital stock, and (b) U S WEST
and Capital Funding shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by U S WEST or Capital Funding which rank pari
passu with or junior to such Subordinated Debt Securities.
In the event Subordinated Debt Securities are issued to a U S WEST Trust or
a trustee of such trust in connection with the issuance of Trust Securities of
such U S WEST Trust, for so long as such Trust Securities remain outstanding, U
S WEST will covenant (i) to directly or indirectly maintain 100% ownership of
the Common Securities of such U S WEST Trust; provided, however, that any
permitted successor of U S WEST under the Indenture may succeed to U S WEST's
ownership of such Common Securities, (ii) to use its reasonable efforts to cause
such U S WEST Trust (a) to remain a statutory business trust, except in
connection with the distribution of Subordinated Debt Securities to the holders
of Trust Securities in liquidation of such U S WEST Trust, the redemption of all
of the Trust Securities of such U S WEST Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration of such U
S WEST Trust, and (b) to otherwise continue not to be classified as an
association taxable as a corporation or partnership for United States federal
income tax purposes and (iii) to use its reasonable efforts to cause each holder
of Trust Securities to be treated as owning an undivided beneficial interest in
the Subordinated Debt Securities. (Section 4.07).
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Subordinated Debt Securities of each series will be issued in registered
form and in either certificated form or represented by one or more global
securities. If not represented by one or more global securities, Subordinated
Debt Securities may be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed) or exchange, at the office of the
Debenture Registrar or at the office of any transfer agent designated by Capital
Funding for such purpose with respect to any series of Subordinated Debt
Securities and referred to in an applicable Prospectus Supplement, without
service charge and upon payment of any taxes and other governmental charges as
described in the Indenture. Such transfer or exchange will be effected upon the
Debenture Registrar or such transfer agent, as the case may be, being satisfied
with the documents of title and identity of the person making the request.
Capital Funding has appointed the Debt Trustee as Debenture Registrar with
respect to the Subordinated Debt Securities. (Section 2.05). If a Prospectus
Supplement refers to any transfer agents (in addition to the Debenture
Registrar) initially designated by Capital Funding with respect to any series of
Subordinated Debt Securities, Capital Funding may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that Capital Funding will be
required to maintain a transfer agent in each Place of Payment for such series.
(Section 4.02). Capital Funding may at any time designate additional transfer
agents with respect to any series of Subordinated Debt Securities.
In the event of any redemption in part, Capital Funding shall not be
required to (i) issue, register the transfer of or exchange any Subordinated
Debt Securities during a period beginning at the opening of
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business 15 days before any selection for redemption of Subordinated Debt
Securities of like tenor and of the series of which such Subordinated Debt
Securities are a part, and ending at the close of business on the earliest date
on which the relevant notice of redemption is deemed to have been given to all
holders of Subordinated Debt Securities of like tenor and of such series to be
redeemed and (ii) register the transfer of or exchange any Subordinated Debt
Securities so selected for redemption, in whole or in part, except the
unredeemed portion of any Subordinated Debt Securities being redeemed in part.
(Section 2.05).
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and premium (if any) on any Subordinated Debt Securities will be
made only against surrender to the Paying Agent of such Subordinated Debt
Securities. Unless otherwise indicated in an applicable Prospectus Supplement,
principal of and any premium and interest, if any, on Subordinated Debt
Securities will be payable, subject to any applicable laws and regulations, at
the office of such Paying Agent or Paying Agents as Capital Funding may
designate from time to time, except that at the option of Capital Funding
payment of any interest may be made by check mailed to the address of the person
entitled thereto as such address shall appear in the Debenture Register with
respect to such Subordinated Debt Securities. (Section 4.03). Unless otherwise
indicated in an applicable Prospectus Supplement, payment of interest on a
Subordinated Debt Security on any Interest Payment Date will be made to the
person in whose name such Subordinated Debt Security (or predecessor security)
is registered at the close of business on the Regular Record Date for such
interest payment. (Section 2.03).
Capital Funding will act as Paying Agent with respect to the Subordinated
Debt Securities. Capital Funding may at any time designate additional Paying
Agents or rescind the designation of any Paying Agents or approve a change in
the office through which any Paying Agent acts, except that Capital Funding will
be required to maintain a Paying Agent in each Place of Payment for each series
of the respective Subordinated Debt Securities. (Sections 4.02 and 4.03).
All moneys paid by Capital Funding to a Paying Agent for the payment of the
principal of or premium or interest, if any, on any Subordinated Debt Securities
of any series which remain unclaimed at the end of two years after such
principal, premium, if any, or interest shall have become due and payable will
be repaid to Capital Funding and the holder of such Subordinated Debt Securities
will thereafter look only to Capital Funding for payment thereof. (Section
11.05).
GLOBAL SECURITIES
If any Subordinated Debt Securities of a series are represented by one or
more global securities (each, a "Global Security"), the applicable Prospectus
Supplement will describe the circumstances, if any, under which beneficial
owners of interests in any such Global Security may exchange such interests for
Subordinated Debt Securities of such series and of like tenor and principal
amount in any authorized form and denomination. Principal of and any premium and
interest on a Global Security will be payable in the manner described in the
applicable Prospectus Supplement. (Section 2.11).
The specific terms of the depositary arrangement with respect to any portion
of a series of Subordinated Debt Securities to be represented by a Global
Security will be described in the applicable Prospectus Supplement.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting U S WEST, Capital Funding and
the Debt Trustee, with the consent of the holders of not less than a majority in
principal amount of the Subordinated Debt Securities of each series which are
affected by the modification, to modify the Indenture or any supplemental
indenture affecting that series or the rights of the holders of that series of
Subordinated Debt Securities; provided that no such modification may, without
the consent of the holder of each outstanding Subordinated Debt Security
affected thereby, (i) extend the fixed maturity of any Subordinated Debt
Securities of any series, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce any premium
payable upon the redemption thereof, without the consent of the holder of
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each Subordinated Debt Security so affected or (ii) reduce the percentage of
Subordinated Debt Securities, the holders of which are required to consent to
any such supplemental indenture, without the consent of the holders of each then
outstanding Subordinated Debt Security affected thereby. (Section 9.02).
In addition, U S WEST, Capital Funding and the Debt Trustee may execute,
without the consent of any holder of Subordinated Debt Securities, any
supplemental indenture for certain other usual purposes including the creation
of any new series of Subordinated Debt Securities. (Sections 2.01, 9.01 and
10.01).
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events which has occurred and is continuing constitutes an "Event of Default"
withrespect to each series of Subordinated Debt Securities:
(a) failure for 90 days to pay interest on the Subordinated Debt
Securities of that series, including any Additional Interest in respect
thereof, when due; provided, however, that a valid extension of the interest
payment period by Capital Funding shall not constitute a default in the
payment of interest for this purpose; or
(b) failure to pay principal or premium, if any, on the Subordinated
Debt Securities of that series when due whether at maturity, upon redemption
by declaration or otherwise, or to make any sinking fund payment with
respect to that series; provided, however, that a valid extension of the
maturity of such Subordinated Debt Securities shall not constitute a default
for this purpose; or
(c) failure to observe or perform any other covenant (other than those
specifically relating to another series) contained in the Indenture for 90
days after written notice to Capital Funding from the Debt Trustee or the
holders of at least 25% in principal amount of the outstanding Subordinated
Debt Securities of that series; or
(d) certain events in bankruptcy, insolvency or reorganization of U S
WEST or Capital Funding; or
(e) in the event Subordinated Debt Securities are issued to a U S WEST
Trust or a trustee of such trust in connection with the issuance of Trust
Securities by such U S WEST Trust, the voluntary or involuntary dissolution,
winding-up or termination of such U S WEST Trust, except in connection with
the distribution of Subordinated Debt Securities to the holders of Trust
Securities in liquidation of such U S WEST Trust, the redemption of all of
the Trust Securities of such U S WEST Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration of
such U S WEST Trust. (Section 6.01).
The holders of a majority in aggregate outstanding principal amount of any
series of the Subordinated Debt Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debt Trustee for that series. (Section 6.06). The Debt Trustee or the holders of
not less than 25% in aggregate outstanding principal amount of any particular
series of the Subordinated Debt Securities may declare the principal due and
payable immediately on default with respect to such series, but the holders of a
majority in aggregate outstanding principal amount of such series may annul such
declaration and waive the default with respect to such series if the default has
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration and any applicable premium has been
deposited with the Debt Trustee. (Sections 6.01 and 6.06).
The holders of a majority in aggregate outstanding principal amount of any
series of the Subordinated Debt Securities affected thereby may, on behalf of
the holders of all the Subordinated Debt Securities of such series, waive any
past default, except (i) a default in the payment of principal, premium, if any,
or interest (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration and any applicable premium has been deposited with the Debt
Trustee) or (ii) a default in the covenants described in the first or second
paragraph under "-- Certain Covenants." (Section 6.06).
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CONSOLIDATION, MERGER AND SALE
The Indenture does not contain any covenant which restricts the ability of U
S WEST or Capital Funding to merge or consolidate with or into any other
corporation, sell or convey all or substantially all of its assets to any
person, firm or corporation or otherwise engage in restructuring transactions.
(Section 10.01).
DEFEASANCE AND DISCHARGE
Under the terms of the Indenture, U S WEST and Capital Funding will be
discharged from any and all obligations in respect of the Subordinated Debt
Securities of any series (except in each case for certain obligations to
register the transfer or exchange of Subordinated Debt Securities, replace
stolen, lost or mutilated Subordinated Debt Securities, maintain paying agencies
and hold moneys for payment in trust) if Capital Funding deposits with the Debt
Trustee, in trust, moneys or Government Obligations, in an amount sufficient to
pay all the principal of, and interest on, the Subordinated Debt Securities of
such series on the dates such payments are due in accordance with the terms of
such Subordinated Debt Securities. (Sections 11.01 and 11.02).
GOVERNING LAW
The Indenture, the Subordinated Debt Securities and the Debt Guarantee will
be governed by, and construed in accordance with, the internal laws of the State
of New York. (Section 13.05).
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee, prior to default, undertakes to perform only such duties
as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. (Section 7.01). Subject to such provision,
the Debt Trustee is under no obligation to exercise any of the powers vested in
it by the Indenture at the request of any holder of Subordinated Debt
Securities, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. (Section 7.02).
The Debt Trustee is not required to expand or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if the Debt
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it. (Section 7.01).
U S WEST and certain of its affiliates, including Capital Funding, maintain
a deposit account and banking relationship with the Debt Trustee. The Debt
Trustee serves as trustee under other indentures pursuant to which unsecured
debt securities of U S WEST are outstanding.
MISCELLANEOUS
Capital Funding and U S WEST will have the right at all times to assign any
of their respective rights or obligations under the Indenture to a direct or
indirect wholly-owned subsidiary of U S WEST; provided that, in the event of any
such assignment, Capital Funding and U S WEST, as the case may be, will remain
liable for all of their respective obligations. Subject to the foregoing, the
Indenture will be binding upon and inure to the benefit of the parties thereto
and their respective successors and assigns. The Indenture provides that it may
not otherwise be assigned by the parties thereto. (Section 13.11).
PLAN OF DISTRIBUTION
Capital Funding may sell any series of Subordinated Debt Securities and the
U S WEST Trusts may sell the Preferred Securities being offered hereby in one or
more of the following ways from time to time: (i) to underwriters for resale to
the public or to institutional investors; (ii) directly to institutional
investors; or (iii) through agents to the public or to institutional investors.
The Prospectus Supplement with respect to any Offered Securities will set forth
the terms of the offering of such Offered Securities, including the name or
names of any underwriters or agents, the purchase price of such Offered
Securities and the proceeds to Capital Funding or the applicable U S WEST Trust,
as the case may be, from such sale, any underwriting discounts or agency fees
and other item's constituting underwriters' or agents' compensation, any initial
public offering price, any discounts or concessions allowed or reallowed or paid
to dealers and any securities exchanges on which such Offered Securities may be
listed.
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If underwriters are used in the sale, such Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
Unless otherwise set forth in the Prospectus Supplement, the obligations of
the underwriters to purchase any series of Offered Securities will be subject to
certain conditions precedent and the underwriters will be obligated to purchase
all of such series of Offered Securities, if any are purchased.
Underwriters and agents may be entitled under agreements entered into with U
S WEST, Capital Funding and/or a U S WEST Trust to indemnification by U S WEST,
Capital Funding and/or such U S WEST Trust against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the underwriters or agents may be required to make in respect
thereof. Underwriters and agents may be customers of, engage in transactions
with, or perform services for U S WEST and its affiliates in the ordinary course
of business.
Each series of Offered Securities will be a new issue of securities and will
have no established trading market. Any underwriters to whom Offered Securities
are sold by Capital Funding or by a U S WEST Trust for public offering and sale
may make a market in such Offered Securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. The Offered Securities may or may not be listed on a national securities
exchange.
LEGAL OPINIONS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon for the U S WEST Trusts by Richards, Layton &
Finger, Wilmington, Delaware, special Delaware counsel to the U S WEST Trusts.
The validity of the Preferred Securities Guarantees, Subordinated Debt
Securities and Debt Guarantees will be passed upon by Stephen E. Brilz, Senior
Attorney of U S WEST. Certain matters as to United States federal income
taxation will also be passed upon by Weil, Gotshal & Manges, New York, New York.
EXPERTS
The consolidated financial statements and the consolidated financial
statement schedule included in U S WEST's Annual Report on Form 10-K for the
year ended December 31, 1994 are incorporated herein by reference in reliance on
the reports of Coopers & Lybrand L.L.P., independent certified public
accountants, given upon the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of U S WEST and the combined financial
statements of the U S WEST Communications Group and the U S WEST Media Group as
of December 31, 1993 and 1994 and for each of the three years in the period
ended December 31, 1994 included in the Current Report on Form 8-K of U S WEST,
dated September 28, 1995, are incorporated herein by reference in reliance on
the reports of Coopers & Lybrand L.L.P., independent certified public
accountants, given upon the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of Time Warner Entertainment Company,
L.P. as of December 31, 1994 and 1993 and for each of the three years in the
period ended December 31, 1994, which appear in the Current Report on Form 8-K
of U S WEST, dated May 23, 1995, as amended by Forms 8-K/A filed on July 12,
1995 and August 24, 1995, are incorporated herein by reference in reliance on
the report of Ernst & Young LLP, independent auditors, given upon the authority
of that firm as experts in accounting and auditing.
The financial statements of Mercury Personal Communications (trading as
Mercury One-2-One) as of March 31, 1995, 1994 and 1993 and for each of the three
years in the period ended March 31, 1994, which appear in the Current Report on
Form 8-K of U S WEST, dated May 23, 1995, as amended by Forms 8-K/A filed on
July 12, 1995 and August 24, 1995, are incorporated herein by reference in
reliance on the report of Arthur Andersen LLP, independent chartered
accountants, given upon the authority of that firm as experts in accounting and
auditing.
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The combined financial statements of Georgia Cable Holdings Limited
Partnership and Subsidiary Partnerships as of December 31, 1993 and 1992 and for
each of the years in the two-year period ended December 31, 1993, which appear
in the Current Report on Form 8-K of U S WEST, dated May 23, 1995, as amended by
Forms 8-K/A filed on July 12, 1995 and August 24, 1995, have been incorporated
by reference herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements of Wometco Cable Corp. and
subsidiaries as of December 31, 1993 and 1992 and for each of the years in the
two-year period ended December 31, 1993, which appear in the Current Report on
Form 8-K of U S WEST, dated May 23, 1995, as amended by Forms 8-K/A filed on
July 12, 1995 and August 24, 1995, have been incorporated by reference herein
and in the Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The report on the 1993 consolidated financial statements of Wometco
Cable Corp. and subsidiaries refers to a change in the method of accounting for
income taxes in 1993 to adopt the provisions of Financial Accounting Standards
Board FASB No. 109 -- Accounting for Income Taxes.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY U S WEST, INC., U S WEST FINANCING II OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF U S WEST, INC. OR U S WEST FINANCING II SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Incorporation of Certain Documents by
Reference..................................... S-2
U S WEST, Inc.................................. S-3
U S WEST Capital Funding, Inc.................. S-3
U S WEST Financing II.......................... S-3
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends..................... S-4
Recent Developments............................ S-4
Risk Factors................................... S-6
Summary Historical and Pro Forma Financial
Data.......................................... S-10
Capitalization of U S WEST..................... S-15
Accounting Treatment........................... S-16
Use of Proceeds................................ S-16
Descriptions of the Preferred Securities....... S-16
Description of the Subordinated Debt Securities
and the Debt Guarantee........................ S-25
Effect of Obligations Under the Subordinated
Debt Securities, the Debt Guarantee and the
Preferred Securities Guarantee................ S-31
Certain Federal Income Tax Consequences........ S-32
Underwriting................................... S-36
Legal Matters.................................. S-38
Experts........................................ S-38
<CAPTION>
PROSPECTUS
<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents by
Reference..................................... 3
U S WEST Capital Funding, Inc.................. 4
The U S WEST Financing Trusts.................. 4
U S WEST, Inc.................................. 4
Recent Development............................. 5
Ratio of Earnings to Fixed Charges............. 6
Use of Proceeds................................ 6
Description of the Preferred Securities........ 6
Description of the Preferred Securities
Guarantees.................................... 7
Description of the Subordinated Debt Securities
and the Debt Guarantees....................... 9
Plan of Distribution........................... 14
Legal Opinions................................. 15
Experts........................................ 15
</TABLE>
19,200,000
PREFERRED SECURITIES
[LOGO]
U S WEST FINANCING II
8 1/4% TRUST ORIGINATED
PREFERRED SECURITIES ("TOPRS")
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
U S WEST, INC.
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
OCTOBER 24, 1996
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