<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
LEVEL 3 COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 1221, 4813, 7374 47-0210602
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
----------------
3555 FARNAM STREET, OMAHA, NEBRASKA 68131, (402) 536-3677
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
TERRENCE J. FERGUSON, ESQ.
SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
3555 FARNAM STREET
OMAHA, NEBRASKA 68131
(402) 536-3677
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH A COPY TO:
JOHN S. D'ALIMONTE, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019-6099
(212) 728-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box.[_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE(1) OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/8% Senior Notes Due
2008.................. $2,000,000,000 100% $2,000,000,000 $590,000
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 9, 1998
PROSPECTUS
LEVEL 3 COMMUNICATIONS, INC.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 9 1/8% SENIOR NOTES DUE 2008
FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 9 1/8% SENIOR NOTES DUE 2008
-----------
Level 3 Communications, Inc., a Delaware corporation ("Level 3" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"), to exchange up to $2,000,000,000 in
aggregate principal amount of its 9 1/8% Senior Notes Due 2008 (the "New
Notes") for up to $2,000,000,000 in aggregate principal amount of its
outstanding 9 1/8% Senior Notes Due 2008 (the "Original Notes" and, together
with the New Notes, the "Notes") that were issued in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act").
The terms of the New Notes are substantially identical in all respects to the
terms of the Original Notes for which they may be exchanged pursuant to the
Exchange Offer, except that (i) the offer of the New Notes will have been
registered under the Securities Act and, therefore, the New Notes will be
freely transferable by holders thereof (except as provided below) and not bear
a legend regarding restrictions on transfer, (ii) holders of the New Notes will
not be entitled to certain rights of the holders of the Original Notes under
the Registration Agreement (as defined), which rights with respect to the
Original Notes will terminate on consummation of the Exchange Offer and (iii)
the New Notes will not contain any provisions regarding the payment of Special
Interest (as defined). The New Notes will be issued under the Indenture (as
defined) governing the Original Notes.
Interest on each New Note will accrue from the last interest payment date on
which interest was paid on the Original Note surrendered in exchange therefor
or, if no interest has been paid on such Original Note, from the date of
original issuance of such Original Note. Interest on the Notes will accrue at a
rate of 9 1/8% per annum and will be payable in cash semiannually in arrears on
May 1 and November 1 of each year, commencing November 1, 1998, to the persons
who are registered holders of the Notes at the close of business on the
preceding April 15 or October 15, as the case may be. The Notes will be
redeemable at the option of the Company, in whole or in part, at any time or
from time to time on or after May 1, 2003, upon not less than 30 nor more than
60 days' prior notice, at the redemption prices set forth herein, plus accrued
and unpaid interest thereon, if any, to the redemption date. In addition, at
any time or from time to time prior to May 1, 2001, the Company may redeem up
to 35% of the original aggregate principal amount of the Notes at a redemption
price of 109.125% of the principal amount of the Notes, plus accrued and unpaid
interest thereon, if any, to the redemption date, with the net cash proceeds of
one or more
(Cover continued on following page)
-----------
SEE "RISK FACTORS" ON PAGE 10 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
-----------
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.
-----------
The date of this Prospectus is , 1998
<PAGE>
private placements to persons other than affiliates of the Company or
underwritten public offerings of common stock of the Company resulting in
gross proceeds of at least $100 million in the aggregate. Within 30 days of
the occurrence of a Change of Control Triggering Event (as defined), the
Company will be required to make an Offer to Purchase (as defined) all
outstanding Notes at a purchase price equal to 101% of the principal amount of
the Notes, plus accrued and unpaid interest, if any, to the purchase date.
There can be no assurance that the Company will have the financial resources
necessary to purchase the Notes in such circumstances. See "Description of the
Notes--Optional Redemption" and "--Certain Covenants--Change of Control
Triggering Event."
The Notes will be senior unsecured obligations of the Company, ranking pari
passu in right of payment with all existing and future senior unsecured
indebtedness of the Company, and will be senior in right of payment to all
existing and future indebtedness of the Company expressly subordinated in
right of payment to the Notes. The Notes will be effectively subordinated to
all secured indebtedness of the Company to the extent of the value of the
assets securing such indebtedness. The Company is a holding company that
conducts substantially all its operations through subsidiaries, and the Notes
will be effectively subordinated to all obligations of the Company's
subsidiaries (including trade payables). The Indenture permits the Company and
its subsidiaries to incur substantial amounts of additional debt and other
liabilities, including in connection with the implementation of the Business
Plan (as defined). See "Description of the Notes."
The Original Notes were originally issued and sold on April 28, 1998 in a
transaction exempt from registration under the Securities Act (the "Initial
Offering"). Accordingly, the Original Notes may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The New Notes
are being offered hereunder to satisfy certain obligations of the Company
under the Registration Agreement. Based upon interpretations by the Staff (the
"Staff") of the Securities and Exchange Commission (the "Commission") issued
to third parties, the Company believes that the New Notes issued pursuant to
the Exchange Offer in exchange for the Original Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act, (ii) a broker-dealer who acquired Original Notes
directly from the Company or (iii) a broker-dealer who acquired Original Notes
as a result of market making or other trading activities) without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal accompanying this Prospectus (the
"Letter of Transmittal") states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for
Original Notes where such New Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company
has agreed that, starting on the date of this Prospectus and ending on the
close of business on the day that is 180 days following the date of this
Prospectus, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
The Original Notes and the New Notes constitute new issues of securities
with no established trading market. Any Original Notes not tendered and
accepted in the Exchange Offer will remain outstanding. To the extent that
Original Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered, and tendered but unaccepted, Original Notes could
be adversely affected. Following consummation of the Exchange Offer, the
holders of Original Notes will continue to be subject to the existing
restrictions on transfer thereof and the Company will have no further
obligation to such holders to provide for the registration under the
Securities Act of the Original Notes except under certain limited
circumstances. See "Registration Rights." No assurance can be given as to the
liquidity of the trading market for either the Original Notes or the New
Notes.
The Company will not receive any proceeds from the issuance of New Notes in
the Exchange Offer. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Original Notes being tendered for exchange. The
Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998,
unless extended (the "Expiration Date"). The date of acceptance for exchange
of the Original Notes (the "Exchange Date") will be the first business day
following the Expiration Date, upon surrender of the Original Notes. Original
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date; otherwise such tenders are irrevocable.
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that include, among
others, statements concerning the Business Plan, anticipated growth of the
communications and information services industry, plans to devote significant
management time and capital resources to the Company's business, expectations
as to funding the Company's capital requirements, and other statements of
expectations, beliefs, future plans and strategies, anticipated developments
and other matters that are not historical facts. Management cautions the
reader that these forward-looking statements are subject to risks and
uncertainties, including financial, regulatory environment, industry growth
and trend projections, that could cause actual events or results to differ
materially from those expressed or implied by the statements. The most
important factors that could prevent the Company from achieving its stated
goals include, but are not limited to, failure by the Company to (i) achieve
and sustain profitability based on the creation and implementation of the
Level 3 Network (as defined), (ii) overcome significant early operating
losses, (iii) produce sufficient capital to fund the Business Plan, (iv)
develop financial and management controls, as well as additional controls of
operating expenses as well as other costs, (v) attract and retain qualified
management and other personnel, (vi) install on a timely basis the
switches/routers, fiber optic cable and associated electronics required for
successful implementation of the Business Plan, (vii) negotiate
interconnection agreements, (viii) develop and implement effective internal
processes and systems for processing customer orders and provisioning and (ix)
make acquisitions necessary for the expansion of its networks and services and
the implementation of the Business Plan. For a discussion of certain of these
factors, see "Risk Factors."
----------------
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST TO
LEVEL 3 COMMUNICATIONS, INC., 3555 FARNAM STREET, OMAHA, NEBRASKA 68131,
ATTENTION: VICE PRESIDENT, INVESTOR RELATIONS, (402) 536-3677. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY ,
1998.
(iii)
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere or incorporated by reference
in this Prospectus. Unless the context otherwise requires, references herein to
the "Company" or "Level 3" are to Level 3 Communications, Inc., a Delaware
corporation, and its subsidiaries. Level 3 Communications, Inc. was known as
"Peter Kiewit Sons', Inc." prior to the Split-Off (as defined). See "Business--
History." All Common Stock (as defined) share and per share amounts in this
Prospectus have been adjusted to reflect a dividend of four shares of Common
Stock for each share of Common Stock held, which occurred on December 26, 1997.
See "Risk Factors" for certain factors which prospective participants in the
Exchange Offer should consider prior to tendering Original Notes and
"Information Regarding Forward-Looking Statements" for certain information
relating to statements contained in this Prospectus that are not historical
facts. Capitalized terms used but not defined in this Prospectus have the
meaning given to them in "Glossary of Terms."
THE COMPANY
Level 3 engages in the information services, communications and coal mining
businesses through ownership of operating subsidiaries and substantial equity
positions in public companies. In late 1997, the Company announced a plan (the
"Business Plan") to increase substantially its information services business
and to expand the range of services it offers by building an advanced,
international, facilities-based communications network based on Internet
Protocol ("IP") technology.
The Company was incorporated as Peter Kiewit Sons', Inc. in 1941. In
subsequent years, the Company invested a portion of the cash flow generated by
its construction activities in a variety of other businesses. The Company
entered the coal mining business in 1943, the telecommunications business
(consisting of MFS Communications Company, Inc. ("MFS") and, more recently, an
investment in C-TEC Corporation and its successors RCN Corporation,
Commonwealth Telephone Enterprises, Inc. and Cable Michigan, Inc.) in 1988, the
information services business in 1990 and the alternative energy business,
through CalEnergy Company, Inc., in 1991.
In 1995, the Company distributed to the holders of its Class D Stock (as
defined) all of its shares of MFS. In the seven years from 1988 to 1995, the
Company invested approximately $500 million in MFS; at the time of the
distribution to stockholders in 1995, the Company's holdings in MFS had a
market value of approximately $1.75 billion. In December 1996, MFS was
purchased by WorldCom, Inc. in a transaction valued at $14.3 billion.
On March 31, 1998, the Company separated its construction and mining
management business from its other businesses (the "Split-Off"). In conjunction
with the Split-Off, the Company changed its name from "Peter Kiewit Sons',
Inc." to "Level 3 Communications, Inc."
The Company intends to become a facilities-based provider (that is, a
provider that owns or leases a substantial portion of the plant, property and
equipment necessary to provide its services) of a broad range of integrated
communications services. To reach this goal, the Company plans to expand
substantially the business of its PKS Information Services, Inc. subsidiary
("PKSIS") and to create, through a combination of construction, purchase and
leasing of facilities and other assets, an international, end-to-end,
facilities-based communications network (the "Level 3 Network"). The Company is
designing the Level 3 Network based on IP technology in order to leverage the
efficiencies of this technology to provide lower cost communications services.
The Company believes that, as technology advances, a comprehensive range of
both consumer and business communications services will be provided over
networks, such as the Level 3 Network, utilizing IP technology. These services
will include traditional voice services and fax transmission, as well as other
data services such as Internet access and virtual private networks. The Company
believes this shift has begun, and over time should
1
<PAGE>
accelerate, since IP networks offer: (i) efficient use of network capacity;
(ii) an open protocol which allows for market driven development of new uses
and applications; (iii) the prospect of technological advances that will
address problems currently associated with IP-based applications; and (iv) a
standardized Web browser interface for data and applications that makes it
easier for end users to access and use the resources.
Level 3's Strategy. The Company seeks to capitalize on the benefits of IP
technology by pursuing the Business Plan. Key elements of the Company's
strategy include:
. Deploy an Advanced Network Infrastructure. The Company is creating the
Level 3 Network, an advanced, international, facilities-based
communications network based on IP technology, through a combination of
construction, purchase and lease of network assets. Level 3 is designing
its network to provide high quality communications services at lower cost
and to incorporate more readily future technological improvements
relative to older, less adaptable networks.
. Provide Seamless Interconnection to the PSTN. The Company is developing
technology to allow seamless interconnection of the Level 3 Network with
the public switched telephone network (the "PSTN"). A seamless
interconnection will allow customers to use the Company's IP-based
services, including voice and fax, without modifying existing telephone
and fax equipment or existing dialing procedures (that is, without the
need to dial access codes or follow other similar special procedures).
. Offer a Comprehensive Range of Services. As the Business Plan is
implemented, the Company intends to provide a comprehensive range of
communications services over the Level 3 Network, including private line,
collocation, Web hosting, Internet access, virtual private network and
voice and fax transmission services.
. Accelerate Market Roll-out. In order to begin the implementation of the
Business Plan as rapidly as possible and enable the Company to begin
offering services in late 1998, the Company has leased approximately
8,300 miles of capacity over a new fiber optic network under construction
in North America. This leased line network will be displaced over time by
an intercity network owned by the Company.
. Expand Target Market Opportunities. The Company will use a direct sales
force to address large businesses. In addition, the Company will use
alternative distribution channels to gain access to a substantially
larger base of potential customers than the Company could otherwise
initially address through its direct sales force. Through the combination
of a direct sales force and alternative distribution channels, the
Company believes that it will be able to increase more rapidly revenue-
producing traffic on its network.
. Develop Advanced Business Support Systems. The Company has begun to
develop a substantial, scalable business support system ("BSS")
infrastructure specifically designed to enable the Company to offer
services efficiently to its targeted customers.
. Leverage Existing Information Services Capabilities. The Company intends
to expand its existing capabilities in computer network systems
integration, consulting, outsourcing and software reengineering, with
particular emphasis on the conversion of legacy software systems to
systems that are compatible with IP networks and Web browser access.
. Attract and Motivate High Quality Employees. The Company has developed
programs designed to attract and retain sufficient numbers of employees
with the technical skills necessary to implement the Business Plan. The
programs include the Company's Shareworks program and its Outperform
Stock Option program.
The Level 3 Network. The Company will initially offer its communications
services using local and intercity facilities that are leased from third
parties to enable the Company to offer services during the construction of its
own facilities. Over time, the portion of the Company's network that is owned
by the Company will increase and the portion of the facilities leased will
decrease. Over the next four to six years, the Company's network is expected to
encompass (i) backbone facilities in approximately 40 North American markets,
(ii) leased backbone facilities in approximately 10 additional North American
markets, (iii) an intercity network covering approximately 15,000 miles in
North America, (iv) backbone facilities in approximately 13 European and
4 Asian markets and (v) an intercity network covering approximately 2,000 miles
across Europe.
2
<PAGE>
The Company has recently put in place several key initial elements of the
Business Plan.
. On March 23, 1998, the Company entered into an agreement with Frontier
Communications International Inc. ("Frontier") to lease approximately
8,300 miles of OC-12 network capacity on Frontier's new 13,000 mile fiber
optic network that is under construction.
. On April 2, 1998, the Company announced that it had reached a definitive
agreement with Union Pacific Railroad Company ("Union Pacific") granting
Level 3 the use of approximately 7,800 miles of rights-of-way along Union
Pacific's rail routes for the construction of the Company's North
American intercity network. The Company expects that the Union Pacific
agreement will satisfy substantially all of its anticipated right-of-way
requirements west of the Mississippi River and approximately 50% of the
right-of-way requirements for its North American intercity network.
. On April 23, 1998, the Company acquired XCOM Technologies, Inc. ("XCOM"),
a privately held company that has developed technology which the Company
believes will provide certain key components necessary for the Company to
develop an interface between its IP-based network and the PSTN.
Competitive Advantages. The Company believes that it has the following
competitive advantages that will assist it in implementing the Business Plan:
. Experienced Management Team. Level 3 has assembled a management team that
it believes is well suited to implement the Business Plan. Most of Level
3's senior management were involved in leading the development and
marketing of products offered by other telecommunications companies, the
design, construction and management of intercity and metropolitan
networks as well as the deployment of international networks.
. Opportunity to Create a New Network Infrastructure. Since the Level 3
Network will be newly designed, the Company will be able to design and
deploy a communications network that takes advantage of recent
innovations, contains many features that are not present in older
communications networks and provides flexibility to incorporate future
developments and innovations. For example, Level 3 is designing and will
construct its intercity fiber optic network using multiple conduits. The
Company believes that this will allow it to deploy future technological
innovations in fiber optic cable and expand capacity. In addition, the
Company is maximizing the use of open, non-proprietary interfaces in the
design of its network software and hardware. This approach is intended to
allow lower-cost improvements to these network assets.
. Integrated End-to-End Network Platform. Level 3's strategy is to deploy
network infrastructure in major metropolitan areas and to link these
networks with significant intercity networks in North America and Europe.
The integration of the local and intercity networks will enable the
Company to expand the scope and reach of its "on-net" customer coverage,
as well as facilitate the uniform deployment of technological innovations
as the Company manages its future upgrade paths.
. Development of Advanced Business Support Systems. The Company has begun
to develop a substantial, scalable business support system infrastructure
specifically designed to enable the Company to offer services efficiently
to its targeted customers. The Company believes that it has the
opportunity to develop a competitive advantage relative to traditional
telecommunications companies which often operate extensive legacy
business support systems with compartmentalized architectures that limit
their ability to scale rapidly and introduce enhanced services and
features.
. Systems Integration Capabilities. The Company currently offers computer
outsourcing and systems integration services. The Company believes that
its ability to offer these services, particularly services relating to
allowing a customer's legacy systems to be accessed with Web browsers,
will provide additional opportunities for selling the products and
services to be offered under the Business Plan.
3
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER.......
The Company is offering, upon the terms and subject
to the conditions of the Exchange Offer, to exchange
$1,000 in principal amount of New Notes for each
$1,000 in principal amount of outstanding Original
Notes. The terms of the New Notes are substantially
identical in all respects to the terms of the
Original Notes for which they may be exchanged
pursuant to the Exchange Offer, except that (i) the
offer of the New Notes will have been registered
under the Securities Act and, therefore, the New
Notes will be freely transferable by holders thereof
(except as otherwise described herein) and not bear a
legend regarding restrictions on transfer, (ii)
holders of the New Notes will not be entitled to
certain rights of the holders of the Original Notes
under the Registration Agreement, which rights with
respect to the Original Notes will terminate on
consummation of the Exchange Offer and (iii) the New
Notes will not contain any provisions regarding the
payment of Special Interest.
New Notes issued pursuant to the Exchange Offer in
exchange for the Original Notes may be offered for
resale, resold and otherwise transferred by holders
thereof (other than any holder which is (i) an
"affiliate" of the Company within the meaning of Rule
405 under the Securities Act, (ii) a broker-dealer
who acquired Original Notes directly from the Company
or (iii) broker-dealers who acquired Original Notes
as a result of market making or other trading
activities) without compliance with the registration
and prospectus delivery provisions of the Securities
Act provided that such New Notes are acquired in the
ordinary course of such holders' business and such
holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding
with any person to participate in, a distribution of
such New Notes. Each broker-dealer that receives New
Notes for its own account in exchange for Original
Notes, where such Original Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See
"Plan of Distribution."
MINIMUM CONDITION........ The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Original Notes
being tendered for exchange.
EXPIRATION DATE.......... The Exchange Offer will expire on the Expiration
Date, which is at 5:00 p.m., New York City time, on
, 1998 unless extended.
EXCHANGE DATE............ The first date of acceptance for exchange for the
Original Notes will be the first business day
following the Expiration Date, upon surrender of the
Original Notes.
CONDITIONS TO THE
EXCHANGE OFFER..........
The obligation of the Company to consummate the
Exchange Offer is subject to certain conditions. See
"The Exchange Offer--Conditions to the Exchange
Offer." The Company reserves the right to terminate
or amend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of certain
specified events.
4
<PAGE>
WITHDRAWAL RIGHTS........ Tenders may be withdrawn at any time prior to the
Expiration Date. Any Original Notes not accepted for
any reason will be returned without expense to the
tendering holders thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
PROCEDURES FOR TENDERING
ORIGINAL NOTES..........
See "The Exchange Offer--How to Tender."
FEDERAL INCOME TAX
CONSEQUENCES............
The exchange of Original Notes for New Notes by U.S.
Holders (as defined) will not be a taxable exchange
for federal income tax purposes, and U.S. Holders
should not recognize any taxable gain or loss as a
result of such exchange.
EFFECT ON HOLDERS OF
ORIGINAL NOTES..........
As a result of the making of the Exchange Offer, and
upon acceptance for exchange of all validly tendered
Original Notes pursuant to the terms of the Exchange
Offer, the Company will have fulfilled a covenant
contained in the terms of the Original Notes and the
Registration Agreement, dated April 23, 1998 (the
"Registration Agreement"), among the Company and
Salomon Brothers Inc, Goldman, Sachs & Co., Chase
Securities Inc., J.P. Morgan & Co. and UBS Securities
LLC (collectively, the "Initial Purchasers"), and,
accordingly, the holders of the Original Notes will
have no further registration or other rights under
the Registration Agreement, except under certain
limited circumstances. See "Registration Rights."
Holders of the Original Notes who do not tender their
Original Notes in the Exchange Offer will continue to
hold such Original Notes and will be entitled to all
the rights and limitations applicable thereto under
the Indenture, dated as of April 28, 1998, between
the Company and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee"), relating to the Original
Notes and the New Notes (the "Indenture"). All
untendered, and tendered but unaccepted, Original
Notes will continue to be subject to the restrictions
on transfer provided for in the Original Notes and
the Indenture. To the extent that Original Notes are
tendered and accepted in the Exchange Offer, the
trading market, if any, for the Original Notes could
be adversely affected. See "Risk Factors--
Consequences of Failure to Exchange."
USE OF PROCEEDS.......... The Company will not receive any proceeds from the
issuance of New Notes in the Exchange Offer.
EXCHANGE AGENT........... IBJ Schroder Bank & Trust Company is serving as
exchange agent (the "Exchange Agent") in connection
with the Exchange Offer.
5
<PAGE>
THE NOTES
The Exchange Offer applies to $2,000,000,000 aggregate principal amount of
the Original Notes. The terms of the New Notes are substantially identical in
all respects to the terms of the Original Notes for which they may be exchanged
pursuant to the Exchange Offer, except that (i) the offer of the New Notes will
have been registered under the Securities Act and, therefore, the New Notes
will be freely transferable by holders thereof (except as otherwise described
herein) and not bear a legend regarding restrictions on transfer, (ii) holders
of the New Notes will not be entitled to certain rights of the holders of the
Original Notes under the Registration Agreement, which rights with respect to
the Original Notes will terminate on consummation of the Exchange Offer and
(iii) the New Notes will not contain any provisions regarding the payment of
Special Interest. The New Notes will evidence the same debt as the Original
Notes and will be entitled to the benefits of the Indenture. See "Description
of the Notes."
ISSUER................... Level 3 Communications, Inc.
SECURITIES OFFERED....... $2,000,000,000 aggregate principal amount of 9 1/8%
Senior Notes Due 2008.
MATURITY................. May 1, 2008.
INTEREST................. Interest on each New Note will accrue from the last
interest payment date on which interest was paid on
the Original Note surrendered in exchange therefor
or, if no interest has been paid on such Original
Note, from the date of original issuance of such
Original Note. Interest on the Notes will accrue at
the rate of 9 1/8% per annum from April 28, 1998 or
from the most recent date to which interest has been
paid, and will be payable in cash semiannually in
arrears on May 1 and November 1 of each year,
commencing November 1, 1998, to the persons who are
registered holders of the Notes at the close of
business on the preceding April 15 or October 15, as
the case may be. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day
months.
RANKING.................. The Notes are senior unsecured obligations of the
Company, ranking pari passu in right of payment with
all existing and future senior unsecured indebtedness
of the Company, and will be senior in right of
payment to all existing and future indebtedness of
the Company expressly subordinated in right of
payment to the Notes. The Notes will be effectively
subordinated to all secured indebtedness of the
Company to the extent of the value of the assets
securing such indebtedness. The Company is a holding
company that conducts substantially all its
operations through subsidiaries, and the Notes will
be effectively subordinated to all obligations of the
Company's subsidiaries (including trade payables).
The Indenture permits the Company and its
subsidiaries to incur substantial amounts of
additional debt and other liabilities, including in
connection with the implementation of the Business
Plan. See "Description of the Notes."
OPTIONAL REDEMPTION...... The Notes will be subject to redemption at the option
of the Company, in whole or in part, at any time or
from time to time on or after May 1, 2003, upon not
less than 30 nor more than 60 days' prior notice, at
the redemption prices set forth herein, plus accrued
and unpaid interest thereon (if any) to the
redemption date. In addition, at any time or from
time to time prior to May 1, 2001, the Company may
redeem up to 35%
6
<PAGE>
of the original aggregate principal amount of the
Notes at a redemption price equal to 109.125% of the
principal amount of the Notes so redeemed, plus
accrued and unpaid interest thereon (if any) to the
redemption date, with the net cash proceeds of one or
more private placements to persons other than
affiliates of the Company or underwritten public
offerings of common stock of the Company resulting in
gross proceeds of at least $100 million in the
aggregate; provided that at least 65% of the original
aggregate principal amount of the Notes would remain
outstanding immediately after giving effect to such
redemption. Any such redemption shall be made within
90 days of such private placement or public offering
upon not less than 30 nor more than 60 days' prior
notice. See "Description of the Notes--Optional
Redemption."
CHANGE OF CONTROL
TRIGGERING EVENT........
Within 30 days of the occurrence of a Change of
Control Triggering Event, the Company will be
required to make an Offer to Purchase all outstanding
Notes at a price in cash equal to 101% of the
principal amount of the Notes, plus accrued and
unpaid interest, if any, to the purchase date. See
"Description of the Notes--Certain Covenants--Change
of Control Triggering Event."
CERTAIN COVENANTS........ The Indenture contains certain covenants, including,
among others, covenants with respect to the following
matters: (i) limitation on consolidated debt; (ii)
limitation on debt of restricted subsidiaries;
(iii) limitation on restricted payments; (iv)
limitation on dividend and other payment restrictions
affecting restricted subsidiaries; (v) limitation on
liens; (vi) limitation on sale and leaseback
transactions; (vii) limitation on asset dispositions;
(viii) limitation on issuance and sales of capital
stock of restricted subsidiaries; (ix) transactions
with affiliates; (x) reports; (xi) limitation on
designations of unrestricted subsidiaries; and (xii)
in the case of the Company, limitations on mergers,
consolidations and sales of all or substantially all
of the Company's assets. All of the covenants are
subject to a number of important qualifications and
exceptions. See "Description of the Notes."
REGISTRATION RIGHTS...... Pursuant to the Registration Agreement, the Company
has agreed to use its best efforts to commence the
Exchange Offer or to use best efforts to cause the
Original Notes to be registered under the Securities
Act so as to permit resales. If the Company is not in
compliance with its obligations under the
Registration Agreement, Special Interest (in addition
to the interest otherwise due thereon) will accrue on
the Notes under certain circumstances. If the
Exchange Offer is consummated on the terms and within
the period contemplated by this Prospectus, no
Special Interest will be payable. The New Notes will
not contain any provisions regarding the payment of
Special Interest. See "Registration Rights."
ABSENCE OF A PUBLIC
MARKET FOR THE NOTES....
The Notes are a new issue of securities for which
there is currently no established trading market.
Although the Initial Purchasers have informed
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<PAGE>
the Company that they currently intend to make a
market in the Notes, they are not obligated to do so,
and any such market making may be discontinued at any
time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any
market for any of the Notes. The Company does not
intend to apply for listing of any of the Notes on
any securities exchange or for quotation through The
Nasdaq Stock Market, Inc. See "Risk Factors--Absence
of Public Market."
RISK FACTORS
Prospective participants in the Exchange Offer should carefully consider all
of the information set forth in this Prospectus and, in particular, should
evaluate the specific risk factors set forth under "Risk Factors," beginning on
page 10.
----------------
The Company's principal executive offices are located at 3555 Farnam Street,
Omaha, Nebraska 68131 and its telephone number is (402) 536-3677.
8
<PAGE>
SUMMARY FINANCIAL DATA OF THE COMPANY
The summary financial data presented below as of and for the fiscal years
ended the last Saturday in December of 1993, 1994, 1995, 1996 and 1997 have
been derived from the Company's audited consolidated financial statements, and
the notes related thereto. The summary financial data presented below as of and
for the three months ended March 31, 1997 and 1998 have been derived from the
Company's unaudited financial statements. In the opinion of management, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations as of such dates and for such periods. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and the notes related thereto,
incorporated by reference in this Prospectus. Since the Business Plan
represents a significant expansion of the Company's communications and
information services business, the Company does not believe that the following
information serves as a meaningful indicator of the Company's future financial
condition or results of operations. The Company expects to incur substantial
net operating losses for the foreseeable future, and there can be no assurance
that the Company will be able to achieve or sustain operating profitability in
the future.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FISCAL YEAR ENDED(1)
---------------- ----------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenue.................. $ 87 $ 80 $ 332 $ 652 $ 580 $ 537 $ 267
Earnings (loss) from
continuing operations... (6) 16 83 104 126 28 174
Net earnings(2).......... 926 35 248 221 244 110 261
Other Data:
Ratio of earnings to
fixed charges(3)........ 7.33 10.06 5.73 3.87 -- -- 20.94
Financial Position:
Total assets............. 2,794 2,779 3,066 2,945 4,048 3,236
Current portion of long-
term debt............... 4 3 57 40 30 11
Long-term debt, less
current portion......... 137 137 320 361 899 452
Stockholders' equity..... 2,049 2,230 1,819 1,607 1,736 1,671
</TABLE>
- --------
(1) In October 1993, the Company acquired 35% of the outstanding shares of C-TEC
Corporation ("C-TEC"), which shares entitled the Company to 57% of the
available voting rights of C-TEC. At December 28, 1996, the Company owned
48% of the outstanding shares and 62% of the voting rights of C-TEC. As a
result of the C-TEC restructuring in 1997, the Company owns less than 50% of
the outstanding shares and voting rights of each of the three entities into
which C-TEC was divided, and therefore accounted for each entity using the
equity method in 1997. The Company consolidated C-TEC in its financial
statements from 1993 to 1996. The financial position and results of
operations of the construction and mining businesses of the Company (the
"Construction Group") have been classified as discontinued operations due to
the Split-Off. In September 1995, the Company dividended its investment in
MFS to the holders of the Class D Stock. MFS' results of operations have
been classified as a single line item on the statements of earnings for
1993, 1994 and 1995. MFS was consolidated in the 1993 and 1994 balance
sheets of the Company. In January 1994, MFS issued $500 million of 9.375%
Senior Discount Notes. In September 1997, the Company agreed to sell its
energy segment to CalEnergy Company, Inc. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The transaction
closed on January 2, 1998. Accordingly, the energy segment has been
classified as discontinued operations.
(2) In 1993, two public offerings by MFS resulted in a $137 million after-tax
gain for the Company. In 1994 and 1995, additional MFS stock transactions
resulted in $35 million and $2 million after-tax gains to the Company and
reduced its ownership in MFS to 67% and 66%, respectively. In the first
quarter of 1998, the Company recognized a gain of $608 million equal to the
difference between the carrying value of the Construction Group and its
fair value in accordance with the Financial Accounting Standards Board
Emerging Issues Tax Force Issue 96-4. The Company then reflected the fair
value of the Construction Group as a distribution to the holders of Class C
Stock (as defined).
(3) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of earnings (loss) before income taxes, minority interest
and discontinued operations plus fixed charges excluding capitalized
interest. Fixed charges consist of interest expensed and capitalized, plus
the portion of rent expense under operating leases deemed by the Company to
be representative of the interest factor, plus preferred stock dividends on
preferred stock of MFS. The Company had a deficiency of earnings to fixed
charges of $32 million and $42 million in 1995 and 1994, respectively.
9
<PAGE>
RISK FACTORS
Prospective participants in the Exchange Offer should carefully consider the
following risk factors, as well as other information contained or incorporated
by reference in this Prospectus, before tendering Original Notes for the New
Notes offered hereby. This Prospectus contains statements which constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places
in this Prospectus and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers, primarily
with respect to the future operating performance of the Company. Prospective
participants in the Exchange Offer are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in the
forward-looking statements as a result of various factors. The accompanying
information contained in this Prospectus, including the information set forth
below, identifies important factors that could cause such differences. See
"Information Regarding Forward-Looking Statements."
DEPENDENCE ON NEW BUSINESS PLAN
The ability of the Company to pay the interest on and principal of the Notes
will depend on the success of the Company's new Business Plan. The Business
Plan provides for the creation of the Level 3 Network, which will generate
substantial operating losses and require significant amounts of capital. See
"--Substantial Operating Losses Expected" and "--Substantial Capital
Requirements." The Business Plan is in an early stage of implementation, thus
making an evaluation of its risks and rewards extremely difficult and
speculative. The Business Plan will depend upon a shift in providing
communications services, including traditional voice, fax transmission and
other services, over IP-based networks instead of the PSTN. There can be no
assurance that the Level 3 Network will be able to compete successfully with
the PSTN or other networks as a provider of these services. The Business Plan
also will depend on, among other things, the Company's ability to assess
markets, raise substantial capital, design fiber optic network backbone
routes, install fiber optic cable and facilities (including switches/routers),
obtain rights-of-way, building access rights and any required government
authorizations, franchises and permits, attract customers and identify,
finance and complete suitable acquisitions and, potentially, joint ventures,
all in a timely manner, at reasonable costs and on satisfactory terms and
conditions. In order to manage its growth, the Company will be required to
create complex operating and administrative systems, including effective
systems relating to ordering, provisioning and billing for communications and
information services, and continually improve and upgrade such systems. The
Company must also continue to attract and retain substantial numbers of
qualified managerial, professional and technical personnel. As a result, there
can be no assurance that the Company will be able to implement and manage
successfully its new Business Plan. Since the Business Plan represents a
significant expansion of the Company's communications and information services
business, the Company does not believe that its historical financial results
will serve as a meaningful indicator of the Company's future financial
condition or results of operations.
SUBSTANTIAL OPERATING LOSSES EXPECTED
The development of the Business Plan will require significant capital
expenditures, a substantial portion of which will be incurred before any
significant related revenues from the Business Plan are expected to be
realized. These expenditures, together with the associated early operating
expenses, will result in substantial negative operating cash flow and
substantial net losses for the Company for the foreseeable future. The Company
may never establish a significant customer base for its communications and
information services business, and even if it does establish such a customer
base, there can be no assurance that the Company will not continue to sustain
substantial negative operating cash flow and substantial net losses. There can
be no assurance that the Company will be able to achieve or sustain
profitability in the future or pay the interest on and principal of the Notes.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company's ability to implement the Business Plan and meet its projected
growth is dependent upon its ability to secure substantial additional
financing in the future. The Company expects to meet its additional capital
10
<PAGE>
needs with the proceeds from sales or issuance of equity securities, credit
facilities and other borrowings, or additional debt securities. The Indenture
permits the Company and its subsidiaries to incur substantial amounts of
indebtedness. See "Description of the Notes--Certain Covenants." In addition,
the Company may sell or dispose of existing businesses or investments or sell
or lease fiber optic capacity or access to its conduits to fund portions of
the Business Plan. The Company currently estimates that the implementation of
the Business Plan, as currently contemplated, will require between $8 and $10
billion over the next 10 years. There can be no assurance that the Company
will be successful in producing sufficient cash flow, raising sufficient debt
or equity capital on terms that it will consider acceptable or selling or
leasing fiber optic capacity or access to its conduits, or that proceeds of
dispositions of the Company's assets will reflect the assets' intrinsic value.
Further, there can be no assurance that costs and expenses will not exceed the
Company's estimates or that the financing needed will not likewise be higher
than estimated. Failure to generate sufficient funds may require the Company
to delay or abandon some of its future expansion or expenditures, which could
have a material adverse effect on the implementation of the Business Plan.
There can be no assurance that the Company will be able to obtain such
financing if and when it is needed or that, if available, such financing will
be on terms acceptable to the Company. If the Company is unable to obtain
additional financing when needed, it may be required to scale back
significantly its Business Plan and, depending upon cash flow from its
existing business, reduce the scope of its plans and operations.
Any additional debt financing, if available, may involve restrictive
covenants that address interests different than those of the holders of the
Notes. Further, there can be no assurance that such covenants or the covenants
under the Indenture for the Notes will not adversely affect the Company's
ability to finance its future operations or capital needs or to engage in
other business activities that may be in the interest of the Company. The
Company's financing needs may vary significantly from its current expectations
if it is unable to generate anticipated cash flows or if the Company requires
more funds for capital expenditures than it currently anticipates,
particularly as a result of future network infrastructure installation
requirements. No assurance can be given that the Company's current
expectations regarding its cash needs will prove accurate, and there can be no
assurance that the Company's operations will produce positive cash flow in
sufficient amounts to pay the interest on and principal of the Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIFFICULTIES IN CONSTRUCTING, OPERATING AND UPGRADING THE LEVEL 3 NETWORK
The Company's ability to generate positive cash flows from operations will
depend in large part upon the successful, timely and cost-effective
construction of the Level 3 Network, as well as on attracting customers and
achieving substantial traffic volumes on the Level 3 Network. The construction
of the Level 3 Network will be affected by a variety of uncertainties and
contingencies, including whether the installation of the required fiber optic
cable and associated electronics which make up the Level 3 Network will be
completed in a timely manner. The construction, operation and any upgrading of
the Level 3 Network is a significant undertaking, requiring the deployment of
substantial capital resources. Administrative, technical, operational and
other problems that could arise may be more difficult to address and solve due
to the significant size and complexity of the planned Level 3 Network.
Furthermore, certain technology the Company is developing is largely unproven
and may not be compatible with existing technology. In addition, technical
problems may arise with the Level 3 Network once it is built, including as a
result of increasing traffic volume. Many of these factors and problems are
beyond the Company's control. There can be no assurance that the entire Level
3 Network will be completed as planned for the costs and in the time frame
currently estimated. Although the Company believes that its cost estimates and
the build-out schedule are reasonable, there can be no assurance that the
actual construction costs or time required to complete the Level 3 Network
will not substantially exceed current estimates. In addition, the Company must
generate substantial traffic volume on the Level 3 Network in order to realize
the anticipated cash flow, operating efficiencies and cost benefits of the
Level 3 Network. There can be no assurance that the Company will be able to
achieve such increased traffic volume. See "--Products and Services," "--
Competition; Rapid Technological Changes" and "--Pricing Pressures and
Industry Capacity."
11
<PAGE>
The successful and timely completion of the Level 3 Network will depend,
among other things, upon the Company's ability to manage effectively and cost
efficiently the construction of route segments, obtain additional rights-of-
way, install network connections, interconnections and buildouts and attract
qualified technicians capable of dealing with the Level 3 Network's expected
technologies. Successful construction of the Level 3 Network also will depend
upon the timely performance by suppliers and third-party contractors of their
obligations. There can be no assurance that the Company will successfully
manage construction or acquire the remaining necessary rights-of-way or that
third-party contractors will timely perform their obligations. See "--Need to
Obtain and Maintain Permits and Rights-of-Way" and "--Dependence on
Suppliers."
Any of the foregoing may significantly delay or prevent completion of the
Level 3 Network, which would have a material adverse effect on the Company's
financial condition and results of operations including its ability to pay
interest on and principal of the Notes.
The Company anticipates that even after the completion of the initial stages
of the Level 3 Network, future expansions and adaptations of the network's
infrastructure, including the electronic and software components used therein,
may be necessary in order to respond to growth in the number of customers
served, increased demands to transmit larger amounts of data, changes in its
customers' service requirements and technological advances by competitors. The
expansion and adaptation of the Level 3 Network will require substantial
financial, operational and managerial resources. There can be no assurance
that the Company will be able to expand or adapt the Level 3 Network to meet
the evolving standards, demands and requirements of its customers or advances
of its competitors on a timely basis, at a commercially reasonable cost, if at
all, or that the Company will be able to deploy successfully any expanded and
adapted network infrastructure. Any failure by the Company to expand or adapt
the Level 3 Network to the needs of its customers could have a material
adverse effect on the Company's financial condition and results of operations,
including its ability to pay the interest on and principal of the Notes.
NEED TO DEVELOP VOICE TECHNOLOGY FOR IP NETWORKS
The Company is designing the Level 3 Network to be optimized for IP-based
communications, rather than circuit-switched based communications. While
generally adequate for data transmission needs, existing IP networks usually
are not configured to provide the voice quality, real-time communications
requirements of a traditional telephone call or facsimile. With current
technology, this quality can only be achieved by providing a substantial
cushion of communications capacity. There are also concerns about the
reliability and security of IP-voice networks. Existing voice-over IP services
generally require a combination of substantial capacity and either customized
end-user equipment or the dialing of "access codes" or other special
procedures to initiate a call. Level 3 is in the process of developing
technology to enable it to transmit traffic seamlessly over its own router-
based IP network and the circuit-based PSTN. The Company does not believe that
such technology is currently commercially available. There can be no assurance
that the Company's efforts to develop or acquire (including through licenses)
such technology will be successful, or that if it can develop or acquire such
technology, the Company will be able to do so in a timely manner and at an
acceptable cost. In any event, developing or acquiring such technology may
require significant resources and management attention. Failure by the Company
to develop or acquire such technology in a timely and cost efficient manner
could have a material adverse effect on the Company's business, financial
condition and results of operations, including its ability to pay the interest
on and principal of the Notes. Level 3 believes that the design of its network
should address the other significant issues associated with IP-voice
transmission (latency, reliability and security). See "Business--The Level 3
Network--IP Network and Interconnection." If the Company's assessment of the
adequacy of the solutions for these other issues is incorrect, the Company's
ability to offer IP-voice services will be impaired.
On April 23, 1998 the Company acquired XCOM, a company which has developed
certain technology that may help the Company develop the technology for an
interface between its IP-based network and the PSTN. See "Business--The Level
3 Network--IP Network and Interconnection." There can be no assurance that
this acquisition will serve the purposes contemplated by the Company.
12
<PAGE>
DEVELOPMENT OF EFFECTIVE PROCESSES AND SYSTEMS
The Company and its external vendors are developing processes and systems
for the implementation of customer orders for services, the provisioning,
installation and delivery of such services, monthly billing for those services
and automated internal systems for processing customer orders and
provisioning. As the Business Plan provides for rapid growth in the number and
volume of products and services offered by the Company, such processes and
systems, including the business support system, will need to be developed on a
schedule necessary to support the Company's proposed service offering rollout
dates and will be required to expand with and adapt to the Company's rapid
growth. The development of these processes and systems is a complicated
undertaking requiring significant resources and expertise. The failure to
develop effective internal processes and systems for these service elements
could have a material adverse effect upon the Company's ability to implement
the Business Plan.
DEPENDENCE ON HIRING AND RETAINING QUALIFIED PERSONNEL; KEY PERSONNEL
The Company believes that its future success will depend in large part on
its ability to attract and retain highly skilled, knowledgeable, sophisticated
and qualified managerial, professional and technical personnel. The Company's
businesses will be managed by a small number of key executive officers,
particularly James Q. Crowe, Chief Executive Officer, R. Douglas Bradbury,
Chief Financial Officer, and Kevin J. O'Hara, Chief Operating Officer, the
loss of any of whom could have a material adverse effect on the Company. The
Company has experienced significant competition in the attraction and
retention of personnel that possess the skill sets that the Company is
seeking. There can be no assurance that the Company will not experience a
shortage of qualified personnel in the future, especially given the Company's
substantial hiring needs.
PRODUCTS AND SERVICES
The Company's ability to offer, market and sell products and services is
important to the Company's long-term strategic growth objectives, and is
dependent on the Company's ability to obtain the needed capital, additional
favorable regulatory developments, the Company's ability to recruit and retain
an effective sales force, the Company's ability to differentiate its products
and services from existing and future competitors, the Company's ability to
assess and access markets and the acceptance of its products and services by
the Company's customers. No assurance can be given that the Company will be
able to obtain such capital, retain such personnel, differentiate its products
and services or assess and access markets or that such developments or
acceptance will occur.
RAPID EXPANSION PLANS; MANAGEMENT OF GROWTH; STRATEGIC TRANSACTIONS
Part of the Business Plan is to achieve rapid growth by building the Level 3
Network and using the Level 3 Network to exploit opportunities expected to
arise from marketplace, regulatory and technological changes and other
industry developments. See "Industry Overview." The Business Plan also
contemplates exploring opportunities for strategic acquisitions and joint
ventures, which could be material. As a result of its strategy, management
expects the Company to experience rapid expansion for the foreseeable future.
This growth will increase the operating complexity of the Company. The
Company's ability to manage its expansion effectively will depend on, among
other things: (i) the expansion, training and management of its employee base,
including attracting and retaining highly skilled personnel (see "--Dependence
on Hiring and Retaining Qualified Personnel; Key Personnel"); (ii) the
development, introduction and marketing of new products and services;
(iii) the successful integration of acquired operations and joint ventures;
(iv) the development of financial and management controls; and (v) the control
of the Company's expenses related to the Business Plan. Failure of the Company
to satisfy any of these requirements, or otherwise manage its growth
effectively, could have a material adverse effect on the Company's business,
financial condition and results of operations, including its ability to pay
the interest on and principal of the Notes.
To manage growth effectively, the Company must develop its sales force,
external installation and repair capability, customer service teams and
information systems, and must develop relationships with third-party
13
<PAGE>
vendors. The Company's hiring needs are substantial. See "Business--Employee
Recruiting and Retention." The construction, operation and any upgrading of
the Level 3 Network is a significant undertaking. See "--Difficulties in
Constructing, Operating and Upgrading the Level 3 Network." Managing the
Company's growth will also be complicated by the significant size and
complexity of the planned Level 3 Network, which may place heavy demands upon
the Company's direct sales force, installation and repair capabilities,
customer care organization, business support systems, third party vendors and
management. If the Company is unable to manage its growth effectively, the
Company's business and results of operations could be materially adversely
affected.
In addition, there can be no assurance that the Company will be able to
identify suitable candidates on acceptable terms (especially given the intense
competition in the telecommunications industry) for strategic investments,
acquisitions or joint ventures or that the Company will be able to obtain the
requisite financing for any such transactions. These investments, acquisitions
and joint ventures, if made, will divert the resources and management time of
the Company and require successful integration with the Company's existing
networks and services.
LACK OF INTERCONNECTION AND PEERING ARRANGEMENTS
The Company's success will depend upon its ability to develop and expand its
network infrastructure and support services in order to have sufficient
geographic reach, capacity, reliability and security at an acceptable cost.
The development and expansion of the Level 3 Network will require that the
Company enter into agreements, on acceptable terms and conditions, with
various providers of infrastructure capacity, in particular interconnection
agreements with ILECs and peering agreements with ISPs. No assurance can be
given that any or all of the requisite agreements can be obtained on
satisfactory terms and conditions.
The Company is currently negotiating agreements for the interconnection of
the Level 3 Network with the networks of the ILECs covering each market in
which the Company is constructing its network. In the future, the Company may
be required to negotiate new interconnection agreements, or renegotiate
existing interconnection agreements, as Level 3 enters new markets. There can
be no assurance that the Company will successfully negotiate such agreements
for interconnection with ILECs or renewals of existing interconnection
agreements. The failure to negotiate required interconnection agreements could
have a material adverse effect on the Company's ability to become a single
source provider of communications and information services.
Peering agreements between the Company and ISPs will be necessary in order
for the Company to exchange traffic with those ISPs without having to pay
transit costs. The basis on which the large national ISPs make peering
available or impose settlement charges is evolving as the provision of
Internet access and related services has expanded. MCI and WorldCom, Inc.
("WorldCom") recently announced a merger of the two entities, which is subject
to certain regulatory and other approvals. If this merger is consummated, the
resulting entity would control a substantial percentage of the U.S. Internet
backbone. Recently, companies that have previously offered peering have cut
back or eliminated peering relationships and are establishing new, more
restrictive criteria for peering. Furthermore, if increasing costs and other
requirements associated with maintaining peering with the major national ISPs
develop, the Company may have to comply with those additional requirements in
order to continue to maintain any peering relationships it negotiates. Failure
to establish peering relationships would cause the Company to incur additional
operating expenditures which would have a material adverse effect on the
Company's business, financial condition and results of operations.
NEED TO OBTAIN AND MAINTAIN PERMITS AND RIGHTS-OF-WAY
In order to acquire and develop the Level 3 Network, the Company must obtain
local franchises and other permits, as well as rights to utilize underground
conduit and aerial pole space and other rights-of-way and fiber capacity from
entities such as ILECs and other utilities, railroads, long distance
companies, state highway authorities, local governments and transit
authorities. On April 2, 1998 the Company entered into an agreement with Union
Pacific granting the Company an easement for the laying of conduit along
certain of Union Pacific's
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rights-of-way in the western United States. See "Business--The Level 3
Network--Intercity Network." There can be no assurance that the Company will
be able, on acceptable terms, to maintain its existing franchises, permits and
rights or to obtain and maintain the other franchises, permits and rights
needed to implement the Business Plan. The cancellation or non-renewal of such
arrangements could materially adversely affect the Company's business in the
affected metropolitan area. In addition, the failure to enter into and
maintain any such required arrangements for any portion of the Level 3 Network
may affect the Company's ability to develop the Level 3 Network.
DEPENDENCE ON SUPPLIERS
Lease of Communications Capacity. Until the completion of the Company-owned
portion of the Level 3 Network, the Company will lease substantially all of
its intercity communications capacity in North America. On March 23, 1998, the
Company entered into an agreement with Frontier whereby the Company leased
approximately 8,300 miles of OC-12 network capacity currently under
construction connecting 15 U.S. cities. In addition, the Company intends to
lease a significant amount of capacity from ILECs and CLECs to connect the
Company's customers with the Company's gateway sites, even after the
completion of the Company-owned portion of the Level 3 Network. See
"Business--The Level 3 Network." Accordingly, the Company will be dependent
upon the services of these lessors. The Company may experience delays and
additional costs if any of these relationships with lessors is terminated or
if any one or all of these facilities experiences a technical or other similar
failure, and the Company is unable to reach suitable agreements with alternate
carriers in a timely manner. These events could have a material adverse effect
on the Company's business, financial condition, competitive position and
results of operations and its ability to pay the interest on and the principal
of the Notes.
In Europe, the Company will initially lease substantially all of its
intercity communications capacity. The supply of such capacity for lease is
significantly more limited than in the United States. While the Company
believes that it will be able to lease the necessary capacity in Europe, there
can be no assurance that it will be able to do so, and that if the Company can
lease such capacity, it will be at a price that will not have a material
adverse effect on the Company's business, financial condition, competitive
position and results of operations and its ability to pay the interest on and
the principal of the Notes.
Equipment and Materials. The Company will be dependent on third-party
suppliers of the fiber, conduit, computers, software, switches/routers and
related components that the Company will assemble and integrate into the
Level 3 Network. Due to the large-scale nature of the Level 3 Network, the
Company will be making large purchases of fiber and conduit, which will
represent a significant portion of the current production of these suppliers.
The Company will also depend on the services of third parties with whom it may
contract in the future for customer site installations, routine maintenance,
on-call repair and certain other services. The Company may experience delays
and additional costs if any of these relationships is terminated and the
Company is unable to reach suitable agreements with alternate vendors or
suppliers in a timely manner. Any such occurrence could have a material
adverse effect on the Company's business, financial condition, competitive
position and results of operations and its ability to pay the interest on and
the principal of the Notes.
The development and expansion of the Level 3 Network will require that it
enter into agreements, on acceptable terms and conditions, with various
providers of infrastructure capacity and equipment and support services. No
assurance can be given that any or all of the requisite agreements can be
obtained on satisfactory terms and conditions.
COMPETITION; RAPID TECHNOLOGICAL CHANGES
The communications and information services industry is highly competitive.
Many of the Company's existing and potential competitors in the communications
and information services industry have financial, personnel, marketing and
other resources significantly greater than those of the Company, as well as
other competitive advantages, including existing customer bases. Increased
consolidation and strategic alliances in the industry resulting from the
Telecommunications Act of 1996 (the "Telecom Act"), the opening of the U.S.
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market to foreign carriers and technological advances could give rise to
significant new competitors to the Company. In addition, further deregulation
may give rise to unanticipated additional competitors.
In the special access and private line services market, the Company's
primary competitors will be IXCs, ILECs and CLECs. In the market for
collocation services, the Company will compete with ILECs and CLECs. Most of
these competitors have a significant base of customers for whom they are
currently providing collocation services. Due to the high costs to a customer
of changing collocation sites, the Company may have a competitive disadvantage
relative to these existing competitors. The market for Web hosting services is
also extremely competitive. In this market, the Company will compete with ISPs
and many others, including IXCs, companies that exclusively provide Web
hosting services and a number of companies in the computer industry.
For virtual private network services and voice services, the Company will
compete primarily with national and regional network providers. The ability of
the Company to compete effectively in this market will depend upon its ability
to maintain high quality services at prices equal to or below those charged by
its competitors.
There are currently four principal facilities-based long distance fiber
optic networks (AT&T, MCI, Sprint and WorldCom, although a proposed merger
between WorldCom and MCI is pending), as well as numerous ILEC and CLEC
networks. The Company is aware that others, including Qwest Communications
International Inc. ("Qwest"), IXC Communications, Inc. ("IXC") and The
Williams Companies, Inc. ("Williams"), are building additional networks that,
when constructed, could employ advanced technology similar to that of the
Level 3 Network and will offer significantly more capacity than is currently
available in the marketplace. The additional capacity that is expected to
become available in the next several years may cause significant decreases in
the prices for services.
In the long distance market, the Company's primary competitors will include
AT&T, MCI, Sprint and WorldCom, all of whom have extensive experience in the
long distance market. In addition, the Telecom Act will allow RBOCs and others
to enter the long distance market. See "--Government Regulation" and
"Business--Regulation." In local markets the Company will compete with ILECs
and CLECs, many of whom have extensive experience in the local market. While
the Company believes that IP technology will prove to be a viable technology
for the transmission of these voice services, such technology is not yet in
place and at this time the Company would not be able to provide voice services
at an acceptable level of quality using IP technology. There can be no
assurance that the Company will be able to develop or acquire such technology.
See "--Need to Develop Voice Technology for IP Networks." There can be no
assurance that the Company will be able to compete successfully with existing
competitors or new entrants in the virtual private network services and voice
services market as well as the other markets it plans to serve. Failure by the
Company to do so could have a material adverse effect on the Company's
business, financial condition and results of operations, including its ability
to pay the interest on and the principal of the Notes.
The communications and information services industry is subject to rapid and
significant changes in technology. For instance, recent technological advances
permit substantial increases in transmission capacity of both new and existing
fiber, and the introduction of new products or emergence of new technologies
may reduce the cost or increase the supply of certain services similar to
those which the Company plans on providing. Accordingly, in the future the
Company's most significant competitors may be new entrants to the
communications and information services industry, which are not burdened by an
installed base of outdated equipment. The effect of technological changes, and
the competition that may result from such changes, on the Company's operations
cannot be predicted and could have a material adverse effect on the Company's
business, financial condition and results of operations, including its ability
to pay the interest on and principal of the Notes.
PRICING PRESSURES AND INDUSTRY CAPACITY
The long distance transmission industry has generally been characterized as
having overcapacity and declining prices since the AT&T divestiture in 1984.
Although the Company believes that increasing demand for capacity in the last
several years has resulted in a shortage of network capacity and slowed the
decline in prices,
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the Company anticipates that prices for communications and information
services will continue to decline over the next several years due primarily to
(i) installation by the Company and its competitors (certain of whom are
expanding capacity and constructing or considering new networks) of fiber
networks that provide substantially more transmission capacity than may be
needed over the short or medium term, (ii) recent technological advances that
permit substantial increases in the transmission capacity of both new and
existing fiber, (iii) strategic alliances or similar arrangements, such as
long distance capacity purchasing alliances among certain RBOCs, that increase
the parties' purchasing power and (iv) increased capacity of satellite,
microwave and radio facilities. These price declines may be particularly
severe if recent trends causing increased demand for capacity, such as
Internet usage, change. Rapid growth in the use of the Internet is a recent
phenomenon, and there can be no assurance that such growth will continue at
the same rate or at all. Such pricing pressure could have a material adverse
effect on the business of the Company and on its financial condition and
results of operations, including its ability to complete the Level 3 Network
and its ability to pay the interest on and the principal of the Notes.
GOVERNMENT REGULATION
Communications services are subject to significant regulation at the
federal, state, local and international levels, affecting both the Company and
its existing and potential competitors. Delays in receiving required
regulatory approvals or the enactment of new and adverse regulations or
regulatory requirements may have a material adverse effect upon the Company.
In addition, future legislative, judicial, and regulatory agency actions could
alter competitive conditions in the markets in which the Company intends to
operate, in ways not necessarily to the Company's advantage.
The Federal Communications Commission (the "FCC") exercises jurisdiction
over interstate and international telecommunications services, including both
long distance services and the use of local network facilities to originate
and terminate interstate or international calls ("access service"). Under
current FCC regulations, the Company is not required to obtain advance
authorization to offer domestic interstate long distance and access services.
It is currently required to file tariffs disclosing the rates, terms, and
conditions of certain of its long distance services, and to comply with
certain other FCC requirements. The Company has obtained FCC authorization to
provide international long distance service, and consequently will be required
to file tariffs and comply with certain reporting requirements for certain of
its services. As a carrier providing FCC-regulated services, the Company will
be required to pay various regulatory fees and assessments, although at this
time it does not expect that such fees will have a material effect on its
profitability.
State regulatory commissions exercise jurisdiction over intrastate
telecommunications services, including both local exchange and in-state long
distance services. The Company will be required to obtain regulatory
authorization and/or file tariffs or price lists at state agencies in most
states before it begins offering services in those states. The Company will
also be required to comply with state regulations governing the pricing and
provision of telecommunications service, which vary considerably from state to
state, and to pay various regulatory fees and taxes assessed by states on
telecommunications services and providers.
A variety of governmental authorities regulate the Company's access to
public rights-of-way, including highways, streets, underground conduits, and
the like. See "--Need to Obtain and Maintain Permits and Rights-of-Way." The
Company's facilities will also be subject to numerous local regulations such
as building codes and licensing. Such regulations vary on a city by city and
county by county basis. See "Business--Regulation."
There can be no assurance that the FCC or state commissions will grant
authority requested by the Company and required by it to provide services. If
authority is not obtained or if the tariffs are not filed, updated, or
otherwise do not fully comply with the tariff filing rules of the FCC or state
regulatory agencies, third parties or regulators could challenge these
actions. Such challenges could cause the Company to incur substantial legal
and administrative expenses and potentially delay or prevent the provision of
services.
The Telecom Act provides for a significant deregulation of the domestic
telecommunications industry, including the local exchange, long distance and
cable television industries. The Telecom Act remains subject to
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judicial review and additional FCC rulemaking, and thus it is difficult to
predict what effect the legislation will have on the Company and its future
operations. There are currently many regulatory actions under way and being
contemplated by federal and state authorities regarding interconnection
pricing and other issues that could result in significant changes to the
business conditions in the telecommunications industry. There can be no
assurance that these changes will not have a material adverse effect on the
Company.
The Telecom Act subjects nondominant telecommunications carriers, such as
the Company, to certain federal regulatory requirements upon their provision
of local exchange service in a market. All ILECs and CLECs must interconnect
with other carriers, provide nondiscriminatory access to rights-of-way, offer
reciprocal compensation for termination of traffic, and provide dialing parity
and telephone number portability. The Telecom Act also requires all
telecommunications carriers to ensure that their services are accessible to
and usable by persons with disabilities.
The FCC has to date treated ISPs as "enhanced service providers," exempt
from federal and state regulations governing common carriers, including the
obligation to pay access charges and contribute to the universal service fund.
The FCC is examining the status of ISPs and services provided by ISPs in
several ongoing proceedings. On April 10, 1998, the FCC issued a Report to
Congress on its implementation of the universal service provisions of the
Telecom Act. In that Report, the FCC stated, among other things, that the
provision of transmission capacity to ISPs constitutes the provision of
telecommunications and is therefore subject to common carrier regulations. The
FCC indicated that it would reexamine its policy of not requiring an ISP to
contribute to the universal service mechanisms when the ISP provides its own
transmission facilities and engages in data transport over those facilities in
order to provide an information service. Any such contribution would be
related to the ISP's provision of the underlying telecommunications services
according to the Report, separate and apart from ISP services. In the Report,
the FCC also indicated that it would examine the question of whether certain
forms of "phone-to-phone IP telephony" are information services or
telecommunications services. It noted that the FCC did not have an adequate
record on which to make any definitive pronouncements on that issue at this
time, but that the record the FCC had reviewed suggests that certain forms of
phone-to-phone IP telephony appear to have the same functionality as non-IP
telecommunications services and lack the characteristics that would render
them information services. If the FCC were to determine that certain services
are subject to FCC regulations as telecommunications services, the FCC noted
it may find it reasonable that the ISPs pay access charges and make universal
service contributions similar to non-IP-based telecommunications service
providers. The FCC also noted that other forms of IP telephony appeared to be
information services. The Company cannot predict the outcome or timing of
these proceedings. If the FCC were to determine that ISPs, or services
provided by ISPs, are subject to FCC regulation, including the payment of
access charges and contribution to the universal service funds, it could have
a material adverse effect on the Company's business, financial condition,
competitive position and results of operations and the Company's ability to
pay the interest on and principal of the Notes.
Pursuant to the Telecom Act, the FCC has recently adopted significant
changes in its universal service subsidy program. Providers of interstate
telecommunications service, as well as certain other entities, must pay for
these programs. The Company's contribution to the universal service fund will
be based on its telecommunications service end-user revenues. The extent to
which the Company's services are viewed as telecommunications services or as
information services will affect the amount of the Company's contribution, if
any. As indicated in the preceding paragraph, the issue of how the Company's
services will be classified has not been resolved. Currently, the FCC assesses
contributions on the basis of a provider's revenue for the previous year.
Since the Company had no telecommunications service revenues in 1997, it will
not be liable for universal service contributions in any material amount
during 1998. With respect to subsequent years, however, the Company is
currently unable to quantify the amount of contributions that it will be
required to make and the effect that these required payments will have on its
financial condition because of uncertainties concerning the size of the
universal fund and uncertainty concerning the classification of the Company's
services. The FCC has also announced that it will soon revise its rules for
subsidizing service provided to consumers in high cost areas, which may result
in further substantial increases in the overall cost of the universal service
program.
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While both local and long distance (except facilities-based international)
services are now open to competition in Canada, only "Canadian carriers,"
which must be majority-owned and controlled by Canadians, are permitted to
provide facilities-based services, and the regional telephone companies and
the monopoly provider of international services still have majority control of
many significant market sectors and are likely to begin or have begun facing
decreased regulation as competition matures. Even when the Canadian
international services market is opened to competition in October 1998,
Canadian carrier foreign ownership restrictions will still be applicable to
the provision of facilities-based international services. Because the Company
is not eligible to be a Canadian carrier, and thus cannot control a
facilities-based telecommunications service provider in Canada, it cannot
under current law enter the Canadian market as a provider of facilities-based
domestic services or possibly, when they are opened to competition,
facilities-based international services. The Canadian Radio-Television and
Telecommunications Commission ("CRTC") generally regulates the provision of
telecommunications services in Canada (except, until October 25, 1998, over
intra-provincial services in Saskatchewan), but many significant regulatory
issues addressing important issues affecting local competition and the
implementation of Canada's commitments under the Fourth Protocol to the
General Agreement on Trade in Services (the "WTO Agreement") are the subject
of pending regulatory proceedings and legislation as to whose outcomes there
is substantial uncertainty. While there is essentially regulatory forbearance
for resold services, which are open to both Canadian and non-Canadian
controlled firms, resellers could be subject to additional regulation as a
result of pending proceedings and expected legislation implementing Canada's
commitments under the WTO Agreement. While resold local services are
theoretically open to competition, there has been concern about the
feasibility of allowing companies that are not Canadian carriers, and
therefore not subject to CRTC jurisdiction, to provide resold local services,
and thus about the implementation of resold local services competition.
Because many critical issues remain the subject of pending proceedings and
legislation whose outcome is uncertain, and because the regional telephone
companies and the current monopoly international carrier (Teleglobe Canada)
continue to retain substantial majorities in many service sectors and are
likely to begin or have begun facing decreased regulation as competition
matures, there can be no assurance that the Company will be able to implement
its planned entry into the Canadian market on economically reasonable or
advantageous terms. See "Business--Regulation--Canadian Regulation."
RISK OF NETWORK FAILURE; LIABILITY FOR TRANSMISSIONS
The Company's operations will be dependent upon its ability to protect the
Level 3 Network against damage from natural disasters, power loss,
communications failures and similar events. Despite the proposed redundancy of
the Level 3 Network, and other precautions the Company expects to take, the
occurrence of a natural disaster or other unanticipated problem could cause
service interruptions on the Level 3 Network. See "--Dependence on Suppliers."
The Level 3 Network will use an assemblage of communications equipment,
software, operating protocols and proprietary applications for high speed
transportation of large quantities of data among multiple locations. Given the
complexity of the proposed Level 3 Network, it may be possible that data will
be lost or distorted. Moreover, much of the Company's customers'
communications needs will be extremely time sensitive, and delays in data
delivery may cause significant losses to a customer using the Company's
information network. The Level 3 Network may contain undetected design faults
and software "bugs" that, despite testing by the Company, may be discovered
only after the Level 3 Network has been installed and is in use by customers.
The failure of any equipment or facility on the Level 3 Network could result
in the interruption of service to the customers serviced by such equipment or
facility until necessary repairs are effected or replacement equipment is
installed. Such failures, faults or errors could cause delays or require
modifications that could have a material adverse effect on the Company's
business, financial condition, competitive position, customer base and results
of operations and its ability to pay the interest on and the principal of the
Notes.
SECURITY RISKS
The Level 3 Network will be vulnerable to unauthorized access, computer
viruses and other disruptive problems which, in addition to customer
interruptions, delays and cessations of service, could result in liability
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to the Company and a loss of existing customers or could deter potential
customers from using the Level 3 Network. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to the Company's customers which could have a material
adverse effect on the Company's business, financial condition, competitive
position and results of operations and its ability to pay the interest on and
principal of the Notes. Moreover, the actions necessary to eliminate these
problems could be prohibitively expensive.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success may depend, in part, on its ability to develop and
maintain proprietary rights in certain technology which will underlie the
Level 3 Network. See "--Need to Develop Voice Technology for IP Networks" and
"--Difficulties in Constructing, Operating and Upgrading the Level 3 Network."
To protect its proprietary rights in the technology which may be utilized in
the Level 3 Network, the Company will rely on a combination of trade secret
and copyright protection as well as patents. The Company also will rely on
trademark protection concerning various names, marks, logos and other devices
which serve to identify the Company as the source for and originator of the
Company's services.
While the Company does not know of any technologies which are patented by
others that it believes are necessary for the Company to provide voice-over IP
services, there can be no assurance that such a necessary technology will not
be patented by other parties now or in the future. If such a technology were
held under patent by another person, the Company would have to negotiate a
license for the use of such technology. There can be no assurance that the
Company could negotiate such a license, or that such a license would be at a
price that was acceptable to the Company. The existence of such a patent, or
the inability of the Company to negotiate a license for any such technology on
terms beneficial to the Company, could have a material adverse effect on the
Company's business, financial condition, competitive position and results of
operations and its ability to pay the interest on and principal of the Notes.
Intellectual property litigation is complex and there can be no assurance of
the outcome of any such litigation. Any future intellectual property
litigation, regardless of outcome, could result in substantial expense to the
Company and significant diversion of the efforts of the Company's technical
and management personnel. An adverse determination in any such proceeding
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from such parties, if licenses to such rights
could be obtained, and/or require the Company to cease using such technology.
There can be no assurance that any such license would or could be obtained at
costs reasonable to the Company. If forced to cease using such technology,
there can be no assurance that the Company would be able to develop or obtain
alternate technology. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could
prevent the Company from manufacturing, using or selling certain of its
products, which could have a material adverse effect on the Company's
business, financial condition, competitive position and results of operations
and its ability to pay the interest on and principal of the Notes.
COVENANTS
The covenants in the Indenture allow the Company, subject to certain
limitations, to use its funds in a broad range of activities and investments,
including entering into joint ventures it does not control, some of which may
result in significant cash expenditures by the Company or result in
significant losses. See "--Rapid Expansion Plans; Management of Growth;
Strategic Transactions" and "Description of the Notes."
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF THE NOTES
The Company is a holding company with no material assets other than the
stock of its subsidiaries, and the Notes are obligations exclusively of the
Company. The Notes are unsecured and rank pari passu in right of payment with
all existing and future senior unsecured indebtedness and trade payables of
the Company. The Notes are effectively subordinated to all secured
indebtedness of the Company to the extent of the value of the
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assets securing such indebtedness. Since substantially all the Company's
operations are conducted through its subsidiaries, the Company's cash flow and
its ability to meet its own obligations, including payment of interest and
principal obligations on the Notes, are dependent upon the earnings of its
subsidiaries and the distributions of those earnings to the Company, or upon
loans or other payments of funds made by such subsidiaries to the Company.
Future debt instruments of the Company's subsidiaries likely will impose
significant restrictions that affect, among other things, the ability of the
Company's subsidiaries to pay dividends or make loans, advances or other
distributions to the Company. The ability of the Company's subsidiaries to pay
dividends and make other distributions also will be subject to, among other
things, applicable state laws and regulations. In certain circumstances, the
prior or subsequent approval of such dividends or distributions is required
from the applicable regulatory or other governmental entity.
The operating assets of the Company are owned by the Company's subsidiaries,
effectively subordinating the Notes to all existing and future indebtedness,
trade payables, preferred stock and other obligations of the Company's
subsidiaries. Therefore, the Company's rights and the rights of its creditors,
including the holders of the Notes, to participate in the assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of such subsidiary's creditors and holders of preferred
stock, if any, except to the extent that the Company may itself be a creditor
with recognized claims against the subsidiary, in which case the claims of the
Company would still be effectively subordinated to any security interests in
or mortgages or other liens on the assets of such subsidiary and would be
subordinate to any indebtedness of such subsidiary senior to that held by the
Company. The Indenture limits, but does not prohibit, the incurrence of
additional indebtedness by the Company and its subsidiaries. Therefore, both
the Company and its subsidiaries will retain the ability to incur substantial
additional indebtedness, and the Company expects that it and its subsidiaries
may incur substantial additional indebtedness in the future in connection with
the implementation of the Business Plan. See "Description of the Notes."
LEVERAGE AND DEBT SERVICE
As of March 31, 1998, on a pro forma basis after giving effect to the
Initial Offering, the Company would have had approximately $2.1 billion of
indebtedness. In addition, the Company expects to incur substantial net
operating losses for the foreseeable future, and there can be no assurance
that the Company will be able to achieve or sustain profitability in the
future. Accordingly, there can be no assurance that the Company will have
sufficient funds to pay debt service on the Notes. In addition, the Indenture
permits the Company to incur additional indebtedness under certain conditions,
including an unlimited amount of secured purchase money debt. The leveraged
nature of the Company could limit the ability of the Company to effect future
financings or may otherwise restrict the Company's activities. Substantial
leverage poses the risk that the Company may not be able to generate
sufficient cash flow to service its indebtedness, including the Notes, and to
adequately fund the Business Plan. See "--Substantial Capital Requirements"
and "Description of the Notes."
The Business Plan may require that the Company and its subsidiaries obtain
substantial amounts of additional indebtedness in the future. The degree to
which the Company is leveraged, and the restrictive and financial covenants
that the Company will be subject to, will have important consequences to the
holders of the Notes, including the following: (i) the Company's ability to
obtain additional financing for the Business Plan, including the substantial
net losses incurred in connection therewith, may be impaired in the future;
(ii) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of debt service, thereby reducing the funds available
to the Company for the Business Plan; (iii) the Company's leverage may hinder
its ability to adjust rapidly to changing market conditions; and (iv) the
Company's leverage could make the Company more vulnerable in the event of a
downturn in general economic conditions or in its business.
RISKS ASSOCIATED WITH A CHANGE OF CONTROL
The Indenture contains provisions relating to certain events constituting a
"Change of Control Triggering Event" with respect to the Company. Upon the
occurrence of such a Change of Control Triggering Event, the
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Company would be obligated to make an offer to purchase all outstanding Notes
at a purchase price equal to 101% of the principal amount of the Notes, plus
accrued and unpaid interest (if any) to the purchase date. There can be no
assurance that the Company would have sufficient funds to pay the purchase
price for all Notes tendered by holders seeking to accept the offer to
purchase. In addition, instruments governing other debt of the Company may
prohibit the Company from purchasing any Notes prior to their stated maturity,
including upon a Change of Control Triggering Event, or require that such debt
be repurchased upon a change of control. A failure by the Company to purchase
all Notes validly tendered pursuant to such an offer to purchase would result
in an Event of Default under the Indenture. See "Description of the Notes--
Certain Covenants--Change of Control Triggering Event."
ABSENCE OF PUBLIC MARKET
The Notes are a new issue of securities for which there is currently no
established market. There can be no assurance as to (i) the liquidity of any
such market that may develop, (ii) the ability of the holders of Notes to sell
any of their Notes, or (iii) the price at which the holders of Notes would be
able to sell any of their Notes. The Company does not presently intend to
apply for listing of any of the Notes on any national securities exchange or
on The Nasdaq Stock Market. The Initial Purchasers have advised the Company
that they presently intend to make a market in the Notes. The Initial
Purchasers are not obligated, however, to make a market in any of the Notes
and any such market-making may be discontinued at any time at the sole
discretion of the Initial Purchasers and without notice. Accordingly, no
assurance can be given as to the development or liquidity of any market for
any of the Notes. If a market for any of the Notes were to develop, such Notes
could trade at prices that may be higher or lower than their initial offering
price depending on many factors, including prevailing interest rates, the
Company's operating results and prospects for its performance, the market for
similar securities and general economic conditions. Historically, the market
for securities such as the Notes has been subject to disruptions that have
caused substantial volatility in the prices of similar securities. There can
be no assurance that if a market for any of the Notes were to develop, such a
market would not be subject to similar disruptions.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon as a consequence of the issuance of the Original Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold, unless registered
under the Securities Act and applicable state securities laws, or pursuant to
an exemption therefrom. Except under certain limited circumstances, the
Company does not intend to register the Original Notes under the Securities
Act. In addition, any holder of Original Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the New Notes may
be deemed to have received restricted securities and, if so, will be required
to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent
Original Notes are tendered and accepted in the Exchange Offer, the trading
market, if any, for the original Notes not tendered could be adversely
affected. See "The Exchange Offer" and "Registration Rights."
YEAR 2000 ISSUES
The Company is conducting a review of its computer systems, including the
computer systems used in the Company's computer outsourcing business, to
identify systems that could be affected by the "Year 2000" computer issue, and
is developing and implementing a plan to resolve the issue. The Year 2000
issue results from computer programs written with date fields of two digits,
rather than four digits, thus resulting in the inability of computer programs
to distinguish between the year 1900 and 2000. The Company expects that its
Year 2000 compliance project will be completed before the Year 2000 date
change. During the execution of this project, the Company has and will
continue to incur internal staff costs as well as consulting and other
expenses. These costs will be expensed, as incurred, in compliance with GAAP.
The expenses associated with this project,
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<PAGE>
as well as the related potential effect on the Company's earnings, are not
expected to have a material effect on its future operating results or
financial condition. There can be no assurance, however, that the Year 2000
problem will not have a material adverse effect on the Company's business,
financial condition, competitive position and results of operations and its
ability to pay the interest on and principal of the Notes.
The Company has initiated communications with its significant suppliers and
customers, including those of the Company's computer outsourcing business and,
in particular, vendors of the Company's computer outsourcing operating
environments, to determine the extent to which the Company is vulnerable to
the failure by such parties to remediate Year 2000 compliance issues. No
assurance can be given, however, that the systems will be made Year 2000
compliant in a timely manner or that the noncompliance of the systems of any
of these parties would not have a material adverse effect on the Company's
business, financial condition, competitive position and results of operations
and its ability to pay the interest on and principal of the Notes.
PKS Systems Integration LLC ("PKS Systems"), a subsidiary of PKSIS, provides
a wide variety of information technology services to its customers. In fiscal
year 1997, approximately 80% of the revenue generated by PKS Systems related
to projects involving Year 2000 assessment and renovation services performed
by PKS Systems for its customers. These contracts generally require PKS
Systems to identify date affected fields in certain application software of
its customers and, in many cases, PKS Systems undertakes efforts to remediate
those date-affected fields so that Year 2000 data may be processed. Thus, Year
2000 issues affect many of the services PKS Systems provides to its customers.
This exposes PKS Systems to potential risks that may include problems with
services provided by PKS Systems to its customers and the potential for claims
arising under PKS Systems' customer contracts. PKS Systems attempts to
contractually limit its exposure to liability for Year 2000 compliance issues.
However, there can be no assurance as to the effectiveness of such contractual
limitations.
The expenses associated with this project by PKSIS, as well as the related
potential effect on PKSIS's earnings, are not expected to have a material
effect on its future operating results or financial condition. There can be no
assurance, however, that the Year 2000 problem, and any loss incurred by any
customers of PKSIS as a result of the Year 2000 problem, will not have a
material adverse effect on the Company's financial condition, results of
operations and its ability to pay the interest on and principal of the Notes.
RISKS OF FOREIGN INVESTMENT
The Company expects to expand its operations into international markets in
Canada, Western Europe and Asia. Risks inherent in foreign operations include
loss of revenue, property and equipment from expropriation, nationalization
and confiscatory taxation. The Company will also be exposed to the risk of
changes to laws and policies that govern foreign investment in countries where
it expects to operate as well as, to a lesser extent, changes in United States
laws and regulations relating to investing in or trading with countries in
which the Company may have investments.
Certain of the countries in which the Company expects to operate may be
subject to a substantially greater degree of social, political and economic
instability than is the case in other countries. Such instability may result
from, among other things, the following: (i) authoritarian governments or
military involvement in political and economic decision making, and changes in
government through coups or other extra-constitutional means; (ii) social
unrest associated with demands for improved economic, social and political
conditions; (iii) internal insurgencies and terrorist activities; and (iv)
hostile relations with neighboring countries. Risks associated with social,
political and economic instability in a particular country could have a
material adverse effect on the results of operations and financial condition
of the Company and could result in the loss of the Company's assets in such
country.
FOREIGN CURRENCY EXCHANGE RATES; REPATRIATION
As the Company expands its operations into countries outside of the United
States, its results of operations and the value of its assets will be affected
by the currency exchange rates between the U.S. dollar and the
23
<PAGE>
functional currencies of countries in which it has operations and assets. In
some of these countries, prices of the Company's products and services will be
denominated in the local functional currency or in a currency other than the
U.S. dollar. As a result, the Company may experience economic losses solely as
a result of foreign currency exchange rate fluctuations, which include foreign
currency devaluations against the dollar. The Company may in the future
acquire interests in companies that operate in countries where the removal or
conversion of currency is restricted. There can be no assurance that countries
that do not have such restrictions at the time the Company establishes
operations in those countries will not subsequently impose them, especially in
situations where there is a deterioration in a country's balance of payments
or where the local currency is being heavily converted into other currencies.
ENVIRONMENTAL RISKS
The Company's operations and properties are subject to a wide variety of
laws and regulations relating to protection of the environment, natural
resources, and human health and safety, including laws and regulations
concerning the use and management of hazardous and non-hazardous substances
and wastes. Although the Company has made and will continue to make
significant expenditures relating to its environmental compliance obligations,
there can be no assurance that the Company will at all times be in compliance
with all such requirements.
In connection with certain historical operations, the Company is a party to,
or otherwise involved in, legal proceedings under state and federal law
involving investigation and remediation activities at approximately 110
contaminated properties. The Company could be held liable, jointly and
severally, and without regard to fault, for such investigation and
remediation. Based on presently available information regarding the nature and
volume of its wastes allegedly disposed or released at these properties, the
number of other financially viable, potentially responsible parties, and the
total estimated clean-up costs, the Company does not believe that the costs
associated with these properties will be material, either individually or in
the aggregate.
The discovery of additional environmental liabilities related to the
Company's historical operations or changes in existing environmental
requirements could have a material adverse effect on the Company's business,
results of operations, or financial condition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
RISKS RELATED TO THE COMPANY'S COAL OPERATIONS
In 1997, $222 million of the Company's $332 million in net revenues were
attributable to its coal mining operations. The level of cash flows generated
in recent periods by the coal operations will not continue after the year 2000
because the delivery requirements under the Company's current long-term
contracts decline significantly after that date. Moreover, in the absence of
those contracts, the Company's coal mining operations would not be able to
operate profitably by selling its production on the spot markets for coal. A
substantial majority of the Company's coal mining revenues are concentrated
under contracts with three customers.
The Company's coal operations are subject to extensive laws and regulations
that impose stringent operational, maintenance, financial assurance,
environmental compliance, reclamation, restoration and closure requirements,
including requirements governing air and water emissions, waste disposal,
worker health and safety, benefits for current and retired coal miners, and
other general permitting and licensing requirements. The Company may not at
all times be in compliance with all such requirements. Liabilities or claims
associated with such noncompliance could require the Company to incur material
costs or suspend production. Mine reclamation costs that exceed the Company's
reserves for such matters also could require the Company to incur material
costs.
24
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of New Notes in
the Exchange Offer. The New Notes will evidence the same debt as the Original
Notes surrendered in exchange therefor and, accordingly, the issuance of the
New Notes will not result in any change in the indebtedness of the Company.
The net proceeds to the Company of the Initial Offering were approximately
$1.937 billion. The net proceeds will be used in connection with the
implementation of the Business Plan to increase substantially the Company's
information services business and to expand the range of services it offers by
building an advanced, international, facilities-based communications network
based on IP technology.
CAPITALIZATION
The following table sets forth as of March 31, 1998: (i) the historical
consolidated capitalization of the Company; and (ii) such capitalization as
adjusted to give effect to the Initial Offering of the Original Notes. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated
financial statements and the notes thereto, incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------
AS
HISTORICAL ADJUSTED(1)
---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and marketable securities....................... $2,095 $4,032
====== ======
Current portion of long-term debt.................... $ 4 $ 4
====== ======
Long-term debt, less current portion................. $ 137 $ 137
Notes................................................ -- 2,000
------ ------
Total long-term debt, less current portion....... 137 2,137
------ ------
Total stockholders' equity(1)........................ 2,049 2,049
------ ------
Total capitalization............................. $2,186 $4,186
====== ======
</TABLE>
- --------
(1) Excludes 2,627,767 shares of Common Stock and options and warrants to
purchase 423,581 shares of Common Stock which were issued by the Company
in connection with the Company's acquisition of XCOM. The shares of Common
Stock issued and reserved for issuance upon exercise of such options and
warrants equal approximately 1.9% of the outstanding Common Stock on a
fully diluted basis.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Notes were originally issued and sold on April 28, 1998 in a
transaction exempt from registration under the Securities Act. Accordingly,
the Original Notes may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Company has agreed pursuant to the
Registration Agreement to (i) file, within 90 days after the closing of the
Initial Offering (the "Original Notes Closing Date"), a registration statement
with the Commission with respect to the Exchange Offer, (ii) use its best
effort to cause such registration statement to be declared effective under the
Securities Act not later than 150 days after the Original Notes Closing Date
and (iii) upon effectiveness of such registration statement, offer New Notes
in exchange for surrender of Original Notes. The New Notes are being offered
hereunder to satisfy these obligations of the Company under the Registration
Agreement.
TERMS OF THE EXCHANGE
The Company is offering, upon the terms and subject to the conditions of the
Exchange Offer, to exchange $1,000 in principal amount of New Notes for each
$1,000 in principal amount of outstanding Original Notes. The terms of the New
Notes are substantially identical in all respects to the terms of the Original
Notes for which they may be exchanged pursuant to the Exchange Offer, except
that (i) the offer of the New Notes will have been registered under the
Securities Act and, therefore, the New Notes will be freely transferable by
holders thereof (except as otherwise described herein) and not bear a legend
regarding restrictions on transfer, (ii) holders of the New Notes will not be
entitled to certain rights of the holders of the Original Notes under the
Registration Agreement, which rights with respect to the Original Notes will
terminate on consummation of the Exchange Offer and (iii) the New Notes will
not contain any provisions regarding the payment of Special Interest. The New
Notes will evidence the same debt as the Original Notes and will be entitled
to the benefits of the Indenture. See "Description of the Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange.
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that New Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder
which is (i) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) a broker-dealer who acquired Original Notes
directly from the Issuer or (iii) broker-dealers who acquired Original Notes
as a result of market making or other trading activities) without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such New Notes are acquired in the ordinary course of such
holders' business, and such holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Original Notes where such New Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities.
The Company has agreed that, starting on the date of this Prospectus and
ending on the close of business on the day that is 180 days following the date
of this Prospectus, it will make this Prospectus available to any broker-
dealer for use in connection with any such resale. See "Plan of Distribution."
26
<PAGE>
Tendering holders of Original Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Original Notes
pursuant to the Exchange Offer.
Interest on each New Note will accrue from the last interest payment date on
which interest was paid on the Original Note surrendered in exchange therefor
or, if no interest has been paid on such Original Note, from the date of
original issuance of such Original Note.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1998, unless the Company
in its sole discretion extends the period during which the Exchange Offer is
open, in which event the term "Expiration Date" means the latest time and date
on which the Exchange Offer, as so extended by the Company, expires. The
Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to the
Exchange Agent and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service. During any extension of the Exchange Offer, all
Original Notes previously tendered pursuant to the Exchange Offer will remain
subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Original Notes for any reason,
including if any of the events set forth below under " --Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Company and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Original Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent in writing and
will either issue a press release or give written notice to the holders of the
Original Notes as promptly as practicable. Unless the Company terminates the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date,
the Company will exchange the New Notes for the Original Notes on the Exchange
Date.
If the Company waives any material condition to the Exchange Offer, or
amends the Exchange Offer in any other material respect, and if at the time
that notice of such waiver or amendment is first published, sent or given to
holders of Original Notes in the manner specified above, the Exchange Offer is
scheduled to expire at any time earlier than the expiration of a period ending
on the fifth business day from, and including, the date that such notice is
first so published, sent or given, then the Exchange Offer will be extended
until the expiration of such period of five business days.
This Prospectus and the Letter of Transmittal and other relevant materials
will be mailed by the Company to record holders of Original Notes and will be
furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the lists of holders for subsequent transmittal to
beneficial owners of Original Notes.
HOW TO TENDER
The tender to the Company of Original Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of an Original Note may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall
be deemed to include a facsimile thereof) and delivering the same, together
with the certificate or certificates representing the Original Notes being
tendered and any required signature guarantees (or a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") pursuant to the procedure
described below), to the Exchange Agent at its address set forth below under
"--Exchange Agent" on or prior to the Expiration Date or (ii) complying with
the guaranteed delivery procedures described below.
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<PAGE>
If tendered Original Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are
to be issued (and any untendered Original Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Original Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a firm (an
"Eligible Institution") that is a member of a recognized signature guarantee
medallion program (an "Eligible Program") within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934 (the "Exchange Act"). If the New
Notes and/or Original Notes not exchanged are to be delivered to an address
other than that of the registered holder appearing on the note register for
the Original Notes, the signature on the Letter of Transmittal must be
guaranteed by an Eligible Institution.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Original Notes should contact such holder promptly and instruct such
holder to tender Original Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Original Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Original Notes, either make appropriate arrangements to
register ownership of the Original Notes in such beneficial owner's name or
follow the procedures described in the immediately preceding paragraph. The
transfer of record ownership may take considerable time.
Book-Entry Transfer. The Exchange Agent will make a request to establish an
account with respect to the Original Notes at The Depository Trust Company
(the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within
two business days after receipt of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of Original Notes by causing the Book-
Entry Transfer Facility to transfer such Original Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Original Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION
DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds
otherwise payable to a holder pursuant to the Exchange Offer if the holder
does not provide the holder's taxpayer identification number (social security
number or employer identification number) and certify that such number is
correct. Each tendering holder should complete and sign the main signature
form and the Substitute Form W-9 included as part of the Letter of
Transmittal, so as to provide the information and certification necessary to
avoid backup withholding, unless an applicable exemption exists and is proved
in a manner satisfactory to the Company and the Exchange Agent.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Original Notes to
reach the Exchange Agent before the Expiration Date, a tender may be effected
if the Exchange Agent has received at its office listed under "--Exchange
Agent" hereof on or prior to the Expiration Date a letter, telegram or
facsimile transmission from an Eligible Institution setting forth the name and
address of the tendering holder, the names in which the Original Notes are
registered and, if possible, the certificate numbers of the Original Notes to
be tendered, and stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days after the
date of execution of such
28
<PAGE>
letter, telegram or facsimile transmission by the Eligible Institution, the
Original Notes, in proper form for transfer, will be delivered by such
Eligible Institution together with a properly completed and duly executed
Letter of Transmittal (and any other required documents). Unless Original
Notes being tendered by the above-described method (or a timely Book-Entry
Confirmation) are deposited with the Exchange Agent within the time period set
forth above (accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents), the Company may, at its option,
reject the tender. Copies of a Notice of Guaranteed Delivery which may be used
by Eligible Institutions for the purposes described in this paragraph are
being delivered with this Prospectus and the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Original Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of New Notes in exchange for
Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Original Notes
(or a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel
to the Company, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or
irregularities in tenders of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders. None of the
Company, the Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or shall incur any
liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Original Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Original Notes to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Original Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Original
Notes and to acquire New Notes issuable upon the exchange of such tendered
Original Notes, and that, when the same are accepted for exchange, the Company
will acquire good and unencumbered title to the tendered Original Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Original Notes. The Transferor further agrees that acceptance of any
tendered Original Notes by the Company and the issuance of New Notes in
exchange therefor shall constitute performance in full by the Company of its
obligations under the Registration Agreement and that the Company shall have
no further obligations or liabilities thereunder (except in certain limited
circumstances). All authority conferred by the Transferor will survive the
death or incapacity of the Transferor and every obligation of the Transferor
shall be binding upon the heirs, legal representatives, successors, assigns,
executors and administrators of such Transferor.
By tendering Original Notes, the Transferor certifies (a) that it is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, that it is not a broker-dealer that owns Original Notes acquired directly
from the Company or an affiliate of the Company, that it is acquiring the New
Notes offered hereby in the ordinary course of such Transferor's business and
that such Transferor has no arrangement with any person to participate in the
distribution of such New Notes or (b) that it is an "affiliate" (as so
defined) of the Company
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<PAGE>
or of the Initial Purchasers, and that it will comply with the registration
and prospectus delivery requirements of the Securities Act to the extent
applicable to it. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
WITHDRAWAL RIGHTS
Original Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth below under "--Exchange Agent." Any such notice of withdrawal must
specify the person named in the Letter of Transmittal as having tendered
Original Notes to be withdrawn, the certificate numbers of Original Notes to
be withdrawn, the principal amount of Original Notes to be withdrawn (which
must be an authorized denomination), a statement that such holder is
withdrawing his election to have such Original Notes exchanged, and the name
of the registered holder of such Original Notes, and must be signed by the
holder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Company that the person withdrawing the tender
has succeeded to the beneficial ownership of the Original Notes being
withdrawn. The Exchange Agent will return the properly withdrawn Original
Notes promptly following receipt of notice of withdrawal. All questions as to
the validity of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Original Notes validly tendered and not withdrawn
and the issuance of the New Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Company shall be deemed to have accepted
for exchange validly tendered Original Notes when, as and if the Company has
given written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Original
Notes for the purposes of receiving New Notes from the Company and causing the
Original Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of New Notes to be
issued in exchange for accepted Original Notes will be made by the Exchange
Agent promptly after acceptance of the tendered Original Notes. Original Notes
not accepted for exchange by the Company will be returned without expense to
the tendering holders (or in the case of Original Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the procedures described above, such non-exchanged Original Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) promptly following the Expiration Date or, if the Company terminates
the Exchange Offer prior to the Expiration Date, promptly after the Exchange
Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue New Notes in
respect of any properly tendered Original Notes not previously accepted and
may terminate the Exchange Offer (by oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise
required by applicable law or regulation, by making a release to the Dow Jones
News Service) or, at its option, modify or otherwise amend the Exchange Offer,
if (a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, (ii) assessing or seeking any
30
<PAGE>
damages as a result thereof, or (iii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of the
Original Notes pursuant to the Exchange Offer; (b) any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the Company
might directly or indirectly result in any of the consequences referred to in
clauses (a)(i) or (ii) above or, in the sole judgment of the Company, might
result in the holders of New Notes having obligations with respect to resales
and transfers of New Notes which are greater than those described in the
interpretations of the Commission referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or (c) a material adverse change shall have occurred in the
business, condition (financial or otherwise), operations, or prospects of the
Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in
whole or in part at any time or from time to time in its sole discretion. The
failure by the Company at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right, and each right will be deemed
an ongoing right which may be asserted at any time or from time to time. In
addition, the Company has reserved the right, notwithstanding the satisfaction
of each of the foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or non-
fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Original Notes
tendered and no New Notes will be issued in exchange for any such Original
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or qualification of the Indenture under the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act").
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. Letters of Transmittal must be addressed to the
Exchange Agent at its address set forth below.
By Registered or Certified Mail: By Overnight Courier or By Hand:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, NY 10004
New York, NY 10274-0084 Attention: Securities Processing
Attention: Reorganization Operations Window Subcellar One (SC-1)
Department
By Facsimile:
(212) 858-2611
Confirm by Telephone: (212) 858-2103
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The
Company will, however, pay the Exchange Agent reasonable and customary fees
for its services and will
31
<PAGE>
reimburse it for reasonable out-of-pocket expenses in connection therewith.
The Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding tenders for their customers. The expenses to be incurred in
connection with the Exchange Offer, including the fees and expenses of the
Exchange Agent and printing, accounting and legal fees, will be paid by the
Company and are estimated at approximately $400,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) holders of Original Notes
in any jurisdiction in which the making of the Exchange Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Company may, at its discretion, take such action as
it may deem necessary to make the Exchange Offer in any such jurisdiction and
extend the Exchange Offer to holders of Original Notes in such jurisdiction.
In any jurisdiction the securities laws or blue sky laws of which require the
Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer
is being made on behalf of the Company by one or more registered brokers or
dealers which are licensed under the laws of such jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF ORIGINAL NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL
RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes for New Notes by holders will not be a
taxable exchange for federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged
to consult their financial and tax advisors in making their own decisions on
what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Notes pursuant to the terms of this Exchange Offer,
the Company will have fulfilled a covenant contained in the terms of the
Original Notes and the Registration Agreement. Holders of the Original Notes
who do not tender their certificates in the Exchange Offer will continue to
hold such certificates and will be entitled to all the rights, and limitations
applicable thereto, under the Indenture, except for any such rights under the
Registration Agreement, which by their terms terminate or cease to have
further effect as a result of the making of this Exchange Offer. See
"Description of the Notes." All untendered Original Notes will continue to be
subject to the restriction on transfer set forth in the Indenture. To the
extent that Original Notes are tendered and accepted in the Exchange Offer,
the trading market, if any, for the Original Notes could be adversely
affected. See "Risk Factors--Consequences of Failure to Exchange."
The Company may in the future seek to acquire untendered Original Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Original
Notes which are not tendered in the Exchange Offer.
32
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
The selected financial data presented below as of and for the fiscal years
ended the last Saturday in December of 1993, 1994, 1995, 1996 and 1997 have
been derived from the Company's audited consolidated financial statements, and
the notes related thereto. The selected financial data presented below as of
and for the three months ended March 31, 1997 and 1998 have been derived from
the Company's unaudited financial statements. In the opinion of management,
the unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations as of such dates and for such periods. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's audited consolidated financial statements and the notes related
thereto, incorporated by reference in this Prospectus. Since the Business Plan
represents a significant expansion of the Company's communications and
information services business, the Company does not believe that the following
information serves as a meaningful indicator of the Company's future financial
condition or results of operations. The Company expects to incur substantial
net operating losses for the foreseeable future, and there can be no assurance
that the Company will be able to achieve or sustain operating profitability in
the future.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FISCAL YEAR ENDED(1)
----------------- ----------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- ------- ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Revenue................. $ 87 $ 80 $ 332 $ 652 $ 580 $ 537 $ 267
Earnings (loss) from
continuing operations.. (6) 16 83 104 126 28 174
Net earnings(2)......... 926 35 248 221 244 110 261
Other Data:
Ratio of earnings to
fixed charges(3)....... 7.33 10.06 5.73 3.87 -- -- 20.94
Financial Position:
Total assets............ 2,794 2,779 3,066 2,945 4,048 3,236
Current portion of long-
term debt.............. 4 3 57 40 30 11
Long-term debt, less
current portion........ 137 137 320 361 899 452
Stockholders' equity.... 2,049 2,230 1,819 1,607 1,736 1,671
</TABLE>
- --------
(1) In October 1993, the Company acquired 35% of the outstanding shares of C-
TEC, which shares entitled the Company to 57% of the available voting
rights of C-TEC. At December 28, 1996, the Company owned 48% of the
outstanding shares and 62% of the voting rights of C-TEC.
As a result of the C-TEC restructuring in 1997, the Company owns less than
50% of the outstanding shares and voting rights of each of the three
entities into which C-TEC was divided, and therefore accounted for each
entity using the equity method in 1997. The Company consolidated C-TEC in
its financial statements from 1993 to 1996.
The financial position and results of operations of the Construction Group
have been classified as discontinued operations due to the Split-Off.
In September 1995, the Company dividended its investment in MFS to holders
of the Class D Stock. MFS' results of operations have been classified as a
single line item on the statements of earnings for 1993, 1994 and 1995. MFS
is consolidated in the 1993 and 1994 balance sheets of the Company.
In January 1994, MFS issued $500 million of 9.375% Senior Discount Notes.
In September 1997, the Company agreed to sell its energy segment to
CalEnergy Company, Inc. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The transaction closed on
January 2, 1998. Accordingly, the energy segment has been classified as
discontinued operations.
(2) In 1993, two public offerings by MFS resulted in a $137 million after-tax
gain for the Company. In 1994 and 1995, additional MFS stock transactions
resulted in $35 million and $2 million after-tax gains to the Company and
reduced its ownership in MFS to 67% and 66%, respectively. In the first
quarter of 1998, the Company recognized a gain of $608 million equal to
the difference between the carrying value of the Construction Group and
its fair value in accordance with the Financial Accounting Standards Board
Emerging Issues Tax Force Issue 96-4. The Company then reflected the fair
value of the Construction Group as a distribution to the holders of Class
C Stock.
(3) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of earnings (loss) before income taxes, minority interest
and discontinued operations plus fixed charges excluding capitalized
interest. Fixed charges consist of interest expensed and capitalized, plus
the portion of rent expense under operating leases deemed by the Company
to be representative of the interest factor, plus preferred stock
dividends on preferred stock of MFS. The Company had a deficiency of
earnings to fixed charges of $32 million and $42 million in 1995 and 1994,
respectively.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
audited consolidated financial statements (including the notes thereto),
included elsewhere in this Prospectus.
RECENT DEVELOPMENTS
Split-Off
In October 1996, the Board of Directors of the Company (the "Board")
directed management of the Company to pursue a listing of the Company's Class
D Diversified Group Convertible Exchangeable Common Stock, par value $.0625
per share (the "Class D Stock"), as a way to address certain issues created by
the Company's then two-class capital stock structure and the need to attract
and retain the best management for the Company's businesses. During the course
of its examination of the consequences of a listing of the Class D Stock,
management concluded that a listing of the Class D Stock would not adequately
address these issues, and instead began to study a separation of the
Construction Group from the other businesses of the Company (the "Diversified
Group"), thereby forming two independent companies. At the regular meeting of
the Board on July 23, 1997, management submitted to the Board for
consideration a proposal for separation of the Construction Group and the
Diversified Group through a split-off of the Construction Group. At a special
meeting on August 14, 1997, the Board approved the Split-Off.
The separation of the Construction Group and the Diversified Group was
contingent upon a number of conditions, including the favorable ratification
by a majority of the holders of both the Company's Class C Construction &
Mining Group Restricted Redeemable Convertible Exchangeable Common Stock, par
value $.0625 per share (the "Class C Stock"), and the Class D Stock, and the
receipt by Company of an Internal Revenue Service ruling or other assurance
acceptable to the Board that the separation would be tax-free to U.S.
stockholders. On December 8, 1997, the holders of Class C Stock and Class D
Stock approved the Split-Off and on March 5, 1998, the Company received a
favorable ruling from the Internal Revenue Service. The Split-Off occurred on
March 31, 1998. In connection with the Split-Off, (i) the Company exchanged
each outstanding share of Class C Stock for one share of common stock of PKS
Holdings, Inc. ("New PKS"), the company formed to hold the Construction Group,
to which eight-tenths of a share of the Company's Class R Convertible Common
Stock, par value $.01 per share (the "Class R Stock"), was attached, (ii) New
PKS was renamed "Peter Kiewit Sons', Inc.," (iii) the Company was renamed
"Level 3 Communications, Inc." and (iv) Class D Stock was designated as Common
Stock, par value $.01 per share ("Common Stock"). As a result of the Split-
Off, the Company no longer owns any interest in New PKS or the Construction
Group.
Conversion of Class R Stock
The Board forced the conversion of all outstanding shares of Class R Stock
into Common Stock effective as of May 15, 1998. Each share of Class R Stock
was converted into $25 worth of Common Stock, based upon the average trading
price of the Common Stock on the Nasdaq National Market for the last fifteen
trading days of April 1998. Each holder of Class R Stock received .3889 of a
share of Common Stock for each share of Class R Stock held. In total,
approximately 6.5 million shares of Class R Stock were converted into
approximately 2.5 million shares of Common Stock on May 15, 1998. As a result
of the Board's determination to force conversion of the Class R Stock, certain
adjustments have been made to the cost sharing and risk allocation provisions
of the separation agreements between the Company and the Construction Group.
See "Certain Transactions and Relationships."
Conversion of Class C Stock in January 1998
Prior to the Split-Off, as of January 1 of each year, holders of Class C
Stock had the right to convert Class C Stock into Class D Stock, subject to
certain conditions. In January 1998, holders of Class C Stock converted
2.3 million shares, with a redemption value of $122 million, into 10.5 million
shares of Class D Stock.
34
<PAGE>
Listing of Common Stock
Effective April 1, 1998, the Common Stock began trading on The Nasdaq
National Market under the symbol "LVLT."
C-TEC Restructuring
On September 30, 1997, C-TEC consummated a restructuring of C-TEC into three
publicly traded companies (the "C-TEC Companies"). As a result of this
restructuring, the Company owns less than 50% of the outstanding shares and
voting rights of each C-TEC Company, and therefore has accounted for each C-
TEC Company using the equity method as of the beginning of 1997. In accordance
with generally accepted accounting principles, C-TEC's financial position,
results of operations and cash flows are consolidated in the 1996 and 1995
financial statements.
CalEnergy Transaction
In January 1998, the Company and CalEnergy Company, Inc. ("CalEnergy")
closed the sale of the Company's energy assets to CalEnergy (the "CalEnergy
Transaction"). The Company received proceeds of approximately $1.16 billion
and expects to recognize an after-tax gain of approximately $324 million in
1998. The after-tax proceeds from this transaction of approximately $967
million will be used to fund in part the Business Plan.
Stock Options
The Company recently adopted an outperform stock option program. For a
discussion of the accounting treatment for options granted under this program
and their effect on results of operations for future periods, see "Business--
Employee Recruiting and Retention."
Frontier Agreement
On March 23, 1998, the Company and Frontier entered into an agreement (the
"Frontier Agreement") enabling the Company to lease for a period of up to five
years approximately 8,300 miles of OC-12 network capacity on Frontier's new
13,000 mile SONET fiber optic, IP-capable network that is under construction.
The leased network will initially connect 15 of the larger cities across the
United States. While requiring an aggregate minimum payment of $165 million
over its five-year term, the Frontier Agreement does not impose monthly
minimum consumption requirements on the Company, allowing the Company to
order, alter or terminate circuits as it deems appropriate. The Company
expects to recognize these costs as the leased network is utilized.
Union Pacific Rights-of-Way
On April 2, 1998, the Company announced it had reached a definitive
agreement with Union Pacific granting the Company the use of approximately
7,800 miles of rights-of-way ("ROW") along Union Pacific's rail routes for
construction of the North American Intercity Network. The Company expects that
the Union Pacific agreement will satisfy substantially all of its anticipated
ROW requirements west of the Mississippi River and approximately 50% of the
ROW requirements for the North American Intercity Network. The agreement
provides for initial fixed payments of up to $8 million to Union Pacific upon
execution of the agreement and throughout the construction period, recurring
payments in the form of cash, communications capacity, and other
communications services based on the number of conduits that are operational
and certain construction obligations of the Company to provide fiber or
conduit connections for Union Pacific at the Company's incremental cost of
construction.
XCOM Acquisition
On April 23, 1998, the Company acquired XCOM, a privately held company that
has developed technology which the Company believes will provide certain key
components necessary for the Company to develop an interface between its IP-
based network and the PSTN. The Company issued approximately 2.6 million
shares of Common Stock and .4 million options and warrants to purchase Common
Stock in exchange for all the common and preferred stock of XCOM. The value of
the transaction will be determined through an appraisal. The Company expects
to account for this transaction as a purchase and expects to recognize a
significant charge to earnings during the second quarter of 1998 for the
portion of the cost of the purchase attributable to in-process research and
development efforts.
35
<PAGE>
Initial Offering
The Company consummated the Initial Offering of Original Notes on April 28,
1998. The net proceeds to the Company of the Initial Offering were
approximately $1.937 billion. The net proceeds will be used in connection with
the implementation of the Business Plan to increase substantially the
Company's information services business and to expand the range of services it
offers by building an advanced, international, facilities-based communications
network based on IP technology.
Cable Michigan
On June 4, 1998, Cable Michigan Inc. ("Cable Michigan") agreed, subject to
stockholder and regulatory approval, to be acquired by Avalon Cable for $40.50
per share in cash, or $435 million. The Company currently owns approximately
48.5% of Cable Michigan and accounts for that investment under the equity
method. The carrying value of the Company's investment in Cable Michigan as of
March 31, 1998 was $44 million. As a result of this transaction, which is
expected to be completed in the fourth quarter of 1998, the Company expects to
receive estimated proceeds of $211 million and to realize an estimated after-
tax gain of $109 million. For the year ended December 27, 1997, the Company's
share of equity losses from its investment in Cable Michigan was $6 million
which was included in the caption "Equity losses-net" in the Statement of
Earnings for that period. For the three months ended March 31, 1998, the
Company's share of equity losses from its investment in Cable Michigan was $2
million which was included in the caption "Other Income (Expense)" in the
Statement of Earnings for that period.
RESULTS OF OPERATIONS
Since the Business Plan represents a significant expansion of the Company's
communications and information services business, the Company does not believe
that the Company's financial condition and results of operations for prior
years will serve as a meaningful indication of the Company's future financial
condition or results of operations. The Company expects to incur substantial
net operating losses for the foreseeable future, and there can be no assurance
that the Company will be able to achieve or sustain operating profitability in
the future.
First Quarter 1998 vs. First Quarter 1997
Revenue. Revenue for the quarters ended March 31, is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN
MILLIONS)
<S> <C> <C>
Communications and Information Services............................... $29 $16
Coal Mining........................................................... 53 61
Other................................................................. 5 3
--- ---
$87 $80
=== ===
</TABLE>
Communications and information services revenue consists of computer
outsourcing revenue of $15 million and systems integration revenue of $14
million in 1998. The comparable amounts in 1997 were $11 million and $5
million. Computer outsourcing revenues increased due to the addition of
several new customers since the first quarter of 1997. The increase in systems
integration revenue in the first quarter of 1998 reflects the pattern of
growth experienced throughout 1997 as the Company expanded its computer
network systems integration, consulting, and Year 2000 and software
reengineering activities since this business commenced operations in 1997.
By the end of 1998, the Company expects to offer a limited set of services
at the gateway sites it is establishing in 15 of the larger U.S. cities. In
preparation for the product launch, the Company made significant progress
during the first quarter in 1998 in obtaining appropriate licenses, agreements
and technical facilities. See "Business--The Level 3 Network."
36
<PAGE>
Coal mining revenues decreased in 1998 primarily due to the expiration of a
long term sales contract at the end of 1997 and continued lower prices for new
customer contracts. Coal mining revenue for the year ended 1998 is expected to
approximate 1997 revenue, due to additional alternative source and brokerage
revenue expected during the remainder of 1998.
Operating Expenses. Operating expenses increased to $42 million in 1998 from
$39 million in 1997 primarily due to costs associated with increased systems
integration revenue. Margins from the computer outsourcing and systems
integration businesses improved in 1998 primarily due to increased revenues
from new customers obtained since the first quarter of 1997 and from the
systems integration business, which was in a start-up mode in 1997. Coal
margins declined slightly in 1998 due to the expiration of a long term sales
contract at the end of 1997. Coal mining margins for the year ended 1998 are
expected to approximate margins recognized in 1997 due to additional high
margin alternative source coal expected to be sold throughout the remainder of
1998. If current market conditions continue, the Company will experience a
significant decline in coal revenue and earnings over the next several years as
delivery requirements under long-term contracts decline and as long-term
contracts begin to expire.
Depreciation and Amortization. Depreciation and amortization increased
slightly in 1998 to $6 million from $5 million in 1997 primarily due to
increased depreciation on PKSIS equipment purchased for new computer
outsourcing customers. The Company expects to incur additional amortization
expense beginning in the second quarter of 1998 due to the acquisition of XCOM.
Additional depreciation is expected beginning in the third quarter of 1998 when
the Company commences operations on the Level 3 Network.
General and Administrative Expenses. General and administrative expenses
increased significantly in 1998 to $48 million from $16 million in 1997
primarily due to the cost of activities associated with preparing for the
expected launch of the Level 3 Network in the third quarter of 1998. In
addition, the Company incurred approximately $7 million of professional service
costs associated with the initial development of the BSS infrastructure,
specifically designed to enable the Company to offer services efficiently to
its targeted customers. In addition to these costs, the Company incurred
incremental compensation and relocation costs for the substantial number of new
employees that have been hired to begin implementation of the Business Plan,
legal costs associated with obtaining licenses, agreements and technical
facilities and other development costs associated with the Company's plans to
begin offering services in 15 U.S. cities in the fall of 1998. Other than costs
associated with the BSS, which the Company will begin to capitalize in the
second quarter of 1998, general and administrative costs are expected to
increase significantly in future periods as the Company implements the Business
Plan.
EBITDA. EBITDA which consists of earnings (losses) before interest, income
taxes, depreciation, amortization, non cash stock-based compensation and other
non-operating income or expenses was $(3) million in 1998 and $25 million in
1997. The primary reason for the decrease between periods is the significant
increase in general and administrative expenses, described above, incurred in
connection with the implementation of the Business Plan. EBITDA is commonly
used in the communications industry to analyze companies on the basis of
operating performance. EBITDA is not intended to represent cash flow for the
periods.
Interest Income. Interest income increased significantly in 1998 to $26
million from $7 million in 1997 as the Company's average cash, cash equivalents
and marketable securities balance approximated $2 billion in the first quarter
of 1998. Proceeds on the sale of the Company's energy assets to CalEnergy of
$1.16 billion were received on January 2, 1998. The Company's average cash,
cash equivalents and marketable securities balance approximated $550 million in
1997. Pending utilization of the cash equivalents and marketable securities in
implementing the Business Plan, the Company intends to invest the funds
primarily in government and governmental agency securities. This investment
strategy will provide for less yield on the funds, but is expected to reduce
the risk to principal prior to using the funds in implementing the Business
Plan.
Interest Expense. Interest expense increased slightly in 1998 to $4 million
from $3 million in 1997 primarily due to interest incurred on a $15 million
mortgage with Metropolitan Life established in June 1997 with the
37
<PAGE>
Company's Pavilion Towers office building in Aurora, Colorado serving as
collateral. The majority of the interest expense relates to bank and
institutional notes with recourse only to the privatized California tollroad
project. Interest expense will increase substantially in future periods due to
the consummation of the Initial Offering of $2 billion aggregate principal
amount of Original Notes on April 28, 1998. Amortization of debt issuance costs
associated with the Initial Offering will also increase interest expense in
future periods. A significant portion of the interest will be capitalized as
the Company develops the Level 3 Network.
Other Income (Expense). Other expense, net increased substantially in 1998 to
$22 million from $3 million in 1997 primarily due to increased losses
recognized by the Company's equity method investee, RCN Corporation, Inc.
("RCN"), a full service provider of local, long distance, internet and cable
television services primarily to residential users in densely populated areas
in the Northeast United States. The Company's share of these losses
approximated $31 million. RCN is incurring significant costs in developing its
business plan and during the first quarter of 1998 it acquired Ultranet
Communications, Inc. and Erols Internet, Inc., two ISPs with operations in the
Boston to Washington, D.C. corridor. RCN recognized a charge to earnings of
approximately $45 million (the Company's share $21 million) with respect to
certain costs of the acquisitions associated with in-process research and
development activities.
Also included in other income (expense) are equity earnings in Commonwealth
Telephone Enterprises, Inc., a Pennsylvania public utility providing telephone
service, equity in losses of Cable Michigan, a cable television operator in the
State of Michigan, and realized gains and losses on the sale of marketable
securities, investments and other assets each not individually significant to
the Company's results of operations.
Income Tax (Provision) Benefit. Income tax benefit approximates the statutory
rate in 1998. The income tax provision in 1997 is slightly below the statutory
rate due primarily to depletion allowances and other individually insignificant
deductions for tax purposes in excess of that recognized for financial
reporting purposes.
Discontinued Operations. Discontinued operations includes the one-time gain
of $608 million recognized upon the distribution of the Construction Group to
former holders of Class C Stock on March 31, 1998. Also included in
discontinued operations is the gain, net of tax, of $324 million from the
Company's sale of its energy assets to CalEnergy on January 2, 1998.
1997 vs. 1996
Coal Mining. Revenue from the Company's coal mines declined 5% in 1997
compared to 1996. Alternate source coal revenue declined by $16 million in
1997. The Company's primary coal customer, Commonwealth Edison Company
("Commonwealth Edison"), accelerated its contractual commitments in 1996 for
alternate source coal, thus reducing its obligations in 1997. In addition to
the decline in tonnage shipped, the price of coal sold to Commonwealth Edison
declined 1% in 1997. Revenue attributable to other contracts increased by
approximately $4 million. The actual amount of coal shipped under these other
contracts increased 5% in 1997, but the price at which it was sold was 4% lower
than 1996.
Gross margin, as a percentage of revenue, declined 11% from 1996 to 1997.
Gross margins in 1996 were higher than in recent years due to the additional
high margin alternate source coal sold to Commonwealth Edison in 1996 and the
refund of premiums from a captive insurance company that insured against black
lung disease. The decline in Commonwealth Edison shipments and an overall
decline in average selling price adversely affected the results for 1997. If
current market conditions continue, the Company will experience a significant
decline in coal revenue and earnings over the next several years as delivery
requirements under long-term contracts decline and as long-term contracts begin
to expire.
Information Services. Revenue increased by 124% to $94 million in 1997 from
$42 million in 1996. Revenue from computer outsourcing services increased 20%
to $49 million in 1997 from $41 million in 1996. The increase was due to new
computer outsourcing contracts signed in 1997. Revenue for systems integration
grew to $45 million in 1997 from less than $1 million in 1996. Strong demand
for Year 2000 renovation services fueled the growth in systems integration
revenues.
38
<PAGE>
Gross margin, as a percentage of revenue, decreased to 28% in 1997 from 41%
in 1996 for the computer outsourcing business. The reduction of the gross
margin was due to up-front costs associated with new contracts and significant
increases in personnel costs due to the tightening supply of computer
professionals. Gross margin for the systems integration business was
approximately 40% in 1997. A comparison to 1996 gross margin is not meaningful
due to the start-up nature of the business.
General and Administrative Expenses. Excluding C-TEC, general and
administrative expenses increased 20% to $114 million in 1997. The increase was
primarily attributable to a $41 million increase in the information services
business' general and administrative expenses. The majority of the increase is
attributable to additional compensation expense that was incurred due to the
conversion of a subsidiary's option and stock-appreciation rights plans to the
Company's Class D Stock Option Plan. The remainder of the increase relates to
the increased expenses for new sales offices established in 1997 for the
systems integration business and the additional personnel hired in 1997 to
implement the Business Plan.
Exclusive of the information services business, general and administrative
expenses decreased 26% to $62 million in 1997. A decrease in professional
services and the mine management fees were partially offset by increased
compensation expense. Due to the favorable resolution of certain environmental
and legal matters, costs that were previously accrued for these issues were
reversed in 1997. Partially offsetting this reduction were legal, tax and
consulting expenses associated with the CalEnergy Transaction and the Split-
Off.
Equity Losses. The losses for the Company's equity investments increased from
$9 million in 1996 to $43 million in 1997. Had the C-TEC entities been
accounted for using the equity method in 1996, the losses would have increased
to $13 million. The expenses associated with the deployment and marketing of
the advanced fiber networks in New York, Boston and Washington, D.C., and the
costs incurred in connection with the buyout of a marketing contract with
minority shareholders are primarily responsible for the increase in equity
losses attributable to RCN Telecom Services from $6 million in 1996 to $26
million in 1997. The Company's share of the losses of Cable Michigan, Inc.
decreased to $6 million in 1997 from $8 million in 1996. This improvement is
attributable to the gains recognized on the sale of Cable Michigan, Inc.'s
Florida cable systems. The earnings of Commonwealth Telephone Company were
consistent with that of 1996. The Company recorded equity earnings of $9
million in each year attributable to Commonwealth Telephone Company. The
Company also recorded equity losses attributable to several developing
businesses.
Investment Income. Investment income increased 7% in 1997 after excluding C-
TEC's $14 million of investment income in 1996. Gains recognized on the sale of
marketable securities, primarily within the Kiewit Mutual Fund ("KMF"),
increased from $3 million in 1996 to $9 million in 1997. In 1997, KMF
repositioned the securities within its portfolios to more closely track overall
market performance. Partially offsetting these additional gains was a decline
in interest income due to an overall reduction of yield earned by the KMF
portfolios.
Interest Expense. Interest expense increased significantly in 1997 after
excluding $28 million of interest attributable to C-TEC in 1996. California
Private Transportation Company L.P. ("CPTC"), the owner-operator of a
privatized tollroad in California, incurred interest costs of approximately $9
million and $11 million in 1996 and 1997. In 1996, interest of $5 million was
capitalized due to the construction of the tollroad. Construction was completed
in August 1996, and all interest incurred subsequent to that date was charged
against earnings. Interest associated with the financing of the Aurora,
Colorado property of $1 million, also contributed to the increase in interest
expense.
Other Income. Other income in 1996 includes $2 million of other expenses
attributable to C-TEC. Excluding these losses, other income declined from $8
million in 1996 to $1 million in 1997. The absence of gains on the sale of
timberland properties and other assets, which accounted for $6 million of
income in 1996, is responsible for the decline.
Income Tax (Provision) Benefit. The effective income tax rate for 1997 is
less than the expected statutory rate of 35% due primarily to prior year tax
adjustments, partially offset by the effect of nondeductible compensation
expense associated with the conversion of the information services option and
stock appreciation
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rights plans to the Company's Class D Stock Option Plan. In 1996, the effective
rate was also lower than the statutory rate due to prior year tax adjustments.
These adjustments were partially offset by nondeductible costs associated with
goodwill amortization and taxes on foreign operations. In 1997 and 1996, the
Company settled a number of disputed issues related to prior years that have
been included in prior year tax adjustments.
Discontinued Operations--Construction and Materials. Construction revenues
increased $414 million during 1997 compared to 1996. The consolidation of ME
Holding Inc. (due to the increase in ownership by the Company from 49% to 80%)
("ME Holding") contributed $261 million, almost two-thirds of the increase. In
addition to ME Holding, several large projects and joint ventures became fully
mobilized during the latter part of the year and were well into the "peak"
construction phase.
Material revenues increased 19% to $290 million in 1997 from $243 million in
1996. The acquisition of additional plant sites accounts for 22% of the
increase in sales. The remaining increase was a result of the strong market for
material products in Arizona. This raised sales volume from existing plant
sites and allowed for slightly higher selling prices. The inclusion of $10
million of revenues from the Oak Mountain facility in Alabama also contributed
to the increase.
Construction margins increased to 13% of revenue in 1997 as compared to 10%
in 1996. The favorable resolution of project uncertainties, several change
order settlements, and cost savings or early completion bonuses received during
the year contributed to this increase.
Material margins decreased from 10% of revenue in 1996 to 4% in 1997. Losses
at the Oak Mountain facility in Alabama were the source of the decrease. The
materials margins from sources other than Oak Mountain remained stable as
higher unit sales and selling prices were offset by increases in raw materials
costs.
General and administrative expenses of the Construction Group increased 11%
in 1997 after deducting $17 million of expenses attributable to ME Holding.
Compensation and profit sharing expenses increased $9 million and $2 million,
respectively, from 1996. The increase in these costs is a direct result of
higher construction earnings.
The effective income tax rates in 1997 and 1996 for the Construction Group
differ from the expected statutory rate of 35% primarily due to state income
taxes and prior year tax adjustments.
Discontinued Operations--Energy. Income from discontinued operations
increased to $29 million in 1997 from $9 million in 1996. The acquisition of
Northern Electric plc ("Northern Electric") in late 1996 and the commencement
of operations at the Mahanagdong geothermal facility in July, 1997 were the
primary factors that resulted in the increase.
In October 1997, CalEnergy sold approximately 19.1 million shares of its
common stock. This sale reduced the Company's ownership in CalEnergy to
approximately 24%. It is the Company's policy to recognize gains or losses on
the sale of stock by its investees. The Company recognized an after-tax gain of
approximately $44 million from transactions in CalEnergy stock in the fourth
quarter of 1997.
On July 2, 1997, the Labour Party in the United Kingdom announced the details
of its proposed "Windfall Tax" to be levied against privatized British
utilities. This one-time tax is 23% of the difference between the value of
Northern Electric at the time of privatization and the utility's current value
based on profits over a period of up to four years. CE Electric UK plc ("CE
Electric") recorded an extraordinary charge of approximately $194 million when
the tax was enacted on July 31, 1997. The total after-tax impact to the
Company, directly through its investment in CE Electric and indirectly through
its interest in CalEnergy, was $63 million.
1996 vs. 1995
Coal Mining. Revenue and net earnings improved primarily due to increased
alternate source tons sold to Commonwealth Edison in 1996 and the liquidation
of a captive insurance company which insured against black lung disease. Upon
liquidation, the Company received a refund of premiums paid plus interest in
excess of reserves established by the Company for this liability. Since 1993,
the amended contract with Commonwealth
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Edison provided that delivery commitments would be satisfied with coal produced
by unaffiliated mines in the Powder River Basin in Wyoming. Coal produced at
the Company's mines did not change significantly from 1995 levels.
Information Services. Revenue increased 17% to $42 million in 1996 from $36
million in 1995. The increase was primarily due to new computer outsourcing
contracts signed in 1996. Less than $1 million of revenue was generated by the
operations of the new systems integration business, started in February, 1996.
Gross margin as a percentage of revenue for the outsourcing business
decreased to 41% in 1996 from 45% in 1995. The reduction of the gross margin
was primarily due to up-front costs for new customers which were recognized as
an expense when incurred.
Telecommunications. Revenue for the telecommunications segment increased 13%
to $367 million for fiscal 1996. C-TEC's telephone group's $10 million, or 8%,
increase in sales and C-TEC's cable group's $33 million, or 26%, increase in
revenue were the primary contributors to the improved results. The increase in
telephone group revenue is due to higher intrastate access revenue from the
growth in access minutes, an increase of 13,000 access lines, and higher
Internet access and video conferencing sales. Cable group revenue increased
primarily due to higher average subscribers and the effects of rate increases
in April 1995 and February 1996. Subscriber counts increased primarily due to
the acquisition of Pennsylvania Cable Systems ("Pennsylvania Cable"), formerly
Twin County Trans Video, Inc., in September 1995, and the consolidation of
Mercom, Inc. ("Mercom") since August 1995. Pennsylvania Cable and Mercom
account for $23 million of the increase in cable revenue in 1996.
The 1996 operating expenses for the telecommunications business increased $38
million or 18% compared to 1995. The telephone group experienced a 9% increase
in expenses and the cable group's costs increased 31%. The increase for the
telephone group was primarily attributable to higher payroll expenses resulting
from additional personnel, wage increases and higher overtime. Also
contributing to the increase were fees associated with the Internet access
services and consulting services for a variety of regulatory and operational
matters. The cable group's increase was due to increased depreciation,
amortization and compensation expenses associated with the acquisition of
Pennsylvania Cable and the consolidation of Mercom's operations. Also
contributing to the higher costs were rate increases for existing programming
and the costs for additional programming.
General and Administrative Expenses. General and administrative expenses
declined 5% to $181 million in 1996. Decreases in expenses associated with
legal and environmental matters were partially offset by higher mine management
fees paid to the Construction Group, the costs attributable to C-TEC and the
opening of the SR91 toll road. C-TEC's corporate overhead and other costs
increased approximately 13% in 1996. This increase is attributable to costs
associated with the development of RCN Telecom Services' business in New York
and Boston, the acquisition of Pennsylvania Cable, the consolidation of Mercom
and the investigation of the feasibility of various restructuring alternatives.
Equity Losses. Losses attributable to the Company's equity investments
increased to $9 million in 1996 from $5 million in 1995. The additional losses
were attributable to an enterprise engaged in the renewable fuels business and
to C-TEC's investment in Megacable, S.A. de C.V., Mexico's second largest cable
television operator.
Investment Income. Investment income increased 24% in 1996 compared to 1995.
Increased gains on the sale of marketable and equity securities and interest
income were partially offset by a slight decline in dividend income.
Interest Expense. Interest expense in 1996 increased 43% compared to 1995.
The increase was primarily due to interest on the CPTC debt that was
capitalized through July 1996, and C-TEC's redeemable preferred stock, issued
in the Pennsylvania Cable acquisition, that began accruing interest in 1996.
Gain on Subsidiary's Stock Transactions. The issuance of the stock of MFS for
acquisitions by MFS and the exercise of MFS employee stock options resulted in
a $3 million net gain to the Company in 1995.
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Other. The decrease of other income in 1996 was primarily attributable to the
receipt in 1995 of settlement proceeds related to certain litigation regarding
the Company's mining operations.
Income Tax Benefit (Provision). The effective income tax rate for 1996
differs from the statutory rate of 35% primarily because of adjustments to
prior year tax provisions, partially offset by state taxes and nondeductible
amounts associated with goodwill amortization. In 1995, the rate is lower than
35% due primarily to $93 million of income tax benefits from the reversal of
certain deferred tax liabilities originally recognized on gains from MFS stock
transactions that are no longer required due to the tax-free spin-off of MFS,
and adjustments to prior year tax provisions.
Discontinued Operations--Construction and Materials. Revenue from
construction decreased 1% to $2,303 million in 1996. This resulted from the
completion of several major projects during the year, while many new contracts
were still in the start-up phase. The Construction Group's share of joint
venture revenue remained at 30% of total revenues in 1996. Revenue from
materials increased by less than 1% in 1996. Increased demand for aggregates in
the Arizona market was offset by a decline in precious metal sales. The
Construction Group sold its gold and silver operations in Nevada to Kinross
Gold Corporation ("Kinross") and essentially liquidated its metals inventory in
1995.
Opportunities in the construction and materials industry continued to expand
along with the economy. Because of the increased opportunities, the
Construction Group was able to be selective in the construction projects it
pursued. Gross margins for construction increased from 8% in 1995 to 10% in
1996. This resulted from the completion of several large projects and increased
efficiencies in all aspects of the construction process. Gross margins for
materials declined from 13% in 1995 to 10% in 1996. The lack of higher margin
precious metals sales in 1996 combined with slightly lower construction
materials margins produced the reduction in operating margin.
In 1995, the exchange of the Construction Group's gold and silver operations
in Nevada for 4,000,000 shares of common stock of Kinross led to a $21 million
gain for the Construction Group. The gain was the difference between the
Construction Group's book value in the gold and silver operations and the
market value of the Kinross shares at the time of the exchange. Other income
was also primarily comprised of mining management fees from the Diversified
Group, of $37 million and $30 million in 1996 and 1995, and gains on the
disposition of property, plant and equipment and other assets of $17 million
and $12 million in 1996 and 1995.
The effective income tax rate for 1996 differs from the statutory rate of 35%
primarily because of adjustments to prior year tax provisions and state taxes.
In 1995, the rate was higher than 35% due primarily to state income taxes.
Discontinued Operations--Energy. Income from discontinued operations declined
in 1996 by 36% to $9 million. Losses attributable to the Company's interest in
CE Casecnan Water and Energy ("CE Casecnan"), additional development expenses
for international activities, and the costs associated with the Northern
Electric transaction were partially offset by increased equity earnings from
CalEnergy.
FINANCIAL CONDITION--MARCH 31, 1998
The Company's working capital increased substantially during the first
quarter of 1998 primarily due to the sale of the Company's energy assets to
CalEnergy in the CalEnergy Transaction for $1.16 billion on January 2, 1998.
The Company's working capital was $1.9 billion on March 31, 1998 and $1.4
billion on December 27, 1997. The Company's operations provided $17 million of
cash during the first quarter of 1998, primarily from coal mining operations
partially offset by costs in implementing the Business Plan.
The Company made capital expenditures of $18 million during the first quarter
of 1998, primarily related to the development of the infrastructure associated
with the Level 3 Network and the purchase of equipment used by the computer
outsourcing business. The Company also had net purchases of marketable
securities of $603
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million, primarily attributable to the investment of the CalEnergy Transaction
proceeds. The Company also made several small investments in development stage
businesses during the first quarter of 1998.
Financing activities in the first quarter of 1998 consisted primarily of cash
received upon the conversion of 2.3 million shares of Class C Stock, with a
redemption value of $122 million, into 10.5 million shares of Class D Stock
during January 1998, proceeds from sales of Class D Stock of $17 million and
the exercise of the Company's stock options for $10 million. The Company
reflected in the equity accounts the exchange of the conversion right and the
issuance of the Class R Stock at its fair value of $92 million on the date of
the Split-Off. The Company will recognize a similar adjustment to the equity
accounts of approximately $70 million during the second quarter of 1998 due to
the forced conversion of the Class R Stock effective May 15, 1998.
The Company consummated the Initial Offering of Original Notes on April 28,
1998. The net proceeds to the Company of the Initial Offering were
approximately $1.937 billion. The Company intends to use the net proceeds of
the Initial Offering in connection with the implementation of the Business Plan
to increase substantially its information services business and to expand the
range of services it offers by building an advanced international, facilities-
based communications network based on IP technology.
FINANCIAL CONDITION--DECEMBER 27, 1997
The Company's working capital, excluding C-TEC and discontinued operations,
increased $392 million or 106% during 1997. This was due to the $182 million of
cash generated by operations, primarily coal operations, and the significant
financing activities described below.
Investing activities included $452 million used to purchase marketable
securities, $42 million of investments and $26 million of capital expenditures,
including $14 million for the Company's existing information services business
and $6 million for a corporate jet. The $42 million of investments primarily
included the Company's $22 million investment in the Pavilion Towers office
complex, located in Aurora, Colorado, and $15 million of investments in
developing businesses. Funding a portion of these activities was the sale of
marketable securities for $167 million.
Sources of financing include $138 million from the issuance of Class D Stock,
$72 million from the exchange of Class C Stock for Class D Stock and $16
million from the financing for Pavilion Towers. Uses consist primarily of $12
million for the payment of dividends and $2 million of payments on long-term
debt.
At December 27, 1997, the Company had $140 million of long-term debt. Of this
long-term debt, $114 million was long term debt of CPTC. Approximately $14
million of additional long-term debt is included in net investments in
discontinued operations--construction.
LIQUIDITY AND CAPITAL RESOURCES
Since late 1997, the Company has substantially increased the emphasis it
places on and the resources devoted to its communications and information
services business. The Company intends to become a facilities-based provider
(that is, a provider that owns or leases a substantial portion of the plant,
property and equipment necessary to provide its services) of a broad range of
integrated communications services. To reach this goal, the Company plans to
expand substantially the business of PKSIS and to create, through a combination
of construction, purchase and leasing of facilities and other assets, an
international, end-to-end, facilities-based communications network. The Company
is designing its network based on IP technology in order to leverage the
efficiencies of this technology to provide lower cost communications services.
The development of the Business Plan will require significant capital
expenditures, a substantial portion of which will be incurred before any
significant related revenues from the Business Plan are expected to be
realized. These expenditures, together with the associated early operating
expenses, will result in substantial negative cash flow and substantial net
operating losses for the Company for the foreseeable future. The Company
estimates that its capital expenditures in connection with the Business Plan
will be in excess of $500 million in 1998 and
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will approximate $2 billion in 1999. The Company's current liquidity,
including the net proceeds of the Initial Offering, should be sufficient to
fund the currently committed portions of the Business Plan.
The Company currently estimates that the implementation of the Business
Plan, as currently contemplated, will require between $8 and $10 billion over
the next 10 years. The Company's ability to implement the Business Plan and
meet its projected growth is dependent upon its ability to secure substantial
additional financing in the future. The Company expects to meet its additional
capital needs with the proceeds from sales or issuance of equity securities,
credit facilities and other borrowings, or additional debt securities. The
Indenture permits the Company and its subsidiaries to incur substantial
amounts of debt. In addition, the Company may sell or dispose of existing
businesses or investments to fund portions of the Business Plan. The Company
may, as part of its ordinary course of business, sell or lease capacity, its
conduits or access to its conduits. There can be no assurance that the Company
will be successful in producing sufficient cash flow, raising sufficient debt
or equity capital on terms that it will consider acceptable, or selling or
leasing fiber optic capacity or access to its conduits, or that proceeds of
dispositions of the Company's assets will reflect the assets' intrinsic value.
Further, there can be no assurance that expenses will not exceed the Company's
estimates or that the financing needed will not likewise be higher than
estimated. Failure to generate sufficient funds may require the Company to
delay or abandon some of its future expansion or expenditures, which could
have a material adverse effect on the implementation of the Business Plan.
There can be no assurance that the Company will be able to obtain such
financing if and when it is needed or that, if available, such financing will
be on terms acceptable to the Company. If the Company is unable to obtain
additional financing when needed, it may be required to scale back
significantly its Business Plan and, depending upon cash flow from its
existing business, reduce the scope of its plans and operations.
In connection with implementing the Business Plan, management will continue
reviewing the existing businesses of the Company to determine how those
businesses will complement the Company's focus on communications and
information services. If it is decided that an existing business is not
compatible with the communications and information services business and if a
suitable buyer can be found, the Company may dispose of that business.
In February 1998, the Company announced that it was moving its corporate
headquarters to Broomfield, Colorado, a northwest suburb of Denver. The campus
facility is expected to encompass eventually over 500,000 square feet of
office space at a construction cost of over $70 million. The Company is
leasing space in the Denver area while the campus is under construction. The
first phase of the complex is scheduled for completion in the summer of 1999.
NEW ACCOUNTING PRONOUNCEMENTS
On March 4, 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1 ("SOP 98-1") Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 provides guidance
regarding whether costs of computer software developed or obtained for
internal use should be capitalized or expensed and is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company has
elected earlier applications of SOP 98-1 and has therefore adopted its
provisions as of January 1, 1998. Costs incurred prior to the application of
SOP 98-1, whether capitalized or not, are not adjusted upon adoption.
On April 3, 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, ("SOP 98-5") Reporting on the Costs of Start-Up
Activities, which provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
Company is required to reflect the initial application of SOP 98-5 as the
cumulative effect of a change in accounting principle, as described in
Accounting Principles Board Opinion No. 20, Accounting Changes. As a result of
the cumulative effect of a change in accounting treatment, the Company expects
to record a charge to earnings in the first quarter of 1999 for any
unamortized start-up or organization costs as of the beginning of 1999. The
Company is currently investigating the amount of that charge.
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INDUSTRY OVERVIEW
HISTORY AND INDUSTRY DEVELOPMENT
Telecommunications Industry. Prior to its court-ordered breakup in 1984 (the
"Divestiture"), AT&T largely monopolized the telecommunications services in
the United States even though technological developments had begun to make it
economically possible for companies (primarily entrepreneurial enterprises) to
compete for segments of the communications business.
The present structure of the U.S. telecommunications market is largely the
result of the Divestiture. As part of the Divestiture, seven local exchange
holding companies were created to offer services in geographically defined
areas called LATAs. The RBOCs were separated from the long distance provider,
AT&T, resulting in the creation of two distinct market segments: local
exchange and long distance. The Divestiture provided for direct, open
competition in the long distance segment.
The Divestiture did not provide for competition in the local exchange
market. However, several factors served to promote competition in the local
exchange market, including: (i) customer desire for an alternative to the
RBOCs, also referred to as the ILECs; (ii) technological advances in the
transmission of data and video requiring greater capacity and reliability than
ILEC networks were able to accommodate; (iii) a monopoly position and rate of
return-based pricing structure which provided little incentive for the ILECs
to upgrade their networks; and (iv) the significant fees, called "access
charges," long distance carriers were required to pay to the ILECs to access
the ILECs' networks.
The first competitors in the local exchange market, designated as CAPs by
the FCC, were established in the mid-1980s. Most of the early CAPs were
entrepreneurial enterprises that operated limited networks in the central
business districts of major cities in the United States where the highest
concentration of voice and data traffic is found. Since most states prohibited
competition for local switched services, early CAP services primarily
consisted of providing dedicated, unswitched connections to long distance
carriers and large businesses. These connections allowed high-volume users to
avoid the relatively high prices charged by ILECs for dedicated, unswitched
connections or for switched access.
As CAPs proliferated during the latter part of the 1980s, certain federal
and state regulators issued rulings which favored competition and promised to
open local markets to new entrants. These rulings allowed CAPs to offer a
number of new services, including, in certain states, a broad range of local
exchange services, including local switched services. Companies providing a
combination of CAP and switched local services are sometimes referred to as
CLECs. This pro-competitive trend continued with the passage of the Telecom
Act, which provided a legal framework for introducing competition to local
telecommunications services throughout the United States.
Over the last three years, several significant transactions have been
announced representing consolidation of the U.S. telecom industry. Among the
ILECs, Bell Atlantic Corporation and NYNEX Corporation merged in August 1997,
Pacific Telesis Group and SBC Communications Inc. merged in April 1997 and SBC
Communications Inc. and Ameritech Corporation announced in May 1998 an
agreement to merge. Major long distance providers have sought to enhance their
positions in local markets, through transactions such as AT&T's acquisition of
Teleport Communications Group and WorldCom's mergers with MFS and Brooks Fiber
Properties, and to otherwise improve their competitive positions, through
transactions such as WorldCom's planned merger with MCI.
Many international markets resemble that of the United States prior to the
Divestiture. In many countries, traditional telecommunications services have
been provided through a monopoly provider, frequently controlled by the
national government, such as a Post, Telegraph and Telephone Company ("PTT").
In recent years, there has been a trend toward liberalization of many of these
markets, particularly in Europe. Led by the introduction of competition in the
United Kingdom, the European Union mandated open competition as of January
1998. Similar trends are emerging, albeit more slowly, in Asia.
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Internet Industry. The Internet is a global collection of interconnected
computer networks that allows commercial organizations, educational
institutions, government agencies and individuals to communicate
electronically, access and share information and conduct business. The
Internet originated with the ARPAnet, a restricted network that was created in
1969 by the United States Department of Defense Advanced Research Projects
Agency (DARPA) to provide efficient and reliable long distance data
communications among the disparate computer systems used by government-funded
researchers and academic organizations. The networks that comprise the
Internet are connected in a variety of ways, including by the public switched
telephone network and by high speed, dedicated leased lines. Communications on
the Internet are enabled by IP, an inter-networking standard that enables
communication across the Internet regardless of the hardware and software
used.
Over time, as businesses have begun to utilize e-mail, file transfer and,
more recently, intranet and extranet services, commercial usage has become a
major component of Internet traffic. In 1989, the U.S. government effectively
ceased directly funding any part of the Internet backbone. In the mid-1990s,
contemporaneous with the increase in commercial usage of the Internet, a new
type of provider called an ISP became more prevalent. ISPs offer access, e-
mail, customized consent and other specialized services and products aimed at
allowing both commercial and residential customers to obtain information from,
transmit information to, and utilize resources available on the Internet.
ISPs generally operate networks composed of dedicated lines leased from
Internet backbone providers using IP-based switching and routing equipment and
server-based applications and databases. Customers are connected to the ISP's
POP by facilities obtained by the customer or the ISP from either ILECs or
CLECs through a dedicated access line or the placement of a circuit-switched
local telephone call to the ISP.
IP Communications Technology. There are two widely used switching
technologies in currently deployed communications networks: circuit-switching
systems and packet-switching systems. Circuit-switch based communications
systems establish a dedicated channel for each communication (such as a
telephone call for voice or fax), maintain the channel for the duration of the
call, and disconnect the channel at the conclusion of the call. Packet-switch
based communications systems format the information to be transmitted, such as
e-mail, voice, fax and data into a series of shorter digital messages called
"packets." Each packet consists of a portion of the complete message plus the
addressing information to identify the destination and return address.
Packet-switch based systems offer several advantages over circuit-switch
based systems, particularly the ability to commingle packets from several
communications sources together simultaneously onto a single channel. For most
communications, particularly those with bursts of information followed by
periods of "silence," the ability to commingle packets provides for superior
network utilization and efficiency, resulting in more information being
transmitted through a given communication channel. There are, however, certain
disadvantages to packet-switch based systems as currently implemented. Rapidly
increasing demands for data, in part driven by the Internet traffic volumes,
are straining capacity and contributing to latency (delays) and interruptions
in communications transmissions. In addition, there are concerns about the
adequacy of the security and reliability of packet-switch based systems as
currently implemented.
Many initiatives are under way to develop technology to address these
disadvantages of packet-switch based systems. The Company believes that the IP
standard, which is an "open networking standard" broadly adopted in the
Internet and elsewhere, should remain a primary focus of these development
efforts. The Company expects the benefits of these efforts to be improved
communications throughout, reduced latency and declining networking hardware
costs.
TELECOMMUNICATIONS SERVICES MARKET
Overview of U.S. Market. The traditional U.S. market for telecommunications
services can be divided into three basic sectors: long distance services,
local exchange services and Internet access services. In 1997, it is estimated
that local exchange services accounted for revenues of $92.4 billion, long
distance services generated revenues of $104.6 billion and Internet services
revenues totaled $6.3 billion. Revenues for both local exchange
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and long distance services include amounts charged by long distance carriers
and subsequently paid to ILECs (or, where applicable, CLECs) for long distance
access.
Long Distance Services. A long distance telephone call can be envisioned as
consisting of three segments. Starting with the originating customer, the call
travels along a local exchange network to a long distance carrier's POP. At
the POP, the call is combined with other calls and sent along a long distance
network to a POP on the long distance carrier's network near where the call
will terminate. The call is then sent from this POP along a local network to
the terminating customer. Long distance carriers provide only the connection
between the two local networks, and pay access charges to LECs for originating
and terminating calls.
The following diagram is a simplified illustration of a typical long
distance call:
[Diagram]
Local Exchange Services. A local call is one that does not require the
services of a long distance carrier. In general, the local exchange carrier
connects end user customers within a LATA and also provides the local portion
of most long distance calls.
The following diagram is a simplified illustration of a typical local call:
[Diagram]
Internet Service. Internet services are generally provided in at least two
distinct segments. A local network connection is required from the ISP
customer to the ISP's local facilities. For large, communication-intensive
users and for content providers, these connections are typically unswitched,
dedicated connections provided by
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ILECs or CLECs, either as independent service providers or, in some cases, by
a company which is both a CLEC and an ISP. For residential and small/medium
business users, these connections are generally PSTN connections obtained on a
dial-up access basis as a local exchange telephone call. Once a local
connection is made to the ISP's local facilities, information can be
transmitted and obtained over a packet-switched IP data network, which may
consist of segments provided by many interconnected networks operated by a
number of ISPs. This collection of interconnected networks makes up the
Internet. A key feature of Internet architecture and packet-switching is that
a single dedicated channel between communication points is never established,
which distinguishes Internet-based services from the PSTN.
The following diagram is a simplified illustration of a typical Internet
access service:
[Diagram]
Overview of International Market. The traditional market for
telecommunications services outside of the United States can also be divided
into three basic sectors: long distance services, local exchange services and
Internet access services. In 1997, it is estimated that local exchange
services accounted for revenues of $116.6 billion, long distance services
generated revenues of $193.7 billion and Internet services revenues totaled
$4.8 billion.
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BUSINESS
Level 3 engages in the information services, communications and coal mining
businesses through ownership of operating subsidiaries and substantial equity
positions in public companies. In late 1997, the Company announced the
Business Plan to increase substantially its information services business and
to expand the range of services it offers by building an advanced,
international facilities-based communications network based on IP technology.
HISTORY
The Company was incorporated as Peter Kiewit Sons', Inc. in Delaware in 1941
to continue a construction business founded in Omaha, Nebraska in 1884. In
subsequent years, the Company invested a portion of the cash flow generated by
its construction activities in a variety of other businesses. The Company
entered the coal mining business in 1943, the telecommunications business
(consisting of MFS and, more recently, an investment in C-TEC and its
successors RCN Corporation, Commonwealth Telephone Enterprises, Inc. and Cable
Michigan) in 1988, the information services business in 1990 and the
alternative energy business, through CalEnergy, in 1991. Level 3 also has made
investments in several development-stage ventures.
In the last three years, the Company has distributed to its stockholders a
portion of its telecommunications business, split off its construction
business and sold its investments in the alternative energy sector. In 1995,
the Company distributed to the holders of Class D Stock all of its shares of
MFS. In the seven years from 1988 to 1995, the Company invested approximately
$500 million in MFS; at the time of the distribution to stockholders in 1995,
the Company's holdings in MFS had a market value of approximately $1.75
billion. In December 1996, MFS was purchased by WorldCom in a transaction
valued at $14.3 billion.
In December 1997, the Company's stockholders ratified the decision of the
Board to effect the Split-Off separating the Construction Group. As a result
of the Split-Off, which was completed on March 31, 1998, the Company no longer
owns any interest in the Construction Group. In conjunction with the Split-
Off, the Company changed its name to "Level 3 Communications, Inc.," and New
PKS, the company formed in the Split-Off to hold the Construction Group's
business, changed its name to "Peter Kiewit Sons', Inc."
In January 1998, the Company completed the sale to CalEnergy of its energy
investments, consisting primarily of a 24% equity interest in CalEnergy. The
Company received proceeds of approximately $1.16 billion from this sale, and
as a result expects to recognize an after-tax gain of approximately $324
million in 1998.
BUSINESS PLAN
Since late 1997, the Company has substantially increased the emphasis it
places on and the resources devoted to its communications and information
services business. The Company intends to become a facilities-based provider
(that is, a provider that owns or leases a substantial portion of the plant,
property and equipment necessary to provide its services) of a broad range of
integrated communications services. To reach this goal, the Company plans to
expand substantially the business of PKSIS and to create, through a
combination of construction, purchase and leasing of facilities and other
assets, an international, end-to-end, facilities-based communications network.
The Company is designing the Level 3 Network based on IP technology in order
to leverage the efficiencies of this technology to provide lower cost
communications services.
Market and Technology Opportunity. The Company believes that, as technology
advances, a comprehensive range of both consumer and business communications
and information services will be provided over networks utilizing IP
technology. These services will include traditional voice services and fax
transmission, as well as other data services such as Internet access and
virtual private networks. The Company believes this shift has begun, and over
time should accelerate, for the following reasons:
. Efficiency. As a packet-switched technology, IP technology generally uses
network capacity more efficiently than the traditional circuit-switched
PSTN. Therefore, certain services can be provided for
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lower cost over a network using IP technology, particularly those services
which are not timing sensitive, such as e-mail and file transfer.
. Flexibility. IP technology is based on an open protocol (a non-
proprietary, published standard) which allows for market driven
development of new uses and applications for IP networks. In contrast,
the PSTN is based on proprietary protocols, which are governed and
maintained by international standards bodies that are generally
controlled by government-affiliated entities.
. Improving Technologies. The Company believes that IP's open protocol will
likely lead to technological advances that will address the problems
currently associated with IP-based applications, including the difficulty
achieving seamless interconnection with the PSTN, latency (delay through
the network which can negatively affect timing sensitive communications
such as voice and fax) and concerns about adequate security and
reliability.
. Standardized Interface. Web browsers (developed for the Internet and
usable with many IP networks) can provide a standardized interface to
data and applications on an IP network and thus make it easier for end
users to access and use these resources.
Level 3's Strategy. The Company seeks to capitalize on the benefits of IP
technology by pursuing the Business Plan. Key elements of the Company's
strategy include:
. Deploy an Advanced Network Infrastructure. The Company is creating the
Level 3 Network, an advanced, international, facilities-based
communications network based on IP technology, through a combination of
construction, purchase and lease of network assets. Level 3 is designing
its network to provide high quality communications services at lower cost
and to incorporate more readily future technological improvements
relative to older, less adaptable networks.
. Provide Seamless Interconnection to the PSTN. The Company is developing
technology to allow seamless interconnection of the Level 3 Network with
the PSTN. A seamless interconnection will allow customers to use the
Company's IP-based services, including voice and fax, without modifying
existing telephone and fax equipment or existing dialing procedures (that
is, without the need to dial access codes or follow other similar special
procedures).
. Offer a Comprehensive Range of Services. As the Business Plan is
implemented, the Company intends to provide a comprehensive range of
communications services over the Level 3 Network, including private line,
collocation, Web hosting, Internet access, virtual private network and
voice and fax transmission services.
. Accelerate Market Roll-out. In order to begin the implementation of the
Business Plan as rapidly as possible and enable the Company to begin
offering services in late 1998, the Company has leased approximately
8,300 miles of capacity over a new fiber optic network under construction
in North America. This leased line network will be displaced over time by
an intercity network owned by the Company.
. Expand Target Market Opportunities. The Company will use a direct sales
force to address large businesses. In addition, the Company will use
alternative distribution channels to gain access to a substantially
larger base of potential customers than the Company could otherwise
initially address through its direct sales force. Through the combination
of a direct sales force and alternative distribution channels, the
Company believes that it will be able to increase more rapidly revenue-
producing traffic on its network.
. Develop Advanced Business Support Systems. The Company has begun to
develop a substantial, scalable business support system infrastructure
specifically designed to enable the Company to offer services efficiently
to its targeted customers.
. Leverage Existing Information Services Capabilities. The Company intends
to expand its existing capabilities in computer network systems
integration, consulting, outsourcing and software reengineering,
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with particular emphasis on the conversion of legacy software systems to
systems that are compatible with IP networks and Web browser access.
. Attract and Motivate High Quality Employees. The Company has developed
programs designed to attract and retain sufficient numbers of employees
with the technical skills necessary to implement the Business Plan. The
programs include the Company's Shareworks program and its Outperform
Stock Option program.
Competitive Advantages. The Company believes that it has the following
competitive advantages that will assist it in implementing the Business Plan:
. Experienced Management Team. Level 3 has assembled a management team that
it believes is well suited to implement the Business Plan. Most of Level
3's senior management were involved in leading the development and
marketing of products offered by other telecommunications companies, the
design, construction and management of intercity and metropolitan
networks as well as the deployment of international networks.
. Opportunity to Create a New Network Infrastructure. Since the Level 3
Network will be newly designed, the Company will be able to design and
deploy a communications network that takes advantage of recent
innovations, contains many features that are not present in older
communications networks and provides flexibility to incorporate future
developments and innovations. For example, Level 3 is designing and will
construct its intercity fiber optic network using multiple conduits. The
Company believes that this will allow it to deploy future technological
innovations in fiber optic cable and expand capacity. In addition, the
Company is maximizing the use of open, non-proprietary interfaces in the
design of its network software and hardware. This approach is intended to
allow lower-cost improvements to these network assets.
. Integrated End-to-End Network Platform. Level 3's strategy is to deploy
network infrastructure in major metropolitan areas and to link these
networks with significant intercity networks in North America and Europe.
The integration of the local and intercity networks will enable the
Company to expand the scope and reach of its "on-net" customer coverage,
as well as facilitate the uniform deployment of technological innovations
as the Company manages its future upgrade paths.
. Development of Advanced Business Support Systems. The Company has begun
to develop a substantial, scalable business support system infrastructure
specifically designed to enable the Company to offer services efficiently
to its targeted customers. The Company believes that it has the
opportunity to develop a competitive advantage relative to traditional
telecommunications companies which often operate extensive legacy
business support systems with compartmentalized architectures that limit
their ability to scale rapidly and introduce enhanced services and
features.
. Systems Integration Capabilities. The Company currently offers computer
outsourcing and systems integration services. The Company believes that
its ability to offer these services, particularly services relating to
allowing a customer's legacy systems to be accessed with Web browsers,
will provide additional opportunities for selling the products and
services to be offered under the Business Plan.
THE LEVEL 3 NETWORK
An important element of the Business Plan is the development of the Level 3
Network, an international, end-to-end network optimized for IP technology. The
Company will initially offer its communications services using local and
intercity facilities that are leased from third parties to enable the Company
to offer services during the construction of its own facilities. Over time,
the portion of the Company's network that is owned by the Company will
increase and the portion of the facilities leased will decrease. Over the next
four to six years, the Company's network is expected to encompass (i) backbone
facilities in approximately 40 North American markets, (ii) leased backbone
facilities in approximately 10 additional North American markets, (iii) an
intercity network covering approximately 15,000 miles in North America, (iv)
backbone facilities in approximately 13
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European and 4 Asian markets and (v) an intercity network covering
approximately 2,000 miles across Europe. For a discussion of the risks
associated with the deployment of the Level 3 Network, see "Risk Factors--
Difficulties in Constructing, Operating and Upgrading the Level 3 Network."
Intercity Network. The Company's approximately 15,000 mile fiber optic
intercity network in North America (the "North American Intercity Network")
will consist of the following:
. ROW from a number of third parties including railroads, highway
commissions and utilities. The Company intends to procure these rights
from sources which maximize the security and quality of the Company's
installed network. On April 2, 1998, the Company announced that it had
reached a definitive agreement with Union Pacific granting Level 3 the
use of approximately 7,800 miles of ROW along Union Pacific's rail routes
for the construction of the North American Intercity Network. The Company
expects that the Union Pacific agreement will satisfy substantially all
of its anticipated ROW requirements west of the Mississippi River and
approximately 50% of the ROW requirements for the North American
Intercity Network.
. Multiple conduits connecting approximately 50 North American cities. The
Company believes that the availability of spare conduit will allow it to
deploy future technological innovations and expand capacity in a more
rapid and cost-effective manner.
. Initial installation of optical fiber strands designed to accommodate
dense wave division multiplexing transmission technology. This fiber
allows deployment of equipment which transmits signals on 32 or more
individual wavelengths of light per strand, thereby significantly
increasing the capacity of the Company's network relative to older
networks which generally use optical fiber strands that transmit fewer
wavelengths of light per strand.
. High speed SONET transmission equipment employing self-healing protection
switching and designed for high quality and reliable transmission.
. A design that maximizes the use of open, non-proprietary hardware and
software interfaces to allow less costly upgrades as hardware and
software technology improves.
The Company intends to provide initial service over a leased line network
which is currently being deployed. On March 23, 1998, the Company and Frontier
entered into the Frontier Agreement, enabling the Company to lease capacity on
Frontier's new 13,000 mile SONET fiber optic, IP-capable network, for a period
of up to five years. The leased network will initially encompass approximately
8,300 miles of OC-12 network capacity, initially connecting 15 of the larger
cities across the United States. While requiring an aggregate minimum payment
of $165 million over its five-year term, the Frontier Agreement does not
impose monthly minimum consumption requirements on the Company, allowing the
Company to order, alter or terminate circuits as it deems appropriate.
This leased line network will be displaced over time by an intercity network
owned by the Company. Deployment of the North American Intercity Network will
be accomplished through simultaneous construction efforts in multiple
locations, with different portions being completed at different times. The
North American Intercity Network is expected to be completed by the end of
2001.
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The following diagram depicts the currently planned North American Intercity
Network when fully constructed:
[Diagram]
The Company also intends to deploy an approximately 2,000 mile fiber optic
intercity network in Europe with characteristics similar to those of the North
American Intercity Network. As is the case with the North American Intercity
Network, the Company will provide initial service in Europe over a leased line
network that will be displaced over time by the intercity network owned by the
Company. In Asia, the Company intends to provide service over a leased line
network.
Local Market Infrastructure. The Company's local facilities will include
fiber optic networks, in a SONET ring configuration, connecting Level 3's
intercity network gateway sites to ILEC central offices, long distance carrier
POPs, buildings housing communication-intensive end users and Internet peering
and transit facilities.
The Company is establishing 30,000 to 80,000 square foot gateway sites in 15
of the larger U.S. cities, with smaller facilities in 35 other cities. These
facilities are being designed to house the Company's transmission and IP
routing/switching facilities and to accommodate collocation of equipment by
high-volume Level 3 customers, such as ISPs, in an environmentally controlled,
secure site with direct access to the Level 3 Network. The Company has entered
into leases for gateway sites in New York City, Washington, D.C.,
Philadelphia, Atlanta, Dallas, Houston, Chicago, Detroit, Denver, Seattle, San
Francisco, San Jose, Los Angeles and San Diego, and the Company is negotiating
a lease for such a facility in Boston. By the end of 1998, the Company expects
to offer a limited set of services (special access and private line,
collocation, Web hosting and Internet access) at its gateway sites in these
cities.
Initial construction of the network in the largest 15 cities is expected to
be completed in the first and second quarter of 1999, with phased completion
of the U.S. local infrastructure occurring by 2001.
As of March 31, 1998, the Company had submitted applications for collocation
in 56 ILEC central offices in 15 cities; the Company is currently engaging in
construction in 52 of these central offices. The Company has initiated
interconnection negotiations with each of the RBOCs.
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The Company is currently in negotiations for master leases with CLECs and
ILECs to obtain leased capacity from those providers so that the Company can
provide its clients with local transmission capabilities before its own local
networks are complete and in locations not directly accessed by the Company's
owned facilities.
IP Network and Interconnection. The Company is designing the Level 3 Network
to be optimized for IP-based communications, rather than circuit-switch based
communications such as that utilized by the PSTN. The network is being
designed to provide the Company with the ability to adapt its facilities,
hardware and software to future technology developments in packet-switch based
communications systems.
There are many IP networks currently in operation. While generally adequate
for data transmission needs, these networks usually are not configured to
provide the voice quality, real-time communications requirements of a
traditional telephone call. With current technology, this quality can only be
achieved by providing a substantial cushion of communications capacity.
Existing voice-over IP services generally require a combination of substantial
capacity and either customized end-user equipment or the dialing of "access
codes" or the following of other special procedures to initiate a call. There
are also concerns about the reliability and security of existing IP-voice
networks.
The Company is developing technology to enable it to transmit traffic
seamlessly between its own router-based IP network and the circuit-based PSTN.
This technology is expected to provide the Level 3 Network with the same
ubiquity of the PSTN. Specifically, the Company's technology is expected to
provide Level 3 with (i) the ability to originate PSTN telephone traffic from
an ILEC's switch (when the origination point is not on the Level 3 Network),
(ii) route the traffic over the Level 3 Network and (iii) deliver the traffic
either (a) directly to its destination (if the destination is on the Level 3
Network) or (b) to an interconnection point where the traffic is transferred
back to the PSTN (the routing of traffic to this interconnection point will be
determined based on a least-cost routing criteria). When this capability is
fully developed, Level 3 expects to be able to obtain the benefits of packet-
switch based communications protocols on its network, while allowing its
customers to use their existing equipment, telephone numbers and dialing
procedures without additional access for routing the call to the Level 3
Network. Level 3 believes that by building its own network with significant
excess capacity and the latest technological advances in network design and
equipment and having the ability to route calls over the PSTN in the event of
service disruptions, the other significant issues associated with IP-voice
transmission (latency, reliability and security) should be satisfactorily
addressed.
On April 23, 1998, the Company acquired XCOM, a privately held company
located in Cambridge, Massachusetts. XCOM has developed technology which the
Company believes will provide certain key components necessary for the Company
to develop an interface between its IP-based network and the PSTN. In 1997,
XCOM had revenues of approximately $3 million. See "Capitalization" and "Risk
Factors--Need to Develop Voice Technology for IP Networks."
COMMUNICATION AND INFORMATION SERVICES
In connection with the Business Plan, the Company is substantially
increasing the emphasis it places on and the resources devoted to its
communications and information services business. The Company intends to build
on the strengths of its information services business and the benefits of the
Level 3 Network to offer a broad range of other services to business and other
end users.
Level 3 currently offers, through its subsidiary PKSIS, computer operations
outsourcing and systems integration services to customers located throughout
the United States as well as abroad. The computer outsourcing services offered
by the Company include networking and computing services necessary for older
mainframe-based systems and newer client/server-based systems. The Company
provides its outsourcing services to clients that want to focus their
resources on core businesses, rather than expend capital and incur overhead
costs to operate their own computing environments. Level 3 believes that it is
able to utilize its expertise and experience, as well as operating
efficiencies, to provide its outsourcing customers with levels of service
equal to
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or better than those achievable by the customers themselves, while at the same
time reducing the customers' cost for such services. This service is
particularly useful for those customers moving from older computing platforms
to more modern client/server networks.
The Company's systems integration services help customers define, develop
and implement cost-effective information services. In addition, the Company
offers reengineering services that allow companies to convert older legacy
software systems to modern networked computing systems, with a focus on
reengineering software to enable older software application and data
repositories to be accessed by Web browsers over the Internet or over private
or limited access IP networks. Through its Suite 2000SM line of services, the
Company provides customers with a multi-phased service for converting programs
and applications so that date-related information is accurately processed and
stored before and after the year 2000. The Company also provides customers
with a combination of workbench tools and methodologies that provide a
complete strategy for converting mainframe-based application systems to
client/server architecture, while at the same time ensuring Year 2000
compliance. See "Risk Factors--Year 2000 Issues."
As the Business Plan is implemented, the Company intends to offer a
comprehensive range of communications services, including the following:
. Special Access and Private Line. Special access and private line services
are established as a permanent physical connection between locations for
the exclusive use of the customer. The Company intends to offer the
following types of special access and private line services:
. Carrier-to-Carrier Special Access. This type of link connects
carriers (long distance providers, wireless providers, ILECs and
CLECs) to other carriers.
. End-user to Long Distance Provider Special Access. This type of link
connects an end-user, such as a large business, with the local POP of
its chosen long distance provider.
. Private Line. This type of link is a dedicated line connecting two
end-user locations for voice and data applications, including ISPs.
The Company expects that its local special access and private line services
will be initially available at transmission speeds from 64 kbps to 45 Mbps
and its long distance services will be offered at speeds from 64 kbps to 45
Mbps. The Company intends initially to market its special access and private
line services to medium to large corporate customers, resellers and ISPs.
. Collocation. The Company intends to offer its customers and other service
providers the ability to locate their communications and networking
equipment at Level 3's gateway sites in a safe and secure technical
operating environment. The demand for these collocation services has
increased as companies expand into geographic areas in which they do not
have appropriate space or technical personnel to support their equipment
and operations. At its collocation sites, the Company will provide
customers with AC/DC power, optional UPS power, emergency back-up
generator power, HVAC, fire protection and security. Level 3 will also
provide high-speed, reliable connectivity to the Level 3 Network and
other networks, including both local and wide area networks, the PSTN and
Internet. These sites will be monitored and maintained 24 hours a day.
. Internet Access. The Company plans to offer Internet access to business
customers, other carriers and ISPs. These services will include high-
capacity Internet connections ranging from 33.6 kbps to 45 Mbps. The
Company is seeking full peering arrangements with several existing
Internet providers that, when in place, will allow Level 3 to provide
superior Internet throughput to its customers relative to other providers
which must exchange Internet traffic at the increasingly congested MAEs
and NAPs.
. Web Hosting. The Company plans to offer three categories of Web hosting
services. First, the Company intends to offer small to large businesses
the opportunity to collocate Web-server computers, owned by such
businesses at the Company's larger gateway sites enabling them to take
advantage of the marketing, customer service, internal company
information ("intranets") and other benefits offered by such Web
presence. By collocating its Web-server at a Company facility, a customer
will have the ability to deploy
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a high-quality, high-reliability Internet presence without investing
capital in data center space, multiple high-speed connections or other
capital intensive infrastructure. Although the customer will be
responsible for maintaining the content and performance of its server, the
Company's technicians will be available to monitor basic server operation.
Second, the Company plans to offer customers use of Level 3 Web-server
computers, services, support staff, and the redundant infrastructure
consisting of multiple routers and connections to Internet backbones.
Third, the Company plans to offer IP Services such as email, news feeds
and Domain Name Services (DNS).
. Virtual Private Network ("VPN"). Many companies have private data
communication networks, which are often referred to as wide area networks
("WANs") and built on expensive leased lines, to transfer proprietary data
between office locations. Additionally, many companies require that their
employees have remote access to these private networks from home or while
traveling. The Level 3 Network will offer companies a cost-effective
replacement alternative to WANs through VPNs, which are meant to provide
secure transmission of private IP traffic using shared network capacity. VPN
products are also the basis for offering intranet and extranet service.
Intranets are corporate/organizational networks that rely on Internet-based
technologies to provide secure links between corporate offices. Extranets can
expand these networks to selected business partners through secured links on
the shared network capacity. Increasingly, companies are finding that
intranets and extranets can enhance corporate productivity more easily and
less expensively than proprietary systems. After sufficient deployment of the
Level 3 Network has been achieved, the Company intends to offer VPN services,
enabling the Company's customers to connect multiple locations with IP-based
technology at defined levels of quality, reliability and security.
. Voice. The Company seeks to offer voice services, including both real-time
voice and fax transmission services, which are accessed using existing
telephone and fax equipment and existing dialing procedures. The Company
expects that these services will be offered at a quality level equal to that
of the PSTN. For a discussion of the Company's efforts to develop the
technology to provide these voice services, see "--The Level 3 Network--IP
Network and Interconnection."
The Company currently expects to offer special access and private line,
collocation, Web hosting and Internet access at the largest 15 U.S. cities by
the end of 1998.
DISTRIBUTION STRATEGY
The Company's distribution strategy is to utilize a direct sales force as
well as alternative distribution channels. Through the combination of a direct
sales force and alternative distribution channels, the Company believes that
it will be able to more rapidly access markets and increase revenue-producing
traffic on its network. To implement its distribution strategy, the Company is
developing an in-house direct sales force and has identified a variety of
possible alternative distribution channels.
The Company intends to utilize its direct sales force to market its products
and services directly to large communications-intensive businesses. In
addition, the direct sales force will target national and international
accounts. These communications-intensive customers would typically be
connected directly to the Level 3 Network using unswitched, dedicated
facilities.
As part of its distribution strategy, the Company has identified several
potential alternative distribution channels. These include agents, resellers
and wholesalers.
. Agents are independent organizations that would sell Level 3's products
and services under the Level 3 brand name to end-users in exchange for
revenue based commissions. The Company intends to identify agents that
generally would be focused on specific market segments (such as small and
medium sized businesses) and have existing customer bases. Sales through
this alternative distribution channel would require Level 3 to provide
the same type of services that would be provided in the case of sales
through its own direct sales force such as order fulfillment, billing and
collections, customer care and direct sales management.
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. Resellers are independent companies that would purchase Level 3's
products and services and then "repackage" these services for sale to
their customers under their own brand name. The Company believes that
resellers would require access to certain of the Company's business
operating systems in connection with the sale of the Company's services
to the resellers' customers. Sales through this distribution channel
generally would not require Level 3 to provide order fulfillment, billing
and collection and customer care.
. Wholesalers are independent companies that would purchase from the
Company unbundled network and service capabilities in large quantities in
order to market their own products and services under a brand name other
than Level 3. The Company believes that wholesalers would have minimal
dependence on the Company's business support systems in connection with
the sale of services to their customers.
The Company anticipates that participants in its alternative distribution
channels will sell services directly to medium and small businesses and
consumers. The Company expects these medium and small businesses and consumers
to access the Level 3 Network by using local switched services that are
provided by CLECs or ILECs or by utilizing newly emerging alternatives
including various Digital Subscriber Line (DSL) modem technologies, cable
modems and wireless access technologies.
BUSINESS SUPPORT SYSTEM
In order to pursue its direct sales and alternative distribution strategies,
the Company is developing a set of integrated software applications designed
to automate the Company's operational processes. Through the development of a
robust, scaleable BSS, the Company believes that it has the opportunity to
develop a competitive advantage relative to traditional telecommunications
companies. Whereas traditional telecommunications companies operate extensive
legacy business support systems with compartmentalized architectures that
limit their ability to scale rapidly and introduce enhanced services and
features, the Company is developing a BSS with an architecture designed
to maximize both reliability and scaleability. The Company has entered into an
agreement with a third party to provide systems integration services in
connection with the development of the Company's BSS. See "Risk Factors--
Development of Effective Processes and Systems."
Key design requirements for the BSS development program are:
. integrated modular applications to allow the Company to upgrade specific
applications as new products are available;
. a scaleable architecture that will allow certain functions that would
otherwise have to be performed by Level 3 employees to be performed by
the Company's alternative distribution channel participants;
. phased completion of software releases designed to allow the Company to
test functionality on an incremental basis;
. ""Web enabled" applications so that on-line access to all order entry,
network operations, billing, and customer care functions is available to
all authorized users, including Level 3's customers and resellers;
. use of a three-tiered, client/server architecture that is designed to
separate data and applications, and is expected to enable continued
improvement of software functionality at minimum cost; and
. maximum use of pre-developed or "shrink wrapped" applications, which will
interface to the selected enterprise resource planning (ERP) suite.
The Company expects that the first release of the BSS, currently scheduled
for the end of 1998, will contain functionality necessary to support the set
of services to be offered at that time. See "--Communication and Information
Services." Subsequent releases are scheduled to support the planned rollout of
the complete set of the Company's services.
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INTERCONNECTION AND PEERING
As a result of the Telecom Act, properly certificated companies may, as a
matter of law, interconnect with ILECs on terms designed to help ensure
economic, technical and administrative equality between the interconnected
parties. The Telecom Act provides, among other things, that ILECs must offer
competitors the services and facilities necessary to offer local switched
services. See "--Regulation."
The Company is currently negotiating agreements for the interconnection of
the Level 3 Network with the networks of the ILEC covering each market in
which the Company is constructing its network. The Company may be required to
negotiate new or renegotiate existing interconnection agreements as Level 3
enters new markets in the future.
Peering agreements between the Company and ISPs will be necessary in order
for the Company to exchange traffic with those ISPs without having to pay
transit costs. The basis on which the large national ISPs make peering
available or impose settlement charges is evolving as the provision of
Internet access and related services has expanded. Recently, companies that
have previously offered peering have cut back or eliminated peering
relationships and are establishing new, more restrictive criteria for peering.
Furthermore, if increasing requirements associated with maintaining peering
with the major national ISPs develop, the Company may have to comply with
those additional requirements in order to maintain any peering relationships
it negotiates. See "Risk Factors--Lack of Interconnection and Peering
Arrangements."
EMPLOYEE RECRUITING AND RETENTION
The Company believes that its ability to implement the Business Plan will
depend in large part on its ability to attract and retain qualified employees.
The Company expects to hire another 700 employees by the end of 1998, and to
have over 5,000 employees once the North American Intercity Network has been
fully deployed. In order to attract and retain highly qualified employees, the
Company believes that it is important to provide (i) a work environment that
encourages each individual to perform to his or her potential, (ii) a work
environment that facilitates cooperation towards shared goals and (iii) a
compensation program designed to attract the kinds of individuals the Company
seeks and to align employees' interests with the Company's. The Company
believes the Business Plan and its announced relocation to new facilities,
currently being constructed in the Denver metropolitan area, help provide such
a work environment. With respect to compensation programs, while the Company
believes financial rewards alone are not sufficient to attract and retain
qualified employees, the Company believes a properly designed compensation
program is a necessary component of employee recruitment and retention. In
this regard the Company's philosophy is to pay annual cash compensation which,
if the Company's annual goals are met, is moderately greater than such
compensation paid by competitors. The Company's non-cash benefit programs
(including medical and health insurance, life insurance, disability insurance,
etc.) are designed to be comparable to those offered by its competitors. See
"Risk Factors--Dependence on Hiring and Retaining Qualified Personnel; Key
Personnel."
The Company believes that the qualified candidates it seeks place particular
emphasis on equity-based long term incentive ("LTI") programs. The Company
currently has two complementary programs: (i) the equity-based "Shareworks"
program, which helps ensure that all employees have an ownership interest in
the Company and are encouraged to invest risk capital in the Company's stock;
and (ii) an innovative Outperform Stock Option ("OSO") program applicable to
the Company's middle and senior management. The Shareworks program currently
enables employees to contribute up to 7% of their compensation toward the
purchase of restricted Common Stock. If an employee remains employed by the
Company for three years from the date of purchase, the shares will vest and be
matched by the Company with a grant of an equal number of shares of Common
Stock. The Shareworks program also provides that the Company's employees will
be eligible annually for grants by the Company of restricted Common Stock of
up to 3% of the employees' compensation, which shares will vest three years
from the grant date.
With respect to middle and senior management, the Company has adopted the
OSO program, which differs from LTI programs generally adopted by the
Company's competitors that make employees eligible for
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conventional non-qualified stock options ("NQSOs"). While widely adopted, the
Company believes such NQSO programs reward eligible employees when company
stock price performance is inferior to investments of similar risks, dilute
public stockholders in a manner not directly proportional to performance and
fail to provide a preferred return on stockholders' invested capital over the
return to option holders. The Company believes that the OSO program is
superior to an NQSO-based program with respect to these issues while, at the
same time, providing eligible employees a success-based reward balancing the
associated risk.
The OSO program was designed by the Company so that its stockholders receive
a market return on their investment before OSO holders receive any return on
their options. The Company believes that the OSO program aligns directly
management's and stockholders' interests by basing stock option value on the
Company's ability to outperform the market in general, as measured by the
Standard & Poor's ("S&P") 500 Index. Participants in the OSO program do not
realize any value from options unless the Common Stock price outperforms the
S&P 500 Index. When the stock price gain is greater than the corresponding
gain on the S&P 500 Index, the value received for options under the OSO plan
is based on a formula involving a multiplier related to how much the Common
Stock outperforms the S&P 500 Index. To the extent that the Common Stock
outperforms the S&P 500, the value of OSOs to an option holder may exceed the
value of NQSOs.
Subsequent to the Split-Off, the Company adopted the recognition provisions
of Statement of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation ("SFAS No. 123"). Under SFAS No. 123, the fair value of an
OSO (as computed in accordance with accepted option valuation models) on the
date of grant is amortized over the vesting period of the OSO. The recognition
provisions of SFAS No. 123 are applied prospectively upon adoption. As a
result, they are applied to all stock awards granted in the year of adoption
and are not applied to awards granted in previous years unless those awards
are modified or settled in cash after adoption of the recognition provisions.
While the Company has not yet determined the total effect of adopting the
recognition provisions of SFAS No. 123, it believes that adoption will result
in material non-cash charges to operations in 1998 and thereafter. The amount
of the non-cash charge will be dependent upon a number of factors, including
the number of options granted and the fair value estimated at the time of
grant.
COMPETITION
The communications and information services industry is highly competitive.
Many of the Company's existing and potential competitors in the communications
and information services industry have financial, personnel, marketing and
other resources significantly greater than those of the Company, as well as
other competitive advantages including existing customer bases. Increased
consolidation and strategic alliances in the industry resulting from the
Telecom Act, the opening of the U.S. market to foreign carriers, technological
advances and further deregulation could give rise to significant new
competitors to the Company.
In the special access and private line services market, the Company's
primary competitors will be IXCs, ILECs and CLECs. In the market for
collocation services, the Company will compete with ILECs and CLECs. Most of
these competitors have a significant base of customers for whom they are
currently providing collocation services. Due to the high costs to a customer
of switching collocation sites, the Company may have a competitive
disadvantage relative to these competitors. The market for Web hosting
services is extremely competitive. In this market, the Company will compete
with ISPs and many others, including IXCs, companies that provide only Web
hosting services and a number of companies in the computer industry.
For virtual private network services and voice services, the Company will
compete primarily with national and regional network providers. There are
currently four principal facilities-based long distance fiber optic networks
(AT&T, MCI, Sprint and WorldCom, although a proposed merger between WorldCom
and MCI is pending), as well as numerous ILEC and CLEC networks. The Company
is aware that others, including Qwest, IXC and Williams, are building
additional networks that, when constructed, could employ advanced technology
similar to that of the Level 3 Network and will offer significantly more
capacity than is currently available in the marketplace. The additional
capacity that is expected to become available in the next several years may
cause significant decreases in the prices for services. The ability of the
Company to compete effectively in this market
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will depend upon its ability to maintain high quality services at prices equal
to or below those charged by its competitors. In the long distance market, the
Company's primary competitors will include AT&T, MCI, Sprint and WorldCom, all
of whom have extensive experience in the long distance market. In addition,
the Telecom Act will allow the RBOCs and others to enter the long distance
market. In local markets the Company will compete with ILECs and CLECs, many
of whom have extensive experience in the local market. While the Company
believes that IP technology will prove to be a viable technology for the
transmission of voice services, technology is not yet in place that will
enable the Company to provide voice services at an acceptable level of
quality. There can be no assurance that the Company can develop or acquire
such technology. See "Risk Factors--Need to Develop Voice Technology on IP
Networks."
The communications and information services industry is subject to rapid and
significant changes in technology. For instance, recent technological advances
permit substantial increases in transmission capacity of both new and existing
fiber, and the introduction of new products or emergence of new technologies
may reduce the cost or increase the supply of certain services similar to
those which the Company plans on providing. Accordingly, in the future the
Company's most significant competitors may be new entrants to the
communications and information services industry, which are not burdened by an
installed base of outmoded equipment.
REGULATION
The Company's communications services business will be subject to varying
degrees of federal, state, local and international regulation.
Federal Regulation
The FCC regulates interstate and international telecommunications services.
The FCC imposes extensive regulations on common carriers such as ILECs that
have some degree of market power. The FCC imposes less regulation on common
carriers without market power, such as the Company. The FCC permits these
nondominant carriers to provide domestic interstate services (including long
distance and access services) without prior authorization; but it requires
carriers to receive an authorization to construct and operate
telecommunications facilities, and to provide or resell telecommunications
services, between the United States and international points. The Company has
obtained FCC authorization to provide international services on a facilities
and resale basis. The Company will be required to file tariffs for its
interstate and international long distance services with the FCC before
commencing operations.
Under the Telecom Act, any entity, including cable television companies, and
electric and gas utilities, may enter any telecommunications market, subject
to reasonable state regulation of safety, quality and consumer protection.
Because implementation of the Telecom Act is subject to numerous federal and
state policy rulemaking proceedings and judicial review, there is still
uncertainty as to what impact it will have on the Company. The Telecom Act is
intended to increase competition. The Telecom Act opens the local services
market by requiring ILECs to permit interconnection to their networks and
establishing ILEC obligations with respect to:
. Reciprocal Compensation. Requires all ILECs and CLECs to complete calls
originated by competing carriers under reciprocal arrangements at prices
based on a reasonable approximation of incremental cost or through mutual
exchange of traffic without explicit payment.
. Resale. Requires all ILECs and CLECs to permit resale of their
telecommunications services without unreasonable restrictions or
conditions. In addition, ILECs are required to offer wholesale versions
of all retail services to other telecommunications carriers for resale at
discounted rates, based on the costs avoided by the ILEC in the wholesale
offering.
. Interconnection. Requires all ILECs and CLECs to permit their competitors
to interconnect with their facilities. Requires all ILECs to permit
interconnection at any technically feasible point within their networks,
on nondiscriminatory terms, at prices based on cost (which may include a
reasonable profit).
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At the option of the carrier seeking interconnection, collocation of the
requesting carrier's equipment in an ILEC's premises must be offered,
except where the ILEC can demonstrate space limitations or other technical
impediments to collocation.
. Unbundled Access. Requires all ILECs to provide nondiscriminatory access
to unbundled network elements (including network facilities, equipment,
features, functions, and capabilities) at any technically feasible point
within their networks, on nondiscriminatory terms, at prices based on
cost (which may include a reasonable profit).
. Number Portability. Requires all ILECs and CLECs to permit users of
telecommunications services to retain existing telephone numbers without
impairment of quality, reliability or convenience when switching from one
telecommunications carrier to another.
. Dialing Parity. Requires all ILECs and CLECs to provide "1+" equal access
to competing providers of telephone exchange service and toll service,
and to provide nondiscriminatory access to telephone numbers, operator
services, directory assistance, and directory listing, with no
unreasonable dialing delays.
. Access to Rights-of-Way. Requires all ILECs and CLECs to permit competing
carriers access to poles, ducts, conduits and rights-of-way at regulated
prices.
ILECs are required to negotiate in good faith with carriers requesting any
or all of the above arrangements. If the negotiating carriers cannot reach
agreement within a prescribed time, either carrier may request binding
arbitration of the disputed issues by the state regulatory commission. Where
an agreement has not been reached, ILECs remain subject to interconnection
obligations established by the FCC and state telecommunication regulatory
commissions.
In August 1996, the FCC released a decision (the "Interconnection Decision")
establishing rules implementing the above-listed requirements and providing
guidelines for review of interconnection agreements by state public utility
commissions. On July 18, 1997, the United States Court of Appeals for the
Eighth Circuit (the "Eighth Circuit") vacated certain portions of the
Interconnection Decision, including provisions establishing a pricing
methodology and a procedure permitting new entrants to "pick and choose" among
various provisions of existing interconnection agreements between ILECs and
their competitors. On October 14, 1997, the Eighth Circuit issued a decision
vacating additional FCC rules that will likely have the effect of increasing
the cost of obtaining the use of combinations of an ILEC's unbundled network
elements. The Supreme Court has decided to review the Eighth Circuit's
decisions, and is expected to do so during its 1998-99 term, but the Company
cannot predict what the result of this review will be. The Eighth Circuit's
decisions create uncertainty about the rules governing pricing, terms and
conditions of interconnection agreements, and could make negotiating and
enforcing such agreements more difficult and protracted. There can be no
assurance that the Company will be able to obtain or enforce interconnection
agreements on terms acceptable to the Company.
The Telecom Act also codifies the ILECs' equal access and nondiscrimination
obligations and preempts inconsistent state regulation. The Telecom Act
contains special provisions that modify previous court decrees that prevented
RBOCs from providing long distance services and engaging in telecommunications
equipment manufacturing. These provisions permit a RBOC to enter the long
distance market in its traditional service area if it satisfies several
procedural and substantive requirements, including obtaining FCC approval upon
a showing that the RBOC has entered into interconnection agreements (or, under
some circumstances, has offered to enter into such agreements) in those states
in which it seeks long distance relief, the interconnection agreements satisfy
a 14-point "checklist" of competitive requirements, and the FCC is satisfied
that the RBOC's entry into long distance markets is in the public interest. To
date, several petitions by RBOCs for such entry have been denied by the FCC,
and none have been granted. The Telecom Act permitted the RBOCs to enter the
out-of-region long distance market immediately upon its enactment.
On December 31, 1997, the U.S. District Court for the Northern District of
Texas issued a decision (the "SBC Decision") finding that Sections 271 to 275
of the Telecom Act are unconstitutional. These sections of
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the Telecom Act impose restrictions on the lines of business in which the
RBOCs may engage, including establishing the conditions they must satisfy
before they may provide in-region interLATA telecommunications services. The
SBC Decision has been stayed pending appeal, and will be reviewed by higher
courts, but there can be no assurance as to the results of any appeal. If the
SBC Decision is upheld on appeal, the RBOCs would be able to provide interLATA
services immediately without satisfying the statutory conditions. This would
likely have an unfavorable effect on the Company's business by allowing the
RBOCs to compete more effectively against the Company by offering combined
packages of local and long distance services, while maintaining their local
monopolies, which they are currently unable to do. See "--Competition."
In October 1996, the FCC adopted an order in which it eliminated the
requirement that non-dominant carriers such as the Company maintain tariffs on
file with the FCC for domestic interstate services. This order applies to all
non-dominant interstate carriers, including AT&T. The order does not apply to
the RBOCs or other local exchange providers. The FCC order was issued pursuant
to authority granted to the FCC in the Telecom Act to "forbear" from
regulating any telecommunications services provider if the FCC determines that
the public interest will be served. On February 13, 1997, the United States
Court of Appeals for the District of Columbia Circuit stayed the
implementation of the FCC order pending its review of the order on the merits.
Currently, that temporary stay remains in effect.
If the stay is lifted and the FCC order becomes effective,
telecommunications carriers such as the Company will no longer be able to rely
on the filing of tariffs with the FCC as a means of providing notice to
customers of prices, terms and conditions on which they offer their interstate
services. The obligation to provide non-discriminatory, just and reasonable
prices remains unchanged under the Communications Act of 1934. While tariffs
provided a means of providing notice of prices, terms and conditions, the
Company intends to rely primarily on its sales force and direct marketing to
provide such information to its customers.
The Company's costs of providing long distance services, as well as its
revenues from providing local services, will both be affected by changes in
the "access charge" rates imposed by ILECs on long distance carriers for
origination and termination of calls over local facilities. In two orders
released on December 24, 1996, and May 16, 1997, the FCC made major changes in
the interstate access charge structure. In the December 24th order, the FCC
removed restrictions on ILECs' ability to lower access prices and relaxed the
regulation of new switched access services in those markets where there are
other providers of access services. If this increased pricing flexibility is
not effectively monitored by federal regulators, it could have a material
adverse effect on the Company's ability to price its interstate access
services competitively. The May 16th order substantially increased the amounts
that ILECs subject to the FCC's price cap rules ("price cap LECs") recover
through monthly flat-rate charges and substantially decreased the amounts that
these LECs recover through traffic sensitive (per-minute) access charges. In
the May 16th order, the FCC also announced its plan to bring interstate access
rate levels more in line with cost. The plan will include rules that are
expected to be established sometime in 1998 that may grant price cap LECs
increased pricing flexibility upon demonstrations of increased competition (or
potential competition) in relevant markets. The manner in which the FCC
implements this approach to lowering access charge levels could have a
material effect on the Company's revenues and costs. Several parties
have appealed the May 16th order. Those appeals have been consolidated and
transferred to the Eighth Circuit where they are currently pending. One issue
on appeal is whether the FCC has a reasonable basis for not requiring ISPs to
pay access charges.
Beginning in June 1997, every RBOC advised CLECs that they did not consider
calls in the same local calling area from their customers to CLEC customers,
who are ISPs, to be local calls under the interconnection agreements between
the RBOCs and the CLECs. The RBOCs claim that these calls are exchange access
calls for which exchange access charges would be owed. The RBOCs claimed,
however, that the FCC exempted these calls from access charges so that no
compensation is owed to the CLECs for transporting and terminating such calls.
As a result, the RBOCs threatened to withhold, and in many cases did withhold,
reciprocal compensation for the transport and termination of such calls. To
date, fifteen state commissions have ruled on this issue in the context of
state commission arbitration proceedings or enforcement proceedings. In every
state, to date, the state commission has determined that reciprocal
compensation is owed for such calls. Several of these cases are
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presently on appeal. The Company cannot predict the outcome of these appeals,
or of additional pending cases. If these calls were to be determined not to be
local calls and not subject to access charges, it could have an adverse effect
on the Company.
The FCC has to date treated ISPs as "enhanced service providers," exempt
from federal and state regulations governing common carriers, including the
obligation to pay access charges and contribute to the universal service fund.
Nevertheless, regulations governing disclosure of confidential communications,
copyright, excise tax, and other requirements may apply to the Company's
provision of Internet access services. The Company cannot predict the
likelihood that state, federal or foreign governments will impose additional
regulation on the Company's Internet business, nor can it predict the impact
that future regulation will have on the Company's operations.
In December 1996, the FCC initiated a Notice of Inquiry regarding whether to
impose regulations or surcharges upon providers of Internet access and
information services (the "Internet NOI"). The Internet NOI sought public
comment upon whether to impose or continue to forebear from regulation of
Internet and other packet-switched network service providers. The Internet NOI
specifically identifies Internet telephony as a subject for FCC consideration.
On April 10, 1998, the FCC issued a Report to Congress on its implementation
of the universal service provisions of the Telecom Act. In that Report, the
FCC stated, among other things, that the provision of transmission capacity to
ISPs constitutes the provision of telecommunications and is, therefore,
subject to common carrier regulations. The FCC indicated that it would
reexamine its policy of not requiring an ISP to contribute to the universal
service mechanisms when the ISP provides its own transmission facilities and
engages in data transport over those facilities in order to provide an
information service. Any such contribution by a facilities-based ISP would be
related to the ISP's provision of the underlying telecommunications services.
In the Report, the FCC also indicated that it would examine the question of
whether certain forms of "phone-to-phone IP telephony" are information
services or telecommunications services. It noted that the FCC did not have an
adequate record on which to make any definitive pronouncements on that issue
at this time, but that the record the FCC had reviewed suggests that certain
forms of phone-to-phone IP telephony appear to have similar functionality to
non-IP telecommunications services and lack the characteristics that would
render them information services. If the FCC were to determine that certain IP
telephony services are subject to FCC regulations as telecommunications
services, the FCC noted it may find it reasonable that the ISPs pay access
charges and make universal service contributions similar to non-IP-based
telecommunications service providers. The FCC also noted that other forms of
IP telephony appear to be information services. The Company cannot predict the
outcome of these proceedings or other FCC proceedings that may effect the
Company's operations or impose additional requirements, or regulations or
charges upon the Company's provision of Internet access services.
On May 8, 1997, the FCC issued an order establishing a significantly
expanded federal universal service subsidy regime. For example, the FCC
established new universal service funds to support telecommunications and
information services provided to qualifying schools and libraries (with an
annual cap of $2.25 billion) and to rural health care providers (with an
annual cap of $400 million). The FCC also expanded the federal subsidies for
local exchange telephone services provided to low-income consumers. Providers
of interstate telecommunications service, such as the Company, as well as
certain other entities, must pay for these programs.
The Company's contribution to these universal service funds will be based on
its telecommunications service end-user revenues. The extent to which the
Company's services are viewed as telecommunications services or as information
services will impact the amount of the Company's contributions, if any. As
indicated in the preceding paragraph, that issue has not been resolved.
Currently, the FCC assesses such payments on the basis of a provider's revenue
for the previous year. Since the Company had no significant telecommunications
service revenues in 1997, it will not be liable for subsidy payments in any
material amount during 1998. With respect to subsequent years, however, the
Company is currently unable to quantify the amount of subsidy payments that it
will be required to make and the effect that these required payments will have
on its financial condition because of uncertainties concerning the size of the
universal fund and uncertainties concerning the classification of its
services. In the May 8th order, the FCC also announced that it will soon
revise its rules for subsidizing service
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provided to consumers in high cost areas, which may result in further
substantial increases in the overall cost of the subsidy program. Several
parties have appealed the May 8th order. Such appeals have been consolidated
and transferred to the Fifth Circuit Court of Appeals where they are currently
pending. The FCC's universal service program may also be altered as a result
of the agency's reconsideration of its policies, or by future Congressional
action.
State Regulation
The Telecom Act is intended to increase competition in the
telecommunications industry, especially in the local exchange market. With
respect to local services, ILECs are required to allow interconnection to
their networks and to provide unbundled access to network facilities, as well
as a number of other procompetitive measures. Because the implementation of
the Telecom Act is subject to numerous state rulemaking proceedings on these
issues, it is currently difficult to predict how quickly full competition for
local services, including local dial tone, will be introduced.
State regulatory agencies will have jurisdiction when Company facilities and
services are used to provide intrastate services. A portion of the Company's
traffic may be classified as intrastate and therefore subject to state
regulation. The Company expects that it will offer more intrastate services
(including intrastate switched services) as its business and product lines
expand and state regulations are modified to allow increased local services
competition. To provide intrastate services, the Company generally must obtain
a certificate of public convenience and necessity from the state regulatory
agency and comply with state requirements for telecommunications utilities,
including state tariffing requirements. The Company has obtained certification
for interexchange and local telecommunications services in California,
Illinois, Maryland, Massachusetts, New Hampshire, New York, Rhode Island,
Texas and Virginia. The Company has authority to provide interexchange service
in Michigan and New Jersey. The Company currently has pending applications for
interexchange and local exchange services in Colorado, Georgia, Pennsylvania
and Washington and applications for local exchange authority in Washington,
D.C., Michigan and New Jersey.
Local Regulation
The Company's networks will be subject to numerous local regulations such as
building codes and licensing. Such regulations vary on a city-by-city, county-
by-county and state-by-state basis. To install its own fiber optic
transmission facilities, the Company will need to obtain rights-of-way over
private and publicly owned land. There can be no assurance that such rights-
of-way will be available to the Company on economically reasonable or
advantageous terms.
Canadian Regulation
The CRTC generally regulates long distance telecommunications services in
Canada. Regulatory developments over the past several years have terminated
the historic monopolies of the regional telephone companies, bringing
significant competition to this industry for both domestic and international
long distance services, even in Saskatchewan, which will not be subject to
CRTC regulation until October 25, 1998, but also lessening regulation of
domestic long distance companies. Resellers, which, as well as facilities-
based carriers, now have interconnection rights, but which are not obligated
to file tariffs, may not only provide transborder services to the U.S. by
reselling the services provided by the regional companies and other entities
but also may resell the services of the monopoly international carrier,
Teleglobe Canada ("Teleglobe"), including offering international switched
services provisioned over leased lines. Although the CRTC formerly restricted
the practice of "switched hubbing" over leased lines through intermediate
countries to a third country, the CRTC recently lifted this restriction except
for routing of traffic through the U.S. Teleglobe has asked the CRTC to stay
this decision. The Teleglobe monopoly on international services and submarine
cable landing rights is scheduled to terminate as of October 1, 1998, pursuant
to Canada's commitments under the WTO Agreement, although the provision of
Canadian international facilities-based services may remain restricted to
"Canadian carriers" with majority ownership by Canadians. Ownership of non-
international facilities will almost certainly be limited to
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Canadian carriers. The Company cannot, under current or foreseen law, enter
the Canadian market as a provider of facilities-based domestic services, and
it is possible that this limitation will apply to the provision of
international facilities-based services as well. Pending proceedings address
legislative and regulatory changes that will implement Canada's commitments
under the WTO Agreement by changing Teleglobe's status, and these proceedings
may also subject resellers to additional regulation. Other pending proceedings
address the scope of contribution charges payable to the telephone companies
to offset some of the capital and operating costs of interconnection as well
as deregulation of the long distance services of the incumbent regional
telephone companies.
While competition is now emerging in other Canadian telecommunications
market segments, the Company believes that the regional companies continue to
retain a substantial majority of the local and calling card markets. Beginning
in May 1997, the CRTC released a number of decisions opening to competition
the Canadian local telecommunications services market, which decisions were
made applicable in the territories of all Stentor member companies except
SaskTel (although Saskatchewan has subsequently announced plans for local
service competition in that province). As a result, networks operated by CLECs
may now be interconnected with the networks of the ILECs. Facilities-based
ILECs are subject to the same majority Canadian ownership "Canadian carrier"
requirements as facilities-based long distance carriers. CLECs have the same
status as ILECs, but they do not have universal service or customer tariff-
filing obligations. CLECs are subject to certain consumer protection
safeguards and other CRTC regulatory oversight requirements. CLECs must file
interconnection tariffs for services to interexchange service providers
("IXs") and wireless service providers. Certain ILEC services must be provided
to CLECs on an unbundled basis and subject to mandatory pricing, including
central office codes, subscriber listings, and local loops in small urban and
rural areas. For a five-year period, certain other important CLEC services
must be provided on an unbundled basis at mandated prices. ILECs, which,
unlike CLECs, remained fully regulated, will not be subject to rate of return
regulation for an initial four-year period beginning May 1, 1997, but their
services must not be priced below cost. IX contribution payments are now
pooled and distributed among ILECs and CLECs according to a formula based on
their respective proportions of residential lines, with no explicit
contribution payable from local business exchange or directory revenues. CLECs
must pay an annual telecommunications fee based on their proportion of total
CLEC operating revenues. All bundled and unbundled local services (including
residential lines and other bulk services) may now be resold, but ILECs need
not provide these services to resellers at wholesale prices. Transmission
facilities-based local and long distance carriers (but not resellers) are
entitled to co-locate equipment in ILEC central offices pursuant to terms and
conditions of tariffs and intercarrier agreements. Certain local competition
issues are still to be resolved, including rate determinations, permanent
local number portability technical issues, and certain other interconnection
issues, as well as the opening of CLEC status to carriers other than those
that are transmission-facilities based (and therefore are Canadian carriers
with majority ownership by Canadians).
THE COMPANY'S OTHER BUSINESSES
The Company's other businesses include its investment in the C-TEC
Companies, coal mining, the SR91 Tollroad and certain other assets. The
Company recently completed the sale of its interests in United Infrastructure
Company, CalEnergy and Kiewit Investment Management Corp.
C-TEC Companies
On September 30, 1997, C-TEC completed a tax-free restructuring, which
divided C-TEC into three public companies: C-TEC, which changed its name to
Commonwealth Telephone Enterprises, Inc. ("Commonwealth Telephone"), RCN and
Cable Michigan. The Company's interests in the C-TEC Companies are held
through a holding company (the "C-TEC Holding Company"). The Company owns 90%
of the common stock of the C-TEC Holding Company, and preferred stock of the
C-TEC Holding Company with a liquidation value of approximately $481 million
as of April 1, 1998. The remaining 10% of the common stock of the C-TEC
Holding Company is held by David C. McCourt, a director of the Company who was
formerly the Chairman of C-TEC. In the event of a liquidation of the C-TEC
Holding Company, the Company would first receive the liquidation value of the
preferred stock. Any excess of the value of the C-TEC Holding Company above
the liquidation value of the preferred stock would be split according to the
ownership of the common stock.
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Commonwealth Telephone. Commonwealth Telephone is a Pennsylvania public
utility providing local telephone service to a 19-county, 5,191 square mile
service territory in Pennsylvania. Commonwealth Telephone services
approximately 259,000 main access lines. Commonwealth Telephone also provides
network access and long distance services to IXCs. Commonwealth Telephone's
business customer base is diverse in size as well as industry, with very
little concentration. Commonwealth Communications Inc. provides
telecommunications engineering and technical services to large corporate
clients, hospitals and universities in the northeastern United States. Another
subsidiary, Commonwealth Long Distance operates principally in Pennsylvania,
providing switched services and resale of several types of services, using the
networks of several long distance providers on a wholesale basis. As of March
31, 1998, the C-TEC Holding Company owned approximately 48.4% of the
outstanding common stock of Commonwealth Telephone.
RCN. RCN is a full service provider of local, long distance, internet and
cable television services primarily to residential users in densely populated
areas in the Northeast. RCN operates as a competitive telecommunications
service provider in New York City and Boston. RCN also owns cable television
operations in New York, New Jersey and Pennsylvania; a 40% interest in
Megacable, S.A. de C.V., Mexico's second largest cable television operator;
and has long distance operations (other than the operations in certain areas
of Pennsylvania). RCN is developing advanced fiber optic networks to provide a
wide range of telecommunications services, including local and long distance
telephone, video programming and data services (including high speed Internet
access), primarily to residential customers in selected markets in the Boston
to Washington, D.C. corridor. During the first quarter of 1998, RCN acquired
Ultranet Communications, Inc. and Erols Internet, Inc., two ISPs with
operations in the Boston to Washington, D.C. corridor. As of March 31, 1998,
the C-TEC Holding Company owned approximately 46.1% of the outstanding common
stock of RCN.
Cable Michigan. Cable Michigan is a cable television operator in the State
of Michigan which, as of December 31, 1997, served approximately 204,000
subscribers including approximately 39,400 subscribers served by Mercom.
Clustered primarily around the Michigan communities of Grand Rapids, Traverse
City, Lapeer and Monroe (Mercom), Cable Michigan's systems serve a total of
approximately 400 municipalities in suburban markets and small towns. As of
March 31, 1998, the C-TEC Holding Company owned approximately 48.5% of the
outstanding common stock of Cable Michigan. On June 4, 1998, Cable Michigan
announced that it had agreed to be acquired by Avalon Cable for $40.50 per
share in a cash-for-stock transaction valued at $435 million. Cable Michigan
stated that the transaction is expected to close in the fourth quarter of 1998
and is subject to shareholder and regulatory approvals. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Recent Developments."
Coal Mining
The Company is engaged in coal mining through its subsidiary, KCP Inc.
("KCP"). KCP has a 50% interest in three mines, which are operated by a
subsidiary of New PKS. Decker Coal Company ("Decker") is a joint venture with
Western Minerals, Inc., a subsidiary of The RTZ Corporation PLC. Black Butte
Coal Company ("Black Butte") is a joint venture with Bitter Creek Coal
Company, a subsidiary of Union Pacific Resources Group Inc. Walnut Creek
Mining Company ("Walnut Creek") is a general partnership with Phillips Coal
Company, a subsidiary of Phillips Petroleum Company. The Decker mine is
located in southeastern Montana, the Black Butte mine is in southwestern
Wyoming, and the Walnut Creek mine is in east-central Texas. The coal mines
use the surface mining method. For a discussion of certain risks associated
with the coal mining business, see "Risk Factors--Risks Related to the
Company's Coal Operations."
The coal produced from the KCP mines is sold primarily to electric
utilities, which burn coal in order to produce steam to generate electricity.
Approximately 89% of sales are made under long-term contracts, and the
remainder are made on the spot market. Approximately 79%, 80% and 80% of KCP's
revenues in 1997, 1996 and 1995, respectively, were derived from long-term
contracts with Commonwealth Edison (with Decker and Black Butte) and The
Detroit Edison Company (with Decker). The primary customer of Walnut Creek is
the Texas-New Mexico Power Company ("TNP"). KCP also has other sales
commitments, including those with Sierra Pacific, Idaho Power, Solvay
Minerals, Pacific Power & Light, Minnesota Power, and Mississippi Power,
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that provide for the delivery of approximately 13 million tons through 2005.
The level of cash flows generated in recent periods by the Company's coal
operations will not continue after the year 2000 because the delivery
requirements under the Company's current long-term contracts decline
significantly.
Under a mine management agreement, KCP pays a subsidiary of New PKS an
annual fee equal to 30% of KCP's adjusted operating income. The fee in 1997
was $32 million.
The coal industry is highly competitive. KCP competes not only with other
domestic and foreign coal suppliers, some of whom are larger and have greater
capital resources than KCP, but also with alternative methods of generating
electricity and alternative energy sources. In 1996, KCP's production
represented 1.5% of total U.S. coal production. Demand for KCP's coal is
affected by economic, political and regulatory factors. For example, recent
"clean air" laws may stimulate demand for low sulfur coal. KCP's western coal
reserves generally have a low sulfur content (less than one percent) and are
currently useful principally as fuel for coal-fired, steam-electric generating
units.
KCP's sales of its western coal, like sales by other western coal producers,
typically provide for delivery to customers at the mine. A significant portion
of the customer's delivered cost of coal is attributable to transportation
costs. Most of the coal sold from KCP's western mines is currently shipped by
rail to utilities outside Montana and Wyoming. The Decker and Black Butte
mines are each served by a single railroad. Many of their western coal
competitors are served by two railroads and such competitors' customers often
benefit from lower transportation costs because of competition between
railroads for coal hauling business. Other western coal producers,
particularly those in the Powder River Basin of Wyoming, have lower stripping
ratios (that is, the amount of overburden that must be removed in proportion
to the amount of minable coal) than the Black Butte and Decker mines, often
resulting in lower comparative costs of production. As a result, KCP's
production costs per ton of coal at the Black Butte and Decker mines can be as
much as four and five times greater than production costs of certain
competitors. KCP's production cost disadvantage has contributed to its
agreement to amend its long-term contract with Commonwealth Edison to provide
for delivery of coal from alternate source mines rather than from Black Butte.
Because of these cost disadvantages, KCP does not expect that it will be able
to enter into long-term coal purchase contracts for Black Butte and Decker
production as the current long-term contracts expire. In addition, these cost
disadvantages may adversely affect KCP's ability to compete for spot sales in
the future.
The Company is required to comply with various federal, state and local laws
and regulations concerning protection of the environment. KCP's share of land
reclamation expenses in 1997 was $3.6 million. KCP's share of accrued
estimated reclamation costs was $100 million at the end of 1997. The Company
does not expect to make significant capital expenditures for environmental
compliance with respect to the coal business in 1998. The Company believes its
compliance with environmental protection and land restoration laws will not
affect its competitive position since its competitors in the mining industry
are similarly affected by such laws. However, failure to comply with
environmental protection and land restoration laws, or actual reclamation
costs in excess of the Company's accruals, could have an adverse effect on the
Company's business, results of operations, or financial condition.
SR91 Tollroad
The Company has invested $12 million for a 65% equity interest and lent $4.3
million to CPTC, which developed, financed, and currently operates the 91
Express Lanes, a ten mile, four-lane tollroad in Orange County, California.
The fully automated highway uses an electronic toll collection system and
variable pricing to adjust tolls to demand. Capital costs at completion were
$130 million, $110 million of which was funded with debt that was not
guaranteed by Level 3. However, certain defaults by Level 3 on its outstanding
debt and certain judgements against Level 3 can result in default under this
debt of CPTC. Revenue collected over the 35-year franchise period is used for
operating expenses, debt repayment, and profit distributions. The tollroad
opened in December 1995 and achieved operating break-even in 1996.
Approximately 100,000 customers have registered to use the tollroad, and
weekday volumes typically exceed 29,000 vehicles per day.
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EMPLOYEES
As of March 31, 1998, the Company employed approximately 1,100 people.
PROPERTIES
The Company has announced that it has acquired 46 acres in the Northwest
corner of the Interlocken office park within the City of Broomfield, Colorado,
and within Boulder County, Colorado limits and will build a campus facility
that is expected to encompass eventually over 500,000 square feet of office
space. It is anticipated that the first phase of this facility will be
constructed by the summer of 1999. In addition, the Company has leased
approximately 50,000 square feet of temporary office space in Louisville,
Colorado to allow for the relocation of the majority of its employees (other
than those of PKSIS) while its permanent facilities are under construction.
Properties relating to the Company's coal mining segment are described under
"--The Company's Other Businesses--Coal Mining" above. In connection with
certain existing and historical operations, the Company is subject to
environmental risks. See "Risk Factors--Environmental Risks."
PKSIS maintains its corporate headquarters in Omaha, Nebraska and leases
approximately 35,000 square feet of office space in Omaha. The computer
outsourcing business of PKSIS is located at an 89,000 square foot office space
in Omaha and will soon also be located at a 60,000 square foot computer center
in Tempe, Arizona which is currently being constructed. PKSIS maintains
additional office space in Phoenix, Atlanta, Omaha and Parsippany for its
systems integration business.
LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to many pending legal
proceedings. Management believes that any resulting liabilities for legal
proceedings, beyond amounts reserved, will not materially affect the Company's
financial condition, future results of operations, or future cash flows.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information as of May 28, 1998 about each director and
executive officer of the Company, including his business experience during the
past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Walter Scott, Jr........ 67 Chairman of the Board
James Q. Crowe.......... 48 President, Chief Executive Officer and Director
R. Douglas Bradbury..... 47 Executive Vice President, Chief Financial Officer and Director
Kevin J. O'Hara......... 37 Executive Vice President and Chief Operating Officer
Terrence J. Ferguson.... 55 Senior Vice President, General Counsel and Secretary
Robert B. Daugherty..... 76 Director
William L. Grewcock..... 72 Director
Charles M. Harper....... 70 Director
Richard R. Jaros........ 46 Director
Robert E. Julian........ 59 Director
David C. McCourt........ 41 Director
Kenneth E. Stinson...... 55 Director
Michael B. Yanney....... 64 Director
OTHER MANAGEMENT
Set forth below is information as of May 28, 1998 about the following
members of senior management of the Company.
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Raul Pupo............... 51 President and Chief Executive Officer of PKSIS
Daniel P. Caruso........ 34 Senior Vice President
Michael Frank........... 44 Senior Vice President
Mark L. Gershien........ 46 Senior Vice President
Joseph M. Howell, III... 51 Senior Vice President
Ronald J. Vidal......... 37 Senior Vice President
Kevin Dundon............ 33 Vice President
Kathy Perone............ 44 Vice President
Thomas Sweeney.......... 37 Vice President
John Waters............. 33 Vice President
Robert Hagens........... 37 Senior Director of Service Implementation
Isaac Elliot............ 34 Director of Voice Network Engineering
Joseph Lawrence......... 33 Director of Backbone Engineering
</TABLE>
WALTER SCOTT, JR. has been the Chairman of the Board of the Company since
September 1979, and a director of the Company since April 1964. Mr. Scott has
been Chairman Emeritus of New PKS since the Split-Off. Mr. Scott is also a
director of Berkshire Hathaway Inc., Burlington Resources Inc., CalEnergy,
ConAgra, Inc., Commonwealth Telephone, RCN, U.S. Bancorp and Valmont
Industries, Inc.
JAMES Q. CROWE has been the President and Chief Executive Officer of the
Company since August 1997, and a director of the Company since June 1993. Mr.
Crowe was President and Chief Executive Officer of MFS from June 1993 to June
1997. Mr. Crowe also served as Chairman of the Board of WorldCom from January
1997 until July 1997, and as Chairman of the Board of MFS from 1992 through
1996. Mr. Crowe is presently a director of Commonwealth Telephone, RCN and
InaCom Communications, Inc.
R. DOUGLAS BRADBURY has been Executive Vice President and Chief Financial
Officer of the Company since August 1997, and a director of the Company since
March 1998. Mr. Bradbury served as Chief Financial Officer
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of MFS from 1992 to 1996, Senior Vice President of MFS from 1992 to 1995, and
Executive Vice President of MFS from 1995 to 1996. Mr. Bradbury is also a
director of Cable Michigan.
KEVIN J. O'HARA has been Executive Vice President of the Company since
August 1997, and Chief Operating Officer of the Company since March 1998.
Prior to that, Mr. O'Hara served as President and Chief Executive Officer of
MFS Global Network Services, Inc. from 1995 to 1997, and as Senior Vice
President of MFS and President of MFS Development, Inc. from October 1992 to
August 1995. From 1990 to 1992, he was a Vice President of MFS Telecom, Inc
("MFS Telecom").
TERRENCE J. FERGUSON has been Senior Vice President, General Counsel and
Secretary of the Company since August 1997. Prior to that he was a Senior Vice
President of MFS from September 1992 to February 1997, General Counsel from
January 1992 to February 1997 and Secretary from November 1991 to February
1997. Before joining MFS in October 1992, Mr. Ferguson was employed as an
attorney by the Company.
ROBERT B. DAUGHERTY has been a director of the Company since January 1986.
Mr. Daugherty has been a Director of Valmont Industries, Inc. for more than
the past five years, and formerly was Chairman of the Board and Chief
Executive Officer of Valmont Industries, Inc.
WILLIAM L. GREWCOCK has been a director of the Company since January 1968.
Prior to the Split-Off, Mr. Grewcock was Vice Chairman of the Company for more
than five years.
CHARLES M. HARPER has been a director of the Company since January 1986. Mr.
Harper was Chairman of the Board of RJR Nabisco Holdings Corp. ("RJR Nabisco")
from May 1993 to May 1996 and Chief Executive Officer of RJR Nabisco from May
1993 to December 1995. Prior to that, Mr. Harper was Chairman of the Board and
Chief Executive Officer of ConAgra, Inc. Mr. Harper is currently a director of
ConAgra, Inc., E.I. DuPont de Nemours and Company, Norwest Corporation and
Valmont Industries, Inc.
RICHARD R. JAROS has been a director of the Company since June 1993 and
served as President of the Company from 1996 to 1997. Mr. Jaros served as
Executive Vice President of the Company from 1993 to 1997 and Chief Financial
Officer of the Company from 1995 to 1997. He also served as President and
Chief Operating Officer of CalEnergy from 1992 to 1993, and is presently a
director of CalEnergy, Commonwealth Telephone and RCN.
ROBERT E. JULIAN has been a director of the Company since March 31, 1998.
Mr. Julian has also been Chairman of the Board of PKSIS since 1995. From 1992
to 1995 Mr. Julian served as Executive Vice President and Chief Financial
Officer of the Company.
DAVID C. MCCOURT has been a director of the Company since March 31, 1998.
Mr. McCourt has also served as Chairman and Chief Executive Officer of
Commonwealth Telephone, Cable Michigan and RCN since October 1997. From 1993
to 1997 Mr. McCourt served as Chairman of the Board and Chief Executive
Officer of C-TEC. Mr. McCourt is also a director of Mercom.
KENNETH E. STINSON has been a director of the Company since January 1987.
Mr. Stinson has been Chairman of the Board and Chief Executive Officer of New
PKS since the Split-Off. Prior to the Split-Off, Mr. Stinson was Executive
Vice President of the Company for more than the last five years. Mr. Stinson
is also a director of ConAgra, Inc. and Valmont Industries, Inc.
MICHAEL B. YANNEY has been a director of the Company since March 31, 1998.
He has served as Chairman of the Board, President and Chief Executive Officer
of America First Companies L.L.C. for more than the last five years. Mr.
Yanney is also a director of Burlington Northern Santa Fe Corporation, RCN,
Forest Oil Corporation and Mid-America Apartment Communities, Inc.
RAUL PUPO has been the President and Chief Executive Officer of PKSIS since
April 1990. Mr. Pupo is also a director of Integrated Medical Networks.
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<PAGE>
DANIEL P. CARUSO has been Senior Vice President, Network Services of the
Company since October 1997. Prior to that, Mr. Caruso was Senior Vice
President, Local Service Delivery of WorldCom from December 1992 to September
1997 and was a member of the senior management of Ameritech from June 1986 to
November 1992.
MICHAEL FRANK has been Senior Vice President, Human Resources of the Company
since August 1997. Prior to that, Mr. Frank was Senior Vice President, Human
Resources of MFS from 1994 to 1997.
MARK L. GERSHIEN has been Senior Vice President, Sales and Marketing of the
Company since January 1998. Prior to that, Mr. Gershien was Vice
President/General Manager of MFS during 1993, Division President of MFS from
1993 to 1995, Chief Operating Officer of MFS Telecom from May 1995 to July
1996, President of MFS Telecom from 1996 to 1997, and Senior Vice President,
National Accounts of MFS/WorldCom from 1997 to 1998.
JOSEPH M. HOWELL, III has been Senior Vice President, Corporate Marketing of
the Company since October 1997. Prior to that, Mr. Howell was Senior Vice
President of MFS/WorldCom from 1993 to 1997.
RONALD J. VIDAL has been Senior Vice President, New Ventures of the Company
since October 1997. Prior to that, Mr. Vidal was a Vice President of
MFS/WorldCom from September 1992 to October 1997.
KEVIN DUNDON has been Vice President, Voice Network Planning and Development
of the Company since October 1997. Prior to that, Mr. Dundon was Vice
President, Local Network Development of MFS/WorldCom from 1995 to 1997.
KATHY PERONE has been Vice President, Sales of the Company since January
1998. Prior to that, Ms. Perone was Vice President/General Manager of MFS
Telecom from 1993 to 1994, Division President of MFS Telecom from 1994 to
1995, Chief Operating Officer of MFS International during 1995 and Division
President of MFS/WorldCom from 1995 to 1998.
THOMAS SWEENEY has been Vice President, Marketing of the Company since
December 1997. Prior to that, Mr. Sweeney was Vice President, Sales Operations
of MFS Intelenet, Inc. ("MFS Intelenet") from 1995 to 1996, Senior Vice
President, Marketing of MFS Intelenet from 1996 to 1997 and Senior Vice
President, Business Development of MFS/WorldCom during 1997.
JOHN WATERS has been Vice President, Engineering of the Company since
November 1997. Prior to that, Mr. Waters was an executive staff member of MCI
from 1994 to 1997.
ROBERT HAGENS has been the Senior Director of Service Implementation of the
Company since December 1997. Prior to that, Mr. Hagens was Director of
Internet Engineering at MCI from 1994 to 1997.
ISAAC ELLIOT has been the Director of Voice Network Engineering of the
Company since December 1997. Prior to that, Mr. Elliot held various management
positions at MCI from 1993 to 1998.
JOSEPH LAWRENCE has been the Director of Backbone Engineering of the Company
since December 1997. Prior to that, Mr. Lawrence was the Senior Network
Architect at MCI from 1994 to 1997.
The Board is divided into three classes, designated Class I, Class II and
Class III, each class consisting, as nearly as may be possible, of one-third
of the total number of directors constituting the Board. The Class I Directors
consist of Walter Scott, Jr., James Q. Crowe, Robert B. Daugherty and Charles
M. Harper; the Class II Directors consist of William L. Grewcock, Richard R.
Jaros, Robert E. Julian and David C. McCourt; and the Class III Directors
consist of R. Douglas Bradbury, Kenneth E. Stinson and Michael B. Yanney. The
term of the initial Class I Directors will terminate on the date of the 1998
annual meeting of stockholders; the term of the initial Class II Directors
will terminate on the date of the 1999 annual meeting of stockholders; and the
term of the initial Class III Directors will terminate on the date of the 2000
annual meeting of stockholders. At each annual meeting of stockholders
beginning in 1998, successors to the class of directors whose term expires at
that annual meeting will be elected for three-year terms. The Company's
officers are elected annually to serve until each successor is elected and
qualified or until his death, resignation or removal.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of June 8, 1998 by the Company's
directors, certain executive officers and directors and those executive
officers as a group, and each person known by the Company to beneficially own
more than 5% of the outstanding Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF
NAME COMMON STOCK COMMON STOCK
- ---- ------------------- ------------
<S> <C> <C>
Walter Scott, Jr.(1)......................... 17,686,591 12.1%
James Q. Crowe............................... 5,666,360 3.9%
R. Douglas Bradbury.......................... 1,277,595 *
Kevin J. O'Hara(2)........................... 878,080 *
Robert B. Daugherty.......................... -- *
William L. Grewcock(3)....................... 5,763,707 3.9%
Charles M. Harper............................ 95,000 *
Richard R. Jaros(4).......................... 1,748,749 1.2%
Robert E. Julian............................. 1,996,790 1.4%
David C. McCourt............................. 57,500 *
Kenneth E. Stinson........................... 365,814 *
Michael B. Yanney............................ 50,000 *
Directors and Executive Officers as a Group
(12 persons) ............................... 35,586,186 24.2%
Donald L. Sturm(5)........................... 9,186,875 6.2%
</TABLE>
- --------
* Less than 1%.
(1) Includes 49,850 shares of Common Stock held by the Suzanne Scott
Irrevocable Trust as to which Mr. Scott shares voting and investment
powers.
(2) Includes 23,000 shares of Common Stock held by Kevin J. O'Hara Family LTD
Partnership.
(3) Includes 577,320 shares of Common Stock held by Grewcock Family Limited
Partnership. Includes 175,615 shares of Common Stock held by the Bill &
Berniece Grewcock Foundation as to which Mr. Grewcock shares voting and
investment powers.
(4) Includes 185,000 shares of Common Stock held by the Jaros Family Limited
Partnership. Includes 600,000 shares of Common Stock held by Mr. Jaros and
400,000 shares of Common Stock subject to options held by a grantor trust,
of which Mr. Jaros is the residual beneficiary. See "Certain Transactions
and Relationships."
(5) Mr. Sturm's business address is 3033 East First Avenue, Denver, Colorado
80206. Based solely on Mr. Sturm's Schedule 13-D dated May 5, 1998, Mr.
Sturm owns 7,805,155 shares of Common Stock, and has voting and investment
power with respect to 1,306,720 shares held by trusts and partnerships
established for family members and beneficially owns 75,000 shares as a
member of the board of directors of the University of Denver.
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<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
In connection with his retention as Chief Executive Officer of the Company,
Mr. Crowe entered into an engagement agreement (the "Engagement Agreement")
with the Company. Under the Engagement Agreement, the Company acquired from
Mr. Crowe, Mr. Bradbury and an additional individual, Broadband Capital Group,
L.L.C., a company formed to develop investment opportunities, for a purchase
price of $68,523, the owners' cash investment in that company. Pursuant to the
Engagement Agreement, the Company sold 5,000,000 shares of Class D Stock to
Mr. Crowe and 1,250,000 shares of Class D Stock to Mr. Bradbury, in each case
at $10.85 per share. The Engagement Agreement also provided that the Company
would make available for sale, from time to time prior to the consummation of
the Split-Off, to certain employees of the Company designated by Mr. Crowe in
connection with the implementation of the Business Plan ("Business Plan
Employees"), up to an aggregate of 5,250,000 shares of Class D Stock.
The Company entered into agreements with each Business Plan Employee that
provided that the Company may repurchase any Class D Stock sold to the
Business Plan Employee if the Business Plan Employee resigns at any time
before January 1, 1999.
On August 5, 1997, the Company purchased a jet aircraft from a company
controlled by Mr. Crowe for $5.7 million, the price paid by the company for
the aircraft in June 1997. The Company and Mr. Crowe have entered into an
aircraft operating lease, under which Mr. Crowe may lease the aircraft for
personal use at rates specified by certain Federal Aviation Administration
regulations. The Company anticipates that Mr. Crowe will lease approximately
15% of the aircraft's annual flight time, and will pay the Company
approximately $70,000 per year at the current lease rate.
The Company entered into a separation agreement with Mr. Jaros, a director
of the Company, in connection with the resignation of Mr. Jaros as President
of the Diversified Group effective July 31, 1997. Under the separation
agreement, the Company paid Mr. Jaros $1.8 million on July 31, and agreed to
pay Mr. Jaros the balance of his 1997 salary ($187,500) between August 1 and
December 31, 1997 and a bonus payment of $262,350 when the Company made its
customary executive bonus payments in 1998. The Company also agreed to amend
the option agreements with Mr. Jaros with respect to the options to purchase
750,000 shares of Class D Stock at $8.08 per share granted to Mr. Jaros in
1995, and the options to purchase 250,000 shares of Class D Stock at $9.90 per
share granted to Mr. Jaros in 1996, to provide that those options would be
fully vested on July 31, 1997, and would be exercisable at any time during the
ten-year term of the original option agreements.
In December 1996, the Company agreed to sell 50,000 shares of Class D Stock
to Mr. Harper, 50,000 shares of Common Stock to Mr. Daugherty and 40,000
shares of Common Stock to Mr. Kiewit, in each case at $9.90 per share. Those
stock purchase transactions were consummated in March 1997.
In October 1997, the Company sold 50,000 shares of Class D Stock to Mr.
Yanney and 50,000 shares of Class D Stock to Mr. McCourt, in each case at
$10.85 per share.
In connection with the Split-Off, Level 3 and New PKS entered into various
agreements intended to implement the Split-Off, including a Separation
Agreement and a Tax-Sharing Agreement.
Separation Agreement. The Separation Agreement provides for the allocation
of certain risks and responsibilities between New PKS and Level 3 after the
Split-Off and certain other matters. The Separation Agreement provides that
each of New PKS and Level 3 will indemnify the other with respect to the
activities of its subsidiary business groups, except as specifically provided
under other agreements between the companies. The cross-indemnities are
intended to allocate financial responsibility to New PKS for liabilities
arising out of the construction businesses formerly conducted by Level 3, and
to allocate to Level 3 financial responsibility for liabilities arising out of
the non-construction businesses conducted by Level 3. The Separation Agreement
also allocates between New PKS and Level 3 certain corporate-level risk
exposures not readily allocable to either the construction businesses or the
non-construction businesses.
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<PAGE>
The Separation Agreement provides that each of Level 3 and New PKS will be
granted access to certain records and information in the possession of the
other company, and requires that each of Level 3 and New PKS retain all such
information in its possession for a period of ten years following the Split-
Off. Under the Separation Agreement, each company is required to give the
other company prior notice of any intention to dispose of any such
information.
The Separation Agreement provides that, except as otherwise set forth
therein or in any related agreement, costs and expenses in connection with the
Split-Off will be paid 82.5% by Level 3 and 17.5% by New PKS. On March 18,
1998, Level 3 and New PKS entered into an amendment to the Separation
Agreement that provides that New PKS will bear substantially all of those
expenses if the Level 3 Board of Directors determines to force conversion of
all outstanding Class R Stock of Level 3 on or before July 15, 1998 (a "Forced
Conversion Determination"). The Level 3 Board of Directors made such a
determination and, accordingly, substantially all of those expenses will be
borne by New PKS.
Tax Sharing Agreement. Level 3 and New PKS have entered into a tax sharing
agreement (the "Tax Sharing Agreement") that defines each company's rights and
obligations with respect to deficiencies and refunds of federal, state and
other taxes relating to operations for tax years (or portions thereof) ending
prior to the Split-Off and with respect to certain tax attributes of Level 3
and New PKS after the Split-Off. Under the Tax Sharing Agreement, with respect
to periods (or portions thereof) ending on or before the Split-Off, Level 3
and New PKS generally will be responsible for paying the taxes relating to
such returns (including any subsequent adjustments resulting from the
redetermination of such tax liabilities by the applicable taxing authorities)
that are allocable to the non-construction business and the construction
business, respectively.
The Tax Sharing Agreement also provides that Level 3 and New PKS will
indemnify the other from certain taxes and expenses that would be assessed on
New PKS and Level 3, respectively, if the Split-Off were determined to be
taxable, but solely to the extent that such determination arose out of the
breach by Level 3 or New PKS, respectively, of certain representations made to
the Internal Revenue Service in connection with the private letter ruling
issued with respect to the Split-Off. Under the Tax Sharing Agreement, if the
Split-Off were determined to be taxable for any other reason, those taxes and
certain other taxes associated with the Split-Off (together, "Split-Off
Taxes") would be allocated 82.5% to Level 3 and 17.5% to New PKS. The Tax
Sharing Agreement, however, provides that Split-Off Taxes will be allocated
one-half to each of Level 3 and New PKS if a Forced Conversion Determination
is made. As a result of the Forced Conversion Determination, the Split-Off
Taxes will be so allocated. Finally, the Tax Sharing Agreement provides, under
certain circumstances, for certain liquidated damage payments from Level 3 to
New PKS if the Split-Off were determined to be taxable, which are intended to
compensate stockholders of New PKS indirectly for taxes assessed upon them in
that event. Those liquidated damage payments, however, are reduced because of
the Forced Conversion Determination.
Mine Management Agreement. In 1992, New PKS and Level 3 entered into a mine
management agreement (the "Mine Management Agreement") pursuant to which a
subsidiary of New PKS, Kiewit Mining Group Inc. ("KMG"), provides mine
management and related services for Level 3's coal mining properties. In
consideration of the provision of such services, KMG receives a fee equal to
thirty percent of the adjusted operating income of the coal mining properties.
The term of the Mine Management Agreement expires on January 1, 2016.
In connection with the Split-Off, the Mine Management Agreement was amended
to provide KMG with a right of offer in the event that Level 3 were to
determine to sell any or all of its coal mining properties. Under the right of
offer, Level 3 would be required to offer to sell those properties to KMG at
the price that Level 3 would seek to sell the properties to a third party. If
KMG were to decline to purchase the properties at that price, Level 3 would be
free to sell them to a third party for an amount greater than or equal to that
price. If Level 3 were to sell the properties to a third party, thus
terminating the Mine Management Agreement, it would be required to pay KMG an
amount equal to the discounted present value to KMG of the Mine Management
Agreement, determined, if necessary, by an appraisal process.
Construction Services. The Company is currently in discussions regarding the
engagement of a subsidiary of New PKS as the general contractor of the North
American Intercity Network.
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DESCRIPTION OF THE NOTES
GENERAL
The Original Notes were, and the New Notes will be, issued under the
Indenture. The Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. For purposes of this Description
of the Notes, the term "Company" refers to Level 3 Communications, Inc. and
does not include its subsidiaries except for purposes of financial data
determined on a consolidated basis.
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act, and to all of the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part of the Indenture by reference to the Trust Indenture Act, as in
effect on the date of the Indenture. The definitions of certain capitalized
terms used in the following summary are set forth below under "--Certain
Definitions." The Original Notes and the New Notes will be considered
collectively to be a single class for all purposes under the Indenture,
including waivers, amendments, redemptions and Offers to Purchase. For
purposes of this "Description of the Notes," all references herein to the
"Notes" shall be deemed to refer collectively to the Original Notes and the
New Notes.
The Notes will be senior unsecured obligations of the Company, ranking pari
passu in right of payment with all existing and future senior unsecured
indebtedness of the Company, and will be senior in right of payment to all
existing and future indebtedness of the Company expressly subordinated in
right of payment to the Notes. As of March 31, 1998, on a pro forma basis
after giving effect to the Initial Offering, the Company (excluding its
subsidiaries) would not have had any indebtedness outstanding other than the
Notes and intercompany indebtedness.
Substantially all the operations of the Company are conducted through its
subsidiaries and, therefore, the Company is dependent upon cash flow from
those entities to meet its obligations. The payment of dividends and the
making of loans and advances to the Company by its subsidiaries are subject to
various restrictions. Future debt of certain of the subsidiaries may prohibit
the payment of dividends or the making of loans or advances to the Company. In
addition, the ability of subsidiaries of the Company to make such payments,
loans or advances to the Company is limited by the laws of the relevant states
in which such subsidiaries are organized or located. In certain circumstances,
the prior or subsequent approval of such payments, loans or advances by such
subsidiaries to the Company is required from applicable regulatory bodies or
other governmental entities. The Company's subsidiaries will have no direct
obligation to pay amounts due on the Notes and will have no obligation to
guarantee the Notes. As a result, the Notes effectively will be subordinated
to all existing and future indebtedness and other liabilities of the Company's
subsidiaries (including trade payables). As of March 31, 1998, the total
balance sheet liabilities of the Company's subsidiaries were approximately
$141 million in indebtedness, of which approximately $141 million in
indebtedness was secured by the assets of the borrowing subsidiaries, and $554
million in other liabilities. The Indenture permits the Company and its
subsidiaries to incur substantial amounts of additional debt and other
liabilities, including in connection with the implementation of the Business
Plan. Any rights of the Company and its creditors, including the holders of
Notes, to participate in the assets of any of the Company's subsidiaries upon
any liquidation or reorganization of any such subsidiary will be subject to
the prior claims of that subsidiary's creditors (including trade creditors).
See "Risk Factors--Holding Company Structure; Effective Subordination of the
Notes" and "--Leverage and Debt Service."
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $2.0 billion and will
mature on May 1, 2008. Interest on the Notes will accrue at the rate of 9 1/8%
per annum from April 28, 1998, or from the most recent date to which interest
has been paid, and will be payable in cash semiannually in arrears on May 1
and November 1, commencing November 1, 1998, to the persons who are registered
holders of the Notes at the close of business on the preceding April 15 or
October 15, as the case may be. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
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Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company, which, unless otherwise provided by the Company, will be the offices
of the Trustee. At the option of the Company, interest may be paid by check
mailed to the registered holders at their registered addresses. The Notes will
be issued without coupons and in fully registered form only, in minimum
denominations of $1,000 and integral multiples thereof. The Notes will be
issued only against payment in immediately available funds. No service charge
will be made for any registration of transfer or exchange of the Notes, but
the Company may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection therewith.
The interest rate on the Notes is subject to increase in the circumstances
(such additional interest being referred to as "Special Interest") described
under "Registration Rights." All references herein to interest on the Notes
shall include such Special Interest, if appropriate. If the Exchange Offer is
consummated on the terms and within the period contemplated by this
Prospectus, no Special Interest will be payable. The New Notes will not
contain any provisions regarding the payment of Special Interest.
BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of Global Securities held in
book-entry form. The Notes will be deposited with the Trustee as custodian for
the Depository, and the Depository or its nominee will initially be the sole
registered holder of the Notes for all purposes under the Indenture. Except as
set forth below, a Global Security may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository.
Upon the issuance of a Global Security, the Depository or its nominee will
credit, on its internal system, the accounts of persons holding through it
with the respective principal amounts of the individual beneficial interest
represented by such Global Security purchased by such persons in this
Offering. Such accounts shall initially be designated by the Initial
Purchasers with respect to Notes placed by the Initial Purchasers for the
Company. Ownership of beneficial interests in a Global Security will be
limited to persons that have accounts with the Depository ("participants") or
persons that may hold interests through participants. Ownership of beneficial
interests by participants in a Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depository or its nominee for such Global Security.
Ownership of beneficial interests in such Global Security by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal, premium, if any, and interest on Notes represented by
any such Global Security will be made to the Depository or its nominee, as the
case may be, as the sole registered owner and the sole holder of the Notes
represented thereby for all purposes under the Indenture. None of the Company,
the Trustee, any agent of the Company or the Initial Purchasers will have any
responsibility or liability for any aspect of the Depository's reports
relating to or payments made on account of beneficial ownership interests in a
Global Security representing any Notes or for maintaining, supervising or
reviewing any of the Depository's records relating to such beneficial
ownership interests.
The Company has been advised by the Depository that upon receipt of any
payment of principal of, premium, if any, or interest on any Global Security,
the Depository will immediately credit, on its book-entry registration and
transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal or
face amount of such Global Security, as shown on the records of the
Depository. The Company expects that payments by participants to owners of
beneficial interests in a Global Security held through such participants will
be governed by standing instructions and customary practices as is now the
case with securities held for customer accounts registered in "street name"
and will be the sole responsibility of such participants.
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So long as the Depository or its nominee is the registered owner or holder
of such Global Security, the Depository or such nominee, as the case may be,
will be considered the sole owner or holder of the Notes represented by such
Global Security for the purposes of receiving payment on the Notes, receiving
notices and for all other purposes under the Indenture and the Notes.
Beneficial interests in the Notes will be evidenced only by, and transfers
thereof will be effected only through, records maintained by the Depository
and its participants. Except as provided above, owners of beneficial interests
in a Global Security will not be entitled to receive physical delivery of
certificated Notes in definitive form and will not be considered the holders
of such Global Security for any purposes under the Indenture. Accordingly,
each person owning a beneficial interest in a Global Security must rely on the
procedures of the Depository 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 Company understands
that under existing industry practices, in the event that the Company requests
any action of holders or that an owner of a beneficial interest in a Global
Security desires to give or take any action that a holder is entitled to give
or take under the Indenture, the Depository would authorize the participants
holding the relevant beneficial interest to give or take such action, and such
participants would authorize beneficial owners owning through such
participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
The Depository has advised the Company that it will take any action
permitted to be taken by a holder of Notes only at the direction of one or
more participants to whose account with the Depository interests in the Global
Security are credited and only in respect of such portion of the aggregate
principal amount of the Notes as to which such participant or participants has
or have given such direction.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in Global Securities among participants of
the Depository, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. None of
the Company, the Trustee, any agent of the Company or the Initial Purchasers
will have any responsibility for the performance by the Depository or its
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
The Depository has advised the Company that the Depository is a limited-
purpose trust company organized under the Banking Law of the State of New
York, a "banking organization" within the meaning of 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 under the Exchange Act. The Depository was created to hold the
securities of its participants and to facilitate the clearance and settlement
of securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (including
the Initial Purchasers), banks, trust companies, clearing corporations and
certain other organizations, some of whom (and/or their representatives) own
the Depository. Access to the Depository's book-entry system is also available
to others, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly.
CERTIFICATED NOTES
Notes represented by a Global Security are exchangeable for certificated
Notes only if (i) the Depository notifies the Company that it is unwilling or
unable to continue as a depository for such Global Security or if at any time
the Depository ceases to be a clearing agency registered under the Exchange
Act, and a successor depository is not appointed by the Company within 90
days, (ii) the Company executes and delivers to the Trustee a notice that such
Global Security shall be so transferable, registrable and exchangeable, and
such transfer shall be registrable or (iii) there shall have occurred and be
continuing an Event of Default or an event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default with respect to
the Notes represented by such Global Security. Any Global Security that is
exchangeable for certificated Notes pursuant to the preceding sentence will be
transferred to, and registered and exchanged for, certificated Notes in
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authorized denominations and registered in such names as the Depository or its
nominee holding such Global Security may direct. Subject to the foregoing, a
Global Security is not exchangeable, except for a Global Security of like
denomination to be registered in the name of the Depository or its nominee. In
the event that a Global Security becomes exchangeable for certificated Notes,
(i) certificated Notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof, (ii) payment of
principal, premium, if any, and interest on the certificated Notes will be
payable, and the transfer of the certificated Notes will be registrable, at
the office or agency of the Company maintained for such purposes and (iii) no
service charge will be made for any issuance of the certificated Notes,
although the Company may require payment of a sum sufficient to cover any tax
or governmental charge imposed in connection therewith. In addition, such
certificates will bear the legend referred to under "Notice to Investors"
(unless the Company determines otherwise in accordance with applicable law)
subject, with respect to such Notes, to the provisions of such legend.
OPTIONAL REDEMPTION
The Notes will be subject to redemption at the option of the Company, in
whole or in part, at any time or from time to time on or after May 1, 2003,
upon not less than 30 nor more than 60 days' prior notice, at the redemption
prices set forth below, plus accrued and unpaid interest thereon (if any) to
the redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the twelve months beginning May 1, of the years indicated
below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003..................................................... 104.563%
2004..................................................... 103.042%
2005..................................................... 101.521%
2006 and thereafter...................................... 100.000%
</TABLE>
In addition, at any time or from time to time prior to May 1, 2001, the
Company may redeem up to 35% of the original aggregate principal amount of the
Notes at a redemption price equal to 109.125% of the principal amount of the
Notes so redeemed, plus accrued and unpaid interest thereon (if any) to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date),
with the net cash proceeds of one or more private placements to Persons other
than Affiliates of the Company or underwritten public offerings of Common
Stock of the Company resulting in gross proceeds of at least $100 million in
the aggregate; provided that at least 65% of the original aggregate principal
amount of the Notes would remain outstanding immediately after giving effect
to such redemption. Any such redemption shall be made within 90 days of such
private placement or public offering upon not less than 30 nor more than 60
days' prior notice.
MANDATORY REDEMPTION
Except as set forth under "--Certain Covenants--Change of Control Triggering
Event" and "--Limitation on Asset Dispositions," the Company is not required
to make mandatory redemption payments or sinking fund payments with respect to
the Notes.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Consolidated Debt. (a) The Company may not, and may not permit
any Restricted Subsidiary to, directly or indirectly, Incur any Debt, unless,
after giving pro forma effect to such Incurrence and the receipt and
application of the net proceeds thereof, no Default or Event of Default would
occur as a consequence of such Incurrence or be continuing following such
Incurrence and either (i) the ratio of (A) the aggregate consolidated
principal amount (or, in the case of Debt issued at a discount, the then-
Accreted Value) of Debt of the Company outstanding as of the most recent
available quarterly or annual balance sheet, after giving pro forma effect to
the Incurrence of such Debt and any other Debt Incurred or repaid since such
balance sheet date and the
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receipt and application of the net proceeds thereof, to (B) Consolidated Cash
Flow Available for Fixed Charges for the four full fiscal quarters next
preceding the Incurrence of such Debt for which consolidated financial
statements are available, would be less than 5.0 to 1.0, or (ii) the Company's
Consolidated Capital Ratio as of the most recent available quarterly or annual
balance sheet, after giving pro forma effect to (x) the Incurrence of such
Debt and any other Debt Incurred or repaid since such balance sheet date, (y)
the issuance of any Capital Stock (other than Disqualified Stock) of the
Company since such balance sheet date, including the issuance of any Capital
Stock to be issued concurrently with the Incurrence of such Debt, and (z) the
receipt and application of the net proceeds of such Debt or Capital Stock, as
the case may be, is less than 2.25 to 1.0.
(b) Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may Incur any and all of the following (each of which shall be
given independent effect):
(i) Debt under the Notes, the Indenture or any Restricted Subsidiary
Guarantee;
(ii) Debt under Credit Facilities in an aggregate principal amount
outstanding or available (together with all refinancing Debt outstanding or
available pursuant to clause (viii) below in respect of Debt previously
Incurred pursuant to this clause (ii)) at any one time not to exceed the
greater of (x) $750 million, which amount shall be permanently reduced by
the amount of Net Available Proceeds used to repay Debt under the Credit
Facilities, and not reinvested in Telecommunications/IS Assets or used to
purchase Notes or repay other Debt, pursuant to and as permitted by the
covenant described under "--Limitation on Asset Dispositions", and (y) 85%
of the Eligible Receivables;
(iii) Purchase Money Debt, provided that the amount of such Purchase
Money Debt does not exceed 100% of the cost of the construction,
installation, acquisition, lease, development or improvement of the
applicable Telecommunications/IS Assets;
(iv) Subordinated Debt of the Company; provided, however, that the
aggregate principal amount of such Debt, together with any other
outstanding Debt Incurred pursuant to this clause (iv), shall not exceed
$500 million at any one time (which amount shall be permanently reduced by
the amount of Net Available Proceeds used to repay Subordinated Debt of the
Company, and not reinvested in Telecommunications/IS Assets or used to
purchase Notes or repay other Debt, pursuant to the covenant described
under "--Limitation on Asset Dispositions"), except to the extent such Debt
in excess of $500 million (A) is subordinated to all other Debt of the
Company other than Debt Incurred pursuant to this clause (iv) in excess of
such $500 million limitation, (B) does not provide for the payment of cash
interest on such Debt prior to the Stated Maturity of the Notes and (C) (1)
does not provide for payments of principal of such Debt at stated maturity
or by way of a sinking fund applicable thereto or by way of any mandatory
redemption, defeasance, retirement or repurchase thereof by the Company
(including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by
virtue of the acceleration of any payment with respect to such Debt upon
any event of default thereunder), in each case on or prior to the Stated
Maturity of the Notes, and (2) does not permit redemption or other
retirement (including pursuant to an offer to purchase made by the Company)
of such Debt at the option of the holder thereof on or prior to the Stated
Maturity of the Notes;
(v) Debt outstanding on the Issue Date;
(vi) Debt owed by the Company to any Restricted Subsidiary of the Company
or Debt owed by a Restricted Subsidiary of the Company to the Company or a
Restricted Subsidiary of the Company; provided, however, that (x) upon the
transfer, conveyance or other disposition by such Restricted Subsidiary or
the Company of any Debt so permitted to a Person other than the Company or
another Restricted Subsidiary of the Company or (y) if for any reason such
Restricted Subsidiary ceases to be a Restricted Subsidiary, the provisions
of this clause (vi) shall no longer be applicable to such Debt and such
Debt shall be deemed to have been Incurred by the issuer thereof at the
time of such transfer, conveyance or other disposition or when such
Restricted Subsidiary ceases to be a Restricted Subsidiary;
(vii) Debt Incurred by a Person prior to the time (A) such Person became
a Restricted Subsidiary, (B) such Person merges into or consolidates with a
Restricted Subsidiary or (C) another Restricted Subsidiary
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merges into or consolidates with such Person (in a transaction in which
such Person becomes a Restricted Subsidiary), which Debt was not Incurred
in anticipation of such transaction and was outstanding prior to such
transaction;
(viii) Debt Incurred to renew, extend, refinance, defease, repay, prepay,
repurchase, redeem, retire, exchange or refund (each, a "refinancing") Debt
Incurred pursuant to clause (i), (ii), (iii), (v) or (vii) of this
paragraph (b) or this clause (viii), in an aggregate principal amount (or
if issued at a discount, the then- Accreted Value) not to exceed the
aggregate principal amount (or if issued at a discount, the then-Accreted
Value) of and accrued interest on the Debt so refinanced plus the amount of
any premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt so refinanced or the amount of any
premium reasonably determined by the board of directors of the Company as
necessary to accomplish such refinancing by means of a tender offer or
privately negotiated repurchase, plus the expenses of the Company Incurred
in connection with such refinancing; provided, however, that (A) the
refinancing Debt shall not be senior in right of payment to the Debt that
is being refinanced and (B) in the case of any refinancing of Debt Incurred
pursuant to clause (i), (v) or (vii) or, if such Debt previously refinanced
Debt Incurred pursuant to any such clause, this clause (viii), the
refinancing Debt by its terms, or by the terms of any agreement or
instrument pursuant to which such Debt is issued, (x) does not provide for
payments of principal of such Debt at stated maturity or by way of a
sinking fund applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof by the Company (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of the
acceleration of any payment with respect to such Debt upon any event of
default thereunder), in each case prior to the time the same are required
by the terms of the Debt being refinanced and (y) does not permit
redemption or other retirement (including pursuant to an offer to purchase
made by the Company) of such Debt at the option of the holder thereof prior
to the time the same are required by the terms of the Debt being
refinanced, other than, in the case of clause (x) or (y), any such payment,
redemption or other retirement (including pursuant to an offer to purchase
made by the Company) which is conditioned upon a change of control pursuant
to provisions substantially similar to those described under "--Change of
Control Triggering Event";
(ix) Debt (A) in respect of performance, surety or appeal bonds,
Guarantees, letters of credit or reimbursement obligations Incurred or
provided in the ordinary course of business securing the performance of
contractual, franchise, lease, self-insurance or license obligations and
not in connection with the Incurrence of Debt or (B) in respect of
customary agreements providing for indemnification, adjustment of purchase
price after closing, or similar obligations, or from Guarantees or letters
of credit, surety bonds or performance bonds securing any such obligations
of the Company or any of its Restricted Subsidiaries pursuant to such
agreements, Incurred in connection with the disposition of any business,
assets or Restricted Subsidiary of the Company (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of the Company for the purpose of
financing such acquisition) and in an aggregate principal amount not to
exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition;
(x) Debt consisting of Permitted Interest Rate or Currency Protection
Agreements; and
(xi) Debt not otherwise permitted to be Incurred pursuant to clauses (i)
through (x) above, which, together with any other outstanding Debt Incurred
pursuant to this clause (xi), has an aggregate principal amount not in
excess of $50 million at any time outstanding.
Notwithstanding any other provision of this "--Limitation on Consolidated
Debt" covenant, the maximum amount of Debt that the Company or a Restricted
Subsidiary may Incur pursuant to this "--Limitation on Consolidated Debt"
covenant shall not be deemed to be exceeded due solely to the result of
fluctuations in the exchange rates of currencies.
For purposes of determining any particular amount of Debt under this "--
Limitation on Consolidated Debt" covenant, (1) Guarantees, Liens or
obligations with respect to letters of credit supporting Debt otherwise
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included in the determination of such particular amount shall not be included
and (2) any Liens granted for the benefit of the Notes pursuant to the equal
and ratable provisions referred to in the "--Limitation on Liens" covenant
described below shall not be treated as Debt. For purposes of determining
compliance with this "--Limitation on Consolidated Debt" covenant, in the
event that an item of Debt meets the criteria of more than one of the types of
Debt described in the above clauses, the Company, in its sole discretion,
shall classify such item of Debt and only be required to include the amount
and type of such Debt in one of such clauses.
Limitation on Debt of Restricted Subsidiaries. The Company may not permit
any Restricted Subsidiary that is not a Guarantor to Incur any Debt except any
and all of the following (each of which shall be given independent effect):
(i) Restricted Subsidiary Guarantees;
(ii) Debt outstanding on the Issue Date;
(iii) Debt of Restricted Subsidiaries under Credit Facilities permitted
to be Incurred pursuant to clause (ii) of paragraph (b) of "--Limitation on
Consolidated Debt";
(iv) Purchase Money Debt of Restricted Subsidiaries permitted to be
Incurred pursuant to clause (iii) of paragraph (b) of "--Limitation on
Consolidated Debt";
(v) Debt owed by a Restricted Subsidiary to the Company or a Restricted
Subsidiary of the Company permitted to be Incurred pursuant to clause (vi)
of paragraph (b) of "--Limitation on Consolidated Debt";
(vi) Debt of Restricted Subsidiaries consisting of Permitted Interest
Rate or Currency Protection Agreements permitted to be Incurred pursuant to
clause (x) of paragraph (b) of "--Limitation on Consolidated Debt";
(vii) Debt of Restricted Subsidiaries permitted to be Incurred under
clause (vii) of paragraph (b) of "--Limitation on Consolidated Debt";
(viii) Debt of Restricted Subsidiaries permitted to be Incurred under
clause (ix) or (xi) of paragraph (b) of "--Limitation on Consolidated
Debt"; and
(ix) Debt which is Incurred to refinance any Debt of a Restricted
Subsidiary permitted to be Incurred pursuant to clauses (i), (ii), (iii),
(iv) and (vii) of this paragraph or this clause (ix), in an aggregate
principal amount (or if issued at a discount, the then-Accreted Value) not
to exceed the aggregate principal amount (or if issued at a discount, the
then-Accreted Value) of the Debt so refinanced, plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of the Debt so refinanced or the amount of any premium reasonably
determined by the board of directors of the Company as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated repurchase, plus the amount of expenses of the Company and the
applicable Restricted Subsidiary Incurred in connection therewith;
provided, however, that, in the case of any refinancing of Debt Incurred
pursuant to clause (i), (ii) or (vii) or, if such Debt previously
refinanced Debt Incurred pursuant to any such clause, this clause (ix), the
refinancing Debt by its terms, or by the terms of any agreement or
instrument pursuant to which such Debt is Incurred, (x) does not provide
for payments of principal at the stated maturity of such Debt or by way of
a sinking fund applicable to such Debt or by way of any mandatory
redemption, defeasance, retirement or repurchase of such Debt by the
Company or any Restricted Subsidiary (including any redemption, retirement
or repurchase which is contingent upon events or circumstances, but
excluding any retirement required by virtue of acceleration of such Debt
upon an event of default thereunder), in each case prior to the time the
same are required by the terms of the Debt being refinanced and (y) does
not permit redemption or other retirement (including pursuant to an offer
to purchase made by the Company or a Restricted Subsidiary) of such Debt at
the option of the holder thereof prior to the stated maturity of the Debt
being refinanced, other than, in the case of clause (x) or (y), any such
payment, redemption or other retirement (including pursuant to an offer to
purchase made by the Company or a Restricted Subsidiary) which is
conditioned upon the change of control of the Company pursuant to
provisions substantially similar to those contained in the Indenture
described under "--Change of Control Triggering Event."
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Notwithstanding any other provision of this "--Limitation on Debt of
Restricted Subsidiaries" covenant, the maximum amount of Debt that a
Restricted Subsidiary may Incur pursuant to this "--Limitation on Debt of
Restricted Subsidiaries" covenant shall not be deemed to be exceeded due
solely as the result of fluctuations in the exchange rates of currencies.
For purposes of determining any particular amount of Debt under this "--
Limitation on Debt of Restricted Subsidiaries" covenant, Guarantees, Liens or
obligations with respect to letters of credit supporting Debt otherwise
included in the determination of such particular amount shall not be included.
For purposes of determining compliance with this "--Limitation on Debt of
Restricted Subsidiaries" covenant, in the event that an item of Debt meets the
criteria of more than one of the types of Debt described in the above clauses,
the Company, in its sole discretion, shall classify such item of Debt and only
be required to include the amount and type of such Debt in one of such
clauses.
Limitation on Restricted Payments. (a) The Company (i) may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, declare or pay
any dividend, or make any distribution, in respect of its Capital Stock or to
the holders thereof, excluding any dividends or distributions which are made
solely to the Company or a Restricted Subsidiary (and, if such Restricted
Subsidiary is not a Wholly Owned Subsidiary, to the other stockholders of such
Restricted Subsidiary on a pro rata basis or on a basis that results in the
receipt by the Company or a Restricted Subsidiary of dividends or
distributions of greater value than it would receive on a pro rata basis) or
any dividends or distributions payable solely in shares of Capital Stock of
the Company (other than Disqualified Stock) or in options, warrants or other
rights to acquire Capital Stock of the Company (other than Disqualified
Stock); (ii) may not, and may not permit any Restricted Subsidiary to,
purchase, redeem, or otherwise retire or acquire for value (x) any Capital
Stock of the Company or any Restricted Subsidiary of the Company or (y) any
options, warrants or rights to purchase or acquire shares of Capital Stock of
the Company or any Restricted Subsidiary or any securities convertible or
exchangeable into shares of Capital Stock of the Company or any Restricted
Subsidiary, except, in any such case, any such purchase, redemption or
retirement or acquisition for value (A) paid to the Company or a Restricted
Subsidiary (or, in the case of any such purchase, redemption or other
retirement or acquisition for value with respect to a Restricted Subsidiary
that is not a Wholly Owned Subsidiary, to the other stockholders of such
Restricted Subsidiary on a pro rata basis or on a basis that results in the
receipt by the Company or a Restricted Subsidiary of payments of greater value
than it would receive on a pro rata basis) or (B) paid solely in shares of
Capital Stock (other than Disqualified Stock) of the Company; (iii) may not
make, or permit any Restricted Subsidiary to make, any Investment (other than
an Investment in the Company or a Restricted Subsidiary or a Permitted
Investment) in any Person, including the Designation of any Restricted
Subsidiary as an Unrestricted Subsidiary, or the Revocation of any such
Designation, according to the covenant described under "--Limitation on
Designations of Unrestricted Subsidiaries"; (iv) may not, and may not permit
any Restricted Subsidiary to, redeem, defease, repurchase, retire or otherwise
acquire or retire for value, prior to any scheduled maturity, repayment or
sinking fund payment, Debt of the Company which is subordinate in right of
payment to the Notes (other than any redemption, defeasance, repurchase,
retirement or other acquisition or retirement for value made in anticipation
of satisfying a scheduled maturity, repayment or sinking fund obligation due
within one year thereof); and (v) may not, and may not permit any Restricted
Subsidiary to, issue, transfer, convey, sell or otherwise dispose of Capital
Stock of any Restricted Subsidiary to a Person other than the Company or
another Restricted Subsidiary if the result thereof is that such Restricted
Subsidiary shall cease to be a Restricted Subsidiary, in which event the
amount of such "Restricted Payment" shall be the Fair Market Value of the
remaining interest, if any, in such former Restricted Subsidiary held by the
Company and the other Restricted Subsidiaries (each of clauses (i) through
(v) being a "Restricted Payment") if: (1) an Event of Default, or an event
that with the passing of time or the giving of notice, or both, would
constitute an Event of Default, shall have occurred and be continuing, or (2)
upon giving effect to such Restricted Payment, the Company could not Incur at
least $1.00 of additional Debt pursuant to the terms of the Indenture
described in paragraph (a) of "--Limitation on Consolidated Debt" above, or
(3) upon giving effect to such Restricted Payment, the aggregate of all
Restricted Payments made on or after the Issue Date, including Restricted
Payments made pursuant to clause (A) or (B) of the proviso at the end of this
sentence, and Permitted Investments made on or after the Issue Date pursuant
to clause (i) or (j) of the
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definition thereof (the amount of any such Restricted Payment or Permitted
Investment, if made other than in cash, to be based upon Fair Market Value)
exceeds the sum of: (a) 50% of cumulative Consolidated Net Income (or, in the
case that Consolidated Net Income shall be negative, 100% of such negative
amount) since the end of the last full fiscal quarter prior to the Issue Date
through the last day of the last full fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment and (b) plus, in the case of any
Revocation made after the Issue Date, an amount equal to the lesser of the
portion (proportionate to the Company's equity interest in the Subsidiary to
which such Revocation relates) of the Fair Market Value of the net assets of
such Subsidiary at the time of Revocation and the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Subsidiary; provided, however, that the Company
or a Restricted Subsidiary of the Company may, without regard to the
limitations in clause (3) but subject to clauses (1) and (2), make (A)
Restricted Payments in an aggregate amount not to exceed the sum of $50
million and the aggregate net cash proceeds received after the Issue Date (i)
as capital contributions to the Company, from the issuance (other than to a
Subsidiary or an employee stock ownership plan or trust established by the
Company or any such Subsidiary for the benefit of their employees) of Capital
Stock (other than Disqualified Stock) of the Company, and (ii) from the
issuance or sale of Debt of the Company or any Restricted Subsidiary (other
than to a Subsidiary, the Company or an employee stock ownership plan or trust
established by the Company or any such Subsidiary for the benefit of their
employees) that after the Issue Date has been converted into or exchanged for
Capital Stock (other than Disqualified Stock) of the Company and (B)
Investments in Persons engaged in the Telecommunications/IS Business in an
aggregate amount not to exceed the after-tax gain on the sale, after the Issue
Date, of Special Assets to the extent sold for cash, Cash Equivalents,
Telecommunications/IS Assets or the assumption of Debt of the Company or any
Restricted Subsidiary (other than Debt that is subordinated to the Notes or
any applicable Restricted Subsidiary Guarantee) and release of the Company and
all Restricted Subsidiaries from all liability on the Debt assumed. The
aggregate net cash proceeds referred to in the immediately preceding clauses
(A)(i) and (A)(ii) shall not be utilized to make Restricted Payments pursuant
to such clauses to the extent such proceeds have been utilized to make
Permitted Investments under clause (i) of the definition of "Permitted
Investments."
(b) Notwithstanding the foregoing limitation, (i) the Company may pay any
dividend on Capital Stock of any class of the Company within 60 days after the
declaration thereof if, on the date when the dividend was declared, the
Company could have paid such dividend in accordance with the foregoing
provisions; provided, however, that at the time of such payment of such
dividend, no other Event of Default shall have occurred and be continuing (or
result therefrom); (ii) the Company may repurchase any shares of its Common
Stock or options to acquire its Common Stock from Persons who were formerly
directors, officers or employees of the Company or any of its Subsidiaries or
other Affiliates in an amount not to exceed $3 million in any 12-month period;
(iii) the Company and any Restricted Subsidiary may refinance any Debt
otherwise permitted by clause (viii) of paragraph (b) under "--Limitation on
Consolidated Debt" above or clause (ix) under "--Limitation on Debt of
Restricted Subsidiaries" above; (iv) the Company and any Restricted Subsidiary
may retire or repurchase any Capital Stock of the Company or of any Restricted
Subsidiary or any Subordinated Debt of the Company in exchange for, or out of
the proceeds of the substantially concurrent sale (other than to a Subsidiary
of the Company or an employee stock ownership plan or trust established by the
Company or any such Subsidiary for the benefit of their employees) of, Capital
Stock (other than Disqualified Stock) of the Company, provided that the
proceeds from any such exchange or sale of Capital Stock shall be excluded
from any calculation pursuant to clause (A)(i) in the proviso at the end of
paragraph (a) above or pursuant to clause (b) of the definition of "Invested
Capital"; and (v) the Company may pay cash dividends in any amount not in
excess of $50 million in any 12-month period in respect of Preferred Stock of
the Company (other than Disqualified Stock). The Restricted Payments described
in the foregoing clauses (i), (ii) and (v) shall be included in the
calculation of Restricted Payments; the Restricted Payments described in
clauses (iii) and (iv) shall be excluded in the calculation of Restricted
Payments.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. (a) The Company may not, and may not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction (other
than pursuant to law or
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regulation) on the ability of any Restricted Subsidiary (i) to pay dividends
(in cash or otherwise) or make any other distributions in respect of its
Capital Stock owned by the Company or any other Restricted Subsidiary or pay
any Debt or other obligation owed to the Company or any other Restricted
Subsidiary, (ii) to make loans or advances to the Company or any other
Restricted Subsidiary or (iii) to transfer any of its Property to the Company
or any other Restricted Subsidiary.
(b) Notwithstanding the foregoing limitation, the Company may, and may
permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist (i) any encumbrance or restriction pursuant to any agreement in effect
on the Issue Date, (ii) any customary (as conclusively determined in good
faith by the Chief Financial Officer of the Company) encumbrance or
restriction applicable to a Restricted Subsidiary that is contained in an
agreement or instrument governing or relating to Debt contained in any Credit
Facilities or Purchase Money Debt, provided that such encumbrances and
restrictions permit the distribution of funds to the Company in an amount
sufficient for the Company to make the timely payment of interest, premium (if
any) and principal (whether at stated maturity, by way of a sinking fund
applicable thereto, by way of any mandatory redemption, defeasance, retirement
or repurchase thereof, including upon the occurrence of designated events or
circumstances or by virtue of acceleration upon an event of default, or by way
of redemption or retirement at the option of the holder of the Debt, including
pursuant to offers to purchase) according to the terms of the Indenture and
the Notes and other Debt that is solely an obligation of the Company, but
provided further that such agreement may nevertheless contain customary (as so
determined) net worth, leverage, invested capital and other financial
covenants, customary (as so determined) covenants regarding the merger of or
sale of all or any substantial part of the assets of the Company or any
Restricted Subsidiary, customary (as so determined) restrictions on
transactions with affiliates and customary (as so determined) subordination
provisions governing Debt owed to the Company or any Restricted Subsidiary,
(iii) any encumbrance or restriction pursuant to an agreement relating to any
Acquired Debt, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person so
acquired, (iv) any encumbrance or restriction pursuant to an agreement
effecting a refinancing of Debt Incurred pursuant to an agreement referred to
in clause (i), (ii) or (iii) of this paragraph (b), provided, however, that
the provisions contained in such agreement relating to such encumbrance or
restriction are no more restrictive (as so determined) in any material respect
than the provisions contained in the agreement the subject thereof, (v) in the
case of clause (iii) of paragraph (a) above, any encumbrance or restriction
contained in any security agreement (including a Capital Lease Obligation)
securing Debt of the Company or a Restricted Subsidiary otherwise permitted
under the Indenture, but only to the extent such restrictions restrict the
transfer of the Property subject to such security agreement, (vi) in the case
of clause (iii) of paragraph (a) above, customary provisions (A) that restrict
the subletting, assignment or transfer of any Property that is a lease,
license, conveyance or similar contract, (B) contained in asset sale or other
asset disposition agreements limiting the transfer of the Property being sold
or disposed of pending the closing of such sale or disposition or (C) arising
or agreed to in the ordinary course of business, not relating to any Debt, and
that do not, individually or in the aggregate, detract from the value of
Property of the Company or any Restricted Subsidiary in any manner material to
the Company or any Restricted Subsidiary, (vii) any encumbrance or restriction
with respect to a Restricted Subsidiary imposed pursuant to an agreement which
has been entered into for the sale or disposition of all or substantially all
of the Capital Stock or Property of such Restricted Subsidiary, provided that
the consummation of such transaction would not result in a Default or an Event
of Default, that such restriction terminates if such transaction is abandoned
and that the consummation or abandonment of such transaction occurs within one
year of the date such agreement was entered into, and (viii) any encumbrance
or restriction pursuant to the Indenture and the Notes.
Limitation on Liens. The Company may not, and may not permit any Restricted
Subsidiary to, directly or indirectly, Incur or suffer to exist any Lien on or
with respect to any Property now owned or acquired after the Issue Date to
secure any Debt without making, or causing such Restricted Subsidiary to make,
effective provision for securing the Notes (x) equally and ratably with such
Debt as to such Property for so long as such Debt will be so secured or (y) in
the event such Debt is Debt of the Company or a Guarantor which is subordinate
in right of payment to the Notes or the applicable Restricted Subsidiary
Guarantee, prior to such Debt as to such Property for so long as such Debt
will be so secured.
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The foregoing restrictions shall not apply to: (i) Liens existing on the
Issue Date and securing Debt outstanding on the Issue Date or Incurred on or
after the Issue Date pursuant to any Credit Facility to secure Debt permitted
to be Incurred pursuant to clause (ii) of paragraph (b) under "--Limitation on
Consolidated Debt"; (ii) Liens securing Debt in an amount which, together with
the aggregate amount of Debt then outstanding or available under all Credit
Facilities (together with all refinancing Debt then outstanding or available
pursuant to clause (viii) of paragraph (b) of "--Limitation on Consolidated
Debt" in respect of Debt previously Incurred under Credit Facilities), does
not exceed 1.5 times the Company's Consolidated Cash Flow Available for Fixed
Charges for the four full fiscal quarters preceding the Incurrence of such
Lien for which the Company's consolidated financial statements are available,
determined on a pro forma basis as if such Debt had been Incurred and the
proceeds thereof had been applied at the beginning of such four fiscal
quarters; (iii) Liens in favor of the Company or any Restricted Subsidiary;
provided, however, that any subsequent issue or transfer of Capital Stock or
other event that results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of the Debt secured by any
such Lien (except to the Company or a Restricted Subsidiary) shall be deemed,
in each case, to constitute the Incurrence of such Lien by the issuer thereof;
(iv) Liens to secure Purchase Money Debt permitted to be Incurred pursuant to
clause (iii) of paragraph (b) under "--Limitation on Consolidated Debt,"
provided that any such Lien may not extend to any Property other than the
Telecommunications/IS Assets installed, constructed, acquired, leased,
developed or improved with the proceeds of such Purchase Money Debt and any
improvements or accessions thereto (it being understood that all Debt to any
single lender or group of related lenders or outstanding under any single
credit facility, and in any case relating to the same group or collection of
Telecommunications/IS Assets financed thereby, shall be considered a single
Purchase Money Debt, whether drawn at one time or from time to time); (v)
Liens to secure Acquired Debt, provided that (a) such Lien attaches to the
acquired Property prior to the time of the acquisition of such Property and
(b) such Lien does not extend to or cover any other Property; (vi) Liens to
secure Debt Incurred to refinance, in whole or in part, Debt secured by any
Lien referred to in the foregoing clauses (i), (iv) and (v) or this clause
(vi) so long as such Lien does not extend to any other Property (other than
improvements and accessions to the original Property) and the principal amount
of Debt so secured is not increased except as otherwise permitted under clause
(viii) of paragraph (b) of "--Limitation on Consolidated Debt" or clause (ix)
of "--Limitation on Debt of Restricted Subsidiaries"; (vii) Liens not
otherwise permitted by the foregoing clauses (i) through (vi) securing Debt in
an aggregate amount not to exceed 5% of the Company's Consolidated Tangible
Assets; (viii) Liens granted after the Issue Date pursuant to "--Limitation on
Liens" to secure the Notes; and (ix) Permitted Liens.
Limitation on Sale and Leaseback Transactions. The Company may not, and may
not permit any Restricted Subsidiary to, directly or indirectly, enter into,
assume, Guarantee or otherwise become liable with respect to any Sale and
Leaseback Transaction, unless (i) the Company or such Restricted Subsidiary
would be entitled to Incur (a) Debt in an amount equal to the Attributable
Value of the Sale and Leaseback Transaction pursuant to the covenant described
under "--Limitation on Consolidated Debt" above and (b) a Lien pursuant to the
covenant described under "--Limitation on Liens" above, equal in amount to the
Attributable Value of the Sale and Leaseback Transaction, without also
securing the Notes, and (ii) the Sale and Leaseback Transaction is treated as
an Asset Disposition and all of the conditions of the Indenture described
under "--Limitation on Asset Dispositions" below (including the provisions
concerning the application of Net Available Proceeds) are satisfied with
respect to such Sale and Leaseback Transaction, treating all of the
consideration received in such Sale and Leaseback Transaction as Net Available
Proceeds for purposes of such covenant.
Limitation on Asset Dispositions. The Company may not, and may not permit
any Restricted Subsidiary to, make any Asset Disposition unless: (i) the
Company or the Restricted Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the Fair Market Value for
the Property sold or disposed of as determined by the board of directors of
the Company in good faith and evidenced by a resolution of the board of
directors of the Company filed with the Trustee; and (ii) at least 75% of the
consideration for such disposition consists of cash or Cash Equivalents or the
assumption of Debt of the Company or any Restricted Subsidiary (other than
Debt that is subordinated to the Notes or any applicable Restricted Subsidiary
Guarantee) and release of the Company and all Restricted Subsidiaries from all
liability on the Debt assumed (or if less than 75%, the
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remainder of such consideration consists of Telecommunications/IS Assets);
provided, however, that, to the extent such disposition involves Special
Assets, all or any portion of the consideration may, at the Company's
election, consist of Property other than cash, Cash Equivalents, the
assumption of Debt or Telecommunications/ IS Assets.
The Net Available Proceeds (or any portion thereof) from Asset Dispositions
may be applied by the Company or a Restricted Subsidiary, to the extent the
Company or such Restricted Subsidiary elects (or is required by the terms of
any Debt): (1) to the permanent repayment or reduction of Debt then
outstanding under any Credit Facility, to the extent such Credit Facility
would require such application or prohibit payments pursuant to the Offer to
Purchase described in the following paragraph (other than Debt owed to the
Company or any Affiliate of the Company); or (2) to reinvest in
Telecommunications/IS Assets (including by means of an Investment in
Telecommunications/IS Assets by a Restricted Subsidiary with Net Available
Proceeds received by the Company or another Restricted Subsidiary).
Any Net Available Proceeds from an Asset Disposition not applied in
accordance with the preceding paragraph within 360 days (or, in the case of a
disposition of Special Assets identified in clause (a) of the definition
thereof in which the Net Available Proceeds exceed $500 million, 540 days)
from the date of the receipt of such Net Available Proceeds shall constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10
million, the Company will be required to make an Offer to Purchase with such
Excess Proceeds on a pro rata basis according to principal amount (or, in the
case of Debt issued at a discount, the then-Accreted Value) for (x)
outstanding Notes at a price in cash equal to 100% of the principal amount of
the Notes on the purchase date plus accrued and unpaid interest (if any)
thereon (subject to the right of holders of record on the relevant record date
to receive interest due on the relevant interest payment date) and (y) any
other Debt of the Company or any Guarantor that is pari passu with the Notes,
or any Debt of a Restricted Subsidiary that is not a Guarantor, at a price no
greater than 100% of the principal amount thereof plus accrued and unpaid
interest (if any) to the purchase date (or 100% of the then-Accreted Value
plus accrued and unpaid interest (if any) to the purchase date in the case of
original issue discount Debt), to the extent, in the case of this clause (y),
required under the terms thereof (other than Debt owed to the Company or any
Affiliate of the Company). To the extent there are any remaining Excess
Proceeds following the completion of the Offer to Purchase, the Company shall
apply such Excess Proceeds to the repayment of other Debt of the Company or
any Restricted Subsidiary, to the extent permitted or required under the terms
thereof. Any other remaining Excess Proceeds may be applied to any use as
determined by the Company which is not otherwise prohibited by the Indenture,
and the amount of Excess Proceeds shall be reset to zero.
Limitation on Issuance and Sales of Capital Stock of Restricted
Subsidiaries. The Company may not, and may not permit any Restricted
Subsidiary to, issue, transfer, convey, sell or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary or securities convertible
or exchangeable into, or options, warrants, rights or any other interest with
respect to, Capital Stock of a Restricted Subsidiary to any Person other than
the Company or a Restricted Subsidiary except (i) a sale of all of the Capital
Stock of such Restricted Subsidiary owned by the Company and any Restricted
Subsidiary that complies with the provisions described under "--Limitation on
Asset Dispositions" above to the extent such provisions apply, (ii) in a
transaction that results in such Restricted Subsidiary becoming a Joint
Venture, provided (x) such transaction complies with the provisions described
under "--Limitation on Asset Dispositions" above to the extent such provisions
apply and (y) the remaining interest of the Company or any other Restricted
Subsidiary in such Joint Venture would have been permitted as a new Restricted
Payment or Permitted Investment under the provisions of "--Limitation on
Restricted Payments" above, (iii) the issuance, transfer, conveyance, sale or
other disposition of shares of such Restricted Subsidiary so long as after
giving effect to such transaction such Restricted Subsidiary remains a
Restricted Subsidiary and such transaction complies with the provisions
described under "--Limitation on Asset Dispositions" to the extent such
provisions apply, (iv) the transfer, conveyance, sale or other disposition of
shares required by applicable law or regulation, (v) if required, the
issuance, transfer, conveyance, sale or other disposition of directors'
qualifying shares, (vi) Disqualified Stock issued in exchange for, or upon
conversion of, or the proceeds of the issuance of which are used to refinance,
shares of Disqualified Stock of such Restricted
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Subsidiary, provided that the amounts of the redemption obligations of such
Disqualified Stock shall not exceed the amounts of the redemption obligations
of, and such Disqualified Stock shall have redemption obligations no earlier
than those required by, the Disqualified Stock being exchanged, converted or
refinanced, (vii) in a transaction where the Company or a Restricted
Subsidiary acquires at the same time not less than its Proportionate Interest
in such issuance of Capital Stock, (viii) Capital Stock issued and outstanding
on the Issue Date, (ix) Capital Stock of a Restricted Subsidiary issued and
outstanding prior to the time that such Person becomes a Restricted Subsidiary
so long as such Capital Stock was not issued in contemplation of such Person's
becoming a Restricted Subsidiary or otherwise being acquired by the Company
and (x) an issuance of Preferred Stock of a Restricted Subsidiary (other than
Preferred Stock convertible or exchangeable into Common Stock of any
Restricted Subsidiary) otherwise permitted by the Indenture.
Transactions with Affiliates. The Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, sell, lease,
transfer, or otherwise dispose of any of its Property to, or purchase any
Property from, or enter into any contract, agreement, understanding, loan,
advance, Guarantee or transaction (including the rendering of services) with
or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction or series of Affiliate
Transactions is (i) in the best interest of the Company or such Restricted
Subsidiary and (ii) on terms that are no less favorable to the Company or such
Restricted Subsidiary than those that would have been obtained in a comparable
arm's-length transaction by the Company or such Restricted Subsidiary with a
Person that is not an Affiliate (or, in the event that there are no comparable
transactions involving Persons who are not Affiliates of the Company or the
relevant Restricted Subsidiary to apply for comparative purposes, is otherwise
on terms that, taken as a whole, the Company has determined to be fair to the
Company or the relevant Restricted Subsidiary) and (b) the Company delivers to
the Trustee (i) with respect to any Affiliate Transaction or series of
Affiliate Transactions involving aggregate payments in excess of $10 million
but less than $15 million, a certificate of the chief executive, operating or
financial officer of the Company evidencing such officer's determination that
such Affiliate Transaction or series of Affiliate Transactions complies with
clause (a) above and (ii) with respect to any Affiliate Transaction or series
of Affiliate Transactions involving aggregate payments equal to or in excess
of $15 million, a board resolution certifying that such Affiliate Transaction
or series of Affiliate Transactions complies with clause (a) above and that
such Affiliate Transaction or series of Affiliate Transactions has been
approved by the board of directors, including a majority of the disinterested
members of the board of directors, provided that, in the event that there
shall not be at least two disinterested members of the board of directors with
respect to the Affiliate Transaction, the Company shall, in addition to such
board resolution, file with the Trustee a written opinion from an investment
banking firm of national standing in the United States which, in the good
faith judgment of the board of directors of the Company, is independent with
respect to the Company and its Affiliates and qualified to perform such task,
which opinion shall be to the effect that the consideration to be paid or
received in connection with such Affiliate Transaction is fair, from a
financial point of view, to the Company or such Restricted Subsidiary.
Notwithstanding the foregoing, the following shall not be deemed Affiliate
Transactions: (i) any employment agreement entered into by the Company or any
of its Restricted Subsidiaries in the ordinary course of business and
consistent with industry practice; (ii) any agreement or arrangement with
respect to the compensation of a director or officer of the Company or any
Restricted Subsidiary approved by a majority of the disinterested members of
the board of directors and consistent with industry practice; (iii)
transactions between or among the Company and its Restricted Subsidiaries,
provided that no more than 5% of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary); (iv) Restricted Payments and Permitted
Investments permitted by the covenant described under "--Limitation on
Restricted Payments" (other than Investments in Affiliates that are not the
Company or Restricted Subsidiaries); (v) transactions pursuant to the terms of
any agreement or arrangement as in effect on the Issue Date; and (vi)
transactions with respect to wireline or wireless transmission capacity, the
lease or sharing or other use of cable or fiber optic lines, equipment,
rights-of-way or other access rights, between the Company (or any Restricted
Subsidiary) and any other Person, provided that, in the case of this clause
(vi), such transaction complies with clause (a) in the immediately preceding
paragraph.
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Change of Control Triggering Event. Within 30 days of the occurrence of both
a Change of Control and a Rating Decline with respect to the Notes (a "Change
of Control Triggering Event"), the Company will be required to make an Offer
to Purchase all outstanding Notes at a price in cash equal to 101% of the
principal amount of the Notes on the purchase date plus any accrued and unpaid
interest (if any) to such purchase date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date).
A "Change of Control" means the occurrence of any of the following events:
(A) if any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act or any successor provisions to either of the
foregoing), including any group acting for the purpose of acquiring,
holding, voting or disposing of securities within the meaning of Rule 13d-
5(b)(1) under the Exchange Act, other than any one or more of the Permitted
Holders, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, except that a person will be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of 35% or more of the total voting power of
the Voting Stock of the Company; provided, however, that the Permitted
Holders are the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act, except that a person will be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, in the aggregate of a lesser percentage of
the total voting power of the Voting Stock of the Company than such other
person or group (for purposes of this clause (A), such person or group
shall be deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as such person or group beneficially owns, directly
or indirectly, in the aggregate a majority of the total voting power of the
Voting Stock of such parent corporation); or
(B) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Restricted Subsidiary or one or more Permitted
Holders) shall have occurred; or
(C) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the Company
(together with any new directors whose election or appointment by such
board or whose nomination for election by the shareholders of the Company
was approved by a vote of a majority of the directors then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the board of directors of the Company then in
office; or
(D) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
In the event that the Company makes an Offer to Purchase the Notes, the
Company intends to comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1
under, the Exchange Act.
The existence of the holders' right to require, subject to certain
conditions, the Company to repurchase Notes upon a Change of Control
Triggering Event may deter a third party from acquiring the Company in a
transaction that constitutes a Change of Control. If an Offer to Purchase is
made, there can be no assurance that the Company will have sufficient funds to
pay the Purchase Price for all Notes tendered by holders seeking to accept the
Offer to Purchase. In addition, instruments governing other Debt of the
Company may prohibit the Company from purchasing any Notes prior to their
Stated Maturity, including pursuant to an Offer to Purchase, or require that
such Debt be repurchased upon a Change of Control. In the event that an Offer
to Purchase occurs at a time when the Company does not have sufficient
available funds to pay the Purchase Price for all Notes tendered pursuant to
such Offer to Purchase or a time when the Company is prohibited from
purchasing the Notes (and the Company is unable either to obtain the consent
of the holders of the relevant Debt or to repay such
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Debt), an Event of Default would occur under the Indenture. In addition, one
of the events that constitutes a Change of Control under the Indenture is a
sale, transfer, assignment, lease, conveyance or other disposition of all or
substantially all of the assets of the Company. The Indenture will be governed
by New York law, and there is no established definition under New York law of
"substantially all" of the assets of a corporation. Accordingly, if the
Company were to engage in a transaction in which it disposed of less than all
of its assets, a question of interpretation could arise as to whether such
disposition was of "substantially all" of its assets and whether the Company
was required to make an Offer to Purchase.
Except as described herein with respect to a Change of Control, the
Indenture does not contain any other provisions that permit holders of Notes
to require that the Company repurchase or redeem Notes in the event of a
takeover, recapitalization or similar restructuring.
Reports. Whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, or any successor provision thereto, the Company shall file
with the Commission the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were subject thereto, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates")
by which the Company would have been required to file them. The Company shall
also in any event (a) within 15 days of each Required Filing Date (i) transmit
by mail to all holders, as their names and addresses appear in the Security
Register, without cost to such holders, and (ii) file with the Trustee copies
of the annual reports, quarterly reports and other documents (without
exhibits) which the Company would have been required to file with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or any
successor provisions thereto if the Company were subject thereto and (b) if
filing such documents by the Company with the Commission is not permitted
under the Exchange Act, promptly upon written request, supply copies of such
documents (without exhibits) to any prospective holder.
Limitation on Designations of Unrestricted Subsidiaries. The Indenture will
provide that the Company will not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made) as an "Unrestricted Subsidiary" under the Indenture (a
"Designation") unless:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(b) immediately after giving effect to such Designation, the Company
would be able to Incur $1.00 of Debt under paragraph (a) of "--Limitation
on Consolidated Debt"; and
(c) the Company would not be prohibited under the Indenture from making
an Investment at the time of Designation (assuming the effectiveness of
such Designation) in an amount (the "Designation Amount") equal to the
portion (proportionate to the Company's equity interest in such Restricted
Subsidiary) of the Fair Market Value of the net assets of such Restricted
Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"--Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount; provided, however, that, upon a Revocation of any such
Designation of a Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary of an amount (if
positive) equal to (i) the Company's "Investment" in such Subsidiary at the
time of such Revocation less (ii) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the Fair Market Value of the net assets
of such Subsidiary at the time of such Revocation. At the time of any
Designation of any Subsidiary as an Unrestricted Subsidiary, such Subsidiary
shall not own any Capital Stock of the Company or any Restricted Subsidiary.
The Indenture will further provide that neither the Company nor any Restricted
Subsidiary shall at any time (x) provide credit support for, or a Guarantee
of, any Debt of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Debt); provided that the Company or a
Restricted Subsidiary may pledge Capital Stock or Debt of any Unrestricted
Subsidiary on a nonrecourse basis such that the pledgee has no claim
whatsoever against the Company other than to obtain such pledged Capital Stock
or Debt, (y) be directly or indirectly liable for any Debt of any
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Unrestricted Subsidiary or (z) be directly or indirectly liable for any Debt
which provides that the holder thereof may (upon notice, lapse of time or
both) declare a default thereon or cause the payment thereof to be accelerated
or payable prior to its final scheduled maturity upon the occurrence of a
default with respect to any Debt, Lien or other obligation of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except in the case of clause (x) or (y) to the
extent permitted under "--Limitation on Restricted Payments" and "--
Transactions with Affiliates."
Unless Designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company will be classified as a Restricted Subsidiary;
provided, however, that such Subsidiary shall not be designated as a
Restricted Subsidiary and shall be automatically classified as an Unrestricted
Subsidiary if either of the requirements set forth in clauses (a) and (b) of
the immediately following paragraph will not be satisfied immediately
following such classification. Except as provided in the first sentence of
this "--Limitation on Designations of Unrestricted Subsidiaries," no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.
The Indenture will further provide that a Designation may be revoked (a
"Revocation") by a resolution of the board of directors of the Company
delivered to the Trustee, provided that the Company will not make any
Revocation unless:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation; and
(b) all Liens and Debt of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if Incurred at such time, have
been permitted to be Incurred at such time for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by resolutions of the
board of directors of the Company delivered to the Trustee (i) certifying
compliance with the foregoing provisions and (ii) giving the effective date of
such Designation or Revocation, such delivery to the Trustee to occur within
45 days after the end of the fiscal quarter of the Company in which such
Designation or Revocation is made (or, in the case of a Designation or
Revocation made during the last fiscal quarter of the Company's fiscal year,
within 90 days after the end of such fiscal year).
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company may not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into any other Person or Persons
or permit any other Person to consolidate with or merge into the Company or
(ii) directly or indirectly, transfer, sell, lease, convey or otherwise
dispose of all or substantially all its assets to any other Person or Persons
unless: (a) in a transaction in which the Company is not the surviving Person
or in which the Company transfers, sells, leases, conveys or otherwise
disposes of all or substantially all of its assets to any other Person, the
resulting surviving or transferee Person (the "successor entity") is organized
under the laws of the United States of America or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture
executed and delivered to the Trustee in form satisfactory to the Trustee, all
of the Company's obligations under the Indenture; (b) immediately before and
after giving effect to such transaction and treating any Debt which becomes an
obligation of the Company or a Restricted Subsidiary as a result of such
transaction as having been Incurred by the Company or such Restricted
Subsidiary at the time of the transaction, no Default or Event of Default
shall have occurred and be continuing; (c) immediately after giving effect to
such transaction, the Consolidated Net Worth of the Company (or the successor
entity to the Company) is equal to or greater than that of the Company
immediately prior to the transaction; (d) immediately after giving effect to
such transaction and treating any Debt which becomes an obligation of the
Company or a Restricted Subsidiary as a result of such transaction as having
been Incurred by the Company (or the successor entity to the Company) or such
Restricted Subsidiary at the time of the transaction, the Company (or the
successor entity to the Company) could Incur at least $1.00 of additional Debt
pursuant to the provisions of the Indenture described in paragraph (a) under
"--Certain Covenants--Limitation on Consolidated Debt" above;
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(e) if, as a result of any such transaction, Property of the Company or any
Restricted Subsidiary would become subject to a Lien prohibited by the
provisions of the Indenture described under "--Certain Covenants--Limitation
on Liens" above, the Company or the successor entity to the Company shall have
secured the Notes as required by said covenant; (f) in the case of a transfer,
sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company, such assets shall have been transferred as an
entirety or virtually as an entirety to one Person and such Person shall have
complied with all the provisions of this paragraph; and (g) certain other
conditions are met.
The successor entity shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture, and the
predecessor Company, except in the case of a lease, shall be released from all
its obligations under the Indenture.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Accreted Value" of any Debt issued at a price less than the principal
amount at stated maturity, means, as of any date of determination, an amount
equal to the sum of (a) the issue price of such Debt as determined in
accordance with Section 1273 of the Code or any successor provisions plus (b)
the aggregate of the portions of the original issue discount (the excess of
the amounts considered as part of the "stated redemption price at maturity" of
such Debt within the meaning of Section 1273(a)(2) of the Code or any
successor provisions, whether denominated as principal or interest, over the
issue price of such Debt) that shall theretofore have accrued pursuant to
Section 1272 of the Code (without regard to Section 1272(a)(7) of the Code)
from the date of issue of such Debt to the date of determination, minus all
amounts theretofore paid in respect of such Debt, which amounts are considered
as part of the "stated redemption price at maturity" of such Debt within the
meaning of Section 1273(a)(2) of the Code or any successor provisions (whether
such amounts paid were denominated principal or interest).
"Acquired Debt" means, with respect to any specified Person, (i) Debt of any
other Person existing at the time such Person merges with or into or
consolidates with or becomes a Subsidiary of such specified Person and (ii)
Debt secured by a Lien encumbering any Property acquired by such specified
Person, which Debt was not incurred in anticipation of, and was outstanding
prior to, such merger, consolidation or acquisition.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of the
covenants described under "--Certain Covenants--Transactions with Affiliates"
and "--Limitation on Asset Dispositions" and the definition of
"Telecommunications/IS Assets" only, "Affiliate" shall also mean any
beneficial owner of shares representing 10% or more of the total voting power
of the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Asset Disposition" means any transfer, conveyance, sale, lease, issuance or
other disposition by the Company or any Restricted Subsidiary in one or more
related transactions (including a consolidation or merger or other sale of any
such Restricted Subsidiary with, into or to another Person in a transaction in
which such Restricted Subsidiary ceases to be a Restricted Subsidiary of the
Company, but excluding a disposition by a Restricted Subsidiary to the Company
or a Restricted Subsidiary or by the Company to a Restricted Subsidiary) of
(i) shares of Capital Stock or other ownership interests of a Restricted
Subsidiary (other than as permitted by
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clause (v), (vi), (vii) or (ix) of the covenant described under "--Certain
Covenants--Limitation on Issuance and Sales of Capital Stock of Restricted
Subsidiaries"), (ii) substantially all of the assets of the Company or any
Restricted Subsidiary representing a division or line of business or (iii)
other Property of the Company or any Restricted Subsidiary outside of the
ordinary course of business (excluding any transfer, conveyance, sale, lease
or other disposition of equipment that is obsolete or no longer used by or
useful to the Company, provided that the Company has delivered to the Trustee
an Officers' Certificate stating that such criteria are satisfied); provided
in each case that the aggregate consideration for such transfer, conveyance,
sale, lease or other disposition is equal to $5 million or more in any 12-
month period. The following shall not be Asset Dispositions: (i) Permitted
Telecommunications Capital Asset Dispositions that comply with clause (i) of
the first paragraph under "--Certain Covenants--Limitation on Asset
Dispositions", (ii) when used with respect to the Company, any Asset
Disposition permitted pursuant to "--Mergers, Consolidations and Certain Sales
of Assets" which constitutes a disposition of all or substantially all of the
assets of the Company and the Restricted Subsidiaries taken as a whole, (iii)
Receivables sales constituting Debt under Qualified Receivable Facilities
permitted to be Incurred pursuant to "--Certain Covenants--Limitation on
Consolidated Debt" and (iv) any disposition that constitutes a Permitted
Investment or a Restricted Payment permitted by the covenant described under
"--Certain Covenants--Limitation on Restricted Payments."
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount
of rent required to be paid by such Person under such lease during the
remaining term thereof (including any period for which such lease has been
extended) as determined in accordance with generally accepted accounting
principles, discounted from the last date of such remaining term to the date
of determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to
be paid under any such lease for any such period shall be the aggregate amount
of rent payable by the lessee with respect to such period after excluding
amounts required to be paid on account of insurance, taxes, assessments,
utility, operating and labor costs and similar charges. In the case of any
lease which is terminable by the lessee upon the payment of penalty, such net
amount shall also include the lesser of the amount of such penalty (in which
case no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated) or the rent
which would otherwise be required to be paid if such lease is not so
terminated. "Attributable Value" means, as to a Capital Lease Obligation, the
principal amount thereof.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amount under a lease of (or other Debt arrangements conveying
the right to use) Property of such Person which is required to be classified
and accounted for as a capital lease or a liability on the face of a balance
sheet of such Person in accordance with generally accepted accounting
principles (a "Capital Lease"). The stated maturity of such obligation shall
be the date of the last payment of rent or any other amount due under such
lease prior to the first date upon which such lease may be terminated by the
lessee without payment of a penalty. The principal amount of such obligation
shall be the capitalized amount thereof that would appear on the face of a
balance sheet of such Person in accordance with generally accepted accounting
principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general
or limited, of such Person and any rights (other than debt securities
convertible or exchangeable into an equity interest), warrants or options to
acquire an equity interest in such Person.
"Cash Equivalents" means (i) Government Securities maturing, or subject to
tender at the option of the holder thereof, within two years after the date of
acquisition thereof, (ii) time deposits and certificates of deposit of any
commercial bank organized in the United States having capital and surplus in
excess of $500 million or a commercial bank organized under the law of any
other country that is a member of the OECD having total assets in excess of
$500 million (or its foreign currency equivalent at the time) with a maturity
date not more than one year from the date of acquisition, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with (x) any bank meeting
the qualifications
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specified in clause (ii) above or (y) any primary government securities dealer
reporting to the Market Reports Division of the Federal Reserve Bank of New
York, (iv) direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing, or subject to tender at the option of the
holder thereof, within 90 days after the date of acquisition thereof, provided
that, at the time of acquisition, the long-term debt of such state, political
subdivision or public instrumentality has a rating of A (or higher) from S&P
or A-2 (or higher) from Moody's (or, if at any time neither S&P nor Moody's
shall be rating such obligations, then an equivalent rating from such other
nationally recognized rating service acceptable to the Trustee), (v)
commercial paper issued by the parent corporation of any commercial bank
organized in the United States having capital and surplus in excess of $500
million or a commercial bank organized under the laws of any other country
that is a member of the OECD having total assets in excess of $500 million (or
its foreign currency equivalent at the time), and commercial paper issued by
others having one of the two highest ratings obtainable from either S&P or
Moody's (or, if at any time neither S&P nor Moody's shall be rating such
obligations, then from such other nationally recognized rating service
acceptable to the Trustee) and in each case maturing within one year after the
date of acquisition, (vi) overnight bank deposits and bankers' acceptances at
any commercial bank organized in the United States having capital and surplus
in excess of $500 million or a commercial bank organized under the laws of any
other country that is a member of the OECD having total assets in excess of
$500 million (or its foreign currency equivalent at the time), (vii) deposits
available for withdrawal on demand with a commercial bank organized in the
United States having capital and surplus in excess of $500 million or a
commercial bank organized under the laws of any other country that is a member
of the OECD having total assets in excess of $500 million (or its foreign
currency equivalent at the time) and (viii) investments in money market funds
substantially all of whose assets comprise securities of the types described
in clauses (i) through (vii).
"Change of Control" has the meaning set forth under "--Certain Covenants--
Change of Control Triggering Event" above.
"Change of Control Triggering Event" has the meaning set forth under "--
Certain Covenants--Change of Control Triggering Event" above.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Consolidated Capital Ratio" means as of the date of determination the ratio
of (i) the aggregate amount of Debt of the Company and its Restricted
Subsidiaries on a consolidated basis as at the date of determination to (ii)
the sum of (a) $2.024 billion, (b) the aggregate net proceeds to the Company
from the issuance or sale of any Capital Stock (including Preferred Stock) of
the Company other than Disqualified Stock subsequent to the Issue Date, (c)
the aggregate net proceeds from the issuance or sale of Debt of the Company or
any Restricted Subsidiary subsequent to the Issue Date convertible or
exchangeable into Capital Stock of the Company other than Disqualified Stock,
in each case upon conversion or exchange thereof into Capital Stock of the
Company subsequent to the Issue Date and (d) the after-tax gain on the sale,
subsequent to the Issue Date, of Special Assets to the extent such Special
Assets have been sold for cash, Cash Equivalents, Telecommunications/IS Assets
or the assumption of Debt of the Company or any Restricted Subsidiary (other
than Debt that is subordinated to the Notes or any applicable Restricted
Subsidiary Guarantee) and release of the Company and all Restricted
Subsidiaries from all liability on the Debt assumed; provided, however, that,
for purposes of calculation of the Consolidated Capital Ratio, the net
proceeds from the issuance or sale of Capital Stock or Debt described in
clause (b) or (c) above shall not be included to the extent (x) such proceeds
have been utilized to make a Permitted Investment under clause (i) of the
definition thereof or a Restricted Payment or (y) such Capital Stock or Debt
shall have been issued or sold to the Company, a Subsidiary of the Company or
an employee stock ownership plan or trust established by the Company or any
such Subsidiary for the benefit of their employees.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period increased by the sum of, to the extent reducing
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Consolidated Net Income for such period, (i) Consolidated Interest Expense of
the Company and its Restricted Subsidiaries for such period, plus (ii)
Consolidated Income Tax Expense of the Company and its Restricted Subsidiaries
for such period, plus (iii) consolidated depreciation and amortization expense
and any other non-cash items (other than any such non-cash item to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period); provided, however, that there shall be excluded therefrom the
Consolidated Cash Flow Available for Fixed Charges (if positive) of any
Restricted Subsidiary (calculated separately for such Restricted Subsidiary in
the same manner as provided above for the Company) that is subject to a
restriction which prevents the payment of dividends or the making of
distributions to the Company or another Restricted Subsidiary to the extent of
such restrictions.
"Consolidated Income Tax Expense" for any period means the aggregate amounts
of the provisions for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Interest Expense" for any period means the interest expense
included in a consolidated income statement (excluding interest income) of the
Company and its Restricted Subsidiaries for such period in accordance with
generally accepted accounting principles, including without limitation or
duplication (or, to the extent not so included, with the addition of), (i) the
amortization of Debt discounts and issuance costs, including commitment fees;
(ii) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities; (iii) net costs with respect to interest
rate swap or similar agreements or foreign currency hedge, exchange or similar
agreements (including fees); (iv) Preferred Stock Dividends (other than
dividends paid in shares of Preferred Stock that is not Disqualified Stock)
declared and paid or payable; (v) accrued Disqualified Stock Dividends,
whether or not declared or paid; (vi) interest on Debt guaranteed by the
Company and its Restricted Subsidiaries; (vii) the portion of any Capital
Lease Obligation or Sale and Leaseback Transaction paid during such period
that is allocable to interest expense; (viii) interest Incurred in connection
with investments in discontinued operations; and (ix) the cash contributions
to any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company or a Restricted Subsidiary) in connection with
Debt Incurred by such plan or trust.
"Consolidated Net Income" for any period means the net income (or loss) of
the Company and its Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting
principles; provided that there shall be excluded therefrom (a) for purposes
of the covenant described under "--Certain Covenants--Limitation on Restricted
Payments" only, the net income (or loss) of any Person acquired by the Company
or a Restricted Subsidiary in a pooling-of-interests transaction for any
period prior to the date of such transaction, (b) the net income (or loss) of
any Person that is not a Restricted Subsidiary except to the extent of the
amount of dividends or other distributions actually paid to the Company or a
Restricted Subsidiary by such Person during such period (except, for purposes
of the covenant described under "--Certain Covenants--Limitation on Restricted
Payments" only, to the extent such dividends or distributions have been
subtracted from the calculation of the amount of Investments to support the
actual making of Investments), (c) gains or losses realized upon the sale or
other disposition of any Property of the Company or its Restricted
Subsidiaries that is not sold or disposed of in the ordinary course of
business (it being understood that Permitted Telecommunications Capital Asset
Dispositions shall be considered to be in the ordinary course of business),
(d) gains or losses realized upon the sale or other disposition of any Special
Assets, (e) all extraordinary gains and extraordinary losses, determined in
accordance with generally accepted accounting principles, (f) the cumulative
effect of changes in accounting principles, (g) non-cash gains or losses
resulting from fluctuations in currency exchange rates, (h) any non-cash
expense related to the issuance to employees or directors of the Company or
any Restricted Subsidiary of (1) options to purchase Capital Stock of the
Company or such Restricted Subsidiary or (2) other compensatory rights;
provided, in either case, that such options or rights, by their terms can be
redeemed at the option of the holder of such option or right only for Capital
Stock, and (i) with respect to a Restricted Subsidiary that is not a Wholly
Owned Subsidiary any aggregate net income (or loss) in excess of the Company's
or any Restricted Subsidiary's pro rata share of the net income (or loss) of
such Restricted Subsidiary that is not a Wholly Owned Subsidiary; provided
further that there shall further be
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excluded therefrom the net income (but not net loss) of any Restricted
Subsidiary that is subject to a restriction which prevents the payment of
dividends or the making of distributions to the Company or another Restricted
Subsidiary to the extent of such restriction.
"Consolidated Net Worth" of any Person means the stockholders' equity of
such Person, determined on a consolidated basis in accordance with generally
accepted accounting principles, less amounts attributable to Disqualified
Stock of such Person.
"Consolidated Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under generally accepted accounting principles would be included on a
consolidated balance sheet of such Person and its Subsidiaries after deducting
therefrom all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, which in each case under
generally accepted accounting principles would be included on such
consolidated balance sheet.
"Credit Facilities" means one or more credit agreements, loan agreements or
similar facilities, secured or unsecured, providing for revolving credit
loans, term loans and/or letters of credit, including any Qualified Receivable
Facility, entered into from time to time by the Company and its Restricted
Subsidiaries, and including any related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, as the
same may be amended, supplemented, modified, restated or replaced from time to
time.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or
not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of Property, (iii) every reimbursement obligation of such Person
with respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (iv) every obligation of such Person
issued or assumed as the deferred purchase price of Property or services
(including securities repurchase agreements but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business),
(v) every Capital Lease Obligation of such Person and all Attributable Value
in respect of Sale and Leaseback Transactions entered into by such Person,
(vi) all obligations to redeem or repurchase Disqualified Stock issued by such
Person, (vii) the liquidation preference of any Preferred Stock (other than
Disqualified Stock, which is covered by the preceding clause (vi)) issued by
any Restricted Subsidiary of such Person, (viii) every obligation under
Interest Rate or Currency Protection Agreements of such Person and (ix) every
obligation of the type referred to in clauses (i) through (viii) of another
Person and all dividends of another Person the payment of which, in either
case, such Person has Guaranteed. The "amount" or "principal amount" of Debt
at any time of determination as used herein represented by (a) any Debt issued
at a price that is less than the principal amount at maturity thereof, shall
be, except as otherwise set forth herein, the Accreted Value of such Debt at
such time or (b) in the case of any Receivables sale constituting Debt, the
amount of the unrecovered purchase price paid (that is, the amount paid for
Receivables that has not been actually recovered from the collection of such
Receivables) by the purchaser (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) thereof. The amount of Debt represented
by an obligation under an Interest Rate or Currency Protection Agreement shall
be equal to (x) zero if such obligation has been Incurred pursuant to clause
(x) of paragraph (b) of the covenant described under "--Certain Covenants--
Limitation on Consolidated Debt" or (y) the notional amount of such obligation
if not Incurred pursuant to such clause.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final Stated Maturity of the Notes;
provided, however, that any Preferred Stock which would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require the Company to repurchase or redeem such Preferred Stock
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upon the occurrence of a change of control occurring prior to the final Stated
Maturity of the Notes shall not constitute Disqualified Stock if the change of
control provisions applicable to such Preferred Stock are no more favorable to
the holders of such Preferred Stock than the provisions applicable to the
Notes contained in the covenant described under "--Certain Covenants--Change
of Control Triggering Event" and such Preferred Stock specifically provides
that the Company will not repurchase or redeem any such stock pursuant to such
provisions prior to the Company's repurchase of such Notes as are required to
be repurchased pursuant to the covenant described under "--Certain Covenants--
Change of Control Triggering Event."
"Disqualified Stock Dividends" means all dividends with respect to
Disqualified Stock of the Company held by Persons other than a Wholly Owned
Restricted Subsidiary. The amount of any such dividend shall be equal to the
quotient of such dividend divided by the difference between one and the
maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) applicable to the Company for the period during which such
dividends were paid.
"Eligible Receivables" means, at any time, Receivables of the Company and
its Restricted Subsidiaries, as evidenced on the most recent quarterly
consolidated balance sheet of the Company as at a date at least 45 days prior
to such time, arising in the ordinary course of business of the Company or any
Restricted Subsidiary.
"Event of Default" has the meaning set forth under "--Events of Default"
below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act), and the rules and regulations thereunder (or respective
successors thereto).
"Fair Market Value" means, with respect to any Property, the price that
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the Indenture, Fair Market Value shall be determined by the board of
directors of the Company acting in good faith and shall be evidenced by a
resolution of the board of directors of the Company delivered to the Trustee.
"Government Securities" means direct obligations of, or obligations fully
and unconditionally guaranteed or insured by, the United States of America or
any agency or instrumentality thereof for the payment of which obligations or
guarantee the full faith and credit of the United States is pledged and which
are not callable or redeemable at the issuer's option (unless, for purposes of
the definition of "Cash Equivalents" only, the obligations are redeemable or
callable at a price less than the purchase price paid by the Company or the
applicable Restricted Subsidiary, together with all accrued and unpaid
interest (if any) on such Government Securities).
"Guarantee" by any Person means any obligation, direct or indirect,
contingent or otherwise, of such Person guaranteeing, or having the economic
effect of guaranteeing, any Debt of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, and any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Debt, including any such obligations arising by virtue of
partnership arrangements or by agreements to keep-well, (ii) to purchase
Property or services or to take-or-pay for the purpose of assuring the holder
of such Debt of the payment of such Debt, (iii) to maintain working capital,
equity capital or other financial statement condition or liquidity of the
primary obligor so as to enable the primary obligor to pay such Debt or (iv)
entered into for the purpose of assuring in any other manner the obligee
against loss in respect thereof, in whole or in part (and "Guaranteed",
"Guaranteeing" and "Guarantor" shall have meanings correlative to the
foregoing); provided, however, that the Guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Guarantor" means a Restricted Subsidiary of the Company that has executed a
Restricted Subsidiary Guarantee.
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"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other
obligation including the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Debt or other obligation on
the balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable"
and "Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in generally accepted accounting principles that
results in an obligation of such Person that exists at such time becoming Debt
shall not be deemed an Incurrence of such Debt and that neither the accrual of
interest nor the accretion of original issue discount shall be deemed an
Incurrence of Debt. Debt otherwise incurred by a Person before it becomes a
Subsidiary of the Company shall be deemed to have been Incurred at the time at
which it becomes a Subsidiary.
"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement
or arrangement (including, without limitation, caps, floors, collars and
similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates or indices.
"Invested Capital" means the sum of (a) $500 million, (b) the aggregate net
proceeds received by the Company from the issuance or sale of any Capital
Stock, including Preferred Stock, of the Company but excluding Disqualified
Stock, subsequent to the Issue Date, and (c) the aggregate net proceeds from
the issuance or sale of Debt of the Company or any Restricted Subsidiary
subsequent to the Issue Date convertible or exchangeable into Capital Stock of
the Company other than Disqualified Stock, in each case upon conversion or
exchange thereof into Capital Stock of the Company subsequent to the Issue
Date; provided, however, that the net proceeds from the issuance or sale of
Capital Stock or Debt described in clause (b) or (c) shall be excluded from
any computation of Invested Capital to the extent (i) utilized to make a
Restricted Payment or (ii) such Capital Stock or Debt shall have been issued
or sold to the Company, a Subsidiary of the Company or an employee stock
ownership plan or trust established by the Company or any such Subsidiary for
the benefit of their employees.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of
cash or other Property to others or payments for Property or services for the
account or use of others, or otherwise) to, purchase, redemption, retirement
or acquisition of Capital Stock, bonds, notes, debentures or other securities
or evidence of Debt issued by, or Incurrence of, or payment on, a Guarantee of
any obligation of, any other Person; provided that Investments shall exclude
commercially reasonable extensions of trade credit. The amount, as of any date
of determination, of any Investment shall be the original cost of such
Investment, plus the cost of all additions, as of such date, thereto and minus
the amount, as of such date, of any portion of such Investment repaid to such
Person in cash as a repayment of principal or a return of capital, as the case
may be (except to the extent such repaid amount has been included in
Consolidated Net Income to support the actual making of Restricted Payments),
but without any other adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment. In
determining the amount of any Investment involving a transfer of any Property
other than cash, such Property shall be valued at its Fair Market Value at the
time of such transfer.
"Issue Date" means the date on which the Notes are initially issued.
"Issue Date Rating" means the respective ratings assigned to the Notes by
the Rating Agencies on the Issue Date.
"Joint Venture" means a Person in which the Company or a Restricted
Subsidiary holds not more than 50% of the shares of Voting Stock.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest,
lien, charge, easement (other than any easement not materially impairing
usefulness), encumbrance, preference, priority or other security agreement or
preferential arrangement
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of any kind or nature whatsoever on or with respect to such Property
(including any Capital Lease Obligation, conditional sale or other title
retention agreement having substantially the same economic effect as any of
the foregoing and any Sale and Leaseback Transaction). For purposes of this
definition the sale, lease, conveyance or other transfer by the Company or any
of its Subsidiaries of, including the grant of indefeasible rights of use or
equivalent arrangements with respect to, dark or lit communications fiber
capacity or communications conduit shall not constitute a Lien.
"Moody's" means Moody's Investors Service, Inc. or, if Moody's Investors
Service, Inc. shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
that if Moody's Investors Service, Inc. ceases rating debt securities having a
maturity at original issuance of at least one year and its ratings business
with respect thereto shall not have been transferred to any successor Person,
then "Moody's" shall mean any other national recognized rating agency (other
than S&P) that rates debt securities having a maturity at original issuance of
at least one year and that shall have been designated by the Trustee by a
written notice given to the Company.
"Net Available Proceeds" from any Asset Disposition by any Person means cash
or cash equivalents received (including amounts received by way of sale or
discounting of any note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such Property) therefrom by
such Person, net of (i) all legal, title and recording taxes, expenses and
commissions and other fees and expenses (including appraisals, brokerage
commissions and investment banking fees) Incurred and all federal, state,
provincial, foreign and local taxes required to be accrued as a liability as a
consequence of such Asset Disposition, (ii) all payments made by such Person
or its Subsidiaries on any Debt which is secured by such Property in
accordance with the terms of any Lien upon or with respect to such Property or
which must by the terms of such Lien, or in order to obtain a necessary
consent to such Asset Disposition or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
Joint Ventures of such Person as a result of such Asset Disposition and (iv)
appropriate amounts to be provided by such Person or any Subsidiary thereof,
as the case may be, as a reserve in accordance with generally accepted
accounting principles against any liabilities associated with such Property
and retained by such Person or any Subsidiary thereof, as the case may be,
after such Asset Disposition, including liabilities under any indemnification
obligations and severance and other employee termination costs associated with
such Asset Disposition, in each case as determined by the board of directors
of such Person, in its reasonable good faith judgment evidenced by a
resolution of the board of directors filed with the Trustee; provided,
however, that any reduction in such reserve within twelve months following the
consummation of such Asset Disposition will be, for all purposes of the
Indenture and the Notes, treated as a new Asset Disposition at the time of
such reduction with Net Available Proceeds equal to the amount of such
reduction; provided further, however, that, in the event that any
consideration for a transaction (which would otherwise constitute Net
Available Proceeds) is required to be held in escrow pending determination of
whether a purchase price adjustment will be made, at such time as such portion
of the consideration is released to such Person or its Restricted Subsidiary
from escrow, such portion shall be treated for all purposes of the Indenture
and the Notes as a new Asset Disposition at the time of such release from
escrow with Net Available Proceeds equal to the amount of such portion of
consideration released from escrow.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first-class mail, postage prepaid, to each holder of Notes at its address
appearing in the Note Register on the date of the Offer offering to purchase
up to the principal amount of Notes specified in such Offer at the purchase
price specified in such Offer (as determined pursuant to the Indenture).
Unless otherwise required by applicable law, the Offer shall specify an
expiration date (the "Expiration Date") of the Offer to Purchase which shall
be, subject to any contrary requirements of applicable law, not less than 30
days or more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of Notes within five Business Days after
the Expiration Date. The Company shall notify the Trustee at least 15 Business
Days (or such shorter period as is acceptable to the
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Trustee) prior to the mailing of the Offer of the Company's obligation to make
an Offer to Purchase, and the Offer shall be mailed by the Company or, at the
Company's request, by the Trustee in the name and at the expense of the
Company. The Offer shall contain information concerning the business of the
Company and its Subsidiaries which the Company in good faith believes will
enable such holders to make an informed decision with respect to the Offer to
Purchase (which at a minimum will include (i) the most recent annual and
quarterly financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the documents
required to be filed with the Trustee pursuant to the Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to
in clause (i) (including a description of the events requiring the Company to
make the Offer to Purchase), (iii) if applicable, appropriate pro forma
financial information concerning the Offer to Purchase and the events
requiring the Company to make the Offer to Purchase and (iv) any other
information required by applicable law to be included therein). The Offer
shall contain all instructions and materials necessary to enable such holders
to tender Notes pursuant to the Offer to Purchase. The Offer shall also state:
a. the Section of the Indenture pursuant to which the Offer to Purchase
is being made;
b. the Expiration Date and the Purchase Date;
c. the aggregate principal amount of the outstanding Notes offered to be
purchased by the Company pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such has been determined pursuant to
the section of the Indenture requiring the Offer to Purchase) (the
"Purchase Amount");
d. the purchase price to be paid by the Company for $1,000 aggregate
principal amount of Notes accepted for payment (as specified pursuant to
the Indenture) (the "Purchase Price");
e. that the holder may tender all or any portion of the Notes registered
in the name of such holder and that any portion of a Note tendered must be
tendered in an integral multiple of $1,000 principal amount;
f. the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
g. that any Notes not tendered or tendered but not purchased by the
Company will continue to accrue interest;
h. that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon, if any, shall cease to accrue on and
after the Purchase Date;
i. that each holder electing to tender a Note pursuant to the Offer to
Purchase will be required to surrender such Note at the place or places
specified in the Offer prior to the close of business on the Expiration
Date (such Note being, if the Company or the Trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the holder
thereof or his attorney duly authorized in writing);
j. that holders will be entitled to withdraw all or any portion of Notes
tendered if the Company (or the Paying Agent) receives, not later than the
close of business on the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of the Note the holder tendered, the certificate number of the Note
the holder tendered and a statement that such holder is withdrawing all or
a portion of his tender;
k. that (i) if Notes in an aggregate principal amount less than or equal
to the Purchase Amount are duly tendered and not withdrawn pursuant to the
Offer to Purchase, the Company shall purchase all such Notes and (ii) if
Notes in an aggregate principal amount in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, the Company
shall purchase Notes having an aggregate principal amount equal to the
Purchase Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Notes in denominations of $1,000 or integral
multiples thereof shall be purchased); and
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l. that in the case of any holder whose Note is purchased only in part,
the Company shall execute, and the Trustee shall authenticate and deliver
to the holder of such Note without service charge, a new Note or Notes, of
any authorized denomination as requested by such holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the Note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by the Chairman of the
board of directors of the Company, a Vice Chairman of the board of directors
of the Company, the President or a Vice President, and by the Chief Financial
Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer,
the Controller, the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee, which shall comply with the Indenture.
"Opinion of Counsel" means an opinion of counsel acceptable to the Trustee
(who may be counsel to the Company, including an employee of the Company).
"OECD" shall mean the Organization for Economic Cooperation and Development.
"Permitted Holders" means the members of the Company's Board of Directors on
the Issue Date and their respective estates, spouses, ancestors, and lineal
descendants, the legal representatives of any of the foregoing and the
trustees of any bona fide trusts of which the foregoing are the sole
beneficiaries or the grantors, or any Person of which the foregoing
"beneficially owns" (as defined in Rule 13d-3 under the Exchange Act) at least
66 2/3% of the total voting power of the Voting Stock of such Person.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and not for purposes of
speculation and which, in the case of an interest rate agreement, shall have a
notional amount no greater than the principal amount at maturity due with
respect to the Debt being hedged thereby.
"Permitted Investments" means (a) Cash Equivalents; (b) investments in
prepaid expenses; (c) negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits; (d)
loans, advances or extensions of credit to employees and directors made in the
ordinary course of business and consistent with past practice; (e) obligations
under Permitted Interest Rate or Currency Protection Agreements; (f) bonds,
notes, debentures and other securities received as a result of Asset
Dispositions pursuant to and in compliance with "--Certain Covenants--
Limitation on Asset Dispositions"; (g) Investments in any Person as a result
of which such Person becomes a Restricted Subsidiary; (h) Investments made
prior to the Issue Date; (i) Investments made after the Issue Date in Persons
engaged in the Telecommunications/IS Business in an aggregate amount not to
exceed Invested Capital; and (j) additional Investments in an aggregate amount
not to exceed $200 million.
"Permitted Liens" means (a) Liens for taxes, assessments, governmental
charges, levies or claims which are not yet delinquent or which are being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with
generally accepted accounting principles shall have been made therefor; (b)
other Liens incidental to the conduct of the Company's and its Restricted
Subsidiaries' businesses or the ownership of its Property not securing any
Debt, and which do not in the aggregate materially detract from the value of
the Company's and its Restricted Subsidiaries' Property when taken as a whole,
or materially impair the use thereof in the operation of its business; (c)
Liens, pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of statutory obligations; (d) Liens, pledges or deposits made to secure the
performance of tenders, bids, leases, public or statutory obligations,
sureties, stays, appeals, indemnities, performance or other
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similar bonds and other obligations of like nature incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed
money, the obtaining of advances or credit or the payment of the deferred
purchase price of Property and which do not in the aggregate materially impair
the use of Property in the operation of the business of the Company and the
Restricted Subsidiaries taken as a whole); (e) zoning restrictions,
servitudes, easements, rights-of-way, restrictions and other similar charges
or encumbrances incurred in the ordinary course of business which, in the
aggregate, do not materially detract from the value of the Property subject
thereto or materially interfere with the ordinary conduct of the business of
the Company or its Restricted Subsidiaries; and (f) any interest or title of a
lessor in the Property subject to any lease other than a Capital Lease.
"Permitted Telecommunications Capital Asset Disposition" means the transfer,
conveyance, sale, lease or other disposition of optical fiber and/or conduit
and any related equipment used in a Segment (as defined) of the Company's
communications network that (i) constitute capital assets in accordance with
generally accepted accounting principles and (ii) after giving effect to such
disposition, would result in the Company retaining at least either (A) 24
optical fibers per route mile on such Segment as deployed at the time of such
disposition or (B) 12 optical fibers and one empty conduit per route mile on
such Segment as deployed as such time. "Segment" means (x) with respect to the
Company's intercity network, the through-portion of such network between two
local networks (i.e., Omaha to Denver) and (y) with respect to a local network
of the Company (i.e., Dallas), the entire through-portion of such network,
excluding the spurs which branch off the through-portion.
"Person" means any individual, corporation, company, partnership, joint
venture, limited liability company, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding-up of such Person, to shares
of Capital Stock of any other class of such Person.
"Preferred Stock Dividends" means all dividends with respect to Preferred
Stock of Restricted Subsidiaries held by Persons other than the Company or a
Wholly Owned Restricted Subsidiary. The amount of any such dividend shall be
equal to the quotient of such dividend divided by the difference between one
and the maximum statutory federal income rate (expressed as a decimal number
between 1 and 0 and determined in accordance with generally accepted
accounting principles) applicable to the issuer of such Preferred Stock for
the period during which such dividends were paid.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the Indenture,
the value of any Property shall be its Fair Market Value.
"Proportionate Interest" in any issuance of Capital Stock of a Restricted
Subsidiary means a ratio (i) the numerator of which is the aggregate amount of
Capital Stock of such Restricted Subsidiary beneficially owned by the Company
and the Restricted Subsidiaries and (ii) the denominator of which is the
aggregate amount of Capital Stock of such Restricted Subsidiary beneficially
owned by all Persons (excluding, in the case of this clause (ii), any
Investment made in connection with such issuance).
"Purchase Money Debt" means Debt (including Acquired Debt and Capital Lease
Obligations, mortgage financings and purchase money obligations) incurred for
the purpose of financing all or any part of the cost of construction,
installation, acquisition, lease, development or improvement by the Company or
any Restricted Subsidiary of any Telecommunications/IS Assets of the Company
or any Restricted Subsidiary and including
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any related notes, Guarantees, collateral documents, instruments and
agreements executed in connection therewith, as the same may be amended,
supplemented, modified or restated from time to time.
"Qualified Receivable Facility" means Debt of the Company or any Subsidiary
Incurred from time to time pursuant to either (x) credit facilities secured by
Receivables or (y) Receivables purchase facilities, and including any related
notes, Guarantees, collateral documents, instruments and agreements executed
in connection therewith, as the same may be amended, supplemented, modified or
restated from time to time.
"Rating Agencies" mean Moody's and S&P.
"Rating Date" means the earlier of the date of public notice of the
occurrence of a Change of Control or of the intention of the Company to effect
a Change of Control.
"Rating Decline" shall be deemed to have occurred if, no later than 90 days
after the Rating Date (which period shall be extended so long as the rating of
the Notes is under publicly announced consideration for possible downgrade by
any of the Rating Agencies), either of the Rating Agencies assigns or
reaffirms a rating to the Notes that is lower than the applicable Issue Date
Rating (or the equivalent thereof). If, prior to the Rating Date, either of
the ratings assigned to the Notes by the Rating Agencies is lower than the
applicable Issue Date Rating, then a Rating Decline will be deemed to have
occurred if such rating is not changed by the 90th day following the Rating
Date. A downgrade within rating categories, as well as between rating
categories, will be considered a Rating Decline.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money and
proceeds and products thereof in each case generated in the ordinary course of
business.
"Restricted Subsidiary" means (a) a Subsidiary of the Company or of a
Restricted Subsidiary that has not been designated or classified as an
Unrestricted Subsidiary pursuant to and in compliance with "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries" and (b) an
Unrestricted Subsidiary that is redesignated as a Restricted Subsidiary
pursuant to such covenant.
"Restricted Subsidiary Guarantee" means a supplemental indenture to the
Indenture in form satisfactory to the Trustee, providing for an unconditional
Guarantee of payment in full of the principal of, premium, if any, and
interest on the Notes. Any such Restricted Subsidiary Guarantee shall not be
subordinate to any Debt of the Restricted Subsidiary providing the Restricted
Subsidiary Guarantee.
"S&P" means Standard & Poor's Ratings Service or, if Standard & Poor's
Ratings Service shall cease rating debt securities having a maturity at
original issuance of at least one year and such ratings business shall have
been transferred to a successor Person, such successor Person; provided,
however, that if Standard & Poor's Rating Service ceases rating debt
securities having a maturity at original issuance of at least one year and its
ratings business with respect thereto shall not have been transferred to any
successor Person, then "S&P" shall mean any other national recognized rating
agency (other than Moody's) that rates debt securities having a maturity at
original issuance of at least one year and that shall have been designated by
the Trustee by a written notice given to the Company.
"Sale and Leaseback Transaction" of any Person means any direct or indirect
arrangement pursuant to which any Property is sold or transferred by such
Person or a Restricted Subsidiary of such person and is thereafter leased back
from the purchaser or transferee thereof by such Person or one of its
Restricted Subsidiaries. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such
arrangement prior to the first date on which such arrangement may be
terminated by the lessee without payment of a penalty.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-
X promulgated by the Commission.
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"Special Assets" means (a) the Capital Stock or assets of Cable Michigan,
Inc., RCN Corporation, Commonwealth Telephone Enterprises, Inc., KCP, Inc. and
California Private Transportation Company, L.P. (and any intermediate holding
companies or other entities formed solely for the purpose of owning such
Capital Stock or assets) owned, directly or indirectly, by the Company or any
Restricted Subsidiary on the Issue Date, and (b) any Property, other than
cash, Cash Equivalents and Telecommunications/IS Assets, received as
consideration for the disposition after the Issue Date of Special Assets (as
contemplated by the first proviso under "--Certain Covenants--Limitation on
Asset Dispositions").
"Stated Maturity" when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such Note at the
option of the holder thereof upon the happening of any contingency beyond the
control of the Company unless such contingency has occurred).
"Subordinated Debt" means Debt of the Company (a) that is not secured by any
Lien on or with respect to any Property now owned or acquired after the Issue
Date and (b) as to which the payment of principal of (and premium, if any) and
interest and other payment obligations in respect of such Debt shall be
subordinate to the prior payment in full in cash of the Notes to at least the
following extent: (i) no payments of principal of (or premium, if any) or
interest on or otherwise due (including by acceleration or for additional
amounts) in respect of, or repurchases, redemptions or other retirements of,
such Debt (collectively, "payments of such Debt") may be permitted for so long
as any default (after giving effect to any applicable grace periods) in the
payment of principal (or premium, if any) or interest on the Notes exists,
including as a result of acceleration; (ii) in the event that any other
Default exists with respect to the Notes, upon notice by holders of 25% or
more in aggregate principal amount of the Notes to the Trustee, the Trustee
shall have the right to give notice to the Company and the holders of such
Debt (or trustees or agents therefor) of a payment blockage, and thereafter no
payments of such Debt may be made for a period of 179 days from the date of
such notice, provided that not more than one such payment blockage notice may
be given in any consecutive 360-day period, irrespective of the number of
defaults with respect to the Notes during such period; (iii) if payment of
such Debt is accelerated when any Notes are outstanding, no payments of such
Debt may be made until three Business Days after the Trustee receives notice
of such acceleration and, thereafter, such payments may only be made to the
extent the terms of such Debt permit payment at that time; and (iv) such Debt
may not (x) provide for payments of principal of such Debt at the stated
maturity thereof or by way of a sinking fund applicable thereto or by way of
any mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is
contingent upon events or circumstances but excluding any retirement required
by virtue of acceleration of such Debt upon an event of default thereunder),
in each case prior to the final Stated Maturity of the Notes or (y) permit
redemption or other retirement (including pursuant to an offer to purchase
made by the Company) of such other Debt at the option of the holder thereof
prior to the final Stated Maturity of the Notes, other than, in the case of
clause (x) or (y), any such payment, redemption or other retirement (including
pursuant to an offer to purchase made by the Company) which is conditioned
upon (A) a change of control of the Company pursuant to provisions
substantially similar to those described under "--Certain Covenants--Change of
Control Triggering Event" (and which shall provide that such Debt will not be
repurchased pursuant to such provisions prior to the Company's repurchase of
the Notes required to be repurchased by the Company pursuant to the provisions
described under "--Certain Covenants--Change of Control Triggering Event") or
(B) a sale or other disposition of assets pursuant to provisions substantially
similar to those described under "--Certain Covenants--Limitation on Asset
Dispositions" (and which shall provide that such Debt will not be repurchased
pursuant to such provisions prior to the Company's repurchase of the Notes
required to be repurchased by the Company pursuant to the provision described
under "--Certain Covenants--Limitation on Asset Dispositions").
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person
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(other than a corporation) in which such Person, or one or more other
Subsidiaries of such Person or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has at least a majority ownership and power
to direct the policies, management and affairs thereof.
"Telecommunications/IS Assets" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in the Telecommunications/IS Business; (b) for purposes of
the covenants described under "--Certain Covenants--Limitation on Consolidated
Debt" and "--Limitation on Liens" only, Capital Stock of any Person; or (c)
for all other purposes of the Indenture, Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary from any Person other
than an Affiliate of the Company; provided, however, that, in the case of
clause (b) or (c), such Person is primarily engaged in the
Telecommunications/IS Business.
"Telecommunications/IS Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased transmission facilities, (ii) constructing, creating,
developing or marketing communications networks, related network transmission
equipment, software and other devices for use in a communications business,
(iii) computer outsourcing, data center management, computer systems
integration, reengineering of computer software for any purpose (including,
without limitation, for the purposes of porting computer software from one
operating environment or computer platform to another or to address issues
commonly referred to as "Year 2000 issues") or (iv) evaluating, participating
or pursuing any other activity or opportunity that is primarily related to
those identified in (i), (ii) or (iii) above; provided that the determination
of what constitutes a Telecommunications/IS Business shall be made in good
faith by the board of directors of the Company.
"Unrestricted Subsidiary" means (a) 91 Holding Corp. (the subsidiary that
holds indirectly the Company's interests in the SR91 tollroad); (b) any
Subsidiary of an Unrestricted Subsidiary; and (c) any Subsidiary of the
Company designated as such pursuant to and in compliance with "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries" and not
thereafter redesignated as a Restricted Subsidiary as permitted pursuant
thereto.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only for
so long as no senior class of securities has such voting power by reason of
any contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Voting Stock or other ownership interests (other than
directors' qualifying shares) of which shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal of (or premium, if any, on) any Note when due; (b) failure to
pay any interest on any Note when due, continued for 30 days; (c) default in
the payment of principal and interest on Notes required to be purchased
pursuant to an Offer to Purchase as described under "--Certain Covenants--
Change of Control Triggering Event" when due and payable; (d) failure to
perform or comply with the provisions described under "--Mergers,
Consolidations and Certain Sales of Assets" and "--Certain Covenants--
Limitation on Asset Dispositions"; (e) failure to perform any other covenant
or agreement of the Company under the Indenture or the Notes continued for 60
days after written notice to the Company by the Trustee or holders of at least
25% in aggregate principal amount of the outstanding Notes; (f) default under
the terms of any instrument evidencing or securing Debt of the Company or any
Restricted Subsidiary having an outstanding principal amount of $25 million or
its foreign currency equivalent at the time individually or in the aggregate
which default results in the acceleration of the payment of such indebtedness
or constitutes the failure to pay such indebtedness when due (after expiration
of any applicable
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grace period); (g) the rendering of a judgment or judgments against the
Company or any Restricted Subsidiary in an aggregate amount in excess of $25
million or its foreign currency equivalent at the time and shall not be
waived, satisfied or discharged for any period of 45 consecutive days during
which a stay of enforcement shall not be in effect; (h) any Restricted
Subsidiary Guarantee ceases to be in full force and effect (other than in
accordance with the terms of such Subsidiary Guaranty) or any Guarantor denies
or disaffirms its obligations under its Restricted Subsidiary Guarantee; and
(i) certain events of bankruptcy, insolvency or reorganization affecting the
Company or any Significant Subsidiary. Subject to the provisions of the
Indenture relating to the duties of the Trustee in case an Event of Default
shall occur and be continuing, the Trustee will not be under any
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the holders of Notes, unless such holders shall
have offered to the Trustee reasonable indemnity. Subject to such provisions
for the indemnification of the Trustee, the holders of a majority in aggregate
principal amount of the outstanding Notes will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee.
If any Event of Default (other than an Event of Default described in clause
(i) above with respect to the Company) shall occur and be continuing, either
the Trustee or the holders of at least 25% in aggregate principal amount of
the outstanding Notes may accelerate the maturity of all Notes; provided,
however, that after such acceleration, but before a judgment or decree based
on acceleration, the holders of a majority in aggregate principal amount of
the outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Indenture.
If an Event of Default specified in clause (i) above occurs with respect to
the Company, the outstanding Notes will ipso facto become immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder. For information as to waiver of defaults, see "--Amendment, Supplement
and Waiver."
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless also the holders of at least 25% in aggregate
principal amount of the outstanding Notes shall have made written request and
offered reasonable indemnity to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the holders of a
majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a Note for enforcement of payment of the principal
of and premium, if any, or interest on such Note on or after the respective
due dates expressed in such Note.
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event which with the giving of notice and the lapse of time would become
an Event of Default, its status and what action the Company is taking or
proposes to take with respect thereto. The Company also will be required to
deliver to the Trustee annually a statement as to the performance by the
Company of certain of its obligations under the Indenture and as to any
default in such performance.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Trustee may, at any time and from time to time, without
notice to or consent of any holders of Notes, enter into one or more
indentures supplemental to the Indenture (1) to evidence the succession of
another Person to the Company and the assumption by such successor of the
covenants of the Company in the Indenture and the Notes; (2) to add to the
covenants of the Company, for the benefit of the holders, or to surrender any
right or power conferred upon the Company by the Indenture; (3) to add any
additional Events of Defaults; (4) to provide for uncertificated Notes in
addition to or in place of certificated Notes; (5) to evidence and provide for
the acceptance of appointment under the Indenture of a successor Trustee; (6)
to secure the Notes; (7) to comply with the Trust Indenture Act or the
Securities Act (including Regulation S promulgated thereunder); (8) to add
additional Guarantees with respect to the Notes or to release Guarantors from
Restricted Subsidiary Guarantees as provided by the terms of the Indenture; or
(9) to cure any ambiguity in the Indenture,
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to correct or supplement any provision in the Indenture which may be
inconsistent with any other provision therein or to add any other provision
with respect to matters or questions arising under the Indenture; provided
such actions shall not adversely affect the interests of the holders in any
material respect.
With the consent of the holders of not less than a majority in principal
amount of the outstanding Notes, the Company and the Trustee may enter into
one or more indentures supplemental to the Indenture for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or modifying in any manner the rights of the
holders, provided that no such supplemental indenture shall, without the
consent of the holder of each outstanding Note (1) change the Stated Maturity
of the principal of, or any installment of interest on, any Note, or reduce
the principal amount thereof or the interest thereon that would be due and
payable upon the Stated Maturity thereof, or change the place of payment
where, or the coin or currency in which, any Note or any premium or interest
thereon is payable, or impair the right to institute suit for the enforcement
of any such payment on or after the Stated Maturity thereof; (2) reduce the
percentage in principal amount of the outstanding Notes, the consent of whose
holders is necessary for any such supplemental Indenture or required for any
waiver of compliance with certain provisions of the Indenture or certain
Defaults thereunder; (3) subordinate in right of payment, or otherwise
subordinate, the Notes to any other Debt; (4) except as otherwise required by
the Indenture, release any security interest that may have been granted in
favor of the holders of the Notes; (5) reduce the premium payable upon the
redemption of any Note nor change the time at which any Note may be redeemed,
as described under "--Optional Redemption"; (6) reduce the premium payable
upon a Change of Control Triggering Event or, at any time after a Change of
Control Triggering Event has occurred, change the time at which the Offer to
Purchase relating thereto must be made or at which the Notes must be
repurchased pursuant to such Offer to Purchase; (7) at any time after the
Company is obligated to make an Offer to Purchase with the Net Available
Proceeds from Asset Dispositions, change the time at which such Offer to
Purchase must be made or at which the Notes must be repurchased pursuant
thereto; (8) make any change in any Restricted Subsidiary Guarantee that would
adversely affect the holders of the Notes; or (9) modify any provision of this
paragraph (except to increase any percentage set forth herein).
The holders of not less than a majority in principal amount of the
outstanding Notes may, on behalf of the holders of all the Notes, waive any
past Default under the Indenture and its consequences, except Default (1) in
the payment of the principal of (or premium, if any) or interest on any Note,
or (2) in respect of a covenant or provision hereof which under the proviso to
the prior paragraph cannot be modified or amended without the consent of the
holder of each outstanding Note affected.
SATISFACTION AND DISCHARGE OF THE INDENTURE, DEFEASANCE
The Company may terminate its obligations under the Indenture when (i)
either (A) all outstanding Notes have been delivered to the Trustee for
cancellation or (B) all such Notes not theretofore delivered to the Trustee
for cancellation have become due and payable, will become due and payable
within one year or are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name and at the expense of the Company,
and the Company has irrevocably deposited or caused to deposited with the
Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of (or premium, if any, on), and interest on, the
Notes; (ii) the Company has paid or caused to be paid all other sums payable
by the Company under the Indenture; and (iii) the Company has delivered an
Officers' Certificate and an Opinion of Counsel relating to compliance with
the conditions set forth in the Indenture.
The Company, at its election, shall (a) be deemed to have paid and
discharged its debt on the Notes and the Indenture shall cease to be of
further effect as to all outstanding Notes (except as to (i) rights of
registration of transfer, substitution and exchange of Notes and the Company's
right of optional redemption, (ii) rights of holders to receive payment of
principal of, premium, if any, and interest on such Notes (but not the
Purchase Price referred to under "--Certain Covenants--Change of Control
Triggering Event" or under "--Limitation on Asset Dispositions") and any
rights of the holders with respect to such amount, (iii) the rights,
obligations and immunities of the Trustee under the Indenture and (iv) certain
other specified provisions in the Indenture) or
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(b) cease to be under any obligation to comply with certain restrictive
covenants, including those described under "--Certain Covenants," and
terminate the operation of certain Events of Default, after the irrevocable
deposit by the Company with the Trustee, in trust for the benefit of the
holders of Notes, at any time prior to the maturity of the Notes, of (A) money
in an amount, (B) Government Securities which through the payment of interest
and principal will provide, not later than one day before the due date of
payment in respect of the Notes, money in an amount, or (C) a combination
thereof, sufficient to pay and discharge the principal of (premium, if any,
on), and interest on, the Notes then outstanding on the dates on which any
such payments are due in accordance with the terms of the Indenture and of the
Notes. Such defeasance or covenant defeasance shall be deemed to occur only if
certain conditions are satisfied, including among other things, delivery by
the Company to the Trustee of an Opinion of Counsel acceptable to the Trustee
to the effect that (i) such deposit, defeasance and discharge will not be
deemed, or result in, a taxable event for federal income tax purposes with
respect to the holders; and (ii) the Company's deposit will not result in the
trust relating thereto or the Trustee being subject to regulation under the
Investment Company Act of 1940.
GOVERNING LAW
The Indenture and the Notes are governed by the laws of the State of New
York, without reference to principles of conflicts of law.
THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Trustee under the Indenture. The
address of the Trustee is One State Street, New York, New York 10004.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation, solely by reason of its status as
director, officer, employee, incorporator or stockholder of the Company. By
accepting a Note each holder waives and releases all such liability (but only
such liability). The waiver and release are part of the consideration for
issuance of the Notes. Nevertheless, such waiver may not be effective to waive
liabilities under the federal securities laws and it has been the view of the
Commission that such a waiver is against public policy.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Company, the Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture.
REGISTRATION RIGHTS
The Company has agreed pursuant to the Registration Agreement that the
Company will, at its cost, (a) not later than 90 days after the Original Notes
Closing Date, file a registration statement (the "Exchange Offer Registration
Statement") with the Commission with respect to the Exchange Offer, (b) use
its best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act not later than 150 days after the
Original Notes Closing Date and (c) upon the effectiveness of the Exchange
Offer Registration Statement, offer the New Notes in exchange for surrender of
the Original Notes. The Company has agreed to keep the Exchange Offer open for
not less than 30 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the holders of the Notes. The New
Notes are being offered hereunder to satisfy these obligations of the Company
under the Registration Agreement. For each Original Note surrendered to the
Company pursuant to the Exchange Offer, the holder of such Original Note will
receive a
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New Note having a principal amount equal to that of the surrendered Original
Note. Interest on each New Note will accrue from the last interest payment
date on which interest was paid on the Original Note surrendered in exchange
thereof or, if no interest has been paid on such Original Note, from the date
of its original issue. Based upon interpretations by the Staff of the
Commission issued to third parties, the Company believes that the New Notes
issued pursuant to the Exchange Offer in exchange for the Original Notes may
be offered for resale, resold and otherwise transferred by holders thereof
(other than any holder which is (i) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who
acquired Original Notes directly from the Company or (iii) a broker-dealer who
acquired Original Notes as a result of market-making or other trading
activities) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders are not engaged
in, and do not intend to engage in, and have no arrangement or understanding
with any person to participate in, a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Original Notes where such New Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the date of
this Prospectus and ending on the close of business on the day that is 180
days following the date of this Prospectus, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
A holder of Original Notes (other than certain specified holders) who wishes
to exchange such Original Notes for New Notes in the Exchange Offer will be
required to represent that any New Notes to be received by it will be acquired
in the ordinary course of its business and that at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the New Notes and that it is not an "affiliate" of the
Company, as defined in Rule 405 of the Securities Act, or if it is an
affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
In the event that (i) applicable interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer, (ii) for
any other reason the Exchange Offer Registration Statement is not declared
effective within 150 days after the Original Notes Closing Date or the
Exchange Offer is not consummated within 180 days after the Closing Date,
(iii) the Initial Purchasers so request with respect to Notes not eligible to
be exchanged for New Notes in the Exchange Offer or (iv) any holder of
Original Notes (other than an Initial Purchaser) is not eligible to
participate in the Exchange Offer or does not receive freely tradeable New
Notes in the Exchange Offer other than by reason of such holder being an
affiliate of the Company (it being understood that the requirement that a
broker-dealer receiving New Notes in the Exchange Offer deliver the prospectus
contained in the Exchange Offer Registration Statement in connection with
sales of New Notes shall not result in such New Notes being not "freely
tradeable"), the Company will, at its cost, (a) as promptly as practicable,
file a Shelf Registration Statement covering resales of the Original Notes or
the New Notes, as the case may be, (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act and
(c) use its best efforts to keep the Shelf Registration Statement effective
until two years after its effective date. The Company will, in the event a
Shelf Registration Statement is filed, among other things, provide to each
holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is a part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of
the Original Notes or the New Notes, as the case may be. A holder selling such
Original Notes or New Notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject
to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Agreement which are applicable to such holder (including certain
indemnification obligations).
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If (a) on or prior to the 90th day following the Original Notes Closing
Date, neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the Commission, (b) on or prior to
the 150th day following the Original Notes Closing Date, neither the Exchange
Offer Registration Statement nor the Shelf Registration Statement has been
declared effective, (c) on or prior to the 180th day following the Original
Notes Closing Date, neither the Exchange Offer has been consummated nor the
Shelf Registration Statement has been declared effective, or (d) after either
the Exchange Offer Registration Statement or the Shelf Registration Statement
has been declared effective, such Registration Statement thereafter ceases to
be effective or usable (subject to certain exceptions) in connection with
resales of Original Notes or New Notes in accordance with and during the
periods specified in the Registration Agreement (each such event referred to
in clauses (a) through (d), a "Registration Default"), interest ("Special
Interest") will accrue on the principal amount of the Original Notes and the
New Notes (in addition to the stated interest on the Original Notes and the
New Notes) from and including the date on which any such Registration Default
shall occur to but excluding the date on which all Registration Defaults have
been cured. Special Interest will accrue at a rate of 0.50% per annum during
the 90-day period immediately following the occurrence of such Registration
Default and shall increase by 0.25% per annum at the end of each subsequent
90-day period, but in no event shall such rate exceed 1.00% per annum. If the
Exchange Offer is consummated on the terms and within the period contemplated
by this Prospectus, no Special Interest will be payable. The New Notes will
not contain any provisions regarding the payment of Special Interest.
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Agreement, a copy of
which is an exhibit to the Registration Statement of which this Prospectus is
a part.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes the material U.S. Federal income
tax consequences to a U.S. Holder of the exchange of the Original Notes and
disposition of the New Notes. This discussion only deals with persons that
hold the Notes as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"), and that purchased the
Original Notes for cash at original issue. This discussion does not address
the U.S. Federal income tax consequences that may be relevant to persons
subject to special treatment under certain U.S. Federal income tax laws, such
as dealers in securities or foreign currency, financial institutions, trusts,
insurance companies, tax-exempt organizations, persons that hold Notes as part
of a straddle, hedge against currency risk or constructive sale or conversion
transaction, persons that have a functional currency other than the U.S.
dollar and investors in pass-through entities.
This discussion is based on the Code, the final, temporary and proposed
Treasury regulations promulgated thereunder, administrative pronouncements and
judicial decisions, all as in effect on the date hereof and all of which are
subject to change, possibly with retroactive effect. The Company has not
requested, and will not request, a ruling from the U.S. Internal Revenue
Service (the "IRS") with respect to any of the U.S. Federal income tax
consequences described below, and as a result, there can be no assurance that
the IRS will not disagree with or challenge any of the conclusions set forth
herein.
THIS DISCUSSION DOES NOT DISCUSS ALL OF THE FEDERAL INCOME TAX
CONSIDERATIONS THAT MAY BE RELEVANT TO A HOLDER OF NOTES. PROSPECTIVE
PARTICIPANTS IN THE EXCHANGE OFFER ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE APPLICATION TO THEIR PARTICULAR SITUATIONS OF U.S. FEDERAL
INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
U.S. HOLDERS
The following discussion is limited to persons who are U.S. Holders. For
purposes of this discussion, "U.S. Holder" means (i) an individual who is a
citizen or resident of the United States, (ii) a corporation, partnership
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or other entity created or organized under the laws of the United States or
any political subdivision thereof or therein, (iii) an estate or trust the
income of which is subject to U.S. Federal income tax regardless of its source
or (iv) a person whose worldwide income or gain is otherwise subject to U.S.
Federal income tax.
Stated Interest. Stated interest on a Note will be taxable to a U.S. Holder
as ordinary interest income at the time it accrues or is received in
accordance with such holder's regular method of tax accounting.
Sale or Exchange of Notes. Upon the sale, exchange or retirement of a Note,
a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between (i) the amount realized on such disposition (other than
amounts attributable to accrued and unpaid interest) and (ii) such U.S.
Holder's adjusted tax basis in the Note.
Any gain or loss recognized on the sale or exchange of a Note generally will
constitute long-term capital gain or loss if the underlying Note has been held
by a U.S. Holder for more than 12 months as of the date of such disposition
(the "Disposition Date"). For noncorporate U.S. Holders, long-term capital
gain generally will be subject to U.S. Federal income tax at a maximum rate of
28% if the Original Notes and the New Notes have been held for more than 12
months but not more than 18 months as of the Disposition Date. If the Original
Notes and the New Notes have been held for more than 18 months as of the
Disposition Date, however, any long-term capital gain recognized by a
noncorporate U.S. Holder generally will be subject to U.S. Federal income tax
at a maximum rate of 20%.
Notwithstanding the foregoing, any amounts realized in connection with any
sale or exchange with respect to accrued interest not previously included in
income will be treated as ordinary interest income.
Exchange Offer. The Company will be required to pay additional cash interest
on the Notes if it fails to comply with certain of its obligations under the
Registration Agreement. Such additional interest should be taxable to a U.S.
Holder as ordinary interest income at the time it accrues or is received in
accordance with each such holder's regular method of tax accounting. It is
possible, however, that the IRS might take a different position, in which case
U.S. Holders might be required to include such additional interest in income
as it accrues or becomes fixed (regardless of their regular method of tax
accounting).
The exchange of Original Notes for New Notes pursuant to the Exchange Offer
will not constitute a taxable event for U.S. Federal income tax purposes. As a
result, (i) a U.S. Holder of Notes will not recognize taxable gain or loss as
a result of the exchange of Original Notes for New Notes pursuant to the
Exchange Offer, (ii) the holding period of the New Notes will include the
holding period of the Original Notes surrendered in exchange therefor and
(iii) a U.S. Holder's adjusted tax basis in the New Notes will be the same as
such U.S. Holder's adjusted tax basis in the Original Notes surrendered in
exchange therefor.
Information Reporting and Backup Withholding. A U.S. Holder of Notes may be
subject to backup withholding at a 31% rate with respect to "reportable
payments," which include interest paid on or gross proceeds from the
disposition of the Notes. The payor of any reportable payments will be
required to deduct and withhold 31% of such payments if (i) the payee fails to
furnish a correct Taxpayer Identification Number (a "TIN") to the payor in the
prescribed manner, (ii) the IRS notifies the payor that the TIN furnished by
the payee is incorrect, (iii) the payee has failed properly to report the
receipt of reportable payments and the IRS has notified the payor that backup
withholding is required or (iv) the payee fails to properly certify that such
payee is not subject to backup withholding. If any one of these events occurs
with respect to a U.S. Holder of Notes, the Company, its paying or other
withholding agent will be required to withhold 31% of any payments of
principal, premium, if any, and interest on a Note. Corporations and certain
other entities described in the Code and Treasury regulations and exempt from
backup withholding if their exempt status is properly established.
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Any amount withheld from a payment to a U.S. Holder under the backup
withholding rules will be allowed as a refund or credit against such holder's
U.S. Federal income tax liability, so long as the required information is
provided to the IRS. The Company, its paying agent or other withholding agent
generally will report to a U.S. Holder of Notes and to the IRS the amount of
any reportable payments made in respect of the Notes for each calendar year
and the amount of tax withheld, if any, with respect to such payments.
NON-U.S. HOLDERS
The following discussion is limited to persons who or which are Non-U.S.
Holders. For these purposes, "Non-U.S. Holder" means a person that is not a
U.S. Holder.
Stated Interest. Subject to the discussion of backup withholding below,
payments of interest on a Note to a Non-U.S. Holder generally will not be
subject to U.S. Federal income or withholding tax, provided that (i) the
holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company that are entitled
to vote, (ii) the holder is not (a) a controlled foreign corporation that is
related to the Company through stock ownership or (b) a bank receiving
interest on a loan entered into in the ordinary course of business, (iii) such
interest is not effectively connected with the conduct by the Non-U.S. Holder
of a trade or business within the United States and (iv) the Company or its
paying agent receives (a) from the Non-U.S. Holder a properly completed Form
W-8 (or substitute Form W-8) signed under penalties of perjury, which provides
the Non-U.S. Holder's name and address and certifies that the Non-U.S. Holder
is not a U.S. person or (b) from a security clearing organization, bank or
other financial institution that holds the Notes in the ordinary course of its
trade or business (a "financial institution") on behalf of the Non-U.S. Holder
Certification under penalties of perjury that such a Form W-8 (or substitute
Form W-8) has been received by it, or by another such financial institution,
from the Non-U.S. Holder, and a copy of the Form W-8 (or substitute Form W-8)
is furnished to the payor.
A Non-U.S. Holder that does not qualify for exemption from withholding under
the second preceding paragraph generally will be subject to withholding of
U.S. Federal income tax at a 30% rate (or lower applicable treaty rate) on
payments of interest on the Notes.
If interest on the Notes is effectively connected with the conduct by a Non-
U.S. Holder of a trade or business within the United States, such interest
will be subject to U.S. Federal income tax at the rate applicable to U.S.
persons generally (and, with respect to corporate holders, may also be subject
to a 30% branch profits tax). If interest is subject to U.S. Federal income
tax in accordance with these rules, such interest payments will not be subject
to U.S. withholding tax so long as the relevant Non-U.S. Holder provides the
Company or its paying agent with a properly executed Form 4224.
The Treasury Department recently adopted Treasury regulations regarding
information reporting and backup withholding. In general, such Treasury
regulations unify current certification procedures and forms and clarify
reliance standards and certain rules with respect to foreign partnerships. For
example, such Treasury regulations require, in the case of Notes held by a
foreign partnership, that (i) the certification described in clause (iv) above
be provided by the partners rather than by the foreign partnership and (ii)
the partnership provide certain information, including a TIN. A look-through
rule applies in the case of tiered partnerships. These regulations will become
effective for payments made after December 31, 1999, subject to certain
transition rules.
Non-U.S. Holders should consult any applicable income tax treaties, which
may provide for a lower rate of withholding tax, exemption from or reduction
of branch profits tax, or other rules different from those described above.
Sale or Exchange of Notes. Subject to the discussion of backup withholding,
any gain realized by a Non-U.S. Holder on the sale or exchange of a Note
generally will not be subject to U.S. Federal income tax, unless (i) such gain
is effectively connected with the conduct by such Non-U.S. Holder of a trade
or business within the United States, (ii) the Non-U.S. Holder is an
individual who is present in the United States for 183 days or more in the
taxable year of disposition and certain other conditions are satisfied or
(iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
Federal income tax law applicable to certain expatriates.
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Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each Non-U.S. Holder the amount of any interest
paid on the Notes in such year and the amount of tax withheld, if any, with
respect to such payments. Copies of those information returns also may be made
available, under the provisions of a specific treaty or agreement, to the
taxing authorities of the country in which the Non-U.S. Holder resides.
Backup withholding and information reporting generally will not apply to
interest payments made to a Non-U.S. Holder in respect of the Notes if such
Non-U.S. Holder furnishes the Company or its paying agent with a properly
executed certification on Form W-8 (or substitute Form W-8) signed under
penalties of perjury stating that the beneficial owner is not a U.S. person
and setting forth such Non-U.S. Holder's name and address, provided that
neither the Company nor its paying agent has actual knowledge that such holder
is a U.S. person or that the conditions of an exemption are not in fact
satisfied. See the discussion in "--Stated Interest" with regard to the
certification rules under recently enacted Treasury regulations.
The payment of proceeds from a Non-U.S. Holder's disposition of Notes to or
through the U.S. office of any broker, domestic or foreign, will be subject to
information reporting and possible backup withholding unless such holder
certifies as to its non-U.S. status under penalties of perjury or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that such holder is a U.S. person or that the conditions of an
exemption are not, in fact, satisfied. The payment of the proceeds from a Non-
U.S. Holder's disposition of a Note to or through a non-U.S. office of either
a U.S. broker or a non-U.S. broker that is a U.S.-related person will be
subject to information reporting, but not backup withholding, unless such
broker has documentary evidence in its files that such Non-U.S. Holder is not
a U.S. person and the broker has no knowledge to the contrary, or the Non-U.S.
Holder establishes an exemption. For this purpose, a "U.S.-related person" is
(i) a controlled foreign corporation for U.S. Federal income tax purposes or
(ii) a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of
a U.S. trade or business. Neither information reporting nor backup withholding
will apply to a payment of the proceeds of a Non-U.S. Holder's disposition of
Notes by or through a non-U.S. office of a non-U.S. broker that is not a U.S.
related person. See the discussion above with regard to the certification
rules under recently enacted Treasury regulations.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. Federal income tax liability, provided that the requisite
procedures are followed.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Original Notes
where such Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the date of
this Prospectus and ending on the close of business on the day that is 180
days following the date of this Prospectus, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 1998, all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the date of this Prospectus, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (other than the expenses of counsel
for the holders of the Original Notes) other than commissions or concessions
of any brokers or dealers and will indemnify the holders of the Original Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Willkie Farr & Gallagher, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 28, 1996
and December 27, 1997 and for each of the three years in the period ended
December 27, 1997 and the consolidated financial statements and financial
statement schedules of RCN and subsidiaries as of December 31, 1996 and
December 31, 1997 and for each of the three years in the period ended December
31, 1997 have been incorporated by reference herein in reliance on the reports
of Coopers & Lybrand L.L.P., independent accountants, given on the authority
of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the
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Securities Act, and the rules and regulations promulgated thereunder, covering
the New Notes being offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to in the Registration Statement are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith is required to file reports and other
information with the Commission. All reports and other information filed by
the Company with the Commission may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549, and at the regional offices of the Commission located
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 documents can be obtained at the public reference section of the
Commission, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, including the Company, that file electronically with the
Commission. The Common Stock is listed on the Nasdaq National Market, and such
materials can be inspected at the offices of the Nasdaq National Market at
1735 K Street, NW, Washington, D.C. 20006.
While any Notes remain outstanding, the Company will make available, upon
request, to any holder and any prospective purchaser of Notes the information
required pursuant to Rule 144A(d)(4) under the Securities Act during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act. Any such request should be directed to Level 3 Communications,
Inc., 3555 Farnam Street, Omaha, Nebraska 68131, Attention: Vice President,
Investor Relations, (402) 536-3677.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act and are hereby incorporated by reference into
this Prospectus:
(a) the Company's Annual Reports on Form 10-K/A for the year ended
December 27, 1997;
(b) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
(c) the Company's Current Report on Form 8-K dated April 16, 1998;
(d) the Company's Current Report on Form 8-K/A dated April 30, 1998; and
(e) the Company's Current Report on Form 8-K dated May 28, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and before the
termination of the Exchange Offer will be deemed incorporated by reference in
this Prospectus, and those documents will be deemed to be a part of this
Prospectus from the respective dates on which they are filed with the
Commission. Any statement in this Prospectus or in a document incorporated or
deemed to be incorporated by reference in this Prospectus will be deemed to be
modified or superseded for the purposes of this Prospectus to the extent a
statement contained in this Prospectus or in a subsequently filed document
which is or is deemed to be incorporated by reference in this Prospectus
modifies or supersedes the prior statement. Any statement which is so modified
or superseded will not be deemed to constitute a part of this Prospectus,
except as modified.
The Company will provide without charge to each person to whom this
Prospectus is delivered, at the request of such person, a copy of any or all
of the documents incorporated by reference (but not of exhibits to those
documents, unless particular exhibits are specifically incorporated by
reference into the documents that this Prospectus incorporates). Requests
should be directed to Level 3 Communications, Inc., 3555 Farnam Street, Omaha,
Nebraska 68131, Attention: Vice President, Investor Relations, (402) 536-3677.
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GLOSSARY OF TERMS
access Telecommunications services that permit long
distance carriers to use local exchange
facilities to originate and/or terminate long
distance service.
access charges The fees paid by long distance carriers to LECs
for originating and terminating long distance
calls on the LECs' local networks.
ATM Asynchronous Transfer Mode. An information
transfer standard for routing traffic which uses
packets (cells) of a fixed length.
AT&T AT&T Corp.
backbone A centralized high-speed network that
interconnects smaller, independent networks. It
is the through-portion of a transmission network,
as opposed to spurs which branch off the through-
portions.
bandwidth The number of bits of information which can move
through a communications medium in a given amount
of time; the capacity of a telecommunications
circuit/network to carry voice, data and video
information. Typically measured in kbps and Mbps.
bit A contraction of the term Binary Digit, it is the
basic unit in data communications. Bits are
typically represented by ones or zeros.
CAP Competitive Access Provider. A company that
provides its customers with an alternative to the
local exchange company for local transport of
private line and special access
telecommunications services.
capacity The information carrying ability of a
telecommunications facility.
carrier A provider of communications transmission
services by fiber, wire or radio.
Central Office Telephone company facility where subscribers'
lines are joined to switching equipment for
connecting other subscribers to each other,
locally and long distance.
CLEC Competitive Local Exchange Carrier. A company
that competes with LECs in the local services
market.
collocation Collocation refers to the physical location of a
telecommunication carrier's equipment in ILEC or
CLEC premises to facilitate the interconnection
of their respective switching/routing equipment.
common carrier A government-defined group of private companies
offering telecommunications services or
facilities to the general public on a non-
discriminatory basis.
conduit A pipe, usually made of metal, ceramic or
plastic, that protects buried cables.
dedicated lines Telecommunications lines reserved for use by
particular customers.
dialing parity The ability of a competing local or toll service
provider to provide telecommunications services
in such a manner that customers have the ability
to route automatically, without the use of any
access code, their telecommunications to the
service provider of the customers' designation.
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DS-3 A data communications circuit capable of
transmitting data at 45 Mbps. Currently used only
by business/institutions and carriers for high-
end applications.
DSL Digital Subscriber Line. An information transfer
standard for transmitting digital voice and data
over telephone lines at speeds up to 1.544 Mbps.
equal access The basis upon which customers of interexchange
carriers are able to obtain access to their
Primary Interexchange Carriers' (PIC) long
distance telephone network by dialing "1", thus
eliminating the need to dial additional digits
and an authorization code to obtain such access.
facilities-based carriers Carriers that own and operate their own network
and equipment.
FCC Federal Communications Commission.
fiber optics A technology in which light is used to transport
information from one point to another. Fiber
optic cables are thin filaments of glass through
which light beams are transmitted over long
distances carrying enormous amounts of data.
Modulating light on thin strands of glass
produces major benefits including high bandwidth,
relatively low cost, low power consumption, small
space needs and total insensitivity to
electromagnetic interference.
HTML Hypertext Markup Language. A method of organizing
information on a web page.
ILEC Incumbent Local Exchange Carrier. A company
historically providing local telephone service.
Often refers to one of the Regional Bell
Operating Companies (RBOCs). Often referred to as
"LEC" (Local Exchange Carrier).
interconnection Interconnection of facilities between or among
local exchange carriers, including potential
physical collocation of one carrier's equipment
in the other carrier's premises to facilitate
such interconnection.
InterLATA Telecommunications services originating in a LATA
and terminating outside of that LATA.
Internet A global collection of interconnected computer
networks which use a specific communications
protocol.
IntraLATA Telecommunications services originating and
terminating in the same LATA.
IP Internet Protocol. Network protocols that allow
computers with different architectures and
operating system software to communicate with
other computers on the Internet.
ISDN Integrated Services Digital Network. An
information transfer standard for transmitting
digital voice and data over telephone lines at
speeds up to 128 Kbps.
ISPs Internet Service Providers. Companies formed to
provide access to the Internet to consumers and
business customers via local networks.
IXC
Interexchange Carrier. A telecommunications
company that provides telecommunications services
between local exchanges on an interstate or
intrastate basis.
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Kbps Kilobits per second, which is a measurement of
speed for digital signal transmission expressed
in thousands of bits per second.
LATA Local Access and Transport Area. A geographic
area composed of contiguous local exchanges,
usually but not always within a single state.
There are approximately 200 LATAs in the United
States.
leased line Telecommunications line dedicated to a particular
customer along predetermined routes.
LEC Local Exchange Carrier. A telecommunications
company that provides telecommunications services
in a geographic area in which calls generally are
transmitted without toll charges. LECs include
both RBOCs and competitive local exchange
carriers.
local exchange A geographic area determined by the appropriate
state regulatory authority in which calls
generally are transmitted without toll charges to
the calling or called party.
local loop A circuit that connects an end user to the LEC
central office within a LATA.
long distance carriers Long distance carriers provide services between
(interexchange carriers) local exchanges on an interstate or intrastate
basis. A long distance carrier may offer services
over its own or another carrier's facilities.
Mbps Megabits per second. A transmission rate. One
megabit equals 1,024 kilobits.
MCI MCI Communications, Inc.
multiplexing An electronic or optical process that combines a
large number of lower speed transmission lines
into one high speed line by splitting the total
available bandwidth into narrower bands
(frequency division), or by allotting a common
channel to several different transmitting
devices, one at a time in sequence (time
division).
NAP Network Access Point. A location at which ISPs
exchange each other's traffic.
OC-12 A data communications circuit consisting of
twelve DS-3s capable of transmitting data at 540
Mbps.
peering The commercial practice under which ISPs exchange
each other's traffic without the payment of
settlement charges. Peering occurs at both public
and private exchange points.
POP Point of Presence. Telecommunications facility
where the Company locates network equipment used
to connect customers to its network backbone.
private line A dedicated telecommunications connection between
end user locations.
PSTN Public Switched Telephone Network. That portion
of a local exchange company's network available
to all users generally on a shared basis (i.e.,
not dedicated to a particular user). Traffic
along the public switched network is generally
switched at the local exchange company's central
offices.
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RBOCs Regional Bell Operating Companies. Originally,
the seven local telephone companies (formerly
part of AT&T) established as a result of the AT&T
Divestiture. Currently consists of five local
telephone companies as a result of the mergers of
Bell Atlantic with NYNEX and SBC with Pacific
Telesis.
reciprocal compensation The same compensation of a new competitive local
exchange carrier for termination of a local call
by the local exchange carrier on its network, as
the new competitor pays the local exchange
carrier for termination of local calls on the
local exchange carrier network.
resale Resale by a provider of telecommunications
services (such as a LEC) of such services to
other providers or carriers on a wholesale or a
retail basis.
router Equipment placed between networks that relays
data to those networks based upon a destination
address contained in the data packets being
routed.
SONET Synchronous Optical Network. An electronics and
network architecture for variable bandwidth
products which enables transmission of voice,
data and video (multimedia) at very high speeds.
SONET ring architecture provides for virtually
instantaneous restoration of service in the event
of a fiber cut by automatically rerouting traffic
in the opposite direction around the ring.
special access services The lease of private, dedicated
telecommunications lines or "circuits" along the
network of a local exchange company or a CAP,
which lines or circuits run to or from the long
distance carrier POPs. Examples of special access
services are telecommunications lines running
between POPs of a single long distance carrier,
from one long distance carrier POP to the POP of
another long distance carrier or from an end user
to a long distance carrier POP.
Sprint Sprint Corporation.
switch A device that selects the paths or circuits to be
used for transmission of information and
establishes a connection. Switching is the
process of interconnecting circuits to form a
transmission path between users and it also
captures information for billing purposes.
switched service carriers A carrier that sells switched long distance
service and generally refers to a carrier that
owns its switch.
TCP/IP Transmission Control Protocol/Internet Protocol.
A suite of network protocols that allows
computers with different architectures and
operating system software to communicate with
other computers. A type of IP.
unbundled Services, programs, software and training. Sold
separately from the hardware.
unbundled access Access to unbundled elements of a
telecommunications services provider's network
including network facilities, equipment,
features, functions and capabilities, at any
technically feasible point within such network.
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VPN Virtual Private Network. A network capable of
providing the tailored services of a private
network (i.e., low latency, high throughput,
security and customization) while maintaining the
benefits of a public network (i.e., ubiquity and
economies of scale).
WAN Wide Area Network. A data communications network
designed to interconnect personal computers,
workstations, mini computers, file servers and
other communications and computing devices across
a broad geographic region.
Web Site A server connected to the Internet from which
Internet users can obtain information.
wireless A communications system that operates without
wires. Cellular service is an example.
World Wide Web or Web A collection of computer systems supporting a
communications protocol that permits multimedia
presentation of information over the Internet.
xDSL A term referring to a variety of new Digital
Subscriber Line technologies. Some of these
varieties are asymmetric with different data
rates in the downstream and upstream directions.
Others are symmetric. Downstream speeds range
from 384 kbps (or "SDSL") to 1.5-8 Mbps (or
"ADSL").
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- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. 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 INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE AS OF WHICH THE INFORMATION IS GIVEN IN
THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION
BY ANYONE IN ANY JURISDICTION 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 ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Information Regarding Forward-Looking Statements......................... iii
Summary.................................................................. 1
Risk Factors............................................................. 10
Use of Proceeds.......................................................... 25
Capitalization........................................................... 25
The Exchange Offer....................................................... 26
Selected Financial Data of the Company................................... 33
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 34
Industry Overview........................................................ 45
Business................................................................. 49
Management............................................................... 69
Security Ownership of Certain Beneficial Owners and Management........... 72
Certain Transactions and Relationships................................... 73
Description of the Notes................................................. 75
Registration Rights...................................................... 107
Certain Federal Income Tax Considerations................................ 109
Plan of Distribution..................................................... 113
Legal Matters............................................................ 113
Experts.................................................................. 113
Available Information.................................................... 113
Incorporation of Certain Documents By Reference.......................... 114
Glossary of Terms........................................................ 115
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
9 1/8% SENIOR NOTES
DUE 2008
--------
PROSPECTUS
, 1998
--------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final action of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or
agent in defending such action, provided that the director or officer
undertakes to repay such amount if it shall ultimately be determined that he
or she is not entitled to be indemnified by the corporation. A corporation may
indemnify such person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if he or she acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses (including attorneys' fees) which he
or she actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under any corporation's by-law,
agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, Article XI of the Company's
Restated Certificate of Incorporation (the "Certificate") and the Company's
By-laws (the "By-laws") provide that the Company shall indemnify each person
who is or was a director, officer or employee of the Company (including the
heirs, executors, administrators or estate of such person) or is or was
serving at the request of the Company as director, officer or employee of
another corporation, partnership, joint venture, trust or other enterprise, to
the fullest extent permitted under subsections 145(a), (b), and (c) of the
DGCL or any successor statute. The indemnification provided by the Certificate
and the By-laws shall not be deemed exclusive of any other rights to which any
of those seeking indemnification or advancement of expenses may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his or her official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person. Expenses (including attorneys' fees) incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding upon
receipt of an undertaking by or on behalf of the indemnified person to repay
such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Company. The Certificate further provides
that a director of the Company shall not be personally liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit. If the DGCL is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Company shall be eliminated or limited to the fullest extent permitted by the
DGCL as so amended.
The By-laws provide that the Company may purchase and maintain insurance on
behalf of its directors, officers, employees and agents against any
liabilities asserted against such persons arising out of such capacities.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.1 --Indenture dated as of April 28, 1998 between the Company and IBJ
Schroder Bank & Trust Company as trustee relating to the 9 1/8%
Senior Notes due 2008.
4.2 --Registration Agreement dated as of April 23, 1998 between the
Company and the Initial Purchasers.
5 --Opinion of Willkie Farr & Gallagher.*
8 --Opinion of Willkie Farr & Gallagher with respect to certain tax
matters.*
12 --Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.
23.1 --Consent of Coopers & Lybrand L.L.P.
23.2 --Consent of Coopers & Lybrand L.L.P.
23.3 --Consent of Willkie Farr & Gallagher (included in their opinion
filed as Exhibit 5)*.
24 --Power of Attorney (included on the signature pages hereto).
25 --Statement on Form T-1 of Eligibility of Trustee.*
99.1 --Form of Letter of Transmittal.
99.2 --Form of Notice of Guaranteed Delivery.
99.3 --Form of Letter to Clients.
99.4 --Form of Letter to Nominees.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements
or notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of registrants
pursuant to the provisions described under Item 20 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Omaha, State of
Nebraska, on the 9th day of June, 1998.
Level 3 Communications, Inc.
/s/ James Q. Crowe
By: _________________________________
James Q. Crowe
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned officers and directors of Level 3 Communications, Inc.,
hereby severally constitute and appoint James Q. Crowe, R. Douglas Bradbury,
Terrence J. Ferguson and Neil J. Eckstein, and each of them, attorneys-in-fact
for the undersigned, in any and all capacities, with the power of
substitution, to sign any amendments to this Registration Statement (including
post-effective amendments) and any subsequent registration statement for the
same offering which may be filed under Rule 462(b) under the Securities Act of
1933, as amended, and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all interests
and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons, in the
capacities and on the dates indicated.
NAME TITLE DATE
/s/ Walter Scott, Jr. Chairman of the June 9, 1998
- ------------------------------------- Board
Walter Scott, Jr.
/s/ James Q. Crowe President, Chief June 9, 1998
- ------------------------------------- Executive Officer
James Q. Crowe and Director
/s/ R. Douglas Bradbury Executive Vice June 9, 1998
- ------------------------------------- President, Chief
R. Douglas Bradbury Financial Officer
and Director
(principal
financial and
accounting officer)
II-4
<PAGE>
NAME TITLE DATE
---- ----- ----
/s/ Robert B. Daugherty Director June 9, 1998
- -------------------------------------
Robert B. Daugherty
/s/ William L. Grewcock Director June 9, 1998
- -------------------------------------
William L. Grewcock
/s/ Charles M. Harper Director June 9, 1998
- -------------------------------------
Charles M. Harper
/s/ Richard R. Jaros Director June 9, 1998
- -------------------------------------
Richard R. Jaros
/s/ Robert E. Julian Director June 9, 1998
- -------------------------------------
Robert E. Julian
/s/ David C. McCourt Director June 9, 1998
- -------------------------------------
David C. McCourt
/s/ Kenneth E. Stinson Director June 9, 1998
- -------------------------------------
Kenneth E. Stinson
/s/ Michael B. Yanney Director June 9, 1998
- -------------------------------------
Michael B. Yanney
II-5
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
================================================================================
LEVEL 3 COMMUNICATIONS, INC.,
Issuer
to
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
-------------------------------------------------------------
Indenture
Dated as of April 28, 1998
-------------------------------------------------------------
$2,000,000,000
9 1/8% Senior Notes Due 2008
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES................................................................... 1
RECITALS OF THE COMPANY................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions........................................ 2
Accreted Value..................................... 2
Acquired Debt...................................... 3
Act................................................ 3
Affiliate.......................................... 3
Affiliate Transaction.............................. 3
Agent Member....................................... 3
Asset Disposition.................................. 3
Attributable Value................................. 4
Board of Directors................................. 5
Board Resolution................................... 5
Business Day....................................... 5
Capital Lease Obligation........................... 5
Capital Stock...................................... 5
Cash Equivalents................................... 6
Change of Control.................................. 7
Change of Control Triggering Event................. 7
Code............................................... 7
Commission......................................... 7
Common Stock....................................... 7
Company............................................ 7
Company Order...................................... 7
Company Request.................................... 7
Consolidated Capital Ratio......................... 7
Consolidated Cash Flow Available for Fixed Charges. 8
Consolidated Income Tax Expense.................... 8
Consolidated Interest Expense...................... 9
Consolidated Net Income............................ 9
Consolidated Net Worth............................. 10
Consolidated Tangible Assets....................... 10
Corporate Trust Office............................. 10
Credit Facilities.................................. 11
Debt............................................... 11
Default............................................ 12
Defaulted Interest................................. 12
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Depository............................................... 12
Designation.............................................. 12
Designation Amount....................................... 12
Disqualified Stock....................................... 12
Disqualified Stock Dividends............................. 12
Eligible Receivables..................................... 13
Event of Default......................................... 13
Exchange Act............................................. 13
Exchange Securities...................................... 13
Excess Proceeds.......................................... 13
Expiration Date.......................................... 13
Fair Market Value........................................ 13
Federal Bankruptcy Code.................................. 13
Global Security.......................................... 13
Government Securities.................................... 13
Guarantee................................................ 14
Guarantor................................................ 14
Holder................................................... 14
Incur.................................................... 14
Indenture................................................ 15
Initial Foreign Purchaser................................ 15
Initial Purchasers....................................... 15
Initial Securities....................................... 15
Institutional Accredited Investor........................ 15
Institutional Accredited Investor Global Security........ 15
Interest Payment Date.................................... 15
Interest Rate or Currency Protection Agreement........... 15
Invested Capital......................................... 15
Investment............................................... 16
Issue Date............................................... 16
Issue Date Rating........................................ 16
Joint Venture............................................ 16
Lien..................................................... 17
Maturity................................................. 17
Moody's.................................................. 17
Net Available Proceeds................................... 17
Non-Global Purchasers.................................... 18
Offer.................................................... 18
Offer to Purchase........................................ 18
Officers' Certificate.................................... 21
Opinion of Counsel....................................... 21
OECD..................................................... 21
Outstanding.............................................. 21
Paying Agent............................................. 22
Permitted Holders........................................ 22
Permitted Interest Rate or Currency Protection Agreement. 23
Permitted Investments.................................... 23
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Permitted Liens............................................... 23
Permitted Telecommunications Capital Asset Disposition........ 24
Person........................................................ 24
Physical Security............................................. 24
Predecessor Security.......................................... 24
Preferred Stock............................................... 25
Preferred Stock Dividends..................................... 25
Private Exchange Offer........................................ 25
Private Exchange Securities................................... 25
Private Placement Legend...................................... 25
Property...................................................... 25
Proportionate Interest........................................ 25
Purchase Amount............................................... 26
Purchase Date................................................. 26
Purchase Money Debt........................................... 26
Purchase Price................................................ 26
Qualified Institutional Buyer................................. 26
QIB........................................................... 26
Qualified Receivable Facility................................. 26
Rating Agencies............................................... 26
Rating Date................................................... 26
Rating Decline................................................ 26
Receivables................................................... 27
Redemption Date............................................... 27
Redemption Price.............................................. 27
refinancing................................................... 27
Registered Exchange Offer..................................... 27
Registration Agreement........................................ 27
Regular Record Date........................................... 27
Regulation S.................................................. 27
Regulation S Global Security.................................. 27
Required Filing Dates......................................... 27
Responsible Officer........................................... 28
Restricted Payment............................................ 28
Restricted Subsidiary......................................... 28
Restricted Subsidiary Guarantee............................... 28
Revocation.................................................... 28
Rule 144A..................................................... 28
Rule 144A Global Security..................................... 28
S&P........................................................... 28
Sale and Leaseback Transaction................................ 29
Securities.................................................... 29
Securities Act................................................ 29
Security Register............................................. 29
Security Registrar............................................ 29
Shelf Registration Statement.................................. 29
Significant Subsidiary........................................ 29
Special Assets................................................ 29
Special Interest.............................................. 29
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
Special Record Date........................................................ 30
Stated Maturity............................................................ 30
Subordinated Debt.......................................................... 30
Subsidiary................................................................. 31
Telecommunications/IS Assets............................................... 31
Telecommunications/IS Business............................................. 32
Trust Indenture Act........................................................ 32
TIA........................................................................ 32
Trustee.................................................................... 32
Unrestricted Subsidiary.................................................... 32
Vice President............................................................. 32
Voting Stock............................................................... 32
Wholly Owned Subsidiary.................................................... 33
SECTION 102. Compliance Certificates and Opinions....................................... 32
SECTION 103. Form of Documents Delivered to Trustee..................................... 34
SECTION 104. Acts of Holders............................................................ 34
SECTION 105. Notices, etc., to Trustee and Company...................................... 36
SECTION 106. Notice to Holders; Waiver.................................................. 36
SECTION 107. Effect of Headings and Table of Contents................................... 37
SECTION 108. Successors and Assigns..................................................... 37
SECTION 109. Separability Clause........................................................ 37
SECTION 110. Benefits of Indenture...................................................... 37
SECTION 111. Governing Law.............................................................. 38
SECTION 112. Conflict with Trust Indenture Act.......................................... 38
SECTION 113. Legal Holidays............................................................. 38
SECTION 114. No Personal Liability of Directors, Officers, Employees and Stockholders... 38
SECTION 115. Independence of Covenants.................................................. 39
SECTION 116. Exhibits................................................................... 39
SECTION 117. Counterparts............................................................... 39
SECTION 118. Duplicate Originals........................................................ 39
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally............................................................ 39
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.............................................................. 40
SECTION 302. Denominations................................................................ 41
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 303. Execution, Authentication, Delivery and Dating........................ 41
SECTION 304. Temporary Securities.................................................. 43
SECTION 305. Registration, Registration of Transfer and Exchange................... 44
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities...................... 45
SECTION 307. Payment of Interest; Interest Rights Preserved........................ 46
SECTION 308. Persons Deemed Owners................................................. 48
SECTION 309. Cancellation.......................................................... 48
SECTION 310. Computation of Interest............................................... 49
SECTION 311. CUSIP Number.......................................................... 49
SECTION 312. Book-Entry Provisions for Global Securities........................... 49
SECTION 313. Special Transfer Provisions........................................... 51
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture............................... 57
SECTION 402. Application of Trust Money............................................ 58
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default..................................................... 59
SECTION 502. Acceleration of Maturity; Rescission and Annulment.................... 60
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee....... 62
SECTION 504. Trustee May File Proofs of Claim...................................... 62
SECTION 505. Trustee May Enforce Claims Without Possession of Securities........... 63
SECTION 506. Application of Money Collected........................................ 64
SECTION 507. Limitation on Suits................................................... 64
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest................................................ 65
SECTION 509. Restoration of Rights and Remedies.................................... 65
SECTION 510. Rights and Remedies Cumulative........................................ 65
SECTION 511. Delay or Omission Not Waiver.......................................... 66
SECTION 512. Control by Holders.................................................... 66
SECTION 513. Waiver of Past Defaults............................................... 66
SECTION 514. Waiver of Stay or Extension Laws...................................... 67
</TABLE>
v
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities................................... 67
SECTION 602. Notice of Default..................................................... 69
SECTION 603. Certain Rights of Trustee............................................. 69
SECTION 604. Trustee Not Responsible for Recitals or Issuance of Securities........ 70
SECTION 605. May Hold Securities................................................... 71
SECTION 606. Money Held in Trust................................................... 71
SECTION 607. Compensation and Reimbursement........................................ 71
SECTION 608. Corporate Trustee Required; Eligibility; Conflicting Interests........ 72
SECTION 609. Resignation and Removal; Appointment of Successor..................... 73
SECTION 610. Acceptance of Appointment by Successor................................ 74
SECTION 611. Merger, Conversion, Consolidation or Succession to Business........... 75
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.......................... 76
SECTION 702. Reports by Trustee.................................................... 76
SECTION 703. Reports by Company.................................................... 76
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.................. 77
SECTION 802. Successor Company Substituted......................................... 78
SECTION 803. Guarantor May Consolidate, etc., Only on Certain Terms................ 79
SECTION 804. Successor Guarantor Substituted....................................... 80
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders..................... 81
SECTION 902. Supplemental Indentures With Consent of Holders........................ 82
SECTION 903. Execution of Supplemental Indentures................................... 83
SECTION 904. Effect of Supplemental Indentures...................................... 83
SECTION 905. Conformity with Trust Indenture Act.................................... 83
SECTION 906. Reference in Securities to Supplemental Indentures..................... 84
SECTION 907. Notice of Supplemental Indentures...................................... 84
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.................... 84
SECTION 1002. Maintenance of Office or Agency........................................ 84
SECTION 1003. Money for Security Payments to Be Held in Trust........................ 85
SECTION 1004. Corporate Existence.................................................... 87
SECTION 1005. Maintenance of Properties.............................................. 87
SECTION 1006. Insurance.............................................................. 87
SECTION 1007. Reports................................................................ 88
SECTION 1008. Statement by Officers as to Default.................................... 88
SECTION 1009. Change of Control Triggering Event..................................... 89
SECTION 1010. Limitation on Consolidated Debt........................................ 91
SECTION 1011. Limitation on Debt of Restricted Subsidiaries.......................... 96
SECTION 1012. Limitation on Restricted Payments...................................... 98
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries............................101
SECTION 1014. Limitation on Liens....................................................103
SECTION 1015. Limitation on Sale and Leaseback Transactions..........................104
SECTION 1016. Limitation on Asset Dispositions.......................................105
SECTION 1017. Limitation on Issuance and Sales of Capital Stock of
Restricted Subsidiaries......................................107
SECTION 1018. Transactions with Affiliates...........................................108
SECTION 1019. Limitation on Designations of Unrestricted Subsidiaries................110
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption...............................................112
SECTION 1102. Applicability of Article..........................................112
SECTION 1103. Election to Redeem; Notice to Trustee.............................112
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.................113
SECTION 1105. Notice of Redemption..............................................113
SECTION 1106. Deposit of Redemption Price.......................................114
SECTION 1107. Securities Payable on Redemption Date.............................114
SECTION 1108. Securities Redeemed in Part.......................................115
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Defeasance or Covenant Defeasance......115
SECTION 1202. Defeasance and Discharge..........................................115
SECTION 1203. Covenant Defeasance...............................................116
SECTION 1204. Conditions to Defeasance or Covenant Defeasance...................117
SECTION 1205. Deposited Money and Government Securities to Be Held in
Trust; Other Miscellaneous Provisions........................119
SECTION 1206. Reinstatement.....................................................119
</TABLE>
EXHIBIT A - Form of Security
EXHIBIT B - Form of Supplemental Indenture
viii
<PAGE>
INDENTURE, dated as of April 28, 1998 between Level 3 Communications, Inc.,
a corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 3555
Farnam Street, Omaha, Nebraska 68131, and IBJ Schroder Bank & Trust Company, a
New York banking corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 9 1/8% Senior
Notes Due 2008 (the "Initial Securities") and, if and when issued pursuant to a
Registered Exchange Offer or Private Exchange Offer pursuant to the Registration
Agreement for the Initial Securities, 9 1/8% Senior Notes Due 2008 (the
"Exchange Securities" and, together with the Initial Securities, the
"Securities"), of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary have been done to make the Securities, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of each of the Company and the Trustee, in accordance with their and
its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, including the recitals set forth above,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean United States generally accepted
accounting principles as in effect on the date of this Indenture;
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section, paragraph or other subdivision;
(e) unless otherwise indicated, references to Articles, Sections,
paragraphs or other subdivisions are references to such Articles, Sections,
paragraphs or other subdivisions of this Indenture; and
(f) "or" is not exclusive and "including" means including without
limitation.
"Accreted Value" of any Debt issued at a price less than the principal
amount at stated maturity, means, as of any date of determination, an amount
equal to the sum of (a) the issue price of such Debt as determined in accordance
with Section 1273 of the Code or any successor provisions plus (b) the aggregate
of the portions of the original issue discount (the excess of the amounts
considered as part of the "stated redemption price at maturity" of such Debt
<PAGE>
3
within the meaning of Section 1273(a)(2) of the Code or any successor
provisions, whether denominated as principal or interest, over the issue price
of such Debt) that shall theretofore have accrued pursuant to Section 1272 of
the Code (without regard to Section 1272(a)(7) of the Code) from the date of
issue of such Debt to the date of determination, minus all amounts theretofore
paid in respect of such Debt, which amounts are considered as part of the
"stated redemption price at maturity" of such Debt within the meaning of Section
1273(a)(2) of the Code or any successor provisions (whether such amounts paid
were denominated principal or interest).
"Acquired Debt" means, with respect to any specified Person, (i) Debt of
any other Person existing at the time such Person merges with or into or
consolidates with or becomes a Subsidiary of such specified Person and (ii) Debt
secured by a Lien encumbering any Property acquired by such specified Person,
which Debt was not incurred in anticipation of, and was outstanding prior to,
such merger, consolidation or acquisition.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of
Sections 1016 and 1018 and the definition of "Telecommunications/IS Assets"
only, "Affiliate" shall also mean any beneficial owner of shares representing
10% or more of the total voting power of the Voting Stock (on a fully diluted
basis) of the Company or of rights or warrants to purchase such Voting Stock
(whether or not currently exercisable) and any Person who would be an Affiliate
of any such beneficial owner pursuant to the first sentence hereof.
"Affiliate Transaction" has the meaning specified in Section 1018.
"Agent Member" has the meaning specified in Section 312.
<PAGE>
4
"Asset Disposition" means any transfer, conveyance, sale, lease, issuance
or other disposition by the Company or any Restricted Subsidiary in one or more
related transactions (including a consolidation or merger or other sale of any
such Restricted Subsidiary with, into or to another Person in a transaction in
which such Restricted Subsidiary ceases to be a Restricted Subsidiary of the
Company, but excluding a disposition by a Restricted Subsidiary to the Company
or a Restricted Subsidiary or by the Company to a Restricted Subsidiary) of (i)
shares of Capital Stock or other ownership interests of a Restricted Subsidiary
(other than as permitted by clause (v), (vi), (vii) or (ix) of Section 1017),
(ii) substantially all of the assets of the Company or any Restricted Subsidiary
representing a division or line of business or (iii) other Property of the
Company or any Restricted Subsidiary outside of the ordinary course of business
(excluding any transfer, conveyance, sale, lease or other disposition of
equipment that is obsolete or no longer used by or useful to the Company,
provided that the Company has delivered to the Trustee an Officers' Certificate
- --------
stating that such criteria are satisfied); provided in each case that the
--------
aggregate consideration for such transfer, conveyance, sale, lease or other
disposition is equal to $5,000,000 or more in any 12-month period. The
following shall not be Asset Dispositions: (i) Permitted Telecommunications
Capital Asset Dispositions that comply with clause (i) of the first paragraph of
Section 1016, (ii) when used with respect to the Company, any Asset Disposition
permitted pursuant to Article Eight which constitutes a disposition of all or
substantially all of the assets of the Company and the Restricted Subsidiaries
taken as a whole, (iii) Receivables sales constituting Debt under Qualified
Receivable Facilities permitted to be Incurred pursuant to Section 1010 and (iv)
any disposition that constitutes a Permitted Investment or a Restricted Payment
permitted by Section 1012.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the remaining
term thereof (including any period for which such lease has been extended) as
determined in accordance with generally
<PAGE>
5
accepted accounting principles, discounted from the last date of such remaining
term to the date of determination at a rate per annum equal to the discount rate
which would be applicable to a Capital Lease Obligation with like term in
accordance with generally accepted accounting principles. The net amount of rent
required to be paid under any such lease for any such period shall be the
aggregate amount of rent payable by the lessee with respect to such period after
excluding amounts required to be paid on account of insurance, taxes,
assessments, utility, operating and labor costs and similar charges. In the case
of any lease which is terminable by the lessee upon the payment of penalty, such
net amount shall also include the lesser of the amount of such penalty (in which
case no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated) or the rent
which would otherwise be required to be paid if such lease is not so terminated.
"Attributable Value" means, as to a Capital Lease Obligation, the principal
amount thereof.
"Board of Directors" means the board of directors of the Company.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amount under a lease of (or other Debt arrangements conveying
the right to use) Property of such Person which is required to be classified and
accounted for as a capital lease or a liability on the face of a balance sheet
of such Person in accordance with generally accepted accounting principles (a
"Capital Lease"). The stated maturity of such obligation shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without payment
of a penalty. The principal amount of such obligation shall be the capitalized
amount thereof that would appear on the face of a balance sheet of such Person
in accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether
<PAGE>
6
general or limited, of such Person and any rights (other than debt securities
convertible or exchangeable into an equity interest), warrants or options to
acquire an equity interest in such Person.
"Cash Equivalents" means (i) Government Securities maturing, or subject to
tender at the option of the holder thereof, within two years after the date of
acquisition thereof, (ii) time deposits and certificates of deposit of any
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000 or a commercial bank organized under the law of any other
country that is a member of the OECD having total assets in excess of
$500,000,000 (or its foreign currency equivalent at the time) with a maturity
date not more than one year from the date of acquisition, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with (x) any bank meeting
the qualifications specified in clause (ii) above or (y) any primary government
securities dealer reporting to the Market Reports Division of the Federal
Reserve Bank of New York, (iv) direct obligations issued by any state of the
United States of America or any political subdivision of any such state or any
public instrumentality thereof maturing, or subject to tender at the option of
the holder thereof, within 90 days after the date of acquisition thereof,
provided that, at the time of acquisition, the long-term debt of such state,
- --------
political subdivision or public instrumentality has a rating of A (or higher)
from S&P or A-2 (or higher) from Moody's (or, if at any time neither S&P nor
Moody's shall be rating such obligations, then an equivalent rating from such
other nationally recognized rating service acceptable to the Trustee), (v)
commercial paper issued by the parent corporation of any commercial bank
organized in the United States having capital and surplus in excess of
$500,000,000 or a commercial bank organized under the laws of any other country
that is a member of the OECD having total assets in excess of $500,000,000 (or
its foreign currency equivalent at the time), and commercial paper issued by
others having one of the two highest ratings obtainable from either S&P or
Moody's (or, if at any time neither S&P nor Moody's shall be rating such
obligations, then from such other nationally recognized rating service
acceptable to the Trustee) and in each case maturing within one year after the
date of acquisition, (vi) overnight bank deposits and bankers' acceptances at
any commercial bank organized in the United States having capital and surplus in
excess of $500,000,000 or a commercial bank organized under the laws of any
other country that is a member of the OECD having total assets in
<PAGE>
7
excess of $500,000,000 (or its foreign currency equivalent at the time), (vii)
deposits available for withdrawal on demand with a commercial bank organized in
the United States having capital and surplus in excess of $500,000,000 or a
commercial bank organized under the laws of any other country that is a member
of the OECD having total assets in excess of $500,000,000 (or its foreign
currency equivalent at the time) and (viii) investments in money market funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (vii).
"Change of Control" has the meaning specified in Section 1009.
"Change of Control Triggering Event" has the meaning specified in Section
1009.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture, until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Order" or "Company Request" means a written request or order
signed in the name of the Company by the Chairman of the Board of Directors, a
Vice Chairman of the Board of Directors, the President or a Vice President, and
by the Chief Financial Officer, the Chief Accounting Officer, the Treasurer, an
Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary of
the Company and delivered to the Trustee.
<PAGE>
8
"Consolidated Capital Ratio" means as of the date of determination the
ratio of (i) the aggregate amount of Debt of the Company and its Restricted
Subsidiaries on a consolidated basis as at the date of determination to (ii) the
sum of (a) $2,024,000,000, (b) the aggregate net proceeds to the Company from
the issuance or sale of any Capital Stock (including Preferred Stock) of the
Company other than Disqualified Stock subsequent to the Issue Date, (c) the
aggregate net proceeds from the issuance or sale of Debt of the Company or any
Restricted Subsidiary subsequent to the Issue Date convertible or exchangeable
into Capital Stock of the Company other than Disqualified Stock, in each case
upon conversion or exchange thereof into Capital Stock of the Company subsequent
to the Issue Date and (d) the after-tax gain on the sale, subsequent to the
Issue Date, of Special Assets to the extent such Special Assets have been sold
for cash, Cash Equivalents, Telecommunications/IS Assets or the assumption of
Debt of the Company or any Restricted Subsidiary (other than Debt that is
subordinated to the Securities or any applicable Restricted Subsidiary
Guarantee) and release of the Company and all Restricted Subsidiaries from all
liability on the Debt assumed; provided, however, that, for purposes of
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calculation of the Consolidated Capital Ratio, the net proceeds from the
issuance or sale of Capital Stock or Debt described in clause (b) or (c) above
shall not be included to the extent (x) such proceeds have been utilized to make
a Permitted Investment under clause (i) of the definition thereof or a
Restricted Payment or (y) such Capital Stock or Debt shall have been issued or
sold to the Company, a Subsidiary of the Company or an employee stock ownership
plan or trust established by the Company or any such Subsidiary for the benefit
of their employees.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period increased by the sum of, to the extent reducing Consolidated Net
Income for such period, (i) Consolidated Interest Expense of the Company and its
Restricted Subsidiaries for such period, plus (ii) Consolidated Income Tax
Expense of the Company and its Restricted Subsidiaries for such period, plus
(iii) consolidated depreciation and amortization expense and any other non-cash
items (other than any such non-cash item to the extent that it represents an
accrual of or reserve for cash expenditures in any future period); provided,
--------
however, that there shall be excluded therefrom the Consolidated Cash Flow
- -------
Available for Fixed Charges (if positive) of any Restricted Subsidiary
(calculated separately for such Restricted Subsidiary in the same manner
<PAGE>
9
as provided above for the Company) that is subject to a restriction which
prevents the payment of dividends or the making of distributions to the Company
or another Restricted Subsidiary to the extent of such restrictions.
"Consolidated Income Tax Expense" for any period means the aggregate
amounts of the provisions for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Interest Expense" for any period means the interest expense
included in a consolidated income statement (excluding interest income) of the
Company and its Restricted Subsidiaries for such period in accordance with
generally accepted accounting principles, including without limitation or
duplication (or, to the extent not so included, with the addition of), (i) the
amortization of Debt discounts and issuance costs, including commitment fees;
(ii) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities; (iii) net costs with respect to interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements (including fees); (iv) Preferred Stock Dividends (other than
dividends paid in shares of Preferred Stock that is not Disqualified Stock)
declared and paid or payable; (v) accrued Disqualified Stock Dividends, whether
or not declared or paid; (vi) interest on Debt guaranteed by the Company and its
Restricted Subsidiaries; (vii) the portion of any Capital Lease Obligation or
Sale and Leaseback Transaction paid during such period that is allocable to
interest expense; (viii) interest Incurred in connection with investments in
discontinued operations; and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the Company
or a Restricted Subsidiary) in connection with Debt Incurred by such plan or
trust.
"Consolidated Net Income" for any period means the net income (or loss) of
the Company and its Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles;
provided that there shall be excluded therefrom (a) for purposes of Section 1012
- --------
only, the net income (or loss) of any Person acquired by the Company or a
Restricted Subsidiary in a pooling-of-interests transaction for any period prior
to the date of such transaction, (b) the net income (or loss) of any Person that
is not a Restricted Subsidiary except to the extent of the amount of dividends
<PAGE>
10
or other distributions actually paid to the Company or a Restricted Subsidiary
by such Person during such period (except, for purposes of Section 1012 only, to
the extent such dividends or distributions have been subtracted from the
calculation of the amount of Investments to support the actual making of
Investments), (c) gains or losses realized upon the sale or other disposition of
any Property of the Company or its Restricted Subsidiaries that is not sold or
disposed of in the ordinary course of business (it being understood that
Permitted Telecommunications Capital Asset Dispositions shall be considered to
be in the ordinary course of business), (d) gains or losses realized upon the
sale or other disposition of any Special Assets, (e) all extraordinary gains and
extraordinary losses, determined in accordance with generally accepted
accounting principles, (f) the cumulative effect of changes in accounting
principles, (g) non-cash gains or losses resulting from fluctuations in currency
exchange rates, (h) any non-cash expense related to the issuance to employees or
directors of the Company or any Restricted Subsidiary of (1) options to purchase
Capital Stock of the Company or such Restricted Subsidiary or (2) other
compensatory rights; provided, in either case, that such options or rights, by
--------
their terms can be redeemed at the option of the holder of such option or right
only for Capital Stock, and (i) with respect to a Restricted Subsidiary that is
not a Wholly Owned Subsidiary any aggregate net income (or loss) in excess of
the Company's or any Restricted Subsidiary's pro rata share of the net income
(or loss) of such Restricted Subsidiary that is not a Wholly Owned Subsidiary;
provided further that there shall further be excluded therefrom the net income
- ----------------
(but not net loss) of any Restricted Subsidiary that is subject to a restriction
which prevents the payment of dividends or the making of distributions to the
Company or another Restricted Subsidiary to the extent of such restriction.
"Consolidated Net Worth" of any Person means the stockholders' equity of
such Person, determined on a consolidated basis in accordance with generally
accepted accounting principles, less amounts attributable to Disqualified Stock
of such Person.
"Consolidated Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under generally accepted accounting principles would be included on a
consolidated balance sheet of such Person and its Subsidiaries after deducting
therefrom all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other
<PAGE>
11
like intangibles, which in each case under generally accepted accounting
principles would be included on such consolidated balance sheet.
"Corporate Trust Office" means the principal corporate trust office of the
Trustee, at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Indenture is located
at One State Street, New York, New York 10004, except that, with respect to
presentation of Securities for payment or for registration of transfer or
exchange, such term shall mean the office or agency of the Trustee at which, at
any particular time, its corporate agency business shall be conducted.
"Credit Facilities" means one or more credit agreements, loan agreements or
similar facilities, secured or unsecured, providing for revolving credit loans,
term loans and/or letters of credit, including any Qualified Receivable
Facility, entered into from time to time by the Company and its Restricted
Subsidiaries, and including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as the same may be
amended, supplemented, modified, restated or replaced from time to time.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of Property, (iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person, (iv) every obligation of such Person issued or assumed
as the deferred purchase price of Property or services (including securities
repurchase agreements but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business), (v) every Capital Lease
Obligation of such Person and all Attributable Value in respect of Sale and
Leaseback Transactions entered into by such Person, (vi) all obligations to
redeem or repurchase Disqualified Stock issued by such Person, (vii) the
liquidation preference of any Preferred Stock (other than Disqualified Stock,
which is covered by the preceding clause (vi)) issued by any Restricted
Subsidiary of such Person, (viii) every obligation under Interest Rate or
Currency Protection Agreements of such Person and
<PAGE>
12
(ix) every obligation of the type referred to in clauses (i) through (viii) of
another Person and all dividends of another Person the payment of which, in
either case, such Person has Guaranteed. The "amount" or "principal amount" of
Debt at any time of determination as used herein represented by (a) any Debt
issued at a price that is less than the principal amount at maturity thereof,
shall be, except as otherwise set forth herein, the Accreted Value of such Debt
at such time or (b) in the case of any Receivables sale constituting Debt, the
amount of the unrecovered purchase price (that is, the amount paid for
Receivables that has not been actually recovered from the collection of such
Receivables) paid by the purchaser (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) thereof. The amount of Debt represented by
an obligation under an Interest Rate or Currency Protection Agreement shall be
equal to (x) zero if such obligation has been Incurred pursuant to clause (x) of
paragraph (b) of Section 1010 or (y) the notional amount of such obligation if
not Incurred pursuant to such clause.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Designation" and "Designation Amount" have the respective meanings
specified in Section 1019.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final Stated Maturity of the Securities;
provided, however, that any Preferred Stock which would not constitute
- -------- -------
Disqualified Stock but for provisions thereof giving holders thereof the right
to require the Company to repurchase or redeem such Preferred Stock upon the
occurrence of a change of control occurring prior to the final Stated Maturity
of the Securities shall not constitute Disqualified Stock if the change of
control provisions applicable to such Preferred Stock are no more favorable to
the holders of such
<PAGE>
13
Preferred Stock than the provisions applicable to the Securities contained in
Section 1009 and such Preferred Stock specifically provides that the Company
will not repurchase or redeem any such stock pursuant to such provisions prior
to the Company's repurchase of such Securities as are required to be repurchased
pursuant to Section 1009.
"Disqualified Stock Dividends" means all dividends with respect to
Disqualified Stock of the Company held by Persons other than a Wholly Owned
Restricted Subsidiary. The amount of any such dividend shall be equal to the
quotient of such dividend divided by the difference between one and the maximum
statutory federal income tax rate (expressed as a decimal number between 1 and
0) applicable to the Company for the period during which such dividends were
paid.
"Eligible Receivables" means, at any time, Receivables of the Company and
its Restricted Subsidiaries, as evidenced on the most recent quarterly
consolidated balance sheet of the Company as at a date at least 45 days prior to
such time, arising in the ordinary course of business of the Company or any
Restricted Subsidiary.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder (or respective
successors thereto).
"Exchange Securities" has the meaning stated in the first recital of this
Indenture.
"Excess Proceeds" has the meaning specified in Section 1016.
"Expiration Date" has the meaning specified in "Offer to Purchase" below.
"Fair Market Value" means, with respect to any Property, the price that
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under pressure
or compulsion to complete the transaction. Unless otherwise specified herein,
Fair Market Value shall be determined by the Board of Directors acting in good
faith and shall be evidenced by a Board Resolution delivered to the Trustee.
<PAGE>
14
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"Global Security" means a Rule 144A Global Security, an Institutional
Accredited Investor Global Security or a Regulation S Global Security, as the
case may be.
"Government Securities" means direct obligations of, or obligations fully
and unconditionally guaranteed or insured by, the United States of America or
any agency or instrumentality thereof for the payment of which obligations or
guarantee the full faith and credit of the United States is pledged and which
are not callable or redeemable at the issuer's option (unless, for purposes of
the definition of "Cash Equivalents" only, the obligations are redeemable or
callable at a price not less than the purchase price paid by the Company or the
applicable Restricted Subsidiary, together with all accrued and unpaid interest
(if any) on such Government Securities).
"Guarantee" by any Person means any obligation, direct or indirect,
contingent or otherwise, of such Person guaranteeing, or having the economic
effect of guaranteeing, any Debt of any other Person (the "primary obligor") in
any manner, whether directly or indirectly, and any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Debt, including any such obligations arising by virtue of partnership
arrangements or by agreements to keep-well, (ii) to purchase Property or
services or to take-or-pay for the purpose of assuring the holder of such Debt
of the payment of such Debt, (iii) to maintain working capital, equity capital
or other financial statement condition or liquidity of the primary obligor so as
to enable the primary obligor to pay such Debt or (iv) entered into for the
purpose of assuring in any other manner the obligee against loss in respect
thereof, in whole or in part (and "Guaranteed", "Guaranteeing" and "Guarantor"
shall have meanings correlative to the foregoing); provided, however, that the
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Guarantee by any Person shall not include endorsements by such Person for
collection or deposit, in either case, in the ordinary course of business.
"Guarantor" means a Restricted Subsidiary of the Company that has executed
a Restricted Subsidiary Guarantee, until a successor Person shall have become
such pursuant to
<PAGE>
15
the applicable provisions of this Indenture, and thereafter "Guarantor" shall
mean such successor Person.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including the recording, as required pursuant to generally accepted accounting
principles or otherwise, of any such Debt or other obligation on the balance
sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and "Incurring"
shall have meanings correlative to the foregoing); provided, however, that a
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change in generally accepted accounting principles that results in an obligation
of such Person that exists at such time becoming Debt shall not be deemed an
Incurrence of such Debt and that neither the accrual of interest nor the
accretion of original issue discount shall be deemed an Incurrence of Debt.
Debt otherwise incurred by a Person before it becomes a Subsidiary of the
Company shall be deemed to have been Incurred at the time at which it becomes a
Subsidiary.
"Indenture" means this instrument as originally executed and as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Initial Foreign Purchaser" means each non-U.S. person (within the meaning
of Regulation S) that purchased Initial Securities from the Initial Purchasers
in offshore transactions meeting the requirements of Regulation S.
"Initial Purchasers" means Salomon Brothers Inc, Goldman, Sachs & Co.,
Chase Securities Inc., J.P. Morgan & Co. and UBS Securities LLC.
"Initial Securities" has the meaning stated in the first recital of this
Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.
"Institutional Accredited Investor Global Security" has the meaning
specified in Section 303.
<PAGE>
16
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including caps, floors, collars and similar agreements) relating
to, or the value of which is dependent upon, interest rates or currency exchange
rates or indices.
"Invested Capital" means the sum of (a) $500,000,000, (b) the aggregate net
proceeds received by the Company from the issuance or sale of any Capital Stock,
including Preferred Stock, of the Company but excluding Disqualified Stock,
subsequent to the Issue Date, and (c) the aggregate net proceeds from the
issuance or sale of Debt of the Company or any Restricted Subsidiary subsequent
to the Issue Date convertible or exchangeable into Capital Stock of the Company
other than Disqualified Stock, in each case upon conversion or exchange thereof
into Capital Stock of the Company subsequent to the Issue Date; provided,
--------
however, that the net proceeds from the issuance or sale of Capital Stock or
- -------
Debt described in clause (b) or (c) shall be excluded from any computation of
Invested Capital to the extent (i) utilized to make a Restricted Payment or (ii)
such Capital Stock or Debt shall have been issued or sold to the Company, a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any such Subsidiary for the benefit of their
employees.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other Property to others or payments for Property or services for the account
or use of others, or otherwise) to, purchase, redemption, retirement or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Debt issued by, or Incurrence of, or payment on, a Guarantee of any
obligation of, any other Person; provided that Investments shall exclude
--------
commercially reasonable extensions of trade credit. The amount, as of any date
of determination, of any Investment shall be the original cost of such
Investment, plus the cost of all additions, as of such date, thereto and minus
the amount, as of such date, of any portion of such Investment repaid to such
Person in cash as a repayment of principal or a return of capital, as the case
may be (except to the extent such repaid amount has been included in
Consolidated Net Income to support the actual making of Restricted Payments),
but without any other
<PAGE>
17
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment. In determining the amount of any
Investment involving a transfer of any Property other than cash, such Property
shall be valued at its Fair Market Value at the time of such transfer.
"Issue Date" means the date on which the Initial Securities are initially
issued.
"Issue Date Rating" means B-3 in the case of Moody's and B in the case of
S&P, which are the respective ratings assigned to the Securities by the Rating
Agencies on the Issue Date.
"Joint Venture" means a Person in which the Company or a Restricted
Subsidiary holds not more than 50% of the shares of Voting Stock.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, lien,
charge, easement (other than any easement not materially impairing usefulness),
encumbrance, preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever on or with respect to such Property
(including any Capital Lease Obligation, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing and any Sale and Leaseback Transaction). For purposes of this
definition the sale, lease, conveyance or other transfer by the Company or any
of its Subsidiaries of, including the grant of indefeasible rights of use or
equivalent arrangements with respect to, dark or lit communications fiber
capacity or communications conduit shall not constitute a Lien.
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. or, if Moody's Investors
Service, Inc. shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
-------- -------
that if Moody's Investors Service, Inc.
<PAGE>
18
ceases rating debt securities having a maturity at original issuance of at least
one year and its ratings business with respect thereto shall not have been
transferred to any successor Person, then "Moody's" shall mean any other
national recognized rating agency (other than S&P) that rates debt securities
having a maturity at original issuance of at least one year and that shall have
been designated by the Trustee by a written notice given to the Company.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or cash equivalents received (including amounts received by way of sale or
discounting of any note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such Property) therefrom by
such Person, net of (i) all legal, title and recording taxes, expenses and
commissions and other fees and expenses (including appraisals, brokerage
commissions and investment banking fees) Incurred and all federal, state,
provincial, foreign and local taxes required to be accrued as a liability as a
consequence of such Asset Disposition, (ii) all payments made by such Person or
its Subsidiaries on any Debt which is secured by such Property in accordance
with the terms of any Lien upon or with respect to such Property or which must
by the terms of such Lien, or in order to obtain a necessary consent to such
Asset Disposition or by applicable law, be repaid out of the proceeds from such
Asset Disposition, (iii) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or Joint Ventures of such
Person as a result of such Asset Disposition and (iv) appropriate amounts to be
provided by such Person or any Subsidiary thereof, as the case may be, as a
reserve in accordance with generally accepted accounting principles against any
liabilities associated with such Property and retained by such Person or any
Subsidiary thereof, as the case may be, after such Asset Disposition, including
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Disposition, in each case
as determined by the board of directors of such Person, in its reasonable good
faith judgment evidenced by a Board Resolution filed with the Trustee; provided,
--------
however, that any reduction in such reserve within twelve months following the
- -------
consummation of such Asset Disposition will be, for all purposes of this
Indenture and the Securities, treated as a new Asset Disposition at the time of
such reduction with Net Available Proceeds equal to the amount of such
reduction; provided further, however, that, in the event that any consideration
---------------- -------
for a transaction (which would otherwise
<PAGE>
19
constitute Net Available Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, at such time
as such portion of the consideration is released to such Person or its
Restricted Subsidiary from escrow, such portion shall be treated for all
purposes of this Indenture and the Securities as a new Asset Disposition at the
time of such release from escrow with Net Available Proceeds equal to the amount
of such portion of consideration released from escrow.
"Non-Global Purchasers" has the meaning specified in Section 303.
"Offer" has the meaning specified in "Offer to Purchase" below.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first-class mail, postage prepaid, to each Holder of Securities at its
address appearing in the Security Register on the date of the Offer offering to
purchase up to the principal amount of Securities specified in such Offer at the
purchase price specified in such Offer (as determined pursuant to this
Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase
which shall be, subject to any contrary requirements of applicable law, not less
than 30 days or more than 60 days after the date of such Offer and a settlement
date (the "Purchase Date") for purchase of Securities within five Business Days
after the Expiration Date. The Company shall notify the Trustee at least 15
Business Days (or such shorter period as is acceptable to the Trustee) prior to
the mailing of the Offer of the Company's obligation to make an Offer to
Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. The
Offer shall contain information concerning the business of the Company and its
Subsidiaries which the Company in good faith believes will enable such Holders
to make an informed decision with respect to the Offer to Purchase (which at a
minimum will include (i) the most recent annual and quarterly financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the documents required to be filed with the
Trustee pursuant to this Indenture (which requirements may be satisfied by
delivery of such documents together with the Offer), (ii) a description of
material developments in the Company's business subsequent to the date of the
latest of such financial statements referred to in clause (i) (including a
<PAGE>
20
description of the events requiring the Company to make the Offer to Purchase),
(iii) if applicable, appropriate pro forma financial information concerning the
Offer to Purchase and the events requiring the Company to make the Offer to
Purchase and (iv) any other information required by applicable law to be
included therein). The Offer shall contain all instructions and materials
necessary to enable such Holders to tender Securities pursuant to the Offer to
Purchase. The Offer shall also state:
a. the Section of this Indenture pursuant to which the Offer to Purchase is
being made;
b. the Expiration Date and the Purchase Date;
c. the aggregate principal amount of the Outstanding Securities offered to
be purchased by the Company pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such has been determined pursuant to the
Section hereof requiring the Offer to Purchase) (the "Purchase Amount");
d. the purchase price to be paid by the Company for $1,000 aggregate
principal amount of Securities accepted for payment (as specified pursuant to
this Indenture) (the "Purchase Price");
e. that the Holder may tender all or any portion of the Securities
registered in the name of such Holder and that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal amount;
f. the place or places where Securities are to be surrendered for tender
pursuant to the Offer to Purchase;
g. that any Securities not tendered or tendered but not purchased by the
Company will continue to accrue interest;
h. that on the Purchase Date the Purchase Price will become due and payable
upon each Security being accepted for payment pursuant to the Offer to Purchase
and that interest thereon, if any, shall cease to accrue on and after the
Purchase Date;
i. that each Holder electing to tender a Security pursuant to the Offer to
Purchase will be required to surrender such Security at the place or places
specified in the Offer prior to the close of business on the Expiration Date
(such Security being, if the Company or the Trustee so requires, duly endorsed
by, or accompanied by a written
<PAGE>
21
instrument of transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in writing);
j. that Holders will be entitled to withdraw all or any portion of
Securities tendered if the Company (or the Paying Agent) receives, not later
than the close of business on the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security the Holder tendered, the certificate number of the
Security the Holder tendered and a statement that such Holder is withdrawing all
or a portion of his tender;
k. that (i) if Securities in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the
Offer to Purchase, the Company shall purchase all such Securities and (ii) if
Securities in an aggregate principal amount in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall
purchase Securities having an aggregate principal amount equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed appropriate
--- ----
so that only Securities in denominations of $1,000 or integral multiples thereof
shall be purchased); and
l. that in the case of any Holder whose Security is purchased only in part,
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge, a new Security or Securities, of
any authorized denomination as requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of the
Security so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, a Vice Chairman of the Board of Directors, the President or
a Vice President, and by the Chief Financial Officer, the Chief Accounting
Officer, the Treasurer, an Assistant Treasurer, the Controller, the Secretary or
an Assistant Secretary of the Company and delivered to the Trustee, which shall
comply with this Indenture.
<PAGE>
22
"Opinion of Counsel" means an opinion of counsel acceptable to the Trustee
(who may be counsel to the Company, including an employee of the Company).
"OECD" shall mean the Organization for Economic Cooperation and
Development.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) on and after any maturity or redemption date, Securities, or
portions thereof, for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities; provided that (a) the Trustee or the Paying
--------
Agent, as applicable, is not prohibited from paying such money to the
Holders and (b) if such Securities are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture;
(iii) Securities, except to the extent provided in Sections 1202 and
1203, with respect to which the Company has effected defeasance or covenant
defeasance as provided in Article Twelve; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands the Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
- -------- -------
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company or any other obligor upon
<PAGE>
23
the Securities or any Affiliate of the Company or such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making such calculation or in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Securities which any Responsible Officer of the Trustee knows to be
so owned or as to which the Trustee has received written notice shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of (and premium, if any)
or interest on any Securities on behalf of the Company.
"Permitted Holders" means the members of the Company's Board of Directors
on the Issue Date and their respective estates, spouses, ancestors, and lineal
descendants, the legal representatives of any of the foregoing and the trustees
of any bona fide trusts of which the foregoing are the sole beneficiaries or the
grantors, or any Person of which the foregoing "beneficially owns" (as defined
in Rule 13d-3 under the Exchange Act) at least 66 2/3% of the total voting power
of the Voting Stock of such Person.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and not for purposes of
speculation and which, in the case of an interest rate agreement, shall have a
notional amount no greater than the principal amount at maturity due with
respect to the Debt being hedged thereby.
"Permitted Investments" means (a) Cash Equivalents; (b) investments in
prepaid expenses; (c) negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits; (d)
loans, advances or extensions of credit to employees and directors made in the
ordinary course of business and consistent with past practice; (e) obligations
under Permitted Interest Rate or Currency Protection
<PAGE>
24
Agreements; (f) bonds, notes, debentures and other securities received as a
result of Asset Dispositions pursuant to and in compliance with Section 1016;
(g) Investments in any Person as a result of which such Person becomes a
Restricted Subsidiary; (h) Investments made prior to the Issue Date; (i)
Investments made after the Issue Date in Persons engaged in the
Telecommunications/IS Business in an aggregate amount not to exceed Invested
Capital; and (j) additional Investments in an aggregate amount not to exceed
$200,000,000.
"Permitted Liens" means (a) Liens for taxes, assessments, governmental
charges, levies or claims which are not yet delinquent or which are being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with generally
accepted accounting principles shall have been made therefor; (b) other Liens
incidental to the conduct of the Company's and its Restricted Subsidiaries'
businesses or the ownership of its Property not securing any Debt, and which do
not in the aggregate materially detract from the value of the Company's and its
Restricted Subsidiaries' Property when taken as a whole, or materially impair
the use thereof in the operation of its business; (c) Liens, pledges and
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of statutory obligations;
(d) Liens, pledges or deposits made to secure the performance of tenders, bids,
leases, public or statutory obligations, sureties, stays, appeals, indemnities,
performance or other similar bonds and other obligations of like nature incurred
in the ordinary course of business (exclusive of obligations for the payment of
borrowed money, the obtaining of advances or credit or the payment of the
deferred purchase price of Property and which do not in the aggregate materially
impair the use of Property in the operation of the business of the Company and
the Restricted Subsidiaries taken as a whole); (e) zoning restrictions,
servitudes, easements, rights-of-way, restrictions and other similar charges or
encumbrances incurred in the ordinary course of business which, in the
aggregate, do not materially detract from the value of the Property subject
thereto or materially interfere with the ordinary conduct of the business of the
Company or its Restricted Subsidiaries; and (f) any interest or title of a
lessor in the Property subject to any lease other than a Capital Lease.
"Permitted Telecommunications Capital Asset Disposition" means the
transfer, conveyance, sale, lease or
<PAGE>
25
other disposition of optical fiber and/or conduit and any related equipment used
in a Segment (as defined) of the Company's communications network that (i)
constitute capital assets in accordance with generally accepted accounting
principles and (ii) after giving effect to such disposition, would result in the
Company retaining at least either (A) 24 optical fibers per route mile on such
Segment as deployed at the time of such disposition or (B) 12 optical fibers and
one empty conduit per route mile on such Segment as deployed as such time.
"Segment" means (x) with respect to the Company's intercity network, the
through-portion of such network between two local networks (i.e., Omaha to
Denver) and (y) with respect to a local network of the Company (i.e., Dallas),
the entire through-portion of such network, excluding the spurs which branch off
the through-portion.
"Person" means any individual, corporation, company, partnership, joint
venture, limited liability company, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"Physical Security" has the meaning specified in Section 303.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding-up of such Person, to shares of Capital
Stock of any other class of such Person.
"Preferred Stock Dividends" means all dividends with respect to Preferred
Stock of Restricted Subsidiaries held by Persons other than the Company or a
Wholly Owned Restricted Subsidiary. The amount of any such dividend shall be
equal to the quotient of such dividend divided by the difference between one and
the maximum statutory federal income rate (expressed as a decimal number between
1 and 0) applicable to the issuer of such Preferred Stock for the period during
which such dividends were paid.
<PAGE>
26
"Private Exchange Offer" means the offer by the Company, pursuant to
Section 2(f) of the Registration Agreement, to issue and deliver to certain
purchasers, in exchange for the Initial Securities held by such purchasers as
part of their initial distribution, a like aggregate principal amount of Private
Exchange Securities.
"Private Exchange Securities" means the Exchange Securities to be issued
pursuant to this Indenture in connection with a Private Exchange Offer pursuant
to the Registration Agreement.
"Private Placement Legend" means the third paragraph of the legend set
forth in the Securities in the form set forth in Exhibit A.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to this Indenture,
the value of any Property shall be its Fair Market Value.
"Proportionate Interest" in any issuance of Capital Stock of a Restricted
Subsidiary means a ratio (i) the numerator of which is the aggregate amount of
all Capital Stock of such Restricted Subsidiary beneficially owned by the
Company and the Restricted Subsidiaries and (ii) the denominator of which is the
aggregate amount of Capital Stock of such Restricted Subsidiary beneficially
owned by all Persons (excluding, in the case of this clause (ii), any Investment
made in connection with such issuance).
"Purchase Amount" has the meaning specified in "Offer to Purchase" above.
"Purchase Date" has the meaning specified in "Offer to Purchase" above.
"Purchase Money Debt" means Debt (including Acquired Debt and Capital Lease
Obligations, mortgage financings and purchase money obligations) incurred for
the purpose of financing all or any part of the cost of construction,
installation, acquisition, lease, development or improvement by the Company or
any Restricted Subsidiary of any Telecommunications/IS Assets of the Company or
any Restricted Subsidiary and including any related notes, Guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as the same may be
<PAGE>
27
amended, supplemented, modified or restated from time to time.
"Purchase Price" has the meaning specified in "Offer to Purchase" above.
"Qualified Institutional Buyer" or "QIB" has the meaning specified in Rule
144A.
"Qualified Receivable Facility" means Debt of the Company or any Subsidiary
Incurred from time to time pursuant to either (x) credit facilities secured by
Receivables or (y) Receivables purchase facilities, and including any related
notes, Guarantees, collateral documents, instruments and agreements executed in
connection therewith, as the same may be amended, supplemented, modified or
restated from time to time.
"Rating Agencies" mean Moody's and S&P.
"Rating Date" means the earlier of the date of public notice of the
occurrence of a Change of Control or of the intention of the Company to effect a
Change of Control.
"Rating Decline" shall be deemed to have occurred if, no later than 90 days
after the Rating Date (which period shall be extended so long as the rating of
the Securities is under publicly announced consideration for possible downgrade
by any of the Rating Agencies), either of the Rating Agencies assigns or
reaffirms a rating to the Securities that is lower than the applicable Issue
Date Rating (or the equivalent thereof). If, prior to the Rating Date, either
of the ratings assigned to the Securities by the Rating Agencies is lower than
the applicable Issue Date Rating, then a Rating Decline will be deemed to have
occurred if such rating is not changed by the 90th day following the Rating
Date. A downgrade within rating categories, as well as between rating
categories, will be considered a Rating Decline.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money and proceeds
and products thereof in each case generated in the ordinary course of business.
"Redemption Date", when used with respect to any Security to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
<PAGE>
28
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"refinancing" has the meaning specified in Section 1010(b)(viii).
"Registered Exchange Offer" means the offer by the Company, pursuant to the
Registration Agreement, to certain Holders of Initial Securities, to issue and
deliver to such Holders, in exchange for the Initial Securities, a like
aggregate principal amount of Exchange Securities registered under the
Securities Act.
"Registration Agreement" means the Registration Agreement dated April 23,
1998, between the Company and the Initial Purchasers relating to the Initial
Securities.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the April 15 or October 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Security" has the meaning specified in Section 303.
"Required Filing Dates" has the meaning specified in Section 1007.
"Responsible Officer", when used with respect to the Trustee, means any
officer within the Trustee's Corporate Trust Office, including any vice
president, the Managing Director, the secretary, any assistant secretary, any
assistant treasurer, or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers,
and also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Payment" has the meaning specified in Section 1012.
"Restricted Subsidiary" means (a) a Subsidiary of the Company or of a
Restricted Subsidiary that has not been designated or classified as an
Unrestricted Subsidiary pursuant to and in compliance with Section 1019 and (b)
an
<PAGE>
29
Unrestricted Subsidiary that is redesignated as a Restricted Subsidiary pursuant
to such Section.
"Restricted Subsidiary Guarantee" means a supplemental indenture to this
Indenture in substantially the form set forth in Exhibit B hereto, providing for
an unconditional Guarantee of payment in full of the principal of, premium, if
any, and interest on the Securities. Any such Restricted Subsidiary Guarantee
shall not be subordinate to any Debt of the Restricted Subsidiary providing the
Restricted Subsidiary Guarantee.
"Revocation" has the meaning specified in Section 1019.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Global Security" has the meaning specified in Section 303.
"S&P" means Standard & Poor's Ratings Service or, if Standard & Poor's
Ratings Service shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
-------- -------
that if Standard & Poor's Rating Service ceases rating debt securities having a
maturity at original issuance of at least one year and its ratings business with
respect thereto shall not have been transferred to any successor Person, then
"S&P" shall mean any other national recognized rating agency (other than
Moody's) that rates debt securities having a maturity at original issuance of at
least one year and that shall have been designated by the Trustee by a written
notice given to the Company.
"Sale and Leaseback Transaction" of any Person means any direct or indirect
arrangement pursuant to which any Property is sold or transferred by such Person
or a Restricted Subsidiary of such person and is thereafter leased back from the
purchaser or transferee thereof by such Person or one of its Restricted
Subsidiaries. The stated maturity of such arrangement shall be the date of the
last payment of rent or any other amount due under such arrangement prior to the
first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
<PAGE>
30
"Securities Act" means the Securities Act of 1933, as amended (or any
successor act), and the rules and regulations thereunder (or respective
successors thereto).
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Shelf Registration Statement" means a registration statement issued by the
Company in connection with the offer and sale of Initial Securities pursuant to
the Registration Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission.
"Special Assets" means (a) the Capital Stock or assets of Cable Michigan,
Inc., RCN Corporation, Commonwealth Telephone Enterprises, Inc., KCP, Inc. and
California Private Transportation Company, L.P. (and any intermediate holding
companies or other entities formed solely for the purpose of owning such Capital
Stock or assets) owned, directly or indirectly, by the Company or any Restricted
Subsidiary on the Issue Date, and (b) any Property, other than cash, Cash
Equivalents and Telecommunications/IS Assets, received as consideration for the
disposition after the Issue Date of Special Assets (as contemplated by the first
proviso in Section 1016).
"Special Interest" has the meaning specified in Exhibit A.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" when used with respect to a Security or any installment
of interest thereon, means the date specified in such Security as the fixed date
on which the principal of such Security or such installment of interest is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such Security at the
option of the Holder thereof upon the happening of any contingency beyond the
control of the Company unless such contingency has occurred).
"Subordinated Debt" means Debt of the Company (a) that is not secured by
any Lien on or with respect to any
<PAGE>
31
Property now owned or acquired after the Issue Date and (b) as to which the
payment of principal of (and premium, if any) and interest and other payment
obligations in respect of such Debt shall be subordinate to the prior payment in
full in cash of the Securities to at least the following extent: (i) no payments
of principal of (or premium, if any) or interest on or otherwise due (including
by acceleration or for additional amounts) in respect of, or repurchases,
redemptions or other retirements of, such Debt (collectively, "payments of such
Debt") may be permitted for so long as any default (after giving effect to any
applicable grace periods) in the payment of principal (or premium, if any) or
interest on the Securities exists, including as a result of acceleration; (ii)
in the event that any other Default exists with respect to the Securities, upon
notice by Holders of 25% or more in aggregate principal amount of the Securities
to the Trustee, the Trustee shall have the right to give notice to the Company
and the holders of such Debt (or trustees or agents therefor) of a payment
blockage, and thereafter no payments of such Debt may be made for a period of
179 days from the date of such notice, provided that not more than one such
payment blockage notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to the Securities during
such period; (iii) if payment of such Debt is accelerated when any Securities
are Outstanding, no payments of such Debt may be made until three Business Days
after the Trustee receives notice of such acceleration and, thereafter, such
payments may only be made to the extent the terms of such Debt permit payment at
that time; and (iv) such Debt may not (x) provide for payments of principal of
such Debt at the stated maturity thereof or by way of a sinking fund applicable
thereto or by way of any mandatory redemption, defeasance, retirement or
repurchase thereof by the Company (including any redemption, retirement or
repurchase which is contingent upon events or circumstances but excluding any
retirement required by virtue of acceleration of such Debt upon an event of
default thereunder), in each case prior to the final Stated Maturity of the
Securities or (y) permit redemption or other retirement (including pursuant to
an offer to purchase made by the Company) of such other Debt at the option of
the holder thereof prior to the final Stated Maturity of the Securities, other
than, in the case of clause (x) or (y), any such payment, redemption or other
retirement (including pursuant to an offer to purchase made by the Company)
which is conditioned upon (A) a change of control of the Company pursuant to
provisions substantially similar to those described Section 1009 (and which
shall provide that such Debt will not be repurchased pursuant to such provisions
<PAGE>
32
prior to the Company's repurchase of the Securities required to be repurchased
by the Company pursuant to the provisions described in Section 1009) or (B) a
sale or other disposition of assets pursuant to provisions substantially similar
to those described in Section 1016 (and which shall provide that such Debt will
not be repurchased pursuant to such provisions prior to the Company's repurchase
of the Securities required to be repurchased by the Company pursuant to the
provision described in Section 1016).
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Telecommunications/IS Assets" means (a) any Property (other than cash,
cash equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in the Telecommunications/IS Business; (b) for purposes of
Sections 1010 and 1014 only, Capital Stock of any Person; or (c) for all other
purposes of this Indenture, Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary from any Person other than an Affiliate of the
Company; provided, however, that, in the case of clause (b) or (c), such Person
-------- -------
is primarily engaged in the Telecommunications/IS Business.
"Telecommunications/IS Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) constructing, creating, developing
or marketing communications networks, related network transmission equipment,
software and other devices for use in a communications business, (iii) computer
outsourcing, data center management, computer systems integration, reengineering
of computer software for any purpose (including, without limitation, for the
purposes of porting computer software from one operating environment or computer
platform to another or to address issues commonly referred to as "Year 2000
issues") or (iv) evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in (i), (ii)
<PAGE>
33
or (iii) above; provided that the determination of what constitutes a
--------
Telecommunications/IS Business shall be made in good faith by the Board of
Directors.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force at the date as of which this Indenture was executed, except as provided in
Section 905.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Unrestricted Subsidiary" means (a) 91 Holding Corp.; (b) any Subsidiary of
an Unrestricted Subsidiary; and (c) any Subsidiary of the Company designated as
such pursuant to and in compliance with Section 1019 and not thereafter
redesignated as a Restricted Subsidiary as permitted pursuant thereto.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only for so long as
no senior class of securities has such voting power by reason of any
contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Voting Stock or other ownership interests (other than
directors' qualifying shares) of which shall at the time be owned by such Person
or by one or more Wholly Owned Subsidiaries of such Person or by such Person and
one or more Wholly Owned Subsidiaries of such Person.
SECTION 102. Compliance Certificates and Opinions.
-------------------------------------
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture (including any covenant compliance with which
constitutes a condition
<PAGE>
34
precedent) relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
---------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable
<PAGE>
35
care should know, that the certificate or opinion or representations with
respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated (with
proper identification of each matter covered therein) and form one instrument.
SECTION 104. Acts of Holders.
----------------
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agents duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 601) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the
<PAGE>
36
authority of the Person executing the same, may also be proved in any other
manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held by any
Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such authorization, agreement or consent by
--------
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than six months
after the record date.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security. However, any such Holder or future Holder may revoke the request,
demand, authorization, direction, notice, consent, waiver or other Act of the
Holder as to such Holder's Security or portion of the
<PAGE>
37
Security if the Trustee receives the notice of revocation before the date such
Act becomes effective.
SECTION 105. Notices, etc., to Trustee and Company.
--------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Finance Department, or
(2) the Company or any Guarantor by the Trustee or by any Holder shall
be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid,
to the Company or such Guarantor addressed to it (in the case of a
Guarantor, in care of the Company) at the address of the Company's
principal office specified in the first paragraph of this Indenture, or at
any other address previously furnished in writing to the Trustee by the
Company.
SECTION 106. Notice to Holders; Waiver.
--------------------------
Where this Indenture provides for notice of any event to Holders by the
Company or the Trustee, such notice shall be given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at the address of such Holder as it appears
in the Security Register, not later than the latest date, and not earlier than
the earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Notices shall be
effective only upon receipt. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
<PAGE>
38
In case by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
-----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
-----------------------
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
--------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
----------------------
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any
Security Registrar and their successors hereunder and the Holders any legal or
equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
--------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 112. Conflict with Trust Indenture Act.
----------------------------------
The Trust Indenture Act shall apply as a matter of contract to this
Indenture for purposes of interpretation, construction and defining the rights
and obligations
<PAGE>
39
hereunder. If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such provision or requirement of the Trust Indenture Act shall
control.
If any provision of this Indenture modifies or excludes any provision of
the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or excluded,
as the case may be.
SECTION 113. Legal Holidays.
---------------
In any case where any Interest Payment Date, Redemption Date, or Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity or Maturity; provided that no interest shall accrue for the
--------
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.
SECTION 114. No Personal Liability of Directors, Officers, Employees and
-----------------------------------------------------------
Stockholders.
- -------------
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Securities or this Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation,
solely by reason of its status as a director, officer, employee, incorporator or
stockholder of the Company or a Guarantor. By accepting a Security, each Holder
waives and releases all such liability (but only such liability). The waiver
and release are part of the consideration for issuance of the Securities.
SECTION 115. Independence of Covenants.
--------------------------
All covenants and agreements in this Indenture shall be given independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall
<PAGE>
40
not avoid the occurrence of a Default if such action is taken or condition
exists.
SECTION 116. Exhibits.
---------
All exhibits attached hereto are by this reference made a part hereof with
the same effect as if herein set forth in full.
SECTION 117. Counterparts.
-------------
This Indenture may be executed in any number of counterparts, each of which
shall be an original; but such counterparts shall together constitute but one
and the same instrument.
SECTION 118. Duplicate Originals.
--------------------
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
----------------
The Securities and the Trustee's certificate of authentication with respect
thereto shall be in substantially the form set forth in Exhibit A hereto, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture, and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any securities exchange or system
on which the Securities may be listed or eligible for trading or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities. Any portion of the text of
any Security may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange or system on which the Securities may be listed
or eligible for trading, all as determined by the
<PAGE>
41
officers of the Company executing such Securities, as evidenced by their
execution of such Securities.
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
----------------
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to $2,000,000,000, except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306,
906, 1009, 1016 or 1108.
The Securities shall be known and designated as the "9 1/8% Senior Notes
Due 2008" of the Company. Their Stated Maturity shall be May 1, 2008, and they
shall bear interest at the rate of 9 1/8% per annum from April 28, 1998, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, payable on November 1, 1998 and semiannually thereafter on May 1
and November 1 in each year and at said Stated Maturity, until the principal
thereof is paid or duly provided for.
Principal of, premium, if any, and interest on the Securities will be
payable, and the Securities may be exchanged or transferred, at the office or
agency of the Company in The City of New York, which, unless otherwise provided
by the Company, will be the offices of the Trustee. At the option of the
Company, interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Security Register.
The interest rate on the Securities is subject to increase by the addition
of Special Interest and otherwise, all as set forth or referred to in the text
of the Securities appearing in Exhibit A hereto.
The Securities shall be redeemable as provided in Article Eleven.
At the election of the Company, the entire Debt on the Securities or
certain of the Company's obligations and covenants and certain Events of Default
thereunder may be defeased as provided in Article Twelve.
<PAGE>
42
SECTION 302. Denominations.
--------------
The Securities will be issued without coupons and in fully registered form
only, in minimum denominations of $1,000 principal amount and integral multiples
thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
-----------------------------------------------
The Securities shall be executed on behalf of the Company by its Chairman,
its President or a Vice President, under its corporate seal reproduced thereon
and attested by its Secretary or an Assistant Secretary. The signature of any
of these officers on the Securities may be manual or facsimile signatures of the
present or any future such authorized officer and may be imprinted or otherwise
reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities, and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authenti cation substantially in the form provided for herein
duly executed by the Trustee by manual signature of an authorized signatory, and
such certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
The Trustee shall authenticate and deliver (1) initially one or more Global
Securities for original issue in an aggregate principal amount not to exceed
<PAGE>
43
$2,000,000,000 and (2) Exchange Securities for issue only in a Registered
Exchange Offer or a Private Exchange Offer pursuant to the Registration
Agreement, for a like principal amount of Initial Securities, upon receipt of a
Company Order, which shall specify the amount of Securities to be authenticated,
whether the Securities are to be Initial Securities or Exchange Securities, the
date on which such Securities are to be authenticated and direct the Trustee to
authenticate such Securities.
Except as described below, the Securities will be deposited with, or on
behalf of, the Depository, and registered in the name of Cede & Co. as the
Depository's nominee in the form of a global note certificate substantially in
the form of Exhibit A (the "Rule 144A Global Security"), for credit to the
respective accounts of the beneficial owners of the Securities represented
thereby.
Securities purchased by persons outside the United States pursuant to sales
in accordance with Regulation S under the Securities Act shall be deposited
with, or on behalf of, the Depository, and registered in the name of Cede & Co.
as the Depository's nominee in the form of one or more global note certificates
substantially in the form of Exhibit A (each a "Regulation S Global Security"),
for credit to the respective accounts of the beneficial owners of the Securities
represented thereby, provided that upon such deposit all such Securities shall
--------
be credited to or through accounts maintained at the Depository by or on behalf
of the Euroclear System or Cedel Bank, societe anonyme.
Securities transferred to Institutional Accredited Investors will be
deposited with, or on behalf of, the Depository, and registered in the name of
Cede & Co. as the Depository's nominee in the form of one or more global note
certificates substantially in the form of Exhibit A (each a "Institutional
Accredited Investor Global Security"), for credit to the respective accounts of
the beneficial owners of the Securities represented thereby.
Securities transferred to any persons who are not Qualified Institutional
Buyers or Institutional Accredited Investors (other than persons outside the
United States pursuant to sales or transfers in accordance with Regulation S
under the Securities Act) (collectively, "Non-Global Purchasers") will be issued
in registered definitive form without coupons substantially in the form of
Exhibit A (the "Physical Securities"). Upon the transfer to a Qualified
Institutional Buyer, an Institutional Accredited
<PAGE>
44
Investor or to a person outside the United States pursuant to a sale or transfer
in accordance with Regulation S under the Securities Act of Physical Securities
initially issued to a Non-Global Purchaser, such Physical Security will be
exchanged for an interest in a Global Security representing the principal amount
of Securities being transferred.
In case the Company, pursuant to Article Eight, shall be consolidated or
merged with or into any other Person or shall transfer, sell, lease, convey or
otherwise dispose of all or substantially all its assets to any other Person,
and the successor Person resulting from such consolidation, or surviving such
merger, or into which the Company shall have been merged, or the Person which
shall have received a transfer, sale, lease, conveyance or other disposition as
aforesaid, shall have executed an indenture supplemental hereto with the Trustee
pursuant to Article Eight, any of the Securities authenticated or delivered
prior to such consolidation, merger, transfer, sale, lease, conveyance or other
disposition may, from time to time, at the request of the successor Person, be
exchanged for other Securities executed in the name of the successor Person with
such changes in phraseology and form as may be appropriate, but otherwise in
substance of like tenor as the Securities surrendered for such exchange and of
like principal amount; and the Trustee, upon Company Request of the successor
Person, shall authenticate and deliver Securities as specified in such request
for the purpose of such exchange. If Securities shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Securities, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Securities at the time
Outstanding for Securities authenticated and delivered in such new name.
SECTION 304. Temporary Securities.
---------------------
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as conclusively evidenced by
their execution of such Securities.
<PAGE>
45
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
----------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as the Company may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Security
Register shall be in written form or any other form capable of being converted
into written form within a reasonable time. At all reasonable times, the
Security Register shall be open to inspection by the Trustee. The Trustee is
hereby initially appointed as security registrar (the "Security Registrar") for
the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at the office
or agency of the Company designated pursuant to Section 1002, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
<PAGE>
46
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Security Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any transfer tax or other similar governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 906, 1009, 1016 or
1108 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange any Security during a period beginning at the opening of business 15
days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of business on the day of such mailing of the relevant
notice of redemption or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
-------------------------------------------------
If (i) any mutilated Security is surrendered to the Trustee or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity sufficient to save each of
them harmless, then, in the absence of actual notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
<PAGE>
47
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other similar
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
-----------------------------------------------
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 1002;
provided, however, that each installment of interest may at the Company's option
- -------- -------
be paid by mailing a check for such interest, payable to or upon the written
order of the Person entitled thereto pursuant to Section 308, to the address of
such Person as it appears in the Security Register.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of such Holder having
been a Holder on the Regular Record Date, and such defaulted interest and (to
the extent lawful) interest on such defaulted interest at the rate borne by the
Securities
<PAGE>
48
(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") may be paid by the Company, at its election in each case,
as provided in paragraph (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date, and in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be given in the
manner provided for in Section 106, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so given, such
Defaulted Interest shall be paid to the Persons in whose names the
Securities (or their respective Predecessor Securities) are registered at
the close of business on such Special Record Date and shall no longer be
payable pursuant to the following paragraph (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange or system on which the Securities may be listed or
eligible for trading, and upon such notice as may be required by such
exchange or system, if, after notice given by the Company to the Trustee of
the proposed
<PAGE>
49
payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee in its sole discretion.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
----------------------
Prior to the due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Sections 305 and 307) interest on such Security and for all
other purposes whatsoever, whether or not such Security is overdue, and none of
the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
-------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company
<PAGE>
50
Order the Company shall direct that cancelled Securities be returned to it.
SECTION 310. Computation of Interest.
------------------------
Interest on the Securities shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
SECTION 311. CUSIP Number.
-------------
The Company in issuing the Securities may use a "CUSIP" number (if then
generally in use), and if so, the Trustee may use the CUSIP numbers in notices
of redemption or exchange as a convenience to Holders; provided, however, that
-------- -------
any such notice may state that no representation is made as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Securities, and
that reliance may be placed only on the other identification numbers printed on
the Securities. The Company shall promptly notify the Trustee in writing of any
change in the CUSIP number of the Securities.
SECTION 312. Book-Entry Provisions for Global Securities.
--------------------------------------------
(a) The Global Securities initially shall (i) be registered in the name of
the Depository or the nominee of such Depository, (ii) be deposited with the
Trustee as custodian for such Depository and (iii) bear legends as set forth in
Exhibit A.
Members of, or participants in, the Depository ("Agent Members") shall have
no rights under this Indenture with respect to any Global Security held on their
behalf by the Depository, or the Trustee as its custodian, or under the Global
Security, and the Depository may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of the Global Security
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall (i) prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or (ii) impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in whole,
but not in part, to the Depository, its successors or their respective nominees.
Interests of
<PAGE>
51
beneficial owners in a Rule 144A Global Security may be transferred or exchanged
for interests in an Institutional Accredited Investor Global Security or a
Regulation S Global Security, interests of beneficial owners in an Institutional
Accredited Investor Global Security may be transferred or exchanged for
interests in a Rule 144A Global Security or a Regulation S Global Security and
interests of beneficial owners in a Regulation S Global Security may be
transferred or exchanged for interests in a Rule 144A Global Security or an
Institutional Accredited Investor Global Security, in each case in accordance
with the rules and procedures of the Depository and the provisions of Section
313. Interests of beneficial owners in the Global Securities may be transferred
or exchanged for Physical Securities in accordance with the rules and procedures
of the Depository and the provisions of Section 313. In addition, Physical
Securities shall be transferred to all beneficial owners in exchange for their
beneficial interests in a Global Security if (i) the Depository notifies the
Company that it is unwilling or unable to continue as a depository for such
Global Security or if at any time the Depository ceases to be a clearing agency
registered under the Exchange Act, and a successor depository is not appointed
by the Company within 90 days, (ii) the Company executes and delivers to the
Trustee a notice that such Global Security shall be so transferable, registrable
and exchangeable, and such transfer shall be registrable, or (iii) there shall
have occurred and be continuing a Default or Event of Default with respect to
the Securities represented by such Global Security.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Security to beneficial owners pursuant to
paragraph (b), the Security Registrar shall (if one or more Physical Securities
are to be issued) reflect on its books and records the date and a decrease in
the principal amount of the Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more Physical Securities of like tenor and principal amount of authorized
denominations.
(d) In connection with the transfer of Global Securities as an entirety to
beneficial owners pursuant to paragraph (b), the Global Securities shall be
deemed to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the
<PAGE>
52
Global Securities, an equal aggregate principal amount of Physical Securities of
like tenor of authorized denominations.
(e) Any Physical Security delivered in exchange for an interest in a
Global Security pursuant to paragraph (b) or (c) of this Section 312 shall,
except as otherwise provided by paragraph (d) of Section 313, bear the legend
regarding transfer restrictions applicable to the Physical Securities set forth
in Exhibit A.
(f) The Holder of any Global Security may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
(g) In the event that a Global Security is exchanged for Physical
Securities pursuant to this Section 312 prior to the consummation of a
Registered Exchange Offer or the effectiveness of a Shelf Registration Statement
with respect to such Securities, such Securities may be exchanged only in
accordance with such procedures as are substantially consistent with the
provisions of Sections 312 and 313 (including the certification requirements set
forth on the reverse of the Initial Securities intended to ensure that such
transfers comply with Rule 144A, Regulation S or such other applicable exemption
from registration under the Securities Act, as the case may be) and such other
procedures as may from time to time be adopted by the Company.
SECTION 313. Special Transfer Provisions.
----------------------------
(a) Transfers to Non-QIB Institutional Accredited Investors. The
--------------------------------------------------------
following provisions shall apply with respect to the registration of any
proposed transfer of a Security to any Institutional Accredited Investor which
is not a QIB (excluding transfers to non-U.S. persons):
(1) The Security Registrar shall register the transfer of any Security
if (x) the requested transfer is not prior to that date which is two years
(or such shorter period as may be prescribed by Rule 144(k) under the
Securities Act or any successor provision thereunder) after the later of
the original issue date of such Security (or of any Predecessor Security)
or three months after the last day on which the Company or any Affiliate of
the Company was the owner of such Security or any Predecessor Security or
(y) such
<PAGE>
53
transfer is being made by a proposed transferor who has checked
the box provided for on the form of Security stating, or who has otherwise
advised the Company and the Security Registrar in writing, that the
transfer has been made to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and
the proposed transferee has delivered to the Security Registrar a
certificate containing certain representations and agreements (the form of
which certificate can be obtained from the Trustee or the Company),
provided that no Initial Foreign Purchaser or any foreign purchaser who has
purchased Securities from an Initial Foreign Purchaser or from any person
other than a QIB or an Institutional Accredited Investor pursuant to
paragraph (b) below shall be permitted to transfer any Securities so
purchased by it to an Institutional Accredited Investor pursuant to this
paragraph (a) prior to the date that is 40 days following the Issue Date.
(2) Subject to paragraph (1) above, if (i) the proposed transferee is
an Agent Member, and the Securities to be transferred consist of Physical
Securities which after transfer are to be evidenced by an interest in the
Institutional Accredited Investor Global Security, upon receipt by the
Security Registrar of instructions given in accordance with the
Depository's and the Security Registrar's procedures, the Security
Registrar shall reflect on the Security Register the date and an increase
in the principal amount of the Institutional Accredited Investor Global
Security in an amount equal to the principal amount of the Physical
Securities to be transferred, and the Trustee shall cancel the Physical
Securities so transferred, and (ii) the proposed transferor is an Agent
Member holding a beneficial interest in a Rule 144A Global Security or a
Regulation S Global Security, upon receipt by the Security Registrar of
instructions given in accordance with the Depository's and the Security
Registrar's procedures, the Security Registrar shall reflect on its books
and records the date of such transfer and (A) a decrease in the principal
amount of such Rule 144A Global Security or Regulation S Global Security,
as the case may be, in an amount equal to the principal amount of the
beneficial interest in a Global Security to be transferred, and (B) an
increase in the principal amount of an Institutional Accredited Investor
Global Security in an amount equal to the principal amount to be
transferred.
<PAGE>
54
(b) Transfers to Non-U.S. Persons. The following provisions shall apply
------------------------------
with respect to the registration of any proposed transfer of a Security to any
non-U.S. person:
(1) The Security Registrar shall register the transfer of any Security
if (x) the requested transfer is not prior to that date which is two years
(or such shorter period as may be prescribed by Rule 144(k) under the
Securities Act or any successor provision thereunder) after the later of
the original issue date of such Security (or of any Predecessor Security)
or three months after the last day on which the Company or any Affiliate of
the Company was the owner of such Security or any Predecessor Security or
(y) such transfer is being made by a proposed transferor who has checked
the box provided for on the form of Security stating, or who has otherwise
advised the Company and the Security Registrar in writing, that the
transfer has been made outside the U.S. in an offshore transaction within
the meaning of Regulation S in compliance with the exemption from
registration under the Securities Act provided by Rule 904 under the
Securities Act, provided that, if such transfer is being effected by an
Initial Foreign Purchaser or any foreign purchaser who has purchased
Securities from an Initial Foreign Purchaser or from any person other than
a QIB or an Institutional Accredited Investor pursuant to this paragraph
(b) prior to the date that is 40 days following the Issue Date, the
transferee shall have certified to the Company and the Trustee that such
transferee is a non-U.S. person (within the meaning of Regulation S) and
that such transferee is acquiring the Securities in an offshore transaction
(within the meaning of Regulation S).
(2) Subject to paragraph (1) above, if (i) the proposed transferee is
an Agent Member, and the Securities to be transferred consist of Physical
Securities which after transfer are to be evidenced by an interest in the
Regulation S Global Security, upon receipt by the Security Registrar of
instructions given in accordance with the Depository's and the Security
Registrar's procedures, the Security Registrar shall reflect on the
Security Register the date and an increase in the principal amount of the
Regulation S Global Security in an amount equal to the principal amount of
the Physical Securities to be transferred, and the Trustee shall cancel the
Physical Securities so transferred, and (ii) the proposed transferor is an
Agent Member holding a beneficial interest in a
<PAGE>
55
Rule 144A Global Security or an Institutional Accredited Investor Global
Security, upon receipt by the Security Registrar of instructions given in
accordance with the Depository's and the Security Registrar's procedures,
the Security Registrar shall reflect on its books and records the date of
such transfer and (A) a decrease in the principal amount of such Rule 144A
Global Security or Institutional Accredited Investor Global Security, as
the case may be, in an amount equal to the principal amount to be
transferred and (B) an increase in the principal amount of a Regulation S
Global Security in an amount equal to the principal amount to be
transferred.
(c) Transfers to QIBs. The following provisions shall apply with respect
------------------
to the registration of any proposed transfer of a Security to any QIB (excluding
transfers to non-U.S. persons):
(1) The Security Registrar shall register the transfer of any Security
if (x) the requested transfer is not prior to that date which is two years
(or such shorter period as may be prescribed by Rule 144(k) under the
Securities Act or any successor provision thereunder) after the later of
the original issue date of such Security (or of any Predecessor Security)
or three months after the last day on which the Company or any Affiliate of
the Company was the owner of such Security or any Predecessor Security or
(y) such transfer is being made by a proposed transferor who has checked
the box provided for on the form of Security stating, or who has otherwise
advised the Company and the Security Registrar in writing, that the
transfer has been made in compliance with the exemption from registration
under the Securities Act provided under Rule 144A to a transferee who has
signed the certification provided for on the form of Security stating, or
has otherwise advised the Company and the Security Registrar in writing,
that such transferee represents and warrants that it is purchasing the
Security for its own account or an account with respect to which it
exercises sole investment discretion and that each of it and any such
account is a QIB within the meaning of Rule 144A and is aware that the sale
to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such information and
that it is aware that the transferor is relying upon the foregoing
representations in order to
<PAGE>
56
claim the exemption from registration provided by Rule 144A.
(2) Subject to paragraph (1) above, if (i) the proposed transferee is
an Agent Member, and the Securities to be transferred consist of Physical
Securities which after transfer are to be evidenced by an interest in the
Rule 144A Global Security, upon receipt by the Security Registrar of
instructions given in accordance with the Depository's and the Security
Registrar's procedures, the Security Registrar shall reflect on the
Security Register the date and an increase in the principal amount of the
Rule 144A Global Security in an amount equal to the principal amount of the
Physical Securities to be transferred, and the Trustee shall cancel the
Physical Securities so transferred, and (ii) the proposed transferor is an
Agent Member holding a beneficial interest in an Institutional Accredited
Investor Global Security or a Regulation S Global Security, upon receipt by
the Security Registrar of instructions given in accordance with the
Depository's and the Security Registrar's procedures, the Security
Registrar shall reflect on its books and records the date of such transfer
and (A) a decrease in the principal amount of such Institutional Accredited
Investor Global Security or Regulation S Global Security, as the case may
be, in an amount equal to the principal amount to be transferred and (B) an
increase in the principal amount of a Rule 144A Global Security in an
amount equal to the principal amount to be transferred.
(d) Private Placement Legend. (1) Upon the registration of transfer,
-------------------------
exchange or replacement of Securities, the Security Registrar shall deliver only
Securities that bear the Private Placement Legend unless (i) the transfer or
exchange of Initial Securities contemplated by paragraph (d)(2) or (d)(3) below
has occurred or (ii) (x) the circumstances contemplated by clause (a)(1)(x),
(b)(1)(x) or (c)(1)(x) of this Section 313 exist and (y) there is delivered to
the Security Registrar and the Trustee an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(2) After a transfer of any Initial Securities during the period of
the effectiveness of a Shelf Registration Statement with respect to such
Initial
<PAGE>
57
Securities, all requirements pertaining to legends on such Initial Security
will cease to apply, the requirements requiring that any such Initial
Security be issued in global form will cease to apply, and an Initial
Security in certificated or global form without legends will be available
to the transferee of the Holder of such Initial Securities upon exchange of
such transferring Holder's certificated Initial Security. Upon the
occurrence of any of the circumstances described in this paragraph, the
Company will deliver an Officers' Certificate to the Trustee instructing
the Trustee to issue Securities without legends.
(3) Upon the consummation of a Registered Exchange Offer with respect
to the Initial Securities pursuant to which certain Holders of such Initial
Securities are offered Exchange Securities (other than Private Exchange
Securities) in exchange for their Initial Securities, all requirements
pertaining to such Initial Securities that Initial Securities be issued in
global form will cease to apply, and certificated Initial Securities with
the Private Placement Legend will be available to Holders of such Initial
Securities that do not exchange their Initial Securities, and Exchange
Securities in certificated or global form will be available to Holders that
exchange such Initial Securities in such Registered Exchange Offer. Upon
the occurrence of any of the circumstances described in this paragraph, the
Company will deliver an Officers' Certificate to the Trustee instructing
the Trustee to issue Securities without legends.
(4) Upon the consummation of a Private Exchange Offer with respect to
the Initial Securities pursuant to which Holders of such Initial Securities
are offered Private Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will
continue to apply, and Private Exchange Securities in global form will be
available to Holders that exchange such Initial Securities in such Private
Exchange Offer.
(e) Other Transfers. If a Holder proposes to transfer a Security pursuant
----------------
to any exemption from the registration requirements of the Securities Act other
than as provided for by Sections 313(a), 313(b) and 313(c) and other than
pursuant to Section 313(d)(4), the Security Registrar shall only register such
transfer or exchange if such transferor delivers to the Security Registrar and
the Trustee an
<PAGE>
58
Opinion of Counsel satisfactory to the Company and the Security Registrar that
such transfer is in compliance with the Securities Act and the terms of this
Indenture.
(f) General. By its acceptance of any Security bearing the Private
--------
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Security Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 312 or this Section
313 for a period of two years, during which time such letters, notices and other
written communications shall at the written request of the Company be delivered
to the Company. After retaining any such copies of letters, notices and other
written communications for a period of at least two years, all such copies may
be destroyed by the Trustee. The Company shall have the right to inspect and
make copies of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable prior written notice to the
Security Registrar.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
----------------------------------------
This Indenture shall cease to be of further effect (subject to Section 1206
and except as to surviving rights of registration of transfer, transfer,
exchange and replacement of Securities expressly provided for herein or pursuant
hereto) and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture when
(1) either
(a) all Outstanding Securities have been delivered to the Trustee
for cancellation; or
(b) all such Securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
<PAGE>
59
(ii) will become due and payable within one year, or
(iii) are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee in its sole
discretion for the giving of notice of redemption by the Trustee
in the name and at the expense of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee funds
in an amount sufficient to pay and discharge the entire indebtedness
on the Securities not theretofore delivered to the Trustee for
cancellation, for principal of (and premium, if any, on), and interest
on, the Securities to Maturity or the Redemption Date, as the case may
be;
(2) the Company has paid or caused to be paid all other sums payable
by the Company hereunder; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations under Sections 607 and 609 and, if money shall have been deposited
with the Trustee pursuant to clause (1)(b) of this Section 401, the obligations
of the Trustee under Section 402 and the last paragraph of Section 1003 shall
survive.
SECTION 402. Application of Trust Money.
---------------------------
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
<PAGE>
60
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
------------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) failure to pay principal of (or premium, if any, on) any Security
when due; or
(2) failure to pay any interest on any Security when due, continued
for 30 days; or
(3) default in the payment of principal of (and premium, if any) and
interest on Securities required to be purchased pursuant to an Offer to
Purchase pursuant to Section 1009 when due and payable; or
(4) failure to perform or comply with the provisions of Section 801,
803 or 1016; or
(5) failure to perform any covenant or agreement of the Company or any
Guarantor in this Indenture or in any Security (other than a covenant a
default in whose performance is elsewhere in this Section specifically
dealt with) continued for 60 days after written notice to the Company by
the Trustee or Holders of at least 25% in aggregate principal amount of the
Outstanding Securities, which notice shall specify the default and state
that such notice is a "Notice of Default" hereunder; or
(6) default under the terms of any instrument evidencing or securing
Debt of the Company or any Restricted Subsidiary having an outstanding
principal amount of not less than $25,000,000 or its foreign currency
equivalent at the time which default results in the acceleration of the
payment of such indebtedness or constitutes the failure to pay such
indebtedness when due (after expiration of any applicable grace period); or
<PAGE>
61
(7) the rendering of a judgment or judgments against the Company or
any Restricted Subsidiary in an aggregate amount in excess of $25,000,000
or its foreign currency equivalent at the time and shall not be waived,
satisfied or discharged for any period of 45 consecutive days during which
a stay of enforcement shall not be in effect; or
(8) any Restricted Subsidiary Guarantee ceases to be in full force and
effect (other than in accordance with the terms of such Restricted
Subsidiary Guarantee) or any Guarantor denies or disaffirms its obligations
under its Restricted Subsidiary Guarantee; or
(9) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Significant Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the Federal Bankruptcy Code
or any other applicable federal, state or foreign law, or appointing a
receiver, liquidator, assignee, trustee, custodian or sequestrator (or
other similar official) of the Company or any Significant Subsidiary or of
any substantial part of its Property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or
(10) the institution by the Company or any Significant Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other applicable
federal, state or foreign law, or the consent by it to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, custodian or sequestrator (or other similar official) of the
Company or any Significant Subsidiary or of any substantial part of its
Property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due.
<PAGE>
62
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
---------------------------------------------------
If an Event of Default (other than an Event of Default specified in Section
501(9) or 501(10) with respect to the Company) shall occur and be continuing,
the Trustee or the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities may declare the principal amount of all the
Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal amount shall become immediately due and payable. If an Event of
Default specified in Section 501(9) or 501(10) occurs with respect to the
Company, the principal amount of all the Securities shall ipso facto become
---- -----
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
At any time after a declaration of acceleration has been made and before a
judgment or decree for payment of the money due has been obtained by the Trustee
as hereinafter provided in this Article Five, the Holders of a majority in
aggregate principal amount of the Outstanding Securities, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Outstanding Securities,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal at
the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the nonpayment of amounts of
principal of (or premium, if
<PAGE>
63
any, on) Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- --------
The Company covenants that if
(a) default is made in the payment of any interest on any Security
when due, continued for 30 days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Security when due,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest,
at the rate borne by the Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in
<PAGE>
64
this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
---------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the Property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as herein expressed or by declaration or otherwise
and irrespective of whether the Trustee shall have made any demand on the
Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee and its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator or sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, and any
other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
<PAGE>
65
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
------------------------------------------------------------
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name and
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
-------------------------------
Any money collected by the Trustee pursuant to this Article Five shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 607;
SECOND: To the payment of the amounts then due and unpaid for principal of
(and premium, if any) and interest on the Securities in respect of which or for
the benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such
Securities for principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 507. Limitation on Suits.
--------------------
No Holder of any Securities shall have any right to institute any
proceeding with respect to this Indenture or for any other remedy hereunder,
unless
(1) such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default;
<PAGE>
66
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as
trustee; and
(3) the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the Outstanding Securities a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
------------------------------------------------------------
and Interest.
- -------------
Notwithstanding any other provision in this Indenture, including Section
507, the Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment as provided herein (including, if applicable,
Article Twelve) and in such Security of the principal of (and premium, if any)
and (subject to Section 307) interest on such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
-----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
<PAGE>
67
SECTION 510. Rights and Remedies Cumulative.
-------------------------------
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
-----------------------------
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article Five or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. Control by Holders.
-------------------
The Holders of a majority in aggregate principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided that
--------
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
<PAGE>
68
SECTION 513. Waiver of Past Defaults.
------------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities may, on behalf of the Holders of all the Securities,
waive any past Default hereunder and its consequences, except a Default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
The Company shall deliver to the Trustee an Officers' Certificate stating
that the requisite majority have consented to such waiver and attaching such
consents upon which, subject to Section 104, the Trustee may conclusively rely.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
---------------------------------
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it shall not hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law had been enacted.
<PAGE>
69
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
------------------------------------
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but, in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the effect of
paragraph (a) of this Section 601;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the
<PAGE>
70
Holders of a majority in principal amount of the Outstanding Securities
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or indemnity reasonably satisfactory to it
against such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section
601.
SECTION 602. Notice of Default.
------------------
If a Default occurs and is continuing, the Trustee shall transmit, in the
manner and to the extent provided in TIA Section 313(c), notice of such Default
within 60 days after it is known to any Responsible Officer of the Trustee or
written notice of it is received by the Trustee; provided, however, that, except
-------- -------
in the case of a Default in the payment of the principal of (or premium, if any)
or interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee, a
trust committee of directors or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders.
The Trustee is not required to take notice or deemed to have notice of
any Event of Default with respect to the Securities, except an Event of Default
under Section 501(1), (2), (3) or (4) hereof (provided that in the case of
Section 501(4), such Event of Default constitutes a failure to purchase
Securities pursuant to an Offer to Purchase pursuant to Section 1016), unless
the Trustee shall have received written notice at its Corporate Trust Office
(which notice shall reference the Securities, the Company and the Indenture) of
such Event of Default from the Company or any
<PAGE>
71
Holder or unless a Responsible Officer of the Trustee shall otherwise have
knowledge thereof.
SECTION 603. Certain Rights of Trustee.
--------------------------
Subject to Section 601 and to the provisions of TIA Sections 315(a) through
315(d):
(1) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, receive and rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee may act through counsel, agents, custodians and
nominees and shall not be responsible for the misconduct or negligence of
any such person appointed and supervised with due care and in good faith;
(6) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee security or indemnity reasonably satisfactory
to it against the
<PAGE>
72
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(7) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney; and
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture.
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Securities.
- -----------
The recitals contained herein and in the Securities, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder. The Trustee shall not be
accountable for the use or application by the Company of Securities or the
proceeds thereof.
SECTION 605. May Hold Securities.
--------------------
The Trustee, any Paying Agent, any Security Registrar or any other agent of
the Company or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Securities and, subject to TIA Sections 310(b)
and 311, may otherwise deal with the Company with the same rights it would have
if it were not Trustee, Paying Agent, Security Registrar or such other agent.
<PAGE>
73
SECTION 606. Money Held in Trust.
--------------------
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 607. Compensation and Reimbursement.
-------------------------------
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to the Trustee's negligence,
willful misconduct or bad faith; and
(3) to indemnify the Trustee and its directors, officers, employees
and agents for, and to hold them harmless against, any loss, liability or
expense incurred without negligence, willful misconduct or bad faith on the
part of any of them, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself or themselves against any claim or liability in connection with the
exercise or performance of any of its or their powers or duties hereunder.
The obligations of the Company under this Section 607 to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held
<PAGE>
74
in trust for the payment of principal of (and premium, if any, on) or interest
on particular Securities.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(9) or (10), the expenses (including
the reasonable charges and expenses of its counsel) of and the compensation for
such services are intended to constitute expenses of administration under any
applicable federal, state or foreign bankruptcy, insolvency or other similar
law.
The provisions of this Section 607 shall survive the termination of this
Indenture or the earlier resignation or removal of the Trustee.
SECTION 608. Corporate Trustee Required; Eligibility; Conflicting
----------------------------------------------------
Interests.
- ----------
(a) There shall be at all times a Trustee hereunder which shall be subject
to and comply with the provisions of Section 310(a)(1) of the Trust Indenture
Act and shall have a combined capital and surplus of at least $50,000,000. If
such Person publishes reports of condition at least annually, pursuant to law or
to the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then, for the purposes of this Section 608,
the combined capital and surplus of such Person shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time a Responsible Officer of the Trustee shall have
actual knowledge that the Trustee ceases to be eligible in accordance with the
provisions of this Section 608, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article Six.
(b) The Trustee shall be subject to and comply with Section 310(b) of the
Trust Indenture Act.
SECTION 609. Resignation and Removal; Appointment of Successor.
--------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article Six shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 610.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If the instrument of
<PAGE>
75
acceptance by a successor Trustee required by ection 610 shall not have been
delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of not
less than a majority in aggregate principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(2) the Trustee shall cease to be eligible under Section 608(a) and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee. If the
Company does not promptly appoint a successor Trustee after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
shall be appointed by Act of the Holders of a majority in aggregate principal
amount of the Outstanding Securities delivered to
<PAGE>
76
the Company and the retiring Trustee. In either case, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 106. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
(g) The retiring Trustee shall not be liable for any of the acts or
omissions of any successor Trustee appointed hereunder.
SECTION 610. Acceptance of Appointment by Successor.
---------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article Six.
<PAGE>
77
SECTION 611. Merger, Conversion, Consolidation or Succession to Business.
------------------------------------------------------------
Any Person into which the Trustee may be merged or converted or with which
it may be consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
all or substantially all of the corporate trust business of the Trustee, shall
be the successor of the Trustee hereunder; provided that such Person shall be
--------
otherwise qualified and eligible under this Article Six, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto. In case any Securities shall have been authenticated, but not delivered,
by the Trustee then in office, any successor by merger, conversion,
consolidation or transfer of assets to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
In case at that time any of the Securities shall not have been authenticated,
any successor Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in the name of the successor Trustee. In all such
cases such certificates shall have the full force and effect which this
Indenture provides that the certificate of authentication of the Trustee shall
have; provided, however, that the right to adopt the certificate of
-------- -------
authentication of any predecessor Trustee or to authenticate Securities in the
name of any predecessor Trustee shall apply only to its successor or successors
by merger, conversion, consolidation or transfer of assets.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
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Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that none of the Company or the Trustee or any agent
of either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
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SECTION 702. Reports by Trustee.
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Within 60 days after May 15 of each year commencing with the first May 15
after the first issuance of Securities, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such May 15 if required by TIA Section 313(a).
A copy of each such report at the time of its mailing to Holders shall be
filed with the Commission and the principal national securities exchange (if
any) on which the Securities are listed.
The Company shall notify a Responsible Officer of the Trustee if the
Securities become listed on any national securities exchange or of any delisting
thereof.
SECTION 703. Reports by Company.
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The Company shall file with the Trustee and deliver to the Holders of
Securities the reports and other information required to be provided by it
pursuant to Section 1007.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.
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The Company shall not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into any other Person or Persons or
permit any other Person to consolidate with or merge into the Company or (ii)
directly or indirectly, transfer, sell, lease, convey or otherwise dispose of
all or substantially all its assets to any other Person or Persons, unless:
(1) in a transaction in which the Company is not the surviving Person
or in which the Company transfers, sells, leases, conveys or otherwise
disposes of all or substantially all of its assets to any other Person, the
resulting, surviving or transferee Person (the "successor entity") is
organized under the laws of the United States of America or any State
thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture executed and delivered to the
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Trustee in form satisfactory to the Trustee, all of the Company's
obligations under this Indenture;
(2) immediately before and after giving effect to such transaction and
treating any Debt which becomes an obligation of the Company (or the
successor entity) or a Restricted Subsidiary as a result of such
transaction as having been Incurred by the Company or such Restricted
Subsidiary at the time of the transaction, no Default or Event of Default
shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company (or the successor entity) is equal to
or greater than that of the Company immediately prior to the transaction;
(4) immediately after giving effect to such transaction and treating
any Debt which becomes an obligation of the Company (or the successor
entity) or a Restricted Subsidiary as a result of such transaction as
having been Incurred by the Company or such Restricted Subsidiary at the
time of the transaction, the Company (or the successor entity) could Incur
at least $1.00 of additional Debt pursuant to the provisions of paragraph
(a) of Section 1010;
(5) if, as a result of any such transaction, Property of the Company
(or the successor entity) or any Restricted Subsidiary would become subject
to a Lien prohibited by the provisions of Section 1014, the Company (or the
successor entity) shall have secured the Securities as required by said
covenant;
(6) in the case of a transfer, sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company, such
assets shall have been transferred as an entirety or virtually as an
entirety to one Person and such Person shall have complied with all the
provisions of this paragraph; and
(7) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each in form and substance reasonably
satisfactory to the Trustee, stating that such consolidation, merger,
transfer, sale, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture, complies with this Article and that all
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conditions precedent herein provided for relating to such transaction have
been complied with, and, with respect to such Officers' Certificate,
setting forth the manner of determination of the Consolidated Net Worth, in
accordance with clause (3) of this Section 801, of the Company or, if
applicable, of the successor entity as required pursuant to the foregoing.
SECTION 802. Successor Company Substituted.
------------------------------
Upon any consolidation of the Company with or merger of the Company with or
into any other Person or any transfer, sale, lease, conveyance or other
disposition of all or substantially all the assets of the Company to any Person
or Persons in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such transfer,
sale, lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein, and the predecessor Company (which term shall for this
purpose mean the Person named as the "Company" in the first paragraph of this
Indenture or any successor Person which shall have become such in the manner
described in Section 801), except in the case of a lease, shall be released from
all its obligations and covenants under this Indenture and the Securities and
may be dissolved and liquidated.
SECTION 803. Guarantor May Consolidate, etc., Only on Certain Terms.
-------------------------------------------------------
The Company shall not permit any Guarantor to, in a single transaction or a
series of related transactions, (i) consolidate with or merge into any other
Person or Persons (other than the Company or another Guarantor) or permit any
other Person (other than the Company or another Guarantor) to consolidate with
or merge into such Guarantor or (ii) directly or indirectly, transfer, sell,
lease, convey or otherwise dispose of all or substantially all its assets to any
other Person or Persons (other than the Company or another Guarantor), unless:
(1) in a transaction in which such Guarantor is not the surviving
Person or in which such Guarantor transfers, sells, leases, conveys or
otherwise disposes of all or substantially all of its assets to any other
Person, the resulting, surviving or transferee Person (the "successor
guarantor") is organized under the laws
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of the United States of America or any State thereof or the District of
Columbia and shall expressly assume, by a supplemental indenture executed
and delivered to the Trustee in form satisfactory to the Trustee, all of
such Guarantor's obligations under this Indenture;
(2) immediately before and after giving effect to such transaction and
treating any Debt which becomes an obligation of the Company or a
Restricted Subsidiary (including the successor guarantor) as a result of
such transaction as having been Incurred by the Company or such Restricted
Subsidiary at the time of the transaction, no Default or Event of Default
shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company is equal to or greater than that of
the Company immediately prior to the transaction;
(4) immediately after giving effect to such transaction and treating
any Debt which becomes an obligation of the Company or a Restricted
Subsidiary (including the successor guarantor) as a result of such
transaction as having been Incurred by the Company or such Restricted
Subsidiary at the time of the transaction, the Company could Incur at least
$1.00 of additional Debt pursuant to the provisions of paragraph (a) of
Section 1010;
(5) if, as a result of any such transaction, Property of the Company
or any Restricted Subsidiary (including the successor guarantor) would
become subject to a Lien prohibited by the provisions of Section 1014, the
Company shall have secured the Securities as required by said covenant;
(6) in the case of a transfer, sale, lease, conveyance or other
disposition of all or substantially all of the assets of such Guarantor,
such assets shall have been transferred as an entirety or virtually as an
entirety to one Person and such Person shall have complied with all the
provisions of this paragraph; and
(7) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each in form and substance reasonably
satisfactory to the Trustee, stating that such consolidation, merger,
transfer, sale, lease, conveyance or other disposition and, if a
supplemental indenture is required in
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connection with such transaction, such supplemental indenture, complies
with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with, and, with respect to
such Officers' Certificate, setting forth the manner of determination of
the Consolidated Net Worth, in accordance with clause (3) of this Section
803, of such Guarantor or, if applicable, of the successor guarantor as
required pursuant to the foregoing.
SECTION 804. Successor Guarantor Substituted.
--------------------------------
Upon any consolidation of a Guarantor with or merger of a Guarantor with or
into any other Person or any transfer, sale, lease, conveyance or other
disposition of all or substantially all the assets of a Guarantor to any Person
or Persons in accordance with Section 803, the successor Person formed by such
consolidation or into which such Guarantor is merged or to which such transfer,
sale, lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, such Guarantor under
this Indenture with the same effect as if such successor Person had been named
as a Guarantor herein, and the predecessor Guarantor (which term shall for this
purpose mean the Person named as the "New Guarantor" in the first paragraph of
the applicable supplemental indenture or any successor Person which shall have
become such in the manner described in Section 803), except in the case of a
lease, shall be released from all its obligations and covenants under its
Restricted Subsidiary Guarantee and the Securities and may be dissolved and
liquidated.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
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The Company and the Trustee may, at any time and from time to time, without
notice to or consent of any Holders of Securities, enter into one or more
indentures supplemental hereto:
(1) to evidence the succession of another Person to the Company or a
Guarantor and the assumption by such successor of the covenants of the
Company or such Guarantor herein and in the Securities; or
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(2) to add to the covenants of the Company, for the benefit of the
Holders, or to surrender any right or power conferred upon the Company
hereby; or
(3) to add any additional Events of Default; or
(4) to provide for uncertificated Securities in addition to or in
place of certificated Securities; or
(5) to evidence and provide for the acceptance of appointment
hereunder of a successor Trustee pursuant to the requirements of Section
610; or
(6) to secure the Securities; or
(7) to comply with the Trust Indenture Act or the Securities Act
(including Regulation S promulgated thereunder); or
(8) to add additional Guarantees with respect to the Securities or to
release Guarantors from Restricted Subsidiary Guarantees as provided by the
terms of this Indenture; or
(9) to cure any ambiguity herein, to correct or supplement any
provision herein which may be inconsistent with any other provision herein,
or to add any other provision with respect to matters or questions arising
under this Indenture; provided such actions shall not adversely affect the
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interests of the Holders in any material respect.
SECTION 902. Supplemental Indentures With Consent of Holders.
------------------------------------------------
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, by Act of such Holders delivered to the
Company and the Trustee, the Company and the Trustee may enter into one or more
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
waiving or otherwise modifying in any manner the rights of the Holders, provided
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that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the principal amount thereof or the
interest thereon that would be due and payable upon the Stated Maturity
thereof, or change the place of payment where, or the coin or currency in
which, any Security or any premium or interest
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thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof; or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is necessary for any such
supplemental indenture or required for any waiver of compliance with
certain provisions of this Indenture or certain Defaults hereunder; or
(3) subordinate in right of payment, or otherwise subordinate, the
Securities to any other Debt; or
(4) except as otherwise provided herein, release any security interest
that may have been granted in favor of the Holders of the Securities; or
(5) reduce the premium payable upon the redemption of any Security nor
change the time at which any Security may be redeemed, as described in
Exhibit A; or
(6) reduce the premium payable upon a Change of Control Triggering
Event or, at any time after a Change of Control Triggering Event has
occurred, change the time at which the Offer to Purchase relating thereto
must be made or at which the Securities must be repurchased pursuant to
such Offer to Purchase; or
(7) at any time after the Company is obligated to make an Offer to
Purchase with the Net Available Proceeds from Asset Dispositions, change
the time at which such Offer to Purchase must be made or at which the
Securities must be repurchased pursuant thereto; or
(8) make any change in any Restricted Subsidiary Guarantee that would
adversely affect the Holders of the Securities; or
(9) modify any provision of this Section 902 (except to increase any
percentage set forth herein).
It shall not be necessary for any Act of Holders under this Section 902 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
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SECTION 903. Execution of Supplemental Indentures.
-------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article Nine or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture and an Officers' Certificate stating that all
conditions precedent to the execution of such supplemental indenture have been
fulfilled. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
----------------------------------
Upon the execution of any supplemental indenture under this Article Nine,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
------------------------------------
Every supplemental indenture executed pursuant to this Article Nine shall
conform as a matter of contract or law to the requirements of the Trust
Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
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Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may bear a notation in form
approved by the Trustee and the Company as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Securities so
modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
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SECTION 907. Notice of Supplemental Indentures.
----------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to this Article Nine, the Company shall give
notice thereof to the Holders of each Outstanding Security affected, in the
manner provided for in Section 106, setting forth in general terms the substance
of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
----------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that it
shall duly and punctually pay the principal of (and premium, if any) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
SECTION 1002. Maintenance of Office or Agency.
--------------------------------
The Company shall maintain in The City of New York an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Corporate Trust Office of the Trustee shall be
such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company shall give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Securities may be
presented or surrendered for any or all such purposes and may from time to time
rescind any such designation; provided, however,
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that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in The City of New York for
such purposes. The Company shall give prompt written notice to the Trustee of
any such designation or rescission and any change in the location of any such
other office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
------------------------------------------------
If the Company shall at any time act as its own Paying Agent, it shall, on
or before each due date of the principal of (or premium, if any) or interest on
any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of (or premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and shall promptly notify
the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it shall, on or before each due date of the principal of (or
premium, if any) or interest on any Securities, deposit with a Paying Agent a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 1003,
that such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal, premium, if any, or interest;
(3) at any time during the continuance of any such default, upon the
written request of the Trustee,
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forthwith pay to the Trustee all sums so held in trust by such Paying
Agent; and
(4) indemnify the Trustee and its officers, directors, employees and
agents against any loss, cost or liability caused by, or incurred as a
result of, such Paying Agent's acts or omissions.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
sums.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
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required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1004. Corporate Existence.
--------------------
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary of the Company; provided, however, that the Company shall not be
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required to preserve, with respect to
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the Company, any such right or franchise or, with respect to any such Subsidiary
(subject to all the other covenants in this Indenture), any such corporate
existence, right or franchise, if the Board of Directors shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company and its Subsidiaries as a whole and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 1005. Maintenance of Properties.
--------------------------
The Company shall cause all properties owned by the Company or any
Restricted Subsidiary or used or held for use in the conduct of its business or
the business of any Restricted Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and shall cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
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nothing in this Section 1005 shall prevent the Company from discontinuing the
maintenance of any of such properties if such discontinuance is, in the judgment
of the Company, desirable in the conduct of its business or the business of any
Subsidiary and not disadvantageous in any material respect to the Holders.
SECTION 1006. Insurance.
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The Company shall at all times keep all of its and its Restricted
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by companies similarly
situated and owning like properties.
SECTION 1007. Reports.
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Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company shall file with
the Commission the annual reports, quarterly reports and other documents which
the Company would have been required to file with the Commission pursuant to
such Section 13(a) or 15(d) or any successor provision thereto if the Company
were subject thereto, such documents to be filed with the Commission on or prior
to the respective dates (the "Required Filing
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Dates") by which the Company would have been required to file them. The Company
shall also in any event (a) within 15 days of each Required Filing Date (i)
transmit by mail to all Holders, as their names and addresses appear in the
Security Register, without cost to such Holders, and (ii) file with the Trustee
copies of the annual reports, quarterly reports and other documents (without
exhibits) which the Company would have been required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act or any successor
provisions thereto if the Company were subject thereto and (b) if filing such
documents by the Company with the Commission is not permitted under the Exchange
Act, promptly upon written request, supply copies of such documents (without
exhibits) to any prospective Holder.
SECTION 1008. Statement by Officers as to Default.
------------------------------------
(a) The Company shall deliver to the Trustee, on the date of delivery of
each annual report to be delivered pursuant to Section 1007, a brief certificate
from the principal executive officer, principal financial officer or principal
accounting officer as to his or her knowledge of the Company's compliance during
the period covered by such report with all conditions and covenants under this
Indenture. If the signer has knowledge of any noncompliance that occurred
during such period, the certificate shall describe its status and what action
the Company has taken or is taking or proposes to take with respect thereto.
For purposes of this Section 1008(a), such compliance shall be determined
without regard to any period of grace or requirement of notice under this
Indenture.
(b) When any Default has occurred and is continuing under this Indenture,
or if the trustee for or the holder of any other evidence of Debt of the Company
or any Restricted Subsidiary gives any notice or takes any other action with
respect to a claimed default (other than with respect to Debt in the principal
amount of less than $25,000,000 or its foreign currency equivalent at the time),
the Company shall, within 30 days of such occurrence, notice or other action,
deliver to the Trustee by registered or certified mail or by telegram, telex or
facsimile transmission an Officers' Certificate specifying such event, notice or
other action, its status and what action the Company is taking or purposes to
take with respect thereto.
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SECTION 1009. Change of Control Triggering Event.
-----------------------------------
(a) Upon the occurrence of a Change of Control Triggering Event, each
Holder shall have the right to require that the Company repurchase such Holder's
Securities in whole or in part in integral multiples of $1,000, in accordance
with the procedures set forth in this Section 1009 and this Indenture.
(b) Within 30 days of the occurrence of both a Change of Control and a
Rating Decline with respect to the Securities (a "Change of Control Triggering
Event"), the Company will be required to make an Offer to Purchase all
Outstanding Securities at a price in cash equal to 101% of the principal amount
of the Securities on the purchase date, plus accrued and unpaid interest (if
any) to such purchase date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
(c) The Company and the Trustee shall perform their respective obligations
for the Offer to Purchase as specified in the Offer. Prior to the Purchase
Date, the Company shall (i) accept for payment Securities or portions thereof
tendered pursuant to the Offer, (ii) irrevocably deposit with the Paying Agent
(or, if the Company is acting as its own Paying Agent, segregate and hold in
trust as provided in Section 1003) money sufficient to pay the Purchase Price of
all Securities or portions thereof so accepted (provided that such deposit may
be made no later than 11:00 A.M. New York City time on the Purchase Date if the
Company elects) and (iii) deliver or cause to be delivered to the Trustee all
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail or deliver to Holders of Securities so accepted
payment in an amount equal to the Purchase Price, and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security or Securities
equal in principal amount to any unpurchased portion of the Security surrendered
as requested by the Holder. Any Security not accepted for payment shall be
promptly mailed or delivered by the Company to the Holder thereof. In the event
that the aggregate Purchase Price is less than the amount delivered by the
Company to the Trustee or the Paying Agent, the Trustee or the Paying Agent, as
the case may be, shall deliver the excess to the Company immediately after the
Purchase Date.
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(d) A "Change of Control" means the occurrence of any of the following
events:
(i) if any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act or any successor provisions to either
of the foregoing), including any group acting for the purpose of acquiring,
holding, voting or disposing of securities within the meaning of Rule 13d-
5(b)(1) under the Exchange Act, other than any one or more of the Permitted
Holders, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, except that a person will be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of 35% or more of the total voting power of
the Voting Stock of the Company; provided, however, that the Permitted
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Holders are the "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act, except that a person will be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, in the aggregate of a lesser percentage of
the total voting power of the Voting Stock of the Company than such other
person or group (for purposes of this clause (i), such person or group
shall be deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as such person or group beneficially owns, directly
or indirectly, in the aggregate a majority of the total voting power of the
Voting Stock of such parent corporation); or
(ii) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Restricted Subsidiary or one or more Permitted
Holders) shall have occurred; or
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election or appointment by such board or whose
nomination for election by the
<PAGE>
93
shareholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board of
Directors then in office; or
(iv) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
(e) The Company shall not be required to make an Offer to Purchase upon a
Change of Control Triggering Event if a third party makes the Offer to Purchase
in the manner, at the times and otherwise in compliance with the requirements
set forth in this Indenture applicable to an Offer to Purchase made by the
Company and purchases all Securities validly tendered and not withdrawn under
such Offer to Purchase.
(f) In the event that the Company makes an Offer to Purchase the
Securities, the Company shall comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Section, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Section by
virtue thereof.
SECTION 1010. Limitation on Consolidated Debt.
--------------------------------
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, Incur any Debt, unless, after giving pro forma
effect to such Incurrence and the receipt and application of the net proceeds
thereof, no Default or Event of Default would occur as a consequence of such
Incurrence or be continuing following such Incurrence and either (i) the ratio
of (A) the aggregate consolidated principal amount (or, in the case of Debt
issued at a discount, the then-Accreted Value) of Debt of the Company
outstanding as of the most recent available quarterly or annual balance sheet,
after giving pro forma effect to the Incurrence of such Debt and any other Debt
Incurred or repaid since such balance sheet date and the receipt and application
of the net proceeds thereof, to (B) Consolidated Cash Flow Available for Fixed
Charges for the four full fiscal quarters next preceding the
<PAGE>
94
Incurrence of such Debt for which consolidated financial statements are
available, would be less than 5.0 to 1.0, or (ii) the Company's Consolidated
Capital Ratio as of the most recent available quarterly or annual balance sheet,
after giving pro forma effect to (x) the Incurrence of such Debt and any other
Debt Incurred or repaid since such balance sheet date, (y) the issuance of any
Capital Stock (other than Disqualified Stock) of the Company since such balance
sheet date, including the issuance of any Capital Stock to be issued
concurrently with the Incurrence of such Debt, and (z) the receipt and
application of the net proceeds of such Debt or Capital Stock, as the case may
be, is less than 2.25 to 1.0.
(b) Notwithstanding the foregoing limitation, the Company or any
Restricted Subsidiary may Incur any and all of the following (each of which
shall be given independent effect):
(i) Debt under the Securities, this Indenture or any Restricted
Subsidiary Guarantee;
(ii) Debt under Credit Facilities in an aggregate principal amount
outstanding or available (together with all refinancing Debt outstanding or
available pursuant to clause (viii) below in respect of Debt previously Incurred
pursuant to this clause (ii)) at any one time not to exceed the greater of (x)
$750,000,000, which amount shall be permanently reduced by the amount of Net
Available Proceeds used to repay Debt under the Credit Facilities, and not
reinvested in Telecommunications/IS Assets or used to purchase Securities or
repay other Debt, pursuant to and as permitted by Section 1016, and (y) 85% of
the Eligible Receivables;
(iii) Purchase Money Debt, provided that the amount of such Purchase Money
--------
Debt does not exceed 100% of the cost of the construction, installation,
acquisition, lease, development or improvement of the applicable
Telecommunications/IS Assets;
(iv) Subordinated Debt of the Company; provided, however, that the
-------- -------
aggregate principal amount of such Debt, together with any other outstanding
Debt Incurred pursuant to this clause (iv), shall not exceed $500,000,000 at any
one time (which amount shall be permanently reduced by the amount of Net
Available Proceeds used to repay Subordinated Debt of the Company, and not
reinvested in Telecommunications/IS Assets or used to purchase Securities or
repay other Debt, pursuant to and as permitted by
<PAGE>
95
Section 1016), except to the extent such Debt in excess of $500,000,000 (A) is
subordinated to all other Debt of the Company other than Debt Incurred pursuant
to this clause (iv) in excess of such $500,000,000 limitation, (B) does not
provide for the payment of cash interest on such Debt prior to the Stated
Maturity of the Securities and (C) (1) does not provide for payments of
principal of such Debt at stated maturity or by way of a sinking fund applicable
thereto or by way of any mandatory redemption, defeasance, retirement or
repurchase thereof by the Company (including any redemption, retirement or
repurchase which is contingent upon events or circumstances, but excluding any
retirement required by virtue of the acceleration of any payment with respect to
such Debt upon any event of default thereunder), in each case on or prior to the
Stated Maturity of the Securities, and (2) does not permit redemption or other
retirement (including pursuant to an offer to purchase made by the Company) of
such Debt at the option of the holder thereof on or prior to the Stated Maturity
of the Securities;
(v) Debt outstanding on the Issue Date;
(vi) Debt owed by the Company to any Restricted Subsidiary of the Company
or Debt owed by a Restricted Subsidiary of the Company to the Company or a
Restricted Subsidiary of the Company; provided, however, that (x) upon the
-------- -------
transfer, conveyance or other disposition by such Restricted Subsidiary or the
Company of any Debt so permitted to a Person other than the Company or another
Restricted Subsidiary of the Company or (y) if for any reason such Restricted
Subsidiary ceases to be a Restricted Subsidiary, the provisions of this clause
(vi) shall no longer be applicable to such Debt and such Debt shall be deemed to
have been Incurred by the issuer thereof at the time of such transfer,
conveyance or other disposition or when such Restricted Subsidiary ceases to be
a Restricted Subsidiary;
(vii) Debt Incurred by a Person prior to the time (A) such Person became a
Restricted Subsidiary, (B) such Person merges into or consolidates with a
Restricted Subsidiary or (C) another Restricted Subsidiary merges into or
consolidates with such Person (in a transaction in which such Person becomes a
Restricted Subsidiary), which Debt was not Incurred in anticipation of such
transaction and was outstanding prior to such transaction;
(viii) Debt Incurred to renew, extend, refinance, defease, repay, prepay,
repurchase, redeem, retire, exchange
<PAGE>
96
or refund (each, a "refinancing") Debt Incurred pursuant to clause (i), (ii),
(iii), (v) or (vii) of this paragraph (b) or this clause (viii), in an aggregate
principal amount (or if issued at a discount, the then-Accreted Value) not to
exceed the aggregate principal amount (or if issued at a discount, the then-
Accreted Value) of and accrued interest on the Debt so refinanced plus the
amount of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt so refinanced or the amount of any premium
reasonably determined by the Board of Directors as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated repurchase, plus
the expenses of the Company Incurred in connection with such refinancing;
provided, however, that (A) the refinancing Debt shall not be senior in right of
- -------- -------
payment to the Debt that is being refinanced and (B) in the case of any
refinancing of Debt Incurred pursuant to clause (i), (v) or (vii) or, if such
Debt previously refinanced Debt Incurred pursuant to any such clause, this
clause (viii), the refinancing Debt by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt is issued, (x) does not
provide for payments of principal of such Debt at stated maturity or by way of a
sinking fund applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof by the Company (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of the
acceleration of any payment with respect to such Debt upon any event of default
thereunder), in each case prior to the time the same are required by the terms
of the Debt being refinanced and (y) does not permit redemption or other
retirement (including pursuant to an offer to purchase made by the Company) of
such Debt at the option of the holder thereof prior to the time the same are
required by the terms of the Debt being refinanced, other than, in the case of
clause (x) or (y), any such payment, redemption or other retirement at the
option of the holder of such Debt (including pursuant to an offer to purchase
made by the Company) which is conditioned upon a change of control pursuant to
provisions substantially similar to those described under Section 1009;
(ix) Debt (A) in respect of performance, surety or appeal bonds,
Guarantees, letters of credit or reimbursement obligations Incurred or provided
in the ordinary course of business securing the performance of contractual,
franchise, lease, self-insurance or license obligations and not in connection
with the Incurrence of Debt or (B) in respect of customary agreements providing
for indemnification, adjustment of purchase price after closing, or similar
<PAGE>
97
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any such obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, Incurred in connection with
the disposition of any business, assets or Restricted Subsidiary of the Company
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary of the Company for
the purpose of financing such acquisition) and in an aggregate principal amount
not to exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition;
(x) Debt consisting of Permitted Interest Rate or Currency Protection
Agreements; and
(xi) Debt not otherwise permitted to be Incurred pursuant to clauses (i)
through (x) above, which, together with any other outstanding Debt Incurred
pursuant to this clause (xi), has an aggregate principal amount not in excess of
$50,000,000 at any time outstanding.
(c) Notwithstanding any other provision of this Section 1010, the maximum
amount of Debt that the Company or a Restricted Subsidiary may Incur pursuant to
this Section 1010 shall not be deemed to be exceeded due solely to the result of
fluctuations in the exchange rates of currencies.
(d) For purposes of determining any particular amount of Debt under this
Section 1010, (i) Guarantees, Liens or obligations with respect to letters of
credit supporting Debt otherwise included in the determination of such
particular amount shall not be included and (ii) any Liens granted for the
benefit of the Securities pursuant to the provisions referred to in the first
paragraph of Section 1014 shall not be treated as Debt. For purposes of
determining compliance with this Section 1010, in the event that an item of Debt
meets the criteria of more than one of the types of Debt described in the above
clauses, the Company, in its sole discretion, shall classify such item of Debt
and only be required to include the amount and type of such Debt in one of such
clauses.
<PAGE>
98
SECTION 1011. Limitation on Debt of Restricted Subsidiaries.
----------------------------------------------
The Company shall not permit any Restricted Subsidiary that is not a
Guarantor to Incur any Debt except any and all of the following (each of which
shall be given independent effect):
(i) Restricted Subsidiary Guarantees;
(ii) Debt outstanding on the Issue Date;
(iii) Debt of Restricted Subsidiaries under Credit Facilities permitted to
be Incurred pursuant to clause (ii) of paragraph (b) of Section 1010;
(iv) Purchase Money Debt of Restricted Subsidiaries permitted to be
Incurred pursuant to clause (iii) of paragraph (b) of Section 1010;
(v) Debt owed by a Restricted Subsidiary to the Company or a Restricted
Subsidiary of the Company permitted to be Incurred pursuant to clause (vi) of
paragraph (b) of Section 1010;
(vi) Debt of Restricted Subsidiaries consisting of Permitted Interest
Rate or Currency Protection Agreements permitted to be Incurred pursuant to
clause (x) of paragraph (b) of Section 1010;
(vii) Debt of Restricted Subsidiaries permitted to be Incurred under
clause (vii) of paragraph (b) of Section 1010;
(viii) Debt of Restricted Subsidiaries permitted to be Incurred under
clause (ix) or (xi) of paragraph (b) of Section 1010; and
(ix) Debt which is Incurred to refinance any Debt of a Restricted
Subsidiary permitted to be Incurred pursuant to clauses (i), (ii), (iii), (iv)
and (vii) of this paragraph or this clause (ix), in an aggregate principal
amount (or if issued at a discount, the then-Accreted Value) not to exceed the
aggregate principal amount (or if issued at a discount, the then-Accreted Value)
of the Debt so refinanced, plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Debt so refinanced
or the amount of any premium reasonably determined by the Board of Directors as
necessary to accomplish such refinancing by means of a tender offer or
<PAGE>
99
privately negotiated repurchase, plus the amount of expenses of the Company and
the applicable Restricted Subsidiary Incurred in connection therewith; provided,
--------
however, that, in the case of any refinancing of Debt Incurred pursuant to
- -------
clause (i), (ii) or (vii) or, if such Debt previously refinanced Debt Incurred
pursuant to any such clause, this clause (ix), the refinancing Debt by its
terms, or by the terms of any agreement or instrument pursuant to which such
Debt is Incurred, (x) does not provide for payments of principal at the stated
maturity of such Debt or by way of a sinking fund applicable to such Debt or by
way of any mandatory redemption, defeasance, retirement or repurchase of such
Debt by the Company or any Restricted Subsidiary (including any redemption,
retirement or repurchase which is contingent upon events or circumstances, but
excluding any retirement required by virtue of acceleration of such Debt upon an
event of default thereunder), in each case prior to the time the same are
required by the terms of the Debt being refinanced and (y) does not permit
redemption or other retirement (including pursuant to an offer to purchase made
by the Company or a Restricted Subsidiary) of such Debt at the option of the
holder thereof prior to the stated maturity of the Debt being refinanced, other
than, in the case of clause (x) or (y), any such payment, redemption or other
retirement (including pursuant to an offer to purchase made by the Company or a
Restricted Subsidiary) which is conditioned upon the change of control of the
Company pursuant to provisions substantially similar to those contained in
Section 1009.
Notwithstanding any other provision of this Section 1011, the maximum
amount of Debt that a Restricted Subsidiary may Incur pursuant to this Section
1011 shall not be deemed to be exceeded due solely as the result of fluctuations
in the exchange rates of currencies.
For purposes of determining any particular amount of Debt under this
Section 1011, Guarantees, Liens or obligations with respect to letters of credit
supporting Debt otherwise included in the determination of such particular
amount shall not be included. For purposes of determining compliance with this
Section 1011, in the event that an item of Debt meets the criteria of more than
one of the types of Debt described in the above clauses, the Company, in its
sole discretion, shall classify such item of Debt and only be required to
include the amount and type of such Debt in one of such clauses.
<PAGE>
100
SECTION 1012. Limitation on Restricted Payments.
----------------------------------
(a) The Company (i) shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, declare or pay any dividend, or make any
distribution, in respect of its Capital Stock or to the holders thereof,
excluding any dividends or distributions which are made solely to the Company or
a Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly
Owned Subsidiary, to the other stockholders of such Restricted Subsidiary on a
pro rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis) or any dividends or distributions payable
solely in shares of Capital Stock of the Company (other than Disqualified Stock)
or in options, warrants or other rights to acquire Capital Stock of the Company
(other than Disqualified Stock); (ii) shall not, and shall not permit any
Restricted Subsidiary to, purchase, redeem, or otherwise retire or acquire for
value (x) any Capital Stock of the Company or any Restricted Subsidiary of the
Company or (y) any options, warrants or rights to purchase or acquire shares of
Capital Stock of the Company or any Restricted Subsidiary or any securities
convertible or exchangeable into shares of Capital Stock of the Company or any
Restricted Subsidiary, except, in any such case, any such purchase, redemption
or retirement or acquisition for value (A) paid to the Company or a Restricted
Subsidiary (or, in the case of any such purchase, redemption or other retirement
or acquisition for value with respect to a Restricted Subsidiary that is not a
Wholly Owned Subsidiary, to the other stockholders of such Restricted Subsidiary
on a pro rata basis or on a basis that results in the receipt by the Company or
a Restricted Subsidiary of payments of greater value than it would receive on a
pro rata basis) or (B) paid solely in shares of Capital Stock (other than
Disqualified Stock) of the Company; (iii) shall not make, or permit any
Restricted Subsidiary to make, any Investment (other than an Investment in the
Company or a Restricted Subsidiary or a Permitted Investment) in any Person,
including the Designation of any Restricted Subsidiary as an Unrestricted
Subsidiary, or the Revocation of any such Designation, according to Section
1019; (iv) shall not, and shall not permit any Restricted Subsidiary to, redeem,
defease, repurchase, retire or otherwise acquire or retire for value, prior to
any scheduled maturity, repayment or sinking fund payment, Debt of the Company
which is subordinate in right of payment to the Securities (other than any
redemption, defeasance, repurchase, retirement or other acquisition or
retirement for value made in
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101
anticipation of satisfying a scheduled maturity, repayment or sinking fund
obligation due within one year thereof); and (v) shall not, and shall not permit
any Restricted Subsidiary to, issue, transfer, convey, sell or otherwise dispose
of Capital Stock of any Restricted Subsidiary to a Person other than the Company
or another Restricted Subsidiary if the result thereof is that such Restricted
Subsidiary shall cease to be a Restricted Subsidiary, in which event the amount
of such "Restricted Payment" shall be the Fair Market Value of the remaining
interest, if any, in such former Restricted Subsidiary held by the Company and
the other Restricted Subsidiaries (each of clauses (i) through (v) being a
"Restricted Payment") if: (1) an Event of Default, or an event that with the
passing of time or the giving of notice, or both, would constitute an Event of
Default, shall have occurred and be continuing, or (2) upon giving effect to
such Restricted Payment, the Company could not Incur at least $1.00 of
additional Debt pursuant to paragraph (a) of Section 1010, or (3) upon giving
effect to such Restricted Payment, the aggregate of all Restricted Payments made
on or after the Issue Date, including Restricted Payments made pursuant to
clause (A) or (B) of the proviso at the end of this sentence, and Permitted
Investments made on or after the Issue Date pursuant to clause (i) or (j) of the
definition thereof (the amount of any such Restricted Payment or Permitted
Investment, if made other than in cash, to be based upon Fair Market Value)
exceeds the sum of: (a) 50% of cumulative Consolidated Net Income (or, in the
case that Consolidated Net Income shall be negative, 100% of such negative
amount) since the end of the last full fiscal quarter prior to the Issue Date
through the last day of the last full fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment and (b) plus, in the case of any
Revocation made after the Issue Date, an amount equal to the lesser of the
portion (proportionate to the Company's equity interest in the Subsidiary to
which such Revocation relates) of the Fair Market Value of the net assets of
such Subsidiary at the time of Revocation and the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Subsidiary; provided, however, that the Company
-------- -------
or a Restricted Subsidiary of the Company may, without regard to the limitations
in clause (3) but subject to clauses (1) and (2), make (A) Restricted Payments
in an aggregate amount not to exceed the sum of $50,000,000 and the aggregate
net cash proceeds received after the Issue Date (i) as capital contributions to
the Company, from the issuance (other than to a Subsidiary or an employee stock
ownership plan or trust established by the Company or any such Subsidiary for
the benefit of their
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102
employees) of Capital Stock (other than Disqualified Stock) of the Company, and
(ii) from the issuance or sale of Debt of the Company or any Restricted
Subsidiary (other than to a Subsidiary, the Company or an employee stock
ownership plan or trust established by the Company or any such Subsidiary for
the benefit of their employees) that after the Issue Date has been converted
into or exchanged for Capital Stock (other than Disqualified Stock) of the
Company and (B) Investments in Persons engaged in the Telecommunications/IS
Business in an aggregate amount not to exceed the after-tax gain on the sale,
after the Issue Date, of Special Assets to the extent sold for cash, Cash
Equivalents, Telecommunications/IS Assets or the assumption of Debt of the
Company or any Restricted Subsidiary (other than Debt that is subordinated to
the Securities or any applicable Restricted Subsidiary Guarantee) and release of
the Company and all Restricted Subsidiaries from all liability on the Debt
assumed. The aggregate net cash proceeds referred to in the immediately
preceding clauses (A)(i) and (A)(ii) shall not be utilized to make Restricted
Payments pursuant to such clauses to the extent such proceeds have been utilized
to make Permitted Investments under clause (i) of the definition of "Permitted
Investments."
(b) Notwithstanding the foregoing limitation, (i) the Company may pay any
dividend on Capital Stock of any class of the Company within 60 days after the
declaration thereof if, on the date when the dividend was declared, the Company
could have paid such dividend in accordance with the foregoing provisions;
provided, however, that at the time of such payment of such dividend, no other
- -------- -------
Event of Default shall have occurred and be continuing (or result therefrom);
(ii) the Company may repurchase any shares of its Common Stock or options to
acquire its Common Stock from Persons who were formerly directors, officers or
employees of the Company or any of its Subsidiaries or other Affiliates in an
amount not to exceed $3,000,000 in any 12-month period; (iii) the Company and
any Restricted Subsidiary may refinance any Debt otherwise permitted by clause
(viii) of paragraph (b) of Section 1010 or clause (ix) of Section 1011; (iv) the
Company and any Restricted Subsidiary may retire or repurchase any Capital Stock
of the Company or of any Restricted Subsidiary or any Subordinated Debt of the
Company in exchange for, or out of the proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company or an employee stock ownership
plan or trust established by the Company or any such Subsidiary for the benefit
of their employees) of, Capital Stock (other than Disqualified Stock) of the
Company, provided that the proceeds from any such exchange or sale of Capital
--------
Stock
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103
shall be excluded from any calculation pursuant to clause (A)(i) in the proviso
at the end of paragraph (a) above or pursuant to clause (b) of the definition of
"Invested Capital"; and (v) the Company may pay cash dividends in any amount not
in excess of $50,000,000 in any 12-month period in respect of Preferred Stock of
the Company (other than Disqualified Stock). The Restricted Payments described
in the foregoing clauses (i), (ii) and (v) shall be included in the calculation
of Restricted Payments; the Restricted Payments described in clauses (iii) and
(iv) shall be excluded in the calculation of Restricted Payments.
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries.
- ----------------------------------
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction (other than pursuant
to law or regulation) on the ability of any Restricted Subsidiary (i) to pay
dividends (in cash or otherwise) or make any other distributions in respect of
its Capital Stock owned by the Company or any other Restricted Subsidiary or pay
any Debt or other obligation owed to the Company or any other Restricted
Subsidiary, (ii) to make loans or advances to the Company or any other
Restricted Subsidiary or (iii) to transfer any of its Property to the Company or
any other Restricted Subsidiary.
(b) Notwithstanding the foregoing limitation, the Company may, and may
permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist (i) any encumbrance or restriction pursuant to any agreement in effect on
the Issue Date, (ii) any customary (as conclusively determined in good faith by
the Chief Financial Officer of the Company) encumbrance or restriction
applicable to a Restricted Subsidiary that is contained in an agreement or
instrument governing or relating to Debt contained in any Credit Facilities or
Purchase Money Debt, provided that such encumbrances and restrictions permit the
--------
distribution of funds to the Company in an amount sufficient for the Company to
make the timely payment of interest, premium (if any) and principal (whether at
stated maturity, by way of a sinking fund applicable thereto, by way of any
mandatory redemption, defeasance, retirement or repurchase thereof, including
upon the occurrence of designated events or circumstances or by virtue of
acceleration upon an event of default, or by way of redemption or retirement at
the option of the holder of the Debt, including pursuant to offers to purchase)
according to the terms of this Indenture
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104
and the Securities and other Debt that is solely an obligation of the Company,
but provided further that such agreement may nevertheless contain customary
----------------
(as so determined) net worth, leverage, invested capital and other financial
covenants, customary (as so determined) covenants regarding the merger of or
sale of all or any substantial part of the assets of the Company or any
Restricted Subsidiary, customary (as so determined) restrictions on transactions
with affiliates and customary (as so determined) subordination provisions
governing Debt owed to the Company or any Restricted Subsidiary, (iii) any
encumbrance or restriction pursuant to an agreement relating to any Acquired
Debt, which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person so acquired, (iv) any
encumbrance or restriction pursuant to an agreement effecting a refinancing of
Debt Incurred pursuant to an agreement referred to in clause (i), (ii) or (iii)
of this paragraph (b), provided, however, that the provisions contained in such
-------- -------
agreement relating to such encumbrance or restriction are no more restrictive
(as so determined) in any material respect than the provisions contained in the
agreement the subject thereof, (v) in the case of clause (iii) of paragraph (a)
above, any encumbrance or restriction contained in any security agreement
(including a Capital Lease Obligation) securing Debt of the Company or a
Restricted Subsidiary otherwise permitted under this Indenture, but only to the
extent such restrictions restrict the transfer of the Property subject to such
security agreement, (vi) in the case of clause (iii) of paragraph (a) above,
customary provisions (A) that restrict the subletting, assignment or transfer of
any Property that is a lease, license, conveyance or similar contract, (B)
contained in asset sale or other asset disposition agreements limiting the
transfer of the Property being sold or disposed of pending the closing of such
sale or disposition or (C) arising or agreed to in the ordinary course of
business, not relating to any Debt, and that do not, individually or in the
aggregate, detract from the value of Property of the Company or any Restricted
Subsidiary in any manner material to the Company or any Restricted Subsidiary,
(vii) any encumbrance or restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or Property of such
Restricted Subsidiary, provided that the consummation of such transaction would
--------
not result in a Default or an Event of Default, that such restriction terminates
if such transaction is abandoned and that the consummation or abandonment of
such transaction occurs
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105
within one year of the date such agreement was entered into, and (viii) any
encumbrance or restriction pursuant to this Indenture and the Securities.
SECTION 1014. Limitation on Liens.
--------------------
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, Incur or suffer to exist any Lien on or with respect to
any Property now owned or acquired after the Issue Date to secure any Debt
without making, or causing such Restricted Subsidiary to make, effective
provision for securing the Securities (x) equally and ratably with such Debt as
to such Property for so long as such Debt will be so secured or (y) in the event
such Debt is Debt of the Company or a Guarantor which is subordinate in right of
payment to the Securities or the applicable Restricted Subsidiary Guarantee,
prior to such Debt as to such Property for so long as such Debt will be so
secured.
The foregoing restrictions shall not apply to: (i) Liens existing on the
Issue Date and securing Debt outstanding on the Issue Date or Incurred by the
Company or a Restricted Subsidiary on or after the Issue Date pursuant to any
Credit Facility to secure Debt permitted to be Incurred by the Company or such
Restricted Subsidiary pursuant to clause (ii) of paragraph (b) under Section
1010; (ii) Liens securing Debt in an amount which, together with the aggregate
amount of Debt then outstanding or available under all Credit Facilities
(together with all refinancing Debt then outstanding or available pursuant to
clause (viii) of paragraph (b) of Section 1010 in respect of Debt previously
Incurred under Credit Facilities), does not exceed 1.5 times the Company's
Consolidated Cash Flow Available for Fixed Charges for the four full fiscal
quarters preceding the Incurrence of such Lien for which the Company's
consolidated financial statements are available, determined on a pro forma basis
as if such Debt had been Incurred and the proceeds thereof had been applied at
the beginning of such four fiscal quarters; (iii) Liens in favor of the Company
or any Restricted Subsidiary; provided, however, that any subsequent issue or
-------- -------
transfer of Capital Stock or other event that results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of
the Debt secured by any such Lien (except to the Company or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such
Lien by the issuer thereof; (iv) Liens Incurred by the Company or a Restricted
Subsidiary to secure Purchase Money Debt permitted to be Incurred by the Company
or such
<PAGE>
106
Restricted Subsidiary pursuant to clause (iii) of paragraph (b) under Section
1010, provided that any such Lien may not extend to any Property other than the
--------
Telecommunications/IS Assets installed, constructed, acquired, leased, developed
or improved with the proceeds of such Purchase Money Debt and any improvements
or accessions thereto (it being understood that all Debt to any single lender or
group of related lenders or outstanding under any single credit facility, and in
any case relating to the same group or collection of Telecommunications/IS
Assets financed thereby, shall be considered a single Purchase Money Debt,
whether drawn at one time or from time to time); (v) Liens to secure Acquired
Debt, provided that (a) such Lien attaches to the acquired Property prior to
--------
the time of the acquisition of such Property and (b) such Lien does not extend
to or cover any other Property; (vi) Liens to secure Debt Incurred to refinance,
in whole or in part, Debt secured by any Lien referred to in the foregoing
clauses (i), (iv) and (v) or this clause (vi) so long as such Lien does not
extend to any other Property (other than improvements and accessions to the
original Property) and the principal amount of Debt so secured is not increased
except as otherwise permitted under clause (viii) of paragraph (b) of Section
1010 or clause (ix) of Section 1011; (vii) Liens not otherwise permitted by the
foregoing clauses (i) through (vi) securing Debt in an aggregate amount not to
exceed 5% of the Company's Consolidated Tangible Assets; (viii) Liens granted
after the Issue Date pursuant to this Section 1014 to secure the Securities; and
(ix) Permitted Liens.
SECTION 1015. Limitation on Sale and Leaseback Transactions.
----------------------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, enter into, assume, Guarantee or otherwise become liable
with respect to any Sale and Leaseback Transaction, unless (i) the Company or
such Restricted Subsidiary would be entitled to Incur (a) Debt in an amount
equal to the Attributable Value of the Sale and Leaseback Transaction pursuant
to Section 1010 and (b) a Lien pursuant to Section 1014, equal in amount to the
Attributable Value of the Sale and Leaseback Transaction, without also securing
the Securities, and (ii) the Sale and Leaseback Transaction is treated as an
Asset Disposition and all of the conditions of Section 1016 (including the
provisions concerning the application of Net Available Proceeds) are satisfied
with respect to such Sale and Leaseback Transaction, treating all of the
consideration received in such Sale and Leaseback Transaction as Net Available
Proceeds for purposes of such Section 1015.
<PAGE>
107
SECTION 1016. Limitation on Asset Dispositions.
---------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary to,
make any Asset Disposition unless: (i) the Company or the Restricted Subsidiary,
as the case may be, receives consideration for such disposition at least equal
to the Fair Market Value for the Property sold or disposed of as determined by
the Board of Directors in good faith and evidenced by a Board Resolution filed
with the Trustee; and (ii) at least 75% of the consideration for such
disposition consists of cash or Cash Equivalents or the assumption of Debt of
the Company or any Restricted Subsidiary (other than Debt that is subordinated
to the Securities or any applicable Restricted Subsidiary Guarantee) and release
of the Company and all Restricted Subsidiaries from all liability on the Debt
assumed (or if less than 75%, the remainder of such consideration consists of
Telecommunications/IS Assets); provided, however, that, to the extent such
-------- -------
disposition involves Special Assets, all or any portion of the consideration
may, at the Company's election, consist of Property other than cash, Cash
Equivalents, the assumption of Debt or Telecommunications/IS Assets.
The Net Available Proceeds (or any portion thereof) from Asset Dispositions
may be applied by the Company or a Restricted Subsidiary, to the extent the
Company or such Restricted Subsidiary elects (or is required by the terms of any
Debt): (1) to the permanent repayment or reduction of Debt then outstanding
under any Credit Facility, to the extent such Credit Facility would require such
application or prohibit payments pursuant to the Offer to Purchase described in
the following paragraph (other than Debt owed to the Company or any Affiliate of
the Company); or (2) to reinvest in Telecommunications/IS Assets (including by
means of an Investment in Telecommunications/IS Assets by a Restricted
Subsidiary with Net Available Proceeds received by the Company or another
Restricted Subsidiary).
Any Net Available Proceeds from an Asset Disposition not applied in
accordance with the preceding paragraph within 360 days (or, in the case of a
disposition of Special Assets identified in clause (a) of the definition thereof
in which the Net Available Proceeds exceed $500,000,000, 540 days) from the date
of the receipt of such Net Available Proceeds shall constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10,000,000,
the Company will be required to make an Offer to Purchase with such Excess
Proceeds on a pro rata basis according to
<PAGE>
108
principal amount (or, in the case of Debt issued at a discount, the then-
Accreted Value) for (x) Outstanding Securities at a price in cash equal to 100%
of the principal amount of the Securities on the purchase date plus accrued and
unpaid interest (if any) thereon (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date) and (y) any other Debt of the Company or any Guarantor that is
pari passu with the Securities, or any Debt of a Restricted Subsidiary that
- ---- -----
is not a Guarantor, at a price no greater than 100% of the principal amount
thereof plus accrued and unpaid interest (if any) to the purchase date (or 100%
of the then-Accreted Value plus accrued and unpaid interest (if any) to the
purchase date in the case of original issue discount Debt), to the extent, in
the case of this clause (y), required under the terms thereof (other than Debt
owed to the Company or any Affiliate of the Company). To the extent there are
any remaining Excess Proceeds following the completion of the Offer to Purchase,
the Company shall apply such Excess Proceeds to the repayment of other Debt of
the Company or any Restricted Subsidiary, to the extent permitted or required
under the terms thereof. Any other remaining Excess Proceeds may be applied to
any use as determined by the Company which is not otherwise prohibited by this
Indenture, and the amount of Excess Proceeds shall be reset to zero.
The Company and the Trustee shall perform their respective obligations for
the Offer to Purchase as specified in the Offer. Prior to the Purchase Date,
the Company shall (i) accept for payment Securities or portions thereof tendered
pursuant to the Offer, (ii) irrevocably deposit with the Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) money sufficient to pay the Purchase Price of all
Securities or portions thereof so accepted (provided that such deposit may be
made no later than 11:00 A.M. New York City time on the Purchase Date if the
Company elects) and (iii) deliver or cause to be delivered to the Trustee all
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail or deliver to Holders of Securities so accepted
payment in an amount equal to the Purchase Price, and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security or Securities
equal in principal amount to any unpurchased portion of the Security surrendered
as requested by the Holder. Any Security not accepted for payment shall be
promptly mailed or delivered by the Company to the Holder
<PAGE>
109
thereof. In the event that the aggregate Purchase Price is less than the amount
delivered by the Company to the Trustee or the Paying Agent, the Trustee or the
Paying Agent, as the case may be, shall deliver the excess to the Company
immediately after the Purchase Date.
Not later than the date upon which written notice of an Offer to Purchase
is delivered to the Trustee, the Company shall deliver to the Trustee an
Officers' Certificate as to (i) the amount of the Offer, (ii) the allocation of
the Net Available Proceeds from the Asset Disposition pursuant to which such
Offer is being made and (iii) the compliance of such allocation with the
provisions of this Section 1016.
In the event that the Company makes an Offer to Purchase the Securities,
the Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 1017. Limitation on Issuance and Sales of Capital Stock of
----------------------------------------------------
Restricted Subsidiaries.
- ------------------------
The Company shall not, and shall not permit any Restricted Subsidiary to,
issue, transfer, convey, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary or securities convertible or exchangeable into,
or options, warrants, rights or any other interest with respect to, Capital
Stock of a Restricted Subsidiary to any Person other than the Company or a
Restricted Subsidiary except (i) a sale of all of the Capital Stock of such
Restricted Subsidiary owned by the Company and any Restricted Subsidiary that
complies with the provisions of Section 1016 to the extent such provisions
apply, (ii) in a transaction that results in such Restricted Subsidiary becoming
a Joint Venture, provided (x) such transaction complies with the provisions of
--------
Section 1016 to the extent such provisions apply and (y) the remaining interest
of the Company or any other Restricted Subsidiary in such Joint Venture would
have been permitted as a new Restricted Payment or Permitted Investment under
the provisions of Section 1012, (iii) the issuance, transfer, conveyance, sale
or other disposition of shares of such Restricted Subsidiary so long as after
giving effect to such transaction such Restricted Subsidiary remains a
Restricted
<PAGE>
110
Subsidiary and such transaction complies with the provisions of Section 1016 to
the extent such provisions apply, (iv) the transfer, conveyance, sale or other
disposition of shares required by applicable law or regulation, (v) if required,
the issuance, transfer, conveyance, sale or other disposition of directors'
qualifying shares, (vi) Disqualified Stock issued in exchange for, or upon
conversion of, or the proceeds of the issuance of which are used to refinance,
shares of Disqualified Stock of such Restricted Subsidiary, provided that the
--------
amounts of the redemption obligations of such Disqualified Stock shall not
exceed the amounts of the redemption obligations of, and such Disqualified Stock
shall have redemption obligations no earlier than those required by, the
Disqualified Stock being exchanged, converted or refinanced, (vii) in a
transaction where the Company or a Restricted Subsidiary acquires at the same
time not less than its Proportionate Interest in such issuance of Capital Stock,
(viii) Capital Stock issued and outstanding on the Issue Date, (ix) Capital
Stock of a Restricted Subsidiary issued and outstanding prior to the time that
such Person becomes a Restricted Subsidiary so long as such Capital Stock was
not issued in contemplation of such Person's becoming a Restricted Subsidiary or
otherwise being acquired by the Company and (x) an issuance of Preferred Stock
of a Restricted Subsidiary (other than Preferred Stock convertible or
exchangeable into Common Stock of any Restricted Subsidiary) otherwise permitted
by this Indenture. In the event of (a) the consummation of a transaction
referred to in any of the foregoing clauses that results in a Guarantor no
longer being a Restricted Subsidiary and (b) the execution and delivery of a
supplemental indenture providing for such release in form satisfactory to the
Trustee, any such Guarantor shall be released from all its obligations under its
Restricted Subsidiary Guarantee.
SECTION 1018. Transactions with Affiliates.
-----------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, sell, lease, transfer, or otherwise
dispose of any of its Property to, or purchase any Property from, or enter into
any contract, agreement, understanding, loan, advance, Guarantee or transaction
(including the rendering of services) with or for the benefit of, any Affiliate
(each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate
Transaction or series of Affiliate Transactions is (i) in the best interest of
the Company or such Restricted Subsidiary and (ii) on terms that are no less
favorable to the Company or such Restricted Subsidiary than those that
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111
would have been obtained in a comparable arm's-length transaction by the Company
or such Restricted Subsidiary with a Person that is not an Affiliate (or, in the
event that there are no comparable transactions involving Persons who are not
Affiliates of the Company or the relevant Restricted Subsidiary to apply for
comparative purposes, is otherwise on terms that, taken as a whole, the Company
has determined to be fair to the Company or the relevant Restricted Subsidiary)
and (b) the Company delivers to the Trustee (i) with respect to any Affiliate
Transaction or series of Affiliate Transactions involving aggregate payments in
excess of $10,000,000 but less than $15,000,000, a certificate of the chief
executive, operating or financial officer of the Company evidencing such
officer's determination that such Affiliate Transaction or series of Affiliate
Transactions complies with clause (a) above and (ii) with respect to any
Affiliate Transaction or series of Affiliate Transactions involving aggregate
payments equal to or in excess of $15,000,000, a Board Resolution certifying
that such Affiliate Transaction or series of Affiliate Transactions complies
with clause (a) above and that such Affiliate Transaction or series of Affiliate
Transactions has been approved by the Board of Directors, including a majority
of the disinterested members of the Board of Directors, provided that, in the
--------
event that there shall not be at least two disinterested members of the Board of
Directors with respect to the Affiliate Transaction, the Company shall, in
addition to such Board Resolution, file with the Trustee a written opinion from
an investment banking firm of national standing in the United States which, in
the good faith judgment of the Board of Directors, is independent with respect
to the Company and its Affiliates and qualified to perform such task, which
opinion shall be to the effect that the consideration to be paid or received in
connection with such Affiliate Transaction is fair, from a financial point of
view, to the Company or such Restricted Subsidiary.
Notwithstanding the foregoing, the following shall not be deemed Affiliate
Transactions: (i) any employment agreement entered into by the Company or any
of its Restricted Subsidiaries in the ordinary course of business and consistent
with industry practice; (ii) any agreement or arrangement with respect to the
compensation of a director or officer of the Company or any Restricted
Subsidiary approved by a majority of the disinterested members of the Board of
Directors and consistent with industry practice; (iii) transactions between or
among the Company and its Restricted Subsidiaries, provided that no more than 5%
--------
of the Voting Stock (on a fully diluted basis) of any such
<PAGE>
112
Restricted Subsidiary is owned by an Affiliate of the Company (other than a
Restricted Subsidiary); (iv) Restricted Payments and Permitted Investments
permitted by Section 1012 (other than Investments in Affiliates that are not the
Company or Restricted Subsidiaries); (v) transactions pursuant to the terms of
any agreement or arrangement as in effect on the Issue Date; and (vi)
transactions with respect to wireline or wireless transmission capacity, the
lease or sharing or other use of cable or fiber optic lines, equipment, rights-
of-way or other access rights, between the Company (or any Restricted
Subsidiary) and any other Person, provided that, in the case of this clause
--------
(vi), such transaction complies with clause (a) in the immediately preceding
paragraph.
SECTION 1019. Limitation on Designations of Unrestricted Subsidiaries.
--------------------------------------------------------
The Company shall not designate any Subsidiary of the Company (other than a
newly created Subsidiary in which no Investment has previously been made) as an
"Unrestricted Subsidiary" under this Indenture (a "Designation") unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(b) immediately after giving effect to such Designation, the Company
would be able to Incur $1.00 of Debt under paragraph (a) of Section 1010;
and
(c) the Company would not be prohibited under any provision of this
Indenture from making an Investment at the time of Designation (assuming
the effectiveness of such Designation) in an amount (the "Designation
Amount") equal to the portion (proportionate to the Company's equity
interest in such Restricted Subsidiary) of the Fair Market Value of the net
assets of such Restricted Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to Section 1012
for all purposes of this Indenture in the Designation Amount; provided, however,
-------- -------
that, upon a Revocation of any such Designation of a Subsidiary, the Company
shall be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary of an amount (if positive) equal to (i) the Company's "Investment" in
such Subsidiary at the time of such Revocation less (ii) the portion
(proportionate to the
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113
Company's equity interest in such Subsidiary) of the Fair Market Value of the
net assets of such Subsidiary at the time of such Revocation. At the time of any
Designation of any Subsidiary as an Unrestricted Subsidiary, such Subsidiary
shall not own any Capital Stock of the Company or any Restricted Subsidiary. In
addition, neither the Company nor any Restricted Subsidiary shall at any time
(x) provide credit support for, or a Guarantee of, any Debt of any Unrestricted
Subsidiary (including any undertaking, agreement or instrument evidencing such
Debt); provided that the Company or a Restricted Subsidiary may pledge Capital
--------
Stock or Debt of any Unrestricted Subsidiary on a nonrecourse basis such that
the pledgee has no claim whatsoever against the Company other than to obtain
such pledged Capital Stock or Debt, (y) be directly or indirectly liable for any
Debt of any Unrestricted Subsidiary or (z) be directly or indirectly liable for
any Debt which provides that the holder thereof may (upon notice, lapse of time
or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Debt, Lien or other obligation of any
Unrestricted Subsidiary (including any right to take enforcement action against
such Unrestricted Subsidiary), except in the case of clause (x) or (y) to the
extent permitted under Sections 1012 and 1018.
Unless Designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company will be classified as a Restricted Subsidiary;
provided, however, that such Subsidiary shall not be designated as a Restricted
- -------- -------
Subsidiary and shall be automatically classified as an Unrestricted Subsidiary
if either of the requirements set forth in clauses (a) and (b) of the
immediately following paragraph will not be satisfied immediately following such
classification. Except as provided in the first sentence of this Section 1019,
no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.
A Designation may be revoked (a "Revocation") by a Board Resolution
delivered to the Trustee, provided that the Company will not make any Revocation
--------
unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(b) all Liens and Debt of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if Incurred at such time, have
been
<PAGE>
114
permitted to be Incurred at such time for all purposes of this Indenture.
All Designations and Revocations must be evidenced by Board Resolutions
delivered to the Trustee (i) certifying compliance with the foregoing provisions
and (ii) giving the effective date of such Designation or Revocation, such
delivery to the Trustee to occur within 45 days after the end of the fiscal
quarter of the Company in which such Designation or Revocation is made (or, in
the case of a Designation or Revocation made during the last fiscal quarter of
the Company's fiscal year, within 90 days after the end of such fiscal year).
Upon Designation of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with this Section 1019, such Restricted Subsidiary shall, by delivery
of a supplemental indenture providing for such release in form satisfactory to
the Trustee, be released from any Restricted Subsidiary Guarantee previously
made by such Subsidiary.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
--------------------
The Securities will be subject to redemption at the option of the Company,
in whole or in part, at any time or from time to time, upon not less than 30 nor
more than 60 days' prior notice, on the terms and at the redemption prices
(expressed as percentages of principal amount) set forth in the second and third
paragraphs on the reverse of the form of Security, plus accrued and unpaid
interest thereon (if any) to the Redemption Date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date).
SECTION 1102. Applicability of Article.
-------------------------
This Article shall govern any redemption of the Securities pursuant to
Section 1101.
SECTION 1103. Election to Redeem; Notice to Trustee.
--------------------------------------
The election of the Company to redeem any Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. The Company shall, at least 60
days prior to the Redemption Date fixed by the Company (unless a shorter notice
shall be satisfactory to the Trustee), notify the
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115
Trustee of such Redemption Date and of the principal amount of Securities to be
redeemed and shall deliver to the Trustee such documentation and records as
shall enable the Trustee to select the Securities to be redeemed pursuant to
Section 1104. Such notice shall be accompanied by an Officers' Certificate and
an Opinion of Counsel from the Company to the effect that such redemption will
comply with the conditions herein.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
--------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, in compliance with the requirements of the principal
national securities exchange, if any, on which the Securities are listed, or, if
the Securities are not so listed, on a pro rata basis, by lot or by such other
method as the Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions of the principal of Securities;
provided, however, that no such partial redemption shall reduce the portion of
- -------- -------
the principal amount of a Security not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any Securities selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
---------------------
Notice of redemption shall be given in the manner provided for in Section
106 not less than 30 nor more than 60 days prior to the Redemption Date, to each
Holder of Securities to be redeemed.
Each notice of redemption shall state:
(1) the Redemption Date,
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116
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a partial redemption, the principal amounts)
of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, that on and after
the Redemption Date, upon surrender of such Security, the Holder will receive,
without charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and unpaid and
accrued interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Security, or the portion
thereof, to be redeemed, and that, unless the Company defaults in making such
redemption payment or the Trustee or the Paying Agent is prohibited from making
such payment, interest thereon will cease to accrue on and after said date, and
(6) the place or places where such Securities are to be presented and
surrendered for payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
----------------------------
On or prior to any Redemption Date (and if on any Redemption Date, before
11:00 A.M. New York City time, on such date), the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and unpaid and accrued interest
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) on, all the
Securities which are to be redeemed on that date.
<PAGE>
117
SECTION 1107. Securities Payable on Redemption Date.
--------------------------------------
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with unpaid and accrued interest,
if any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest or the Trustee or the Paying Agent shall be prohibited from making such
payment) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with unpaid and accrued
interest, if any, to the Redemption Date; provided, however, that installments
-------- -------
of interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Securities.
SECTION 1108. Securities Redeemed in Part.
----------------------------
Any Security which is to be redeemed only in part shall be surrendered at
the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
<PAGE>
118
SECTION 1201. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- -----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 1202 or Section 1203 be
applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article Twelve.
SECTION 1202. Defeasance and Discharge.
-------------------------
Upon the Company's exercise under Section 1201 of the option applicable to
this Section 1202, the Company shall be deemed to have been discharged from its
obligations with respect to all Outstanding Securities on the date the
conditions set forth in Section 1204 are satisfied (hereinafter, "defeasance").
For this purpose, such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the Outstanding
Securities, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 1205 and the other Sections of this Indenture referred to in
clauses (A) and (B) below, and to have satisfied all its other obligations under
such Securities and this Indenture insofar as such Securities are concerned (and
the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the Company's obligations with
respect to such Securities under Sections 304, 305, 306, 1002 and 1003 and the
Company's rights under Section 1101, (B) rights of Holders to receive payment of
principal of, premium, if any, and interest on such Securities (but not the
Purchase Price referred to under Section 1009 or 1016) and any rights of the
Holders with respect to such amounts, (C) the rights, obligations and immunities
of the Trustee under the Indenture and (D) this Article Twelve. Subject to
compliance with this Article Twelve, the Company may exercise its option under
this Section 1202 notwithstanding the prior exercise of its option under Section
1203 with respect to the Securities. If the Company exercises its option under
this Section 1202, each Guarantor, if any, shall be released from all its
obligations under its Restricted Subsidiary Guarantee.
SECTION 1203. Covenant Defeasance.
--------------------
Upon the Company's exercise under Section 1201 of the option applicable to
this Section 1203, the Company shall be released from its obligations under any
covenant contained
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119
in Sections 801(3), (4) and (5), in Sections 803, 1005, 1006 and 1007 and
Sections 1009 through 1019 and from the operation of Sections 501(6), (7), (8),
(9) and (10) (but, in the case of Sections 501(9) and (10), with respect only to
Significant Subsidiaries), with respect to the Outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent, declaration or
other Act of Holders (and the consequences of any thereof) in connection with
such provisions, but shall continue to be deemed "Outstanding" for all other
purposes hereunder. For this purpose, such covenant defeasance means that, with
respect to the Outstanding Securities, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such provision, whether directly or indirectly, by reason of any
reference elsewhere herein to any such provision or by reason of any reference
in any such provision to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 501(3), (4), (5), (6), (7), (8), (9) or (10) (but, in the case of
Section 501(9) or (10), with respect only to Significant Subsidiaries) but,
except as specified above, the remainder of this Indenture and such Securities
shall be unaffected thereby. If the Company exercises its option under this
Section 1203, each Guarantor, if any, shall be released from all its obligations
under its Restricted Subsidiary Guarantee.
SECTION 1204. Conditions to Defeasance or Covenant Defeasance.
------------------------------------------------
The following shall be the conditions to application of either Section 1202
or Section 1203 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be deposited
with the Trustee (or another trustee satisfying the requirements of Section 608
who shall agree to comply with the provisions of this Article Twelve applicable
to it) as trust funds in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of such Securities, at any time prior to the Maturity of the
Securities: (A) money in an amount, or (B) Government Securities which through
the payment of interest and principal will provide, not later than one day
before the due date of payment in respect of the Securities, money
<PAGE>
120
in an amount, or (C) a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge the
principal of (and premium, if any, on) and interest on, the Outstanding
Securities on the Stated Maturity (or Redemption Date, if applicable) of such
principal (and premium, if any) or installment of interest; provided that the
--------
Trustee (or such other trustee) shall have been irrevocably instructed in
writing to apply such money or the proceeds of such Government Securities to
said payments with respect to the Securities. Before such a deposit, the Company
may give to the Trustee, in accordance with Section 1103, a notice of its
election to redeem all of the Outstanding Securities at a future date in
accordance with Article Eleven, which notice shall be irrevocable. Such
irrevocable redemption notice, if given, shall be given effect in applying the
foregoing.
(2) No Default or Event of Default with respect to the Securities shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (9) and (10) of Section 501 are concerned with respect to the
Company, at any time during the period ending on the 123rd day after the date of
such deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, this Indenture or any other
agreement or instrument to which the Company is a party or by which it is bound.
(4) In the case of an election under Section 1202, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (x) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling, or (y) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of the Outstanding
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred.
(5) In the case of an election under Section 1203, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders of
the Outstanding
<PAGE>
121
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred.
(6) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1202 or
the covenant defeasance under Section 1203 (as the case may be) have been
complied with.
(7) The Company shall have delivered to the Trustee an Opinion of Counsel
acceptable to the Trustee to the effect that such defeasance will not result in
the trust relating thereto or the Trustee being subject to regulation under the
Investment Company Act of 1940.
SECTION 1205. Deposited Money and Government Securities to Be Held in
-------------------------------------------------------
Trust; Other Miscellaneous Provisions.
- --------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all money
and Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
1205, the "Trustee") pursuant to Section 1204 in respect of the Outstanding
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Holders of such Securities of
all sums due and to become due thereon in respect of principal, premium, if any,
and interest, but such money need not be segregated from other funds except to
the extent required by law or to the extent the Company acts as its own Paying
Agent.
The Company shall pay and indemnify the Trustee and (if applicable) its
officers, directors, employees and agents against any tax, fee or other charge
imposed on or assessed against the Government Securities deposited pursuant to
Section 1204 or the principal and interest received in respect thereof other
than any such tax, fee or other charge which by law is for the account of the
Holders of the Outstanding Securities.
<PAGE>
122
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or Government Securities held by it as provided in Section
1204 which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent defeasance or covenant defeasance, as
applicable, in accordance with this Article Twelve.
SECTION 1206. Reinstatement.
--------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 401 or 1205 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's and any Guarantor's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 401, 1202 or 1203, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance therewith; provided, however, that if the Company or any
-------- -------
Guarantor makes any payment of principal of, premium, if any, or interest on any
Security following the reinstatement of its obligations, the Company or such
Guarantor shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money held by the Trustee or Paying Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
LEVEL 3 COMMUNICATIONS, INC.
By:
/s/ R. Douglas Bradbury
---------------------------
Name: R. Douglas Bradbury
Title: Executive Vice
President and
Chief Financial Officer
Attest:
/s/ Terrence J. Ferguson
------------------------------
Name: Terrence J. Ferguson
Title: Senior Vice President
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By:
___________________________
Name:
Title:
Attest:
________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
LEVEL 3 COMMUNICATIONS, INC.
By:
_______________________
Name:
Title:
Attest:
_______________________
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY, as Trustee
By:
/s/ Terence Rawlins
-------------------------
Name: TERENCE RAWLINS
Title: ASSISTANT VICE PRESIDENT
Attest: /s/ Barbara McCluskey
--------------------------
Name: BARBARA MCCLUSKEY
Title: Assistant Secretary
<PAGE>
EXHIBIT A
Form of Face of Security
------------------------
[If a Global Security, then insert:] THIS SECURITY IS A GLOBAL SECURITY
WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN
THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY.
THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY
(OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A
NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR
ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
[If a Global Security, then insert:] UNLESS THIS CERTIFICATE IS PRESENTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[Private Placement Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE HEREOF (OR A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS
AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE
DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG
AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON
<PAGE>
A-2
THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY),
PROVIDED THAT, IF SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS
SPECIFIED IN THE INDENTURE (AS DEFINED BELOW) PRIOR TO THE DATE THAT IS 40 DAYS
FOLLOWING THE ISSUE DATE, A CERTIFICATE THE FORM OF WHICH MAY BE OBTAINED FROM
THE COMPANY OR THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE
TRUSTEE, (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE
BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF
THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT
FOR DISTRIBUTION, AND A CERTIFICATE THE FORM OF WHICH MAY BE OBTAINED FROM THE
COMPANY OR THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE
TRUSTEE (PROVIDED THAT CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE MAY NOT
TRANSFER THIS SECURITY PURSUANT TO THIS CLAUSE (4) PRIOR TO THE DATE THAT IS 40
DAYS FOLLOWING THE ISSUE DATE), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE
SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING
THIS SECURITY AGREES IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH
CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM
THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING
RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT.
[If a Physical Security, then insert:] IN CONNECTION WITH ANY TRANSFER, THE
HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND
OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT
THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
<PAGE>
A-3
LEVEL 3 COMMUNICATIONS, INC.
9 1/8% Senior Note Due 2008
CUSIP No.
No. [up to] $
Level 3 Communications, Inc., a Delaware corporation (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_____________, or registered assigns, the principal sum of [if a Global
Security, then insert: up to] _________ Dollars [if a Global Security, then
insert: (the outstanding principal amount of which shall be reflected in the
attached Schedule of Increases or Decreases in Global Security and the records
of the Trustee which, taken together with the outstanding principal amounts of
all other Outstanding Securities, shall not exceed $2,000,000,000 in the
aggregate at any time)] on May 1, 2008, at the office or agency of the Company
referred to below, and to pay interest thereon, in cash in arrears semiannually
on May 1 and November 1 in each year, commencing on November 1, 1998, accruing
from April 28, 1998 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, at the rate of 9 1/8% per annum,
until the principal hereof is paid or duly provided for. The Company shall pay
interest on overdue principal at the rate borne by the Securities, and it shall
pay interest on overdue installments of interest at the same rate to the extent
lawful.
[Delete this paragraph if an Exchange Security (other than a Private Exchange
Security).] The Holder of this Security is entitled to the benefits of a
Registration Agreement, dated as of April 23, 1998, between the Company and the
Purchasers named therein (the "Registration Agreement"). Capitalized terms used
in this paragraph but not defined herein have the meanings assigned to them in
the Registration Agreement. In the event that (i) neither the Exchange Offer
Registration Statement nor the Shelf Registration Statement has been filed with
the Commission on or prior to the 90th day following the date of the original
issuance of the Securities, (ii) neither the Exchange Offer Registration
Statement nor the Shelf Registration Statement has been declared effective on or
prior to the 150th day following the date of the original issuance of the
Securities, (iii) neither the Registered Exchange Offer has been consummated nor
the Shelf Registration Statement has been declared effective on or prior to the
180th day following the date of the original issuance of the Securities, or (iv)
after the Shelf Registration Statement has been
<PAGE>
A-4
declared effective, such Registration Statement thereafter ceases to be
effective or usable in connection with resales of the Securities at any time
that the Company is obligated to maintain the effectiveness thereof pursuant to
the Registration Agreement (each such event referred to in clauses (i) through
(iv) above being referred to herein as a "Registration Default"), interest (the
"Special Interest") shall accrue (in addition to stated interest on the
Securities) from and including the date on which the first such Registration
Default shall occur to but excluding the date on which all Registration Defaults
have been cured, at a rate per annum equal to 0.50% of the principal amount of
the Securities; provided, however, that such rate per annum shall increase by
-------- -------
0.25% per annum from and including the 91st day after the first such
Registration Default (and each successive 91st day thereafter) unless and until
all Registration Defaults have been cured; provided further, however, that in no
---------------- -------
event shall the Special Interest accrue at a rate in excess of 1.00% per annum.
Accrued Special Interest, if any, shall be paid in cash in arrears semiannually
on May 1 and November 1 in each year; and the amount of accrued Special Interest
shall be determined on the basis of the number of days actually elapsed. Any
accrued and unpaid interest (including Special Interest) on this Security upon
the issuance of an Exchange Security in exchange for this Security shall cease
to be payable to the Holder hereof but such accrued and unpaid interest
(including Special Interest) shall be payable on the next Interest Payment Date
for such Exchange Security to the Holder thereof on the related Regular Record
Date.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the April 15 or October 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date, and such defaulted interest,
and (to the extent lawful) interest on such defaulted interest at the rate borne
by the Securities, may be paid to the Person in whose name this Security (or one
or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful
<PAGE>
A-5
manner, all as more fully provided in said Indenture. Payment of the principal
of (and premium, if any) and interest on this Security will be made at the
office or agency of the Company maintained for that purpose in The City of New
York, or at such other office or agency of the Company as may be maintained for
such purpose, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
provided, however, that payment of interest may be made at the option of the
- -------- -------
Company by check mailed to the address of the Person entitled thereto as such
address shall appear on the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:_______________ LEVEL 3 COMMUNICATIONS, INC.
By:
_______________________________
Authorized Signatory
Attest:
____________________
<PAGE>
A-6
Form of Reverse of Security
---------------------------
This Security is one of a duly authorized issue of securities of the
Company designated as its 9 1/8% Senior Notes Due 2008 (herein called the
"Securities"), limited (except as otherwise provided in the Indenture referred
to below) in aggregate principal amount to $2,000,000,000, which may be issued
under an indenture (herein called the "Indenture") dated as of April 28, 1998
between the Company and IBJ Schroder Bank & Trust Company, as trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties, obligations and immunities thereunder of the Company, the Trustee and
the Holders of the Securities, and of the terms upon which the Securities are,
and are to be, authenticated and delivered.
The Securities are subject to redemption at the option of the Company, in
whole or in part, at any time or from time to time on or after May 1, 2003, upon
not less than 30 nor more than 60 days' prior notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest thereon (if any) to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the twelve months beginning
May 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003............................... 104.563%
2004............................... 103.042%
2005............................... 101.521%
2006 and thereafter................ 100.000%
</TABLE>
In addition, at any time or from time to time prior to May 1, 2001, the
Company may redeem up to 35% of the original aggregate principal amount of the
Securities at a redemption price equal to 109.125% of the principal amount of
the Securities so redeemed, plus accrued and unpaid interest thereon (if any) to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), with
the net cash proceeds of one or more
<PAGE>
A-7
private placements to Persons other than Affiliates of the Company or
underwritten public offerings of Common Stock of the Company resulting in gross
proceeds of at least $100,000,000 in the aggregate; provided that at least 65%
of the original aggregate principal amount of the Securities would remain
outstanding immediately after giving effect to such redemption. Any such
redemption shall be made within 90 days of such private placement or public
offering upon not less than 30 nor more than 60 days' prior notice.
Upon the occurrence of a Change of Control Triggering Event, the Holder of
this Security may require the Company, subject to certain limitations provided
in the Indenture, to repurchase this Security at a purchase price in cash in an
amount equal to 101% of the principal amount thereof, plus accrued and unpaid
interest (if any) to the purchase date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date).
In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Securities, or one or more Predecessor Securities, of record at
the close of business on the relevant Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear interest
from and after the Redemption Date.
In the event of redemption of this Security in part only, a new Security or
Securities for the unredeemed portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof.
To guarantee the due and punctual payment of the principal, premium (if
any) and interest on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Guarantors, if any, will
unconditionally guarantee such obligations on a senior unsecured basis pursuant
to the terms of the Indenture.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable in the manner and with the effect
provided in the Indenture.
<PAGE>
A-8
The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness of the Company on this Security and (b) certain restrictive
covenants and Defaults and Events of Default, upon compliance by the Company
with certain conditions set forth therein, which provisions apply to this
Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Without the consent of any
Holder of Securities, the Company and the Trustee may amend or modify the
Indenture for certain purposes specified therein, including the release of
Guarantors, if any, from Restricted Subsidiary Guarantees as provided by the
terms of the Indenture. Any such consent or waiver by or on behalf of the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registerable on the Security Register of
the Company, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for such purpose in The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
<PAGE>
A-9
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange of the Securities, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
Prior to the time of due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any agent shall be affected by notice to the
contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW
OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
<PAGE>
A-10
Form of Trustee's Certificate of Authentication
------------------------------------------------
The Trustee's certificate of authentication shall be in substantially the
following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated: __________________
This is one of the Securities referred to in the within-mentioned
Indenture.
[NAME OF TRUSTEE], as Trustee
By:
__________________________
Authorized Signatory
<PAGE>
A-11
Assignment Form
---------------
If you, the holder, want to assign this Security, fill in the form below
and have your signature guaranteed:
I or we assign and transfer this Security to_______________
________________________________________________________________________________
(Insert assignee's social security or tax ID number)
_______________________
(Print or type assignee's name, address and zip code)
_______________________
_______________________
_______________________
and irrevocably appoint_______________________
of _______________________________
_______________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the date that is two years (or such shorter
period as may be prescribed by Rule 144(k) under the Securities Act or any
successor provision thereunder) after the later of the date of original issuance
of such Securities (or any Predecessor Security) or three months after the last
date, if any, on which such Securities (or any Predecessor Security) were owned
by the Company or any Affiliate of the
<PAGE>
A-12
Company, the undersigned confirms that such Securities are being transferred in
accordance with its terms:
CHECK ONE BOX BELOW
(1) [_] to the Company; or
(2) [_] pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) [_] inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A, in each case pursuant to and
in compliance with Rule 144A under the Securities Act of 1933; or
(4) [_] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act of 1933, provided that, if
such transfer is being effected by certain transferors specified
in the Indenture prior to the date that is 40 days following the
Issue Date, a certificate which may be obtained from the Company
or the Trustee is delivered by the transferee to the Company and
the Trustee; or
(5) [_] to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that
has furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee or the Company), provided that certain
transferors specified in the Indenture may not transfer this
Security pursuant to this clause (5) prior to the date that is 40
days following the Issue Date; or
<PAGE>
A-13
(6) [_] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (4), (5) or
-------- -------
(6) is checked, the Trustee may require, prior to registering any such transfer
of the Securities, such legal opinions, certifications and other information as
the Company has reasonably requested to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933.
Dated: _______________ Your signature: ________________
(Sign exactly as your name appears on the other side of
this Security)
By:
__________________________________
NOTICE: To be executed by an
executive officer
Signature Guarantee: ____________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED:
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933 and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such information
and that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated:_____________________ ___________________________
NOTICE: To be executed by an
executive officer
<PAGE>
A-14
Option of Holder to Elect Purchase
----------------------------------
If you wish to have this Security purchased by the Company pursuant to
Section 1009 or 1016 of the Indenture, check the box: [_]
If you wish to have a portion of this Security purchased by the Company
pursuant to Section 1009 or 1016 of the Indenture, state the amount:
$___________________.
Dated: ________________ Your Signature: _________________
(Sign exactly as your name appears on the other side of
this Security)
<PAGE>
A-15
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $[ ].
The following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date of Amount of Amount of Principal Signature of
Transfer decrease in increase in amount authorized
Principal Amount Principal Amount of this Global signatory of
of this Global of this Global Security Trustee or
Security Security following such Security
decrease or Registrar
increase
</TABLE>
<PAGE>
EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated
as of , among [GUARANTOR] (the "New
Guarantor"), a subsidiary of Level 3 Communications, Inc. (or its
successor), a Delaware corporation (the "Company"), LEVEL 3
COMMUNICATIONS, INC., on behalf of itself and the Guarantors (the
"Existing Guarantors"), if any, under the Indenture referred to
below, and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking
corporation, as trustee under the indenture referred to below
(the "Trustee").
W I T N E S S E T H :
WHEREAS the Company has heretofore executed and delivered to the
Trustee an Indenture dated as of April 28, 1998 (the "Indenture"; capitalized
terms used but not defined herein having the meanings assigned thereto in the
Indenture), providing for the issuance of an aggregate principal amount of up to
$2,000,000,000 of 9 1/8% Senior Notes Due 2008 (the "Securities");
WHEREAS the Indenture permits the New Guarantor to execute and deliver
to the Trustee a supplemental indenture pursuant to which the New Guarantor
shall unconditionally guarantee all the Company's obligations under the
Securities pursuant to a Guarantee on the terms and conditions set forth herein;
WHEREAS the Guarantee contained in this Supplemental Indenture shall
constitute a "Restricted Subsidiary Guarantee", and the New Guarantor shall
constitute a "Guarantor", for all purposes of the Indenture; and
WHEREAS pursuant to Section 901 of the Indenture, the Trustee and the
Company are authorized to execute and deliver this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Company, the Existing Guarantors and the Trustee mutually
covenant and agree
<PAGE>
B-2
for the equal and ratable benefit of the holders of the Securities as follows:
1. Guaranties. The New Guarantor hereby unconditionally guarantees,
-----------
jointly and severally, to each Holder and to the Trustee and its successors and
assigns (a) the full and punctual payment of principal of (and premium, if any)
and interest on the Securities when due, whether at Stated Maturity, by
acceleration, by redemption or otherwise, and all other monetary obligations of
the Company under the Indenture and the Securities and (b) the full and punctual
performance within applicable grace periods of all other obligations of the
Company under the Indenture and the Securities (all the foregoing being
hereinafter collectively called the "Obligations"). The New Guarantor further
agrees that the Obligations may be extended or renewed, in whole or in part,
without notice or further assent from the New Guarantor and that the New
Guarantor will remain bound under this Supplemental Indenture notwithstanding
any extension or renewal of any Obligation.
The New Guarantor waives presentation to, demand of, payment from and
protest to the Company of any of the Obligations and also waives notice of
protest for nonpayment. The New Guarantor waives notice of any default under the
Securities or the Obligations. The obligations of the New Guarantor hereunder
shall not be affected by (a) the failure of any Holder or the Trustee to assert
any claim or demand or to enforce any right or remedy against the Company or any
other Person under the Indenture, the Securities or any other agreement or
otherwise; (b) any extension or renewal of any thereof; (c) any rescission,
waiver, amendment or modification of any of the terms or provisions of the
Indenture, the Securities or any other agreement; (d) the release of any
security held by any Holder or the Trustee for the Obligations or any of them;
(e) the failure of any Holder or the Trustee to exercise any right or remedy
against any other guarantor of the Obligations; or (f) any change in the
ownership of the New Guarantor.
The New Guarantor further agrees that its Guarantee herein constitutes
a guarantee of payment, performance and compliance when due (and not a guarantee
of collection) and waives any right to require that any resort be had by any
Holder or the Trustee to any security held for payment of the Obligations.
Except as expressly set forth in Sections 803, 1017, 1019, 1202 and
1203 of the Indenture, the obligations of the New Guarantor hereunder shall not
be subject to any reduction,
<PAGE>
B-3
limitation, impairment or termination for any reason, including any claim of
waiver, release, surrender, alteration or compromise, and shall not be subject
to any defense of setoff, counterclaim, recoupment or termination whatsoever or
by reason of the invalidity, illegality or unenforceability of the Obligations
or otherwise. Without limiting the generality of the foregoing, the obligations
of the New Guarantor herein shall not be discharged or impaired or otherwise
affected by the failure of any Holder or the Trustee to assert any claim or
demand or to enforce any remedy under the Indenture, the Securities or any other
agreement, by any waiver or modification of any thereof, by any default, failure
or delay, willful or otherwise, in the performance of the obligations, or by any
other act or thing or omission or delay to do any other act or thing which may
or might in any manner or to any extent vary the risk of the New Guarantor or
would otherwise operate as a discharge of the New Guarantor as a matter of law
or equity.
The New Guarantor further agrees that its Guarantee herein shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of or (premium, if any) interest on
any Obligation is rescinded or must otherwise be restored by any Holder or the
Trustee upon the bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against the New
Guarantor by virtue hereof, upon the failure of the Company to pay the principal
of (or premium, if any) or interest on any Obligation when and as the same shall
become due, whether at Stated Maturity, by acceleration, by redemption or
otherwise, or to perform or comply with any other Obligation, the New Guarantor
hereby promises to and will, upon receipt of written demand by the Trustee,
forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an
amount equal to the sum of (i) the unpaid amount of such Obligations, (ii)
accrued and unpaid interest on such Obligations (but only to the extent not
prohibited by law) and (iii) all other monetary Obligations of the Company to
the Holders and the Trustee.
The New Guarantor agrees that it shall not be entitled to any right of
subrogation in respect of any Obligations guaranteed hereby until payment in
full in cash of all Obligations. The New Guarantor further agrees that, as
between it, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the Obligations guaranteed hereby may be accelerated as
provided in Article Five of the Indenture for the purposes of the New
Guarantor's Guarantee
<PAGE>
B-4
herein, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such obligations as provided in
Article Five of the Indenture, such Obligations (whether or not due and payable)
shall forthwith become due and payable by the New Guarantor for the purposes of
this Section.
The New Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Trustee or any Holder in
enforcing any rights under this Section 1.
2. Contribution. Each of the Company and the New Guarantor (a
-------------
"Contributing Party") agrees that, in the event a payment shall be made by any
other Guarantor under any Restricted Subsidiary Guarantee (the "Claiming
Guarantor"), the Contributing Party shall indemnify the Claiming Guarantor in an
amount equal to the amount of such payment multiplied by a fraction, the
numerator of which shall be the net worth of the Contributing Party (which, in
the case of the Company, shall be measured on the Issue Date, and in the case of
the New Guarantor, on the date hereof) and the denominator of which shall be the
aggregate net worth of the Company on the Issue Date and the Guarantors on
respective dates of the Supplemental Indentures executed and delivered by such
Guarantors.
3. Successors and Assigns. This Supplemental Indenture shall be
-----------------------
binding upon the New Guarantor and its successors and assigns and shall enure to
the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee,
the rights and privileges conferred upon that party in the Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
4. No Waiver. Neither a failure nor a delay on the part of either
----------
the Trustee or the Holders in exercising any right, power or privilege under
this Supplemental Indenture, the Indenture or the Securities shall operate as a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise of any right, power or privilege. The rights,
remedies and benefits of the Trustee and the Holders herein and therein
expressly specified are cumulative and not exclusive of any other rights,
remedies or benefits which either may have under this Supplemental Indenture,
the Indenture or the Securities at law, in equity, by statute or otherwise.
<PAGE>
B-5
5. Modification. No modification, amendment or waiver of any
-------------
provision of this Supplemental Indenture, nor the consent to any departure by
the New Guarantor therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on the New Guarantor in any case shall entitle
the New Guarantor to any other or further notice or demand in the same, similar
or other circumstances.
6. Opinion of Counsel. Concurrently with the execution and delivery
-------------------
of this Supplemental Indenture, the Company shall deliver to the Trustee an
Opinion of Counsel to the effect that this Supplemental Indenture has been duly
authorized, executed and delivered by each of the New Guarantor and the Company
and that, subject to the application of bankruptcy, insolvency, moratorium,
fraudulent conveyance or transfer and other similar laws relating to creditors'
rights generally and to the principles of equity, whether considered in a
proceeding at law or in equity, the Guarantee of the New Guarantor is a legal,
valid and binding obligation of the New Guarantor, enforceable against the New
Guarantor in accordance with its terms.
7. Ratification of Indenture; Supplemental Indentures Part of
----------------------------------------------------------
Indenture. Except as expressly amended hereby, the Indenture is in all respects
- ----------
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby.
8. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
--------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
9. Counterparts. The parties may sign any number of copies of this
-------------
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
<PAGE>
B-6
10. Effect of Headings. The Section headings herein are for
-------------------
convenience only and shall not effect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NEW GUARANTOR],
by
_________________________
Name:
Title:
LEVEL 3 COMMUNICATIONS, INC.,
on behalf of itself and the Existing
Guarantors, if any,
by
_________________________
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee,
by
_________________________
Name:
Title:
<PAGE>
EXHIBIT 4.2
EXECUTION COPY
LEVEL 3 COMMUNICATIONS, INC.
$2,000,000,000
9-1/8% Senior Notes Due 2008
REGISTRATION AGREEMENT
New York, New York
April 23, 1998
To: SALOMON BROTHERS INC
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
J.P. MORGAN & CO.
UBS SECURITIES LLC
In care of:
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Level 3 Communications, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to certain purchasers (the "Purchasers"), upon the
terms set forth in a purchase agreement dated the date hereof (the "Purchase
Agreement"), $2,000,000,000 aggregate principal amount of its 9-1/8% Senior
Notes Due 2008 (the "Securities") (the "Initial Placement"). As an inducement
to the Purchasers to enter into the Purchase Agreement and in satisfaction of a
condition to your obligations thereunder, the Company agrees with you, (i) for
your benefit and the benefit of the other Purchasers and (ii) for the benefit of
the holders from time to time of the Securities (including you and the other
Purchasers) (each of the foregoing a "Holder" and together the "Holders"), as
follows:
1. Definitions. Capitalized terms used herein without definition
------------
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Affiliate" of any specified person means any other person which,
---------
directly or indirectly, is in control of, is controlled by, or is under common
control with, such
<PAGE>
2
specified person. For purposes of this definition, control of a person means the
power, direct or indirect, to direct or cause the direction of the management
and policies of such person whether by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Exchange Offer Registration Period" means the 180-day period
----------------------------------
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration statement
-------------------------------------
of the Company on an appropriate form under the Securities Act with respect to
the Registered Exchange Offer, all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the
-----------------
Purchasers) which is a broker-dealer electing to exchange Securities acquired
for its own account as a result of market-making activities or other trading
activities for New Securities.
"Holder" has the meaning set forth in the preamble hereto.
------
"Indenture" means the Indenture relating to the Securities and the New
---------
Securities to be dated as of April 28, 1998, between the Company and IBJ
Schroder Bank & Trust Company, as trustee, as the same may be amended from time
to time in accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
-----------------
"Majority Holders" means the Holders of a majority of the aggregate
----------------
principal amount of securities registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
---------------------
bankers and manager or managers that shall administer an offering of securities
under a Shelf Registration Statement.
"New Securities" means debt securities of the Company identical in all
--------------
material respects to the Securities
<PAGE>
3
(except that the interest rate step-up provisions and the transfer restrictions
will be modified or eliminated, as appropriate), to be issued under the
Indenture.
"Prospectus" means the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Securities or the New Securities, covered
by such Registration Statement, and all amendments and supplements to the
Prospectus, including post-effective amendments.
"Registered Exchange Offer" means the proposed offer to the Holders to
-------------------------
issue and deliver to such Holders, in exchange for the Securities, a like
principal amount of the New Securities.
"Registration Securities" has the meaning set forth in Section 3(a)
-----------------------
hereof.
"Registration Statement" means any Exchange Offer Registration
----------------------
Statement or Shelf Registration Statement that covers any of the Securities or
the New Securities pursuant to the provisions of this Agreement, all amendments
and supplements to such registration statement, including, without limitation,
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Securities" has the meaning set forth in the preamble hereto.
----------
"Shelf Registration" means a registration effected pursuant to Section
------------------
3 hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
-------------------------
hereof.
"Shelf Registration Statement" means a "shelf" registration statement
----------------------------
of the Company pursuant to the provisions of Section 3 hereof which covers some
of or all the Securities or New Securities, as applicable, on an appropriate
form under Rule 415 under the Securities Act, or any similar rule that may be
adopted by the Commission, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including
<PAGE>
4
the Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Trustee" means the trustee with respect to the Securities and the New
-------
Securities under the Indenture.
"underwriter" means any underwriter of securities in connection with
-----------
an offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by Exchanging
------------------------------------------------------------------
Dealers; Private Exchange.
- --------------------------
(a) The Company shall prepare and, not later than 90 days after the
date of the original issuance of the Securities, shall file with the Commission
the Exchange Offer Registration Statement with respect to the Registered
Exchange Offer. The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to become effective under the Securities Act within
150 days after the date of the original issuance of the Securities.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for New Securities (assuming that such
Securities do not constitute a portion of an unsold allotment acquired by such
Holder directly from the Company and such Holder is not an affiliate of the
Company within the meaning of the Securities Act, acquires the New Securities in
the ordinary course of such Holder's business and has no arrangements with any
person to participate in the distribution of the New Securities) to trade such
New Securities from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
the securities laws of a substantial proportion of the several states of the
United States.
(c) In connection with the Registered Exchange Offer, the Company
shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for not less than 30 days
after the date notice thereof is
<PAGE>
5
mailed to the Holders (or longer if required by applicable law);
(iii) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
and
(iv) comply in all material respects with all applicable laws.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancelation all Securities so
accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to each
Holder of Securities, New Securities equal in principal amount to the
Securities of such Holder so accepted for exchange.
(e) The Purchasers and the Company acknowledge that, pursuant to
current interpretations by the Commission's staff of Section 5 of the Securities
Act, and in the absence of an applicable exemption therefrom, each Exchanging
Dealer is required to deliver a Prospectus in connection with a sale of any New
Securities received by such Exchanging Dealer pursuant to the Registered
Exchange Offer in exchange for Securities acquired for its own account as a
result of market-making activities or other trading activities. Accordingly,
the Company shall:
(i) include the information set forth in Annex A hereto on the cover
of the Exchange Offer Registration Statement, in Annex B hereto in the
forepart of the Exchange Offer Registration Statement in a section setting
forth details of the Exchange Offer, in Annex C hereto in the underwriting
or plan of distribution section of the Prospectus forming a part of the
Exchange Offer Registration Statement, and in Annex D hereto in the Letter
of Transmittal delivered pursuant to the Registered Exchange Offer (it
being understood that a Holder's participation in the Exchange Offer is
conditioned on the Holder, by executing and returning the Letter of
Transmittal, representing in writing to the Company as set forth in Rider B
of Annex D hereto); and
<PAGE>
6
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Securities Act during the
Exchange Offer Registration Period for delivery by Exchanging Dealers in
connection with sales of New Securities received pursuant to the Registered
Exchange Offer, as contemplated by Section 4(h) below.
(f) In the event that any Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Securities constituting any portion of an unsold allotment, at the
request of such Purchaser, the Company shall issue and deliver to such Purchaser
or the party purchasing New Securities registered under a Shelf Registration
Statement as contemplated by Section 3 hereof from such Purchaser, in exchange
for such Securities, a like principal amount of New Securities. The Company
shall seek to cause the CUSIP Service Bureau to issue the same CUSIP number for
such New Securities as for New Securities issued pursuant to the Registered
Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
-------------------
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Registered Exchange Offer as contemplated by Section 2 hereof, or (ii) for
any other reason the Exchange Offer Registration Statement is not declared
effective within 150 days after the Closing Date or the Registered Exchange
Offer is not consummated within 180 days after the Closing Date, or (iii) any
Purchaser so requests with respect to Securities (or any New Securities received
pursuant to Section 2(f)) not eligible to be exchanged for New Securities in a
Registered Exchange Offer or, in the case of any Purchaser that participates in
any Registered Exchange Offer, such Purchaser does not receive freely tradable
New Securities, or (iv) any Holder (other than a Purchaser) is not eligible to
participate in the Registered Exchange Offer or (v) in the case of any such
Holder that participates in the Registered Exchange Offer, such Holder does not
receive freely tradable New Securities in exchange for tendered securities,
other than by reason of such Holder being an affiliate of the Company within the
meaning of the Securities Act (it being understood that, for purposes of this
Section 3, (x) the requirement that a Purchaser deliver a Prospectus containing
the information required by Items 507 and/or 508 of Regulation S-K under the
Securities Act in connection with sales of New Securities acquired in exchange
for such Securities shall result in such New Securities being not "freely
tradeable" but (y) the
<PAGE>
7
requirement that an Exchanging Dealer deliver a Prospectus in connection with
sales of New Securities acquired in the Registered Exchange Offer in exchange
for Securities acquired as a result of market-making activities or other trading
activities shall not result in such New Securities being not "freely
tradeable"), the following provisions shall apply:
(a) The Company shall as promptly as practicable (but in no event
more than the later of (i) 90 days after the Closing Date or (ii) 45 days after
so required or requested pursuant to this Section 3), file with the Commission
and thereafter shall use its best efforts to cause to be declared effective
under the Securities Act a Shelf Registration Statement relating to the offer
and sale of the Securities or the New Securities, as applicable, by the Holders
from time to time in accordance with the methods of distribution elected by such
Holders and set forth in such Shelf Registration Statement (such Securities or
New Securities, as applicable, to be sold by such Holders under such Shelf
Registration Statement being referred to herein as "Registration Securities");
provided, however, that, with respect to New Securities received by a Purchaser
- -------- -------
in exchange for Securities constituting any portion of an unsold allotment, the
Company may, if permitted by current interpretations by the Commission's staff,
file a post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or 508, as
applicable, in satisfaction of its obligations under this paragraph (a) with
respect thereto, and any such Exchange Offer Registration Statement, as so
amended, shall be referred to herein as, and governed by the provisions herein
applicable to, a Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of two years from the
date the Shelf Registration Statement is declared effective by the Commission or
such shorter period that will terminate when all the Securities or New
Securities, as applicable, covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Company shall be deemed not
to have used its best efforts to keep the Shelf Registration Statement effective
during the Shelf Registration Period if it voluntarily takes any action that
would result in Holders of securities covered thereby not being able to offer
and sell such securities during that period, unless (i) such action
<PAGE>
8
is required by applicable law or (ii) such action is taken by the Company in
good faith and for valid business reasons (not including avoidance of the
Company's obligation hereunder), including the acquisition or divestiture of
assets, so long as the Company promptly thereafter complies with the
requirements of Section 4(k) hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
------------------------
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) (i) The Company shall furnish to you, prior to the filing
thereof with the Commission, a copy of any Exchange Offer Registration
Statement, each amendment thereof and each amendment or supplement, if any,
to the Prospectus included therein and shall use its best efforts to
reflect in each such document, when so filed with the Commission, such
comments as you reasonably may propose.
(ii) The Company shall furnish to you, prior to the filing thereof
with the Commission, a copy of any Shelf Registration Statement, each
amendment thereof and each amendment or supplement, if any, to the
Prospectus included therein and shall use its best efforts to reflect in
each such document, when so filed with the Commission, such comments as any
Holder whose securities are to be included in such Shelf Registration
Statement reasonably may propose.
(b) The Company shall ensure that (i) any Registration Statement and
any amendment thereto and any Prospectus forming part thereof and any
amendment or supplement thereto complies in all material respects with the
Securities Act and the rules and regulations thereunder, (ii) any
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any Prospectus forming part of
any Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
<PAGE>
9
(c) (1) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby, and, if
requested by you or any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby, and, in
the case of an Exchange Offer Registration Statement, any Exchanging Dealer
which has provided in writing to the Company a telephone or facsimile
number and address for notices, and, if requested by you or any such Holder
or Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included therein for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making of
any changes in the Registration Statement or the Prospectus so that,
as of such date, the statements therein are not misleading and do not
omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectus, in the light of the circumstances under which they were
made) not misleading (which advice shall be accompanied by an
instruction to suspend the use of the Prospectus until the requisite
changes have been made).
<PAGE>
10
Each such Holder or Exchanging Dealer agrees by its acquisition of such
securities to be sold by such Holder or Exchanging Dealer, that, upon being
so advised by the Company of any event described in clause (iii) of this
paragraph (c)(2), such Holder or Exchanging Dealer will forthwith
discontinue disposition of such securities under such Registration
Statement or Prospectus, until such Holder's or Exchanging Dealer's receipt
of the copies of the supplemented or amended Prospectus contemplated by
paragraph 4(k) hereof, or until it is advised in writing by the Company
that the use of the applicable Prospectus may be resumed.
(d) The Company shall use its best efforts to obtain the withdrawal
of any order suspending the effectiveness of any Registration Statement at
the earliest possible time.
(e) The Company shall furnish to each Holder of securities included
within the coverage of any Shelf Registration Statement, without charge, at
least one copy of such Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if
the Holder so requests in writing, any documents incorporated by reference
therein and all exhibits thereto (including those incorporated by reference
therein).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf Registration
Statement and any amendment or supplement thereto as such Holder may
reasonably request; and the Company consents to the use of the Prospectus
or any amendment or supplement thereto by each of the selling Holders of
securities in connection with the offering and sale of the securities
covered by the Prospectus or any amendment or supplement thereto.
(g) The Company shall furnish to each Exchanging Dealer which so
requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if the Exchanging Dealer so
requests in writing, any documents incorporated by reference therein and
all exhibits
<PAGE>
11
thereto (including those incorporated by reference therein).
(h) The Company shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies
of the Prospectus included in such Exchange Offer Registration Statement
and any amendment or supplement thereto as such Exchanging Dealer may
reasonably request for delivery by such Exchanging Dealer in connection
with a sale of New Securities received by it pursuant to the Registered
Exchange Offer; and the Company consents to the use of the Prospectus or
any amendment or supplement thereto by any such Exchanging Dealer, as
aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering of
securities pursuant to any Registration Statement, the Company shall
register or qualify or cooperate with the Holders of securities included
therein and their respective counsel in connection with the registration or
qualification of such securities for offer and sale under the securities or
blue sky laws of such jurisdictions as any such Holder reasonably requests
in writing and do any and all other acts or things necessary or advisable
to enable the offer and sale in such jurisdictions of the securities
covered by such Registration Statement; provided, however, that the Company
-------- -------
will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which
would subject it to general service of process or to taxation in any such
jurisdiction where it is not then so subject.
(j) The Company shall cooperate with the Holders of Securities to
facilitate the timely preparation and delivery of certificates representing
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in such names
as Holders may request prior to sales of securities pursuant to such
Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement to
the related Prospectus or file any other required document so that, as
thereafter delivered to purchasers of the securities included therein, the
Prospectus will
<PAGE>
12
not include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Securities or New Securities, as the case may be, registered under such
Registration Statement, and provide the Trustee with printed certificates
for such Securities or New Securities, in a form, if requested by the
applicable Holder or Holder's Counsel, eligible for deposit with The
Depository Trust Company or any successor thereto under the Indenture.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission to the extent and so
long as they are applicable to the Registered Exchange Offer or the Shelf
Registration and will make generally available to its security holders a
consolidated earnings statement (which need not be audited) covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act.
(n) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, on or prior to the effective date
of any Shelf Registration Statement or Exchange Offer Registration
Statement.
(o) The Company may require each Holder of securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company in
writing such information regarding the Holder and the distribution of such
securities as the Company may from time to time reasonably require for
inclusion in such Registration Statement. The Company may exclude from any
such Registration Statement the securities of any such Holder who fails to
furnish such information within a reasonable time after receiving such
request. Each Holder as to which any Shelf Registration is being effected
agrees to furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the
Company by such Holder not materially misleading.
<PAGE>
13
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters, if any, and
Majority Holders reasonably agree should be included therein and shall make
all required filings of such Prospectus supplement or post-effective
amendment as soon as notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment.
(q) (i) In the case of any Shelf Registration Statement, the Company
shall enter into such agreements (including underwriting agreements) and
take all other appropriate actions in order to expedite or facilitate the
registration or the disposition of the Securities, and in connection
therewith, if an underwriting agreement is entered into, cause the same to
contain indemnification provisions and procedures no less favorable than
those set forth in Section 6 hereof (or such other provisions and
procedures acceptable to the Majority Holders and the Managing
Underwriters, if any), with respect to all parties to be indemnified
pursuant to Section 6 hereof from Holders of Securities to the Company.
(ii) Without limiting in any way paragraph (q)(i), no Holder may
participate in any underwritten registration hereunder unless such Holder
(x) agrees to sell such Holder's securities to be covered by such
registration on the basis provided in any underwriting arrangements
approved by the Majority Holders and the Managing Underwriters and (y)
completes and executes in a timely manner all customary questionnaires,
powers of attorney, underwriting agreements and other documents reasonably
required by the Company or the Managing Underwriters in connection with
such underwriting arrangements.
(r) In the case of any Shelf Registration Statement, the Company
shall (i) make reasonably available for inspection by the Holders of
securities to be registered thereunder, any underwriter participating in
any disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by the Holders or any such underwriter
all relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries reasonably requested by such
person; (ii) cause the Company's officers, directors and employees to
supply all relevant
<PAGE>
14
information reasonably requested by the Holders or any such underwriter,
attorney, accountant or agent in connection with any such Registration
Statement as is customary for due diligence examinations in connection with
primary underwritten offerings; provided, however, that any information
-------- -------
that is nonpublic at the time of delivery of such information shall be kept
confidential by the Holders or any such underwriter, attorney, accountant
or agent, unless such disclosure is made in connection with a court
proceeding or required by law, or such information becomes available to the
public generally or through a third party without an accompanying
obligation of confidentiality; (iii) make such representations and
warranties to the Holders of securities registered thereunder and the
underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwriters in primary underwritten offerings; (iv) obtain
opinions of counsel to the Company (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the Managing
Underwriters, if any) addressed to each selling Holder and the
underwriters, if any, covering such matters as are customarily covered in
opinions requested in underwritten offerings and such other matters as may
be reasonably requested by such Holders and underwriters; (v) obtain "cold
comfort" letters (or, in the case of any person that does not satisfy the
conditions for receipt of a "cold comfort" letter specified in Statement on
Auditing Standards No. 72, an "agreed-upon procedures" letter under
Statement on Auditing Standards No. 35) and updates thereof from the
independent certified public accountants of the Company (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each
selling Holder of securities registered thereunder and the underwriters, if
any, in customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with primary underwritten
offerings; and (vi) deliver such documents and certificates as may be
reasonably requested by the Majority Holders and the Managing Underwriters,
if any, including those to evidence compliance with Section 4(k) and with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company. The foregoing actions set forth in
clauses (iii), (iv), (v) and (vi) of this Section 4(r) shall be performed
(A) on the effective date of such
<PAGE>
15
Registration Statement and each post-effective amendment thereto and (B) at
each closing under any underwriting or similar agreement as and to the
extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company shall (i) make reasonably available for inspection by each
Purchaser, and any attorney, accountant or other agent retained by such
Purchaser, all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries reasonably
requested by such person; (ii) cause the Company's officers, directors and
employees to supply all relevant information reasonably requested by such
Purchaser or any such attorney, accountant or agent in connection with any
such Registration Statement as is customary for due diligence examinations
in connection with primary underwritten offerings; provided, however, that
-------- -------
any information that is nonpublic at the time of delivery of such
information shall be kept confidential by such Purchaser or any such
attorney, accountant or agent, unless such disclosure is made in connection
with a court proceeding or required by law, or such information becomes
available to the public generally or through a third party without an
accompanying obligation of confidentiality; (iii) make such representations
and warranties to such Purchaser, in form, substance and scope as are
customarily made by issuers to underwriters in primary underwritten
offerings; (iv) obtain opinions of counsel to the Company (which counsel
and opinions (in form, scope and substance) shall be reasonably
satisfactory to such Purchaser and its counsel), addressed to such
Purchaser, covering such matters as are customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such Purchaser or its counsel; (v) obtain "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data are, or are required to be, included or incorporated by
reference in the Registration Statement), addressed to such Purchaser, in
customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with primary underwritten offerings,
or if requested by such Purchaser or its counsel in lieu of a "cold
comfort" letter, an agreed-upon procedures
<PAGE>
16
letter under Statement on Auditing Standards No. 35, covering matters
requested by such Purchaser or its counsel; and (vi) deliver such documents
and certificates as may be reasonably requested by such Purchaser or its
counsel, including those to evidence compliance with Section 4(k) and with
conditions customarily contained in underwriting agreements. The foregoing
actions set forth in clauses (iii), (iv), (v) and (vi) of this Section 4(s)
shall be performed (A) at the close of the Registered Exchange Offer and
(B) on the effective date of any post-effective amendment to the Exchange
Registration Statement.
5. Registration Expenses. The Company shall bear all expenses
----------------------
incurred in connection with the performance of its obligations under Sections 2,
3 and 4 hereof and, in the event of any Shelf Registration Statement, will
reimburse the Holders for the reasonable fees and disbursements of one firm or
counsel (in addition to one local counsel in each relevant jurisdiction)
designated by the Majority Holders to act as counsel for the Holders in
connection therewith ("Holders' Counsel"). Notwithstanding the foregoing, the
Holders of the securities being registered shall pay all agency or brokerage
fees and commissions and underwriting discounts and commissions attributable to
the sale of such securities and the fees and disbursements of any counsel or
other advisors or experts retained by such holders (severally or jointly), other
than the counsel and experts specifically referred to above in this Section 5,
transfer taxes on resale of any of the securities by such Holders and any
advertising expenses incurred by or on behalf of such Holders in connection with
any offers they may make.
6. Indemnification and Contribution. (a) In connection with any
---------------------------------
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of securities covered thereby (including each Purchaser and, with respect
to any Prospectus delivery as contemplated in Section 4(h) hereof, each
Exchanging Dealer), the directors, officers, employees and agents of each such
Holder and each other person, if any, who controls any such Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Securities Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement as originally filed
<PAGE>
17
or in any amendment thereof, or in any preliminary Prospectus or Prospectus, or
in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and agrees to reimburse each such indemnified party, as incurred, for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
--------
however, that the Company will not be liable in any case to the extent that any
- -------
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any such Holder specifically for
inclusion therein; provided further, however, that the indemnity agreement
---------------- -------
contained in this Section 6(a) shall not inure to the benefit of any indemnified
party to the extent that it is determined by a final, non-appealable judgment
that (i) a preliminary Prospectus contained an untrue statement of a material
fact or omitted to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) the sale to the
person asserting any such losses, claims, damages or liabilities was an initial
resale of securities by any Holder, (iii) any such loss, claim, damage or
liability of such indemnified party results from the fact that there was not
sent or given to such person, at or prior to the written confirmation of the
sale of such securities to such person, a copy of any revised preliminary
Prospectus, the related Prospectus or the related Prospectus as amended or
supplemented in any case where such delivery is required by the Securities Act,
and the Company had previously furnished copies thereof to such Holder and (iv)
the revised preliminary Prospectus, the related Prospectus or the related
Prospectus as amended or supplemented corrected such untrue statement or
omission. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses (as
defined below) of, as provided in Section 6(d), any underwriters of Securities
registered under a Shelf Registration Statement, their officers, directors,
employees and agents and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Purchasers
and the selling Holders provided in this Section 6(a) and shall, if requested by
any Holder, enter into an underwriting agreement reflecting such agreement, as
provided in Section 4(q) hereof.
<PAGE>
18
(b) Each Holder of securities covered by a Registration Statement
(including each Purchaser and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer) severally and not
jointly agrees to indemnify and hold harmless the Company, each of its directors
and officers and each other person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to each such Holder,
but only with reference to written information relating to such Holder furnished
to the Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemni fying party shall not thereafter be responsible for the fees
and expenses of any separate counsel retained by the indem nified party or
parties except as set forth below); provided, however, that such counsel shall
-------- -------
be reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel (and local
counsel) if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party
<PAGE>
19
shall have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding. It is understood,
however, that the Company shall, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of only one separate firm of attorneys (in addition
to any local counsel) at any time for all such Holders and controlling persons.
An indemnifying party shall not be liable under this Section 6 to any
indemnified party regarding any settlement or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
is consented to by such indemnifying party, which consent shall not be
unreasonably withheld.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one
<PAGE>
20
hand, and such indemnified party, on the other hand, from the Initial Placement
and the Registration Statement which resulted in such Losses; provided, however,
-------- -------
that in no case shall any Purchaser or any subsequent Holder of any Security or
New Security be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Security, or in the case of a
New Security, applicable to the Security which was exchangeable into such New
Security, as set forth on the cover page of the Final Memorandum, nor shall any
underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the securities purchased by such underwriter under
the Registration Statement which resulted in such Losses. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the sum of (x) the total net proceeds from the Initial Placement (before
deducting expenses) as set forth on the cover page of the Final Memorandum and
(y) the total amount of additional interest which the Company was not required
to pay as a result of registering the securities covered by the Registration
Statement which resulted in such Losses. Benefits received by the Purchasers
shall be deemed to be equal to the total purchase discounts and commissions as
set forth on the cover page of the Final Memorandum, and benefits received by
any other Holders shall be deemed to be equal to the value of receiving
Securities or New Securities, as applicable, registered under the Securities
Act. Benefits received by any underwriter shall be deemed to be equal to the
total underwriting discounts and commissions, as set forth on the cover page of
the Prospectus forming a part of the Registration Statement which resulted in
such Losses. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
indemnifying party, on the one hand, or by the indemnified party, on the other
hand. The parties agree that it would not be just and equitable if contribution
were determined by pro rata allocation or any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be
<PAGE>
21
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 6, each person who controls a
Holder within the meaning of either the Securities Act or the Exchange Act and
each director, officer, employee and agent of such Holder shall have the same
rights to contribution as such Holder, and each person who controls the Company
within the meaning of either the Securities Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) The provisions of this Section 6 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Purchaser,
any other Holder, the Company or any underwriter or any of the officers,
directors or controlling persons referred to in this Section 6, and will survive
the sale by a Holder of securities covered by a Registration Statement.
7. Miscellaneous.
--------------
(a) No Inconsistent Agreements. The Company has not, as of the date
---------------------------
hereof, entered into, nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that limits the rights granted to the
Holders herein or otherwise conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
-----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Holders of at least a majority of the then outstanding aggregate
principal amount of Securities (or, after the consummation of any Exchange Offer
in accordance with Section 2 hereof, of New Securities); provided that, with
--------
respect to any matter that directly or indirectly affects the rights of any
Purchaser hereunder, the Company shall obtain the written consent of each such
Purchaser against which such amendment, qualification, supplement, waiver or
consent is to be effective. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to departure from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other
<PAGE>
22
Holders may be given by the Majority Holders, determined on the basis of
securities being sold rather than registered under such Registration Statement.
(c) Notices. All notices and other communications provided for or
--------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
facsimile, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this
Section 7(c), which address initially is, with respect to each Holder,
the address of such Holder maintained by the registrar under the
Indenture, with a copy in like manner to Salomon Brothers Inc by
facsimile (212-783-2823) and confirmed by mail to it at Seven World
Trade Center, New York, New York 10048, Attention: General Counsel;
(2) if to you, initially at the address set forth in the Purchase
Agreement; and
(3) if to the Company, initially at its address set forth in the
Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given when received.
The Purchasers or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Successors and Assigns. This Agreement shall inure to the
-----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent by
the Company or subsequent Holders of Securities and/or New Securities. The
Company hereby agrees to extend the benefits of this Agreement to any Holder of
Securities and/or New Securities and any such Holder may specifically enforce
the provisions of this Agreement as if an original party hereto.
(e) Counterparts. This Agreement may be executed in any number of
-------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE>
23
(f) Headings. The headings in this Agreement are for convenience of
---------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
--------------
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
THE CONFLICT OF LAW PROVISIONS THEREOF).
(h) Severability. In the event that any one of more of the
-------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all the rights and privileges of the
parties shall be enforceable to the fullest extent permitted by law.
(i) Securities Held by the Company, etc. Whenever the consent or
------------------------------------
approval of Holders of a specified percentage of principal amount of Securities
or New Securities is required hereunder, Securities or New Securities, as
applicable, held by the Company or its Affiliates (other than subsequent Holders
of Securities or New Securities if such subsequent Holders are deemed to be
Affiliates solely by reason of their holdings of such Securities or New
Securities) shall not be counted in determining whether such consent or approval
was given by the Holders of such required percentage.
(j) Termination. This Agreement shall automatically terminate,
------------
without any further action on the part of the Company or the Purchasers, upon
the termination or cancelation of the Purchase Agreement prior to the Closing
Date.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
LEVEL 3 COMMUNICATION, INC.
By:
/s/ Terrence J. Ferguson
-----------------------------
Name: Terrence J. Ferguson
Title: Senior Vice President
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written
SALOMON BROTHERS INC
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
J.P. MORGAN & CO.
UBS SECURITIES LLC
By: SALOMON BROTHERS INC
By:
________________________
Name:
Title:
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
LEVEL 3 COMMUNICATION, INC.
By:
______________________________
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written
SALOMON BROTHERS INC
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
J.P. MORGAN & CO.
UBS SECURITIES LLC
By: SALOMON BROTHERS INC
By:
/s/ D. Scott Miller
------------------------
Name: D. Scott Miller
Title: Managing Director
<PAGE>
ANNEX A
Each broker-dealer that receives New Securities for its own account pursuant to
the Registered Exchange Offer must acknowledge that it will deliver a prospectus
in connection with any resale of such New Securities. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Securities received in exchange for Securities where such New Securities
received in exchange for Securities where such New Securities were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the date hereof (the
"Expiration Date") and ending on the close of business on the day that is 180
days following the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives New Securities for its own account in exchange
for Securities, where such Securities were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such New Securities. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on the
day that is 180 days following the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 , all
dealers effecting transactions in the Exchange Securities may be required to
deliver a prospectus./*/
The Company will not receive any proceeds from any sale of New Securities
by broker-dealers. New Securities received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Securities or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Securities. Any broker-
dealer that resells New Securities that were received by it for its own account
pursuant to the Registered Exchange Offer and any broker or dealer that
participates in a distribution of such New Securities may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Securities and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
__________________
/*/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer Prospectus.
<PAGE>
2
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (other than the expenses of counsel for the
holders of the Securities) other than commissions or concessions of any brokers
or dealers and will indemnify the holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
[If applicable, add information required by Regulation S-K Items 507 and/or
508.]
<PAGE>
ANNEX D
Rider A
-------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:_________________________
Address:______________________
______________________
Rider B
-------
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New
Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
LEVEL 3 COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FISCAL YEAR ENDED
--------------- ---------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ---- ---- ---- ---- -----
($ IN MILLIONS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (Loss) from Continuing
Operations Before Taxes.......... $ 25 $ 26 $ 70 $116 $ (4) $(33) $ 241
Interest on Debt, net of
Capitalized Interest............ 4 3 15 33 52 77 11
Interest Expense Portion of
Rental Expense.................. -- -- -- 1 -- 1 --
------- ------- ---- ---- ---- ---- -----
Earnings Available for Fixed
Charges.......................... $ 29 $ 29 $ 85 $150 $ 48 $ 45 $ 252
======= ======= ==== ==== ==== ==== =====
Interest on Debt.................. $ 4 $ 3 $ 15 $ 38 $ 72 $ 86 $ 12
MFS Preferred Dividends.......... -- -- -- -- 8 -- --
Interest Expense Portion of
Rental Expense.................. -- -- -- 1 -- 1 --
------- ------- ---- ---- ---- ---- -----
Total Fixed Charges............... $ 4 $ 3 $ 15 $ 39 $ 80 $ 87 $ 12
======= ======= ==== ==== ==== ==== =====
Ratio of Earnings to Fixed
Charges.......................... 7.33 10.06 5.73 3.87 -- -- 20.94
======= ======= ==== ==== ==== ==== =====
Deficiency........................ $ -- $ -- $-- $-- $(32) $(42) $ --
======= ======= ==== ==== ==== ==== =====
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of Level 3 Communications, Inc. on Form S-4 of our reports dated March 30,
1998, of our audits of the consolidated financial statements of Level 3
Communications, Inc., formerly Peter Kiewit Sons', Inc., the financial
statements and financial statement schedule of Kiewit Construction & Mining
Group, a business group of Peter Kiewit Sons', Inc., and the financial
statements of Diversified Group, a business group of Peter Kiewit Sons', Inc.
as of December 27, 1997 and December 28, 1996 and for each of the three years
in the period ended December 27, 1997 which reports are included in the 1997
Annual Report on Form 10-KA of Level 3 Communications, Inc., formerly Peter
Kiewit Sons', Inc. We also consent to the reference to our Firm under the
caption "Experts."
Coopers & Lybrand L.L.P.
Omaha, Nebraska
June 8, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of Level 3 Communications, Inc. on Form S-4 of our report dated March 13,
1998, except Note 2 as to which the date is May 20, 1998, on our audits of the
consolidated financial statements and financial statement schedules of RCN
Corporation and Subsidiaries as of December 31, 1997 and 1996, and for the
years ended December 31, 1997, 1996 and 1995, which report is incorporated by
reference in the 1997 Annual Report on Form 10-KA of Level 3 Communications,
Inc., formerly Peter Kiewit Sons', Inc. We also consent to the reference to
our Firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
June 8, 1998
<PAGE>
EXHIBIT 99.1
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON
, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
LEVEL 3 COMMUNICATIONS, INC.
3555 Farnam Street
Omaha, Nebraska 68131
LETTER OF TRANSMITTAL
For 9 1/8% Senior Notes due 2008
EXCHANGE AGENT:
IBJ SCHRODER BANK & TRUST COMPANY
By Facsimile:
(212) 858-2611
Confirm by telephone:
(212) 858-2103
By Registered or Certified Mail:
IBJ Schroder Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Operations Department
By Overnight Courier or By Hand:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window Subcellar One (SC-1)
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter and not defined herein shall have the
respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Original Notes of which you are the holder. If the
space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Original Notes on a separate SIGNED schedule and affix
that schedule to this Letter.
<PAGE>
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE PRINCIPAL AMOUNT OF ORIGINAL NOTES
(PLEASE FILL IN IF BLANK) NUMBER(S)(1) OF ORIGINAL NOTES TENDERED(2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
TOTALS:
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed if Original Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated, the entire principal amount of Original
Notes represented by a certificate or Book-Entry Confirmation delivered
to the Exchange Agent will be deemed to have been tendered.
The undersigned acknowledges receipt of the Prospectus dated , 1998
(the "Prospectus") of Level 3 Communications, Inc., a Delaware corporation
(the "Company"), and this Letter of Transmittal for 9 1/8% Senior Notes due
2008 which may be amended from time to time (this "Letter"), which together
constitute the Company's offer (the "Exchange Offer") to exchange, for each
$1,000 in principal amount of its outstanding 9 1/8% Senior Notes due 2008
issued and sold in a transaction exempt from registration under the Securities
Act of 1933, as amended (the "Original Notes"), $1,000 in principal amount of
9 1/8% Senior Notes due 2008 (the "New Notes").
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
All holders of Original Notes who wish to tender their Original Notes must,
prior to the Expiration Date: (1) complete, sign, date and mail or otherwise
deliver this Letter to the Exchange Agent, in person or to the address set
forth above; and (2) tender his or her Original Notes or, if a tender of
Original Notes is to be made by book-entry transfer to the account maintained
by the Exchange Agent at The Depository Trust Company (the "Book-Entry
Transfer Facility"), confirm such book-entry transfer (a "Book-Entry
Confirmation"), in each case in accordance with the procedures for tendering
described in the Instructions to this Letter. Holders of Original Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or Book-Entry Confirmation and all other documents required by
this Letter to be delivered to the Exchange Agent on or prior to the
Expiration Date, must tender their Original Notes according to the guaranteed
delivery procedures set forth under the caption "The Exchange Offer -- How to
Tender" in the Prospectus. (See Instruction 1).
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of
the Prospectus or this Letter may be directed to the Exchange Agent, at the
address listed above, or the Company, 3555 Farnam Street, Omaha, Nebraska
68131, Attention: Vice President, Investor Relations (telephone (402) 536-
3677).
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Company the principal amount of Original Notes
indicated above. Subject to, and effective upon, the acceptance for exchange
of the Original Notes tendered with this Letter, the undersigned exchanges,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to the Original Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or her
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered
2
<PAGE>
Original Notes, with full power of substitution, to: (a) deliver certificates
for such Original Notes; (b) deliver Original Notes and all accompanying
evidence of transfer and authenticity to or upon the order of the Company upon
receipt by the Exchange Agent, as the undersigned's agent, of the New Notes to
which the undersigned is entitled upon the acceptance by the Company of the
Original Notes tendered under the Exchange Offer; and (c) receive all benefits
and otherwise exercise all rights of beneficial ownership of the Original
Notes, all in accordance with the terms of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed irrevocable and coupled
with an interest.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, exchange, assign and transfer the Original Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Company to be
necessary or desirable to complete the assignment and transfer of the Original
Notes tendered.
The undersigned agrees that acceptance of any tendered Original Notes by the
Company and the issuance of New Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Agreement (as defined in the Prospectus) and that, upon the issuance of the
New Notes, the Company will have no further obligations or liabilities
thereunder (except in certain limited circumstances). By tendering Original
Notes, the undersigned certifies (a) that it is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act, that it is
not a broker-dealer that owns Original Notes acquired directly from the
Company or an affiliate of the Company, that it is acquiring the New Notes in
the ordinary course of the undersigned's business and that the undersigned is
not engaged in, and does not intend to engage in, a distribution of New Notes
or (b) that it is an "affiliate" (as so defined) of the Company or of the
initial purchasers in the offering of the Original Notes, and that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable to it.
The undersigned acknowledges that, if it is a broker-dealer that will
receive New Notes for its own account in exchange for Original Notes that were
acquired as a result of market-making activities or other trading activities,
it will deliver a prospectus in connection with any resale of such New Notes.
By so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The undersigned understands that the Company may accept the undersigned's
tender by delivering written notice of acceptance to the Exchange Agent, at
which time the undersigned's right to withdraw such tender will terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of
the undersigned under this Letter shall be binding upon the undersigned's
heirs, personal representatives, successors and assigns. Tenders may be
withdrawn only in accordance with the procedures set forth in the Instructions
contained in this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below, the
Exchange Agent will deliver New Notes (and, if applicable, a certificate for
any Original Notes not tendered but represented by a certificate also
encompassing Original Notes which are tendered) to the undersigned at the
address set forth in Box 1.
The undersigned acknowledges that the Exchange Offer is subject to the more
detailed terms set forth in the Prospectus and, in case of any conflict
between the terms of the Prospectus and this Letter, the Prospectus shall
prevail.
3
<PAGE>
[_]CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ________________________________________________
Account Number: _______________________________________________________________
Transaction Code Number: ______________________________________________________
[_]CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s): _______________________________________________
Date of Execution of Notice of Guaranteed Delivery: ___________________________
Window Ticket Number (if available): __________________________________________
Name of Institution which Guaranteed Delivery: ________________________________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: _________________________________________________________________________
Address: ______________________________________________________________________
______________________________________________________________________
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 2
PLEASE SIGN HERE WHETHER OR NOT ORIGINAL NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
X _____________________________ ______________
X _____________________________ ______________
SIGNATURE(S) OF OWNER(S) DATE
OR AUTHORIZED SIGNATORY
Area Code and Telephone Number: ________________________________
This box must be signed by registered holder(s) of Original Notes as their
name(s) appear(s) on certificate(s) for Original Notes, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Letter. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below. (See Instruction 3)
Name(s) _____________________________________________________________________
_____________________________________________________________________________
(PLEASE PRINT)
Capacity ____________________________________________________________________
Address _____________________________________________________________________
_____________________________________________________________________________
(INCLUDE ZIP CODE)
Signature(s) Guaranteed _____________________________________________________
by an Eligible Institution: (AUTHORIZED SIGNATURE)
(If required by______________________________________________________________
Instruction 3)
(TITLE)
____________________________________________________________
(NAME OF FIRM)
5
<PAGE>
BOX 3
- --------------------------------------------------------------------------------
TO BE COMPLETED BY ALL TENDERING HOLDERS
- --------------------------------------------------------------------------------
PAYOR'S NAME: IBJ SCHRODER BANK & TRUST COMPANY
- --------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TIN
IN THE BOX AT RIGHT AND
CERTIFY BY SIGNING AND DATING
BELOW.
-------------------------------
SOCIAL SECURITY
NUMBER
OR EMPLOYER
IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
SUBSTITUTE PART 2--CHECK THE BOX IF YOU ARE NOT SUBJECT TO BACK-UP
FORM W-9 WITHHOLDING BECAUSE (1) YOU HAVE NOT BEEN NOTIFIED BY THE
DEPARTMENT OF THE INTERNAL REVENUE SERVICE THAT YOU ARE SUBJECT TO BACK-UP
TREASURY INTERNAL WITHHOLDING AS A RESULT OF FAILURE TO REPORT ALL
REVENUE SERVICE INTEREST [_] OR DIVIDENDS, OR (2) THE INTERNAL REVENUE
SERVICE HAS NOTIFIED YOU THAT YOU ARE NO LONGER SUBJECT TO
PAYOR'S REQUEST BACK-UP WITHHOLDING, OR (3) YOU ARE EXEMPT FROM BACK-UP
FOR WITHHOLDING.
TAXPAYER
IDENTIFICATION
NUMBER (TIN)
------------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM PART 3
IS TRUE, CORRECT AND COMPLETE. CHECK IF
AWAITING
TIN
SIGNATURE ______________ DATE __________ [_]
- --------------------------------------------------------------------------------
- -------------------------------------- --------------------------------------
BOX 4 BOX 5
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if To be completed ONLY if
certificates for Original Notes in certificates for Original Notes in
a principal amount not exchanged, a principal amount not exchanged,
or New Notes, are to be issued in or New Notes, are to be sent to
the name of someone other than the someone other than the person
person whose signature appears in whose signature appears in Box 2
Box 2, or if Original Notes or to an address other than that
delivered by book-entry transfer shown in Box 1.
which are not accepted for
exchange are to be returned by Deliver:
credit to an account maintained at
the Book-Entry Transfer Facility (check appropriate boxes)
other than the account indicated
above. [_] Original Notes not tendered
[_] New Notes, to:
Issue and deliver:
(check appropriate boxes)
[_] Original Notes not tendered
[_] New Notes, to: Name ______________________________
Name ______________________________ (PLEASE PRINT)
(PLEASE PRINT)
Address ___________________________
Address ___________________________ ___________________________________
Please complete the Substitute
Form W-9 at Box 3
Tax I.D. or Social Security
Number: ________
- -------------------------------------- --------------------------------------
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Original Notes
or a Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed copy of this Letter and any other documents
required by this Letter, must be received by the Exchange Agent at one of its
addresses set forth herein on or before the Expiration Date. The method of
delivery of this Letter, certificates for Original Notes or a Book-Entry
Confirmation, as the case may be, and any other required documents is at the
election and risk of the tendering holder, but except as otherwise provided
below, the delivery will be deemed made when actually received by the Exchange
Agent. If delivery is by mail, the use of registered mail with return receipt
requested, properly insured, is suggested.
Holders whose Original Notes are not immediately available or who cannot
deliver their Original Notes or a Book-Entry Confirmation, as the case may be,
and all other required documents to the Exchange Agent on or before the
Expiration Date may tender their Original Notes pursuant to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedure:
(i) tender must be made by or through an Eligible Institution (as defined in
the Prospectus under the caption "The Exchange Offer"); (ii) prior to the
Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by telegram, telex, facsimile transmission, mail or hand delivery)
(x) setting forth the name and address of the holder, the description of the
Original Notes and the principal amount of Original Notes tendered, (y)
stating that the tender is being made thereby and (z) guaranteeing that,
within three New York Stock Exchange trading days after the date of execution
of such Notice of Guaranteed Delivery, this Letter together with the
certificates representing the Original Notes or a Book-Entry Confirmation, as
the case may be, and any other documents required by this Letter will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) the
certificates for all tendered Original Notes or a Book-Entry Confirmation, as
the case may be, as well as all other documents required by this Letter, must
be received by the Exchange Agent within three New York Stock Exchange trading
days after the date of execution of such Notice of Guaranteed Delivery, all as
provided in the Prospectus under the caption "The Exchange Offer--How to
Tender."
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders that are not
in proper form or the acceptance of which, in the opinion of the Company's
counsel, would be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Original Notes. All
tendering holders, by execution of this Letter, waive any right to receive
notice of acceptance of their Original Notes.
Neither the Company, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount of
any Original Note evidenced by a submitted certificate or by a Book-Entry
Confirmation is tendered, the tendering holder must fill in the principal
amount tendered in the fourth column of Box 1 above. All of the Original Notes
represented by a certificate or by a Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
indicated. A certificate for Original Notes not tendered will be sent to the
holder, unless otherwise provided in Box 5, as soon as practicable after the
Expiration Date, in the event that less than the entire principal amount of
Original Notes represented by a submitted certificate is tendered (or, in the
case of Original Notes tendered by book-entry transfer, such non-exchanged
Original Notes will be credited to an account maintained by the holder with
the Book-Entry Transfer Facility).
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Original Notes, a notice of withdrawal must: (i) be received by the
Exchange Agent before the Company notifies the Exchange Agent that it has
accepted the tender of Original Notes pursuant to the Exchange Offer; (ii)
specify the name of the person who tendered the Original Notes;
7
<PAGE>
(iii) contain a description of the Original Notes to be withdrawn, the
certificate numbers shown on the particular Exchange Agent before the Company
notifies the Exchange Agent that it has accepted the tender of Original Notes
pursuant to the Exchange Offer; (ii) specify the name of the person who
tendered the Original Notes; (iii) contain a description of the Original Notes
to be withdrawn, the certificate numbers shown on the particular certificates
evidencing such Original Notes and the principal amount of Original Notes
represented by such certificates; and (iv) be signed by the holder in the same
manner as the original signature on this Letter (including any required
signature guarantee).
3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If this
Letter is signed by the holder(s) of Original Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificate(s) for such Original Notes, without alteration, enlargement or any
change whatsoever.
If any of the Original Notes tendered hereby are owned by two or more joint
owners, all owners must sign this Letter. If any tendered Original Notes are
held in different names on several certificates, it will be necessary to
complete, sign and submit as many separate copies of this Letter as there are
names in which certificates are held.
If this Letter is signed by the holder of record and (i) the entire
principal amount of the holder's Original Notes are tendered; and/or (ii)
untendered Original Notes, if any, are to be issued to the holder of record,
then the holder of record need not endorse any certificates for tendered
Original Notes, nor provide a separate bond power. If any other case, the
holder of record must transmit a separate bond power with this Letter.
If this Letter or any certificate or assignment is signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and proper evidence satisfactory to
the Company of their authority to so act must be submitted, unless waived by
the Company.
Signatures on this Letter must be guaranteed by an Eligible Institution,
unless Original Notes are tendered: (i) by a holder who has not completed the
Box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter; or (ii) for the account of an Eligible
Institution. In the event that the signatures in this Letter or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by an eligible guarantor institution which is a member of The
Securities Transfer Agents Medallion Program (STAMP), The New York Stock
Exchanges Medallion Signature Program (MSP) or The Stock Exchanges Medallion
Program (SEMP) (collectively, "Eligible Institutions"). If Original Notes are
registered in the name of a person other than the signer of this Letter, the
Original Notes surrendered for exchange must be endorsed by, or be accompanied
by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company, in its sole discretion, duly
executed by the registered holder with the signature thereon guaranteed by an
Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the New
Notes or certificates for Original Notes not exchanged are to be issued or
sent, if different from the name and address of the person signing this
Letter. In the case of issuance in a different name, the tax identification
number of the person named must also be indicated. Holders tendering Original
Notes by book-entry transfer may request that Original Notes not exchanged be
credited to such account maintained at the Book-Entry Transfer Facility as
such holder may designate.
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder
whose tendered Original Notes are accepted for exchange must provide the
Exchange Agent (as payor) with his or her correct taxpayer identification
number ("TIN"), which, in the case of a holder who is an individual, is his or
her social security number. If the Exchange Agent is not provided with the
correct TIN, the holder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, delivery to the holder of the New Notes
pursuant to the Exchange Offer may be subject to back-up withholding. (If
withholding results in overpayment of taxes, a refund or credit may be
obtained.) Exempt holders (including, among others, all corporations and
certain foreign individuals) are not subject to these back-up withholding and
reporting requirements. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
8
<PAGE>
Under federal income tax laws, payments that may be made by the Company on
account of New Notes issued pursuant to the Exchange Offer may be subject to
back-up withholding at a rate of 31%. In order to avoid being subject to back-
up withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the
TIN provided is correct (or that the holder is awaiting a TIN) and that: (i)
the holder has not been notified by the Internal Revenue Service that he or
she is subject to back-up withholding as a result of failure to report all
interest or dividends; or (ii) the Internal Revenue Service has notified the
holder that he or she is no longer subject to back-up withholding; or (iii)
certify in accordance with the Guidelines that such holder is exempt from
back-up withholding. If the Original Notes are in more than one name or are
not in the name of the actual owner, consult the enclosed Guidelines for
information on which TIN to report.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Original Notes to it or its order pursuant to
the Exchange Offer. If, however, the New Notes or certificates for Original
Notes not exchanged are to be delivered to, or are to be issued in the name
of, any person other than the record holder, or if tendered certificates are
recorded in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed by any reason other than the transfer of
Original Notes to the Company or its order pursuant to the Exchange Offer,
then the amount of such transfer taxes (whether imposed on the record holder
or any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of taxes or exemption from taxes is not submitted with
this Letter, the amount of transfer taxes will be billed directly to the
tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend or
waive any of the specified conditions in the Exchange Offer in the case of any
Original Notes tendered.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above, for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: This Letter (together with certificates representing tendered
Original Notes or a Book-Entry Confirmation and all other required documents)
must be received by the Exchange Agent on or before the Expiration Date (as
defined in the Prospectus).
9
<PAGE>
EXHIBIT 99.2
LEVEL 3 COMMUNICATIONS, INC.
EXCHANGE OFFER
TO HOLDERS OF ITS
9 1/8% SENIOR NOTES DUE 2008
NOTICE OF GUARANTEED DELIVERY
As set forth in the Prospectus dated , 1998 (the "Prospectus") of
Level 3 Communications, Inc. (the "Company") under "The Exchange Offer--How to
Tender" and in the Letter of Transmittal (the "Letter of Transmittal")
relating to the offer (the "Exchange Offer") by the Company to exchange up to
$2,000,000,000 in principal amount of its 9 1/8% Senior Notes due 2008 (the
"New Notes") for $2,000,000,000 in principal amount of its 9 1/8% Senior Notes
due 2008, issued and sold in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Original Notes"), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer of
the Company if: (i) certificates for the Original Notes are not immediately
available; or (ii) time will not permit all required documents to reach the
Exchange Agent (as defined below) on or prior to the Expiration Date (as
defined in the Prospectus) of the Exchange Offer. Such form may be delivered
by hand or transmitted by telegram, telex, facsimile transmission or letter to
the Exchange Agent.
TO: IBJ Schroder Bank & Trust Company (the "Exchange Agent")
By Facsimile:
(212) 858-2611
Confirm by telephone:
(212) 858-2103
By Registered or Certified Mail:
IBJ Schroder Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Operations Department
By Overnight Courier or By Hand:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window Subcellar One (SC-1)
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMITTAL OF THIS INSTRUMENT TO
A FACSIMILE OR TELEX NUMBER OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and conditions
set forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which are hereby acknowledged,
the principal amount of Original Notes set forth below pursuant to the
guaranteed delivery procedure described in the Prospectus and the Letter of
Transmittal.
Sign Here
Principal Amount of Original Signature(s) ________________________
Notes _____________________________________
Tendered ________________________
Please Print the Following
Certificate Nos. Information
Name(s) _____________________________
(if available) __________________
_____________________________________
Total Principal Amount Address _____________________________
Represented by Original Notes _____________________________________
Certificate(s) _________________
Area Code and Tel. No(s). ___________
Account Number __________________
-------------------------------------
Dated: ____________________, 1998
2
<PAGE>
GUARANTEE
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17A(d)-15 under the Securities Exchange Act
of 1934, as amended, hereby guarantees that delivery to the Exchange Agent of
certificates tendered hereby, in proper form for transfer, or delivery of such
certificates pursuant to the procedure for book-entry transfer, in either case
with delivery of a properly completed and duly executed Letter of Transmittal
(or facsimile thereof) and any other required documents, is being made within
three trading days after the date of execution of a Notice of Guaranteed
Delivery of the above-named person.
Name of Firm _________________________________
Authorized Signature _________________________
Number and Street or P.O. Box ________________
----------------------------------------------
City___________ State____ Zip Code ___________
Area Code and Tel. No. _______________________
Dated: , 1998
3
<PAGE>
EXHIBIT 99.3
LEVEL 3 COMMUNICATIONS, INC.
OFFER TO EXCHANGE
UP TO $2,000,000,000 IN PRINCIPAL AMOUNT OF
9 1/8% SENIOR NOTES DUE 2008
FOR
$2,000,000,000 IN PRINCIPAL AMOUNT OF
9 1/8% SENIOR NOTES DUE 2008 ISSUED AND
SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
To Our Clients:
Enclosed for your consideration is a Prospectus dated [ ], 1998
(as the same may be amended or supplemented from time to time, the
"Prospectus") and a form of Letter of Transmittal (the "Letter of
Transmittal") relating to the offer (the "Exchange Offer") by Level 3
Communications, Inc. (the "Company") to exchange up to $2,000,000,000 in
principal amount of its 9 1/8% Senior Notes due 2008 (the "New Notes") for
$2,000,000,000 in principal amount of its 9 1/8% Senior Notes due 2008, issued
and sold in a transaction exempt from registration under the Securities Act of
1933, as amended (the "Original Notes").
The material is being forwarded to you as the beneficial owner of Original
Notes carried by us for your account or benefit but not registered in your
name. A tender of any Original Notes may be made only by us as the registered
holder and pursuant to your instructions. Therefore, the Company urges
beneficial owners of Original Notes registered in the name of a broker,
dealer, commercial bank, trust company or other nominee to contact such
registered holder promptly if they wish to tender Original Notes in the
Exchange Offer.
Accordingly, we request instructions as to whether you wish us to tender any
or all Original Notes, pursuant to the terms and conditions set forth in the
Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your
Original Notes.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN ORDER
TO PERMIT US TO TENDER ORIGINAL NOTES ON YOUR BEHALF IN ACCORDANCE WITH THE
PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00 p.m.,
Eastern Standard Time, on [day of week] [ ], 1998, unless extended (the
"Expiration Date"). Original Notes tendered pursuant to the Exchange Offer may
be withdrawn, subject to the procedures described in the Prospectus, at any
time prior to the Expiration Date.
If you wish to have us tender any or all of your Original Notes held by us
for your account or benefit, please so instruct us by completing, executing
and returning to us the instruction form that appears below. The accompanying
Letter of Transmittal is furnished to you for informational purposes only and
may not be used by you to tender Original Notes held by us and registered in
our name for your account or benefit.
<PAGE>
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of Level 3
Communications, Inc.
THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF ORIGINAL NOTES
INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED,
PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE
LETTER OF TRANSMITTAL.
Box 1 [_] Please tender my Original Notes held by you for my account or
benefit. I have identified on a signed schedule attached hereto the
principal amount of Original Notes to be tendered if I wish to tender
less than all of my Original Notes.
Box 2 [_] Please do not tender any Original Notes held by you for my account
or benefit.
Date: , 1998
_____________________________________
_____________________________________
Signature(s)
_____________________________________
_____________________________________
Please print name(s) here
________
Unless a specific contrary instruction is given in a signed Schedule attached
hereto, your signature(s) hereon shall constitute an instruction to us to
tender all of your Original Notes.
2
<PAGE>
EXHIBIT 99.4
LEVEL 3 COMMUNICATIONS, INC.
OFFER TO EXCHANGE
UP TO $2,000,000,000 IN PRINCIPAL AMOUNT OF
9 1/8% SENIOR NOTES DUE 2008
FOR
$2,000,000,000 IN PRINCIPAL AMOUNT OF
9 1/8% SENIOR NOTES DUE 2008 ISSUED AND
SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
To Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated [ ], 1998 (as
the same may be amended or supplemented from time to time, the "Prospectus")
and a form of Letter of Transmittal (the "Letter of Transmittal") relating to
the offer (the "Exchange Offer") by Level 3 Communications, Inc. (the
"Company") to exchange up to $2,000,000,000 in principal amount of its 9-1/8%
Senior Notes due 2008 (the "New Notes") for $2,000,000,000 in principal amount
of its 9-1/8% Senior Notes due 2008, issued and sold in a transaction exempt
from registration under the Securities Act of 1933, as amended (the "Original
Notes").
We are asking you to contact your clients for whom you hold Original Notes
registered in your name or in the name of your nominee. In addition, we ask
you to contact your clients who, to your knowledge, hold Original Notes
registered in their own name. The Company will not pay any fees or commissions
to any broker, dealer or other person in connection with the solicitation of
tenders pursuant to the Exchange Offer. You will, however, be reimbursed by
the Company for customary mailing and handling expenses incurred by you in
forwarding any of the enclosed materials to your clients. The Company will pay
all transfer taxes, if any, applicable to the tender of Original Notes to it
or its order, except as otherwise provided in the Prospectus and the Letter of
Transmittal.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter of Transmittal for your use in connection with the tender of
Original Notes and for the information of your clients;
3. A form of letter that may be sent to your clients for whose accounts you
hold Original Notes registered in your name or the name of your nominee,
with space provided for obtaining the clients' instructions with regard
to the Exchange Offer;
4. A form of Notice of Guaranteed Delivery; and
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., Eastern Standard Time, on [day of week] [ ], 1998, unless
extended (the "Expiration Date"). Original Notes tendered pursuant to the
Exchange Offer may be withdrawn, subject to the procedures described in the
Prospectus, at any time prior to the Expiration Date.
To tender Original Notes, certificates for Original Notes or a Book-Entry
Confirmation, a duly executed and properly completed Letter of Transmittal or
a facsimile thereof, and any other required documents, must be received by the
Exchange Agent as provided in the Prospectus and the Letter of Transmittal.
Additional copies of the enclosed material may be obtained from IBJ Schroder
Bank & Trust Company, the Exchange Agent, by calling (212) 858-2103.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH
RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE
PROSPECTUS AND THE LETTER OF TRANSMITTAL.
