-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PI1i9OYr/kM+wKq405SQVzuaE0rGSNSu4f2ndzvirM4Io63SBsCVlZrLAnKVh+3Z bJBKNSMtaM2aqGRAOzy6kw== 0001047469-03-025924.txt : 20030801 0001047469-03-025924.hdr.sgml : 20030801 20030801160015 ACCESSION NUMBER: 0001047469-03-025924 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20030801 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BROADWING COMMUNICATIONS INC CENTRAL INDEX KEY: 0001009532 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 752644120 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: 1934 Act SEC FILE NUMBER: 005-46453 FILM NUMBER: 03818185 BUSINESS ADDRESS: STREET 1: 1122 CAPITAL OF TEXAS HGWY S STREET 2: STE 200 CITY: AUSTIN STATE: TX ZIP: 78746 BUSINESS PHONE: 5123281112 MAIL ADDRESS: STREET 1: 5000 PLAZA ON THE LAKE STREET 2: SUITE 200 CITY: AUSTIN STATE: TX ZIP: 79746-1050 FORMER COMPANY: FORMER CONFORMED NAME: IXC COMMUNICATIONS INC DATE OF NAME CHANGE: 19960302 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BROADWING COMMUNICATIONS INC CENTRAL INDEX KEY: 0001009532 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 752644120 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 1122 CAPITAL OF TEXAS HGWY S STREET 2: STE 200 CITY: AUSTIN STATE: TX ZIP: 78746 BUSINESS PHONE: 5123281112 MAIL ADDRESS: STREET 1: 5000 PLAZA ON THE LAKE STREET 2: SUITE 200 CITY: AUSTIN STATE: TX ZIP: 79746-1050 FORMER COMPANY: FORMER CONFORMED NAME: IXC COMMUNICATIONS INC DATE OF NAME CHANGE: 19960302 SC 14D9 1 a2115840zsc14d9.htm 14D9
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION UNDER
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934

BRCOM INC.
(Name of Subject Company and Name of Person Filing Statement)

12¹/2% SERIES B JUNIOR
EXCHANGEABLE PREFERRED STOCK DUE 2009,
PAR VALUE $0.01 PER SHARE
(Title Class of Securities)

11161PAA4
(CUSIP Number of Class of Securities)

Jeffrey C. Smith, Esq.
Chief Human Resources Officer,
General Counsel and Corporate Secretary
Cincinnati Bell Inc.
201 East Fourth Street
Cincinnati, Ohio 45202
(513) 397-9900
(Name, address, and telephone number of person authorized to receive notices
and communications on behalf of the persons filing statement)

With a Copy to:

William V. Fogg, Esq.
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, New York 10019
(212) 474-1000

o: Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

ITEM 1. SUBJECT COMPANY INFORMATION.

Name and Address.

The name of the subject company is BRCOM Inc., a Delaware corporation (f/k/a Broadwing Communications Inc.), and the address of its principal executive offices is 201 East Fourth Street, Cincinnati, Ohio 45202. The telephone number for BRCOM is (513) 397-9900.

Securities.

The title of the class of equity securities to which this Solicitation/Recommendation Statement on Schedule 14D-9 relates is BRCOM's 12¹/2% Series B Junior Exchangeable Preferred Stock, par value $0.01 per share. As of March 31, 2003, there were 395,210 shares of BRCOM Preferred Stock issued and outstanding.

ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.

BRCOM, the filing person, is the subject company. BRCOM's name, business address and business telephone number are set forth in Item 1 above.

This schedule relates to the exchange offer and consent solicitation by Cincinnati Bell Inc., an Ohio corporation (f/k/a Broadwing Inc.), being made pursuant to a prospectus and solicitation statement filed on Schedule TO and contained in the Registration Statement on Form S-4 (File No. 333-104557), each as filed by Cincinnati Bell with the Securities and Exchange Commission on July 30, 2003, to exchange 35.8 shares of Cincinnati Bell Common Stock, par value $0.01, for each outstanding share of BRCOM Preferred Stock that is validly tendered and not properly withdrawn on or prior to the expiration of the exchange offer, with cash to be paid in lieu of fractional shares, upon the terms and subject to the conditions set forth in the prospectus and solicitation statement and in the related consent and letter of transmittal. Concurrently with the exchange offer, Cincinnati Bell is also soliciting consents from holders of BRCOM Preferred Stock to certain amendments to the certificate of designation under which the shares were issued to eliminate all voting rights and restrictive covenants. If the amendment to the certificate of designation governing the BRCOM Preferred Stock and the exchange offer and consent solicitation are completed, in connection therewith Cincinnati Bell will effect a merger of a newly-formed wholly owned subsidiary with and into BRCOM in which any remaining shares of BRCOM Preferred Stock not tendered by the holders thereof will be converted into the same number of shares of Cincinnati Bell Common Stock that holders would have received if they had tendered their shares in the exchange offer, unless they properly perfect appraisal rights under Delaware law. The prospectus and solicitation statement and the consent and letter of transmittal are filed as Exhibits (a)(1) and (a)(2), respectively, to this Schedule 14D-9 and are incorporated herein by reference.

The prospectus and solicitation statement state that the address of Cincinnati Bell's principal executive offices is 201 East Fourth Street, Cincinnati, Ohio 45202, and the telephone number for Cincinnati Bell is (513) 397-9900.

ITEM 3. PAST CONTRACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.

Except as described herein, to the knowledge of BRCOM, there are no material contracts, agreements, arrangements or understandings or any actual or potential conflict of interest between BRCOM or its affiliates and (1) BRCOM, its executive officers, directors or affiliates; or (2) Cincinnati Bell or its respective executive officers, directors or affiliates.

Certain Arrangements Between BRCOM and Its Executive Officers, Director and Affiliates

Certain information regarding contracts, agreements, arrangements or understandings between BRCOM and its affiliates, on the one hand, and BRCOM's executive officers and directors are described in BRCOM's Information Statement filed with the SEC pursuant to Section 14(c) of the Securities Exchange Act of 1934, in the following sections: "Share Ownership of Directors and Officers," "Election of Directors," "Directors," "Board of Directors Report on Executive Compensation—Compensation Committee Interlocks and Insider Participation," "Executive Compensation—Summary Compensation Table," "Executive Compensation—Grants of Stock Options and Stock Appreciation Rights in Last Fiscal Year," "Executive Compensation—Executive Deferred Compensation Plan," "Executive Compensation—Defined Benefit or Actuarial Plan Disclosure" and "Executive Compensation—Employment Contracts and Termination of Employment and Change-in-Control Arrangements." The Information Statement is filed as Exhibit (e) to this Schedule 14D-9 and incorporated herein by reference.

Certain Arrangements Between BRCOM and Cincinnati Bell

Certain information regarding contracts, agreements, arrangements or understanding between BRCOM and its affiliates, on the one hand, and Cincinnati Bell and their respective executive officers, directors and affiliates are described in the prospectus and solicitation statement in "Relationship Between Cincinnati Bell and BRCOM—Intercompany Arrangements." The prospectus and solicitation statement is filed as Exhibit (a)(1) to this Schedule 14D-9 and incorporated herein by reference.

Interests of Certain Persons in the Exchange Offer and Consent Solicitation

In considering the recommendations of the board of BRCOM with respect to the exchange offer and consent solicitation, holders of the BRCOM preferred stock should be aware that certain officers and directors of BRCOM have interests in the exchange offer and consent solicitation which are described in the sections of the prospectus and solicitation statement listed below and which may present them with certain potential conflicts of interest.

The information contain under "Risk Factors—The sole director of BRCOM has potential conflicts of interest with respect to the exchange offer, consent solicitation, the amendment to the certificate of designation and merger; our board of directors has potential conflicts of interest with respect to the exchange offer, consent solicitation and merger" and "Relationship Between Cincinnati Bell and BRCOM—Relationship of Directors and Executive Officers of BRCOM with Cincinnati Bell" in the prospectus and solicitation statement is incorporated herein by reference.

ITEM 4. THE SOLICITATION OR RECOMMENDATION.

Recommendation of the Board

On July 30, 2003, the BRCOM board (i) determined that the terms of the exchange offer and consent solicitation are fair to and in the best interests of the holders of BRCOM Preferred Stock and (ii) recommended that the holders of BRCOM Preferred Stock accept the exchange offer and consent solicitation and tender their shares and give their consents pursuant to the exchange offer and consent solicitation.

Accordingly, the BRCOM board recommends that holders of BRCOM Preferred Stock accept the exchange offer and consent solicitation and tender their shares pursuant to the exchange offer and give their consents pursuant to the consent solicitation.

Reasons for the Recommendation

BRCOM conducts substantially all of its operations through its subsidiaries and is dependent upon dividends or other intercompany transfers of funds from its subsidiaries in order to meet its obligations. On February 22, 2003, BRCOM entered into an agreement to sell BRCOM's broadband business by agreeing to sell substantially all of the assets of certain of BRCOM's operating subsidiaries to C III Communications, LLC and C III Communications Operations, LLC. Following the completion of the sale of the broadband business, the only remaining BRCOM subsidiaries with operating assets will be Cincinnati Bell Technology Solutions Inc., and information technology consulting subsidiary, and Cincinnati Bell Any Distance Inc., a subsidiary whose assets service Cincinnati Bell's long distance business. However, BRCOM retains substantial liabilities. The carrying value of the current and long-term liabilities to be retained totaled $1,654.8 million and $301.7 million, respectively, as of March 31, 2003. There can be no assurances that BRCOM will be able to generate sufficient cash from its remaining operations, restructure its obligations or obtain additional sources of financing, in light of the funding constraints placed on Cincinnati Bell. As a result, BRCOM may not be able to service the substantial liabilities remaining after the sale of its broadband business or to fund its other liquidity needs.

Furthermore, there will be little or no remaining net cash proceeds from the sale of the broadband business to fund BRCOM's future working capital, capital expenditures and other general corporate requirements. Under the amended terms of Cincinnati Bell's credit facilities, the proceeds from the sale of the broadband business will be used to pay BRCOM's remaining liabilities and claims and current ordinary course operating expenses. Any remaining net proceeds will be applied 60% to prepay the credit facilities and 40% to pay certain of BRCOM's other obligations, provided that, in the event of a bankruptcy of BRCOM or any of its subsidiaries, 100% of any such remaining net proceeds must be applied to prepay the credit facilities. If there are any proceeds remaining after BRCOM's obligations have been satisfied, those amounts must be applied to pay down the credit facilities.

In the past, Cincinnati Bell has made capital contributions and intercompany loans to BRCOM to finance BRCOM's operating activities and other obligations, including its preferred stock dividends and repayments of long-term debt. In 2002, BRCOM received intercompany loans from Cincinnati Bell of $23.3 million and capital contributions of $1.9 million. In the first quarter of 2003, BRCOM received intercompany loans from Cincinnati Bell of $8.3 million. Currently the indenture governing Cincinnati Bell's 16% Senior Subordinated Discount Notes due 2009 and Cincinnati Bell's credit facilities restrict its ability to continue funding BRCOM. As of May 31, 2003, it had the ability to invest or otherwise provide an additional $30.7 million in BRCOM. If BRCOM requires funds in excess of the amounts Cincinnati Bell is permitted to provide under the terms of its indenture and credit facilities, there can be no assurances that the holders of the notes or the lenders under the credit facilities will consent to Cincinnati Bell investing additional money to allow BRCOM to meet its obligations.

As of March 31, 2003, BRCOM's subsidiary, BCSI Inc., had borrowed $223.0 million under Cincinnati Bell's credit facilities. However, the amended terms of the credit facilities prohibit any additional borrowings by BRCOM or its subsidiaries. Because BRCOM has relied on the Cincinnati Bell credit facilities in the past to fund its operations, the restrictions on future borrowings might adversely affect BRCOM's ability to access sufficient cash to meet its obligations.

The uncertainty of future cash flows of BRCOM combined with the funding constraints discussed above have prompted PricewaterhouseCoopers LLP, BRCOM's independent accountants, to include a going concern explanatory paragraph in their report filed in connection with the stand-alone financial statements of BRCOM. The going concern explanatory paragraph means that, in the opinion of PricewaterhouseCoopers, there exists substantial doubt about BRCOM's ability to continue as a going concern and its ability to realize its assets and discharge its liabilities in the normal course of business.

If BRCOM is unable to finance its operations or meet its remaining commitments (including those related to the BRCOM Preferred Stock) going forward, it may be forced to seek protection from its creditors under Chapter 11, whether or not the exchange offer is consummated, in which case the shares of BRCOM Preferred Stock would likely be extinguished for no consideration.

Because BRCOM's cash flows and results of operations have deteriorated and after the sale of the broadband business it is uncertain whether BRCOM's remaining operations will generate sufficient cash to fund its liquidity needs, the BRCOM board of directors recommends the exchange offer. The BRCOM board of directors believes the exchange offer would give holders of BRCOM Preferred Stock a security issued by a company with a better and more secure credit rating, and the Cincinnati Bell Common Stock that holders will receive in exchange for their BRCOM Preferred Stock will provide greater liquidity relative to the BRCOM Preferred Stock.

Intent to Tender

After reasonable inquiry and to BRCOM's best knowledge, no executive officer, director, affiliate or subsidiary of BRCOM beneficially owns any BRCOM Preferred Stock.

ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.

Cincinnati Bell has retained Lehman Brothers Inc. to act as dealer manager and solicitation agent in connection with the exchange offer and consent solicitation. Lehman Brothers Inc. will receive customary compensation for such services and will be reimbursed for reasonable out-of-pocket expenses incurred in performing its services, including reasonable fees and expenses for legal counsel. In addition, Cincinnati Bell has agreed to indemnify the dealer manager and solicitation agent against certain liabilities, including liabilities under federal securities laws, and will contribute to payments the dealer manager and solicitation agent may be required to make in respect thereof.

Cincinnati Bell has also retained The Bank of New York to act as exchange agent. Cincinnati Bell will pay The Bank of New York reasonable and customary compensation for its services in connection with the exchange offer and consent solicitation, reimburse it for its reasonable out-of-pocket expenses and indemnify it against certain liabilities and expenses in connection with the exchange offer and consent solicitation, including liabilities under federal securities laws.

ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.

No transactions in BRCOM Preferred Stock have been effected during the past 60 days by BRCOM or, to the knowledge of BRCOM, by any executive officer, director, affiliate or subsidiary of BRCOM.

ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.

BRCOM is not currently undertaking or engaged in any negotiations in response to the exchange offer and consent solicitation that related to (1) a tender offer for or other acquisition of BRCOM's securities by BRCOM, any BRCOM subsidiary or any other person; (2) an extraordinary transaction, such as a merger, reorganization or liquidation, involving BRCOM or any BRCOM subsidiary; (3) a purchase, sale or transfer of a material amount of assets of BRCOM or any BRCOM subsidiary; or (4) any material change in the present dividend rate or policy, or indebtedness or capitalization or BRCOM.

Except as set forth in this Statement, there are no transactions, resolutions of BRCOM's board or directions, agreements in principle, or signed contracts in response to the Exchange Offer that relate to one or more of the events referred to in the preceding paragraph.

ITEM 8. ADDITIONAL INFORMATION.

The information contained in the prospectus and solicitation statement filed as Exhibit (a)(1) hereto is hereby incorporated by reference.

ITEM 9. EXHIBITS.

Exhibit Number		Description
(a)(1)		Prospectus and solicitation statement, dated July 31, 2003 (incorporated by reference to Exhibit (a)(1)(i) to the Schedule TO filed by Cincinnati Bell on August 1, 2003).
(a)(2)		Form of Consent and Letter of Transmittal (incorporated by reference to Exhibit (a)(1)(ii) to Schedule TO filed by Cincinnati Bell on August 1, 2003).
(a)(3)		Form of Notice of Guaranteed Delivery (incorporated by reference to Exhibit (a)(1)(iii) to Schedule TO filed by Cincinnati Bell on July 30, 2003).
(a)(4)		Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(iv) to Schedule TO filed by Cincinnati Bell on July 30, 2003).
(a)(5)		Form of Letter to Clients for use by Brokers, Dealers, Commercial Bank, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(ii) to Schedule TO filed by Cincinnati Bell on July 30, 2003).
(e)		Definitive Information Statement (filed herewith).
(g)		None.

SIGNATURE

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated: August 1, 2003

		BRCOM INC.
		By:	/s/ THOMAS L. SCHILLING Name: Thomas L. Schilling Title: Director and Chief Financial Officer

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SIGNATURE
EX-99.(E) 3 a2115885zex-99_e.txt EXHIBIT 99(E) SCHEDULE 14C INFORMATION Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934 CHECK THE APPROPRIATE BOX: [ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) [X] Definitive Information Statement BROADWING COMMUNICATIONS INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX): [ ] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11. 1) Title of each class of securities to which transaction applies: N/A ----------------------------------- 2) Aggregate number of securities to which transaction applies: N/A -------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): $94,502,869.50 In aggregate cash to be received by Registrant (rule 240.0-11(c)(2)) ------------------------------------------------------------------------------------ 4) Proposed maximum aggregate value of transaction: -------------------------------------------------- 5) Total fee paid: $18,900.57 ----------------------------------------------------------------------------------- [X] Fee previously paid with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid:___________________________________________________________________________ 2) Form, Schedule or Registration Statement No.:_____________________________________________________ 3) Filing Party:_____________________________________________________________________________________ 4) Date Filed:_______________________________________________________________________________________

BROADWING COMMUNICATIONS INC. NOTICE OF ACTION BY WRITTEN 1122 Capital of Texas Highway South CONSENT OF SHAREHOLDER Austin, Texas 78746 - -------------------------------------------------------------------------------- To our Shareholders: Broadwing Inc. is the holder of all of the outstanding shares of common stock, $.01 par value, of Broadwing Communications Inc. (the "Company") and has approved in writing the re-election of Thomas L. Schilling as a director of the Company for a one-year term ending in 2004. The re-election of Mr. Schilling as a director shall not become effective until at least 20 days after the mailing of the enclosed Information Statement. Your consent is not required and is not being solicited in connection with this action. Pursuant to Section 228 of the Delaware General Corporation Law, you are hereby being provided with notice of the approval by less than the unanimous written consent of the eligible voting shareholders of the Company. Pursuant to the Securities Exchange Act of 1934, you are hereby being furnished with an Information Statement relating to this action. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. THE ATTACHED INFORMATION STATEMENT IS BEING SENT TO YOU FOR INFORMATION PURPOSES ONLY. By Order of the Board of Directors Jeffrey C. Smith Secretary April 30, 2003 Broadwing Communications Inc. 1122 Capital of Texas Highway South Austin, Texas 78746 Information Statement Relating to the Election of Thomas L. Schilling as a Director For a One-Year Term Ending in 2004 WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. The Approximate Date of Mailing of this Information Statement is April 30, 2003 This Information Statement is being furnished by Broadwing Communications Inc., a Delaware corporation (the "Company"), to the holders of the Company's 12 1/2% Series B Junior Exchangeable Preferred Stock Due 2009, $.01 par value (the "Preferred Shares"), in connection with the election of Thomas L. Schilling as a director of the Company for a one-year term ending in 2004. The director who receives the greatest number of votes is elected to the Board of Directors. Broadwing Inc. ("Broadwing") is the holder of all of the outstanding Common Stock, $.01 par value, of the Company (the "Common Shares") and has consented in writing to the election of Thomas L. Schilling as a director for a one-year term ending in 2004. Broadwing's approval constitutes over 90% of the votes entitled to cast on the election of Mr. Schilling as a director. Mr. Schilling has served as the sole director of the Company since September 20, 2002. Accordingly, all corporate actions necessary to elect Mr. Schilling as a director for a one-year term ending in 2004 have been taken. The re-election of Mr. Schilling as a director shall not become effective until at least 20 days after the Company has mailed this Information Statement to the holders of the Preferred Shares. The Company has asked brokers and other custodians and fiduciaries to forward this Information Statement to the beneficial owners of the Preferred Shares held of record by such persons. The Company will reimburse such persons for out-of-pocket expenses incurred in forwarding such materials. The executive offices of the Company are located at 1122 Capital of Texas Highway South, Austin, Texas 78746. All holders of record of the Preferred Shares at the close of business on April 28, 2003 will receive this Information Statement. VOTING SECURITIES The Company's Board of Directors has fixed the close of business on April 28, 2003, as the record date (the "Record Date") for the determination of shareholders entitled to vote. As of the Record Date, 500,000 Common Shares and 395,210 Preferred Shares were entitled to vote. The Company's parent, Broadwing Inc. ("Broadwing") owns 100% of the Common Shares and is entitled to one vote for each Common Share. Preferred shareholders are entitled to one-tenth of one vote for each Preferred Share owned on the Record Date. The Preferred Shares vote with the Common Shares as one class. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company is not aware of any directors or officers that own any equity securities of the Company. The Company has only limited information concerning the beneficial ownership of the Preferred Shares because substantially all of the Preferred Shares are registered in the name of nominees. The following table sets forth certain information as of the record date regarding the only shareholder of the Company known by the Company to be the beneficial owner of more than 5% of any class of the Company's voting securities:
Amount and Nature of Percent Title of Class Name and Address of Ownership of Class - -------------- ------------------- --------- -------- Beneficial Owner ---------------- Common Shares Broadwing Inc. 500,000 100% 201 East Fourth Street P.O. Box 2301 Cincinnati, Ohio 45201
BOARD OF DIRECTORS GENERAL INFORMATION The Board of Directors of the Company (the "Board") is responsible for establishing broad corporate policies and for the overall performance of the Company. On September 20, 2002, Mr. Schilling became the sole member of the Board. As the Chief Financial Officer of the Company, Mr. Schilling is involved in day-to-day operating details and is also kept informed of the Company's business by various operating and financial reports and documents. Since the Company has one director, the Board does not ordinarily hold official meetings. The sole director takes action by written consent in lieu of meeting whenever needed. The Company does not have any Board committees. In 2002, the Board did not hold any meetings. 2 COMPENSATION OF DIRECTORS Mr. Schilling does not receive any separate compensation for serving on the Board of the Company. SHARE OWNERSHIP OF DIRECTORS AND OFFICERS The Company is not aware of any directors or named executive officers that own any equity securities of the Company. The following table sets forth the beneficial ownership of common shares of Broadwing Inc. as of April 1, 2003 by each director and each executive officer named in the Summary Compensation Table on page 7 and by all directors and officers of the Company as a group.
Broadwing Common Shares Beneficially Owned as of April 1, 2003 Percent of Broadwing Common Shares ------------------- ---------------------------------- Richard G. Ellenberger (a) 1,882,300 .86 Kevin W. Mooney (a)(b) 741,154 .34 Robert D. Shingler 0 0 Thomas L. Schilling (a) 199,702 .09 John F. Cassidy (a) 674,816 .31 Jeffrey C. Smith (a)(c) 556,081 .25 All directors and officers as a group 4,456,510 2.04 (consisting of 8 persons, including those named above)
- ------------ (a) Includes Broadwing Common Shares subject to outstanding options that are exercisable by such individuals within 60 days. The following options are included in the totals: 1,882,300 Broadwing Common Shares for Mr. Ellenberger; 741,154 Broadwing Common Shares for Mr. Mooney; 674,816 Broadwing Common Shares for Mr. Cassidy; 199,702 Broadwing Common Shares for Mr. Schilling; and 556,081 Broadwing Common Shares for Mr. Smith. (b) Includes 210 Broadwing Common Shares held directly by Mr. Mooney or by a person with whom Mr. Mooney has a duty of trust or confidence such as a spouse, parents, children or siblings, but as to which Broadwing Common Shares Mr. Mooney disclaims beneficial ownership. Mr. Mooney expressly declares that the filing of this Information Statement shall not be construed as an admission that he is beneficial owner for purposes of Section 13(d) or 13(g) of the Securities and Exchange Act of 1934. (c) Includes 4,400 Broadwing Common Shares held directly by Mr. Smith or by a person with whom Mr. Smith has a duty of trust or confidence such as a spouse, parents, children or siblings, but as to which Broadwing Common Shares Mr. 3 Smith disclaims beneficial ownership. Mr. Smith expressly declares that the filing of this Information Statement shall not be construed as an admission that he is beneficial owner for purposes of Section 13(d) or 13(g) of the Securities and Exchange Act of 1934. ELECTION OF DIRECTORS The Board of the Company presently consists of one director, Thomas L. Schilling, Chief Financial Officer of the Company, and Chief Financial Officer of Broadwing Inc. The director is elected for a one-year term. The Board has nominated Mr. Schilling, who is an incumbent director, as a director, to serve until his successor is elected and qualified. Broadwing has approved the election of Mr. Schilling as a director for a one-year term ending in 2004 and until his successor is duly elected and qualified. For Mr. Schilling, there follows a brief listing of his principal occupation during at least the past five years, other major affiliations and his age on the date of this Information Statement. DIRECTOR Mr. Schilling is currently Chief Financial Officer of Broadwing and has been CFO of the Company since July, 2002; Senior Vice President and Chief Financial Officer of Broadwing Communications from 1999-2002; Chief Financial Officer of AutoTrader.com from 1998-1999; Managing Director of MCI Systemhouse from 1997-1998; Director of Finance of MCI Communications from 1995-1997. Age 40. 4 BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION The Company currently does not have a compensation committee. Mr. Mooney is responsible for administering executive compensation policies for the officers of the Company, other than for the named executive officers who are also officers of Broadwing Inc. The Broadwing Inc. Compensation Committee administers the compensation of Messrs. Schilling, Mooney, Cassidy and Smith. In 2002, Broadwing paid the compensation of Messrs. Schilling, Mooney and Smith, and the Company paid the compensation of Mr. Shingler. COMPENSATION PHILOSOPHY The Company's executive compensation program consists of three elements: base salary, annual incentive compensation and long term incentive compensation and targets each executive's total direct compensation to be competitive with the revenue adjusted median of the marketplace, using information from general industry, telecommunications and high-technology surveys conducted by outside consultants. BASE SALARIES. Base salaries have been established at ranges that are comparable to similar positions at other companies based upon the Company's market data. The Company intends to adjust salaries based upon individual performance and upon the results of the Company's market data. The salaries of the named executive officers appear in the "Summary Compensation Table." ANNUAL INCENTIVES. The annual incentives of the named executive officers, other than Mr. Shingler, were determined by the Broadwing Inc. Compensation Committee. The annual incentive of Mr. Shingler was determined by the Company. The annual bonuses of the named executive officers appear in the "Summary Compensation Table." LONG TERM INCENTIVES. The long term incentives of the named executive officers of the Company include stock options, restricted stock and performance unit awards under Broadwing's benefit plans. The stock option grants to the named executive officers are shown in the "Grants of Stock Options" table. COMPENSATION OF CHIEF EXECUTIVE OFFICER. Since October 1, 2002 Mr. Mooney has served in the capacity of Chief Executive Officer of the Company and as the Chief Executive Officer of Broadwing Inc. Mr. Mooney is compensated by Broadwing as set forth in the "Summary Compensation Table." 5 COMPENSATION LIMITATION. Section 162(m) of the Internal Revenue Code (the "Code") generally limits the available deduction to the Company for compensation paid to any of the Company's named executives to $1,000,000, except for performance-based compensation that meets certain technical requirements. Mr. Mooney and the Broadwing Compensation Committee desire to maximize the amount of compensation expense that is deductible by the Company when it is appropriate and in the best interests of the Company and its shareholders. However, compensation decisions will continue to be based primarily on the extent to which performance goals have been achieved and on the effectiveness of each type of compensation for incenting results. Sole Director: Thomas L. Schilling COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company currently does not have a compensation committee. Mr. Schilling, the Chief Financial Officer of the Company, is also the sole director of the Company. During 2002 Mr. Mooney made decisions concerning executive officer compensation, other than for himself and Messrs. Cassidy and Smith. 6 EXECUTIVE COMPENSATION I. SUMMARY COMPENSATION TABLE The following table shows the compensation of the Chief Executive Officer and the other four most highly compensated executive officers of the Company or any of its subsidiaries for services to the Company during fiscal year 2002, as well as their compensation for each of the fiscal years ending December 31, 2001 and December 31, 2000. Mr. Schilling served as a director of the Company but received no separate compensation in that capacity. All compensation for Messrs. Schilling, Mooney, Cassidy and Smith is paid by Broadwing Inc. and not the Company. A portion of Broadwing's expenses are passed through to the Company as part of an overall management fee charged by Broadwing.
LONG-TERM COMPENSATION -------------------------------------- AWARDS PAYOUTS ---------------------------- --------- ANNUAL COMPENSATION RESTRICTED SECURITIES LONG-TERM ------------------------------------ STOCK UNDERLYING INCENTIVE ALL OTHER OTHER ANNUAL AWARD(S) OPTIONS/SARs PAYOUTS COMPENSATION NAME AND SALARY BONUS COMPENSATION ($) (#) ($) ($) (b) PRINCIPAL POSITION YEAR $(a) $ $ - ------------------ ---- --------- --------- ------------- ---------- ----------- --------- -------------- Kevin W. Mooney 2002 $575,385 $580,000 (d) $ 0 600,000 $ 0 $ 8,000 Chief Operating 2001 $415,385 $225,000 (d) $ 0 750,000 $ 89,136 $ 6,800 Officer (until 2000 $320,000 $320,000 (d) $ 410,000(e) 20,000 $ 0 $17,631 10/02) Chief Executive Officer effective 10/02 Richard G. 2002 $696,635 0 $100,962(c) $ 0 400,000 $ 0 $3,508,000(g) Ellenberger 2001 $802,885 $675,000 (d) $ 0 1,000,000 $ 322,189 $ 6,800 President and 2000 $700,000 $610,000 (d) $ 800,000(e) 98,100 $ 0 $ 6,832 Chief Executive Officer until 10/02 John F. Cassidy 2002 $496,154 $433,000 (d) $ 0 600,000 $ 0 $ 8,000 Chief Operating 2001 $403,077 $250,000 (d) $ 0 480,000 $ 0 $ 6,800 Officer effective 2000 $274,615 $340,000 (d) $ 400,000(e) 415,000 $ 0 $ 6,282 10/02 Thomas Schilling 2002 $288,462 $215,000 (d) $ 0 300,000 $ 0 $ 8,000 Chief Financial 2001 $222,500 $100,000 (d) $ 0 160,000 $ 0 $ 6,800 Officer effective 2000 $205,000 $150,360 (d) $ 210,000(e) 400 $ 0 $ 6,832 07/02 Jeffrey C. Smith 2002 $350,000 $230,000 (d) $ 0 250,000 $ 0 $20,044 Chief Human 2001 $277,885 $279,375 (d) $ 0 400,000(f) $ 0 $14,836 Resources 2000 $222,115 $183,000 (d) $ 275,000(e) 20,000 $ 0 $ 6,800 Officer, General Counsel and Secretary Robert D. Shingler 2002 $183,865 $157,988 (d) $ 0 300,000 $ 0 $ 3,510 President Effective 10/02
(a) For 2002, in the case of Mr. Mooney, base salary reflects a blend of his starting annual salary rate of $550,000 and, following his appointment as CEO, an ending annual salary rate of $660,000. Mr. Cassidy's actual pay reflects a blend of his starting annual salary 7 rate of $480,000 and, following his appointment as COO, an ending annual salary rate of $550,000. Mr. Schilling's actual pay reflects a blend of his starting annual salary rate of $235,000 and, following his appointment as CFO, an ending annual salary rate of $325,000. (b) Represents Company contributions to defined contribution savings plans and to the Executive Deferred Compensation Plan described on page 11. (c) Represents a required payment of accrued vacation monies to Mr. Ellenberger subsequent to separation of employment. (d) Does not include the value of perquisites and other personal benefits because the total amount of such compensation, if any, does not exceed the lesser of $50,000 or 10% of the total amount of the annual salary and bonus for the individual for the year. (e) The Company awarded Messrs. Mooney, Ellenberger, Cassidy, Schilling, and Smith each a restricted stock grant of, respectively, 16,693 common shares, 32,570 common shares, 16,285 common shares, 8,550 common shares, 11,196 common shares and 7,337 common shares, with restrictions lapsing for 50% of the shares on December 13, 2001 and for the remaining 50% on December 13, 2002 for each executive. The value of these shares as of December 31, 2002, based on the average of the high and low price of the common shares on the NYSE on such date, was $59,677 for Mr. Mooney, $116,438 for Mr. Ellenberger, $58,219 for Mr. Cassidy, $30,566 for Mr. Schilling, and $40,026 for Mr. Smith. (f) This total represents an annual grant of 315,000 stock options and 85,000 stock appreciation rights ("SARs"). (g) Represents $8,000 in Company contributions to defined contribution savings plan described on page 14, as well as a one-time $3,500,000 lump sum severance payment following termination of employment. 8 II. GRANTS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS IN LAST FISCAL YEAR The Company did not grant stock options to purchase Common Shares in 2002. The following table shows all individual grants by Broadwing of stock options to purchase Broadwing Common Shares granted to the named executive officers of the Company during the fiscal year ended December 31, 2002.
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE SECURITIES OPTIONS/SARs AT ASSUMED ANNUAL RATES OF UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION OPTIONS/SARS EMPLOYEES IN OR BASE FOR OPTION TERM(b) GRANTED FISCAL YEAR PRICE EXPIRATION -------------------------- NAME (#)(a) ($/SH) DATE 5%($) 10%($) - ---------------------------------------------------------------------------------------------------------------------- Richard G. Ellenberger 400,000 4.000% $ 9.6450 12/4/11 $ 875,421 $2,218,490 Kevin W. Mooney 600,000 9.000% $ 3.4800 12/5/12 $1,313,132 $3,327,734 John F. Cassidy 600,000 9.000% $ 3.4800 12/5/12 $1,313,132 $3,327,734 Jeffrey C. Smith 250,000 3.750% $ 3.4800 12/5/12 $ 547,138 $1,386,556 Robert D. Shingler 100,000 1.500% $ 6.99 9/5/12 $ 439,597 $1,114,026 200,000 3.000% $ 3.48 12/5/12 $ 437,711 $1,109,245 Thomas L. Schilling 300,000 4.500% $ 3.4800 12/5/12 $ 656,566 $1,663,867
(a) The material terms of the options granted are: grant type: non-incentive; exercise price: fair market value on grant date; exercise period: generally exercisable 28% after one year, and 3% per month for the next 24 months thereafter; term of grant, 10 years; termination: except in case of retirement, disability, death or change in control of the Company, any unexercisable options are generally cancelled upon termination of employment (b) As required by rules of the Securities and Exchange Commission, potential values stated are based on the prescribed assumption that the common shares will appreciate in value from the date of the grant to the end of the option term (ten years from the date of the grant) at annualized rates of 5% and 10% (total appreciation of 62.8% and 159.3%) resulting in values of approximately $15.71 and $25.02 for all options expiring on December 4, 2011; $11.39 and $18.13 for options expiring on September 5, 2012; and $5.67 and $9.03 for all options expiring on December 5, 2012. They are not intended, however, to forecast possible future appreciation, if any, in the price of the common shares. The total of all stock options granted to employees, including executive officers, during fiscal 2002 was approximately 3.1% of the total number of common shares outstanding as of December 31, 2002. As an alternative to the assumed potential realizable values stated in the above table, the Securities and Exchange Commission rules would permit stating the present value of such options at date of grant. Methods of computing present values suggested by different authorities can produce significantly different results. Moreover, since stock options granted by the Company are not transferable to persons other than family members, there are no objective 9 criteria by which any computation of present value can be verified. Consequently, the Company's management does not believe there is a reliable method of computing the present value of such stock options for proxy disclosure purposes. III. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES There are no outstanding options to purchase Common Shares of the Company. The following table shows aggregate option exercises for Broadwing Common Shares in the last fiscal year by each of the named executive officers and fiscal year-end values of each such officer's unexercised options at December 31, 2002:
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT FY-END (#) AT FY-END ($) (a) SHARES ACQUIRED VALUE EXERCISABLE EXERCISABLE NAME ON EXERCISE (#) REALIZED ($) (E)/UNEXERCISABLE (U) (E)/UNEXERCISABLE (U) - ----------------------------------------------------------------------------------------------------------------------- Richard G. Ellenberger 0 $0 (E) 1,695,250 (E) 0 (U) 1,885,050 (U) 0 Kevin W. Mooney 0 $0 (E) 600,200 (E) 0 (U) 1,574,500 (U) 57,000 John F. Cassidy 0 $0 (E) 538,100 (E) 0 (U) 1,254,200 (U) 57,000 Jeffrey C. Smith 0 $0 (E) 473,346 (E) 0 (U) 525,350 (U) 23,750 Robert D. Shingler 0 $0 (E) 0 (E) 0 (U) 300,000 (U) 9,500 Thomas L. Schilling 0 $0 (E) 165,000 (E) 0 (U) 395,400 (U) 28,500
(a) On December 31, 2002, the value of a common share on the NYSE (based on the average of the high and low price of the common shares on such date) was $3.575 per share. IV. LONG TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR None granted. 10 EXECUTIVE DEFERRED COMPENSATION PLAN The Broadwing Executive Deferred Compensation Plan permits, for any calendar year, each employee of Broadwing and any subsidiary of Broadwing whose base pay and targeted bonus for the immediately preceding calendar year was at least $200,000 (a "key employee") to defer receipt of up to 75% of his or her base salary, up to 100% of his or her cash bonuses (including annual incentive awards and cash awards under the Long Term Incentive Plan) and up to 100% of any Broadwing Common Share awards (not including awards of stock options or restricted stock) provided him or her under the Long Term Incentive Plan. In addition, any key employee who has received a restricted stock award under the Long Term Incentive Plan may generally elect to surrender any of the restricted shares of such award as long as such surrender is at least six months prior to the date on which the restrictions applicable to such shares would otherwise have lapsed. For all key employees who participate in the Broadwing Executive Deferred Compensation Plan, there is also a Broadwing "match" on the amount of base salary and cash bonuses deferred under the plan for any calendar year. In general, to the extent a participating key employee's base salary and cash bonuses for the applicable year do not exceed a certain annual compensation limit prescribed by the Code for tax-qualified plans (which limit was $170,000 for 2001 and $200,000 for 2002), the match is 4% of the base salary and cash bonuses deferred by the employee under the plan. To the extent a participating key employee's base salary and cash bonuses for the applicable year exceed the appropriate annual compensation limit, the match is generally equal to the lesser of 66 2/3 % of the base salary and cash bonuses deferred by the key employee under the plan or 4% of the key employee's base salary and cash bonuses for the applicable year that are in excess of such annual compensation limit. Amounts deferred or surrendered by any participating key employee under the Broadwing Executive Deferred Compensation Plan and any related Broadwing "match" are credited to the account of the participant under the plan and are assumed to be invested in various mutual funds or other investments (including Broadwing Common Shares) as designated by the participant; except that any restricted stock that is surrendered under the plan is generally assumed to be invested in Broadwing Common Shares until at least six months after the date on which the restrictions applicable to such shares would otherwise have lapsed and that any Broadwing Common Share awards that are deferred under the plan are assumed to be invested in Broadwing Common Shares. The accounts under the Broadwing Executive Deferred Compensation Plan are not funded, and benefits are paid from the general assets of Broadwing and its subsidiaries. Upon the termination of employment of any participant under the Broadwing Executive Deferred Compensation Plan, the amounts then credited to the participant's account are generally distributed, as so elected by the participant, in two to ten annual installments (in cash and/or Broadwing Common Shares); except that any amounts credited to his or her account under the plan that are attributable to his or her surrender of restricted stock (not including amounts that were credited to such account as assumed cash dividends on such stock) are forfeited if the 11 restricted stock would have been forfeited at the time of the participant's termination of employment had such stock not been surrendered under the plan. In addition, as a special rule, in the event of a change in control of Broadwing, all of the amounts then credited under the plan to a participant's account under the plan are generally paid in a lump sum on the day after the change in control. The 2002 "match" for Mr. Smith under the Broadwing Executive Deferred Compensation Plan is reflected in the Summary Compensation Table under the "All Other Compensation" column. Messrs. Schilling, Cassidy, Shingler, and Mooney did not participate in the Broadwing Executive Deferred Compensation Plan during 2002. V. DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE All of the named executive officers of the Company participated during 2002 in the Broadwing Pension Plan (the "Management Pension Plan"), which was formerly named the Cincinnati Bell Management Pension Plan and is a tax-qualified defined benefit pension plan. Mr. Mooney also participated in a non-tax-qualified pension plan known as the Broadwing Inc. Pension Program (formerly known as the Cincinnati Bell Inc. Pension Program) (the "Pension Program"). The basic benefit formula under the Management Pension Plan is a cash balance formula. Under this formula, each participant has an account to which pension credits are allocated at the end of each year based upon the participant's attained age and plan compensation for the year (with such plan compensation being subject to a maximum legal annual compensation limit, which limit was $170,000 for 2001 and $200,000 for 2002). To the extent that a participant's plan compensation exceeds the Social Security old age retirement taxable wage base, additional pension credits are given for such excess compensation. The following chart shows the annual pension credits which are given at the ages indicated: 12 ATTAINED AGE PENSION CREDITS ------------ --------------- Less than 30 years 2.75% of total plan compensation plus 2.75% of excess compensation for 2002 30 but less than 35 years 3.00% of total plan compensation plus 3.00% of excess compensation for 2002 35 but less than 40 years 3.50% of total plan compensation plus 3.50% of excess compensation for 2002 40 but less than 45 years 4.25% of total plan compensation plus 4.25% of excess compensation for 2002 45 but less than 50 years 5.25% of total plan compensation plus 5.25% of excess compensation for each of 2001 and 2002 50 but less than 55 years 6.50% of total plan compensation plus 6.50% of excess compensation for each of 2001 and 2002 55 or more years 8.00% of total plan compensation plus 8.00% of excess compensation for each of 2001 and 2002 A participant's account under the Management Pension Plan is also generally credited with assumed interest for each calendar year at a certain interest rate. Such interest rate is 6.5% per annum for 2003 with respect to a participant while he or she is still employed by Broadwing or a Broadwing subsidiary and 3.5% (or 4% if a participant elects out of a pre-retirement death benefit) for a participant while he or she is not so employed. (In the case of a participant who was a participant in the Management Pension Plan on December 31, 1993 or who has benefits transferred from other plans to the Management Pension Plan, the participant's account also was credited with pension credits equivalent to the participant's accrued benefit on that date or when such benefits are transferred, as the case may be.) After retirement or other termination of employment, a participant under the Management Pension Plan is entitled to elect to receive a benefit under the plan in the form of a lump sum payment or as an annuity, generally based on the balance credited to the participant's cash balance account under the plan when the benefit begins to be paid (but also subject to certain transition or special benefit formula rules in certain situations). Under the Pension Program, each current active participant's pension at retirement, if paid in the form of a single life annuity, generally will be an amount equal to the difference between 50% of the participant's average monthly compensation (for the 36-month period that occurs during the 60-month period preceding retirement that produces the highest compensation amount) and the sum of the participant's benefits payable under the Management Pension Plan (including for this purpose amounts which are intended to supplement or be in lieu of benefits under the Management Pension Plan) and Social Security benefits. Also, there is a reduction in 13 such pension amount of 2.5% for each year by which the sum of the participant's years of age and years of service at retirement total less than 75, and no benefits are payable if the participant terminates employment (other than by reason of his or her death) prior to attaining age 55 and completing at least 10 years of service credited for the purposes of the plan. As a participant under the Pension Program, if Mr. Mooney continues in employment and retires at age 65, his estimated single life annuity annual pension amounts under both the Management Pension Plan and the Pension Program combined, prior to deduction for Social Security benefits and assuming his annual compensation for all years subsequent to 2003 will be the same as his targeted compensation for 2003, would be $686,000. Since Mr. Mooney is currently age 44 with twelve years of service his annual pension amount would not be reduced under the current provisions of the Pension Program if he retires prior to age 65. 401(k) PLAN Broadwing's 401(k) Plan (the "401(k) Plan") is a tax-qualified retirement plan. During 2002, in general, all employees of the Company who had attained age 20 1/2 were eligible to participate in the Broadwing 401(k) Plan. Participants were able to make pre-tax contributions to the 401(k) Plan in an amount not to exceed $11,000 for 2002. EFFECT OF CHANGE IN CONTROL ON CERTAIN EXECUTIVE COMPENSATION PLANS Under the Long Term Incentive Plan, in the event of a change in control, all outstanding stock options will become immediately exercisable, all restrictions applicable to restricted stock awards will lapse and a pro rata portion of all accrued incentive awards will be paid in cash. Under the Executive Deferred Compensation Plan, the present value of all deferred amounts will be paid in cash in the event of a change in control. The present values of all accrued unfunded benefits under the Management Pension Plan and the Pension Program will be funded within five days after a change in control. 14 VI. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Employment Agreement with Mr. Shingler Effective October 23, 2002, the Company entered into an employment agreement with Mr. Shingler which provides for the employment and retention of Mr. Shingler for a one-year term commencing on October 23, 2002. The employment agreement provides for a minimum base salary of $350,000 per year; a minimum bonus target of $210,000 per year; a grant of options to purchase common shares each year with three year vesting. The employment agreement provides that, if Mr. Shingler's employment is terminated by Employee within one year following a change in control of the Company, Mr. Shingler will receive a lump sum payment equal to one times his annual base salary and bonus target on the date of termination, plus certain continued medical, dental, vision and life insurance benefits. PERFORMANCE GRAPH The Performance Graph is not relevant since the Company has not had a class of common stock registered under Section 12 of the Securities Exchange Act of 1934 since 1999. OTHER MATTERS SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers, directors and persons who own more than 10% of a registered class of the Company's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. Officers, directors and greater than 10% shareholders are required by regulations of the Securities and Exchange Commission to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, the Company believes that, during the period commencing January 1, 2002 and ending December 31, 2002, all such persons complied on a timely basis with any filings required under the filing requirements of Section 16(a). CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS From time to time the Company engages in transactions with its parent company, Broadwing, and/or Broadwing's other subsidiaries. In particular, these entities perform certain oversight and management functions for the Company, including but not limited to general management, payroll processing, cash management, and benefit plan management. In addition, certain of the executive officers of the Company are compensated directly by Broadwing. The Company also engages in commercial transactions with Broadwing subsidiaries in which these entities sell to third parties services provided by the Company. The Company is also a party to an intercompany note obligation between itself and Broadwing for money borrowed from 15 Broadwing. Any of these transactions either individually or in the aggregate may or do exceed $60,000 in value per annum. All of these transactions are performed under terms and conditions (including compensation) that are equivalent to or better than those that the Company could obtain on an arms-length basis from unaffiliated third parties. In addition, on February 22, 2003, certain of the Company's subsidiaries entered into an agreement to sell all or substantially off of their assets to CIII Communications Inc. ("CIII") for $129 million in cash and the assumption of certain liabilities. Under their employment agreements, each of Messrs. Mooney, Smith and Schilling are entitled to a success payment for, among other things, successfully closing the sale to CIII. Such success fee ranges from 100% of salary plus target bonus for Mr. Mooney, to 50% of salary plus target bonus for Messrs. Schilling and Smith. FINANCIAL STATEMENTS AVAILABLE The 2002 Form 10-K of the Company to shareholders includes the financial statements for the Company and its subsidiaries. If you would like a copy of the Company's 2002 Form 10-K as filed with the Securities and Exchange Commission, please write to Jeffrey C. Smith, Secretary, Broadwing Communications Inc., 201 East Fourth Street, P.O. Box 2301, Cincinnati, Ohio 45201, and the Company will send you one free of charge. By Order of the Board of Directors Jeffrey C. Smith Secretary April 30, 2003 16 ~~-----END PRIVACY-ENHANCED MESSAGE-----~~