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PROSPECTUS
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-92523 and 333-92523-01
[LOGO]
U S WEST CAPITAL FUNDING, INC.
Offer to exchange all of our Outstanding
$1,150,000,000 6 7/8% Notes due August 15, 2001
for
$1,150,000,000 6 7/8% Notes due August 15, 2001
which have been registered under the Securities Act of 1933
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY,
AND INTEREST ON THE NEW 6 7/8% NOTES IS UNCONDITIONALLY GUARANTEED BY
U S WEST, INC.
Our offer to exchange old 6 7/8% Notes for new 6 7/8% Notes which have been
registered under the Securities Act of 1933, will be open until 5:00 p.m. New
York City Time, on March 15, 2000, unless we extend the offer.
If the anticipated merger with Qwest Communications International Inc. is
consummated, U S WEST will be merged with and into Qwest, and Qwest will become
the guarantor of the old and new 6 7/8% Notes. See "RECENT DEVELOPMENTS--MERGER
WITH QWEST" on page 9.
Application has been made to list the new 6 7/8% Notes on the Luxembourg Stock
Exchange. There will be no active domestic public market for the new 6 7/8%
Notes.
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 7 OF THIS
PROSPECTUS.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT
US AND U S WEST WHICH IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. YOU
CAN OBTAIN DOCUMENTS CONTAINING THIS INFORMATION THROUGH US OR THE SECURITIES
AND EXCHANGE COMMISSION. DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE FROM
US WITHOUT CHARGE, EXCLUDING ALL EXHIBITS, UNLESS WE HAVE SPECIFICALLY
INCORPORATED BY REFERENCE AN EXHIBIT IN THIS PROSPECTUS. YOU MAY OBTAIN
DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS BY REQUESTING THEM IN
WRITING OR BY TELEPHONE FROM: INVESTOR RELATIONS, U S WEST, INC.,
1801 CALIFORNIA STREET, DENVER, COLORADO 80202, TELEPHONE NUMBER
(303) 896-1277. SEE "WHERE YOU CAN FIND MORE INFORMATION."
If you would like to request documents from us, please do so by March 8, 2000 to
receive them before the exchange offer expires.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 7, 2000.
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TABLE OF CONTENTS
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Forward-Looking Information May Prove Inaccurate............ 1
Where You Can Find More Information......................... 2
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
U S WEST Capital Funding, Inc............................... 9
U S WEST, Inc............................................... 9
Recent Developments......................................... 9
Management.................................................. 13
The Exchange Offer.......................................... 17
Use of Proceeds............................................. 24
Capitalization of U S WEST, Inc............................. 25
Ratio of Earnings to Fixed Charges.......................... 25
Capitalization of U S WEST Capital Funding, Inc............. 26
Description of New 6 7/8% Notes............................. 27
Registration Rights......................................... 37
Certain U.S. Federal Tax Considerations..................... 40
Plan of Distribution........................................ 43
Legal Matters............................................... 44
Experts..................................................... 44
General Information......................................... 44
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This prospectus was prepared by us and U S WEST and includes particulars given
in compliance with the rules governing the listing of securities on the
Luxembourg Stock Exchange for the purpose of giving information with regard to
us and U S WEST. We and U S WEST confirm, having made all reasonable inquiries,
that to the best of our and its knowledge and belief, there are no other
material facts the omission of which would make any statement in this prospectus
misleading in any material respect.
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FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
Some of the information presented in this prospectus or incorporated by
reference herein constitutes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Although U S WEST believes
that its expectations are based on reasonable assumptions within the bounds of
its knowledge of its businesses and operations, there can be no assurance that
actual results will not differ materially from its expectations. Factors that
could cause actual results to differ from expectations include:
- greater than anticipated competition from new entrants into the local
exchange, intraLATA toll, wireless, data and directories markets, causing
loss of customers and increased price competition;
- changes in demand for U S WEST products and services, including optional
custom calling features;
- higher than anticipated employee levels, capital expenditures and
operating expenses (such as costs associated with interconnection);
- the loss of significant customers;
- pending and future state and federal regulatory changes affecting the
telecommunications industry, including changes that could have an impact
on the competitive environment and service pricing in the local exchange
market;
- acceleration of the deployment of additional services and/or advanced new
services to customers, such as broadband data, wireless and video
services, which would require substantial expenditure of financial and
other resources;
- changes in economic conditions in the various markets served by
U S WEST's operations;
- higher than anticipated start-up costs associated with new business
opportunities;
- delays in U S WEST's ability to begin offering interLATA long-distance
services;
- timing, cost and consumer acceptance of broadband services, including
telephony, data, video and wireless services;
- delays in the development of anticipated technologies or the failure of
such technologies to perform according to expectations; and
- timing and completion of the recently announced merger with Qwest and the
subsequent integration of the businesses of the two companies. See "RECENT
DEVELOPMENTS--MERGER WITH QWEST."
To the extent that this prospectus contains forward-looking information
regarding Qwest, please see the forward-looking information safe harbor
statements contained in documents Qwest has filed with the Securities and
Exchange Commission (the "SEC" or the "Commission").
To the extent that this prospectus contains forward-looking information
regarding the anticipated merger with Qwest, please see "RISK FACTORS--RISK
FACTORS RELATED TO THE MERGER WITH QWEST."
You should not construe these cautionary statements as an exhaustive list or as
any admission by U S WEST regarding the adequacy of its disclosures. U S WEST
cannot always predict or determine after the fact what factors would cause
actual results to differ materially from those indicated by its forward-looking
statements or other statements. In addition, you are urged to consider
statements that include the terms "believes," "belief," "expects," "plans,"
"objectives," "anticipates," "intends," or the like to be uncertain and
forward-looking. All cautionary statements should be read as being applicable to
all forward-looking statements wherever they appear.
U S WEST does not undertake any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
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WHERE YOU CAN FIND MORE INFORMATION
U S WEST files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document it files at the
SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C., 20549,
and in New York, New York, and Chicago, Illinois. For further information on the
public reference rooms, please call the SEC at 1-800-SEC-0330. U S WEST's SEC
filings are also available to the public from the SEC's web site at
http://www.sec.gov. In addition, its SEC filings may be inspected at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" into this prospectus certain
information that U S WEST files with the SEC, which means that we can disclose
important information to you by referring to that information in this
prospectus. Information incorporated by reference is considered a part of this
prospectus, and later information filed with the SEC will automatically update
and supersede previous information. We incorporate by reference the documents
listed below and any future filings (including filings made after the date on
which the registration statement was initially filed with the SEC and before the
registration statement becomes effective) made by U S WEST with the SEC under
Sections 13(a), 13(c), 14, 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"):
- U S WEST's Annual Report on Form 10-K for the year ended December 31,
1998, as amended by Form 10-K/A filed March 24, 1999;
- U S WEST's Current Reports on Form 8-K filed January 13, 1999,
January 15, 1999, January 22, 1999, February 23, 1999, February 25, 1999,
February 26, 1999, April 7, 1999, April 22, 1999, May 12, 1999, May 18,
1999, May 21, 1999, May 26, 1999, June 18, 1999, June 22, 1999, July 7,
1999, July 21, 1999, July 26, 1999, as amended by Form 8-K/A filed
July 27, 1999, September 20, 1999, October 22, 1999, November 2, 1999,
January 4, 2000 and January 26, 2000;
- U S WEST's Tender Offer Statement on Schedule 14D-1 and Schedule 13D filed
May 21, 1999, as amended May 24, 1999, June 7, 1999, June 11, 1999,
June 18, 1999, June 18, 1999, June 21, 1999, June 24, 1999, June 29, 1999,
August 16, 1999 and December 21, 1999;
- U S WEST's Proxy Statement on Schedule 14A dated September 17, 1999; and
- U S WEST's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999, June 30, 1999 and September 30, 1999.
You may obtain a copy of these filings, at no cost, by writing or telephoning
U S WEST, or by contacting Investor Relations through an e-mail link on
U S WEST's web page, at:
Investor Relations
U S WEST, Inc.
1801 California Street
Denver, Colorado 80202
(303) 896-1277
http://www.uswest.com
Copies of these documents, and any future annual and interim reports filed by
U S WEST with the SEC, will also be available, free of charge, at the principal
office of Kredietbank S.A. Luxembourgeoise, Corporate Trust Department, 43,
Boulevard Royal, L-2955, Luxembourg, telephone number 352 4797 3913. Separate
financial statements of Capital Funding are not publicly available.
You should rely only on the information in this prospectus or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making any offer of these debt securities in
any state where the offer is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any date other than
the date on the front page of this prospectus.
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PROSPECTUS SUMMARY
WHO WE ARE
U S WEST Capital Funding, Inc. (the "Company" or "Capital Funding" which may be
referred to as "we," "us," or "our") is a wholly owned subsidiary of U S WEST,
Inc. ("U S WEST"). We provide financing to U S WEST and its affiliates by
issuing debt guaranteed by U S WEST. We are a Colorado corporation and our
principal executive offices are located at 1801 California Street, Denver,
Colorado 80202, telephone number (303) 672-2700.
U S WEST is a diversified communications company providing services principally
to customers in a 14-state mountain and western region of the United States.
This region is comprised of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana,
Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and
Wyoming. U S WEST's services include telecommunications and related services,
wireless services, high-speed data and Internet services, and directory
services. The major component of U S WEST is U S WEST Communications, Inc.,
which has more than 25 million residential and business customers for
communication services. U S WEST is a Delaware corporation and its principal
executive offices are located at 1801 California Street, Denver, Colorado 80202,
telephone number (303) 672-2700. U S WEST has one class of common stock, par
value $.01 per share. For additional information, please refer to the documents
we have incorporated by reference. See "WHERE YOU CAN FIND MORE INFORMATION."
THE EXCHANGE OFFER
On August 25, 1999, we issued $1,150,000,000 aggregate principal amount of
6 7/8% Notes (the "old 6 7/8% Notes") to certain initial purchasers in a
transaction exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"). The terms of the new 6 7/8% Notes ("new
6 7/8% Notes") and the old 6 7/8% Notes are substantially identical in all
material respects, except that the new 6 7/8% Notes will be freely transferable
by the holders, except as otherwise provided in this prospectus.
We are offering to exchange $1,000 principal amount of new 6 7/8% Notes
(together with the old 6 7/8% Notes, the "6 7/8% Notes") in exchange for each
$1,000 principal amount of old 6 7/8% Notes (the "exchange offer").
The new 6 7/8% Notes issued in the exchange offer may be offered for resale or
resold by holders without having to comply with the registration and prospectus
delivery requirements of the Securities Act, provided that:
- the new 6 7/8% Notes are acquired in the ordinary course of the holders'
business and the holders have no arrangement with any person to engage in
a distribution of new 6 7/8% Notes, and
- the holders are not "affiliates" of U S WEST or broker-dealers who
purchased old 6 7/8% Notes directly from us to resell under Rule 144A or
any other available exemption under the Securities Act.
Each holder, other than a broker-dealer, must acknowledge that it is not engaged
in and does not intend to engage in a distribution of the new 6 7/8% Notes and
has no arrangement to participate in a distribution of new 6 7/8% Notes. Each
broker-dealer that receives new 6 7/8% Notes for its own account in the exchange
offer must acknowledge that it will comply with the prospectus delivery
requirements of the Securities Act in connection with any resale of the new
6 7/8% Notes. Broker-dealers who acquired old 6 7/8% Notes directly from us and
not as a result of market-making activities or other
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trading activities may not participate in the exchange offer and must comply
with the prospectus delivery requirements of the Securities Act in order to
resell the old 6 7/8% Notes.
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EXPIRATION DATE........................ The exchange offer will expire at 5:00 p.m., New York City
time, on March 15, 2000, or a later date and time to which
we extend it (the "expiration date").
WITHDRAWAL............................. The tender of the old 6 7/8% Notes in the exchange offer
may be withdrawn at any time prior to 5:00 p.m., New York
City time, on March 15, 2000, or a later date and time to
which we extend the offer.
INTEREST ON THE NEW 6 7/8% NOTES AND
THE OLD 6 7/8% NOTES................. Interest on the new 6 7/8% Notes will accrue from the date
of the original issuance of the old 6 7/8% Notes or from
the date of the last periodic payment of interest on the
old 6 7/8% Notes, whichever is later. No additional
interest will be paid on the old 6 7/8% Notes tendered and
accepted for exchange. However, old 6 7/8% Notes which are
not tendered or accepted for exchange will continue to
accrue interest.
PROCEDURES FOR TENDERING OLD 6 7/8%
NOTES................................ To accept the exchange offer, you must complete, sign and
date a copy of the letter of transmittal and mail or
otherwise deliver it, together with the old 6 7/8% Notes
and any other required documentation, to the exchange
agent at the address set forth in this prospectus. Persons
holding the old 6 7/8% Notes through the Depository Trust
Company and wishing to accept the exchange offer must do
so under the Depository Trust Company's automated tender
offer program. Under this program, each tendering
participant will agree to be bound by the letter of
transmittal.
EXCHANGE AGENT......................... Our principal exchange agent is Bank One Trust Company,
National Association. For Luxembourg holders, our exchange
agent in Luxembourg is Kredietbank S.A. Luxembourgeoise.
FEDERAL INCOME TAX CONSIDERATIONS...... In the opinion of our counsel, the exchange of old 6 7/8%
Notes for new 6 7/8% Notes in the exchange offer will not
be a taxable exchange for United States federal income tax
purposes.
EFFECT OF NOT TENDERING................ Old 6 7/8% Notes that are not tendered or that are
tendered but not accepted will continue to be subject to
the existing restrictions on transfer. We will have no
further obligation to register the old 6 7/8% Notes under
the Securities Act.
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THE NEW 6 7/8% NOTES
Some of the terms and conditions described below are subject to important
limitations and exceptions. The "DESCRIPTION OF NEW 6 7/8% NOTES" section of
this prospectus beginning on page 27 contains a more detailed description of the
terms and conditions of the new 6 7/8% Notes.
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ISSUER................................. U S WEST Capital Funding, Inc., a Colorado corporation.
GUARANTOR.............................. U S WEST, Inc., a Delaware corporation. If the anticipated
merger with Qwest Communications International Inc.
("Qwest") is consummated, U S WEST will be merged with and
into Qwest, and Qwest will become the guarantor of the
6 7/8% Notes. See "RECENT DEVELOPMENTS--MERGER WITH
QWEST."
SECURITIES OFFERED..................... $1,150,000,000 principal amount of new 6 7/8% Notes due
2001.
MATURITY............................... August 15, 2001.
INTEREST RATE.......................... 6 7/8% per annum, calculated using a 360-day year of
twelve 30 day months.
INTEREST PAYMENT DATES................. February 15, 2000, August 15, 2000, February 15, 2001, and
August 15, 2001.
RANKING................................ The new 6 7/8% Notes will rank equally with all of our
other unsecured and unsubordinated indebtedness. As of
September 30, 1999, we had approximately $6.8 billion of
debt outstanding, not counting debt of U S WEST's other
subsidiaries.
The 6 7/8% Notes are obligations guaranteed by U S WEST,
and if the merger with Qwest is consummated, Qwest will
become the guarantor of the 6 7/8% Notes. Each of
U S WEST and Qwest is a holding company with no material
assets other than the stock of its subsidiaries. Both
U S WEST's and Qwest's subsidiaries conduct substantially
all of their respective operations and own substantially
all of their respective assets at the subsidiary level. As
a result, the 6 7/8% Notes effectively rank junior to all
existing and future debt, trade payables and other
liabilities of U S WEST's subsidiaries other than Capital
Funding before the merger, and the subsidiaries of Qwest
after the merger.
OPTIONAL REDEMPTION.................... We can redeem the 6 7/8% Notes at any time at a redemption
price determined as described under "DESCRIPTION OF NEW
6 7/8% NOTES--OPTIONAL REDEMPTION" on page 28.
LISTING................................ Application has been made to list the new 6 7/8% Notes on
the Luxembourg Stock Exchange.
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RISK FACTORS
We urge you to carefully review the risk factors beginning on page 7 for a
discussion of factors you should consider before exchanging your old 6 7/8%
Notes for new 6 7/8% Notes.
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SELECTED FINANCIAL DATA FOR U S WEST, INC.
The table below shows selected historical financial information for U S WEST.
The information has been prepared using the consolidated financial statements of
U S WEST as of the dates indicated and for each of the fiscal periods presented.
Interim operating results are not necessarily indicative of results that may be
expected for the full year (in millions).
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(UNAUDITED)
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1994 1995 1996 1997 1998 1998 1999
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Operating revenues.............................. $10,132 $10,508 $11,168 $11,479 $12,378 $ 9,174 $ 9,691
Operating expenses.............................. 7,616 7,931 8,356 8,703 9,329 6,876 7,201
Operating income................................ 2,516 2,577 2,812 2,776 3,049 2,298 2,490
Income before extraordinary item and cumulative
effect of change in accounting principle(1)... 1,403 1,431 1,501 1,527 1,508 1,140 936
Net income(2)................................... 1,403 1,423 1,535 1,524 1,508 1,140 1,176
Pro forma income(3)............................. * * * * 1,436 1,068 *
Total assets.................................... 16,317 16,960 17,279 17,667 18,407 18,061 21,275
Total debt(4)................................... 6,147 6,782 6,545 5,715 9,919 9,833 13,133
Debt to total capital ratio..................... 64.7% 65.0% 61.6% 56.7% 92.9% 94.0% 97.3%
EBITDA(5)....................................... $ 4,444 $ 4,644 $ 4,970 $ 4,939 $ 5,248 $ 3,923 $ 4,253
Interest expense................................ 381 429 448 405 543 378 519
Capital expenditures............................ 2,513 2,770 2,831 2,672 2,905 1,920 2,819
Telephone network access lines in service
(thousands)................................... 14,299 14,795 15,424 16,033 16,601 16,408 16,912
Billed access minutes of use (millions):
Interstate.................................... 43,768 47,801 52,039 55,362 58,927 43,868 46,207
Intrastate.................................... 8,507 9,504 10,451 11,729 12,366 9,206 9,625
Total employees................................. 55,246 54,552 51,477 51,110 54,483 53,758 56,634
Telephone company employees..................... 47,493 47,934 45,427 43,749 46,310 45,654 47,758
Telephone company employees per 10,000 access
lines......................................... 33.2 32.4 29.5 27.3 27.9 27.8 28.2
Dividends paid on common stock.................. * * $ 939 $ 992 $ 1,056 $ 787 $ 917
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(1) 1999 income includes terminated merger-related expenses of $282. 1998 income
includes separation expenses of $68 associated with the separation (the
"Separation") of U S WEST's former parent company ("Old U S WEST") into two
independent companies and an asset impairment charge of $21. 1997 income
includes a $152 regulatory charge related primarily to the 1997 Washington
State Supreme Court ruling that upheld a Washington rate order, a gain of
$32 on the sale of an interest in Bell Communications Research, Inc. and a
gain of $48 on the sales of local telephone exchanges. 1996 income includes
a gain of $36 on the sales of local telephone exchanges and the current
effect of $15 from adopting Statement of Financial Accounting Standards
("FAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." 1995 income includes a gain of $85 on
the sales of local telephone exchanges and costs of $8 associated with a
1995 recapitalization. 1994 income includes a gain of $51 on the sales of
local telephone exchanges.
(2) 1999 net income includes $240 for the cumulative effect of a change in
accounting principle related to recognizing directory publishing revenues
and expenses from the "deferral" method to the "point of publication"
method. Prior to 1999, Dex recognized revenues and expenses related to
publishing directories using the "deferral" method, under which revenues and
expenses were recognized over the lives of the directories, generally one
year. Effective the fourth quarter of 1999, Dex changed to the "point of
publication" method of accounting, which recognizes revenues and expenses at
the time the related directory is published. The change in methodology was
made to align our revenue and expense policy with the earnings process and
to better reflect the operating activity of the business. 1997 net income
was reduced by an extraordinary charge of $3 for the early extinguishment of
debt. 1996 net income includes a gain of $34 for the cumulative effect of
the adoption of FAS No. 121. 1995 net income was reduced by an extraordinary
item of $8 for the early extinguishment of debt.
(3) Pro forma income reflects the incremental interest expense associated with
the U S WEST Dex indebtedness assumed in the Separation ("Dex Indebtedness")
from the beginning of the period through the Separation date.
(4) 1998 and 1999 debt includes $3,900 of Dex Indebtedness.
(5) Earnings before interest, taxes, depreciation, amortization and other
("EBITDA"). U S WEST considers EBITDA an important indicator of the
operational strength and performance of its business. EBITDA, however,
should not be considered as an alternative to operating or net income as an
indicator of the performance of U S WEST's business or as an alternative to
cash flows from operating activities as a measure of liquidity, in each case
determined in accordance with generally accepted accounting principles.
* Information has not been presented.
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RISK FACTORS
You should carefully consider the following discussion of risks, and the other
information included or incorporated by reference in this prospectus in
evaluating us and U S WEST and our and their business before participating in
the exchange offer:
RISK FACTORS RELATED TO THE EXCHANGE
Holders of old 6 7/8% Notes who do not exchange their old 6 7/8% Notes for new
6 7/8% Notes will continue to be subject to the restrictions on transfer of the
old 6 7/8% Notes, as set forth in the legends on the old 6 7/8% Notes. The old
6 7/8% Notes may not be offered or sold unless they are registered under the
Securities Act or are exempt from registration. See "THE EXCHANGE OFFER."
RISK FACTORS RELATED TO THE MERGER WITH QWEST
U S WEST and Qwest entered into an Agreement and Plan of Merger, dated as of
July 18, 1999 and amended by Amendment No. 1, dated as of September 8, 1999 (the
"Qwest Merger Agreement"), a copy of which is attached to U S WEST's Schedule
14A dated September 17, 1999. U S WEST and Qwest are independent companies and
will continue to remain independent until the completion of the merger. Upon
completion of the merger, holders of U S WEST common stock will receive, for
each share of U S WEST common stock, subject to the collar and the cash option
described in the Qwest Merger Agreement, shares of Qwest common stock having a
value of $69. The merger is subject to the approval of the Federal
Communications Commission ("FCC") and other state regulatory reviews.
DIFFICULTIES IN COMBINING OPERATIONS AND REALIZING SYNERGIES.
U S WEST and Qwest have entered into the Qwest Merger Agreement with the
expectation that the merger will result in certain benefits, including operating
efficiencies, cost savings, synergies and other benefits. Achieving the benefits
of the merger will depend in part upon the integration of the businesses of
U S WEST and Qwest in an efficient manner, which both companies believe will
require considerable effort. In addition, the consolidation of operations will
require substantial attention from management. The diversion of management
attention and any difficulties encountered in the transition and integration
process could have a material adverse effect on the revenues, levels of expenses
and operating results of the combined company. No assurance can be given that
U S WEST and Qwest will succeed in integrating their operations in a timely
manner or without encountering significant difficulties or that the expected
operating efficiencies, cost savings, synergies and other benefits from such
integration will be realized.
REGULATORY APPROVALS MAY BE DELAYED OR CONDITIONED.
Completion of the merger is conditioned on receipt of all material regulatory
consents and approvals required under the applicable statutes, policies and
rules governing the FCC and state public utility commissions. There can be no
assurance that such approvals will be granted on a timely basis, or without
materially adverse conditions which could affect the combined company's ability
to service its debt, including the 6 7/8% Notes.
DIVESTITURE OF IN-REGION INTERLATA BUSINESS.
The Telecommunications Act of 1996 currently prohibits U S WEST from providing
long distance telecommunications services between Local Access and Transport
Areas (LATAs) within its 14 state region, and between these LATAs and locations
outside its region. Upon the completion of the merger, the interLATA service
prohibition also would apply to Qwest. Consequently, upon the completion of the
merger, it is anticipated that Qwest will discontinue providing such interLATA
services, and such services will be divested under separate agreements. There
can be no assurance that the terms and conditions under which the divestitures
will be made will permit Qwest to receive the full economic value of its
in-region interLATA business. Furthermore, completion of the merger could be
delayed if the necessary divestitures cannot be completed on a timely basis. The
combined company will continue to provide long distance services outside the
U S WEST region. The parties have anticipated some loss of out-of-region long
distance business as a result of the discontinuance of in-region business.
However,
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there can be no assurance that these losses will not be materially greater than
expected or will not materially affect the combined company's ability to service
its debt, including the 6 7/8% Notes.
FUTURE PROVISION OF INTERLATA SERVICES.
U S WEST and, upon completion of the merger, the combined company will be
allowed to provide in-region interLATA services upon satisfaction of certain
regulatory conditions primarily related to local exchange telephone competition.
These restrictions will be lifted on a state by state basis following further
proceedings in certain states in which U S WEST conducts business and at the
FCC. U S WEST expects to file entry applications with a number of state public
utility commissions for their review in 2000, with FCC filings following
favorable state action, but there can be no assurance that they will be
successful in that regard. Even after elimination of the interLATA restrictions
the combined company's long distance operations will be subject to various
regulatory constraints, including the requirement that interLATA services be
offered through a subsidiary that is structurally separated from the combined
company's local exchange services. There can be no assurance that these
regulations will not have a material adverse effect on the combined company's
ability to compete or will not materially affect its ability to service its
debt, including the 6 7/8% Notes.
U S WEST IS DEPENDENT ON ITS SUBSIDIARIES FOR REPAYMENT OF DEBT.
The 6 7/8% Notes are obligations guaranteed by U S WEST, and, if the merger with
Qwest is consummated, Qwest will become the guarantor of the 6 7/8% Notes. Each
of U S WEST and Qwest is a holding company with no material assets other than
the stock of its subsidiaries. Both U S WEST and Qwest conduct substantially all
of their respective operations and own substantially all of their respective
assets at the subsidiary level. As a result, the 6 7/8% Notes effectively will
rank junior to all existing and future debt, trade payables and other
liabilities of U S WEST's subsidiaries other than Capital Funding before the
merger, and the subsidiaries of Qwest after the merger. The rights of U S WEST
before the merger, and the rights of Qwest after the merger, and hence the
rights of their respective creditors (including holders of the 6 7/8% Notes
through U S WEST's guarantee of payment of principal, premium, if any, and
interest (the "Guarantees")) to participate in any distribution of assets of any
subsidiary upon its liquidation or reorganization or otherwise would be subject
to the prior claims of the subsidiary's creditors, except to the extent that
claims of U S WEST or Qwest, as applicable, itself as a creditor of the
subsidiary may be recognized. After the payment of the subsidiary's liabilities,
the subsidiary may not have enough assets remaining to pay U S WEST before the
merger and Qwest after the merger, to permit their respective creditors,
including the holders of the 6 7/8% Notes through the Guarantees, to be paid.
OTHER RISKS
U S WEST may decide to accelerate the deployment of additional services and/or
advanced new services to customers, such as broadband data, wireless and video
services, which would require substantial expenditure of financial and other
resources. Such acceleration could have a material adverse effect on
U S WEST's financial condition or results of operations.
CREDIT RATINGS
After U S WEST announced on May 17, 1999 that it had entered into an agreement
and plan of merger with Global Crossing Ltd., a Bermuda company ("Global
Crossing") (as described under "RECENT DEVELOPMENTS" below), the ratings
assigned to the senior unsecured indebtedness of U S WEST and our company were
downgraded to Baa1 from A3 by Moody's Investors Services, Inc. ("Moody's").
Furthermore, due to uncertainty involving required approvals and other matters
relating to the initial Global Crossing merger announcement, each of Moody's,
Standard & Poor's Ratings Services ("Standard & Poor's"), and Duff & Phelps
Credit Rating Co. ("Duff & Phelps") have placed the ratings assigned to
U S WEST's and our senior unsecured indebtedness under review, in each case,
with implications for possible downgrade. Following the announcement of the
Qwest Merger Agreement, none of the ratings assigned to U S WEST's and our
senior unsecured indebtedness were changed by Moody's, Duff & Phelps and
Standard & Poor's. However, these ratings continue to be
8
<PAGE>
under review by the rating agencies. Because the proposed Qwest merger is not
expected to be consummated before mid-2000, it is possible that U S WEST and our
ratings will remain under review throughout much of the term of the 6 7/8% Notes
and could affect the market value of the 6 7/8% Notes.
The current credit ratings for our and U S WEST's senior unsecured indebtedness
are as follows:
<TABLE>
<CAPTION>
MOODY'S STANDARD & POOR'S DUFF & PHELPS
------- ----------------- -------------
<S> <C> <C>
Baa1 A- A
</TABLE>
U S WEST CAPITAL FUNDING, INC.
We are a wholly-owned subsidiary of U S WEST. We provide financing to U S WEST
and its affiliates by issuing debt guaranteed by U S WEST. We are a Colorado
corporation, governed by Colorado law and were incorporated on June 10, 1986.
Our principal executive offices are located at 1801 California Street, Denver,
Colorado 80202, and our telephone number is (303) 672-2700.
U S WEST, INC.
U S WEST is a diversified communications company providing services principally
to customers in a 14-state mountain and western region of the United States.
This region is comprised of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana,
Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and
Wyoming. U S WEST's services include telecommunications and related services,
wireless services, high-speed data and Internet services, and directory
services. The major component of U S WEST is U S WEST Communications, Inc.,
which provides communications services to more than 25 million residential and
business customers. U S WEST is a Delaware corporation, governed by Delaware law
and was incorporated on December 23, 1997. Its principal executive offices are
located at 1801 California Street, Denver, Colorado 80202, and its telephone
number is (303) 672-2700. U S WEST has one class of common stock, par value $.01
per share. For additional information about U S WEST, please refer to the
documents we have incorporated by reference. See "WHERE YOU CAN FIND MORE
INFORMATION."
RECENT DEVELOPMENTS
MERGER WITH QWEST
On July 18, 1999, U S WEST and Qwest entered into the Qwest Merger Agreement, a
copy of which is attached to U S WEST's Current Report on Form 8-K filed
July 21, 1999, which is incorporated by reference in this prospectus. U S WEST
and Qwest are independent companies and will continue to remain independent
until the completion of the merger. Upon completion of the merger, holders of
U S WEST common stock will receive, for each share of U S WEST common stock,
subject to the collar and the cash option described in the Qwest Merger
Agreement, shares of Qwest common stock having a value of $69. The merger is
subject to the approval of the FCC and other state regulatory reviews.
Prior to the execution of the Qwest Merger Agreement, U S WEST entered into a
Termination Agreement (the "Termination Agreement") with Global Crossing,
terminating the Agreement and Plan of Merger, dated as of May 16, 1999, between
U S WEST and Global Crossing (the "Global Crossing Merger Agreement"). In
connection with the Global Crossing Merger Agreement, U S WEST completed a cash
tender offer for approximately 39 million shares of Global Crossing common stock
at a price of $62.75 per share (the "Tender Offer"). As consideration for the
termination of the Global Crossing Merger Agreement, U S WEST paid Global
Crossing $140 million in cash and 2,231,076 shares of Global Crossing common
stock. Qwest lent $140 million in cash to U S WEST to pay the cash portion and
Qwest entered into an agreement to buy $140 million in services from Global
Crossing. A copy of the Termination Agreement is attached to U S WEST's Current
Report on Form 8-K filed July 21, 1999, which is incorporated by reference in
this prospectus. In December 1999, we monetized a portion of our holdings in
Global Crossing and sold 24 million Global Crossing shares for approximately
$1.14 billion (before expenses).
9
<PAGE>
QWEST
Qwest is a broadband, Internet communications services company with a
high-capacity fiber optic communications network. Qwest's communications
services business offers Internet and multimedia services as well as traditional
voice communications services. Its Internet and multimedia services include
services related to the transmission of image, data and voice information. Qwest
provides services to business customers, governmental agencies and consumers in
domestic and international markets. Qwest also provides wholesale services to
other communications providers, including Internet service providers and other
data service companies. Qwest's network uses both Internet communications
technology and traditional telephone communications technology. Communications
on the Internet are governed by Internet communications protocol, a standard
that allows communication across the Internet regardless of the hardware and
software used.
The Qwest Macro Capacity-Registered Trademark- Fiber Network, designed with the
newest optical networking equipment for speed and efficiency, spans more than
24,500 miles in North America. In addition, KPNQwest, Qwest's European joint
venture with KPN, the Dutch telecommunications company, is building and will
operate a high-capacity European fiber optic, Internet-based network that will
span 9,150 miles when it is completed in 2001.
Qwest has a 1,400-route-mile extension of the U.S. network into Mexico and owns
capacity on three undersea systems linking the network to Europe. Qwest is also
part of a consortium of communications companies that is building a submarine
13,125-mile, four-fiber pair cable system connecting the U.S. to Japan that is
expected to be capable of transmitting information at the rate of 640 gigabits
per second.
Qwest is subject to the reporting requirements of the Exchange Act and, in
accordance therewith, is required to file reports and other information with the
SEC relating to its business, financial condition and other matters. Such
information may be examined and copies may be obtained from the SEC as described
under "WHERE YOU CAN FIND MORE INFORMATION." Such information should also be on
file at the office of the New York Stock Exchange, 20 Broad Street, New York,
New York 10005. U S WEST encourages you to read such reports in their entirety
and to review other publicly available information about Qwest before making an
investment decision.
The information contained in this section of the prospectus regarding Qwest has
been derived from the publicly available documents described in the preceding
paragraph. Neither we nor U S WEST have independently verified the accuracy or
completeness of the Qwest information, and neither we nor U S WEST makes any
representation or warranty, express or implied, regarding the Qwest information
contained in this prospectus.
REASONS FOR THE MERGER
In the past several years, the communications industry has experienced a
significant increase in mergers, acquisitions and consolidations among local
service providers, long distance providers, broadband Internet providers, cable
television companies and other emerging technology companies. These industry
changes have resulted from significant competitive, regulatory and technological
changes over the last few years and are an indication that the most effective
competitors in the communications industry are expected to be those companies
that offer the most complete array of products and services without geographic
limitations. Strong national and international players, which have formed and
are forming through mergers, acquisitions and alliances, are looking to lead the
telecommunications industry by offering customers one-stop shopping for their
communications services, including broadband Internet services.
U S WEST's strategy is to provide customers with integrated advanced
communications products and services through its enhanced network capacity and
capability, custom calling features, integration of wireline and wireless
services, and its broadband Internet products and services. Through its
directories
10
<PAGE>
business, U S WEST also provides directory services throughout its 14-state
region, and is expanding that service onto the Internet through electronic
publishing. By combining, U S WEST expects to bring together U S WEST's
innovative local communications and broadband Internet access capability with
Qwest's advanced network and broadband Internet service capability. Through this
combination, U S WEST believes that the combined company will be able to offer
customers in the United States and worldwide more choices and greater access to
next generation telecommunications and broadband Internet based services,
including web hosting and value added web based applications. The combined
company will also be able to share resources and capitalize on synergies that
U S WEST anticipates will speed U S WEST's ability to compete effectively at the
top tier of the telecommunications industry. U S WEST also believes that the
merger will enable both companies to achieve their mutual goals more quickly
than either company could have achieved separately. See "FORWARD-LOOKING
INFORMATION MAY PROVE INACCURATE."
U S WEST believes that the merger will create a stronger competitor and will
provide significant value for its shareholders, employees and customers for the
following reasons, among others:
- U S WEST believes that the combination of U S WEST and Qwest will create a
benchmark large-capitalization growth company with increasing revenues and
profits.
- U S WEST expects the combination of U S WEST and Qwest will enable the
combined company to achieve gross revenue, net financial and operational
synergies. U S WEST also expects that these synergies will be comprised of
(1) incremental revenues as the combined company expands its local, data,
Internet Protocol and long-distance services; (2) operating cost savings
in areas such as network operations and maintenance, sales and marketing,
billing, and customer and back office support; and (3) capital savings
through elimination of duplication in the companies' planned network
buildouts and in other infrastructure and back-office areas.
- U S WEST believes the combination of U S WEST and Qwest will accelerate
the strategic development of both companies and will enable the combined
company to grow faster than each company could grow individually and will
increase total revenues and profits faster than each company would
accomplish individually. In particular, U S WEST expects that the
combination will accelerate the delivery of Internet-based broadband
communications services provided by Qwest to the large customer base of
U S WEST and will bring together complementary assets, resources and
expertise and the network infra-structure, applications, services and
customer distribution channels of both companies and that the combination
of customer bases, assets, resources and expertise in a timely manner will
permit the combined company to compete more effectively in rapidly
consolidating industries. U S WEST believes the combination will also
enable the combined company to rapidly increase its customer base for
their respective products by acquiring the other company's customer bases.
The combined company would have an expanding client base of more than
29 million customers, including many multinational corporations.
- U S WEST believes worldwide broadband end-to-end infrastructure, expanded
range of products and services, access to both companies' customers,
people and processes and combined use of both companies' distribution and
operating systems will create growth for the combined company and that, as
a large company with global scale and scope, multiple capabilities,
end-to-end broadband connectivity, and a full suite of data, voice and
video products and services, the combined company can successfully compete
in the telecommunications industry in the long-term.
- U S WEST believes the combined company will be able to redeploy capital
toward new investment in Internet applications and hosting, out-of-region
facilities based competitive local exchange service, out-of-region
broadband access and Internet services, wireless expansion and video
entertainment.
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<PAGE>
- U S WEST believes the combined company will be able to obtain the required
regulatory approvals to permit the merger to close in a timely manner
without the imposition by regulators of conditions that would prevent it
from obtaining substantially all of the expected benefits of the merger.
THE SEPARATION
On October 25, 1997, the Board of Directors of U S WEST's former parent company
("Old U S WEST") adopted a proposal to separate Old U S WEST into two
independent companies (the "Separation"). Old U S WEST conducted its businesses
through two groups: (i) the U S WEST Communications Group (the "Communications
Group"), which included the communications businesses of Old U S WEST, and
(ii) the U S WEST Media Group (the "Media Group"), which included the multimedia
and directory businesses of Old U S WEST. On June 4, 1998, stockholders of Old
U S WEST voted in favor of the Separation, which became effective June 12, 1998.
As part of the Separation, Old U S WEST contributed to U S WEST the businesses
of the Communications Group and the domestic directories business of the Media
Group known as Dex. The alignment of Dex with U S WEST is referred to in this
prospectus as the "Dex Alignment." Old U S WEST has continued as an independent
public company comprised of the businesses of the Media Group, other than Dex,
and has been renamed MediaOne Group, Inc.
In connection with the Dex Alignment: (i) Old U S WEST distributed, as a
dividend to holders of Media Group common stock, approximately 16,341,000 shares
of U S WEST's common stock (net of the redemption of approximately 305,000
fractional shares) with an aggregate value of $850 million and (ii) U S WEST
refinanced $3.9 billion of Old U S WEST debt, formerly allocated to the Media
Group.
12
<PAGE>
MANAGEMENT
DIRECTORS OF CAPITAL FUNDING
Our directors and their principal occupations as of the date of this
prospectus are set forth in the following table.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- ---- --------------------
<S> <C>
Allan R. Spies............................... Executive Vice President and Chief Financial
Officer, U S WEST
Janet K. Cooper.............................. Vice President--Finance and Controller,
U S WEST
Sean P. Foley................................ Vice President--Treasurer, U S WEST
</TABLE>
The business address of our directors is 1801 California Street, Denver,
Colorado 80202, U.S.A.
DIRECTORS OF U S WEST
The directors of U S WEST and their principal occupations, business experience
and other directorships as of the date of this prospectus are set forth in the
following table.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- ---- --------------------
<S> <C>
LINDA G. ALVARADO
PRINCIPAL OCCUPATION AND BUSINESS President and Chief Executive Officer of Alvarado
EXPERIENCE: Construction, Inc. since 1978
OTHER DIRECTORSHIPS: Engelhard Corporation; Pitney Bowes, Inc.
CRAIG R. BARRETT
PRINCIPAL OCCUPATION: President and Chief Executive Officer of Intel Corporation
since 1998.
BUSINESS EXPERIENCE: President and Chief Operating Officer of Intel Corporation
from 1997 to 1998, Executive Vice President and Chief
Operating Officer from 1993-1997 and Executive
Vice-President from 1990-1993. Senior Vice-President and
General Manager of the Microcomputer Components Group of
Intel Corporation from 1989 to 1990. Vice President/Senior
Vice-President and General Manager of the Components
Technology and Manufacturing Group of Intel Corporation
from 1985 to 1989, and Vice President from 1984 to 1985.
Various technology, engineering and manufacturing
management positions with Intel Corporation from 1974 to
1984. Professor of Engineering at Stanford University from
1965 to 1974.
OTHER DIRECTORSHIPS: Intel Corporation; SEMATECH
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
HANK BROWN
PRINCIPAL OCCUPATION: President of the University of Northern Colorado since
1998.
BUSINESS EXPERIENCE: Director of the Center for Public Policy for the
University of Denver from 1997 to 1998. United States
Senator for the State of Colorado from 1991 to 1997.
United States Congressman for the State of Colorado from
1981 to 1991. Various positions with Monfort of Colorado
Incorporated from 1969 to 1981. United States Navy from
1962 to 1966. Attorney and Certified Public Accountant.
OTHER DIRECTORSHIPS: Sealed Air Corporation
JERRY J. COLANGELO
PRINCIPAL OCCUPATION: Owner, Chairman and Chief Executive Officer of the Arizona
Diamondbacks since 1995. Chairman and Chief Executive
Officer of the Phoenix Suns, NBA since 1987.
BUSINESS EXPERIENCE: General Manager of the Phoenix Suns, NBA from 1968 to
1987. Head Scout and Director of Merchandising for the
Chicago Bulls, NBA from 1966 to 1968. Associate of D.O.
Klein & Associates from 1964 to 1965. Partner at the
House of Charles, Inc. from 1962 to 1964.
OTHER DIRECTORSHIPS: Phoenix Art Museum; Phoenix Community Alliance; Arizona
Diamondbacks; Phoenix Suns Charities
MANUEL A. FERNANDEZ
PRINCIPAL OCCUPATION: Chairman of the Gartner Group since 1995.
BUSINESS EXPERIENCE: Chief Executive Officer of the Gartner Group from 1995 to
1998; President from 1991 to 1995. President and Chief
Executive Officer of Dataquest, Inc. from 1984 to 1991.
President and Chief Executive Officer of Gavilan Computer
Corporation from 1982 to 1984. President of Zilog
Incorporated from 1977 to 1982.
OTHER DIRECTORSHIPS: Black & Decker; Brunswick Corporation
GEORGE J. HARAD
PRINCIPAL OCCUPATION: Chairman of the Board of Boise Cascade Corporation since
1995. President and Chief Executive Officer of Boise
Cascade Corporation since 1994.
BUSINESS EXPERIENCE: President and Chief Operating Officer of Boise Cascade
Corporation from 1991 to 1994. Chairman of the Board of
Boise Cascade Office Products Corporation since 1995.
OTHER DIRECTORSHIPS: FM Global Insurance; Homestead Technologies, Inc.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
PETER S. HELLMAN
PRINCIPAL OCCUPATION: Former President and Chief Operating Officer of TRW Inc.
(1995-1999).
BUSINESS EXPERIENCE: Assistant President of TRW Inc. from 1994 to 1995.
Executive Vice President and Chief Financial Officer from
1991 to 1994. Vice President and Treasurer from 1989 to
1991. Various positions with BP America from 1979 to 1989
and the Irving Trust Company from 1972 to 1979.
MARILYN CARLSON NELSON
PRINCIPAL OCCUPATION: Chairman, Chief Executive Officer and President of Carlson
Companies, Inc., Co-Chair Carlson Wagonlit Travel.
BUSINESS EXPERIENCE: Since joining Carlson Companies in 1989, Ms. Nelson has
held various positions with Carlson Companies including
Director, Chief Operating Officer and Senior Vice
President of Carlson Holdings, Inc. Ms. Nelson is also
National Chair of Travel Industry of America, and a member
of the United States National Tourism Organization, World
Travel and Tourism Council, International Advisory
Council, Center for International Leadership and Committee
of 200.
OTHER DIRECTORSHIPS: Exxon Corporation; Carlson Companies, Inc.
FRANK POPOFF
PRINCIPAL OCCUPATION: Chairman of The Dow Chemical Company since 1992.
BUSINESS EXPERIENCE: Chief Executive Officer of The Dow Chemical Company from
1987 to 1995.
OTHER DIRECTORSHIPS: American Express Company; Chemical Financial Corporation;
United Technologies Corporation
SOLOMON D. TRUJILLO
PRINCIPAL OCCUPATION: President and Chief Executive Officer of U S WEST since
1998. Chairman since 1999.
BUSINESS EXPERIENCE: President and Chief Executive Officer of the
Communications Group of Old U S WEST from 1995 to 1998.
President and Chief Executive Officer of U S WEST Dex,
Inc. from 1992 to 1995. Mr. Trujillo joined The Mountain
States Telephone and Telegraph Company in 1974 and has
been affiliated with U S WEST and its predecessors since
that time, serving in various marketing, sales, finance
and public policy positions.
OTHER DIRECTORSHIPS: BankAmerica Corporation; Dayton Hudson Corporation
</TABLE>
The business address of the directors of U S WEST is 1801 California Street,
Denver, Colorado 80202, U.S.A.
15
<PAGE>
OFFICERS OF U S WEST
In addition to the directors named above, the following persons, all of whom are
full-time employees of U S WEST, hold the offices indicated in the following
table as of the date of this prospectus.
<TABLE>
<S> <C>
NAME OFFICE
- --------------------------------------- ----------------------------------------------------------
Solomon D. Trujillo.................... Chairman, President and Chief Executive Officer
Betsy J. Bernard....................... Executive Vice President--Retail Markets
Janet K. Cooper........................ Vice President--Finance and Controller
Sean P. Foley.......................... Vice President--Treasurer
John A. Kelley, Jr..................... President of Wholesale--U S WEST Communications, Inc.
Mark Roellig........................... Executive Vice President--Public Policy, Human
Resources & Law, General Counsel and Secretary
James A. Smith......................... Executive Vice President and President of U S WEST Dex,
Inc.
Allan R. Spies......................... Executive Vice President and Chief Financial Officer
Gregory M. Winn........................ Executive Vice President--Operations and Technology
</TABLE>
The business address of the officers of U S WEST is 1801 California Street,
Denver, Colorado 80202, U.S.A.
16
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We originally issued and sold the old 6 7/8% Notes on August 25, 1999 in an
offering exempt from registration under the Securities Act in reliance upon the
exemptions provided by Section 4(2), Rule 144A and Regulation S of the
Securities Act. Accordingly, the old 6 7/8% Notes may not be transferred in the
United States unless registered or unless an exemption from the registration
requirements of the Securities Act and applicable state securities laws is
available.
As a condition to the sale of the old 6 7/8% Notes, we, U S WEST and the initial
purchasers of the old 6 7/8% Notes (the "initial purchasers") entered into a
registration rights agreement dated as of August 20, 1999 (the "Registration
Rights Agreement"). In the Registration Rights Agreement, we agreed that we
would use our reasonable best efforts to:
- file with the SEC a registration statement under the Securities Act with
respect to the new 6 7/8% Notes within 150 calendar days of August 25,
1999 (or by January 21, 2000),
- cause a registration statement to be declared effective under the
Securities Act within 180 calendar days after August 25, 1999 (or by
February 21, 2000),
- keep the exchange offer open for not less than 30 calendar days (or longer
if required by applicable law) after the date that notice of the exchange
offer is mailed to the holders of the old 6 7/8% Notes, and
- consummate the exchange offer within 225 calendar days of August 25, 1999
(or by April 6, 2000).
We have filed a copy of the Registration Rights Agreement as an exhibit to the
registration statement of which this prospectus is a part. The registration
statement satisfies certain of our obligations under the Registration Rights
Agreement.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD 6 7/8% NOTES
This prospectus and the accompanying letter of transmittal together make up the
exchange offer. On the terms and subject to the conditions set forth in this
prospectus and the letter of transmittal, we will accept for exchange any old
6 7/8% Notes that are properly tendered on or before the expiration date unless
they are withdrawn as permitted below. We will issue $1,000 principal amount at
maturity of new 6 7/8% Notes in exchange for each $1,000 principal amount at
maturity of outstanding old 6 7/8% Notes surrendered in the exchange offer.
Holders of the old 6 7/8% Notes may tender some or all of their old 6 7/8%
Notes, however, old 6 7/8% Notes may be exchanged only in integral multiples of
$1,000. The form and terms of the new 6 7/8% Notes are the same as the form and
terms of the old 6 7/8% Notes except that the exchange will be registered under
the Securities Act and the new 6 7/8% Notes will not bear legends restricting
their transfer.
The new 6 7/8% Notes will evidence the same debt as the old 6 7/8% Notes and
will be issued under the same indenture.
The exchange offer is not conditioned upon any minimum principal amount of old
6 7/8% Notes being tendered. As of the date of this prospectus, an aggregate of
$1,150,000,000 in principal amount at maturity of the old 6 7/8% Notes is
outstanding. This prospectus is first being sent on or about February 10, 2000,
to all holders of old 6 7/8% Notes known to us.
Holders of the old 6 7/8% Notes do not have any appraisal or dissenters' rights
under the indenture in connection with the exchange offer.
17
<PAGE>
We may, at any time or from time to time, extend the period of time during which
the exchange offer is open and delay acceptance for exchange of any old 6 7/8%
Notes, by giving written notice of the extension to the holders as described
below. During the extension, all old 6 7/8% Notes previously tendered will
remain subject to the exchange offer and may be accepted for exchange by us. Any
old 6 7/8% Notes not accepted for exchange for any reason will be returned
without expense to the tendering holder as promptly as practicable after the
expiration of the exchange offer.
We reserve the right to amend or terminate the exchange offer if any of the
conditions of the exchange offer are not met. The conditions of the exchange
offer are specified below under "--CONDITIONS OF THE EXCHANGE OFFER." We will
give written notice of any extension, amendment, nonacceptance or termination to
the holders of the old 6 7/8% Notes as promptly as practicable. Any extension to
be issued by means of a press release or other public announcement will be
issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
PROCEDURES FOR TENDERING OLD 6 7/8% NOTES
The tender of old 6 7/8% Notes by a holder as set forth below and the acceptance
by us will create a binding agreement between the tendering holder and us upon
the terms and subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal. Except as set forth below, a holder who
wishes to tender old 6 7/8% Notes for exchange must send a completed and signed
letter of transmittal, including all other documents required by the letter of
transmittal, to the exchange agent at one of the addresses set forth below under
"--EXCHANGE AGENT" on or before the expiration date. In addition, either:
- the exchange agent must receive before the expiration date certificates
for the old 6 7/8% Notes along with the letter of transmittal,
- the exchange agent must receive confirmation before the expiration date of
a book-entry transfer of the old 6 7/8% Notes into the exchange agent's
account at The Depository Trust Company ("DTC") as described below, or
- the holder must comply with the guaranteed delivery procedures described
below.
The method of delivery of old 6 7/8% Notes, letters of transmittal and all other
required documents, including delivery through DTC, is at the election and risk
of the holders. If the delivery is by mail, we recommend that holders use
registered mail, properly insured, with return receipt requested. In all cases,
holders should allow sufficient time to assure timely delivery. Holders should
not send letters of transmittal or old 6 7/8% Notes to us.
Some beneficial ownership of old 6 7/8% Notes is registered in the name of a
broker, dealer, commercial bank, trustee or other nominee. If one of those
beneficial owners wishes to tender, the beneficial owner should contact the
registered holder of the old 6 7/8% Notes promptly and instruct the registered
holder to tender on the beneficial owner's behalf. If one of those beneficial
owners wishes to tender on its own behalf, then before completing and signing
the letter of transmittal and delivering its old 6 7/8% Notes, the beneficial
owner must either register ownership of the old 6 7/8% Notes in the beneficial
owner's name or obtain a properly completed power of attorney from the
registered holder of old 6 7/8% Notes. The transfer of record ownership may take
considerable time. If the letter of transmittal is signed by a person other than
the registered holder of the old 6 7/8% Notes, the old 6 7/8% Notes must be
endorsed or accompanied by appropriate powers of attorney. In either case, the
letter of transmittal must be signed exactly as the name of the registered
holder appears on the old 6 7/8% Notes.
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<PAGE>
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the old 6 7/8% Notes surrendered for exchange are tendered:
- by a registered holder of the old 6 7/8% Notes who has not completed the
box entitled "SPECIAL REGISTRATION INSTRUCTIONS" or "SPECIAL DELIVERY
INSTRUCTIONS" on the letter of transmittal, or
- for the account of a firm or other entity identified in Rule 17Ad-15 under
the Exchange Act as an eligible guarantor institution. Eligible guarantor
institutions include:
- a member of a registered national securities exchange, or
- a member of the National Association of Securities Dealers, Inc., or
- a commercial bank or trust company having an office or correspondent in
the United States.
If signatures on a letter of transmittal or a notice of withdrawal are required
to be guaranteed, the guarantees must be by an eligible guarantor institution.
If old 6 7/8% Notes are registered in the name of a person other than a signer
of the letter of transmittal, the old 6 7/8% Notes surrendered for exchange must
be endorsed by the registered holder with the signature guaranteed by an
eligible guarantor institution. Alternatively, the old 6 7/8% Notes may be
accompanied by a written assignment, signed by the registered holder with the
signature guaranteed by an eligible guarantor institution.
All questions as to the validity, form, eligibility, time of receipt and
acceptance of old 6 7/8% Notes tendered for exchange will be determined by us in
our sole discretion, and our determination shall be final and binding. We
reserve the absolute right to reject any tenders of any old 6 7/8% Notes not
properly tendered or any old 6 7/8% Notes whose acceptance might, in our
judgment or the judgment of our counsel, be unlawful. We also reserve the
absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any old 6 7/8% Notes either before or after the expiration
date. The interpretation of the terms and conditions of the exchange offer as to
any old 6 7/8% Notes either before or after the expiration date by us will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of old 6 7/8% Notes for exchange must be cured within
a reasonable period of time as we shall determine. Neither we, U S WEST, the
exchange agent nor any other person shall be under any duty to give notification
of any defect or irregularity with respect to any tender of old 6 7/8% Notes for
exchange. Any old 6 7/8% Notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the exchange agent to the tendering holders,
unless otherwise provided in the letter of transmittal, as soon as practicable.
If the letter of transmittal or any old 6 7/8% Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless waived by us,
those persons must submit proper evidence satisfactory to us of their authority
to act.
By tendering, each holder will represent to us:
- that it is not an "affiliate," as defined in Rule 405 of the Securities
Act, of us or U S WEST, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to
the extent applicable,
- that it is not a broker-dealer tendering Registrable Securities (as
defined in the Registration Rights Agreement described herein) acquired
directly from us,
- that it is acquiring the new 6 7/8% Notes in the ordinary course of its
business, and
- at the time of the closing of the exchange offer it has no arrangement or
understanding to participate in the distribution, within the meaning of
the Securities Act, of the new 6 7/8% Notes.
19
<PAGE>
If the holder is a broker-dealer that will receive new 6 7/8% Notes for its own
account in exchange for old 6 7/8% Notes that were acquired as a result of
market-making activities or other trading activities, the holder may be deemed
to be an "underwriter" within the meaning of the Securities Act. Such holder
will be required to acknowledge in the letter of transmittal that it will
deliver a prospectus in connection with any resale of the new 6 7/8% Notes.
However, by so acknowledging and by delivering a prospectus, the holder will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
ACCEPTANCE OF OLD 6 7/8% NOTES FOR EXCHANGE; DELIVERY OF NEW 6 7/8% NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer, we
will accept, promptly after the expiration date, all old 6 7/8% Notes properly
tendered and will issue the new 6 7/8% Notes promptly after acceptance of the
old 6 7/8% Notes. See "--CONDITIONS OF THE EXCHANGE OFFER" below. We will be
deemed to have accepted properly tendered old 6 7/8% Notes for exchange when we
have given oral or written notice to the exchange agent.
For each old 6 7/8% Note validly tendered to us, the holder of the old 6 7/8%
Note will receive a new 6 7/8% Note having a principal amount equal to the
principal amount of the tendered old 6 7/8% Note. The new 6 7/8% Notes will bear
interest at the same rate and on the same terms as the old 6 7/8% Notes.
Consequently, interest on the new 6 7/8% Notes will accrue at a rate of 6 7/8%
per annum and will be payable semiannually in arrears on February 15, 2000,
August 15, 2000, February 15, 2001 and August 15, 2001. Interest on each new
6 7/8% Note will accrue from the last interest payment date on which interest
was paid on the surrendered old 6 7/8% Note or, if no interest has been paid on
such old 6 7/8% Note, from the date of the original issuance thereof.
The issuance of new 6 7/8% Notes for old 6 7/8% Notes that are accepted for
exchange in the exchange offer will be made only after timely receipt by the
exchange agent of certificates for the old 6 7/8% Notes or a timely book-entry
confirmation of the old 6 7/8% Notes into the exchange agent's account at the
book-entry transfer facility, a completed and signed letter of transmittal and
all other required documents. If any tendered old 6 7/8% Notes are not accepted
for any reason set forth in the terms and conditions of the exchange offer, or
if old 6 7/8% Notes are submitted for a greater amount than the holder desires
to exchange, the unaccepted or non-exchanged old 6 7/8% Notes will be returned
without expense to the tendering holder as promptly as practicable after the
exchange offer expires or terminates. In the case of old 6 7/8% Notes tendered
by book-entry procedures described below, the non-exchanged old 6 7/8% Notes
will be credited to an account maintained with the book-entry transfer facility.
CONDITIONS OF THE EXCHANGE OFFER
We will not be required to accept for exchange any old 6 7/8% Notes and may
terminate or amend the exchange offer prior to the expiration date, if we
determine that we are not permitted to effect the exchange offer because of:
- any changes in law, or applicable interpretations by the SEC, or
- any action or proceeding is instituted or threatened in any court or
governmental agency with respect to the exchange offer.
If we determine that any of the conditions are not satisfied, we may refuse to
accept any old 6 7/8% Notes and return all tendered old 6 7/8% Notes to the
tendering holders or extend the exchange offer and retain all old 6 7/8% Notes
tendered prior to the expiration date, subject to the rights of holders to
20
<PAGE>
withdraw such old 6 7/8% Notes or waive such unsatisfied conditions with respect
to the exchange offer and accept all properly tendered old 6 7/8% Notes which
have not been withdrawn. If such waiver or amendment constitutes a material
change to the exchange offer, we will promptly disclose such waiver or amendment
by means of a prospectus supplement that will be distributed to the registered
holders of the old 6 7/8% Notes and we will extend the exchange offer to the
extent required by Rule 14e-1 under the Exchange Act.
Holders may have certain rights and remedies against us under the Registration
Rights Agreement if we fail to close the exchange offer, whether or not the
conditions stated above occur. These conditions are not intended to modify those
rights or remedies. See "REGISTRATION RIGHTS."
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the old
6 7/8% Notes at the book-entry transfer facility for the exchange offer within
two business days after the date 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 old 6 7/8% Notes by causing the book-entry
transfer facility to transfer the old 6 7/8% 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 old
6 7/8% Notes may be effected through book-entry transfer at the book-entry
transfer facility, the letter of transmittal or facsimile, or an agent's
message, with any required signature guarantees and any other required
documents, must be received by the exchange agent at one of the addresses set
forth below under
"--EXCHANGE AGENT" on or before the expiration date or the guaranteed delivery
procedures described below must be complied with.
The term "agent's message" means a message, transmitted by DTC to the exchange
agent and forming a part of a book-entry confirmation, which states that DTC has
received an express acknowledgment from the tendering participant stating that
the participant has received and agrees to be bound by the terms of the letter
of transmittal, and that we may enforce the letter of transmittal against the
participant.
GUARANTEED DELIVERY PROCEDURES
If a registered holder wishes to tender his old 6 7/8% Notes and the old 6 7/8%
Notes are not immediately available, or time will not permit the holder's old
6 7/8% Notes or other required documents to reach the exchange agent before the
expiration date, or the procedure for book-entry transfer cannot be completed on
time, the old 6 7/8% Notes may nevertheless be exchanged if:
- the tender is made through an eligible guarantor institution,
- before the expiration date, the exchange agent has received from the
eligible guarantor institution an agent's message with respect to
guaranteed delivery or a completed and signed letter of transmittal, or a
facsimile, and a notice of guaranteed delivery, substantially in the form
provided by us. Delivery may be made by facsimile transmission, mail or
hand delivery. The letter of transmittal and notice of guaranteed delivery
must set forth the name and address of the holder of the old 6 7/8% Notes
and the amount of the old 6 7/8% Notes being tendered, state that the
tender is being made and guarantee that within five trading days on the
New York Stock Exchange ("NYSE") after the date of signing of the notice
of guaranteed delivery, the certificates for all physically tendered old
6 7/8% Notes, in proper form for transfer, or a book-entry confirmation,
and any other documents required by the letter of transmittal, will be
deposited by the eligible guarantor institution with the exchange agent,
and
- the certificates for all physically tendered old 6 7/8% Notes, in proper
form for transfer, or a book-entry confirmation and all other documents
required by the letter of transmittal, are received by the exchange agent
within five NYSE trading days after the date of signing the notice of
guaranteed delivery.
21
<PAGE>
WITHDRAWAL RIGHTS
Tenders of old 6 7/8% Notes may be withdrawn at any time prior to the close of
business on the expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses set forth below under
"--EXCHANGE AGENT." Notice may be sent by facsimile transmission, mail or hand
delivery. Any notice of withdrawal must:
- specify the name of the person who tendered the old 6 7/8% Notes to be
withdrawn,
- identify the old 6 7/8% Notes to be withdrawn, including the amount of the
old 6 7/8% Notes,
- where certificates for old 6 7/8% Notes have been transmitted, specify the
name in which the old 6 7/8% Notes are registered, if different from that
of the withdrawing holder, and
- state that such holder of the old 6 7/8% Notes is withdrawing his election
to have such old 6 7/8% Notes tendered.
If certificates for old 6 7/8% Notes have been delivered or otherwise identified
to the exchange agent, then, prior to the release of the certificates the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible guarantor institution unless the holder is an eligible
guarantor institution. If old 6 7/8% Notes have been tendered under the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the book-entry transfer facility
to be credited with the withdrawn old 6 7/8% Notes and otherwise comply with the
procedures of the facility. We will determine all questions as to the validity,
form, eligibility and time of receipt of the notices, and our determination
shall be final and binding on all parties. Any old 6 7/8% Notes so withdrawn
will be deemed not to have been validly tendered for exchange for purposes of
the exchange offer. Any old 6 7/8% Notes that have been tendered for exchange
but that are not exchanged for any reason will be returned to the holder without
cost to the holder as soon as practicable after withdrawal, rejection of tender
or termination of the exchange offer. In the case of old 6 7/8% Notes tendered
by book-entry transfer into the exchange agent's account at the book-entry
transfer facility under the book-entry transfer procedures described above, the
old 6 7/8% Notes will be credited to an account with the book-entry transfer
facility specified by the holder. Properly withdrawn old 6 7/8% Notes may be re-
tendered by following one of the procedures described under "--PROCEDURES FOR
TENDERING OLD 6 7/8% NOTES" above at any time on or before the expiration date.
EXCHANGE AGENT
Bank One Trust Company, National Association has been appointed as the principal
exchange agent for the exchange offer. For Luxembourg holders only,
Kredietbank S.A. Luxembourgeoise has been appointed as the exchange agent in
Luxembourg for the exchange offer. All signed letters of transmittal should be
directed to the appropriate exchange agent at the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal
22
<PAGE>
and requests for notices of guaranteed delivery should be directed to the
exchange agent addressed as follows:
FOR HOLDERS (OTHER THAN LUXEMBOURG HOLDERS)
<TABLE>
<S> <C>
By Mail: By Hand, Overnight Mail or Courier:
Bank One Trust Company, National Association Bank One Trust Company, National Association
Attention: Exchanges Attention: Exchanges
Global Corporate Trust Services Global Corporate Trust Services
1 Bank One Plaza, Mail Suite IL 1-0122 One North State Street, 9th Floor
Chicago, IL 60670-0122 Chicago, IL 60602
or or
Bank One Trust Company, National Association Bank One Trust Company, National Association
Attention: Exchanges Attention: Exchanges
Global Corporate Trust Services Global Corporate Trust Services
14 Wall Street, 8th Floor 14 Wall Street, 8th Floor
New York, NY 10005 New York, NY 10005
</TABLE>
For information call:
(800) 524-9472
Fax: 312-407-8853
E-mail: [email protected]
FOR LUXEMBOURG HOLDERS ONLY
By Mail:
Kredietbank S.A. Luxembourgeoise
43, Boulevard Royal
L-2955
Luxembourg
For information call:
(352) 47 97 39 35
Fax: (352) 47 97 73 951
Corporate Trust Department
Delivery of a letter of transmittal to an address other than as set forth above
or transmission of instructions via facsimile other than as set forth above does
not constitute a valid delivery of the letter of transmittal.
FEES AND EXPENSES
We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer and holders who tender old 6 7/8% Notes will
not be required to pay brokerage commissions or fees.
We will pay the expenses that will be incurred in connection with the exchange
offer. We estimate the expenses will be approximately $420,000.
23
<PAGE>
ACCOUNTING TREATMENT
For accounting purposes, we will recognize no gain or loss as a result of the
exchange offer. The expenses of the exchange offer will be amortized over the
term of the new 6 7/8% Notes.
TRANSFER TAXES
Holders who instruct us to register new 6 7/8% Notes in the name of a person
other than the registered tendering holder will be responsible for paying any
applicable transfer tax, as will holders who request that old 6 7/8% Notes not
tendered or not accepted in the exchange offer be returned to a person other
than the registered tendering holder. In all other cases, no transfer taxes will
be due.
REGULATORY MATTERS
We are not aware of any governmental or regulatory approvals that are required
in order to complete the exchange offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. Old 6 7/8% Notes that are not
exchanged for new 6 7/8% Notes will remain outstanding, continue to accrue
interest and will be restricted securities. Accordingly, those old 6 7/8% Notes
may only be transferred:
- to a person who the seller reasonably believes is a qualified
institutional buyer under Rule 144A under the Securities Act,
- in an offshore transaction under Rule 903 or Rule 904 of Regulation S
under the Securities Act, or
- under Rule 144 under the Securities Act (if available);
and in accordance with all applicable securities laws of the states of the
United States. Following the consummation of the exchange offer, neither we nor
U S WEST will have any further obligation to such holders to provide for
registration under the Securities Act, except that under certain circumstances,
we are required to file a shelf registration statement under the Securities Act.
See "REGISTRATION RIGHTS."
PAYMENT OF ADDITIONAL INTEREST UPON REGISTRATION DEFAULTS
If we fail to meet our obligations to complete the exchange offer or file a
shelf registration statement, additional interest will accrue on the 6 7/8%
Notes. For additional information regarding payments of additional interest,
please see "REGISTRATION RIGHTS."
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the new 6 7/8% Notes or
the closing of the exchange offer.
24
<PAGE>
CAPITALIZATION OF U S WEST, INC.
The following table sets forth, at September 30, 1999, the unaudited
consolidated historical capitalization of U S WEST. The table should be read in
conjunction with the historical financial statements and Notes thereto of
U S WEST included in the documents incorporated by reference in this prospectus.
See "WHERE YOU CAN FIND MORE INFORMATION."
<TABLE>
<CAPTION>
HISTORICAL
UNAUDITED
AT SEPTEMBER 30, 1999
----------------------
(DOLLARS IN MILLIONS)
<S> <C>
Short-term debt.......................................... $ 3,379
=======
Long-term debt........................................... $ 9,754
Total shareowners' equity(1)(2)(3)....................... 370
-------
Total capitalization..................................... $10,124
=======
</TABLE>
- ------------------------------
(1) U S WEST has 2,000,000,000 shares of common stock authorized. On
September 30, 1999, 505,305,886 shares of U S WEST common stock were issued
and outstanding.
(2) U S WEST has 200,000,000 shares of preferred stock authorized. As of
September 30, 1999, no shares of U S WEST preferred stock were issued and
outstanding.
(3) As a result of the Termination Agreement, the remaining shares of Global
Crossing common stock held by U S WEST from the Tender Offer (approximately
37 million shares) will be carried at their current market value, with
differences between original cost and market value reflected as an
adjustment to shareowners' equity. As of September 30, 1999, U S WEST's
remaining investment in shares of Global Crossing had a market value of
approximately $981 million. See "RECENT DEVELOPMENTS--MERGER WITH QWEST"
regarding the recent sale of 24 million shares of Global Crossing.
Except as set forth above and in publicly available documents filed with the
SEC, there has been no material change in the capitalization of U S WEST since
September 30, 1999.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth U S WEST's ratio of earnings to fixed charges for
each of the periods indicated.
<TABLE>
<CAPTION>
HISTORICAL(1) PRO FORMA(2)
- --------------------------------------------------------------------------------------- -------------
UNAUDITED UNAUDITED
NINE MONTHS ENDED YEAR ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
- ----------------------------------------------------------------- ------------------- -------------
1994 1995 1996 1997 1998 1998 1999 1998
- --------------------- -------- -------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
5.38 5.01 5.20 5.67 4.75 4.98 3.70 4.02
</TABLE>
- ------------------------------
(1) Historical ratios are based on the historical results of the Communications
Group and Dex, as if each such business operated as a separate entity for
all periods presented but exclude the effects of $3.9 billion of the Dex
Indebtedness which was refinanced by U S WEST in connection with the Dex
Alignment. See "RECENT DEVELOPMENTS--THE SEPARATION."
(2) Based on the unaudited pro forma combined results of U S WEST which give
effect to the refinancing of the Dex Indebtedness in connection with the Dex
Alignment. These pro forma results do not give effect to the anticipated
merger with Qwest.
In determining these ratios, U S WEST has computed "earnings" by adding income
before income taxes, extraordinary items and cumulative effect of change in
accounting principle and fixed charges. "Fixed charges" consist of interest on
indebtedness and the portion of rentals representative of the interest factor.
25
<PAGE>
CAPITALIZATION OF U S WEST CAPITAL FUNDING, INC.
The following table sets forth, at September 30, 1999, our unaudited historical
capitalization. The table should be read in conjunction with the historical
financial statements and Notes thereto of U S WEST included in the documents
incorporated by reference herein See "WHERE YOU CAN FIND MORE INFORMATION."
<TABLE>
<CAPTION>
HISTORICAL
UNAUDITED
AT SEPTEMBER 30, 1999
----------------------
(DOLLARS IN MILLIONS)
<S> <C>
Short-term debt.......................................... $2,288
======
Long-term debt........................................... $4,636
Total shareowners' equity(1)............................. 44
------
Total capitalization..................................... $4,680
======
</TABLE>
- ------------------------------
(1) We have one (1) share of stock authorized, and have issued one (1) share of
stock to U S WEST.
Except as set forth above and in publicly available documents filed with the
SEC, there has been no material change in our capitalization since September 30,
1999.
26
<PAGE>
DESCRIPTION OF NEW 6 7/8% NOTES
GENERAL
The new 6 7/8% Notes will be issued as a separate series of debt securities
("Debt Securities") under an indenture dated as of June 29, 1998, as
supplemented and amended from time to time (the "Indenture"), among us,
U S WEST and Bank One Trust Company, National Association, as successor to The
First National Bank of Chicago, as trustee (the "Trustee"). The new 6 7/8% Notes
and the old 6 7/8% Notes are considered together to be a single series for all
purposes under the Indenture. The following summaries of the material provisions
of the Indenture do not purport to be complete and are subject to and are
qualified in their entirety by reference to all of the provisions of the
Indenture, which provisions of the Indenture are incorporated herein by
reference. Capitalized and other terms not otherwise defined herein shall have
the meanings given to them in the Indenture. You may obtain a copy of the
Indenture from us upon request. See "WHERE YOU CAN FIND MORE INFORMATION."
The Indenture does not limit the aggregate principal amount of Debt Securities
which may be issued under it and provides that Debt Securities may be issued
from time to time in one or more series. All Debt Securities, including the new
6 7/8% Notes are, and will be, unconditionally guaranteed as to payment of
principal, premium, if any, and interest by U S WEST. As of the date of this
prospectus, the principal amount of Debt Securities outstanding under the
Indenture is $5.65 billion.
Since the new 6 7/8% Notes will constitute a separate series of Debt Securities
under the Indenture, holders of old 6 7/8% Notes who do not exchange such old
6 7/8% Notes for new 6 7/8% Notes will vote together as a separate series of
Debt Securities with holders of such new 6 7/8% Notes of that series for all
relevant purposes under the Indenture. In that regard, the Indenture requires
that certain actions by the holders under such old 6 7/8% Notes (including
acceleration following an Event of Default) must be taken, and certain rights
must be exercised, by specified minimum percentages of the aggregate principal
amount of the outstanding Notes of that series. In determining whether holders
of the requisite percentage in principal amount of the Notes of that series have
given any notice, consent or waiver or taken any other action permitted under
the Indenture, any old 6 7/8% Notes which remain outstanding after the exchange
offer will be aggregated with the new 6 7/8% Notes and the holders of the old
6 7/8% Notes and the new 6 7/8% Notes will each vote together as a single series
for all purposes. Accordingly, all references in this section will be deemed to
mean, at any time after the exchange offer is consummated, the requisite
percentage in aggregate principal amount of the old 6 7/8% Notes and the new
6 7/8% Notes.
The 6 7/8% Notes initially will be limited to $1,150,000,000 aggregate principal
amount. We and U S WEST may "reopen" any series of debt securities and issue
additional securities of that series. The 6 7/8% Notes will be issued only in
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. The 6 7/8% Notes are our unsecured obligations and rank
equally with all of our other unsecured and unsubordinated indebtedness. The
Guarantees are unsecured obligations of U S WEST and rank equally with all other
unsecured and unsubordinated indebtedness of U S WEST. However, because
U S WEST is a holding company which conducts substantially all of its operations
through subsidiaries, the right of U S WEST, and hence the right of creditors of
U S WEST (including holders of the 6 7/8% Notes through the Guarantees), to
participate in any distribution of assets of any subsidiary upon its liquidation
or reorganization or otherwise is necessarily subject to the prior claims of
creditors of such subsidiary, except to the extent that claims of U S WEST
itself as a creditor of the subsidiary may be recognized.
The 6 7/8% Notes will bear interest at the rate of 6 7/8% per annum from
August 25, 1999, or from the most recent interest payment date to which interest
has been paid or duly provided for, payable semiannually in arrears on
February 15, 2000, August 15, 2000, February 15, 2001 and August 15, 2001 (each,
an "Interest Payment Date"), to the persons in whose names the 6 7/8% Notes are
registered at the close of business on the February 1 or August 1, as the case
may be, immediately preceding such
27
<PAGE>
Interest Payment Date. Interest will be calculated on the basis of a 360-day
year of twelve 30-day months. If any Interest Payment Date, maturity date or
redemption date is a Legal Holiday in New York, New York, the required payment
shall be made on the next succeeding day that is not a Legal Holiday as if it
were made on the date such payment was due and no interest shall accrue on the
amount so payable for the period from and after such Interest Payment Date,
maturity date or redemption date, as the case may be, to such next succeeding
day. "Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in The City of New York are not required to be open.
The 6 7/8% Notes will mature and the principal amount will be payable on
August 15, 2001. The 6 7/8% Notes will not have the benefit of any sinking fund.
The Trustee, through its corporate trust office in the Borough of Manhattan in
The City of New York (in such capacity, the "Paying Agent") will act as our
paying agent with respect to the 6 7/8% Notes. Payments of principal, premium,
if any, and interest on the 6 7/8% Notes will be made by us through the Paying
Agent to DTC. See "--BOOK-ENTRY ONLY; DELIVERY AND FORM."
The principal of, premium, if any, and interest on the 6 7/8% Notes will be
payable in U.S. dollars or in such other coin or currency of the United States
of America as at the time of payment is legal tender for the payment of public
and private debts. No service charge will be made for any registration of,
transfer or exchange of 6 7/8% Notes, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. The 6 7/8% Notes may be presented for registration of transfer or
exchange at the office of the Paying Agent in the Borough of Manhattan in the
City of New York, or at any other office or agency maintained by us or the
Paying Agent for such purpose.
OPTIONAL REDEMPTION
The 6 7/8% Notes will be redeemable at our option, in whole at any time or in
part from time to time, on at least 15 days but not more than 60 days prior
written notice mailed to the registered holders thereof, at a redemption price
equal to the greater of (i) 100% of the principal amount of the 6 7/8% Notes to
be redeemed or (ii) the sum, as determined by the Quotation Agent (as defined
below), of the present values of the principal amount of the 6 7/8% Notes to be
redeemed and the remaining scheduled payments of interest thereon from the
redemption date to August 15, 2001 (the "Remaining Life") discounted from their
respective scheduled payment dates to the redemption date on a semiannual basis
(assuming a 360-day year consisting of 30-day months) at the Treasury Rate (as
defined below) plus 10 basis points, plus, in either case, accrued interest
thereon to the date of redemption.
If money sufficient to pay the redemption price of and accrued interest on all
of the 6 7/8% Notes (or portions thereof) to be redeemed on the redemption date
is deposited with the Trustee or Paying Agent on or before the redemption date
and certain other conditions are satisfied, then on and after such redemption
date, interest will cease to accrue on such 6 7/8% Notes (or such portion
thereof) called for redemption.
"Comparable Treasury Issue" means the United States Treasury security selected
by the Quotation Agent as having a maturity comparable to the Remaining Life
that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity with the Remaining Life.
"Comparable Treasury Price" means, with respect to any redemption date, the
average of two Reference Treasury Dealer Quotations for such redemption date.
"Quotation Agent" means the Reference Treasury Dealer appointed by us.
28
<PAGE>
"Reference Treasury Dealer" means each of Merrill Lynch Government Securities
Inc. and J.P. Morgan Securities Inc., and their successors; provided, however,
that if any of the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), Capital
Funding shall substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate per annum
equal to the semiannual yield to maturity of the Comparable Treasury Issue,
calculated on the third business day preceding such redemption date using a
price for the Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the Comparable Treasury Price for such redemption
date.
We or U S WEST may at any time, and from time to time, purchase the 6 7/8% Notes
at any price or prices in the open market or otherwise.
BOOK-ENTRY ONLY; DELIVERY AND FORM
The new 6 7/8% Notes will initially be issued in the form of global securities
held in book-entry form. The new 6 7/8% Notes will be deposited with the Trustee
as custodian for DTC and DTC or its nominee will initially be the sole
registered holder of the new 6 7/8% Notes. Except as set forth below, a global
security may not be transferred except as a whole by DTC to a nominee of DTC or
by a nominee of DTC to DTC. Investors may elect to hold interests in the global
securities directly through DTC (in the United States), Clearstream Banking or
Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System ("Euroclear"), as the case may be, if they are participants in
such systems, or indirectly through organizations that are participants in such
systems. Clearstream Banking and Euroclear will hold interests on behalf of
their participants through customers' securities accounts in Clearstream
Banking's and Euroclear's names on the books of their respective depositaries,
which are participants in DTC. Citibank N.A. will act as depository for
Clearstream Banking and Chase Manhattan Bank New York will act as depositary for
Euroclear (in such capacities, the "U.S. Depositaries").
When a global security is issued, DTC or its nominee will credit, on its
internal system, the accounts of persons holding through it with the principal
amounts of the individual beneficial interest represented by the global security
purchased by those persons in the offering of the new 6 7/8% Notes. The accounts
were initially designated by the initial purchasers of the old 6 7/8% Notes with
respect to old 6 7/8% Notes sold by the initial purchasers.
Only participants that have accounts with DTC or persons that hold interests
through participants can own beneficial interests in a global security.
Ownership of beneficial interests by participants in a global security will be
shown on records maintained by DTC or its nominee for the global security, and
that ownership interest will be transferred only through those records.
Ownership of beneficial interests in the global security by persons that hold
through participants will be shown on records maintained by the participant, and
the transfer of that ownership interest within the participant will occur only
through the participant's records.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of the securities in definitive form. Those limits and
laws may make it more difficult to transfer beneficial interests in a global
security. We will make payments on the new 6 7/8% Notes represented by any
global security to DTC or its nominee as the sole registered owner and the sole
holder of the new 6 7/8% Notes represented by the global security. Neither we,
U S WEST nor the Trustee, any agent of ours or the
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initial purchasers will have any responsibility for any aspect of DTC's reports
relating to beneficial ownership interests in a global security representing any
new 6 7/8% Notes or for reviewing any of DTC's records relating to the
beneficial ownership interests. DTC has advised us that upon receipt of any
payment on any global security, DTC will immediately credit, on its book-entry
registration and transfer system, the accounts of participants with payments in
amounts proportionate to their beneficial interests in the principal or face
amount of the global security. Payments of interest and principal of global
securities held through Clearstream Banking or Euroclear will be credited to the
cash accounts of Clearstream Banking participants or Euroclear participants, as
the case may be, in accordance with the relevant system's rules and procedures.
We expect that payments by participants to owners of beneficial interests in a
global security held through those 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 the participants subject to any statutory or regulatory
requirements as may be in effect from time to time.
So long as DTC or its nominee is the registered owner of the global security,
DTC or its nominee will be considered the sole owner or holder of the new 6 7/8%
Notes represented by the global security for the purposes of receiving payment
on the new 6 7/8% Notes, receiving notices and for all other purposes under the
Indenture and the new 6 7/8% Notes. Except as provided above, owners of
beneficial interests in a global security will not be entitled to receive
physical delivery of certificated new 6 7/8% Notes and will not be considered
the holders of the 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 DTC and, if the person is not a participant, on the
procedures of the participant through which the person owns its interest, to
exercise any rights of a holder under the global security or the Indenture. We
understand that under existing industry practices, if we request any action of
holders or an owner of a beneficial interest in a global security wants to take
any action that a holder is entitled to take under the Indenture, DTC would
authorize the participants holding the beneficial interest to take that action,
and the participants would authorize beneficial owners owning through the
participants to take the action on the instructions of beneficial owners owning
through them.
DTC has advised us that it will take any action permitted to be taken by a
holder of new 6 7/8% Notes only at the direction of a participant to whose
account with DTC interests in the global security are credited and only as to
the portion of the aggregate principal amount of the new 6 7/8% Notes as to
which the participant has given that direction. DTC has advised us that DTC 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. DTC was created to hold the securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in the securities through electronic
book-entry changes in accounts of the participants. This eliminates the need for
physical movement of securities certificates. DTC's participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, some of whom own DTC. Access to DTC'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.
CERTIFICATED NEW 6 7/8% NOTES
New 6 7/8% Notes represented by a global security are exchangeable for
certificated new 6 7/8% Notes only if:
- DTC notifies us that it is unwilling or unable to continue as a depository
for the global security or if at any time DTC ceases to be a registered
clearing agency, and a successor depository is not appointed by us within
90 days,
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- we notify the Trustee that the global security will be so transferable,
registrable and exchangeable, or
- an event of default with respect to the new 6 7/8% Notes has occurred and
is continuing.
Any global security that is exchangeable for certificated new 6 7/8% Notes under
the preceding sentence will be transferred to, and registered and exchanged for,
certificated new 6 7/8% Notes in authorized denominations and registered in
names that DTC or its nominee holding the global security may direct. Subject to
the foregoing, a global security is not exchangeable, except for a global
security of the same denomination to be registered in the name of DTC or its
nominee. If a global security becomes exchangeable for certificated new 6 7/8%
Notes:
- certificated new 6 7/8% Notes will be issued only in fully registered form
in denominations of $1,000 or integral multiples,
- payments will be made and transfers will be registered at the office or
agency of us maintained for that purposes, and
- no service charge will be made for any issuance of the certificated new
6 7/8% Notes, although we may require payment to cover any tax or
governmental charge imposed.
DTC management is aware that some computer applications, systems, and the like
for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to security holders, book-entry
deliveries, and settlement of trades within DTC ("DTC Services"), continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent upon
other parties, including but not limited to issuers and their agents, as well as
DTC's direct and indirect participants and third party vendors from whom DTC
licenses software and hardware, and third party vendors on whom DTC relies for
information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
GLOBAL CLEARANCE AND SETTLEMENT PROCEDURES
Settlement for the new 6 7/8% Notes represented by the global securities will be
made in immediately available funds. We will make all payments of principal and
interest on the 6 7/8% Notes in immediately available funds.
The new 6 7/8% Notes will trade in DTC's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the new 6 7/8% Notes will
therefore be required by DTC to settle in immediately available funds.
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Secondary market trading between Clearstream Banking participants and/or
Euroclear participants will occur in the ordinary way in accordance with the
applicable rules and operating procedures of Clearstream Banking and Euroclear
and will be settled using the procedures applicable to conventional eurobonds in
immediately available funds.
Cross-market transfers between persons holding directly or indirectly through
DTC and persons holding directly or indirectly through Clearstream Banking or
Euroclear participants will be effected in accordance with DTC's rules on behalf
of the relevant European international clearing system by its U.S Depositary.
Such cross-market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in such
system in accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver instructions
to its U.S. Depositary to take action to effect final settlement on its behalf
by delivering or receiving the 6 7/8% Notes in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Clearstream Banking participants and Euroclear participants
may not deliver instructions directly to DTC.
Because of time-zone differences, credits of the 6 7/8% Notes received in
Clearstream Banking or Euroclear as a result of a transaction with a DTC
participant will be made during subsequent securities settlement processing and
will be credited the business day following the DTC settlement date. Such
credits or any transactions in such 6 7/8% Notes settled during such processing
will be reported to the relevant Euroclear or Clearstream Banking participants
on such business day. Cash received in Clearstream Banking or Euroclear as a
result of sales of 6 7/8% Notes by or through a Clearstream Banking participant
or a Euroclear participant to a DTC participant will be received with value on
the DTC settlement date but will be available in the relevant Clearstream
Banking or Euroclear cash account only as of the business day following
settlement in DTC.
Although DTC, Clearstream Banking and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of interests in the global
securities among participants of DTC, Clearstream Banking and Euroclear, they
are under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. None of Capital Funding,
U S WEST or the Trustee will have any responsibility for the performance by DTC,
Clearstream Banking and Euroclear, or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTAIN COVENANTS
Other than as described below under "--LIMITATION ON LIENS," the Indenture does
not contain any provisions that would limit our or U S WEST's ability to incur
indebtedness or that would afford holders of 6 7/8% Notes protection in the
event of a sudden and significant decline in our or U S WEST's credit quality or
a takeover, recapitalization or highly leveraged or similar transaction
involving us or U S WEST. Accordingly, we or U S WEST could in the future enter
into transactions that could increase the amount of indebtedness outstanding at
that time or otherwise adversely affect our or U S WEST's capital structure or
credit rating. See "RECENT DEVELOPMENTS."
Qwest's indentures contain restrictive covenants limiting its ability to pay
dividends, make investments, create liens, sell assets, enter into transactions
with affiliates, borrow money and engage in mergers and consolidations. These
restrictions could limit financing by the combined company following the merger.
See "RECENT DEVELOPMENTS." Qwest's indentures are attached as exhibits to
various documents Qwest has filed with the SEC.
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LIMITATION ON LIENS
The Indenture contains a covenant that if we mortgage, pledge or otherwise
subject to any lien all or some of our property or assets, we will secure the
6 7/8% Notes, any other outstanding Debt Securities and any of our other
obligations which may then be outstanding and entitled to the benefit of a
covenant similar in effect to such covenant, equally and proportionally with the
indebtedness or obligations secured by such mortgage, pledge or lien, for as
long as any such indebtedness or obligation is so secured. This covenant does
not apply to:
- the creation, extension, renewal or refunding of (a) mortgages or liens
created or existing at the time property is acquired, (b) mortgages or
liens created within 180 days after property is acquired, or
(c) mortgages or liens securing the cost of construction or improvement of
property, or
- the making of any deposit or pledge to secure public or statutory
obligations or with any governmental agency at any time required by law in
order to qualify us to conduct all or some part of our business or in
order to entitle us to maintain self-insurance or to obtain the benefits
of any law relating to workmen's compensation, unemployment insurance, old
age pensions or other social security, or with any court, board,
commission or governmental agency as security incident to the proper
conduct of any proceeding before it.
The Indenture does not prevent any other entity from mortgaging, pledging or
subjecting to any lien any of its property or assets, whether or not acquired
from us or U S WEST (Section 4.03).
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may, without the consent of the holders of the 6 7/8% Notes or any other
outstanding Debt Securities, consolidate with, merge into or be merged into, or
transfer or lease our property and assets substantially as an entirety to
another entity. However, we may only do this if:
- the successor entity is a corporation and assumes by supplemental
indenture all of our obligations under the 6 7/8% Notes, any other
outstanding Debt Securities and the Indenture, and
- after giving effect to the transaction, no Default or Event of Default has
occurred and is continuing.
After that time, all of our obligations under the 6 7/8% Notes, any other
outstanding Debt Securities and the Indenture terminate (Section 5.01).
U S WEST may, without the consent of the holders of any of the 6 7/8% Notes, or
any other outstanding Debt Securities, consolidate with, merge into or be merged
into, or transfer or lease its property and assets substantially as an entirety
to another entity. However, U S WEST may only do this if:
- the successor entity is a corporation and assumes by supplemental
indenture all of its obligations under the Guarantees and the Indenture,
and
- after giving effect to the transaction, no Default or Event of Default has
occurred and is continuing.
After that time, all of U S WEST's obligations under the Guarantees and the
Indenture terminate (Section 5.02).
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EVENTS OF DEFAULT
Any one of the following is an Event of Default with respect to any series of
Debt Securities, including the 6 7/8% Notes (Section 6.01):
- if we or U S WEST default in the payment of interest on the Debt
Securities of such series, and such default continues for 90 days,
- if we or U S WEST default in the payment of the principal of any Debt
Security of such series when the same becomes due and payable at maturity,
upon redemption, or otherwise,
- if we or U S WEST fail to comply with any of our or their other agreements
in the Debt Securities of such series, in the Indenture or in any
supplemental indenture under which the Debt Securities of such series were
issued, which failure continues for 90 days after we or U S WEST receives
notice from the Trustee or the holders of at least 25% in principal amount
of all of the outstanding Debt Securities of that series, and
- if certain events of bankruptcy or insolvency occur with respect to us or
U S WEST.
If an Event of Default with respect to the Debt Securities of any series occurs
and is continuing, the Trustee or the holders of at least 25% in principal
amount of all of the outstanding Debt Securities of that series may declare the
principal (or, if the Debt Securities of that series are original issue discount
securities, such portion of the principal amount as may be specified in the
terms of that series) of all the Debt Securities of that series to be due and
payable. When such declaration is made, such principal (or, in the case of
original issue discount securities, such specified amount) will be immediately
due and payable (Section 6.02). The holders of a majority in principal amount of
Debt Securities of that series may rescind such declaration and its consequences
if the rescission would not conflict with any judgment or decree and if all
existing Events of Default have been cured or waived (other than nonpayment of
principal or interest that has become due solely as a result of acceleration).
Holders of Debt Securities may not enforce the Indenture, the Debt Securities or
the Guarantees, except as provided in the Indenture (Section 6.06). The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or the
Debt Securities (Section 7.01(e)). Subject to certain limitations, the holders
of more than 50% in principal amount of the Debt Securities of each series
affected (with each series voting as a class) may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power of the Trustee (Section 6.05). The Trustee may
withhold from holders of Debt Securities notice of any continuing default
(except a default in the payment of principal or interest) if it determines in
good faith that withholding notice is in their interests (Section 7.05).
AMENDMENT AND WAIVER
With the written consent of the holders of more than 50% of the principal amount
of the outstanding Debt Securities of each series that will be affected (with
each series voting as a class), we, U S WEST and the Trustee may amend or
supplement the Indenture or modify the rights of the holders of Debt Securities
of that series. Such majority of holders may also waive compliance by us or
U S WEST with any provision of the Indenture, any supplemental indenture or the
Debt Securities of any such series except a default in the payment of principal
or interest. However, without the consent of the holder of each Debt Security
affected, an amendment or waiver may not (Section 9.02):
- reduce the amount of Debt Securities whose holders must consent to an
amendment or waiver,
- change the rate or the time for payment of interest,
- change the principal or the fixed maturity,
- waive a default in the payment of principal, premium, if any, or interest,
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- make any Debt Security payable in a different currency, or
- make any change in the provisions of the Indenture concerning (a) waiver
of existing defaults (Section 6.04), (b) rights of holders of Debt
Securities to receive payment (Section 6.07), or (c) amendments and
waivers with consent of holders of Debt Securities (Section 9.02(a), third
sentence).
We, U S WEST and the Trustee may amend or supplement the Indenture without the
consent of any holder of any of the Debt Securities (Section 9.01):
- to cure any ambiguity, defect or inconsistency in the Indenture, the Debt
Securities or the Guarantees,
- to provide for the assumption of all of our obligations under the Debt
Securities and the Indenture or of U S WEST's obligations under the
Guarantees and the Indenture by any corporation in connection with a
merger, consolidation or transfer or lease of our or U S WEST's property
and assets substantially as an entirety,
- to provide for uncertificated Debt Securities in addition to or instead of
certificated Debt Securities,
- to add to the covenants made by us or U S WEST for the benefit of the
holders of any series of Debt Securities or to surrender any right or
power conferred upon us in the Indenture,
- to add to, delete from, or revise the conditions, limitations, and
restrictions on the authorized amount, terms, or purposes of issue,
authentication and delivery of the Debt Securities,
- to make any change that does not adversely affect the rights of any holder
of Debt Securities,
- to provide for the issuance of and establish the form and terms and
conditions of a series of Debt Securities or the Guarantees, or to
establish the form of any certifications required to be furnished pursuant
to the terms of the Indenture or any series of Debt Securities,
- to add to the rights of holders of any of the Debt Securities, or
- to secure any Debt Securities as provided under the heading "--LIMITATION
ON LIENS."
SATISFACTION AND DISCHARGE
We and U S WEST may terminate all of our or their obligations under the 6 7/8%
Notes and the Indenture with respect to the 6 7/8% Notes or any installment of
interest on the 6 7/8% Notes if we or U S WEST irrevocably deposits in trust
with the Trustee money or U.S. Government Obligations sufficient to pay, when
due, principal and interest on the 6 7/8% Notes to maturity or redemption or
such installment of interest, as the case may be, and if all other conditions
set forth in the 6 7/8% Notes are met (Section 8.01).
GUARANTEES
As described in more detail above under "--GENERAL", U S WEST has
unconditionally guaranteed the payment of principal and interest on the Notes
when and as such payments become due and payable. The Guarantees rank equally
with all other unsecured and unsubordinated obligations of U S WEST. The 6 7/8%
Notes and the guarantees are unsecured obligations of Capital Funding and
U S WEST, respectively, and rank pari passu among them
LUXEMBOURG PAYING AND TRANSFER AGENT
In the event that definitive 6 7/8% Notes are issued, holders of the 6 7/8%
Notes will be able to receive payments thereon and effect transfers thereof at
the offices of our paying and transfer agent in
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Luxembourg. We have initially appointed Kredietbank S.A. Luxembourgeoise as
paying agent and transfer agent in Luxembourg with respect to the 6 7/8% Notes
issued in definitive form, and as long as the 6 7/8% Notes are listed on the
Luxembourg Stock Exchange, we will maintain a paying and transfer agent in
Luxembourg. Any change in the Luxembourg paying agent and transfer agent will be
published in Luxembourg. See "--NOTICES."
LUXEMBOURG EXCHANGE AGENT
Our exchange agent for Luxembourg holders is Kredietbank S.A. Luxembourgeoise.
NOTICES
Notices to holders of the 6 7/8% Notes will be sent by mail to the registered
holders and will be published, whether the 6 7/8% Notes are in global or
definitive form, and so long as the 6 7/8% Notes are listed on the Luxembourg
Stock Exchange, in a daily newspaper of general circulation in Luxembourg. It is
expected that publication will be made in Luxembourg in the LUXEMBURGER WORT.
Any such notice shall be deemed to have been given on the date of such
publication or, if published more than once, on the date of the first such
publication. So long as the 6 7/8% Notes are listed on the Luxembourg Stock
Exchange, any change in the Luxembourg paying agent and transfer agent will be
published in Luxembourg in the manner set forth above.
GOVERNING LAW
The Indenture and the 6 7/8% Notes will be governed by, and construed in
accordance with, the laws of the State of New York, applicable to agreements
made and to be performed wholly within such jurisdiction.
CONCERNING THE TRUSTEE AND THE PAYING AGENT
We and certain of our affiliates maintain banking and other business
relationships in the ordinary course of business with Bank One Trust Company,
National Association. In addition, Bank One Trust Company, National Association
and certain of its affiliates serve as trustee, authenticating agent, or paying
agent with respect to certain Debt Securities previously issued by us and our
affiliates.
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REGISTRATION RIGHTS
Based on an interpretation by the staff of the SEC ("the Staff") set forth in
Morgan Stanley & Co. Incorporated, SEC No-Action Letter (available June 5,
1991), Exxon Capital Holdings Corporation, SEC No-Action Letter (available
May 13, 1988) and similar letters, and subject to the immediately following
sentence, we and U S WEST believe that the new 6 7/8% Notes to be issued
pursuant to the exchange offer may be offered for resale, resold and otherwise
transferred by the holders thereof (other than holders who are broker-dealers)
without further compliance with the registration and prospectus delivery
provisions of the Securities Act. However, any purchaser of old 6 7/8% Notes who
is an affiliate of us or U S WEST or who intends to participate in the exchange
offer for the purpose of distributing the new 6 7/8% Notes, or any broker-dealer
who purchased the old 6 7/8% Notes from us for resale pursuant to Rule 144A or
any other available exemption under the Securities Act:
- will not be able to rely on the interpretations of the Staff set forth in
the above-mentioned no-action letters,
- will not be entitled to tender such old 6 7/8% Notes in the exchange
offer, and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the old
6 7/8% Notes unless such sale or transfer is made pursuant to an exemption
from such requirements.
Neither we nor U S WEST intend to seek our own no-action letter, and there can
be no assurance that the Staff would make a similar determination with respect
to the new 6 7/8% Notes as it has in such no-action letters to third parties.
Each holder of the old 6 7/8% Notes (other than certain specified holders) who
wishes to exchange the old 6 7/8% Notes for new 6 7/8% Notes in the exchange
offer will be required to represent that:
- it is not an affiliate of us or U S WEST,
- it is not a broker-dealer tendering Registrable Securities (as defined in
the Registration Rights Agreement) acquired directly from us,
- the Notes to be exchanged for new 6 7/8% Notes in the exchange offer were
acquired in the ordinary course of its business, and
- at the time 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 6 7/8% Notes.
In addition, in connection with any resale of new 6 7/8% Notes, any
broker-dealer who acquired the new 6 7/8% Notes for its own account as a result
of market-making or other trading activities (a "Participating Broker-Dealer")
and who receives new 6 7/8% notes in exchange for such old 6 7/8% notes pursuant
to the exchange offer, may be deemed to be an "underwriter" within the meaning
of the Securities Act and must deliver a prospectus meeting the requirements of
the Securities Act. The SEC has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the new 6 7/8% Notes other than a resale of an unsold allotment from the
original sale thereof, with the prospectus contained in the registration
statement filed in connection with the exchange offer (the "Exchange Offer
Registration Statement"). Under the Registration Rights Agreement, we and
U S WEST are required to allow Participating Broker-Dealers and other persons,
if any, subject to similar prospectus delivery requirements to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of such new 6 7/8% Notes for a period of 225 calendar days from
the issuance of the new 6 7/8% Notes.
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If:
- because of any change in law or in currently prevailing interpretations of
the Staff, we or U S WEST are not permitted to effect the exchange offer,
- the exchange offer is not consummated within 225 calendar days of the
closing date, or
- in the case of any holder that participates in the exchange offer, such
holder does not receive new 6 7/8% Notes on the date of the exchange that
may be sold without restriction under state and federal securities laws
(other than due solely to the status of such holder as an affiliate of
ours or U S WEST within the meaning of the Securities Act or as a
broker-dealer),
then in each case, we or U S WEST will promptly deliver to the holders written
notice thereof; and at our or U S WEST's sole expense:
- as promptly as practicable (but in no event more than 90 days after so
required or requested pursuant to the Registration Rights Agreement), file
a shelf registration statement covering resales of the old 6 7/8% Notes
(the "Shelf Registration Statement"),
- use our reasonable best efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act as soon as practicable,
and
- use our reasonable best efforts to keep effective the Shelf Registration
Statement until the earlier of two years (or, if Rule 144(k) is amended to
provide a shorter restrictive period, such shorter period) after the
closing date or such time as all of the applicable old 6 7/8% Notes have
been sold thereunder.
We or U S WEST will, if a Shelf Registration Statement is filed, provide to each
holder copies of the prospectus that is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Notes has become effective and take certain other actions as are required to
permit unrestricted resales of the old 6 7/8% Notes. A holder that sells old
6 7/8% Notes pursuant to the Shelf Registration Statement will be required to be
named as a selling security holder in the related prospectus, to provide
information related thereto and to deliver such 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 Rights Agreement that are applicable to such a holder (including
certain indemnification rights and obligations). Neither we nor U S WEST shall
have any obligation to include in the Shelf Registration Statement holders who
do not deliver such information to us or U S WEST.
If we or U S WEST fail to comply with certain provisions of the Registration
Rights Agreement, in each case as described below, then a special interest
premium (the "Special Interest Premium") shall become payable in respect of the
old 6 7/8% Notes.
If:
- the Exchange Offer Registration Statement is not filed with the SEC on or
prior to the 150th calendar day following August 25, 1999 (or by
January 22, 2000),
- the Exchange Offer Registration Statement is not declared effective on or
prior to the 180th calendar day following August 25, 1999 (or by
February 21, 2000), or
- the exchange offer is not consummated or the Shelf Registration Statement
is not declared effective on or prior to the 225th calendar day following
August 25, 1999 (or by April 6, 2000);
the Special Interest Premium shall accrue in respect of the old 6 7/8% Notes,
from and including the next calendar day following each of (a) such 150-day
period in the case of the first bullet listed above, (b) such 180-day period in
the second bullet listed above and (c) such 225-day period in the case of the
third bullet listed above, in each case at a rate equal to 0.25% per annum.
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The aggregate amount of the Special Interest Premium in respect of each of the
old 6 7/8% Notes, payable pursuant to the above provisions, will in no event
exceed 0.25% per annum. If the Exchange Offer Registration Statement is not
declared effective on or prior to the 225th calendar day following August 25,
1999 and we and U S WEST shall request holders of old 6 7/8% Notes to provide
the information called for by the Registration Rights Agreement for inclusion in
the Shelf Registration Statement, the old 6 7/8% Notes owned by holders who do
not deliver such information to us and U S WEST when required pursuant to the
Registration Rights Agreement will not be entitled to any Special Interest
Premium for any day after the 225th day following August 25, 1999.
Upon:
- filing of the Exchange Offer Registration Statement after the 150-day
period described above,
- effectiveness of the Exchange Offer Registration Statement after the
180-day period described above, or
- consummation of the exchange offer or the effectiveness of a Shelf
Registration Statement, as the case may be, after the 225-day period
described above,
the interest rate on the old 6 7/8% Notes from the day of such filing,
effectiveness or consummation, as the case may be, will be reduced to the
original interest rate set forth on the cover page of this prospectus for the
old 6 7/8% Notes.
If a Shelf Registration Statement is declared effective pursuant to the
foregoing paragraphs, and if we and U S WEST fail to keep such Shelf
Registration Statement continuously (a) effective or (b) useable for resales for
the period required by the Registration Rights Agreement due to certain
circumstances relating to pending corporate developments, public filings with
the SEC and similar events, or because the prospectus contains an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, and such failure continues for more than 60 days (whether or not
consecutive) in any twelve-month period (the 61st day being referred to as the
"Default Day"), then from the Default Day until the earlier of:
- the date that the Shelf Registration Statement is again deemed effective
or is usable,
- the date that is the second anniversary of the closing date (or, if
Rule 144(k) is amended to provide a shorter restrictive period, such
shorter period), or
- the date as of which all of the new 6 7/8% Notes are sold pursuant to the
Shelf Registration Statement,
the Special Interest Premium in respect of the old 6 7/8% Notes shall accrue at
a rate equal to 0.25% per annum.
If we or U S WEST fail to keep the Shelf Registration Statement continuously
effective or useable for resales pursuant to the preceding paragraph, we or
U S WEST shall give the holders notice to suspend the sale of the old 6 7/8%
Notes and shall extend the relevant period referred to above during which we or
U S WEST are required to keep effective the Shelf Registration Statement (or the
period during which Participating Broker-Dealers are entitled to use the
prospectus included in the Exchange Offer Registration Statement in connection
with the resale of new 6 7/8% Notes) by the number of days during the period
from and including the date of the giving of such notice to and including the
date when holders shall have received copies of the supplemented or amended
prospectus necessary to permit resales of the old 6 7/8% Notes or to and
including the date on which we or U S WEST have given notice that the sale of
the old 6 7/8% Notes may be resumed, as the case may be.
Each old 6 7/8% Note contains a legend to the effect that the holder thereof, by
its acceptance thereof, will be deemed to have agreed to be bound by the
provisions of the Registration Rights Agreement.
The Registration Rights Agreement is governed by, and construed in accordance
with, the laws of the State of New York. This summary of certain provisions of
the Registration Rights 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 Rights Agreement, a form of which is available upon request to us
or U S WEST. In addition, the information set forth above concerning certain
interpretations and positions taken by the Staff is not intended to constitute
legal advice, and prospective investors should consult their own legal advisors
with respect to such matters.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax consequences of an
exchange of old 6 7/8% Notes for new 6 7/8% Notes in the exchange offer and the
purchase, beneficial ownership and disposition of new 6 7/8% Notes. For purposes
of this summary, a "U.S. Holder" means a beneficial owner of an old 6 7/8% or a
new 6 7/8% Note that is for U.S. federal income tax purposes:
- an individual who is a citizen or resident of the United States;
- a corporation, partnership or other business entity created or organized
under the laws of the United States or any state thereof (including the
District of Columbia);
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust with respect to which a court within the United States is able to
exercise primary supervision over its administration, and one or more
United States persons have the authority to control all of its substantial
decisions.
An individual may, subject to certain exceptions, be deemed to be a resident of
the United States by reason of being present in the United States for at least
31 days in the calendar year and for an aggregate of at least 183 days during a
three-year period ending in the current calendar year (counting for such
purposes all the days present in the current year, one-third of the days present
in the immediately preceding year, and one-sixth of the days present in the
second preceding year). A "Non-U.S. Holder" is a beneficial owner of an old
6 7/8% Note or a new 6 7/8% Note that is not a U.S. Holder.
This summary is based on interpretations of the Internal Revenue Code of 1986,
as amended (the "Code"), regulations issued thereunder, and rulings and
decisions currently in effect (or in some cases proposed), all of which are
subject to change. Any such change may be applied retroactively and may
adversely affect the federal tax consequences described herein. This summary
addresses only holders that own old 6 7/8% Notes or will own new 6 7/8% Notes as
capital assets and not as part of a "straddle" or a "conversion transaction" for
U.S. federal income tax purposes or as part of some other integrated investment.
This summary does not discuss all of the tax consequences that may be relevant
to particular investors or to investors subject to special treatment under the
U.S. federal income tax laws (such as life insurance companies, tax-exempt
entities, regulated investment companies, securities dealers, and investors
whose functional currency is not the U.S. dollar). Persons considering the
exchange of their old 6 7/8% Notes for new 6 7/8% Notes and persons considering
the purchase of new 6 7/8% Notes should consult their tax advisors concerning
the application of U.S. federal tax laws to their particular situations as well
as any consequences of the exchange of the old 6 7/8% Notes for new 6 7/8% Notes
and of the purchase, beneficial ownership and disposition of new 6 7/8% Notes
arising under the laws of any state or other taxing jurisdiction.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER TO U.S. HOLDERS AND
NON-U.S. HOLDERS
The exchange of old 6 7/8% Notes for new 6 7/8% Notes pursuant to the exchange
offer will not be a taxable event for U.S. federal income tax purposes. U.S.
Holders and Non-U.S. Holders will not recognize any taxable gain or loss as a
result of such exchange and will have the same tax basis and holding period in
the new 6 7/8% Notes as they had in the old 6 7/8% Notes immediately before the
exchange.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
TREATMENT OF INTEREST. Stated interest on the new 6 7/8% Notes will be taxable
to U.S. Holders as ordinary interest income as the interest accrues or is paid
in accordance with the holder's regular method of accounting.
MARKET DISCOUNT. If a U.S. Holder acquires a new 6 7/8% Note for an amount that
is less than its principal amount by more than a DE MINIMIS amount (generally
0.25% of the principal amount
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multiplied by the number of remaining whole years to maturity), the amount of
the difference will be treated as "market discount." In the event a U.S. Holder
acquires a new 6 7/8% Note with market discount, unless the U.S. Holder elects
to include such market discount in income as it accrues, a U.S. Holder will be
required to treat any principal payment on, and any gain on the sale, exchange,
retirement or other disposition (including a gift) of, a new 6 7/8% Note as
ordinary income to the extent of any accrued market discount that has not
previously been included in income. In general, market discount on the new
6 7/8% Notes will accrue ratably over the remaining term of the new 6 7/8% Notes
or, at the election of the U.S. Holder, under a constant yield method. In
addition, a U.S. Holder could be required to defer the deduction of all or a
portion of the interest paid on any indebtedness incurred or continued to
purchase or carry a new 6 7/8% Note unless the U.S. Holder elects to include
market discount in income currently. Such an election applies to all debt
instruments held by a taxpayer and may not be revoked without the consent of the
Internal Revenue Service (the "IRS").
AMORTIZATION OF BOND PREMIUM. A U.S. Holder that purchases a new 6 7/8% Note
for an amount in excess of its stated principal amount will be considered to
have purchased the Note at a premium. The U.S. Holder may elect to amortize such
premium (as an offset to interest income), using a constant yield method, over
the remaining term of the new 6 7/8% Note (or to an earlier call date if it
results in a smaller amount of amortizable bond premium). Such election, once
made, generally applies to all debt instruments held or subsequently acquired by
the U.S. Holder on or after the first day of the first taxable year to which
such election applies and may be revoked only with the consent of the IRS. A
U.S. Holder that elects to amortize such premium must reduce its tax basis in
the related 6 7/8% Note by the amount of the premium amortized during its
holding period. If a U.S. Holder does not elect to amortize the premium, the
amount of such premium will be included in the U.S. Holder's tax basis for
purposes of computing gain or loss in connection with a taxable disposition of
the new 6 7/8% Note.
SALE OR OTHER DISPOSITION OF NEW 6 7/8% NOTES
In general, upon the sale, retirement or other taxable disposition of a new
6 7/8% Note, a U.S. Holder will recognize taxable gain or loss equal to the
difference between (i) the amount of the cash and the fair market value of any
property received on the sale, retirement or other taxable disposition (not
including any amount attributable to accrued but unpaid interest or accrued
market discount not previously included in income) and (ii) the U.S. Holder's
adjusted tax basis in the new 6 7/8% Note. A U.S. Holder's adjusted tax basis in
a new 6 7/8% Note generally will be equal to the cost of the Note to such U.S.
Holder, increased by the amount of any market discount previously included in
income by the U.S. Holder and reduced by the amount of any payments received by
the U.S. Holder, other than payments of qualified stated interest, and by the
amount of amortizable bond premium taken into account. Subject to the discussion
of market discount above, gain or loss realized on the sale, retirement or other
taxable disposition of a new 6 7/8% Note will be capital gain or loss.
U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OWNERSHIP
OF NEW 6 7/8% NOTES
For purposes of the following summary, interest and gain on the sale, exchange
or other disposition of a new 6 7/8% Note will be considered "U.S. trade or
business income" if such income or gain is:
- effectively connected with the conduct of a trade or business in the
United States; or
- in the case of a treaty resident, attributable to a permanent
establishment (or, in the case of an individual, to a fixed base) in the
United States.
TREATMENT OF INTEREST. A Non-U.S. Holder that is not subject to U.S. federal
income tax as a result of any direct or indirect connection to the United States
other than its ownership of a new 6 7/8% Note will not be subject to U.S.
federal income or withholding tax in respect of interest income on the new
6 7/8% Note if:
- the interest is not U.S. trade or business income;
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- the Non-U.S. Holder provides an appropriate statement on IRS Form W-8 or
Form W-8BEN, together with all appropriate attachments, signed under
penalties of perjury, identifying the Non-U.S. Holder and stating, among
other things, that the Non-U.S. Holder is not a United States person for
U.S. federal income tax purposes; and
- the Non-U.S. Holder is not a "10-percent shareholder" or a "related
controlled foreign corporation" with respect to the Company as specially
defined for U.S. federal income tax purposes.
If a new 6 7/8% Note is held through a securities clearing organization or
certain other financial institutions, the organization or institution may
provide a signed statement to eliminate withholding tax. However, in such case,
the signed statement must be accompanied by a copy of the IRS Form W-8 or Form
W-8BEN or the substitute form provided by the beneficial owner to the
organization or institution. For interest paid with respect to a new 6 7/8% Note
after December 31, 2000, a Non-U.S. Holder that is treated as a partnership for
U.S. federal tax purposes generally will be required to provide an IRS Form
W-8IMY and to attach an appropriate certification by each beneficial owner of
the Non-U.S. Holder (including in certain cases, such beneficial owner's
beneficial owners). Prospective investors, including foreign partnerships and
their partners, should consult their tax advisors regarding these possible
additional reporting requirements.
To the extent these conditions are not met, a 30% withholding tax will apply to
interest income on the new 6 7/8% Note, unless an income tax treaty reduces or
eliminates such tax or unless the interest is U.S. trade or business income with
respect to such Non-U.S. Holder and the Non-U.S. Holder provides an appropriate
statement to that effect. In the latter case, such Non-U.S. Holder generally
will be subject to U.S. federal income tax with respect to all income from the
new 6 7/8% Notes at regular rates applicable to U.S. taxpayers. Additionally, in
such event, Non-U.S. Holders that are corporations could be subject to a branch
profits tax on such income.
TREATMENT OF DISPOSITIONS OF NEW 6 7/8% NOTES. In general, a Non-U.S. Holder
will not be subject to U.S. federal income tax on any amount received (other
than amounts in respect of accrued but unpaid interest) upon retirement or
disposition of a new 6 7/8% Note unless such Non-U.S. Holder is an individual
present in the United States for 183 days or more in the taxable year of the
sale, exchange or other disposition and certain other requirements are met, or
unless the gain is U.S. trade or business income. In the latter event, Non-U.S.
Holders generally will be subject to U.S. federal income tax with respect to
such gain at regular rates applicable to U.S. taxpayers. Additionally, in such
event, Non-U.S. Holders that are corporations could be subject to a branch
profits tax on such gain.
TREATMENT OF NEW 6 7/8% NOTES FOR U.S. FEDERAL ESTATE TAX PURPOSES. An
individual Non-U.S. Holder (who is not domiciled in the United States for U.S.
federal estate tax purposes at the time of death) will not be subject to U.S.
federal estate tax in respect of a new 6 7/8% Note, so long as the Non-U.S.
Holder is not a "10-percent shareholder" with respect to the Company as
specially defined for U.S. federal income tax purposes and payments of interest
on such new 6 7/8% Note would not have been considered U.S. trade or business
income at the time of such Non-U.S. Holder's death.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX FOR NON-U.S.
HOLDERS
Under certain circumstances, the Code requires "information reporting" annually
to the IRS and to each holder of new 6 7/8% Notes, and "backup withholding" at a
rate of 31% with respect to certain payments made on or with respect to the new
6 7/8% Notes. Backup withholding generally does not apply with respect to
certain holders of new 6 7/8% Notes, including corporations, tax-exempt
organizations, qualified pension and profit sharing trusts and individual
retirement accounts.
A Non-U.S. Holder that provides an IRS Form W-8 or Form W-8BEN, together with
all appropriate attachments, signed under penalties of perjury, identifying the
Non-U.S. Holder and stating that the Non-U.S. Holder is not a United States
person, will not be subject to IRS reporting requirements and
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U.S. backup withholding. With respect to interest paid after December 31, 2000,
IRS Forms W-8BEN will generally be required from the beneficial owners of
interests in a Non-U.S. Holder that is treated as a partnership for U.S. federal
income tax purposes.
The payment of the proceeds on the disposition of a new 6 7/8% Note to or
through the U.S. office of a broker generally will be subject to information
reporting and backup withholding at a rate of 31% unless the Non-U.S. Holder
either certifies its status as a Non-U.S. Holder under penalties of perjury on
IRS Form W-8 or Form W-8BEN (as described above) or otherwise establishes an
exemption. The payment of the proceeds on the disposition of a new 6 7/8% Note
by a Non-U.S. Holder to or through a non-U.S. office of a non-U.S. broker will
not be subject to backup withholding or information reporting unless the
non-U.S. broker is a "U.S. related person" (as defined below). The payment of
proceeds on the disposition of a new 6 7/8% Note by a Non-U.S. Holder to or
through a non-U.S. office of a U.S. broker or a U.S. related person generally
will not be subject to backup withholding but will be subject to information
reporting unless the Non-U.S. Holder certifies its status as a Non-U.S. Holder
under penalties of perjury or the broker has certain documentary evidence in its
files as to the Non-U.S. Holder's foreign status and the broker has no actual
knowledge to the contrary.
For this purpose, a "U.S. related person" is:
- a "controlled foreign corporation" as specially defined for U.S. federal
income tax purposes;
- 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
the 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; or
- for payments made after December 31, 2000, a foreign partnership if at any
time during its tax year one or more of its partners are United States
persons who, in the aggregate, hold more than 50% of the income or capital
interest of the partnership or if, at any time during its taxable year,
the partnership is engaged in the conduct of a U.S. trade or business.
Backup withholding is not an additional tax and may be refunded (or credited
against the Non-U.S. Holder's U.S. federal income tax liability, if any),
provided that certain required information is furnished. The information
reporting requirements may apply regardless of whether withholding is required.
Copies of the information returns reporting such interest and withholding also
may be made available to the tax authorities in the country in which a Non-U.S.
Holder is a resident under the provisions of an applicable income tax treaty or
agreement.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives new 6 7/8% Notes for its own
account in the exchange offer must acknowledge that it acquired the old 6 7/8%
Notes for its own account as a result of market-making or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of the new
6 7/8% Notes. The letter of transmittal states that by so acknowledging and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act. See
"REGISTRATION RIGHTS." A Participating Broker-Dealer may use this prospectus, as
it may be amended or supplemented from time to time, in connection with resales
of new 6 7/8% Notes received in exchange for old 6 7/8% Notes where the old
6 7/8% Notes were acquired as a result of market-making activities or other
trading activities. Under the Registration Rights Agreement, we and U S WEST
have agreed that for a period of 225 calendar days after the expiration date, we
will make this prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any resale of new 6 7/8%
Notes.
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We will not receive any proceeds from any sale of the new 6 7/8% Notes by any
Participating Broker-Dealer. New 6 7/8% Notes received by Participating
Broker-Dealers for their own account in 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 6 7/8% Notes
or a combination of the methods of resale, at market prices prevailing at the
time of resale, at prices related to the prevailing market prices or negotiated
prices. Any 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 Participating Broker-Dealer and/or the purchasers of
the new 6 7/8% Notes. Any Participating Broker-Dealer that resells new 6 7/8%
Notes that were received by it for its own account in the exchange offer and any
broker or dealer that participates in a distribution of the new 6 7/8% Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any resale of new 6 7/8% Notes and any commissions or concessions
received by those 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 Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 225 calendar days after closing of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any Participating Broker-Dealer that requests
the documents in the letter of transmittal. We have agreed to pay all expenses
incident to our or U S WEST's performance of, or compliance with, the
Registration Rights Agreement and all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the old 6 7/8% Notes
but excluding commissions or concessions of any brokers or dealers, and will
indemnify the holders, including any broker-dealers, and certain parties related
to the holders against certain liabilities, including liabilities under the
Securities Act.
We have not entered into any arrangements or understandings with any person to
distribute the new 6 7/8% Notes to be received in the exchange offer.
LEGAL MATTERS
Certain legal matters with respect to the 6 7/8% Notes will be passed upon for
us and U S WEST by Cadwalader, Wickersham & Taft, New York, New York, and by
Thomas O. McGimpsey, Senior Attorney and Assistant Secretary of U S WEST.
Cadwalader, Wickersham & Taft, New York, New York is also passing on certain
federal income tax matters in connection with the 6 7/8% Notes.
EXPERTS
The audited financial statements and schedule of U S WEST for the year ended
December 31, 1998 included in U S WEST's Annual Report on Form 10-K, as amended
by Form 10-K/A filed March 24, 1999, and in U S WEST's Proxy Statement on
Schedule 14A dated March 24, 1999, and the selected condensed consolidated
financial statements in U S WEST's Current Report on Form 8-K dated
February 24, 1999, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, which are
incorporated by reference in this prospectus and in the registration statement
in reliance upon the authority of said firm as experts in giving said reports.
GENERAL INFORMATION
INCORPORATION, REGISTERED AND PRINCIPAL EXECUTIVE OFFICES, AUTHORIZED SHARES
Old U S WEST was one of seven regional holding companies formed in connection
with the court ordered divestiture of American Telephone and Telegraph Company
("AT&T") which occurred on January 1, 1984. U S WEST was incorporated as a
wholly-owned subsidiary of Old U S WEST on
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December 23, 1997. As a result of the Separation, U S WEST became a separate
publicly-traded company. U S WEST is incorporated under the laws of the State of
Delaware. The address of the registered office of U S WEST in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801. The name of U S WEST's registered agent at that address is The
Corporation Trust Company. The principal executive offices of U S WEST are
located at 1801 California Street, Denver, Colorado 80202.
U S WEST is authorized to issue 2 billion shares of common stock and
200 million shares of preferred stock. As of September 30, 1999, 505,001,883
shares of U S WEST common stock were issued and outstanding, and no shares of
U S WEST preferred stock were issued or outstanding. The share capital of
U S WEST is fully paid. U S WEST does not have any convertible debt securities.
A description of U S WEST's principal activities is set forth in this prospectus
and in documents incorporated by reference herein.
We are a wholly-owned subsidiary of U S WEST which provides financing to
U S WEST and its affiliates. We were incorporated under the laws of the State of
Colorado on June 10, 1986. The address of our registered office is 1675
Broadway, Denver, Colorado 80202. The name of the registered agent at that
address is The Corporation Trust Company. Our principal executive offices are
located at 1801 California Street, Denver, Colorado 80202.
We are authorized to issue one share of stock without par value. As of the date
of this prospectus, we have issued one share of stock to U S WEST. Our issued
share capital is fully paid. We do not have any convertible debt securities.
LISTING
The old 6 7/8% Notes are listed on the Luxembourg Stock Exchange. Application
has been made to list the new 6 7/8% Notes on the Luxembourg Stock Exchange. In
connection with the listing of the 6 7/8% Notes, our Articles of Incorporation,
Bylaws and Restated Certificate of Incorporation and a legal notice relating to
the issuance of the 6 7/8% Notes were deposited with "Greffier en Chef du
Tribunal d'Arrondissement de et a Luxembourg," where copies thereof may be
obtained upon request. We will also inform the Luxembourg Stock Exchange of the
Interest Payment Dates, the interest rate for each interest period, and the
amount paid on each Interest Payment Date. Copies of the above documents and
interest rate information, together with this prospectus, the Indenture and
U S WEST's Annual Report on Form 10-K for the year ended December 31, 1998, as
amended by Form 10-K/A filed March 24, 1999 ("1998 10-K"), as well as all future
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, so long as any of the 6 7/8% Notes are outstanding and listed on
the Luxembourg Stock Exchange, will be made available, free of charge, at the
main office of Kredietbank S.A. Luxembourgeoise. The purchase agreement pursuant
to which the 6 7/8% Notes were originally issued and agreements relating to the
Guarantees will also be available for inspection at Kredietbank S.A.
Luxembourgeoise, which will act as intermediary between the Luxembourg Stock
Exchange, us and the holders of the 6 7/8% Notes so long as the 6 7/8% Notes are
in global form. For Luxembourg holders, copies of the Letter of Transmittal and
other associated documents relating to exchange offer (including the documents
set forth under the caption "WHERE YOU CAN FIND MORE INFORMATION") will be
available at the office of Kredietbank S.A. Luxembourgeoise.
The consolidated financial statements contained in U S WEST's 1998 Form 10-K
have been audited by Arthur Andersen LLP. See "EXPERTS."
AUTHORIZATION
The 6 7/8% Notes were originally issued pursuant to authority granted by our
Board of Directors on May 16, 1999, as such authority may be supplemented from
time to time.
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The Guarantees were originally entered into pursuant to authority granted by our
Board of Directors of U S WEST on May 16, 1999, as such authority may be
supplemented from time to time.
MATERIAL CHANGE
There has been no material adverse change in the financial position or
operations of U S WEST and its subsidiaries (including Capital Funding) on a
consolidated basis since December 31, 1998, except as disclosed in this
prospectus or in the documents incorporated by reference in this prospectus.
LITIGATION
Except as disclosed in this prospectus or in documents incorporated by reference
in this prospectus, neither U S WEST, nor any of its subsidiaries (including
Capital Funding), is involved in any legal or arbitration proceedings, nor, to
U S WEST's knowledge, are any legal or arbitration proceedings pending or
threatened involving U S WEST or any of its subsidiaries (including Capital
Funding), which have had during the 12 months prior to the date of this
prospectus a material adverse effect on the financial position of U S WEST and
its subsidiaries (including Capital Funding) on a consolidated basis.
U S WEST and certain subsidiaries (including Capital Funding) are defendants in
various legal proceedings involving matters generally incidental to their
business. Although it is difficult to predict the ultimate outcome of these
proceedings, management of U S WEST believes, based on discussions with counsel,
that any ultimate liability will not have a material adverse effect on the
consolidated financial position or results of operations of U S WEST and its
subsidiaries (including Capital Funding).
IDENTIFICATION NUMBERS
The new 6 7/8% Notes have been accepted for clearance through DTC, Euroclear and
Clearstream Banking CUSIP: 912912AU6; ISIN: US912912AU64; Common
Code: 010754348.
46
