<PAGE>
FILED PURSUANT TO RULE 424(B)(2)
FILE NUMBER: 33-64307
PROSPECTUS SUPPLEMENT
(To Prospectus Dated January 26, 1996)
FRONTIER CORPORATION frontier LOGO
$200,000,000
6% DEALER REMARKETABLE SECURITIES/SM/ ("DRS./SM/") DUE 2013
Interest payable April 15 and October 15
The Dealer remarketable securities ("Drs./SM/") due October 15, 2013 (the
"Stated Maturity Date") of Frontier Corporation ("Frontier" or the "Company")
will bear interest at a rate of 6% per annum from September 21, 1998 until
October 15, 2003 (the "Remarketing Date"). Interest on the Drs. is payable semi-
annually on April 15 and October 15 of each year, commencing April 15, 1999. The
Drs. are subject to mandatory tender on the Remarketing Date. If J.P. Morgan
Securities Inc., as Remarketing Dealer (the "Remarketing Dealer"), elects to
remarket the Drs. as described herein, the Drs. will be subject to mandatory
tender to the Remarketing Dealer at 100% of the principal amount thereof for
remarketing on the Remarketing Date. See "Description of the Drs.--Mandatory
Tender of Drs.; Remarketing." If the Remarketing Dealer elects not to remarket
the Drs., or for any reason does not purchase all of the Drs. on the Remarketing
Date, the Company will be required to purchase on the Remarketing Date any Drs.
that have not been purchased by the Remarketing Dealer at 100% of the principal
amount thereof plus accrued interest, if any. See "Description of the Drs.--
Repurchase."
The Drs. will not be redeemable prior to the Remarketing Date. After the
Remarketing Date, the Drs. will be redeemable on the terms described in
"Description of the Drs.--Redemption."
The Drs. will be represented by one or more global securities registered in the
name of The Depository Trust Company ("DTC") or its nominee. Interests in the
global securities will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Purchasers of the Drs.
will not have the right to receive physical certificates evidencing their
ownership of the Drs. The Drs. will not be listed on any securities exchange.
See "Risk Factors" commencing on page 4 of the accompanying Prospectus and on
page 18 of the Company's Annual Report on Form 10-K for the year ended December
31, 1997, which is incorporated by reference in this Prospectus Supplement, for
a discussion of certain factors relevant to an investment in debt securities of
the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Drs. will be offered by the Underwriters at varying prices based on
prevailing market prices at the time of resale. The net proceeds to the Company
will be 103.794% of the principal amount of the Drs. and the aggregate net
proceeds to the Company will be $207,588,000 plus accrued interest, if any,
from September 21, 1998, before deducting estimated expenses of $250,000
payable by the Company. The net proceeds include a premium paid by the
Remarketing Dealer for the right to require the mandatory tender of all
outstanding Drs. See "Underwriting."
The Drs. are being offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters and subject to certain
other conditions. It is expected that delivery of the Drs. will be made through
the book-entry facilities of DTC on or about September 21, 1998.
J.P. MORGAN & CO.
CREDIT SUISSE FIRST BOSTON
September 16, 1998 MERRILL LYNCH & CO.
- ----------------
"Dealer remarketable securities/SM/" and "Drs./SM/" are service marks of J.P.
Morgan Securities Inc.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DRS. SPECIFICALLY, THE
UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR,
AND PURCHASE, THE DRS. IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES SEE "UNDERWRITING".
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus in connection with the offer contained in this Prospectus Supplement
and the accompanying Prospectus, and, if given or made, such other information
or representations must not be relied upon as having been authorized by the
Company or the Underwriters. This Prospectus Supplement and the accompanying
Prospectus do not constitute an offer by the Company or by any Underwriter to
sell securities in any state to any person to whom it is unlawful for the
Company or such Underwriter to make such offer in such state. Neither the
delivery of this Prospectus Supplement and the accompanying Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained or incorporated by reference herein or therein
is correct as of any time subsequent to the date of such information.
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUPPLEMENT
Incorporation of Certain Documents by Reference............................ S-3
The Company................................................................ S-3
Summary of Recent Operations............................................... S-4
Selected Financial Data.................................................... S-8
Ratio of Earnings to Fixed Charges......................................... S-11
Use of Proceeds............................................................ S-11
Capitalization............................................................. S-12
Description of the Drs. ................................................... S-12
Certain United States Federal Income Tax Considerations.................... S-17
Underwriting............................................................... S-21
Legal Matters.............................................................. S-21
Experts.................................................................... S-22
Statement Regarding Forward-Looking Information............................ S-22
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
The Company................................................................ 4
Risk Factors............................................................... 4
Use of Proceeds............................................................ 4
Ratios of Earnings to Fixed Charges........................................ 5
Description of Debt Securities............................................. 5
Capital Stock Structure.................................................... 16
Description of Common Stock................................................ 16
Description of Preferred Stock............................................. 18
Description of Securities Warrants......................................... 22
Plan of Distribution....................................................... 23
Legal Matters.............................................................. 24
Experts.................................................................... 24
</TABLE>
S-2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents identified in "Incorporation of Certain Documents
by Reference" in the accompanying Prospectus, the following documents, which
have been filed by the Company with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), are hereby incorporated by reference in this Prospectus
Supplement:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1998; and
3. The Company's Current Reports on Form 8-K filed on January 30, 1998,
March 2, 1998 and June 17, 1998.
THE COMPANY
Frontier offers integrated communications services to more than two million
business, carrier and targeted residential customers nationwide, in Canada and
in the United Kingdom. The Company was incorporated in 1920 under the laws of
New York State to take over and unify the properties of a predecessor company
and certain properties of the New York Telephone Company which were located in
the same general territory. Frontier is headquartered in Rochester, New York.
Through its Integrated Services segment, the Company is the nation's fifth
largest long distance company. This segment provides domestic and
international voice, data and video communications service to primarily small
to mid-size business customers and targeted consumer markets. The Company's
Local Communications Services segment consists of 34 local telephone companies
which as of December 31, 1997, serve nearly one million access lines in
thirteen states and is the eleventh largest local exchange provider in the
United States. The Corporate Operations and Other segment includes expenses
traditionally associated with a holding company, including executive and board
of directors' expenses, corporate finance and treasury, investor relations,
corporate planning, legal services and business development.
Prior to 1995, Local Communications Services provided the majority of the
Company's revenue and income. The Company complemented its internal growth in
the Integrated Services business with a number of strategic acquisitions and a
merger in 1995 that approximately doubled the size of the business. As a
result of the Company's strategic decision to expand the Integrated Services
business, revenue from this segment represented 70%, 73% and 69% of
consolidated revenue for 1997, 1996 and 1995, respectively.
COMPANY STRATEGY
The Company's strategy is to be the premier provider of integrated
telecommunications solutions in its target markets. The Company will market
itself to customers as a single source provider of integrated communications
services, which can include long distance, local, cellular, paging, data,
Internet and enhanced services. Frontier is committed to growth through
expansion of its existing businesses and relationships, the development of
value-added products and services and through strategic acquisitions. Frontier
anticipates that public policy will continue to evolve in favor of greater
competition and, as a result, the Company has been positioning itself to
compete aggressively in a marketplace with numerous new competitors.
S-3
<PAGE>
SUMMARY OF RECENT OPERATIONS
The following is a summary of recent operations that has been derived from
certain sections of Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998. In certain circumstances, the
information has been updated as of the date of this Prospectus Supplement. This
summary should be read in conjunction with such Quarterly Report on Form 10-Q,
including the complete text of Management's Discussion and Analysis of
Financial Condition and Results of Operations contained therein.
Consolidated revenues for the second quarter of 1998 and on a year-to-date
basis were $648.3 million and $1.3 billion respectively, representing increases
of $58.2 million or 9.9% and $112.6 million or 9.6% for the three and six month
periods ended June 30, 1998. Excluding nonrecurring items, operating income was
$80.8 million for the three months ended June 30, 1998 and $155.4 million for
the six month period ended June 30, 1998 as compared to $74.0 million and
$142.1 million for the three and six month periods ended June 30, 1997.
Operating results continue to be positively impacted by revenue growth in
several areas including Carrier Services, data revenue and Competitive Local
Exchange Carrier ("CLEC") services. The most significant growth continues to be
generated by the Carrier Services business. Carrier Services revenues grew
$56.8 million or 56.5% over the second quarter of 1997, and $86.4 million or
41.0% over the first half of 1997. The Carrier Services group growth reflects a
growing base of customers such as Level 3 Communications. The Company's
agreement with Level 3 Communications provides Level 3 Communications
additional bandwidth for IP-based applications and is expected to generate
$165.0 million in incremental revenue for the Company over the five year term
of the agreement.
On a quarter-to-date and year-to-date basis, excluding nonrecurring charges,
consolidated operating margins were consistent with 1997. Normalized for other
charges, costs and expenses grew $51.4 million or 10.0% for the quarter ended
period and $99.3 million or 9.7% for the year-to-date period. Increased
expenses were primarily caused by revenue growth, a higher cost of access in
the Company's integrated services segment associated with the interim overlap
of leased and owned facilities as the Company installs its national fiber optic
network and additional funding required for data and CLEC initiatives. These
increases are offset by improvements in selling, general and administrative
expenses as a percent to revenue due to implementation of the restructuring
plans announced in the fourth quarter of 1997, which resulted in the exiting of
the prepaid business, the phase down of the Integrated Services consumer base
and a refocusing of the Company's core product offerings.
Operating results for 1998 and 1997 were affected by certain one-time events.
In April 1998, the Company completed the sale of Minnesota Southern Cellular
Telephone Company ("Minnesota RSA No. 10"), a wholly owned cellular
partnership, and certain other properties. The sale of these properties
resulted in a combined after-tax gain of $2.5 million, or $.01 per share. The
income tax effect on the gain of $12.1 million is significantly impacted by the
sale of Minnesota RSA No. 10 which resulted in nondeductible goodwill. In the
first quarter of 1997, the Company also completed the sale of its 69.5% equity
interest in the South Alabama Cellular Communications Partnership. The sale
resulted in an after-tax gain of $11.2 million or $.07 per share. These
cellular properties were not considered areas of key strategic focus by the
Company.
Results for the second quarter of 1998 also include the adoption of Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5").
The cumulative effect of adopting SOP 98-5 was an after-tax charge of $1.8
million, net of applicable income taxes of $.8 million or $.01 per share. The
charge is primarily attributed to unamortized start-up costs related to the
product development costs associated with new business ventures.
During the first quarter of 1998, the Company acquired through the issuance of
stock GlobalCenter, Inc. (renamed Frontier GlobalCenter, Inc. or "Frontier
GlobalCenter"), a leader in digital distribution, Internet and data services
and recorded a pre-tax acquisition related charge of $6.5 million ($5.8 million
after-tax) associated with the transaction. These charges include investment
banker, legal fees and other direct costs.
In March 1997, the Company recorded a $62.8 million charge, net of a tax
benefit of $33.8 million, primarily related to the write-off of certain network
costs no longer required for long distance traffic volumes. As a result of the
decline in long distance traffic, an evaluation of the existing network was
performed and facilities deemed no longer necessary to support the Company's
revenue and traffic levels were identified.
Excluding one-time events, diluted earnings per share for the quarter ended
June 30, 1998 and six months ended June 30, 1998 was $.26 and $.49,
respectively, as compared to $.23 and $.44 for the comparable 1997 periods.
Consolidated net income for the same quarter-to-date and year-to-date periods
was $45.2 million and $84.9 million in 1998 and $39.3 million and $75.0 million
in 1997.
S-4
<PAGE>
INTEGRATED SERVICES
The Integrated Services segment provides domestic and international voice, data
products, video and audio communications, digital distribution services,
Internet service and other communications products to primarily small to mid-
size business customers, carrier customers and targeted consumer markets.
Results for this segment also include CLEC services, currently available in
approximately 30 states, providing the Company the ability to offer integrated
local and long distance telephone service to approximately 70% of the United
States.
Integrated Services revenue totaled $464.7 million in the second quarter of
1998, an increase of $52.4 million or 12.7% as compared to the second quarter
of 1997. On a year-to-date basis, revenue totaled $914.2 million as compared to
$817.6 million in the same period in 1997. The increase in revenue is
attributed to a growing base of carrier customers, CLEC services and data sales
from Frontier GlobalCenter. Revenue increases are being offset by the sale of
the prepaid business and de-emphasizing of consumer segment programs.
During the second quarter of 1998, Carrier Services revenue grew $56.8 million
or 56.5% over the same prior year period. On a year-to-date basis, Carrier
Services revenue grew $86.4 million or 41.0% over 1997 due to an increase in
the customer base and higher levels of usage. In March 1998, the Company
entered into a significant fiber capacity contract with Level 3 Communications
valued at over $165.0 million over five years. This contract should begin to
yield revenue in the second half of 1998. As the national fiber optic network
is completed, the Company anticipates further fiber capacity sales, swaps and
exchanges.
Frontier provides local service as a CLEC on both a resale and facility basis.
The Company provides local services to its customers when long distance
services are also provided. At the end of the first quarter of 1998, Frontier
provided local services in areas covering approximately 50% of the business
customers in the United States. Most of that coverage was provided via resale
of the incumbent local exchange carriers. Within that footprint, CLEC service
was provided from Frontier's own switches in New York, Boston and Minneapolis.
During the second quarter of 1998, Frontier expanded its coverage to
approximately two-thirds of the United States and turned up facilities based
service in Seattle, Denver, Atlanta and Chicago. The Company anticipates
providing facilities based service in thirteen metro areas in the second half
of 1998 and ten additional cities during 1999. Facilities based service is
being offered in cities that are on the Company's national fiber optic network,
which will provide Frontier with the opportunity to expand its offerings of
combined local and long distance services into additional markets and leverage
the national fiber optic network. As of June 30, 1998, Frontier is serving in
excess of 140,000 ANIs, or access lines, predominantly through resale in
markets where it is not the incumbent local exchange carrier. At the end of the
first quarter of 1998, Frontier was serving in excess of 116,000 ANIs. Revenue
growth was 106.6% and 98.4% for the quarter ended and for the six months ended
June 30, 1998 as compared to the same prior year periods.
Frontier GlobalCenter's revenue for the second quarter of 1998 was $10.4
million, an increase of $5.0 million, or 92.3% over the second quarter of 1997.
On a year-to-date basis, Frontier GlobalCenter's revenue was $18.9 million, an
increase of $9.3 million or 97.7% over the same period in 1997. Revenue growth
continues to be driven by the digital distribution product. Sales to new
customers such as Ziff Davis, the Washington Post, Newsweek, CNN/Sports
Illustrated, Lucas Films and Home Box Office as well as new multi-year
contracts from current customers, such as Yahoo! and Electronic Arts, are
driving digital distribution revenue gains.
Cost of access represented 64.8% of total Integrated Services revenue for the
second quarter of 1998 as compared to 61.5% for the same period in 1997. On a
year-to-date basis, cost of access represented 64.3% of total Integrated
Services revenue as compared to 62.9% for the same 1997 period. The higher cost
of access percentage is driven by an interim overlap of leased and owned
facilities as the Company installs its national fiber optic network, as well as
an increased mix of high volume carrier business.
Construction of the Company's national fiber optic network is on schedule
through the first half of 1998. However, certain segment delays are anticipated
in the Qwest constructed portion of the Frontier network in the latter half of
1998 that would move the expected completion date of the national fiber optic
network into the first half of 1999. The Company has further enhanced its
national fiber optic network by expanding geographic coverage. Through a swap
agreement with WTCI, Frontier will add 1,661 additional route miles from
Seattle to Denver. This agreement will also provide the Company with a
redundant SONET ring in the northwest United States, which is expected to
further enhance the reliability and performance of the network. In addition, in
July 1998, Frontier entered into an agreement with Williams Communications that
will extend the national fiber optic network into the southeast United States.
In aggregate, the Company's national fiber optic network will have 16,000 route
miles. As of June 30, 1998, approximately 66% of the network being built by
Qwest is carrying traffic.
S-5
<PAGE>
On July 31, 1998, the Company agreed to join as an initial party in the
development and construction of a trans-Pacific fiber network from California
to Japan made up of a number of restorable optic segments.
Operating income for the second quarter of 1998 was $19.7 million, an increase
of 24.2% over the second quarter of 1997. Operating margin as a percent of
revenue for the three months ended June 30, 1998, increased from 3.9% in the
second quarter of 1997 to 4.2% in the second quarter of 1998. On a year-to-date
basis, excluding nonrecurring items, operating income increased 37.7% to $35.9
million. Operating margin as a percent of revenue increased from 3.2% in the
first half of 1997 to 3.9% for the current year. The increase in operating
margin is attributed to higher revenue and continuing improvement in the cost
structure resulting from the implementation of its restructuring announced in
the fourth quarter of 1997.
Frontier anticipates that its operating margins will strengthen throughout 1998
and 1999, particularly in 1999, as the national fiber optic network is
completed, as its higher margin data sales grow as a percent of the revenue mix
and its cost structure continues to decrease as a percent of revenue with a
focused product mix.
LOCAL COMMUNICATIONS SERVICES
Local Communications Services includes the Company's local telephone
operations, consisting of 34 telephone operating subsidiaries in 13 states.
Also included in this segment are revenues and expenses of Frontier
Communications of Rochester Inc., a competitive telecommunications company
formed January 1, 1995 that provides an array of services on a retail basis in
the Rochester, New York marketplace. Consequently, the Local Communications
Services segment includes both wholesale and retail local service provided in
the Rochester, New York market.
Revenues for Local Communications Services were $175.1 million in the three
month period ended June 30, 1998, an increase of $8.1 million or 4.9% over the
comparable period in 1997. For the six month period ended June 30, 1998,
revenues were $348.2 million, an increase of $17.9 million or 5.4% over the
comparable period in 1997. Access lines increased 2.7% over the prior year to
1,013,000 and access minutes of use increased 3.3% over the same prior year
period. On a year-to-date basis, minutes of use increased 2.9% over the
comparable 1997 period. Revenue growth during the first half of 1998 is also
influenced by an increased demand for Internet services.
Costs and expenses in the second quarter of 1998 for Local Communications
Services were $110.0 million, an increase of $3.0 million or 2.8% over the
second quarter of 1997. Costs and expenses for the first half of 1998 were
$219.5 million, representing an increase of $8.8 million or 4.2% over the same
period in 1997. The increase in costs and expenses is primarily attributed to
increased depreciation expense, higher operating costs for repair and
maintenance in 1998 and an increase in customer service costs due to access
line growth. A portion of the repair and maintenance increase was caused by
severe flooding and ice storms during the first half of 1998.
Operating income was $65.1 million and $128.7 million for the three and six
month periods ended June 30, 1998, respectively, representing increases of $5.2
million or 8.6%, and $9.0 million or 7.6% over the comparable three and six
month periods in the prior year. Operating margins for the three months ended
June 30, 1998 improved to 37.2% as compared to 35.9% in 1997. On a year-to-date
basis, operating margins improved from 36.2% in 1997 to 37.0% in 1998. The
favorable trend in operating margins reflects continuing improvements in
operating efficiencies.
CORPORATE OPERATIONS AND OTHER
Corporate Operations is comprised of expenses traditionally associated with a
holding company, including executive and board of directors' expenses,
corporate finance and treasury, investor relations, corporate planning, legal
services and business development. The Other category includes Frontier Network
Systems Corp. ("FNSC"). FNSC markets and installs telecommunications systems
and equipment. This segment also includes wireless operations from Minnesota
RSA No. 10 and the Company's 69.5% interest in Alabama RSAs No. 4 and No. 6.
The sale of Minnesota RSA No. 10 was finalized April 30, 1998. The Alabama
interest was sold in January 1997.
The Company completed its purchase of R.G. Data Incorporated (renamed "Frontier
Network Systems Corp." or "FNSC") in February 1997. R.G. Data Incorporated was
a privately held, upstate New York based computer and data networking equipment
and services company.
The change in results for this segment on both a quarter-to-date and year-to-
date basis, are influenced by the sale of the Company's wireless properties and
the addition of Frontier Network Systems Corporation in 1997.
S-6
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SUBSIDIARY DIVIDEND RESTRICTION
In January 1998, the Company began its fourth year of operations under the Open
Market Plan as described in the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998. The Open Market Plan prohibits the payment of
dividends by the Company's subsidiary, Frontier Telephone of Rochester, Inc.
("FTR"), to Frontier if (i) FTR's senior debt is downgraded to "BBB" by
Standard & Poor's ("S&P"), or the equivalent rating by other rating agencies,
or is placed on credit watch for such a downgrade, or (ii) a service quality
penalty is imposed under the Open Market Plan. Dividend payments to Frontier
also require the Company's directors to certify that such dividends will not
impair FTR's service quality or its ability to finance its short and long-term
capital needs on reasonable terms while maintaining an S&P debt rating target
of "A".
FTR made a $56 million dividend payment to the Company in 1996 with respect to
its 1995 operations. However, in 1996, FTR failed to achieve the service
quality levels required by the Open Market Plan. On December 19, 1996, pursuant
to the Open Market Plan, FTR requested the New York State Public Service
Commission ("NYSPSC") staff to exclude certain months from the calculation used
to measure service quality, due to operating conditions considered by
management to be abnormal and beyond FTR's control. In April 1997, FTR received
notice from the NYSPSC that its request for a waiver of certain conditions in
the Open Market Plan related to service quality results was denied. The
NYSPSC's ruling has resulted in a temporary restriction on the flow of cash
dividends from FTR to Frontier and a refund to FTR's customers of $.9 million.
Reserves sufficient to cover the refund were established in 1996. On October
22, 1997, the NYSPSC adopted an order requiring FTR to issue refunds of
approximately $2.60 per customer. These refunds have been completed.
The temporary restriction of dividend payments to Frontier will remain in place
until the NYSPSC is satisfied that FTR's 1997 and 1998 service levels
demonstrate that FTR has rectified the service deficiency. Weather and other
events have adversely impacted service levels in recent months. During August
1998, the NYSPSC determined that FTR would be required to make refunds totaling
approximately $1.0 million for its failure to meet service quality targets for
periods prior to 1998. The NYSPSC also announced that it would prospectively
increase the sum subject to refund by FTR and promote further improvements in
service quality. The Company expects that the NYSPSC will take action in this
matter during September 1998.
S-7
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SELECTED FINANCIAL DATA
Set forth below are summary historical financial and other data with respect to
the Company for each of the five years in the period ended December 31, 1997.
This information is derived from the audited consolidated financial statements
of the Company, and should be read in conjunction with the information and
audited consolidated financial statements and related notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Current Report on Form 8-K dated June 17, 1998,
which reflects the restatement related to the Frontier GlobalCenter
acquisition. The summary historical financial data and other data for the six
month periods ended June 30, 1998 and 1997 are unaudited, and, in the opinion
of the Company's management, include all adjustments necessary for a fair
presentation of such information. Such unaudited information should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and other information and the consolidated financial
statements contained in the Company's Quarterly Reports on Form 10-Q for the
quarterly period ended June 30, 1998.
S-8
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SIX MONTHS
ENDED
IN THOUSANDS OF DOLLARS JUNE 30, YEAR ENDED DECEMBER 31, (1)
- ----------------------- ------------------------ ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
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FINANCIAL DATA:
INTEGRATED SERVICES:
Revenues................ $ 914,210 $ 817,550 $1,666,500 $1,901,209 $1,486,950 $1,010,425 $ 790,139
Operating Income (Loss):
Operating Income Before
Acquisition Related
and Other Charges..... 35,914 26,086 35,435 229,930 211,068 161,107 105,048
Acquisition Related and
Other Charges(2)....... (6,528) (96,600) (175,856) (39,756) (91,448) -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Operating Income
(Loss)................ $ 29,386 ($ 70,514) ($ 140,421) $ 190,174 $ 119,620 $ 161,107 $ 105,048
---------- ---------- ---------- ---------- ---------- ---------- ----------
Depreciation and
Amortization........... 51,111 45,251 98,844 84,336 61,774 39,290 32,480
Capital Expenditures.... 140,924 94,928 316,901 189,604 69,961 41,668 30,884
LOCAL COMMUNICATIONS
SERVICES:
Revenues................ $ 348,203 $ 330,317 $ 667,078 $ 643,013 $ 621,725 $ 609,678 $ 593,871
Operating Income:
Operating Income Before
Acquisition Related
and Other Charges..... 128,704 119,665 242,471 215,638 198,281 180,250 162,847
Acquisition Related and
Other Charges(2)....... -- -- (4,174) (23,100) (10,249) -- (3,300)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Operating Income. $ 128,704 $ 119,665 $ 238,297 $ 192,538 $ 188,032 $ 180,250 $ 159,547
---------- ---------- ---------- ---------- ---------- ---------- ----------
Depreciation and
Amortization........... 56,511 54,660 110,104 102,350 104,419 108,588 112,523
Capital Expenditures.... 62,558 43,564 108,782 101,342 73,766 60,711 89,923
CORPORATE AND OTHER:
Revenues................ $ 17,901 $ 19,825 $ 41,231 $ 44,297 $ 41,653 $ 47,442 $ 53,438
Operating Loss:
Operating Loss Before
Acquisition Related
and Other Charges..... (9,241) (3,697) (8,364) (9,589) (10,274) (15,731) (12,958)
Acquisition Related and
Other Charges(2)....... -- -- (3,354) (4,900) (12,542) -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Operating Loss... ($ 9,241) ($ 3,697) ($ 11,718) ($ 14,489) ($ 22,816) ($ 15,731) ($ 12,958)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Depreciation and
Amortization........... 1,589 1,765 3,584 4,274 3,697 5,445 3,763
Capital Expenditures.... 15,664 11,975 27,305 20,554 2,544 11,356 3,135
CONSOLIDATED:
Revenues................ $1,280,314 $1,167,692 $2,374,809 $2,588,519 $2,150,328 $1,667,545 $1,437,448
Operating Income (Loss):
Operating Income Before
Acquisition Related
and Other Charges..... 155,377 142,054 269,542 435,979 399,075 325,626 254,937
Acquisition Related and
Other Charges(2)....... (6,528) (96,600) (183,384) (67,756) (114,239) -- (3,300)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Operating Income
(Loss)................ $ 148,849 $ 45,454 $ 86,158 $ 368,223 $ 284,836 $ 325,626 $ 251,637
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before
Extraordinary Items and
Cumulative Effect of
Changes in Accounting
Principles............. $ 81,577 $ 23,432 $ 31,801 $ 198,205 145,129 187,254 128,644
Consolidated Net Income. $ 79,822(3) $ 23,432 $ 31,801 $ 190,187(4) $ 22,444(5) $ 180,057(6) $ 121,154(7)
Depreciation and
Amortization........... $ 109,211 $ 101,676 $ 212,532 $ 190,960 $ 169,890 $ 153,323 $ 148,766
Capital Expenditures.... $ 219,146 $ 150,467 $ 452,988 $ 313,500 $ 164,271 $ 113,735 $ 123,842
OTHER DATA:
EBITDA(8)............... 264,588 243,730 482,074 626,939 568,965 478,949 403,703
EBITDA Margin(8)........ 20.7% 20.9% 20.3% 24.2% 26.5% 28.7% 28.1%
Current Ratio........... 1.03 1.12 1.00 1.13 1.04 2.20 1.04
Debt to
Capitalization(9)...... 50.8% 43.7% 49.2% 39.1% 41.0% 41.2% 44.6%
Pre-tax Interest
Coverage(10)........... 4.8 6.0 4.7 9.0 7.5 6.5 4.3
FINANCIAL POSITION:
Identifiable Assets..... $2,718,009 $2,296,410 $2,501,517 $2,237,298 $2,111,415 $2,060,794 $1,721,545
Working Capital......... 15,501 49,960 (2,673) 53,364 18,127 368,128 11,674
Total Debt.............. 1,027,407 790,483 941,124 685,499 634,619 666,515 586,669
Shareholders' Equity.... 993,867 1,018,606 974,369 1,067,310 912,446 949,329 727,725
</TABLE>
S-9
<PAGE>
(1) The Company completed several acquisitions during the periods presented.
During 1998 the Company acquired GlobalCenter, Inc., a leading provider in
digital distribution, Internet and data services, in a transaction
accounted for as a pooling of interests. The financial statements have
been restated for all periods prior to the acquisition to include the
accounts and operations of the pooled companies. During 1995, seven long
distance companies were acquired and accounted for as purchases which may
affect the comparability of the data on a year-to-date basis. Also during
1995, the Company merged with two additional long distance companies,
including ALC Communications Corporation, in transactions that were
accounted for as a pooling of interests. The financial statements have
been restated for all periods prior to the merger to include the accounts
and operations of the pooled companies.
(2) Acquisition Related and Other Charges includes the following:
1998--A $6.5 million acquisition related charge associated with the
GlobalCenter transaction was recorded in the first quarter.
1997--A charge of $96.6 million was recorded in the first quarter primarily
related to excess network capacity. A charge of $86.8 million was
recorded in the fourth quarter, consisting of a restructuring charge
of $43.0 million and a provision for asset and lease impairments of
$43.8 million.
1996--The Company recorded a $48.8 million dollar charge relating to the
curtailment of certain Company pensions ($28.0) and a $20.8 million
write-off of unrecoverable product development costs for its
conference calling product line. The Company also recorded an $18.9
million charge that primarily reflects an adjustment to write-off
nonrecoverable product development costs relating to proprietary
software.
1995--The Company recorded a $114.2 million charge associated with the
integration of long distance companies acquired, including ALC
Communications Corporation.
1993--A charge of $3.3 million was recorded to write-off one-half of the
costs deferred as part of a project to redesign customer account
records and customer billing systems. The project was abandoned after
it was determined that the project cost would be substantially
greater than original estimates.
(3) Includes a $1.8 million post-tax charge for the cumulative effect of
adopting Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" (SOP 98-5).
(4) Includes an $8.0 million post-tax charge for the cumulative effect of
adopting Financial Accounting Standard No. 121 (FAS 121), "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of".
(5) Includes post-tax extraordinary charges of $112.1 million resulting from
the discontinuance of FAS 71, "Accounting for the Effects of Certain Types
of Regulation", a post-tax extraordinary loss on the retirement of debt of
$9.0 million and a post-tax cumulative effect charge of $1.5 million
relating to the adoption of FAS 116, "Accounting for Contributions
Received and Contributions Made".
(6) Includes a post-tax cumulative effect change of $7.2 million for the
adoption of FAS 112, "Employers' Accounting for Postemployment Benefits".
(7) Includes a post-tax extraordinary loss on retirement of debt of $7.5
million.
(8) "EBITDA" is defined as operating income plus depreciation and
amortization, and excludes the impact of acquisition related and other
charges. For purposes of this calculation, EBITDA is not a substitute for
operating and cash flow data as determined in accordance with generally
accepted accounting principles. EBITDA margin is calculated by dividing
EBITDA by revenue.
(9) Debt includes the current portion of long-term debt and long-term debt.
Capitalization includes debt and shareholders' equity.
(10) Pre-tax interest coverage is defined as net income before extraordinary
items and cumulative effect of changes in accounting principles plus
income taxes and net interest expense divided by gross interest expense
and excludes the impact of acquisition related and other charges. Net
interest expense includes capitalized interest.
S-10
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
Set forth below are the Company's ratio of earnings to fixed charges for the
six months ended June 30, 1998 and the each of the last five fiscal years. The
ratio of earnings to fixed charges for the Company is computed by dividing
earnings by fixed charges.
For purposes of computing these ratios, earnings is defined as consolidated
pretax income adjusted to include (i) fixed charges, (ii) the income (losses)
of majority-owned partnerships, and (iii) undistributed income (losses) of
investments accounted for by the equity method. Fixed charges are defined as
the sum of (i) fixed interest costs, both expensed and capitalized, (ii)
amortization of debt issuance costs and discounts and premiums related to
indebtedness, and (iii) the interest component of rent expense.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30 ------------------------------------
1998(1) 1997(2) 1996(3) 1995(4) 1994(5) 1993
---------- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges....................... 3.6 1.5 4.1 4.0 4.9 3.5
</TABLE>
(1) Included in earnings for the six month period ended June 30, 1998 was a
one-time pre-tax $6.5 million acquisition related charge associated with
the GlobalCenter transaction, offset by a pre-tax gain of $14.6 million
associated with the sale of Minnesota Southern Cellular Telephone Company,
a wholly owned cellular partnership, and certain other properties. If such
charges/gains had not occurred, the ratio of earnings to fixed charges
would have been 3.4:1.
(2) Operating results for 1997 include one-time pre-tax charges of $96.6
million related to certain network costs no longer required for long
distance traffic volumes and $86.8 million associated with a restructuring
and refocusing of the business, offset by a pre-tax gain of $18.8 million
related to the sale of the Company's 69.5% interest in the South Alabama
Cellular Communications Partnership. If such charges/gains had not
occurred, the ratio of earnings to fixed charges would have been 2.9:1.
(3) Operating results for 1996 include a $67.8 million pre-tax charge resulting
from the curtailment of certain Company pension plans ($28.0 million), a
one-time charge associated with the Company's conference calling product
line ($20.8 million) and the write-off of in-process development costs
($18.9 million). Additionally, results for 1996 include costs relating to
union negotiations at the Company's largest telephone operating subsidiary
($2.8 million), offset by a pre-tax gain of $5.0 million as a result of the
Company's sale of its minority investment in a Canadian long distance
company. If such charges/gains had not occurred, the ratio of earnings to
fixed charges would have been 4.8:1.
(4) Included in earnings for 1995 is a one-time pre-tax acquisition related
charge of $114.2 million associated with the integration of the Company's
1995 acquisitions. This charge is offset by the non-taxable gain of $4.8
million resulting from the sale of one of the Company's telephone
subsidiaries. If such charges/gains had not occurred, the ratio of earnings
to fixed charges would have been 5.3:1.
(5) Operating results for 1994 include the pre-tax gain relating to the sale of
Minot Telephone of $11.3 million. If this gain had not occurred, the ratio
of earnings to fixed charges would have been 4.8:1.
USE OF PROCEEDS
The net proceeds of the offering, estimated to be $207.3 million, will be used
for the Company's capital expenditure requirements and other general corporate
purposes. Pending such use, the net proceeds from the sale of the Drs. will be
used to repay $207.3 million principal amount of the Company's commercial
paper. As of September 16, 1998, such commercial paper had a blended rate of
5.71% and had maturities ranging from September 17 to September 18, 1998.
S-11
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
at June 30, 1998 on a historical basis and on a pro-forma basis to give effect
to the issuance of the Drs. and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds". For additional information as
to the capitalization of the Company, see the "Selected Financial Data"
contained herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of the Company and the related notes thereto incorporated by reference herein.
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-Term Debt.......................................... $ 6,451 $ 6,451
--------- ---------
Long-Term Debt
Drs.................................................... -- 200,000
Other long-term debt(/1/).............................. 1,020,956 813,618
--------- ---------
Total long-term debt................................... 1,020,956 1,013,618
--------- ---------
Total shareholders' equity............................... 993,867 993,867
--------- ---------
Total capitalization..................................... 2,021,274 2,013,936
--------- ---------
Total debt/total capitalization.......................... 50.8% 50.7%
--------- ---------
</TABLE>
(1) The estimated net proceeds from the offering of $207.3 million will be used
to repay a portion of the Company's commercial paper, which is included in
long-term debt, until such time as additional payments are required to be
made for the Company's capital expenditure requirements and other general
corporate purposes.
DESCRIPTION OF THE DRS.
GENERAL
The Drs. are to be issued as a series of debt securities under the Indenture,
dated as of May 21, 1997, as supplemented by a supplemental indenture dated as
of December 8, 1997 (the "Senior Indenture"), between the Company and The Chase
Manhattan Bank, as trustee (the "Trustee"). The Senior Indenture provides for
the issuance of Senior Securities (as defined in the accompanying Prospectus),
which is more fully described in the accompanying Prospectus. The following
description of the terms of the Drs. supplements the description of the general
terms and provisions of the Senior Securities set forth in the accompanying
Prospectus. If these descriptions are inconsistent, then the description in
this Prospectus Supplement shall govern.
The Drs. will be limited to $200,000,000 aggregate principal amount.
The Drs. will bear interest at an annual rate of 6% to October 15, 2003 (the
"Remarketing Date"). If the Remarketing Dealer elects to remarket the Drs.,
then after the Remarketing Date, the interest rate on the Drs. will be reset at
a fixed rate until October 15, 2013 (the "Stated Maturity Date"), as determined
by the Remarketing Dealer based on bids requested from dealers in the Company's
publicly-traded debt securities. See "--Mandatory Tender of Drs.; Remarketing."
The Drs. will bear interest from September 21, 1998, payable semi-annually on
April 15 and October 15 of each year (each, an "Interest Payment Date"),
commencing April 15, 1999 to the persons in whose name the Drs. are registered
on the fifteenth calendar day (whether or not a Business Day) immediately
preceding the related Interest Payment Date (each, a "Record Date"). "Business
Day" means any day other than a Saturday, a Sunday or a day on which banking
institutions in The City of New York are authorized or obligated by law,
executive order or governmental decree to be closed.
The Drs. will mature on the Stated Maturity Date. However, if the Remarketing
Dealer elects to remarket the Drs., then the Drs. will be subject to mandatory
tender to the Remarketing Dealer, for purchase at 100% of the principal amount
thereof on the Remarketing Date on the terms and subject to the conditions
described herein. See "--Mandatory Tender of Drs.; Remarketing" below. If the
Remarketing Dealer does not elect to exercise its right to a mandatory tender
of the Drs., or for any reason does not purchase all of the Drs. on the
Remarketing Date, then holders are required to tender, and the Company is
required to repurchase, on the Remarketing Date any Drs. that have not been
purchased by the Remarketing Dealer from the holders thereof at 100% of the
principal amount
S-12
<PAGE>
thereof plus accrued interest, if any. See "--Repurchase" below. The Drs. will
be redeemable on the terms described under "--Redemption."
The Drs. will be issued in the form of one or more registered global
securities and will be deposited with, or on behalf of, DTC and registered in
the name of DTC or its nominee. See "--Book-Entry System."
Although the United States federal income tax treatment of the Drs. is not
certain, the terms of the Drs. provide that the Company and all holders of the
Drs. agree to treat the Drs. as fixed rate debt instruments that mature on the
Remarketing Date for United States federal income tax purposes. See "Certain
United States Federal Income Tax Considerations."
MANDATORY TENDER OF DRS.; REMARKETING
The following description sets forth the terms and conditions of the
remarketing of the Drs., if the Remarketing Dealer elects to purchase the Drs.
on the Remarketing Date for remarketing.
Mandatory Tender
If the Remarketing Dealer gives notice to the Company and the Trustee on a
Business Day not later than five Business Days prior to the Remarketing Date
(the "Notification Date") of its intention to purchase all of the Drs. for
remarketing, all outstanding Drs. will be automatically tendered to the
Remarketing Dealer for purchase on the Remarketing Date, except in the
circumstances described under "--Repurchase" or "Redemption" below. The
purchase price of the Drs. will be equal to 100% of the principal amount
thereof. When the Drs. are tendered for remarketing, the Remarketing Dealer
may remarket the Drs. for its own account at varying prices to be determined
by the Remarketing Dealer at the time of each sale or may sell such Drs. to
the Reference Corporate Dealer (defined below) submitting the lowest firm,
committed bid on the Determination Date, as described below.
If the Remarketing Dealer elects to remarket the Drs., then from and including
the Remarketing Date to but excluding the Stated Maturity Date, the Drs. will
bear interest at the Interest Rate to Maturity (defined below). The obligation
of the Remarketing Dealer to purchase the Drs. on the Remarketing Date is
subject to several conditions set forth in a Remarketing Agreement between the
Company and the Remarketing Dealer (the "Remarketing Agreement"). In addition,
the Remarketing Dealer may terminate the Remarketing Agreement upon the
occurrence of certain events set forth therein. See "--The Remarketing
Dealer". If for any reason the Remarketing Dealer does not purchase all
outstanding Drs. on the Remarketing Date, holders will be required to tender,
and the Company will be required to repurchase, on the Remarketing Date any
Drs. that have not been purchased by the Remarketing Dealer from the holders
thereof at a price equal to the principal amount thereof plus all accrued
interest, if any. See "--Repurchase" below.
The Remarketing Dealer shall determine the interest rate the Drs. will bear
from the Remarketing Date to the Stated Maturity Date (the "Interest Rate to
Maturity") on the third Business Day immediately preceding the Remarketing
Date (the "Determination Date") by soliciting by 3:30 p.m., New York City
time, the Reference Corporate Dealers (defined below) for firm, committed bids
to purchase all outstanding Drs. at the Dollar Price (defined below), and by
selecting the lowest such firm, committed bid (regardless of whether each of
the Reference Corporate Dealers actually submits a bid). Each bid shall be
expressed in terms of the Interest Rate to Maturity that the Drs. would bear
(quoted as a spread over 6% per annum (the "Base Rate")) based on the
following assumptions:
(i) the Drs. would be issued on the Remarketing Date for settlement on the
same day;
(ii) the Drs. would mature on the Stated Maturity Date; and
(iii) the Drs. would bear interest from the Remarketing Date at the
Interest Rate to Maturity bid by such Reference Corporate Dealer,
payable semiannually on the Interest Payment Dates for the Drs.
The Interest Rate to Maturity announced by the Remarketing Dealer as a result
of such process will be quoted to the nearest one hundred-thousandth (0.00001)
of one percent per annum and, absent manifest error, will be binding and
conclusive upon the holders of the Drs., the Company and the Trustee. The
Remarketing Dealer shall have the discretion to select the time at which the
Interest Rate to Maturity is determined on the Determination Date.
"Dollar Price" means the discounted present value to the Remarketing Date of
the cash flows on a bond (x) with a principal amount equal to the aggregate
principal amount of the Drs., (y) maturing on the Stated Maturity Date and (z)
bearing interest from the Remarketing Date, payable semi-annually (assuming a
360-day year consisting of
S-13
<PAGE>
twelve 30-day months) on the interest payment dates of the Drs. at a rate equal
to the Base Rate, using a discount rate equal to the Treasury Rate (defined
below).
"Reference Corporate Dealer" means J.P. Morgan Securities Inc. and four other
leading dealers of publicly-traded debt securities of the Company to be chosen
by the Remarketing Dealer. If any of such persons shall cease to be a leading
dealer of publicly-traded debt securities of the Company, then the Remarketing
Dealer may replace such person with any other leading dealer of publicly-traded
debt securities for the Company.
"Treasury Rate" means the annual rate equal to the semi-annual equivalent yield
to maturity or interpolated (on a 30/360 day count basis) yield to maturity on
the Determination Date of the Comparable Treasury Issue (defined below) for
value on the Remarketing Date, assuming a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price (defined below).
"Comparable Treasury Issue" means the United States Treasury security selected
by the Remarketing Dealer as having an actual maturity on the Determination
Date (or the United States Treasury securities selected by the Remarketing
Dealer to derive an interpolated yield to maturity on such Determination Date)
comparable to the remaining term of the Drs.
"Comparable Treasury Price" means (a) the offer price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) on the
Determination Date, as set forth on Telerate Page 500 (defined below), adjusted
to reflect settlement on the Remarketing Date if prices quoted on Telerate Page
500 are for settlement on any date other than the Remarketing Date, or (b) if
such page (or any successor page) is not displayed or does not contain such
offer prices on such Business Day, (i) if the Remarketing Dealer obtains four
or more Reference Treasury Dealer Quotations, the average of such Reference
Treasury Dealer Quotations for such Remarketing Date, after excluding the
highest and lowest of such Reference Treasury Dealer Quotations (unless there
is more than one highest or lowest quotation, in which case only one such
highest and/or lowest quotation shall be excluded), or (ii) if the Remarketing
Dealer obtains fewer than four such Reference Treasury Dealer Quotations, the
average of all such Reference Treasury Dealer Quotations. The Remarketing
Dealer shall have the discretion to select the time at which the Comparable
Treasury Price is determined on the Determination Date.
"Telerate Page 500" means the display designated as "Telerate Page 500" on Dow
Jones Markets Limited (or such other page as may replace Telerate Page 500 on
such service) or such other service displaying the offer price specified in
clause (a) of the definition of Comparable Treasury Price as may replace Dow
Jones Markets Limited.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer, the offer price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) for settlement on the Remarketing Date
quoted in writing to the Remarketing Dealer by such Reference Treasury Dealer
by 3:30 p.m., New York City time, on the Determination Date.
"Reference Treasury Dealer" means a primary U.S. Government securities dealer
in The City of New York (which may include the Remarketing Dealer) selected by
the Remarketing Dealer.
Notification of Results; Settlement
If the Remarketing Dealer has elected to remarket the Drs. as provided herein,
then the Remarketing Dealer will notify the Company, the Trustee and DTC by
telephone, confirmed in writing, by 5:00 p.m., New York City time, on the
Determination Date, of the Interest Rate to Maturity.
All of the Drs. will be automatically delivered to the account of the Trustee
by book-entry through DTC, pending payment of the purchase price therefor, on
the Remarketing Date.
The Remarketing Dealer will make, or cause the Trustee to make, payment to DTC
by the close of business on the Remarketing Date against delivery through DTC
of the Drs., of the purchase price for all of the Drs. tendered. The purchase
price of the Drs. will be equal to 100% of the principal amount thereof. If the
Remarketing Dealer does not purchase all of the Drs. on the Remarketing Date,
then the Company is obliged to make or cause to be made such payment for all of
the Drs. not purchased by the Remarketing Dealer, as described below under "--
Repurchase." In any case, the Company will make, or cause the Trustee to make,
payment of interest due on the Remarketing Date to holders of Drs. by book
entry through DTC by the close of business on the Remarketing Date.
The tender and settlement procedures described above may be modified without
the consent of the holders of the Drs. to the extent required by DTC or, if the
book-entry system is no longer available for the Drs. at the time of the
S-14
<PAGE>
remarketing, to the extent required to facilitate the tendering and remarketing
of Drs. in certificated form. In addition, the Remarketing Dealer may modify,
without the consent of the holders of the Drs., the settlement procedures set
forth above in order to facilitate the settlement process.
As long as DTC's nominee holds the certificates representing any Drs. in the
book entry system of DTC, no certificates for such Drs. will be delivered by
any selling beneficial owner to reflect any transfer of such Drs. effected in
the remarketing. In addition, under the terms of the Drs. and the Remarketing
Agreement (as defined below), the Company has agreed that (i) it will use its
best efforts to maintain the Drs. in book-entry form with DTC or any successor
thereto and to appoint a successor depository to the extent necessary to
maintain the Drs. in book-entry form and (ii) it will waive any discretionary
right it otherwise has under the Indenture to cause the Drs. to be issued in
certificated form.
For further information with respect to transfers and settlement through DTC,
see "--Book-Entry System" below.
The Remarketing Dealer
On or prior to the date of issuance of the Drs., the Company and the
Remarketing Dealer will enter into the Remarketing Agreement which will provide
for the Drs. to be remarketed substantially on the terms described below and in
"--Mandatory Tender of Drs.; Remarketing." The Remarketing Dealer will not
receive any fees for its services under the Remarketing Agreement, but will be
entitled to reimbursement for out-of-pocket expenses under certain
circumstances.
The Company will agree to indemnify the Remarketing Dealer against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), arising out of or in connection with its duties under
the Remarketing Agreement.
If the Remarketing Dealer elects to remarket the Drs. as described herein, the
obligation of the Remarketing Dealer to purchase Drs. from holders thereof will
be subject to several conditions set forth in the Remarketing Agreement. In
addition, the Remarketing Agreement will provide for its termination by the
Remarketing Dealer on or before the Remarketing Date, upon the occurrence of
certain events that would customarily give underwriters the right to terminate
an underwriting agreement or would give rise to a failure to satisfy a closing
condition to an underwriting agreement in the Company's public debt offerings.
The Remarketing Agreement will also provide that the Remarketing Dealer may
resign at any time as Remarketing Dealer, such resignation to be effective ten
Business Days after the delivery to the Company and the Trustee of notice of
such resignation. In such case, the Company shall have the right, but not the
obligation, to appoint a successor Remarketing Dealer.
As a result of these conditions and termination rights and the Remarketing
Dealer's right to resign, holders of Drs. cannot be assured that their Drs.
will be purchased by the Remarketing Dealer in connection with a mandatory
tender. No holder of any Drs. shall have any rights or claims under the
Remarketing Agreement or against the Company or the Remarketing Dealer as a
result of the Remarketing Dealer not purchasing such Drs. If the Remarketing
Dealer does not purchase all of the Drs. on the Remarketing Date, the Company
will be required to purchase on the Remarketing Date any Drs. that have not
been purchased by the Remarketing Dealer at a price equal to 100% of the
principal amount thereof plus accrued interest, if any. See "--Repurchase."
The Remarketing Dealer, in its individual or any other capacity, may buy, sell,
hold and deal in any of the Drs. The Remarketing Dealer may exercise any vote
or join in any action which any holder of Drs. may be entitled to exercise or
take with like effect as if it did not act in any capacity under the
Remarketing Agreement. The Remarketing Dealer, in its individual capacity,
either as principal or agent, may also engage in or have an interest in any
financial or other transaction with the Company as freely as if it did not act
in any capacity under the Remarketing Agreement.
REPURCHASE
If the Remarketing Dealer for any reason does not purchase all of the Drs. on
the Remarketing Date, all holders are required to tender, and the Company shall
repurchase, on the Remarketing Date any Drs. that have not been purchased by
the Remarketing Dealer, at a price equal to 100% of the principal amount of the
Drs. plus all accrued and unpaid interest, if any, on such Drs. to (but
excluding) the Remarketing Date.
REDEMPTION
If the Remarketing Dealer has elected to remarket the Drs. on the Remarketing
Date, the Company shall have the right to redeem the Drs., in whole but not in
part, from the Remarketing Dealer on the Remarketing Date at a
S-15
<PAGE>
redemption price equal to the greater of (i) 100% of the aggregate principal
amount of the Drs. and (ii) the Dollar Price, by giving notice of such
redemption to the Remarketing Dealer
(x) no later than the Business Day immediately prior to the Determination
Date, or
(y) if fewer than three Reference Corporate Dealers timely submit firm,
committed bids for all outstanding Drs. to the Remarketing Dealer on
the Determination Date, immediately after the deadline set by the
Remarketing Dealer for receiving such bids has passed.
In either such case, it shall pay such redemption price for the Drs. in same-
day funds by wire transfer on the Remarketing Date to an account designated by
the Remarketing Dealer.
OPTIONAL REDEMPTION AFTER THE REMARKETING DATE
After the Remarketing Date, if the Remarketing Dealer has elected to remarket
the Drs. on the Remarketing Date, the Drs. will be redeemable (a "Post-
Remarketing Redemption"), in whole or in part, at the option of the Company at
any time at a redemption price equal to the greater of (i) 100% of the
principal amount of such Drs. or (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon (not including
the portion of any such payments of interest accrued as of the redemption date)
discounted to the redemption date on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as
defined below) (determined on the third Business Day preceding such redemption
date), plus, in each case, accrued and unpaid interest thereon to (but
excluding) the redemption date.
Notice of any Post-Remarketing Redemption will be mailed at least 30 days but
not more than 60 days before the redemption date to each holder of the Drs. to
be redeemed. Unless the Company defaults in payment of the redemption price, on
and after the redemption date, interest will cease to accrue on the Drs. or
portions thereof called in connection with a Post-Remarketing Redemption.
"Adjusted Treasury Rate" means (i) the arithmetic mean of the yields under the
heading "Week Ending" published in the Statistical Release most recently
published prior to the date of determination under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to the maturity, as of the redemption date,
of the principal being redeemed, plus (ii) 0.20%. If no maturity set forth
under such heading exactly corresponds to the maturity of such principal,
yields for the two published maturities most closely corresponding to the
maturity of such principal shall be calculated pursuant to the immediately
preceding sentence, and the Adjusted Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding in each of the
relevant periods to the nearest month.
"Statistical Release" means the statistical release designated "H.15(519)" or
any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively-traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the terms of the Drs.,
then such other reasonably comparable index which shall be designated by the
Company.
COVENANTS
See "Description of Debt Securities--Merger, Consolidation or Sale" and "--
Certain Covenants" in the Prospectus for a description of certain covenants
that will be applicable to the Company under the terms of the Drs. and the
Senior Indenture. In addition to such covenants, the terms of the Drs. will
include the following covenant:
Restrictions on Liens. If at any time the Company or any of its subsidiaries
mortgages, pledges or otherwise subjects to or permits to exist any Lien (as
defined below) on the whole or any part of any property or assets now owned or
hereafter acquired by it, except as hereinafter provided, the Company will (or
will cause such subsidiary to) secure the outstanding Drs. and, if the Company
elects, any other obligations of the Company ranking on a parity with the Drs.,
equally and ratably with the indebtedness or obligations secured by such
mortgage, pledge or other Lien, for as long as any such indebtedness or
obligation is so secured. The foregoing covenant does not apply to (a) the
creation, extension, renewal or refunding of purchase-money mortgages or liens,
(b) landlords' liens, (c) liens with respect to the sale or financing of
accounts or chattel paper, (d) liens to which any property or asset acquired by
the Company or such subsidiary is subject as of the date of its acquisition,
(e) 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 the Company or such subsidiary to conduct its business or any
part thereof or in order to entitle it to maintain self-insurance or to obtain
the benefits of any law relating to worker's compensation,
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<PAGE>
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, or (f) other Liens not otherwise
permitted securing obligations in an aggregate amount not to exceed $25
million.
As used above, "Lien" means any lien, mortgage, pledge, security interest,
charge, or encumbrance of any kind (including any conditional sale or other
title retention agreement or any lease in the nature thereof, any capital lease
obligation and any sale and lease back transaction) and any agreement to give
or refrain from giving any lien, mortgage, pledge, security interest, charge,
or other encumbrance of any kind.
BOOK-ENTRY SYSTEM
The Drs. will be issued in the form of one or more fully registered global
securities that will be deposited with, or on behalf of, DTC and registered in
the name of DTC's nominee.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. DTC Participants include securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc. and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others such as securities brokers
and dealers, banks and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants are
on file with the Securities and Exchange Commission (the "Commission").
Payments of principal of, premium, if any, and interest on the Drs. will be
made to Cede & Co., as nominee of DTC. DTC's practice is to credit Direct
Participants' accounts on the related payment date in accordance with their
respective holdings shown on DTC's records. Payments by Participants to
beneficial owners of the Drs. will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Trustee or any Paying
Agent under the Senior Indenture, or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and interest to Cede & Co. is the responsibility of the Company or
the Trustee or any Paying Agent, disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursement of such
payments to the beneficial owners of the Drs. shall be the responsibility of
Direct and Indirect Participants.
DTC may decide to discontinue providing its services as securities depository
with respect to the Drs. at any time by giving notice to the Company or the
Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, Drs. certificates are required to be printed and
delivered.
None of the Company, the Trustee, any Paying Agent or any Registrar for the
Drs. will have any responsibility or liability for any aspect of the records
maintained by DTC relating to, or payments made on account of beneficial
ownership interests in, Drs. represented in global form, or for maintaining,
supervising or receiving any records relating to such beneficial ownership
interests maintained by DTC.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following is a general discussion of certain anticipated United States
federal income tax consequences of the purchase, ownership and disposition of
the Drs. to initial holders purchasing Drs. at the "issue price." The "issue
price" of a Drs. will equal the first price at which a substantial amount of
the Drs. is sold for cash to the public (not including persons acting in the
capacity of underwriters, placement agents or wholesalers). This summary is
based upon laws, regulations, rulings and decisions in effect, all of which are
subject to change at any time, which change may be retroactive. Moreover, it
deals only with purchasers who hold Drs. as "capital assets" within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"),
and does not purport to
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deal with persons in special tax situations, such as financial institutions,
insurance companies, regulated investment companies, dealers in securities or
currencies, U.S. expatriates, persons holding Drs. as a hedge against currency
risk or as a position in a "straddle," "hedge," "conversion" or another
integrated transaction for tax purposes, persons who own (directly or
indirectly) 10 percent or more of the voting power of the Company, or U.S.
Holders (as defined below) whose functional currency is not the U.S. dollar. In
addition, this discussion only addresses the federal income tax consequences of
the Drs. until the Remarketing Date.
As used herein, the term "U.S. Holder" means a beneficial owner of Drs. that is
for United States federal income tax purposes (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations and certain
partnerships that have one or more partners who are not United States persons),
(iii) an estate or trust whose income is subject to United States federal
income tax regardless of its source, or (iv) a trust if, in general, a court
within the United States is able to exercise primary jurisdiction over its
administration and one or more U.S. persons have authority to control all of
its substantial decisions. As used herein, the term "non-U.S. Holder" means a
beneficial owner of a Drs. that is not a U.S. Holder, for United States federal
income tax purposes.
Because the Drs. are subject to mandatory tender or repurchase on the
Remarketing Date, the Company intends, and the Holders by purchasing the Drs.
agree, to treat the Drs. as maturing on the Remarketing Date for United States
federal income tax purposes and as being reissued on the Remarketing Date
should the Remarketing Dealer remarket the Drs. Because no debt instrument
closely comparable to the Drs. has been the subject of any Treasury regulation,
revenue ruling or judicial decision, the United States federal income tax
treatment of debt obligations such as the Drs. is not certain. No ruling on any
of the issues discussed below will be sought from the Internal Revenue Service
("IRS"). Accordingly, significant aspects of the United States federal income
tax consequences of an investment in the Drs. are uncertain, and no assurance
can be given that the IRS or the courts will agree that the Drs. should be
treated as maturing on the Remarketing Date. PROSPECTIVE PURCHASERS ARE
STRONGLY URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE Drs. (INCLUDING
ALTERNATIVE CHARACTERIZATIONS OF THE Drs.). EXCEPT WHERE INDICATED TO THE
CONTRARY, THE FOLLOWING DISCUSSION ASSUMES THAT THE COMPANY'S TREATMENT OF THE
Drs. WILL BE RESPECTED FOR UNITED STATES FEDERAL INCOME TAX PURPOSES.
PROSPECTIVE PURCHASERS SHOULD ALSO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION.
INTEREST INCOME
Interest on the Drs. will generally be taxable as ordinary income for United
States federal income tax purposes when received or accrued by a U.S. Holder in
accordance with its method of accounting. The Company does not anticipate that
the initial issuance of the Drs. will result in Original Issue Discount
("OID"), generally defined as the excess of the stated redemption price at the
maturity of the Drs. over its issue price. However, if a Drs. is issued with
OID, or is deemed by the IRS to have been issued with OID, the holder of such
debt instrument issued with OID generally will be required to recognize as
ordinary income the amount of OID on the debt instrument as such discount
accrues, in accordance with a constant yield method.
GAIN OR LOSS ON SALE OR DISPOSITION
If a Drs. is sold or redeemed, the U.S. Holder will recognize gain or loss
equal to the difference between the amount realized on the sale or redemption
(excluding any amount attributable to accrued interest on the Drs.) and the
adjusted basis in its Drs. The adjusted basis of the Drs. generally will equal
the U.S. Holder's cost, increased by any OID previously includable in the U.S.
Holder's income with respect to the Drs., and reduced by the principal payments
previously received with respect to the Drs. Gain or loss on sale or redemption
of a Drs. will generally be capital gain or loss.
Capital gains of individuals derived with respect to capital assets held for
more than one year are eligible for reduced rates of taxation depending upon
the holding period of such capital assets. U.S. Holders should consult their
own tax advisors regarding the capital gains rate applicable to them. The
deductibility of capital losses is subject to certain limitations.
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<PAGE>
ALTERNATIVE UNITED STATES FEDERAL TAX TREATMENT
There can be no assurance that the IRS will agree with, or that a court will
uphold, the Company's treatment of the Drs. as maturing on the Remarketing Date
and as thereafter being reissued should the Drs. be remarketed, and it is
possible that the IRS could assert another treatment. In particular, the IRS
could seek to treat the Drs. as maturing on the Stated Maturity Date and
possibly also to treat the issue price of the Drs. as including the value of
the mandatory tender right. Because of the possible remarketing and reset, if
the Drs. were treated as maturing on the Stated Maturity Date, Treasury
regulations relating to contingent payment debt obligations (the "Contingent
Payment Debt Regulations") would apply. In such case, the timing and character
of income on the Drs. would be significantly affected. Among other things, U.S.
Holders, regardless of their usual method of tax accounting, would be required
to accrue income annually as OID, subject to the adjustments described below,
at a "comparable yield" on the adjusted issue price, which could be higher than
the actual cash payments received on the Drs. in a taxable year. In addition,
the Contingent Payment Debt Regulations require that a projected payment
schedule be determined, and that adjustments to income accruals be made to
account for differences between actual payments and projected payments.
Furthermore, any gain realized with respect to the Drs. would generally be
treated as ordinary income, and any loss realized would generally be treated as
ordinary loss to the extent of the U.S. Holder's ordinary income inclusions
with respect to the Drs. Any remaining loss generally would be treated as
capital loss. In addition, upon the sale of a Drs. (other than through the
mandatory tender), the IRS could take the position that the gain or loss with
respect to the mandatory tender right and the gain or loss with respect to the
debt obligation must be separately determined, in which case any deemed loss
with respect to the mandatory tender would be treated as capital loss, and a
corresponding amount of additional ordinary income would need to be recognized
by the U.S. Holder with respect to the sale. The ability to use capital losses
to offset ordinary income in determining taxable income is generally limited.
PROSPECTIVE PURCHASERS OF Drs. ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE FEDERAL, STATE AND LOCAL INCOME, FRANCHISE, PERSONAL
PROPERTY, AND ANY OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE Drs.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States federal income or
withholding tax on payments of principal, premium (if any) or interest
(including original issue discount and accruals under the Contingent Payment
Debt Regulations, if any) on a Drs., unless such non-U.S. Holder owns actually
or constructively 10% or more of the total combined voting power of the
Company, is a controlled foreign corporation related to the Company through
stock ownership or is a bank receiving interest described in section
881(c)(3)(A) of the Code. Sections 871(h) and 881(c) of the Code, and
applicable Treasury regulations, require that, in order to obtain the exemption
from withholding tax described above, either the beneficial owner of the Drs.,
or a securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"Financial Institution") and that is holding the Drs. on behalf of such
beneficial owner, file a statement with the withholding agent to the effect
that the beneficial owner of the Drs. is not a United States person. In
general, such requirement will be fulfilled if the beneficial owner of a Drs.
certifies on IRS Form W-8, under penalties of perjury, that it is not a United
States person and provides its name and address, and any Financial Institution
holding the Drs. on behalf of the beneficial owner files a statement with the
withholding agent to the effect that it has received such statement from the
Holder (and furnishes the withholding agent with a copy thereof).
Generally, a non-U.S. Holder will not be subject to United States federal
income taxes on any amount which constitutes gain upon retirement or
disposition of a Drs., provided the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should
consult its tax advisor in this regard.
If a non-U.S. Holder of a Drs. is engaged in a trade or business in the United
States, and if interest (including OID, if any) or gain on the Drs. is
effectively connected with the conduct of such trade or business, the non-U.S.
Holder, although exempt from the withholding tax discussed above, will
generally be subject to regular United States income tax on interest and on any
gain realized on the sale, exchange or other disposition of a Drs. in the same
manner as if it were a U.S. Holder. In lieu of the statement described above,
such Holder will be required to provide to the Company a properly executed Form
4224 (or successor form) in order to claim an exemption from withholding tax.
In addition, if such non-U.S. Holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% (or such lower rate provided by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments. For purposes of the branch
profits tax, interest on and
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any gain recognized on the sale, exchange or other disposition of a Drs. will
be included in the effectively connected earnings and profits of such non-U.S.
Holder if such interest or gain, as the case may be, is effectively connected
with the conduct by the non-U.S. Holder of a trade or business in the United
States.
The Drs. will not be includable in the estate of a non-U.S. Holder unless the
individual is a direct or indirect 10% or greater shareholder of the Company
or, at the time of such individual's death, payments in respect of the Drs.
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A holder may be subject to backup withholding at the rate of 31% of the
interest and other "reportable payments" (including, under certain
circumstances, principal payments and sales proceeds) paid with respect to the
Drs. if, in general, the holder fails to comply with certain certification
procedures and is not an exempt recipient under applicable provisions of the
Code.
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make modifications to the withholding, backup withholding
and information reporting rules described above. The New Regulations will
generally be effective for payments made after December 31, 1999, subject to
certain transition rules. Prospective investors are urged to consult their own
tax advisors regarding the New Regulations.
SUMMARY
This discussion is intended to be a general summary only. Due to the complexity
of the rules described above, the current uncertainty as to the manner of their
application to the U.S. and non-U.S. Holders and possible legislative changes,
it is particularly important that each holder consult with its own tax advisor
regarding the tax treatment of its acquisition, ownership and disposition of
its Drs. Further, no advice has been received as to income, franchise, personal
property, or other taxation in any state or locality, or as to the treatment of
the Drs. in any state or locality. HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE FEDERAL, STATE AND LOCAL INCOME, FRANCHISE, PERSONAL
PROPERTY, AND ANY OTHER TAX CONSEQUENCES ARISING OUT OF THEIR OWNERSHIP OF THE
Drs.
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UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated September 16, 1998, the Underwriters named below have severally
agreed to purchase and the Company has agreed to sell to them, severally, the
respective principal amounts of Drs. set forth below:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT OF DRS.
- ------------ --------------
<S> <C>
J.P. Morgan Securities Inc....................................... $100,000,000
Credit Suisse First Boston Corporation........................... 50,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................. 50,000,000
------------
Total.......................................................... $200,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Drs. are subject to, among
other things, the approval of certain legal matters by their counsel and
certain other conditions. The Underwriters are committed to take and pay for
all of the Drs., if any are taken.
The Underwriters propose to offer the Drs. to the public at varying prices
based on prevailing market rates at the time of resale. The Underwriters will
purchase the Drs. at 99.264% of the principal amount thereof. In addition, in
consideration for the right to require the mandatory tender of all outstanding
Drs. as described above, the Remarketing Dealer will pay to the Company, on the
same date the Underwriters pay the purchase price for the Drs., an amount equal
to 4.530% of the principal amount of the Drs. Consequently, the net proceeds to
the Company will be $207,588,000, or 103.794% of the principal amount of the
Drs., before deducting estimated expenses of $250,000 payable by the Company.
The Drs. are a new issue of securities with no established trading market. The
Company has been advised by the Underwriters that the Underwriters intend to
make a market in the Drs. but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Drs.
In connection with the offering, the Underwriters may engage in transactions
that maintain or otherwise affect the price of the Drs. Specifically, the
Underwriters may overallot in connection with the offering, creating a
syndicate short position. In addition, the Underwriters may bid for, and
purchase, Drs. in the open market to cover syndicate short positions. Finally,
the underwriting syndicate may reclaim selling concessions allowed for
distributing the Drs. in the offering if the syndicate repurchases previously
distributed Drs. in syndicate covering transactions or otherwise. Any of these
activities may maintain the market price of the Drs. above independent market
levels. The Underwriters are not required to engage in these activities, and
may end any of these activities at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof. See
also "Plan of Distribution" in the accompanying Prospectus.
From time to time in the ordinary course of their respective businesses,
certain of the Underwriters and their affiliates have engaged in and may in the
future engage in commercial and/or investment banking transactions with the
Company and its affiliates.
LEGAL MATTERS
The legality of the Drs. will be passed upon for the Company by Martin T.
McCue, Senior Vice President and General Counsel of the Company. As of the date
of this Prospectus Supplement, Mr. McCue beneficially owns 75,740 shares of the
Company's Common Stock. The validity of the Drs. offered hereby will be passed
upon for the Underwriters by Davis Polk & Wardwell, New York, New York.
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<PAGE>
EXPERTS
The consolidated financial statements incorporated in this Prospectus
Supplement by reference to the Company's Current Report on Form 8-K, dated June
17, 1998, which reflects the restatement related to the GlobalCenter, Inc.
pooling acquisition, have been audited by PricewaterhouseCoopers LLP,
independent accountants, except as they relate to ALC Communications
Corporation for the year ended December 31, 1995, which has been audited by
Ernst & Young LLP, independent accountants, whose report thereon is
incorporated by reference herein. Such consolidated financial statements have
been so included in reliance on the reports of such independent accountants
given on the authority of such firms as experts in auditing and accounting.
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
From time to time, information provided by the Company, including written and
oral statements made by its representatives, may contain forward-looking
information as defined in the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts, which address
activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such things as expansion and growth of
the Company's business, future capital expenditures and the Company's business
strategy, are forward-looking statements. In reviewing such information, it
should be kept in mind that actual results may differ materially from those
projected or suggested in such forward-looking information. This forward-
looking information is based on various factors and was derived utilizing
numerous assumptions. Many of these factors have previously been identified in
filings or statements made by or on behalf of the Company.
Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include: international, national and local general economic and
market conditions; demographic changes; the size and growth of the overall
telecommunications market; the ability of the Company to sustain, manage or
forecast its growth; the size, timing and mix of purchases of the Company's
products; new product and service development and introduction; changes in
consumer preferences; existing governmental regulations; adverse publicity;
dependence on distributors; liability and other claims asserted against the
Company; competition; the loss of significant customers or suppliers;
fluctuations and difficulty in forecasting operating results; changes in
business strategy or development plans; business disruptions; general risks
associated with doing business outside of the United States, including, without
limitation, import duties, tariffs, quotas and political instability; the
ability to attract and retain qualified personnel; the ability to protect
trademarks, patents and other intellectual property; the use of proceeds from
the offering; and other factors referenced or incorporated by reference in this
Prospectus Supplement or the attached Prospectus. GIVEN SUCH UNCERTAINTIES,
PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS. The Company disclaims any obligation to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained or incorporated by reference herein to
reflect future events or developments.
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<PAGE>
PROSPECTUS DATED JANUARY 26, 1996
PROSPECTUS
$500,000,000
FRONTIER CORPORATION
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK AND SECURITIES WARRANTS
----------------
Frontier Corporation (the "Company") may from time to time offer in one or
more series of (i) unsecured debt securities ("Debt Securities"), (ii) shares
of its Class A Preferred Stock, par value $100.00 per share (the "Class A
Preferred Stock"), (iii) shares of its Cumulative Preferred Stock, par value
$100.00 per share (the "Cumulative Preferred Stock"; the Class A Preferred
Stock and Cumulative Preferred Stock are sometimes hereinafter collectively
referred to as the "Preferred Stock"), (iv) shares of its common stock, $1.00
par value (the "Common Stock"), and (v) warrants exercisable for Common Stock
("Securities Warrants"), with an aggregate public offering price of up to
$500,000,000 (or its equivalent based on the exchange rate at the time of
sale) in amounts, at prices and on terms to be determined at the time of
offering. The Debt Securities, Preferred Stock, Common Stock and Securities
Warrants (collectively, the "Securities") may be offered, separately or
together, in separate series in amounts, at prices and on terms to be
described in one or more supplements to this Prospectus (a "Prospectus
Supplement").
With respect to the Debt Securities, the specific title, aggregate principal
amount, form (which may be registered or bearer, or certificated or global),
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of the Company or repayment at
the option of the holder, any sinking fund provisions and any conversion
provisions will be set forth in the applicable Prospectus Supplement. Except
as set forth in the applicable indenture or in one more indentures
supplemental thereto, the applicable indenture will not contain any provisions
that would limit the ability of the Company to incur indebtedness or that
would afford holders of Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company or in the event of a
change of control. The terms of the Preferred Stock, including the specific
designation, any dividend, liquidation, redemption, conversion, voting and
other rights, and all other specific terms of the Preferred Stock will be set
forth in the applicable Prospectus Supplement. In the case of the Common
Stock, the specific number of shares and issuance price per share will be set
forth in the applicable Prospectus Supplement. In the case of the Securities
Warrants, the duration, offering price, exercise price and detachability, if
applicable, will be set forth in the applicable Prospectus Supplement. The
applicable Prospectus Supplement will also contain information, where
applicable, about material United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement.
The Securities may be offered directly by the Company, through agents
designated from time to time by the Company, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement with, between or among them, will be set forth, or will
be calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
SEE "RISK FACTORS" ON PAGE 4 FOR CERTAIN FACTORS RELATING TO AN INVESTMENT
IN THE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 26, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files, reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected at the Public Reference Section maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and the following regional offices of the Commission: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Company's Common
Stock is listed on the New York Stock Exchange and such reports, proxy
statements and other information concerning the Company can be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain portions of
the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other documents are not necessarily complete, and in each
instance, reference is made to the copy of such contract or documents filed as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference and the exhibits and schedules thereto. For
further information regarding the Company and the Securities, reference is
hereby made to the Registration Statement and such exhibits and schedules
which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference.
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1994 (which incorporates by reference certain information from the Company's
Proxy Statement relating to the Annual Meeting of Shareholders held on April
26, 1995), as amended by Amendment No. 1 on Form 10-K/A;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, as amended by Amendment No. 1 on Form 10-Q/A;
3. The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995;
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995; and
5. The Company's Current Reports on Form 8-K, dated February 13, 1995;
February 21, 1995; February 27, 1995; March 17, 1995 (as amended by two
current reports filed on Form 8-K/A); April 9, 1995; April 10, 1995 (three);
April 12, 1995; May 11, 1995; May 17, 1995; August 16, 1995 (two); November
14, 1995 (which includes the restatement of the Company's Annual Report for
the year ended December 31, 1994 to include the pooling of interests with ALC
Communications Corporation); and November 21, 1995.
All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
2
<PAGE>
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in
this Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of
Securities or in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or any accompanying Prospectus Supplement. Subject to the
foregoing, all information appearing in this Prospectus and each accompanying
Prospectus Supplement is qualified in its entirety by the information
appearing in the documents incorporated by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference in such documents).
Written requests for such copies should be addressed to the Company's
Corporate Secretary at Frontier Corporation, 180 South Clinton Avenue,
Rochester, New York 14646-0700, telephone number (800) 836-0342.
Unless the context otherwise requires, as used herein, the term "Company"
means Frontier Corporation, a New York business corporation, and its
consolidated subsidiaries.
3
<PAGE>
THE COMPANY
Frontier Corporation, formerly known as Rochester Telephone Corporation (the
"Company"), is a major U.S. diversified telecommunications firm. The Company
has grown from its roots as a local exchange telephone company in Rochester,
New York to a company that operates 34 local exchange companies in 13 states,
a major nationwide long distance company, and several wireless properties. The
Company is now the fifth largest long distance carrier in the United States.
The Company is a provider of integrated telecommunications services to more
than two million customers through its local, long distance and wireless
communications operations.
The Company's executive offices are located at 180 South Clinton Avenue,
Rochester, New York 14646-0700, and its telephone number is (716) 777-1000.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
COMPETITION
It is anticipated that approximately 70% of the Company's revenues will be
derived from long distance operations. While the Company's management believes
that the long distance segment of the telecommunications market has the
potential to provide significant enhancements to shareholder value, there are
competitive risks associated with long distance operations. Legislation is now
being considered by Congress which, if passed and signed into law by President
Clinton, may permit the entry of the regional Bell telephone operating
companies ("RBOCs") into long distance operations outside the regions served
by their local exchange operations immediately upon enactment, and thereafter
within their regions upon action by the Federal Communications Commission.
Each one of the RBOCs has assets and revenues in excess of the assets and
revenues of the Company and they are therefore expected to be significant
participants in the long distance market.
The long distance market today is dominated by three major carriers, AT&T
Corp., MCI Communications Corporation, and Sprint Corporation, all of which,
as well as the fourth largest carrier, WorldCom, Inc. (formerly known as LDDS
Communications, Inc.), own national switching and transmission networks. While
the Company owns switching facilities in many places across the country, its
owned transmission facilities (fiber optic and digital microwave networks)
tend to be regional in nature. Thus, the Company's ability to compete is
dependent on the willingness of their larger competitors and others to make
available to the Company on favorable terms long term leases and/or purchase
of transmission capacity.
In addition, recently adopted and proposed regulatory changes in the pending
federal legislation and in many of the states in which the Company's local
exchange companies operate make it clear that the local exchange business is
or will soon be open to intensifying competition. Such competition is a key
assumption underlying the Company's "Open Market Plan" approved by the New
York State Public Service Commission and the Company's shareholders in
December 1994, under which the Rochester local exchange telephone market was
opened to competition, in exchange for reduced regulation of the Company's
local exchange telephone operations in that market, including price cap
regulation. In many areas, the incumbent local exchange company may be
required to continue as the "provider of last resort" subject to stricter
rules than those applying to newer entrants into the same local market. The
Company's strategy is to provide integrated communications solutions for its
customers which can include bundled long distance, wireless, local and other
services, rather than continue the company's historic reliance on the local
exchange business for the bulk of the Company's revenues and profits.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds of the Securities are intended to be used to provide funds for the
general corporate purposes of the Company.
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RATIOS OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges and the ratio of earnings to combined
fixed charges and preferred stock requirements for the nine months ended
September 30, 1995 and each of the last five fiscal years for the Company are
presented below. The ratio of earnings to fixed charges for the Company is
computed by dividing earnings by fixed charges. The ratio of earnings to
combined fixed charges and preferred stock dividend requirements is computed
by dividing earnings by the sum of fixed charges and preferred stock dividend
requirements.
For purposes of computing these ratios, earnings is defined as consolidated
pretax income adjusted to include (i) fixed charges, (ii) the income (losses)
of majority-owned partnerships, and (iii) undistributed income (losses) of
investments accounted for by the equity method. Fixed charges are defined as
the sum of (i) fixed interest costs, both expensed & capitalized, (ii)
amortization of debt issuance costs and discounts and premiums relating to
indebtedness, and (iii) the interest component of rent expense. Preferred
stock requirements represent the amount of pretax earnings required to cover
any preferred stock dividend requirements and the accretion in carrying value
of redeemable preferred stock.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------
1995(1) 1994 1993 1992 1991 1990
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges...... 3.6 4.9 3.5 2.5 2.5 1.8
Ratio of earnings to combined fixed
charges and preferred stock
requirements........................... 3.5 4.8 3.4 2.3 2.2 1.5
</TABLE>
- --------
(1) Included in earnings for the nine month period ended September 30, 1995
was a one-time pretax acquisition related charge of $114.2 million
associated with the integration of the Company's 1995 acquisitions as well
as the cost directly associated with effecting the merger with ALC
Communications Corporation. If such a charge had not occurred, the ratios
of earnings to fixed charges and earnings to combined fixed charges and
preferred stock dividend requirements would have been 5.6 and 5.5,
respectively.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being
offered and the extent to which such general provisions may apply will be set
forth in the applicable Indenture or in one or more indentures supplemental
thereto and described in a Prospectus Supplement relating to such Debt
Securities. The Forms of the Senior Indenture (as defined herein) and the
Subordinated Indenture (as defined herein) have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Securities") or subordinated
Debt Securities ("Subordinated Securities"). The Debt Securities will be
issued under one or more indentures (the "Indentures"). Senior Securities and
Subordinated Securities will be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between the Company and a trustee (a "Trustee"). The Indentures will be
subject to and governed by the Trust Indenture Act of 1939, as amended (the
"TIA"). The statements made under this heading relating to the Debt Securities
and the Indentures are summaries of the anticipated provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities. All section references appearing herein
are to sections of each Indenture unless otherwise indicated and capitalized
terms used but not defined below shall have the respective meanings set forth
in each Indenture.
The indebtedness represented by Subordinated Securities will be subordinated
in right of payment to the prior payment in full of the Senior Debt (as
defined below) of the Company as described under "--Subordination."
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<PAGE>
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto and described in a Prospectus Supplement relating
thereto, the Debt Securities may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time
to time in or pursuant to authority granted by a resolution of the Board of
Directors of the Company or as established in the applicable Indenture or in
one or more indentures supplemental to such Indenture. All Debt Securities of
one series need not be issued at the same time and, unless otherwise provided,
a series may be reopened, without the consent of the Holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series.
It is anticipated that each Indenture will provide that there may be more
than one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may
be appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a trustee of a trust under the
applicable Indenture separate and apart from the trust administered by any
other Trustee, and, except as otherwise indicated herein, any action described
herein to be taken by each Trustee may be taken by each such Trustee with
respect to the one or more series of Debt Securities for which it is Trustee
under the applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without
limitation:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) The percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the portion
of the principal amount thereof payable upon declaration of acceleration of
the maturity thereof;
(4) If convertible in whole or in part into Common Stock or Preferred
Stock, the terms on which such Debt Securities are convertible, including
the initial conversion price or rate (or method for determining the same),
the portion that is convertible and the conversion period, and any
applicable limitations on the ownership or transferability of the Common
Stock or Preferred Stock receivable on conversion;
(5) The date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities
will bear interest, if any;
(7) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the regular record dates for such interest
payment dates, or the method by which such dates shall be determined, the
persons to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of twelve
30-day months;
(8) The place or places where the principal (and premium, if any) and
interest, if any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange and where notices or demands to or upon the Company in respect of
such Debt Securities and the applicable Indenture may be served;
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<PAGE>
(9) The period or periods within which, the price or prices at which and
the other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the Company
is to have such an option;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within which
or the date and dates on which, the price or prices at which and the other
terms and conditions upon which such Debt Securities will be redeemed,
repaid or purchased, in whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to a index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificate or book-
entry form;
(15) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(16) The applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the applicable Indenture;
(17) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of mailing such payment;
(18) Whether the Company has any outstanding securities or liabilities
that are pari passu with the Debt Securities, and if so, identifying and
stating the principal amount of such securities (which will be indicated on
the cover page and elsewhere in the Prospectus Supplement);
(19) Whether the Debt Securities will be subordinated or pari passu to
the liabilities of the Company's subsidiaries (which will be indicated on
the cover page and elsewhere in the Prospectus Supplement);
(20) The amount of debt to which the Debt Securities will rank senior
(which will be indicated on the cover page and elsewhere in the Prospectus
Supplement); and
(21) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Material federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto, the applicable Indenture will not contain any provisions
that would limit the ability of the Company to incur
7
<PAGE>
indebtedness or that would afford Holders of Debt Securities protection in the
event of a highly leveraged or similar transaction involving the Company or in
the event of a change of control. Reference is made to the applicable
Prospectus Supplement for information with respect to any deletions from,
modifications of or additions to the Events of Default or covenants of the
Company that are described below, including any addition of a covenant or
other provision providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of
Debt Securities will be payable at the corporate trust office of the Trustee,
the address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Company, payment of interest may be made
by check mailed to the address of the person entitled thereto as it appears in
the applicable register for such Debt Securities or by wire transfer of funds
to such person at an account maintained within the United States (Sections
301, 305, 306, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than ten days prior to such Special Record Date, or may be paid at any
time in any other lawful manner, all as more completely described in the
Indenture (Section 307).
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee referred to
above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer or exchange thereof at
the corporate trust office of the applicable Trustee. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the applicable Trustee) initially designated by the Company with respect to
any series of Debt Securities, the Company may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Company will be
required to maintain a transfer agent in each place of payment for such
series. The Company may at any time designate additional transfer agents with
respect to any series of Debt Securities (Section 1002).
Neither the Company nor any Trustee shall be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business
on the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed
in part; or (iii) issue, register the transfer of or exchange any Debt
Security that has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Debt Security not to be so repaid (Section
305).
8
<PAGE>
MERGER, CONSOLIDATION OR SALE
The Company will be permitted to consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity provided that (a) either the Company shall be the continuing entity, or
the successor entity (if other than the Company) formed by or resulting from
any such consolidation or merger or which shall have received the transfer of
such assets shall expressly assume payment of the principal of (and premium,
if any) and interest on all of the Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
each Indenture; (b) immediately after giving effect to such transaction and
treating any indebtedness that becomes an obligation of the Company or any
Subsidiary as a result thereof as having been incurred by the Company or
Subsidiary at the time of such transaction, no Event of Default under the
Indentures, and no event which, after notice or the lapse of time, or both,
would become such an Event of Default, shall have occurred and be continuing;
and (c) an officer's certificate and legal opinion covering such conditions
shall be delivered to each Trustee (Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as described above under "Merger, Consolidation or Sale",
the Company will be required to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights (charter and
statutory) and franchises; provided, however, that the Company shall not be
required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities.
Maintenance of Properties. The Company will be required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times (Section 1007).
Insurance. The Company will be required to, and will be required to cause
each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, having a specified rating from a recognized insurance
rating service (Section 1008).
Payment of Taxes and Other Claims. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of
the Company or any Subsidiary, and (ii) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien upon the property of
the Company or any Subsidiary; provided, however, that the Company shall not
be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings (Section 1009).
Provision of Financial Information. Whether or not the Company is subject to
Section 13 or 15(d) of the Exchange Act, the Company will be required, to the
extent permitted under the Exchange Act, to file with the Commission the
annual reports, quarterly reports and other documents which the Company would
have been required to file with the Commission pursuant to such Sections 13 or
15(d) if the Company were so subject (the "Financial Information"), such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Company would have been required so
to file such documents if the Company were so subject. The Company also will
be required in any event (x) within 15 days of each Required Filing Date (i)
to transmit by mail to all Holders of Debt Securities, as their names and
addresses appear in the Security Register, without cost to such Holders,
copies of the Financial Information and (ii) to file with the Trustee copies
of the Financial Information, and (y) if filing such documents by the Company
with the
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<PAGE>
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, to
supply copies of such documents to any prospective Holder (Section 1010).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Company and/or modifications to the
covenants described above with respect to any Debt Securities or series
thereof, including any covenants relating to limitations on incurrence of
indebtedness or other financial covenants, will be set forth in the applicable
Indenture or an indenture supplemental thereto and described in the Prospectus
Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (i)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (ii) default in the payment of principal of (or
premium, if any, on) any Debt Security of such series at its maturity; (iii)
default in making any sinking fund payment as required for any Debt Security
of such series; (iv) default in the performance or breach of any other
covenant or warranty of the Company contained in the applicable Indenture
(other than a covenant added to the Indenture solely for the benefit of a
series of Debt Securities issued thereunder other than such series), continued
for 60 days after written notice as provided in the applicable Indenture; (v)
default in the payment of an aggregate principal amount exceeding $10,000,000
of any indebtedness of the Company or any mortgage, indenture or other
instrument under which such indebtedness is issued or by which such
indebtedness is secured, such default having occurred after the expiration of
any applicable grace period and having resulted in the acceleration of the
maturity of such indebtedness, but only if such indebtedness is not discharged
or such acceleration is not rescinded or annulled; (vi) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary or either
of its property; and (vii) any other Event of Default provided with respect to
a particular series of Debt Securities (Section 501).
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% of the
principal amount of the Outstanding Debt Securities of that series will have
the right to declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or indexed securities, such
portion of the principal amount as may be specified in the terms thereof) of
all the Debt Securities of that series to be due and payable immediately by
written notice thereof to the Company (and to the applicable Trustee if given
by the Holders). However, at any time after such a declaration of acceleration
with respect to Debt Securities of such series (or of all Debt Securities then
Outstanding under any Indenture, as the case may be) has been made, but before
a judgment or decree for payment of the money due has been obtained by the
applicable Trustee, the Holders of not less than a majority in principal
amount of Outstanding Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may
be) may rescind and annul such declaration and its consequences if (a) the
Company shall have deposited with the applicable Trustee all required payments
of the principal of (and premium, if any) and interest on the Debt Securities
of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be), plus certain fees, expenses,
disbursements and advances of the applicable Trustee and (b) all events of
default, other than the non-payment of accelerated principal (or specified
portion thereof), with respect to Debt Securities of such series (or of all
Debt Securities then Outstanding under the applicable Indenture, as the case
may be) have been cured or waived as provided in such Indenture (Section 502).
Each Indenture also will provide that the Holders of not less than a majority
in principal amount of the Outstanding Debt Securities of any series (or of
all Debt Securities then Outstanding under the applicable Indenture, as the
case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision
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<PAGE>
contained in the applicable Indenture that cannot be modified or amended
without the consent of the Holder of each Outstanding Debt Security affected
thereby (Section 513).
Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of
the principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any
Debt Security of such series) if specified responsible officers of such
Trustee consider such withholding to be in the interest of such Holders
(Section 601).
Each Indenture will provide that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the cases of failure of the
applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent, however,
any Holder of Debt Securities from instituting suit for the enforcement of
payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under such Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under an Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Trustee, or of exercising any trust
or power conferred upon such Trustee. However, a Trustee may refuse to follow
any direction which is in conflict with any law or the applicable Indenture,
which may subject such Trustee to personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining
therein (Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such
default and the nature and status thereof (Section 1011).
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities issued under such Indenture which
are affected by such modification or amendment; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
such Debt Security affected thereby, (a) change the stated maturity of the
principal of, or any installment of interest (or premium, if any) on, any such
Debt Security; (b) reduce the principal amount of, or the rate or amount of
interest on, or any premium payable on redemption of, any such Debt Security,
or reduce the amount of principal of an Original Issue Discount Security that
would be due and payable upon declaration of acceleration of the maturity
thereof or would be provable in bankruptcy, or adversely affect any right of
repayment of the Holder of any such Debt Security; (c) change the place of
payment, or the coin or currency, for payment of principal or premium, if any,
or interest on any such Debt Security; (d) impair the right to institute suit
for the enforcement of any payment on or with respect to any such Debt
Security; (e) reduce the above-stated percentage of Outstanding Debt
Securities of any series necessary to modify or amend the applicable
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable Indenture; or (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of
certain
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past defaults or certain covenants, except to increase the required percentage
to affect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).
Modifications and amendments of an Indenture will be permitted to be made by
the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence
the succession of another person to the Company as obligor under such
Indenture; (ii) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Debt Securities or to surrender any right or
power conferred upon the Company in the Indenture; (iii) to add Events of
Default for the benefit of the Holders of all or any series of Debt
Securities; (iv) to add or change any provisions of an Indenture to facilitate
the issuance of, or to liberalize certain terms of, Debt Securities in bearer
form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect; (v) to change or eliminate any provisions of an Indenture, provided
that any such change or elimination shall become effective only when there are
no Debt Securities Outstanding of any series created prior thereto which are
entitled to the benefit of such provision; (vi) to secure the Debt Securities;
(vii) to establish the form or terms of Debt Securities of any series,
including the provisions and procedures, if applicable, for the conversion of
such Debt Securities into Common Stock or Preferred Stock; (viii) to provide
for the acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under an Indenture by more than one Trustee; (ix)
to cure any ambiguity, defect or inconsistency in an Indenture, provided that
such action shall not adversely affect the interests of Holders of Debt
Securities of any series issued under such Indenture in any material respect;
or (x) to supplement any of the provisions of an Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of
such Debt Securities, provided that such action shall not adversely affect the
interests of the Holders of the Debt Securities of any series in any material
respect (Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be Outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination
upon declaration of acceleration of the maturity thereof, (ii) the principal
amount of any Debt Security denominated in a foreign currency that shall be
deemed Outstanding shall be the U.S. dollar equivalent, determined on the
issue date for such Debt Security, of the principal amount (or, in the case of
Original Issue Discount Security, the U.S. dollar equivalent on the issue date
of such Debt Security of the amount determined as provided in (i) above),
(iii) the principal amount of an indexed security that shall be deemed
Outstanding shall be the principal face amount of such indexed security
pursuant to the applicable Indenture, and (iv) Debt Securities owned by the
Company or any other obligor upon the Debt Securities or any affiliate of the
Company or of such other obligor shall be disregarded.
Each Indenture will contain provisions for convening meetings of the Holders
of Debt securities of a series (Section 1501). A meeting will be permitted to
be called at any time by the applicable Trustee, and also, upon request, by
the Company or the Holders of at least 10% in principal amount of the
Outstanding Debt Securities of such series, in any such case upon notice given
as provided in the Indenture. Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments
of an Indenture, any resolution presented at a meeting or adjourned meeting
duly reconvened at which a quorum is present may be adopted by the affirmative
vote of the Holders of a majority in the principal amount of the Outstanding
Debt Securities of that series; provided, however, that, except as referred to
above, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
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taken by the Holders of a specified percentage, which is less than a majority,
in principal amount of the Outstanding Debt Securities of a series may be
adopted at a meeting or adjourned meeting or at which a quorum is present by
the affirmative vote of the Holders of such specified percentage in principal
amount of the Outstanding Debt Securities of that series. Any resolution
passed or decision taken at any meeting of Holders of Debt Securities of any
series duly held in accordance with an Indenture will be binding on all
Holders of Debt Securities of that series. The quorum at any meeting called to
adopt a resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders
of not less than a specified percentage in principal amount of the Outstanding
Debt Securities of a series, the persons holding or representing such
specified percentage in principal amount of the Outstanding Debt Securities of
such series will constitute a quorum.
Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the Holders of a specified percentage in principal
amount of all Outstanding Debt Securities affected thereby, or the Holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action
shall be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been
made, given or taken under such Indenture.
SUBORDINATION
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Company to make payment of the principal and interest on
such Subordinated Securities will not otherwise be affected (Section 1608 of
the Subordinated Indenture). No payment of principal or interest will be
permitted to be made on Subordinated Securities at any time if a default on
Senior Debt exists that permits the Holders of such Senior Debt to accelerate
its maturity and the default is the subject of judicial proceedings or the
Company receives notice of the default (Section 1602 of the Subordinated
Indenture). After all Senior Debt is paid in full and until the Subordinated
Securities are paid in full, Holders will be subrogated to the right of
Holders of Senior Debt to the extent that distributions otherwise payable to
Holders have been applied to the payment of Senior Debt (Section 1607 of the
Subordinated Indenture). By reason of such subordination, in the event of a
distribution of assets upon insolvency, certain general creditors of the
Company may recover more, ratably, than Holders of Subordinated Securities.
Senior Debt will be defined in the Subordinated Indenture as the principal
of and interest on, or substantially similar payments to be made by the
Company in respect of, the following; whether outstanding at the date of
execution of the applicable Indenture or thereafter incurred, created or
assumed: (i) indebtedness of the Company for money borrowed or represented by
purchase money obligations, (ii) indebtedness of the Company evidenced by
notes, debentures, or bonds or other securities issued under the provisions of
an indenture, fiscal agency agreement or other agreement, (iii) obligations of
the Company as lessee under leases of property either made as part of any sale
and leaseback transaction to which the Company is a party or otherwise, (iv)
indebtedness of partnerships and joint ventures which is included in the
consolidated financial statements of the Company, and (v) indebtedness,
obligations and liabilities of others in respect of which the Company is
liable contingently or otherwise to pay or advance money or property or as
guarantor, endorser or otherwise, in each case other than (1) any such
indebtedness, obligation or liability referred to in clauses (i) through (v)
above as to which, in the instrument creating or evidencing the same pursuant
to which the same is outstanding, it is provided that such indebtedness,
obligation or liability is not superior in right of payment to the
Subordinated Securities or ranks
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pari passu with the Subordinated Securities, (2) any such indebtedness,
obligation or liability which is subordinated to indebtedness of the Company
to substantially the same extent as or to a greater extent than the
Subordinated Securities are subordinated, and (3) the Subordinated Securities.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will contain the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may be permitted under the applicable Indenture to discharge
certain obligations to Holders of any series of Debt Securities issued
thereunder that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due
and payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient
to pay the entire indebtedness on such Debt Securities in respect of principal
(and premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or
redemption date, as the case may be.
Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay additional amounts, if any, upon
the occurrence of certain events of tax, assessment or governmental charge
with respect to payments on such Debt Securities, and the obligations to
register the transfer or exchange of such Debt Securities, to replace
temporary or mutilated, destroyed, lost or stolen Debt Securities, to maintain
an office or agency in respect of such Debt Securities and to hold moneys for
payment in trust) ("defeasance") (Section 1402) or (b) to be released from its
obligations with respect to such Debt Securities under certain specified
sections of Article Ten of such Indenture as specified in the applicable
Prospectus Supplement and any omission to comply with such obligations shall
not constitute an Event of Default with respect to such Debt Securities
("covenant defeasance") (Section 1403), in either case upon the irrevocable
deposit by the Company with the applicable Trustee, in trust, of an amount, in
such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at stated maturity, or
Government Obligations (as defined below), or both, applicable to such Debt
Securities which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient without
reinvestment to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
Holders of such Debt Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of
counsel, in the case of defeasance, will be required to refer to and be based
upon a ruling of the Internal Revenue Service or a change in applicable U.S.
federal income tax law occurring after the date of the Indenture (Section
1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which
issued the foreign currency in which the Debt Securities of such series are
payable, the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation of the United States of America or such
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government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the
Holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the Holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101 of each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of
the currency, currency unit or composite currency in which such deposit has
been made, the indebtedness represented by such Debt Security will be deemed
to have been, and will be, fully discharged and satisfied through the payment
of the principal of (and premium, if any) and interest on such Debt Security
as they become due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency, currency unit or
composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market
exchange rate. "Conversion Event" means the cessation of use of (i) a
currency, currency unit or composite currency both by the government of the
country which issued such currency and for the settlement of transactions by a
central bank or other public institutions of or within the international
banking community, (ii) the ECU both within the European Monetary System and
for the settlement of transactions by public institutions of or within the
European Communities or (iii) any currency unit or composite currency other
than the ECU for the purposes for which it was established. Unless otherwise
provided in the applicable Prospectus Supplement, all payments of principal of
(and premium, if any) and interest on any Debt Security that is payable in a
foreign currency that ceases to be used by its government of issuance shall be
made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because
of the occurrence of any Event of Default other than the Event of Default
described in clause (iv) under "Events of Default, Notice and Waiver" with
respect to certain specified sections of Article Ten of each Indenture (which
sections would no longer be applicable to such Debt Securities as a result of
such covenant defeasance) or described in clause (vii) under "Events of
Default, Notice and Waiver" with respect to any other covenant as to which
there has been covenant defeasance, the amount in such currency, currency unit
or composite currency in which such Debt Securities are payable, and
Government Obligations on deposit with the applicable Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
stated maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such Default.
However, the Company would remain liable to make payment of such amounts due
at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the
Holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of
such Debt Securities and any restrictions on conversion.
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REDEMPTION OF SECURITIES
The Indenture provides that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part, at the Redemption Price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption shall have
been made available on such redemption date, such Debt Securities will cease
to bear interest on the date fixed for such redemption specified in such
notice, and the only right of the Holders of the Debt Securities will be to
receive payment of the Redemption Price.
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Security Register, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Debt Securities held by such Holder to be redeemed.
If the Company elects to redeem Debt Securities, it will notify the Trustee
at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all the Debt
Securities are to be redeemed, the Trustee shall select the Debt Securities to
be redeemed pro rata, by lot or in such manner as it shall deem fair and
appropriate.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depository identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
CAPITAL STOCK STRUCTURE
The Company has the authority to issue (i) 300,000,000 shares of Common
Stock, of which 157,068,862 shares were issued and outstanding as of the close
of business on October 31, 1995, (ii) 850,000 shares of Cumulative Preferred
Stock, issuable in series, of which a total of 227,288 shares, constituting
four series, were issued and outstanding as of the close of business on
October 31, 1995, and (iii) 4,000,000 shares of Class A Preferred Stock, none
of which were outstanding as of October, 31 1995 and which when issued, will
rank junior to the Cumulative Preferred Stock as to dividends or
distributions, and upon the liquidation, dissolution and winding up of the
Company.
DESCRIPTION OF COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement
may relate, including a Prospectus Supplement providing that Common Stock will
be issuable upon conversion of Debt Securities or Preferred Stock of the
Company or upon the exercise of the Securities Warrants issued by the Company.
The statements below describing the Common Stock are in all respects subject
to and qualified in their entirety by reference to the applicable provisions
of the Company's Restated Certificate of Incorporation, as amended (the
"Charter"), and Bylaws.
DIVIDEND RIGHTS
Subject to the terms of any contractual restriction on the declaration or
payment of dividends, dividends may be declared and paid on the Common Stock
out of legally available surplus. However, no dividends may be
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paid on the Common Stock until accrued and unpaid dividends on the outstanding
series of Cumulative Preferred Stock have been paid or declared and funds set
aside for their payment.
The Company's ability to pay dividends is substantially dependent upon the
earnings and available cash flow of its subsidiaries and the availability of
such earnings to the Company by way of dividends, distributions, loans and
other advances. The provisions of the Open Market Plan include the prohibition
of dividend payments from a significant subsidiary of the Company, Rochester
Telephone Corp., to the Company in specified circumstances.
VOTING RIGHTS
The holders of Common Stock have exclusive voting rights of one vote for
each share held, subject to the voting rights of the outstanding Cumulative
Preferred Stock described below and any subsequent voting rights that may be
established for any other Preferred Stock by the Company's Board of Directors.
The holders of the Common Stock are not entitled to cumulative voting in the
election of directors.
When four or more quarterly dividends on the Cumulative Preferred Stock are
in arrears, and until such arrearages at full dividend rates have been paid or
declared and set apart for payment, the holders of the Cumulative Preferred
Stock as a class have the right to elect a majority of the Board of Directors.
In such event, the holders of the Common Stock have the right to elect only
the remaining directors.
LIQUIDATION RIGHTS
On any liquidation of the Company, the holders of the Cumulative Preferred
Stock will be entitled to their full par value per share plus accumulated
dividends. In addition, the holders of any other Preferred Stock issued after
the date of this Prospectus will be entitled to a liquidation preference equal
to at least the par value of such stock. After satisfaction of outstanding
liabilities and the preferential liquidation rights of the Preferred Stock,
the holders of Common Stock are entitled to share ratably in the distribution
of all remaining assets.
PREEMPTIVE RIGHTS
Holders of the Common Stock have no preemptive rights to purchase any stock
issued by the Company, any securities convertible into such stock, or any
rights or options to acquire such stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The First National
Bank of Boston, 150 Royall Street, Canton, Massachusetts 02021.
THE RIGHTS AGREEMENT
On April 9, 1995, the Company's Board of Directors declared a dividend of
one preferred share purchase right (a "Right") for each outstanding share of
Common Stock. The dividend was payable on April 24, 1995 to the shareholders
of record on that date. Each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share of Series A Junior Participating
Class A Preferred Stock, par value of $100.00 per share (the "Rights Preferred
Stock"), of the Company at a price of $80.00 per one-hundredth of a share of
Rights Preferred Stock, subject to adjustment. The description and terms of
the Rights are set forth in a Rights Agreement dated as of April 9, 1995, as
the same may be amended from time to time (the "Rights Agreement"), between
the Company and The First National Bank of Boston, as Rights Agent.
The Rights are not exercisable until the earlier to occur of (i) ten days
following the first date of a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired
beneficial ownership of 20% or more of the outstanding shares of Common Stock
or such earlier date as a
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majority of the Board of Directors shall have become aware of the existence of
an Acquiring Person, or (ii) ten business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any
person or group of affiliated persons becomes an Acquiring Person) following
the commencement of, or announcement of an intention to make, a tender order
or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding shares of
Common Stock. The Rights will expire on April 24, 2005, unless such date is
extended or unless the Rights are earlier redeemed or exchanged by the
Company, in each case as described below.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right at the then
current exercise price of the Right, that number of shares of Common Stock
having a market value of two times the exercise price of the Right.
In the event that, after a person or group has become an Acquiring Person,
the Company is acquired in a merger or other business combination transaction
or 50% or more of its consolidated assets or earning power are sold, proper
provision will be made so that each holder of a Right (other than Rights
beneficially owned by an Acquiring Person which will have become void) will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the person with whom has engaged in the foregoing transaction (or its parent),
which number of shares at the time of such transaction will have a market
value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of Common Stock, the Company's Board of Directors may exchange the
Rights (other than Rights owned by such person or group which will have become
void), in whole or in part, at an exchange ratio of one share of Common Stock,
or one one-hundredth of a share of Rights Preferred Stock (or of a share of a
class or series of the Company's preferred stock having equivalent rights,
preferences and privileges, per Right (subject to adjustment).
At any time prior to the time an Acquiring Person becomes such, the Board of
Directors of the Company may redeem the Rights in whole, but not in part, at a
price of $.01 per Right, subject to adjustment.
For so long as the Rights are then redeemable, the Company may, except with
respect to the redemption price, amend the Right in any manner. After the
Rights are no longer redeemable, the Company may, except with respect to the
redemption price, amend the Rights in any manner that does not adversely
affect the interest of holders of the Rights.
This summary description of the Rights summarizes the material terms of the
Rights but does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement which is an exhibit to the Company's Current
Report on Form 8-K dated April 9, 1995.
DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Charter (including any amendment to the Charter relating to a series of the
Preferred Stock) which will be filed with the Commission and incorporated by
reference as an exhibit to the Registration Statement of which this Prospectus
is a part at or prior to the time of the issuance of such series of the
Preferred Stock.
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GENERAL
The Company is authorized to issue 4,000,000 shares of Class A Preferred
Stock, of which no shares were outstanding as of October 31, 1995, and 850,000
shares of Cumulative Preferred Stock, of which 227,288 shares were outstanding
as of October 31, 1995. The Company has established five separate series of
Cumulative Preferred Stock, which include 215,000 shares in the aggregate, and
a series of 3,000,000 shares of Class A Preferred Stock in connection with the
Rights Agreement.
Under the Charter, the Board of Directors (without further shareowner
action) may from time to time establish and issue one or more series of
Preferred Stock with such designations, powers, preferences or rights of the
shares of such series and the qualifications, limitations or restrictions
thereon.
The Preferred Stock shall have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference
is made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation and the number of shares offered; (ii) the amount of liquidation
preference per share; (iii) the initial public offering price at which such
Preferred Stock will be issued; (iv) the dividend rate (or method of
calculation), the dates on which dividends shall be payable and the dates from
which dividends shall commence to accumulate, if any; (v) any redemption or
sinking fund provisions; (vi) any conversion rights; and (vii) any additional
voting, dividend, liquidation, redemption, sinking fund and other rights,
preferences, privileges, limitations and restrictions. The Preferred Stock
will, when issued for lawful consideration, be fully paid and nonassessable
and will have no preemptive rights.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of
Common Stock and to all equity securities ranking junior to such Preferred
Stock; (ii) on a parity with all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank on a
parity with the Preferred Stock; and (iii) junior to all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock. As used in the Articles for
these purposes, the term "equity securities" does not include convertible debt
securities. The Series A Preferred Stock is junior to the Cumulative Preferred
Stock and any Preferred Stock established out of Series A Preferred Stock
shall be junior as to the Cumulative Preferred Stock. The rights of the
holders of each series of the Preferred Stock will be subordinate to those of
the Company's general creditors.
DIVIDENDS
Holders of shares of the Preferred Stock of each series shall be entitled to
receive, when, as and if declared by the Board of Directors of the Company,
out of assets of the Company legally available for payment, cash dividends at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Such rate may be fixed or variable or both. Each such dividend
shall be payable to holders of record as they appear on the stock transfer
books of the Company on such record dates as shall be fixed by the Board of
Directors of the Company, as specified in the Prospectus Supplement relating
to such series of Preferred Stock.
Dividends on any series of the Preferred Stock may be cumulative or non-
cumulative, as provided in the applicable Prospectus Supplement. Dividends, if
cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company
fails to declare a dividend payable on a dividend payment date on any series
of the Preferred Stock for which dividends are noncumulative, then the holders
of such series of the Preferred Stock will have no right to receive a dividend
in respect of the dividend period relating to such dividend payment date, and
the Company will have no obligation to pay the dividend accrued for such
period, whether or not dividends on such series are declared payable on any
future dividend payment date.
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So long as the shares of any series of the Preferred Stock shall be
outstanding, the Company may not declare or pay any dividends on any shares of
Common Stock of the Company or any other stock of the Company ranking as to
dividends or distributions of assets junior to such series of Preferred Stock
(the Common Stock and any such other stock being herein referred to as "Junior
Stock"), whether in cash or property or in obligations or stock of the
Company, other than Junior Stock which is neither convertible into, nor
exchangeable or exercisable for, any securities of the Company other than
Junior Stock, unless full dividends (including if such Preferred Stock is
cumulative, dividends for prior dividend periods) shall have been paid or
declared and set apart for payment on all outstanding shares of the Preferred
Stock of such series and all other classes and series of Preferred Stock of
the Company (other than Junior Stock).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
A series of Preferred Stock may be redeemable, in whole or from time to time
in part, at the option of the Company, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon terms,
at the times and at the redemption prices set forth in the Prospectus
Supplement relating to such series. Shares of the Preferred Stock redeemed by
the Company will be restored to the status of authorized but unissued shares
of Preferred Stock.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Stock of any series is payable only from
the net proceeds of the issuance of capital stock of the Company, the terms of
such Preferred Stock may provide that, if no such capital stock shall have
been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Stock shall automatically and mandatorily be converted into shares
of the applicable capital stock of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
So long as any dividends on shares of any series of the Preferred Stock or
any other series of preferred stock of the Company ranking on a parity as to
dividends and distribution of assets with such series of the Preferred Stock
are in arrears, no shares of any such series of the Preferred Stock or such
other series of Preferred Stock of the Company will be redeemed (whether by
mandatory or optional redemption) unless all such shares are simultaneously
redeemed, and the Company will not purchase or otherwise acquire any such
shares.
In the event that fewer than all of the outstanding shares of a series of
the Preferred Stock are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be determined by lot or
pro rata (subject to rounding to avoid fractional shares) as may be determined
by the Company or by any other method as may be determined by the Company in
its sole discretion to be equitable. From and after the redemption date
(unless default shall be made by the Company in providing for the payment of
the redemption price plus accumulated and unpaid dividends, if any), dividends
shall cease to accumulate on the shares of the Preferred Stock called for
redemption and all rights of the holders thereof (except the right to receive
the redemption price plus accumulated and unpaid dividends, if any) shall
cease.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Junior Stock, the holders of each
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series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to shareowners, liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such Preferred
Stock does not have a cumulative dividend). After payment of the full amount
of the liquidating distributions to which they are entitled, the holders of
Preferred Stock will have no right or claim to any of the remaining assets of
the Company. In the event that upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company
are insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Preferred Stock and the corresponding amounts payable on
all shares of other classes or series of capital stock of the Company ranking
on a parity with the Preferred Stock in the distribution of assets, then the
holders of the Preferred Stock and all other such classes or series of capital
stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be
respectively entitled.
If liquidating distributions shall have been made in full to all holders of
shares of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of Junior Stock, according to their respective
rights and preferences and in each case according to their respective number
of shares. For such purposes, the consolidation or merger of the Company with
or into any other corporation, or the sale, lease or conveyance of all or
substantially all of the property or business of the Company, shall not be
deemed to constitute a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Except as indicated below or in a Prospectus Supplement relating to a
particular series of the Preferred Stock, or except as required by applicable
law, holders of the Preferred Stock will not be entitled to vote for any
purpose.
As described in "Description of Common Stock--Voting Rights", when four or
more quarterly dividends on the Cumulative Preferred Stock are in arrears, and
until such arrearages at full dividend rates have been paid or declared and
set apart for payment, the holders of the Cumulative Preferred Stock as a
class have the right to elect a majority of the Board of Directors.
In addition, the affirmative vote of various proportions of the Cumulative
Preferred Stock is required to (1) increase the authorized amount of the
Cumulative Preferred Stock; (2) create shares having preferential rights equal
or superior to the Cumulative Preferred Stock; (3) issue any shares of
Cumulative Preferred Stock or any shares having preferential rights equal or
superior to the Cumulative Preferred Stock without compliance with certain
requirements as to earnings; and (4) create, alter or abolish any voting
rights or preferential rights or redemption provisions affecting the
Cumulative Preferred Stock adversely.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option
of the holders of the Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
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DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Common Stock.
Securities Warrants may be issued independently or together with any other
Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Securities Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Securities
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Securities
Warrants. The following summaries of certain provisions of the Securities
Warrant Agreement and the Securities Warrants do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
the provisions of the Securities Warrant Agreement and the Securities Warrant
certificates relating to each series of Securities Warrants which will be
filed with the Commission and incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such series of Securities Warrants.
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including the following
where applicable: (i) the offering price; (ii) the aggregate number of shares
purchasable upon exercise of such Securities Warrants, the exercise price
(iii) the date, if any, on and after which such Securities Warrants and the
Common Stock will be transferable separately; (iv) the date on which the right
to exercise such Securities Warrants shall commence and the Expiration Date;
(v) any special United States federal income tax consequences; and (vi) any
other material terms of such Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities Warrant
certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrants to purchase Common Stock, holders of such Securities Warrants will
not have any rights of holders of Common Stock, including the right to receive
payments of dividends, if any, on such Common Stock, or to exercise any
applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
number of shares of Common Stock, at such exercise price as shall in each case
be set forth in, or calculable from, the Prospectus Supplement relating to the
offered Securities Warrants. After the close of business on the Expiration
Date (or such later date to which such Expiration Date may be extended by the
Company), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Securities Warrant
Agent payment as provided in the applicable Prospectus Supplement of the
amount required to purchase the Common Stock purchasable upon such exercise
together with certain information set forth on the reverse side of the
Securities Warrant certificate. Securities Warrants will be deemed to have
been exercised upon receipt of payment of the exercise price, subject to the
receipt within five (5) business days, of the Securities Warrant certificate
evidencing such Securities Warrants. Upon receipt of such payment and the
Securities Warrant certificate properly completed and duly executed at the
corporate trust office of the Securities Warrant agent or any other office
indicated in the applicable Prospectus Supplement, the Company will, as soon
as practicable, issue and deliver the Common Stock purchasable upon such
exercise. If fewer than all of the Securities Warrants represented by such
Securities Warrant certificate are exercised, a new Securities Warrant
certificate will be issued for the remaining amount of Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the consent of
the holders of the Securities Warrants issued thereunder to effect changes
that are not inconsistent with the provisions of the Securities Warrants and
that do not adversely affect the interests of the holders of the Securities
Warrants.
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COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a
Common Stock Warrant are subject to adjustment in certain events, including
(i) payment of a dividend on the Common Stock payable in capital stock and
stock splits, combinations or reclassification of the Common Stock; (ii)
issuance to all holders of Common Stock of rights or warrants to subscribe for
or purchase shares of Common Stock at less than their current market price (as
defined in the Warrant Agreement for such series of Securities Warrants); and
(iii) certain distributions of evidences of indebtedness or assets (including
securities but excluding cash dividends or distributions paid out of
consolidated earnings or retained earnings or dividends payable other than in
Common Stock) or of subscription rights and warrants (excluding those referred
to above).
No adjustment in the exercise price of, and the number of shares of Common
Stock covered by, a Common Stock Warrant will be made for regular quarterly or
other periodic or recurring cash dividends or distributions or for cash
dividends or distributions to the extent paid from consolidated earnings or
retained earnings. No adjustment will be required unless such adjustment would
require a change of at least 1% in the exercise price then in effect. Except
as stated above, the exercise price of, and the number of shares of Common
Stock covered by, a Common Stock Warrant will not be adjusted for the issuance
of Common Stock or any securities convertible into or exchangeable for Common
Stock, or carrying the right or option to purchase or otherwise acquire the
foregoing, in exchange for cash, other property or services.
In the event of any (i) consolidation or merger of the Company with or into
any entity (other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock); (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the Company; or (iii) reclassification,
capital reorganization or change of the Common Stock (other than solely a
change in par value or from par value to no par value), then any holder of a
Common Stock Warrant will be entitled, on or after the occurrence of any such
event, to receive on exercise of such Common Stock Warrant the kind and amount
of shares of stock or other securities, cash or other property (or any
combination thereof) that the holder would have received had such holder
exercised such holder's Common Stock Warrant immediately prior to the
occurrence of such event. If the consideration to be received upon exercise of
the Common Stock Warrant following any such event consists of common stock of
the surviving entity, then from and after the occurrence of such event, the
exercise price of such Common Stock Warrant will be subject to the same anti-
dilution and other adjustments described in the second preceding paragraph,
applied as if such common stock were Common Stock.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Direct sales to investors may be accomplished through
subscription rights distributed to the Company's shareowners. In connection
with the distribution of subscription rights to shareowners, if all of the
underlying Securities are not subscribed for, the Company may sell such
unsubscribed Securities directly to third parties or may engage the services
of an underwriter to sell such unsubscribed Securities to third parties. Any
underwriter or agent involved in the offer and sale of the Securities will be
named in the applicable Prospectus Supplement.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, or at prices related to the
prevailing market prices at the time of sale or at negotiated prices (any of
which may represent a discount from the prevailing market prices). The Company
also may, from time to time, authorize underwriters acting as the Company's
agents to offer and sell the Securities upon the terms and conditions as are
set forth in the applicable Prospectus Supplement. In connection with the sale
of Securities, underwriters may be deemed to have received compensation from
the Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Securities for whom they may act as
agent. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation
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in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions
or commissions allowed by underwriters to participating dealers, will be set
forth in the applicable Prospectus Supplement. Underwriters, dealers and
agents participating in the distribution of the Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered
into with the Company, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Securities from the Company at the public offering
price set forth in such Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the date or
dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Securities sold
pursuant to Contracts shall be not less nor more than, the respective amounts
stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be
subject to the approval of the Company. Contracts will not be subject to any
conditions except (i) the purchase by an institution of the Securities covered
by its Contracts shall not at the time of delivery be prohibited under the
laws of any jurisdiction in the United States to which such institution is
subject; and (ii) if the Securities are being sold to underwriters, the
Company shall have sold to such underwriters the total principal amount of the
Securities less the principal amount thereof covered by the Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its Subsidiaries
in the ordinary course of business.
LEGAL MATTERS
The legality of the Debt Securities, the Preferred Stock, the Common Stock
and the Securities Warrants offered hereby will be passed upon for the Company
by Helen A. Zamboni, Esq., Corporate Counsel of the Company.
EXPERTS
The consolidated financial statements and consolidated financial statement
schedule incorporated in this Prospectus by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, and the audited
historical financial statements included on pages 23-57 of the Company's Form
8-K dated November 14, 1995 have been audited by Price Waterhouse LLP,
independent accountants, except as they relate to ALC Communications
Corporation, and insofar as they relate to ALC Communications Corporation, by
Ernst & Young LLP, independent accountants, whose reports therein are
incorporated by reference to the Company's Form 8-K dated November 14, 1995.
Such financial statements have been so included in reliance on the reports of
such independent accountants given on the authority of such firms as experts
in auditing and accounting.
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