-----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, U30ga1abuoVO39wuA2oWbDgeOCOdVm0d3DpdNyo7r+I7hmGF3kvowr1354ozotVc 93Whp5rqmR6heslDtI+EvQ== /in/edgar/work/0000950134-00-009738/0000950134-00-009738.txt : 20001115 0000950134-00-009738.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950134-00-009738 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QWEST COMMUNICATIONS INTERNATIONAL INC CENTRAL INDEX KEY: 0001037949 STANDARD INDUSTRIAL CLASSIFICATION: [4813 ] IRS NUMBER: 841339282 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15577 FILM NUMBER: 765739 BUSINESS ADDRESS: STREET 1: 1801 CALIFORNIA ST CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032911400 MAIL ADDRESS: STREET 1: 1801 CALIFORNIA ST CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: QUEST COMMUNICATIONS INTERNATIONAL INC DATE OF NAME CHANGE: 19970416 10-Q 1 d81481e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2000 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER 000-22609 QWEST COMMUNICATIONS INTERNATIONAL INC. (Exact name of registrant as specified in its charter) DELAWARE 84-1339282 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation of organization) 1801 CALIFORNIA STREET, DENVER, COLORADO 80202 ---------------------------------------------- (Address of principal executive offices and zip code) TELEPHONE NUMBER (303) 992-1400 ------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At October 31, 2000, 1,656,097,575 shares of common stock were outstanding. ================================================================================ 2 Qwest Communications International Inc. Form 10-Q TABLE OF CONTENTS
Item Page ---- ---- PART I - FINANCIAL INFORMATION 1. Financial Statements Condensed Consolidated Statements of Operations - Three and nine months ended September 30, 2000 and 1999........................ 1 Condensed Consolidated Balance Sheets - September 30, 2000 and December 31, 1999....................................... 2 Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2000 and 1999.................................. 3 Notes to Condensed Consolidated Financial Statements........................... 4 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................. 13 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 21 PART II - OTHER INFORMATION 1. Legal Proceedings....................................................................... 25 6. Exhibits and Reports on Form 8-K........................................................ 25 Signature page.......................................................................... 30
i 3 QWEST COMMUNICATIONS INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Revenues: Commercial services ......................................... $ 2,421 $ 1,186 $ 4,880 $ 3,453 Consumer and small business services ........................ 1,694 1,409 4,666 4,130 Directory services .......................................... 351 336 1,029 981 Switched access services .................................... 299 365 1,017 1,127 -------- -------- -------- -------- Total revenues ........................................... 4,765 3,296 11,592 9,691 Operating expenses: Cost of sales ............................................... 1,703 1,035 3,650 2,942 Selling, general and administrative ......................... 1,198 801 3,011 2,496 Depreciation ................................................ 727 588 1,913 1,763 Goodwill and other intangible amortization .................. 317 -- 317 -- Merger-related and other one-time charges ................... 1,030 -- 1,336 -- -------- -------- -------- -------- Total operating expenses ............................... 4,975 2,424 10,227 7,201 -------- -------- -------- -------- Operating income (loss) ........................................... (210) 872 1,365 2,490 Other expense (income): Interest expense ............................................ 314 203 732 519 Decline (increase) in market value of Global Crossing Ltd. financial instruments ............ (58) -- 710 -- Gain on sales of investments ................................ (252) -- (331) -- Loss on sale of fixed assets ................................ 39 -- 39 -- Terminated merger-related expenses .......................... -- 282 -- 282 Other expense (income) -net ................................. 5 (4) 19 10 -------- -------- -------- -------- Total other expense-net .................................. 48 481 1,169 811 -------- -------- -------- -------- Earnings (loss) before income taxes and cumulative effect of change in accounting principle ................................. (258) 391 196 1,679 Provision (benefit) for income taxes .............................. (10) 255 160 743 -------- -------- -------- -------- Earnings (loss) before cumulative effect of change in accounting principle ........................................... (248) 136 36 936 Cumulative effect of change in accounting principle ............... -- -- -- 240 -------- -------- -------- -------- Net earnings (loss) ............................................... ($ 248) $ 136 $ 36 $ 1,176 ======== ======== ======== ======== Basic earnings (loss) per share ...................................... ($ 0.15) $ 0.16 $ 0.02 $ 1.35 ======== ======== ======== ======== Basic average shares outstanding ..................................... 1,662 873 1,644 872 ======== ======== ======== ======== Diluted earnings (loss) per share .................................... ($ 0.15) $ 0.15 $ 0.02 $ 1.34 ======== ======== ======== ======== Diluted average shares outstanding ................................... 1,662 880 1,686 879 ======== ======== ======== ======== Dividends per share .................................................. $ 0.00 $ 0.31 $ 0.31 $ 1.05 ======== ======== ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 1 4 QWEST COMMUNICATIONS INTERNATIONAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ ASSETS Current assets: Cash and cash equivalents ............................................................. $ 417 $ 78 Accounts receivable-net ............................................................... 4,236 2,455 Receivable from sale of Global Crossing Ltd. common stock ............................. -- 1,140 Inventories and supplies .............................................................. 252 272 Prepaid and other ..................................................................... 841 247 ------- ------- Total current assets ..................................................................... 5,746 4,192 Property, plant and equipment-net ........................................................ 23,840 16,404 Goodwill and other intangible assets-net ................................................. 39,748 -- Other assets-net ......................................................................... 2,754 2,676 ------- ------- Total assets ............................................................................. $72,088 $23,272 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt ....................................................................... $ 2,795 $ 2,882 Accounts payable ...................................................................... 1,842 1,700 Accrued expenses and other current liabilities ........................................ 4,086 1,840 Advance billings and deposits ......................................................... 377 344 ------- ------- Total current liabilities ................................................................ 9,100 6,766 Long-term debt ........................................................................... 15,560 10,189 Postretirement and other postemployment benefit obligations .............................. 2,668 2,890 Deferred income taxes .................................................................... 2,019 1,191 Deferred credits and other ............................................................... 1,449 981 Commitments and contingencies Stockholders' equity: Preferred stock-$0.01 par value, 200 million shares authorized, none issued and outstanding ........................................................................ -- -- Common stock-$0.01 par value, 5 billion shares authorized, 1,667 million and 876 million issued, 1,667 million and 875 million outstanding ...................... 41,144 656 Retained earnings ..................................................................... 141 377 Accumulated other comprehensive income ................................................ 7 222 ------- ------- Total stockholders' equity ............................................................... 41,292 1,255 ------- ------- Total liabilities and stockholders' equity ............................................... $72,088 $23,272 ======= =======
The accompanying notes are an integral part of the condensed consolidated financial statements. 2 5 QWEST COMMUNICATIONS INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 2000 1999 -------- -------- Cash provided by operating activities .............. $ 2,804 $ 2,952 -------- -------- INVESTING ACTIVITIES Expenditures for property, plant and equipment ..... (5,006) (2,681) Proceeds from sale of equity securities ............ 1,838 -- Cash from acquisition .............................. 407 -- Investment in equity securities .................... (250) (2,464) Other .............................................. (44) (41) -------- -------- Cash used for investing activities ................. (3,055) (5,186) -------- -------- FINANCING ACTIVITIES Net proceeds from (payments on) short-term debt .... (3,134) 2,102 Proceeds from issuance of long-term debt ........... 4,267 1,302 Repayments of long-term debt ....................... (316) (307) Proceeds from issuance of common stock ............. 315 60 Dividends paid on common stock ..................... (542) (917) -------- -------- Cash provided by financing activities .............. 590 2,240 -------- -------- CASH AND CASH EQUIVALENTS Increase ........................................... 339 6 Beginning balance .................................. 78 49 -------- -------- Ending balance ..................................... $ 417 $ 55 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash investing activities: Acquisitions, net of cash acquired ................. $ 40,083 $ -- ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 6 QWEST COMMUNICATIONS INTERNATIONAL INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) NOTE 1: BASIS OF PRESENTATION The condensed consolidated interim financial statements are unaudited. We prepared these financial statements in accordance with the instructions for Form 10-Q and therefore, did not include all information and footnotes required by accounting principles generally accepted in the United States. In our opinion, we made all the adjustments (consisting only of normal recurring adjustments) necessary to fairly present our consolidated results of operations, financial position and cash flows as of September 30, 2000 and for all periods presented. A description of our accounting policies and other financial information is included in the audited consolidated financial statements filed with the Securities and Exchange Commission in U S WEST, Inc.'s ("U S WEST") Annual Report on Form 10-K for the year ended December 31, 1999 (see Note 2). The consolidated results of operations for the three and nine months ended September 30, 2000 are not necessarily indicative of the results expected for the full year. We made certain reclassifications to prior balances to conform with the current presentation. NOTE 2: MERGER WITH U S WEST On June 30, 2000, Qwest Communications International Inc. ("Qwest") completed its acquisition of U S WEST (the "Merger"). Each outstanding share of U S WEST common stock was converted into the right to receive 1.72932 shares of Qwest common stock (and cash in lieu of fractional shares), resulting in the issuance of approximately 882 million Qwest shares. In addition, all outstanding U S WEST stock options were converted into options to acquire Qwest common stock. Shares outstanding, average shares, dividends per share and earnings (loss) per share have been restated to give retroactive effect to the exchange ratio. The total value of the consideration was approximately $40 billion. The Merger has been accounted for as a reverse acquisition under the purchase method of accounting with U S WEST being deemed the accounting acquirer. A preliminary allocation of the purchase price has been made to certain identified tangible and intangible assets and liabilities of Qwest, based upon information available to management at the date of the preparation of the accompanying financial statements. The preliminary purchase price allocation was as follows: (i) $2.6 billion to tangible assets and liabilities, net; (ii) $11.5 billion to identified intangibles, including product technology, customer lists, tradenames, assembled workforce and the premium on our investment in KPNQwest N.V.; and (iii) $27.9 billion to goodwill. The amounts allocated to identified intangible assets and goodwill are being amortized over periods ranging from 3 to 40 years. 4 7 The pro forma unaudited results of operations as though the Merger had been completed as of the beginning of 1999 and 2000 are as follows (in millions, except for per share amounts):
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 2000 1999 -------- -------- Revenues ......................................... $ 13,936 $ 12,027 Net earnings (loss) .............................. (363) 178 Diluted earnings (loss) per share ................ ($ 0.22) $ 0.20
For the quarter ended September 30, 2000, we incurred merger-related and other one-time charges totaling $1.0 billion. The charge includes $161 million of severance, $324 million of property, plant and equipment abandonments and impairments, $465 million of other merger-related charges and $80 million of litigation charges. We have identified a workforce reduction of 4,500 employees, of which 1,078 have voluntarily separated without receiving benefit packages. The remaining employees identified will receive a benefit package. The severance charge covers a workforce reduction of 3,422 employees, primarily affecting staff functions of the organization, of which 988 employees had been terminated as of September 30, 2000. For the nine months ended September 30, 2000, we incurred merger-related and other one-time charges totaling $1.3 billion. The charge includes $238 million of severance, $324 million of property, plant and equipment asset abandonments and impairments, $694 million of other merger-related charges and $80 million of litigation charges. The severance charge covers a workforce reduction of 3,439 employees, primarily affecting staff functions of the organization, of which 1,005 employees had been terminated as of September 30, 2000. In addition to being reflected in the condensed consolidated statements of operations, the aforementioned charges are reflected in the pro forma, unaudited results of operations. For the three and nine months ended September 30, 2000, the property, plant and equipment charge includes $107 million of internal software projects that were in progress that management has determined to no longer pursue. In addition, management has evaluated its network and identified certain network assets that are impaired based upon the criteria specified in Statements of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," resulting in an impairment charge of $217 million. The other merger-related charges of $465 million and $694 million for the three and nine months ended September 30, 2000, respectively, include employee retention payments, contracts to be terminated, penalties for contract terminations, relocation costs, and merger integration costs, offset by post-retirement benefit curtailment gains. Management anticipates that the majority of the merger-related costs will be paid out by September 30, 2001. We are continuing to review merger-related activities which may result in additional merger-related charges in future periods. 5 8 The amounts accrued and charged against the established provisions described above were as follows (in millions):
BEGINNING CURRENT CURRENT ENDING BALANCE PROVISION UTILIZATION BALANCE --------- --------- ----------- ------- For the three months ended September 30, 2000 Employee termination ......................................... $ -- $ 161 $ 4 $ 157 Other merger-related costs and other one-time charges ........ -- 869 469 400 ------ ------ ------ ------ $ -- $1,030 $ 473 $ 557 ====== ====== ====== ====== For the nine months ended September 30, 2000 Employee termination ......................................... $ -- $ 238 $ 81 $ 157 Other merger-related costs and other one-time charges ........ -- 1,098 698 400 ------ ------ ------ ------ $ -- $1,336 $ 779 $ 557 ====== ====== ====== ======
NOTE 3: WEIGHTED AVERAGE SHARES The following table is a reconciliation of basic weighted average shares to diluted weighted average shares (in millions):
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------- -------------------- 2000 1999 2000 1999 ----- ----- ----- ----- Basic weighted average shares outstanding ........ 1,662 873 1,644 872 Dilutive effect of stock options ................. -- 7 42 7 ----- ----- ----- ----- Diluted weighted average shares outstanding ...... 1,662 880 1,686 879 ===== ===== ===== =====
6 9 Diluted weighted average shares outstanding for the three months ended September 30, 2000 excludes 33 million incremental shares related to stock options. These shares are excluded due to their anti-dilutive effect as a result of our net loss for the three months ended September 30, 2000. NOTE 4: SEGMENT INFORMATION We operate in four segments: retail services, wholesale services, network access and operations and directory services. The retail services segment provides communications services, including Internet, wireless, data and long-distance services to residential and business customers. The wholesale services segment provides exchange access services that connect customers to the facilities of interexchange carriers and interconnection to our telecommunications network to competitive local exchange carriers. Our network access and operations segment provides access to our telecommunications network, including our information technologies, primarily to our retail and wholesale services segments. The directory services segment publishes White and Yellow Pages telephone directories and provides electronic directory and other information services. Following is a breakout of our segments. Because significant operating expenses of the retail and wholesale services segments are not allocated to the segments for decision-making purposes, management does not believe the segment margins are representative of the actual operating results of the segments. The margins for the retail and wholesale services segments exclude network and corporate expenses. The margins for the network access and operations and directory services segments exclude corporate expenses. The "other" category includes our corporate expenses and intersegment eliminations.
TOTAL COMMUNICATIONS NETWORK AND RETAIL WHOLESALE ACCESS & RELATED DIRECTORY RECONCILING CONSOLIDATED SERVICES SERVICES OPERATIONS SERVICES SERVICES OTHER ITEMS TOTAL -------- --------- ---------- -------------- --------- -------- ---------- ------------ THREE MONTHS ENDED SEPTEMBER 30, (IN MILLIONS) 2000 Revenues ............ $ 3,488 $ 849 $ 144 $ 4,481 $ 354 $ (70) $ -- $ 4,765 Earnings (loss) .... 2,108 716 (753) 2,071 201 (294) (2,236)(1) (258) Assets .............. --(2) --(2) -- (2) --(2) 730 -- (2) 71,358 (2) 72,088 1999 Revenues ............ $ 2,270 $ 725 $ 63 $ 3,058 $ 338 $ (100) $ -- $ 3,296 Earnings (loss) .... 1,560 549 (699) 1,410 185 (34) (1,170)(1) 391 Assets .............. --(2) --(2) -- (2) --(2) 862 -- (2) 20,414 (2) 21,276
- ---------- (1) Adjustments made to arrive at consolidated earnings (loss) before income taxes and cumulative effect of change in accounting principle include the following (in millions): 7 10
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 2000 1999 ------ ------ Costs excluded from segment data but included in the consolidated total: Taxes other than income taxes .............................. $ 114 $ 101 Depreciation and amortization .............................. 1,044 588 Merger-related and other one-time charges .................. 1,030 -- Other expense-net .......................................... 48 481 ------ ------ $2,236 $1,170 ====== ======
(2) We do not provide a breakout of assets for all segments to our chief operating decision-maker. The reconciling items column represents the amount to reconcile to the consolidated total.
TOTAL COMMUNICATIONS NETWORK AND RETAIL WHOLESALE ACCESS & RELATED DIRECTORY RECONCILING CONSOLIDATED SERVICES SERVICES OPERATIONS SERVICES SERVICES OTHER ITEMS TOTAL -------- --------- ---------- -------------- --------- -------- ----------- ------------ NINE MONTHS ENDED SEPTEMBER 30, (IN MILLIONS) 2000 Revenues ................ $ 8,222 $ 2,414 $ 286 $10,922 $ 1,040 $ (370) $ -- $11,592 Earnings (loss) ......... 5,087 1,875 (2,086) 4,876 557 (176) (5,061)(1) 196 Assets .................. --(2) --(2) --(2) --(2) 730 --(2) 71,358(2) 72,088 1999 Revenues ................ $ 6,661 $ 2,135 $ 178 $ 8,974 $ 988 $ (271) $ -- $ 9,691 Earnings (loss) ......... 4,608 1,605 (2,083) 4,130 495 (72) (2,874)(1) 1,679 Assets .................. --(2) --(2) --(2) --(2) 862 --(2) 20,414(2) 21,276
- ---------- (1) Adjustments made to arrive at consolidated earnings before income taxes and cumulative effect of change in accounting principle include the following (in millions):
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2000 1999 ------ ------ Costs excluded from segment data but included in the consolidated total: Taxes other than income taxes ................................... $ 326 $ 300 Depreciation and amortization ................................... 2,230 1,763 Merger-related and other one-time charges ....................... 1,336 -- Other expense-net ............................................... 1,169 811 ------ ------ $5,061 $2,874 ====== ======
(2) We do not provide a breakout of assets for all segments to our chief operating decision-maker. The reconciling items column represents the consolidated total amount. 8 11 NOTE 5: OTHER COMPREHENSIVE EARNINGS (LOSS) Total comprehensive earnings (loss) for the three and nine months ended September 30, 2000 and 1999 is as follows (in millions):
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ----------------------- ----------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Net earnings (loss) .............................. ($ 248) $ 136 $ 36 $ 1,176 Other comprehensive earnings (loss): Net unrealized losses on available for sale marketable securities ................. (72) (815) (132) (732) Foreign currency translation ..................... (83) -- (83) -- ------- ------- ------- ------- Comprehensive earnings (loss) .................... ($ 403) ($ 679) ($ 179) $ 444 ======= ======= ======= =======
Net unrealized losses for the quarters ended September 30, 2000 and 1999 were net of deferred tax benefits of $46 million and $522 million, respectively. Net unrealized losses for the nine months ended September 30, 2000 and 1999 were net of deferred tax benefits of $86 million and $473 million, respectively. For the nine months ended September 30, 2000, unrealized losses on marketable securities include reclassification adjustments of $319 million, net of deferred taxes of $128 million, pertaining to an other than temporary impairment of our investment in Global Crossing common stock, offset by realized gains from the sale of securities. These reclassification adjustments have now been realized through the Condensed Consolidated Statement of Operations. NOTE 6: COMMITMENTS AND CONTINGENCIES COMMITMENTS In March 2000, Qwest and IBM Global Services ("IBM") formed a strategic business alliance to deliver next-generation e-business services and applications through the construction and activation of new Qwest CyberCentersSM throughout North America. IBM, as contractor, will build and provide operational support for 28 CyberCenters for Qwest. IBM will lease hosting space in these CyberCenters and will purchase telecommunications services from Qwest, with the total revenue expected to be approximately $2.5 billion over the seven-year term of the agreement. Under this alliance, Qwest agreed to purchase equipment and services from IBM, as contractor, over a seven-year period, which combined with the construction services, is expected to be approximately $2.5 billion. We have not purchased any of these services as of September 30, 2000. 9 12 CONTINGENCIES In 1999, twelve complaints were filed against us and the former U S WEST directors in the following jurisdictions: California Superior Court, Los Angeles County (1); New York Supreme Court, New York County (1); Colorado District Court, City and County of Denver (2); Delaware Court of Chancery (8). These actions are purported class actions brought on behalf of all persons, other than the defendants, who own our common stock, against us and the directors. Each of the complaints makes substantially similar allegations that the defendants breached their fiduciary duties to the class members by refusing to seek all bona fide offers for U S WEST and refusing to consider the Qwest proposal, resulting in the stockholders being prevented from maximizing the value of their common stock. The complaints seek various injunctive and monetary relief, including orders: (a) requiring defendants to act in accordance with their fiduciary duties by considering any bona fide proposal which would maximize stockholder value; (b) requiring the directors to undertake an evaluation of U S WEST as a merger acquisition candidate and take steps to enhance that value and create an active auction for U S WEST; (c) preventing defendants from using a stockholder rights plan to impede any bona fide offer for U S WEST; (d) enjoining the consummation of the proposed Global Crossing-U S WEST merger until all alternatives are explored; (e) requiring defendants to account for all damages suffered by plaintiffs as a result of defendants' actions with respect to the tender offer for the shares of Global Crossing common stock and the proposed Global Crossing-U S WEST merger; and (f) requiring defendants to pay damages to plaintiffs. Through November 11, 2000, Qwest has been served with seven class action complaints purportedly on behalf of customers in the states of Colorado, Arizona, Oregon, Utah, Minnesota, Washington and New Mexico. The complaints allege, inter alia, that from 1993 to the present, U S WEST, in violation of alleged statutory and common law obligations, willfully delayed the provision of local telephone service to the purported class members. In addition, the complaints allege that U S WEST misrepresented the date on which such local telephone service was to be provided to the purported class members. The complaints seek compensatory damages for purported class members, disgorgement of profits and punitive damages. As of November 11, 2000, the complaints have been settled, subject to court approval. In April 1999, CSX Transportation, Inc. filed a complaint in federal district court in Jacksonville, Florida against us claiming breach of a 1995 contact. We have filed a motion to dismiss the case, which is pending. Trial is scheduled to commence in June 2001. Through September 2000, Qwest has been named as a defendant in several purported class actions, filed in Texas, Indiana, Tennessee, Missouri, Kansas, Georgia, Louisiana and Oregon which involve our right to install our fiber optic cable network in easements and right-of-ways crossing the plaintiffs' land. In general, we obtained the rights to construct our network from railroads, utilities, and others, and installed our network along the rights of way so granted. Plaintiffs in the purported class actions assert that they are the owners of lands over which our 10 13 fiber optic cable network passes, and that the railroads, utilities, and others who granted to us the right to construct and maintain our network did not have the legal ability to do so. The Indiana and Texas actions purport to be on behalf of a national class of owners of land over which our network passes; the Georgia, Louisiana, Oregon, Kansas, Tennessee and Missouri actions purport to be on behalf of a class of such owners in Georgia, Louisiana, Oregon, Kansas, Tennessee and Missouri. The complaints seek damages on theories of trespass and unjust enrichment, and punitive damages as well. We have received, and may in the future receive, claims and demands related to rights of way issues similar to the issues in these cases that may be based on similar or different legal theories. From March 2, 2000 to March 6, 2000, five class action complaints were filed in the Delaware Court of Chancery against Qwest and its directors. A sixth class action complaint was brought against the same defendants in state court in New York on March 9, 2000. The actions have been brought on behalf of a purported class of Qwest stockholders claiming that Qwest and its directors breached their fiduciary duty by entering into the U S WEST merger and by agreeing not to solicit alternative transactions without fully informing themselves about the availability of alternative transactions and without fully informing themselves as to Qwest's value. Plaintiffs seek, among other things, injunctive relief against the consummation of the U S WEST merger and ordering Qwest to explore alternative transactions, including alternative transactions involving Deutsche Telekom AG. On March 21, 2000, the Delaware actions were consolidated into one action and the plaintiffs were ordered to file a consolidated amended complaint as soon as practicable. On May 16, 2000, the defendants moved to dismiss, or in the alternative stay, the New York action. By order of the Court, the return date of that motion has been extended. On March 17, 2000, and March 20, 2000, two class action complaints were filed in federal district court in Delaware against Qwest and Joseph P. Nacchio, our Chairman and Chief Executive Officer. The actions have been brought on behalf of two purported classes of U S WEST stockholders and allege, among other things, that Qwest and Mr. Nacchio made material false statements in violation of Section 14(a) of the Securities Exchange Act of 1934. Plaintiffs claim we represented in the U S WEST merger agreement and in the joint proxy statement that Qwest would not take action to solicit or encourage an alternative acquisition transaction, when Qwest and Mr. Nacchio always intended to entertain third party bids for Qwest, even after stockholder approval for the U S WEST merger had been obtained. Plaintiffs seek, among other things, damages sustained by U S WEST stockholders, and particularly arbitrageurs who held long positions in U S WEST, when U S WEST's stock price declined on March 1 in response to reports that Qwest and Mr. Nacchio were negotiating with Deutsche Telekom AG. In June 2000, a proposed class action complaint was filed against U S WEST claiming breach of fiduciary duty of loyalty and breach of contract. The plaintiff claims that the defendants were under a duty to assure that Qwest pays the dividend declared for shareholders of record as of June 30, 2000 if the merger closed between July 1 and July 20, 2000. Plaintiffs 11 14 demand that the change of the record date for payment of the declared dividend from June 30, 2000 to July 10, 2000 was made in breach of the fiduciary duties and contractual obligations of the defendants and is therefore unlawful and unenforceable. We have provided for these matters in our financial statements as of September 30, 2000. We do not expect any additional material adverse impacts as a result of these matters. We have been named as a defendant in various other litigation matters. Management intends to vigorously defend these outstanding claims. Management believes it has adequate accrued loss contingencies and that, although the ultimate outcome of these claims cannot be ascertained at this time, current pending or threatened litigation matters are not expected to have a material adverse impact on our consolidated results of operations or financial position. We frequently receive offers to take licenses for patent and other intellectual rights, including rights held by competitors in the telecommunications industry, in exchange for royalties or other substantial consideration. We also regularly receive allegations that our products or services infringe upon various intellectual property rights, together with demands that we discontinue the alleged infringement. We normally investigate such offers and allegations and respond appropriately including defending ourselves vigorously when appropriate. There can be no assurance that, if one or more of these allegations proved to have merit and involved significant rights or royalties, it would not have a material adverse effect on Qwest. In connection with the Merger, we were required to divest transport services between local access and transport areas ("LATAs") within U S WEST's 14-state region. In June 2000, we sold our interLATA customer base, along with other assets. Under the terms of the agreement, the purchase price paid is subject to adjustment for revenue fluctuations during the 90 days subsequent to the agreement date. Depending on certain circumstances, the revenue adjustment may not be settled until the end of the first quarter 2001. We do not expect the adjustment, if any, to have a material adverse impact on our consolidated results of operations or financial position. NOTE 7: CHANGE IN ACCOUNTING METHOD Prior to 1999, our directory business ("Dex") recognized revenues and expenses related to publishing directories using the "deferral method," under which revenues and expenses were recognized over the lives of the directories, generally one year. Effective the fourth quarter of 1999, Dex changed to the "point of publication" method of accounting, which recognizes revenues and expenses at the time the related directory is published and distributed. The change in methodology was made to align our revenue and expense policy with the earnings process and to better reflect the operating activity of the business. The accounting change resulted in a one-time increase in 1999 in net income of $240 million (net of income tax of $153 million), or $0.27 per diluted share, which was reported as a cumulative effect (as of January 1, 1999) of a change in accounting principle. We restated our three and nine months ended September 30, 1999 results of operations to give effect to the point of publication method which decreased net income by $3 million ($0.00 per diluted share) and $21 million ($0.02 per diluted share) as compared to results that would have been reported under the deferral method. 12 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q contains "forward-looking statements," as that term is used in federal securities laws, about Qwest Communications International Inc.'s ("Qwest") financial condition, results of operations and business. These statements include, among others: - statements concerning the benefits that Qwest expects will result from its business activities and certain transactions Qwest has completed, such as increased revenues, decreased expenses and avoided expenses and expenditures; and - statements of Qwest's expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. These statements may be made expressly in this Form 10-Q. You can find many of these statements by looking for words such as "believes," "expects," "anticipates," "estimates," or similar expressions used in this Form 10-Q. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause Qwest's actual results to be materially different from any future results expressed or implied by Qwest in those statements. The most important facts that could prevent Qwest from achieving its stated goals include, but are not limited to, the following: - intense competition in the local exchange, intraLATA (Local Access and Transport Areas) toll, wireless and data markets; - changes in demand for our products and services; - dependence on new product development and acceleration of the deployment of advanced new services, such as broadband data, wireless and video services, which could require substantial expenditure of financial and other resources in excess of contemplated levels; - rapid and significant changes in technology and markets; - higher than anticipated employee levels, capital expenditures and operating expenses; - adverse changes in the regulatory or legislative environment impacting the competitive environment and service pricing in the local exchange market and affecting our business and delays in the ability to begin interLATA long-distance services in our 14 state region; 13 16 - failure to achieve the projected synergies and financial results expected to result from the merger of U S WEST, Inc., our former parent corporation ("U S WEST"), with and into Qwest on June 30, 2000 (the "Merger"), on a timely basis or at all, and difficulties in combining the operations of Qwest and U S WEST, which could affect our revenues, levels of expenses and operating results. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Qwest cautions you not to place undue reliance on the statements, which speak only as of the date of this Form 10-Q. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that Qwest or persons acting on its behalf may issue. Qwest does not undertake any obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. MERGER WITH U S WEST On June 30, 2000, Qwest completed its acquisition of U S WEST. Each outstanding share of U S WEST common stock was converted into the right to receive 1.72932 shares of Qwest common stock (and cash in lieu of fractional shares), resulting in the issuance of approximately 882 million Qwest shares. In addition, all outstanding U S WEST stock options were converted into options to acquire Qwest common stock. Shares outstanding, average shares, dividends per share and earnings (loss) per share have been restated to give retroactive effect to the exchange ratio. The total value of the consideration was approximately $40 billion. The Merger has been accounted for as a reverse acquisition under the purchase method of accounting with U S WEST being deemed the accounting acquirer. A preliminary allocation of the purchase price has been made to certain identified tangible and intangible assets and liabilities of Qwest, based upon information available to management at the date of the preparation of the accompanying financial statements. The preliminary purchase price allocation was as follows: (i) $2.6 billion to tangible assets and liabilities, net; (ii) $11.5 billion to identified intangibles, including product technology, customer lists, tradenames, assembled workforce and the premium on our investment in KPNQwest N.V.; and (iii) $27.9 billion to goodwill. The amounts allocated to identified intangible assets and goodwill are being amortized over periods ranging from 3 to 40 years. 14 17 RESULTS OF OPERATIONS Three and Nine Months Ended September 30, 2000 Compared with 1999 Several non-recurring items impacted net earnings (loss) for the three and nine months ended September 30, 2000 and 1999. Results of operations, normalized to exclude the effects of such items, are as follows (in millions):
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ----------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Net earnings (loss) ......................... $ (248) $ 136 $ 36 $ 1,176 Non-recurring items ......................... 479(1) 282(2) 1,088(3) 42(4) --------- --------- --------- --------- Normalized net earnings ..................... $ 231 $ 418 $ 1,124 $ 1,218 ========= ========= ========= ========= Diluted earnings (loss) per share ........... $ (0.15) $ 0.15 $ 0.02 $ 1.34 Non-recurring items ......................... $ 0.29(1) $ 0.32(2) $ 0.64(3) $ 0.05(4) --------- --------- --------- --------- Normalized diluted earnings per share ....... $ 0.14 $ 0.48(5) $ 0.66 $ 1.39 ========= ========= ========= =========
(1) Reflects an after-tax charge of $644 million or $0.39 per diluted share for merger-related and other one-time costs, an after-tax benefit of $153 million or $0.09 per diluted share for the gain on sales of investments, an after-tax benefit of $36 million or $0.02 per diluted share for the increase in the market value of Global Crossing Ltd. ("Global Crossing") financial instruments and an after-tax charge of $24 million or $0.01 per diluted share for a loss on the sale of fixed assets. (2) Reflects an after-tax charge of $282 million or $0.32 per diluted share for Global Crossing terminated merger-related expenses. (3) Reflects an after-tax charge of $832 million or $0.49 per diluted share for merger-related and other one-time costs, an after-tax charge of $433 million or $0.26 per diluted share for the decline in the market value of Global Crossing financial instruments, an after-tax benefit of $201 million or $0.12 per diluted share for the gain on sales of investments and an after-tax charge of $24 million or $0.01 per diluted share for a loss on the sale of fixed assets. (4) Reflects an after-tax charge of $282 million or $0.32 per diluted share for Global Crossing terminated merger-related expenses, and an after-tax benefit of $240 million, or $0.27 per diluted share, for the change in the method to account for directory publishing revenue and expense. (5) Individual components do not sum to total due to rounding. In addition, the Merger significantly impacts the comparison of the results of operations for the three and nine months ended September 30, 2000 to September 30, 1999. The following sections provide a more detailed discussion of the changes in revenues and expenses. 15 18 REVENUES (IN MILLIONS)
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- INCREASE / ------------------- INCREASE / 2000 1999 (DECREASE) 2000 1999 (DECREASE) ------- ------- --------------------- ------- ------- --------------------- Commercial services .......... $ 2,421 $ 1,186 $ 1,235 104.1% $ 4,880 $ 3,453 $ 1,427 41.3% Consumer and small business services ......... 1,694 1,409 285 20.2% 4,666 4,130 536 13.0% Directory services ........... 351 336 15 4.5% 1,029 981 48 4.9% Switched access services ..... 299 365 (66) (18.1)% 1,017 1,127 (110) (9.8)%
COMMERCIAL SERVICES. Commercial services revenues are derived from Internet, data, voice and wireless products and services to both retail and wholesale business customers. The increases in commercial services revenues for the three and nine months ended September 30, 2000 were primarily attributable to the Merger. Also contributing to the increases, were growth in sales of data products and services. We believe revenues from data products and services will account for an increasingly larger portion of commercial services revenues in future periods. See "Special Note Regarding Forward-Looking Statements" on page 13. CONSUMER AND SMALL BUSINESS SERVICES. Consumer and small business services revenues are derived from Internet, data, voice and wireless products and services to the consumer and small business markets. The increases in consumer and small business services revenues for the three and nine months ended September 30, 2000 were primarily attributable to the Merger. Revenues from the sale of wireless products and services accounted for $56 million and $180 million of the increases for the three and nine months ended September 30, 2000, respectively. The majority of the remaining increase is primarily attributable to data services revenue, for both the three and nine month periods ended September 30, 2000. DIRECTORY SERVICES. Directory services revenues are derived primarily from selling advertising in our published directories. The increases in directory services revenues for the three and nine months ended September 30, 2000 were primarily attributable to price increases. SWITCHED ACCESS SERVICES. Switched access services revenues are derived from inter- and intrastate switched access from interexchange carriers. The decreases in switched access services revenues for the three and nine months ended September 30, 2000 were primarily attributable to federal access reform which reduced the rates we are able to collect for the switched access services, partially offset by increased demand. We believe revenues from switched access services will continue to be negatively impacted by federal access reform. See "Special Note Regarding Forward-Looking Statements" on page 13. 16 19 OPERATING EXPENSES (IN MILLIONS)
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- INCREASE / ------------------- INCREASE / 2000 1999 (DECREASE) 2000 1999 (DECREASE) ------- ------- ----------------- ------- ------- ---------------- Cost of sales ..................... $ 1,703 $ 1,035 $ 668 64.5% $ 3,650 $ 2,942 $ 708 24.1% Selling, general and administrative ................. 1,198 801 397 49.6% 3,011 2,496 515 20.6% Depreciation ...................... 727 588 139 23.6% 1,913 1,763 150 8.5% Goodwill and other intangible amortization ........ 317 -- 317 100.0% 317 -- 317 100.0% Merger-related and other one-time charges ............... 1,030 -- 1,030 100.0% 1,336 -- 1,336 100.0% Other expense-net ................. 48 481 (433) (90.0)% 1,169 811 358 44.1% Provision (benefit) for income taxes ................... (10) 255 (265) (103.9)% 160 743 (583) (78.5)%
COST OF SALES. The increases in cost of sales for the three and nine months ended September 30, 2000 were primarily attributable to an increase in sales resulting from the Merger. Cost of sales, as a percent of revenues, increased from 31.4% for the three months ended September 30, 1999 to 35.7% for the three months ended September 30, 2000. Cost of sales, as a percent of revenues, increased from 30.4% for the nine months ended September 30, 1999 to 31.5% for the nine months ended September 30, 2000. The percentage increases were attributable to the change in product mix caused by the Merger. Additionally, higher operating costs were incurred to enhance customer service. SELLING, GENERAL AND ADMINISTRATIVE. The increases in selling, general and administrative expenses for the three and nine months ended September 30, 2000 were primarily attributable to the Merger. Selling, general and administrative expenses, as a percentage of revenues, increased from 24.3% for the three months ended September 30, 1999, to 25.1% for the three months ended September 30, 2000. Selling, general and administrative expenses, as a percentage of revenues, increased from 25.8% for the nine months ended September 30, 1999, to 26.0% for the nine months ended September 30, 2000. The percentage increases were primarily attributable to increased employee costs due to higher headcount. DEPRECIATION. The increases in depreciation expense were primarily attributable to higher overall property, plant and equipment balances resulting from the Merger and our continued investment in our network. Partially offsetting the increase to depreciation expense for the nine months ended September 30, 2000 was the cessation of depreciation, beginning in April 1999, associated with access lines that were approved to be sold in 1999. GOODWILL AND OTHER INTANGIBLE AMORTIZATION. Goodwill and other intangible amortization is a result of the Merger. The preliminary purchase price allocation associated with intangibles is as follows: $11.5 billion to identified intangibles, including product technology, customer lists, tradenames, assembled workforce and the premium on our investment in KPNQwest N.V., and $27.9 billion of goodwill. The amounts allocated to identified intangible assets and goodwill are being amortized over periods ranging from 3 to 40 years. 17 20 MERGER-RELATED AND OTHER ONE-TIME CHARGES. For the quarter ended September 30, 2000, we incurred merger-related and other one-time charges totaling $1.0 billion. The charge includes $161 million of severance, $324 million of property, plant and equipment abandonments and impairments, $465 million of other merger-related charges and $80 million of litigation charges. We have identified a workforce reduction of 4,500 employees, of which 1,078 have voluntarily separated without receiving benefit packages. The remaining employees identified will receive a benefit package. The severance charge covers a workforce reduction of 3,422 employees, primarily affecting staff functions of the organization, of which 988 employees had been terminated as of September 30, 2000. For the nine months ended September 30, 2000, we incurred merger-related and other one-time charges totaling $1.3 billion. The charge includes $238 million of severance, $324 million of property, plant and equipment asset abandonments and impairments, $694 million of other merger-related charges and $80 million of litigation charges. The severance charge covers a workforce reduction of 3,439 employees, primarily affecting staff functions of the organization, of which 1,005 employees had been terminated as of September 30, 2000. For the three and nine months ended September 30, 2000, the property, plant and equipment charge includes $107 million of internal software projects that were in progress that management has determined to no longer pursue. In addition, management has evaluated its network and identified certain network assets that are impaired based upon the criteria specified in Statements of Financial Accounting Standards ("FAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," resulting in an impairment charge of $217 million. The other merger-related charges of $465 million and $694 million for the three and the nine months ended September 30, 2000, respectively, include employee retention payments, contracts to be terminated, penalties for contract terminations, relocation costs, and merger integration costs, offset by post-retirement benefit curtailment gains. We anticipate additional merger-related expenses will be incurred as we continue merger integration efforts. See "Special Note Regarding Forward-Looking Statements" on page 13. OTHER EXPENSE-NET. Interest expense was $314 million for the third quarter of 2000 compared to $203 million for the third quarter of 1999 and $732 million for the nine months ended September 30, 2000, compared to $519 million for the nine months ended September 30, 1999. The increases in interest expense were primarily attributable to the Merger. In addition, for the nine months ended September 30, 2000, interest expense increased due to debt U S WEST incurred to acquire 39 million shares of Global Crossing common stock in connection with U S WEST's proposed merger with Global Crossing and general corporate borrowings. In December 1999, we entered into equity swaps on 24 million shares of Global Crossing common stock. The market value of the swaps increased by $58 million for the three months ended September 30, 2000 and declined by $263 million for the nine months ended September 30, 2000. Additionally, in the second quarter of 2000, we determined the decline in the market value of our remaining investment in Global Crossing stock was other than temporary. We 18 21 reduced the cost basis of our investment to reflect the decline in its market value and recognized a loss of $447 million. For the three and nine months ended September 30, 2000, we sold various marketable equity securities resulting in gains of $252 million and $331 million, respectively. We also incurred a loss of $39 million on the sale of fixed assets for the three and nine months ended September 30, 2000. PROVISION (BENEFIT) FOR INCOME TAXES. The effective tax rate for the three months ended September 30, 2000 was 3.9% compared to the 1999 rate of 65.2%. The effective tax rate was 81.6% for the nine months ended September 30, 2000 compared to the 1999 rate of 44.3%. The disproportionate tax rates for 2000 were caused by the goodwill amortization being considered a permanent difference. The disproportionate tax rates for 1999 were caused by the costs incurred to terminate the Global Crossing merger not being treated as tax deductible for accounting purposes. SEGMENT RESULTS. Segment results represent margins which, for segment reporting purposes, exclude certain costs and expenses, including depreciation and amortization. See Note 4 to the condensed consolidated financial statements.
THREE MONTHS ENDED NINE MONTHS SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------- INCREASE / -------------------- INCREASE / (in millions) 2000 1999 (DECREASE) 2000 1999 (DECREASE) ------- ------- -------------------- ------- ------- -------------------- Segment results: Retail services ...... $ 2,108 $ 1,560 $ 548 35.1% $ 5,087 $ 4,608 $ 479 10.4% Wholesale services ... 716 549 167 30.4% 1,875 1,605 270 16.8% Network and access operations ........... (753) (699) (54) (7.7)% (2,086) (2,083) (3) (0.1)% Directory services ... 201 185 16 8.6% 557 495 62 12.5%
Margins from the retail services segment increased due to revenue growth. Revenues from the retail services segment increased 54% and 23% for the three and nine months ended September 30, 2000, respectively over the comparable 1999 periods. The revenue increases were partially offset by higher operating expenses driven by growth initiatives. Margins from the wholesale services segment increased as a result of greater demand for access and interconnection services, partially offset by price reductions as mandated by both federal and state regulatory authorities and higher operating costs associated with access charge expenses. Margins from the network and access operations segment decreased due to higher operating expenses associated with enhancing customer service. Margins from the directory services segment increased due to price increases, increased sales of directory-related Internet products and increased efforts to control costs. 19 22 LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES. Cash provided by operations declined to $2.8 billion for the nine months ended September 30, 2000 from $ 3.0 billion for the prior comparable period. The decrease was primarily related to a reduction in working capital. INVESTING ACTIVITIES. Total capital expenditures were $5.0 billion for the nine months ended September 30, 2000 and $2.7 billion for the nine months ended September 30, 1999. On a pro forma basis, assuming the Merger had been consummated at the beginning of the year, total capital expenditures are anticipated to be $9 billion for 2000. Capital expenditures have primarily been and continue to be focused on the modernization and expansion of our network and meeting the requirements of the Telecommunications Act of 1996 (the "Act"), including interconnection services such as local number portability ("LNP"), operational support systems, collocation and trunking. We are also continuing to invest in the construction of CyberCenters(SM) and the expansion of our CLEC/DLEC business outside our 14-state local service territory. See "Special Note Regarding Forward-Looking Statements" on page 13. Future cash needs could increase with the pursuit of new business opportunities, including the acceleration of the deployment of additional and/or advanced new services to customers, such as broadband data, wireless and video services, and may additionally be impacted by continued implementation of the requirements of the Act. The acceleration of such additional and/or advanced new services is not expected to have a material adverse impact on our financial condition or results of operations. Interconnection, LNP, universal service and access charge reform will negatively impact cash flows to the extent recovery mechanisms provided by the Federal Communications Commission ("FCC") and states are inadequate. We would expect that such cash needs, if any, will be funded through operations, the sale of assets and, when necessary, the issuance of securities. See "Special Note Regarding Forward-Looking Statements" on page 13. Partially offsetting these capital expenditures was the receipt of $1.8 billion from the sale of marketable equity securities in 2000. In the third quarter of 1999, we invested $2.5 billion to purchase approximately 39 million shares of Global Crossing common stock in a tender offer. FINANCING ACTIVITIES. Cash provided by financing activities was $590 million and $2.2 billion for the nine months ended September 30, 2000 and 1999, respectively. In 1999, we increased borrowings to finance the Global Crossing tender offer, with no comparable requirement in 2000. During the nine months ended September 30, 2000, we issued long-term debt of $4.3 billion to refinance existing debt obligations. Dividends paid on common stock declined to $542 million in 2000 compared to $917 million in 1999. The decline was due to a change in the dividend policy resulting from the Merger. Additionally, we generated $315 million from the exercise of stock options in 2000 compared to $60 million in 1999. The increase resulted from employees exercising options due to the Merger. We maintain commercial paper programs to finance short-term cash flow requirements, as well as to maintain a presence in the short-term debt market. As of September 30, 2000, we had lines of credit with a total unused borrowing capacity of $4 billion. 20 23 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Over time, we are exposed to market risks arising from changes in interest rates. The objective of our interest rate risk management program is to manage the level and volatility of our interest expense. We may employ derivative financial instruments to manage our interest rate risk exposure. We have also employed financial derivatives to hedge interest rate and foreign currency exposures associated with particular debt issues to synthetically obtain below market interest rates and have employed derivatives to hedge our risk associated with some equity instruments. As of September 30, 2000 and December 31, 1999, approximately $1.4 billion and $2.3 billion, respectively, of floating-rate debt was exposed to changes in interest rates. This exposure is linked to commercial paper and LIBOR rates. A hypothetical increase of one-percentage point in commercial paper and LIBOR rates would increase annual pre-tax interest expense by $14 million. As of September 30, 2000 and December 31, 1999, we also had $1.5 billion and $522 million, respectively, of long-term fixed rate debt obligations maturing in the following 12 months. Any new debt obtained to refinance this debt would be exposed to changes in interest rates. A hypothetical 10% change in the interest rates on this debt would not have had a material effect on our earnings. As of September 30, 2000 and December 31, 1999, we had entered into cross-currency swaps with notional amounts of $133 million. The cross-currency swaps synthetically transform $87 million and $94 million of Swiss Franc borrowings at September 30, 2000 and December 31, 1999, respectively, into U.S. dollar obligations. Any gains (losses) on the cross-currency swaps would be offset by losses (gains) on the Swiss Franc debt obligations. As of September 30, 2000 and December 31, 1999, we had entered into equity swaps with notional amounts of $1.0 billion and $1.1 billion relating to the sale of 24 million shares of Global Crossing common stock. In connection with the equity swaps, we entered into several equity collars on certain shares. The equity collars restrict the magnitude of any gains or losses generated by the equity swaps. A hypothetical 10% reduction in the market price of Global Crossing common shares, based upon a market price of $31.00 at September 30, 2000, would decrease the market value of our net position by $42 million. A hypothetical increase of one-percentage point in interest rates would decrease the market value of our net position by $6 million. At September 30, 2000 and December 31, 1999, we held marketable equity investments recorded at fair values of $363 million and $1.2 billion, respectively, which included net unrealized gains of $90 million and $222 million, respectively. The investments have exposure to price risk. The estimated potential loss in fair value resulting from a hypothetical 10% decrease in prices quoted by stock exchanges would decrease the fair value of our equity investments by $36 million. RECENT REGULATORY DEVELOPMENTS ACCESS REFORM. In May 2000, the FCC adopted the access reform and universal service proposal developed by the Coalition for Affordable Local and Long Distance Service ("CALLS plan"). The five year plan significantly reduces switched access rates, eliminates the presubscribed interexchange carrier charge while raising current subscriber line charge caps, and establishes a new $650 million universal service fund to replace implicit subsidies in interstate 21 24 access charges. The CALLS plan is mandatory for the 2000-01 annual price cap tariff filing. We have appealed the order and asked for a stay of certain provisions. The FCC denied the request for stay. The access reform order also continued to allow information service providers to avoid access charges. This will continue to negatively impact results of in-region local exchange operations as the volume of information service-related usage continues to increase without an associated increase in revenues. In 2000, the incumbent local exchange carriers ("ILECs") and WorldCom appealed the February 1999 FCC order declaring Internet traffic to be interstate. The FCC order required current agreements to remain intact for reciprocal compensation with competitive local exchange carriers ("CLECs") until it rules on this matter. In March 2000, the U.S. Court of Appeals partially vacated and remanded the order back to the FCC. Until this is resolved, there will remain uncertainty regarding our local exchange business' payment obligation for Internet traffic. COURT REMAND OF 6.5% PRODUCTIVITY FACTOR. In 1999, the District of Columbia U.S. Court of Appeals issued a ruling reversing and remanding back to the FCC its order requiring ILECs to retroactively increase the productivity offset to price caps to 6.5% in their annual price cap filings. The Court found that the FCC's order did not justify the increase. In December 1999, the FCC issued a notice of proposed rulemaking responding to the issues raised in the Court's remand. As part of adopting CALLS, the FCC noted that the CALLS participants have agreed to waive any right to recoupment they might be entitled to seek if the FCC could not justify 6.5% productivity factor on remand. We are reviewing this issue and considering our options. ADVANCED TELECOMMUNICATIONS SERVICES. In March 2000, the District of Columbia U.S. Court of Appeals partially vacated and remanded back to the FCC its order establishing expanded collocation requirements for both conventional voice and advanced services. We also appealed the December 1999 FCC order requiring that line sharing be provided as an unbundled network element ("UNE"). Line sharing allows a CLEC to provide advanced services over the same loop that the ILEC uses to provide analog voice service. Previously, CLECs purchased a separate loop to provision advanced services. In March 2000, we and GTE appealed the FCC's December 1999 order on remand concerning the application of the unbundling requirement to the provision of advanced services. IMPLEMENTATION OF THE 1996 TELECOMMUNICATIONS ACT. In July 2000, the Eighth Circuit Court of Appeals affirmed in part and reversed in part the FCC's UNE and resale pricing rules, vacating and remanding the rules to the FCC. The Court also affirmed several of its previous rulings regarding other aspects of the FCC's UNE rules. In June 2000, the FCC affirmed and extended its November 1999 interim constraint on conversion of special access services to unbundled network element combination pricing and clarified what constitutes a "significant amount of local exchange service" for determining when loop-transport UNE combination is available. INTERLATA LONG-DISTANCE ENTRY. We have proceedings requesting support of Qwest to enter the interLATA long-distance business in 12 of the states in the U S WEST region and continue to work with the 22 25 state public utility commissions ("PUCs") in those states to gain approval. We are addressing operational support system issues and have agreed to participate in multistate testing where the states are agreeable. We intend to file entry applications with our remaining state PUCs by the end of the first quarter of 2001, with FCC filings following favorable state action. See "Special Note Regarding Forward-Looking Statements " on page 14. In June 2000, the FCC approved SBC Communications, Inc.'s application to provide long distance service in Texas. On August 1, 2000, the US Court of Appeals for the DC Circuit upheld the FCC's December 1999 approval of Bell Atlantic-New York's (now Verizon Communications) application to provide interLATA service in New York. Bell Atlantic has already gained some long distance market share in New York and SBC is expected to do the same in Texas now that approval has been granted. This could negatively affect Qwest's long distance business in those states. NUMBER POOLING. In March 2000, the FCC issued an order substantially changing the way telephone numbers are allocated among carriers in order to avoid the premature exhaustion of telephone numbers in North America. This new approach must be in place by mid-2001 in our region and will require significant modifications to operational support systems and switch software with costs exceeding $345 million. The FCC has issued a further notice of proposed rulemaking to determine how ILECs may recover these costs in a competitively neutral way. CONTINGENCIES We have certain pending regulatory actions. See Note 6 to the condensed consolidated financial statements. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. FAS No. 133 requires, among other things, that all derivative instruments be recognized at fair value as assets or liabilities in the consolidated balance sheets and changes in fair value generally be recognized currently in earnings unless specific hedge accounting criteria are met. This standard is effective for our 2001 fiscal year, although earlier adoption is permitted. Financial statement impacts of adopting the new standard depend upon the amount and nature of the future use of derivative instruments and their relative changes in valuation over time. Had we adopted FAS No. 133 in 2000, its impact on the consolidated financial statements would not have been material. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (the "Bulletin"), "Revenue Recognition in Financial Statements," which addresses revenue recognition issues. The Bulletin requires, in certain cases, nonrefundable up-front fees for services to be deferred and recognized over the expected period of performance. The Bulletin also allows incremental direct costs incurred in obtaining the up-front fees to be deferred and recognized over the same period as the up-front fees. The implementation of the Bulletin has been delayed until the fourth quarter of 2000 for fiscal years beginning after December 15, 1999. The 23 26 application of the Bulletin will be retroactive to January 1, 2000. We are assessing the types of transactions that may be impacted by this pronouncement. The impact of the Bulletin on the consolidated financial statements is not anticipated to be material. 24 27 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Our Company and its subsidiaries are subject to claims and proceedings arising in the ordinary course of business. For a discussion of these actions, see Note 6: "Commitments and Contingencies" - to the consolidated financial statements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed for Qwest through the filing of this Form 10-Q. (2.1) Separation Agreement, dated June 5, 1998, between U S WEST, Inc. (renamed MediaOne Group, Inc.) ("MediaOne Group") and USW-C, Inc. (renamed U S WEST, Inc.) ("U S WEST"), (incorporated by reference to U S WEST's Current Report on Form 8-K/A dated June 26, 1998, File No. 1-14087). (2.2) Amendment to the Separation Agreement between MediaOne Group and U S WEST, dated June 12, 1998 (incorporated by reference to U S WEST's Annual Report on Form 10-K/A for the year ended December 31, 1998, File No. 1-14087). (3.1) Amended and Restated Certificate of Incorporation of Qwest, (incorporated by reference to Qwest's Registration Statement on Form S-4/A, File No. 333-81149, filed September 17, 1999). (3.2) Amended and Restated Bylaws of Qwest (incorporated by reference to Qwest's Registration Statement on Form S-4/A, File No. 333-81149, filed September 17, 1999). (4.1)*** Indenture dated as of October 15, 1997 with Bankers Trust Company (including form of Qwest's 9.47% Senior Discount Notes due 2007 and 9.47% Series B Senior Discount Notes due 2007 as an exhibit thereto). (4.2)**** Indenture dated as of August 28, 1997 with Bankers Trust Company (including form of Qwest's 10-7/8% Series B Senior Notes due 2007 as an exhibit thereto). (4.3)**** Indenture dated as of January 29, 1998 with Bankers Trust Company (including form of Qwest's 8.29% Senior Discount Notes due 2008 and 8.29% Series B Senior Discount Notes due 2008 as an exhibit thereto). (4.4) Indenture dated as of November 4, 1998 with Bankers Trust Company (including form of Qwest's 7.50% Senior Discount Notes due 2008 and 7.50% Series B Senior Discount Notes due 2008 as an exhibit thereto) (incorporated by reference to Qwest's Registration Statement on Form S-4, File No. 333-71603, filed February 2, 1999). (4.5) Indenture dated as of November 27, 1998 with Bankers Trust Company (including form of Qwest's 7.25% Senior Discount Notes due 2008 and 7.25% Series B Senior Discount Notes due 2008 as exhibit thereto) (incorporated by reference to Qwest's Registration Statement on Form S-4, File No. 333-71603, filed February 2, 1999). (4.6) Registration Agreement dated November 27, 1998 with Salomon Brothers Inc. 25 28 relating to Qwest's 7.25% Senior Discount Notes due 2008 (incorporated by reference to Qwest's Registration Statement on Form S-4, File No. 333-71603, filed February 2, 1999). (4.7) Indenture dated as of June 23, 1997 between LCI International, Inc., and First Trust National Association, as trustee, providing for the issuance of Senior Debt Securities, including Resolutions of the Pricing Committee of the Board of Directors establishing the terms of the 7.25% Senior Notes due June 15, 2007 (incorporated by reference to Exhibit 4(c) in LCI's Current Report on Form 8-K dated June 23, 1997). (4.8) Registration Rights Agreement, dated August 20, 1999, between U S WEST Capital Funding Inc., U S WEST, Inc., J.P. Morgan Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to U S WEST's Form S-4 Registration Statement, File No. 333-92523, filed December 10, 1999). (4.9) Indenture, dated as of June 29, 1998, by and among U S WEST Capital Funding, Inc., U S WEST, Inc., and The First National Bank of Chicago (now known as Bank One Trust Company, National Association), as Trustee (incorporated by reference to U S WEST's Current Report on Form 8-K, dated November 18, 1998, File No. 1-14087). (4.10) First Supplemental Indenture, dated as of June 30, 2000, by and among U S WEST Capital Funding, Inc., U S WEST, Inc., Qwest Communications International Inc., and Bank One Trust Company, as Trustee (incorporated by reference to Qwest's quarterly report on Form 10-Q for the quarter ended June 30, 2000). (10.1)** Growth Share Plan, as amended, effective October 1, 1996.* (10.2)* Equity Incentive Plan, as amended (incorporated by reference from Exhibit A to Qwest's definitive proxy statement on Schedule 14A, filed March 17, 2000. (10.3)* Qwest Communications International Inc. Employee Stock Purchase Plan (incorporated by reference to Qwest's Preliminary Proxy Statement for the Annual Meeting of Stockholders, filed February 26, 1999). (10.4)* Qwest Communications International Inc. Deferred Compensation Plan (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 1998). (10.5)**** Equity Compensation Plan for Non-Employee Directors. (10.6)* Qwest Communications International Inc. 401-K Plan (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 1998). (10.7)** Employment Agreement dated December 21, 1996 with Joseph P. Nacchio.* (10.8)**** Growth Share Plan Agreement with Joseph P. Nacchio, effective January 1, 1997, and Amendment thereto.* (10.9)**** Non-Qualified Stock Option Agreement with Joseph P. Nacchio, effective June 23, 1997.* (10.11)** Promissory Note dated November 20, 1996 and Severance Agreement dated December 1, 1996 with Robert S. Woodruff.* (10.12)**** Employment Agreement dated March 7, 1997 with Stephen M. Jacobsen.* (10.15)**** Employment Agreement dated October 8, 1997 with Lewis O. Wilks.* (10.16)**+ IRU Agreement dated as of October 18, 1996 with Frontier Communications International Inc. 26 29 (10.17)**+ IRU Agreement dated as of February 26, 1996 with WorldCom Network Services, Inc. (10.18)**+ IRU Agreement dated as of May 2, 1997 with GTE. (10.31) Common Stock Purchase Agreement dated as of December 14, 1998 with Microsoft Corporation (incorporated by reference to Qwest's Current Report on Form 8-K filed December 16, 1998). (10.32) Registration Rights Agreement dated December 14, 1998 with Microsoft Corporation (incorporated by reference to Qwest's Current Report on Form 8-K filed December 16, 1998). (10.33) Registration Rights Agreement dated as of April 18, 1999 with Anschutz Company and Anschutz Family Investment Company LLC (incorporated by reference to Qwest's Current Report on Form 8-K/A filed April 28, 1999). (10.34) Common Stock Purchase Agreement dated as of April 19, 1999 with BellSouth Enterprises, Inc. (incorporated by reference to Qwest's Current Report on Form 8-K/A filed April 28, 1999). (10.35) Registration Rights Agreement dated as of April 19, 1999 with BellSouth Enterprises, Inc. (incorporated by reference to Qwest's Current Report on Form 8-K/A filed April 28, 1999). (10.36) Voting Agreement dated as of July 18, 1999 among each of the shareholders listed on the signature page thereto and U S WEST, Inc. (incorporated by reference to Qwest's Registration Statement on Form S-4/A, File No. 333-81149, filed September 17, 1999). (10.37) Purchase Agreement by and among Qwest, Slingshot Networks, LLC and Anschutz Digital Media, Inc. dated September 26, 1999 (incorporated by reference to Qwest's quarterly report on Form 10-Q for the quarter ended September 30, 1999). 27 30 (10.38) Unit Purchase Agreement dated June 21, 2000 by and among U.S. Telesource, Inc. and Anschutz Digital Media, Inc. (incorporated by reference to Qwest's quarterly report on Form 10-Q for the quarter ended June 30, 2000). (10.39) Second Amended and Restated Operating Agreement of Slingshot Networks, LLC entered into as of June 21, 2000 between Anschutz Digital Media, Inc. and U.S. Telesource, Inc. (incorporated by reference to Qwest's quarterly report on Form 10-Q for the quarter ended June 30, 2000). (10.40) Employee Matters Agreement between MediaOne Group and U S WEST dated June 5, 1998 (incorporated by reference to U S WEST's Current Report on Form 8-K/A dated June 26, 1998, File No. 1-14087). (10.41) Tax Sharing Agreement between MediaOne Group and U S WEST, dated June 5, 1998 (incorporated by reference to U S WEST's Current Report on Form 8-K/A dated June 26, 1998, File No. 1-14087). (10.42) 364-Day $4.0 billion Credit Agreement, dated as of May 5, 2000, among U S WEST, Inc., U S WEST Capital Funding, Inc., U S WEST Communications, Inc., the banks listed therein, and Morgan Guaranty Trust Company of New York, as administrative agent (incorporated by reference to U S WEST's quarterly report on Form 10-Q for the quarter ended March 31, 2000). (10.43) Purchase Agreement dated July 3, 2000 among Qwest Capital Funding, Inc., Qwest Communications International Inc. and Salomon Smith Barney Inc. (incorporated by reference to Qwest's quarterly report on Form 10-Q for the quarter ended June 30, 2000). 10.44 Purchase Agreement dated August 16, 2000 among Qwest Capital Funding, Inc., Qwest Communications International Inc., Salomon Smith Barney Inc. and Lehman Brothers Inc. as Representatives of the several initial purchasers listed therein. 10.45 Registration Rights Agreement dated August 16, 2000 among Qwest Capital Funding, Inc., Qwest Communications International Inc., Salomon Smith Barney Inc. and Lehman Brothers Inc. as Representatives of the several initial purchasers listed therein. (10.60) 1998 U S WEST Stock Plan (incorporated by reference to U S WEST's Form S-4 Registration Statement, File No. 333-45765, filed February 6, 1998, as amended). (10.61)* U S WEST Executive Short-Term Incentive Plan (incorporated by reference to U S WEST's Form S-4 Registration Statement, File No. 333-45765, filed February 6, 1998, as amended). (10.62)* U S WEST 1998 Broad Based Stock Option Plan, dated June 12, 1998 (Exhibit 10(l) to Form 10-Q for the quarter ended September 30, 1998, File No. 1-14087). (10.63)* U S WEST Deferred Compensation Plan, amended and restated effective as of June 12, 1998 (Exhibit 10(m) to Form 10-Q for the quarter ended September 30, 1998, File No. 1-14087). (10.64)* U S WEST 1998 Stock Plan, as amended June 22, 1998 (Exhibit 10(n) to Form 10-Q for the quarter ended September 30, 1998, File No. 1-14087). (10.65)* 1998 U S WEST Stock Plan, as amended August 6, 1999 (Exhibit 10-O.1 to Form 10-Q for the quarter ended September 30, 1999, File No. 1-14087). (10.66)* 1999 U S WEST Stock Plan, as amended August 6, 1999 (Exhibit 10-O.2 to Form 10-Q for the quarter ended September 30, 1999, File No. 1-14087). (10.67) Form of Agreement for Purchase and Sale of Telephone Exchanges, dated as of June 16, 1999, between Citizens Utilities Company and U S WEST 28 31 Communications, Inc. (Exhibit 99B to Form 8-K, dated June 17, 1999, File No. 1-14087). 27 Financial Data Schedule. (99) Annual Report on Form 11-K for the U S WEST Savings Plan/ESOP for the year ended December 31, 1999 (incorporated by reference to U S WEST's Annual Report on Form 10-K, File No. 1-14087, Paper Copy (P). - --------- ( ) Previously filed. * Executive Compensation Plans and Arrangements. ** Incorporated by reference in Form S-1 as declared effective on June 23, 1997 (File No. 333-25391). *** Incorporated by reference to exhibit 4.1 in Form S-4 as declared effective on January 5, 1998 (File No. 333-42847). **** Incorporated by reference in Qwest's Form 10-K for the year ended December 31, 1997. + Portions have been omitted pursuant to a request for confidential treatment. (b) Reports on Form 8-K: (i) On July 3, 2000, Qwest filed a Current Report on Form 8-K announcing the completion of the merger with U S WEST, Inc. (ii) On July 7, 2000, Qwest filed a Current Report on Form 8-K regarding a meeting with investors and financial analysts. (iii) On August 14, 2000, Qwest filed a Current Report on Form 8-K announcing its financial results for the second quarter of 2000. (iv) On September 8, 2000, Qwest filed a Current Report on Form 8-K regarding a meeting with financial analysts and members of the media that took place on September 7, 2000. The meeting discussed expected financial results for 2000 and 2001 as well as synergies expected from its acquisition of U S WEST, Inc. on June 30, 2000. (v) On September 13, 2000 Qwest filed a Current Report on Form 8-K regarding a financial analyst conference held on September 11, 2000. 29 32 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Qwest Communications International Inc. By: /s/ ROBERT S. WOODRUFF ---------------------------------------- Robert S. Woodruff Executive Vice President - Finance and Chief Financial Officer November 14, 2000 30 33 INDEX TO EXHIBITS (a) Exhibits filed for Qwest through the filing of this Form 10-Q.
EXHIBIT NUMBER DESCRIPTION - ------- ----------- (2.1) Separation Agreement, dated June 5, 1998, between U S WEST, Inc. (renamed MediaOne Group, Inc.) ("MediaOne Group") and USW-C, Inc. (renamed U S WEST, Inc.) ("U S WEST"), (incorporated by reference to U S WEST's Current Report on Form 8-K/A dated June 26, 1998, File No. 1-14087). (2.2) Amendment to the Separation Agreement between MediaOne Group and U S WEST, dated June 12, 1998 (incorporated by reference to U S WEST's Annual Report on Form 10-K/A for the year ended December 31, 1998, File No. 1-14087). (3.1) Amended and Restated Certificate of Incorporation of Qwest, (incorporated by reference to Qwest's Registration Statement on Form S-4/A, File No. 333-81149, filed September 17, 1999). (3.2) Amended and Restated Bylaws of Qwest (incorporated by reference to Qwest's Registration Statement on Form S-4/A, File No. 333-81149, filed September 17, 1999). (4.1)*** Indenture dated as of October 15, 1997 with Bankers Trust Company (including form of Qwest's 9.47% Senior Discount Notes due 2007 and 9.47% Series B Senior Discount Notes due 2007 as an exhibit thereto). (4.2)**** Indenture dated as of August 28, 1997 with Bankers Trust Company (including form of Qwest's 10-7/8% Series B Senior Notes due 2007 as an exhibit thereto). (4.3)**** Indenture dated as of January 29, 1998 with Bankers Trust Company (including form of Qwest's 8.29% Senior Discount Notes due 2008 and 8.29% Series B Senior Discount Notes due 2008 as an exhibit thereto). (4.4) Indenture dated as of November 4, 1998 with Bankers Trust Company (including form of Qwest's 7.50% Senior Discount Notes due 2008 and 7.50% Series B Senior Discount Notes due 2008 as an exhibit thereto) (incorporated by reference to Qwest's Registration Statement on Form S-4, File No. 333-71603, filed February 2, 1999). (4.5) Indenture dated as of November 27, 1998 with Bankers Trust Company (including form of Qwest's 7.25% Senior Discount Notes due 2008 and 7.25% Series B Senior Discount Notes due 2008 as exhibit thereto) (incorporated by reference to Qwest's Registration Statement on Form S-4, File No. 333-71603, filed February 2, 1999). (4.6) Registration Agreement dated November 27, 1998 with Salomon Brothers Inc.
34 relating to Qwest's 7.25% Senior Discount Notes due 2008 (incorporated by reference to Qwest's Registration Statement on Form S-4, File No. 333-71603, filed February 2, 1999). (4.7) Indenture dated as of June 23, 1997 between LCI International, Inc., and First Trust National Association, as trustee, providing for the issuance of Senior Debt Securities, including Resolutions of the Pricing Committee of the Board of Directors establishing the terms of the 7.25% Senior Notes due June 15, 2007 (incorporated by reference to Exhibit 4(c) in LCI's Current Report on Form 8-K dated June 23, 1997). (4.8) Registration Rights Agreement, dated August 20, 1999, between U S WEST Capital Funding Inc., U S WEST, Inc., J.P. Morgan Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to U S WEST's Form S-4 Registration Statement, File No. 333-92523, filed December 10, 1999). (4.9) Indenture, dated as of June 29, 1998, by and among U S WEST Capital Funding, Inc., U S WEST, Inc., and The First National Bank of Chicago (now known as Bank One Trust Company, National Association), as Trustee (incorporated by reference to U S WEST's Current Report on Form 8-K, dated November 18, 1998, File No. 1-14087). (4.10) First Supplemental Indenture, dated as of June 30, 2000, by and among U S WEST Capital Funding, Inc., U S WEST, Inc., Qwest Communications International Inc., and Bank One Trust Company, as Trustee (incorporated by reference to Qwest's quarterly report on Form 10-Q for the quarter ended June 30, 2000). (10.1)** Growth Share Plan, as amended, effective October 1, 1996.* (10.2)* Equity Incentive Plan, as amended (incorporated by reference from Exhibit A to Qwest's definitive proxy statement on Schedule 14A, filed March 17, 2000. (10.3)* Qwest Communications International Inc. Employee Stock Purchase Plan (incorporated by reference to Qwest's Preliminary Proxy Statement for the Annual Meeting of Stockholders, filed February 26, 1999). (10.4)* Qwest Communications International Inc. Deferred Compensation Plan (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 1998). (10.5)**** Equity Compensation Plan for Non-Employee Directors. (10.6)* Qwest Communications International Inc. 401-K Plan (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 1998). (10.7)** Employment Agreement dated December 21, 1996 with Joseph P. Nacchio.* (10.8)**** Growth Share Plan Agreement with Joseph P. Nacchio, effective January 1, 1997, and Amendment thereto.* (10.9)**** Non-Qualified Stock Option Agreement with Joseph P. Nacchio, effective June 23, 1997.* (10.11)** Promissory Note dated November 20, 1996 and Severance Agreement dated December 1, 1996 with Robert S. Woodruff.* (10.12)**** Employment Agreement dated March 7, 1997 with Stephen M. Jacobsen.* (10.15)**** Employment Agreement dated October 8, 1997 with Lewis O. Wilks.* (10.16)**+ IRU Agreement dated as of October 18, 1996 with Frontier Communications International Inc.
35 (10.17)**+ IRU Agreement dated as of February 26, 1996 with WorldCom Network Services, Inc. (10.18)**+ IRU Agreement dated as of May 2, 1997 with GTE. (10.31) Common Stock Purchase Agreement dated as of December 14, 1998 with Microsoft Corporation (incorporated by reference to Qwest's Current Report on Form 8-K filed December 16, 1998). (10.32) Registration Rights Agreement dated December 14, 1998 with Microsoft Corporation (incorporated by reference to Qwest's Current Report on Form 8-K filed December 16, 1998). (10.33) Registration Rights Agreement dated as of April 18, 1999 with Anschutz Company and Anschutz Family Investment Company LLC (incorporated by reference to Qwest's Current Report on Form 8-K/A filed April 28, 1999). (10.34) Common Stock Purchase Agreement dated as of April 19, 1999 with BellSouth Enterprises, Inc. (incorporated by reference to Qwest's Current Report on Form 8-K/A filed April 28, 1999). (10.35) Registration Rights Agreement dated as of April 19, 1999 with BellSouth Enterprises, Inc. (incorporated by reference to Qwest's Current Report on Form 8-K/A filed April 28, 1999). (10.36) Voting Agreement dated as of July 18, 1999 among each of the shareholders listed on the signature page thereto and U S WEST, Inc. (incorporated by reference to Qwest's Registration Statement on Form S-4/A, File No. 333-81149, filed September 17, 1999). (10.37) Purchase Agreement by and among Qwest, Slingshot Networks, LLC and Anschutz Digital Media, Inc. dated September 26, 1999 (incorporated by reference to Qwest's quarterly report on Form 10-Q for the quarter ended September 30, 1999).
36 (10.38) Unit Purchase Agreement dated June 21, 2000 by and among U.S. Telesource, Inc. and Anschutz Digital Media, Inc. (incorporated by reference to Qwest's quarterly report on Form 10-Q for the quarter ended June 30, 2000). (10.39) Second Amended and Restated Operating Agreement of Slingshot Networks, LLC entered into as of June 21, 2000 between Anschutz Digital Media, Inc. and U.S. Telesource, Inc. (incorporated by reference to Qwest's quarterly report on Form 10-Q for the quarter ended June 30, 2000). (10.40) Employee Matters Agreement between MediaOne Group and U S WEST dated June 5, 1998 (incorporated by reference to U S WEST's Current Report on Form 8-K/A dated June 26, 1998, File No. 1-14087). (10.41) Tax Sharing Agreement between MediaOne Group and U S WEST, dated June 5, 1998 (incorporated by reference to U S WEST's Current Report on Form 8-K/A dated June 26, 1998, File No. 1-14087). (10.42) 364-Day $4.0 billion Credit Agreement, dated as of May 5, 2000, among U S WEST, Inc., U S WEST Capital Funding, Inc., U S WEST Communications, Inc., the banks listed therein, and Morgan Guaranty Trust Company of New York, as administrative agent (incorporated by reference to U S WEST's quarterly report on Form 10-Q for the quarter ended March 31, 2000). (10.43) Purchase Agreement dated July 3, 2000 among Qwest Capital Funding, Inc., and Qwest Communications International Inc. and Salomon Smith Barney Inc. (incorporated by reference to Qwest's quarterly report on Form 10-Q for the quarter ended June 30, 2000). 10.44 Purchase Agreement dated August 16, 2000 among Qwest Capital Funding, Inc., Qwest Communications International Inc., Salomon Smith Barney Inc. and Lehman Brothers Inc. as Representatives of the several initial purchasers listed therein. 10.45 Registration Rights Agreement dated August 16, 2000 among Qwest Capital Funding, Inc., Qwest Communications International Inc., Salomon Smith Barney Inc. and Lehman Brothers Inc. as Representatives of the several initial purchasers listed therein. (10.60) 1998 U S WEST Stock Plan (incorporated by reference to U S WEST's Form S-4 Registration Statement, File No. 333-45765, filed February 6, 1998, as amended). (10.61)* U S WEST Executive Short-Term Incentive Plan (incorporated by reference to U S WEST's Form S-4 Registration Statement, File No. 333-45765, filed February 6, 1998, as amended). (10.62)* U S WEST 1998 Broad Based Stock Option Plan, dated June 12, 1998 (Exhibit 10(l) to Form 10-Q for the quarter ended September 30, 1998, File No. 1-14087). (10.63)* U S WEST Deferred Compensation Plan, amended and restated effective as of June 12, 1998 (Exhibit 10(m) to Form 10-Q for the quarter ended September 30, 1998, File No. 1-14087). (10.64)* U S WEST 1998 Stock Plan, as amended June 22, 1998 (Exhibit 10(n) to Form 10-Q for the quarter ended September 30, 1998, File No. 1-14087). (10.65)* 1998 U S WEST Stock Plan, as amended August 6, 1999 (Exhibit 10-O.1 to Form 10-Q for the quarter ended September 30, 1999, File No. 1-14087). (10.66)* 1999 U S WEST Stock Plan, as amended August 6, 1999 (Exhibit 10-O.2 to Form 10-Q for the quarter ended September 30, 1999, File No. 1-14087). (10.67) Form of Agreement for Purchase and Sale of Telephone Exchanges, dated as of June 16, 1999, between Citizens Utilities Company and U S WEST
37 Communications, Inc. (Exhibit 99B to Form 8-K, dated June 17, 1999, File No. 1-14087). 27 Financial Data Schedule. (99) Annual Report on Form 11-K for the U S WEST Savings Plan/ESOP for the year ended December 31, 1999 (incorporated by reference to U S WEST's Annual Report on Form 10-K, File No. 1-14087, Paper Copy (P).
- ------------------- ( ) Previously filed. * Executive Compensation Plans and Arrangements. ** Incorporated by reference in Form S-1 as declared effective on June 23, 1997 (File No. 333-25391). *** Incorporated by reference to exhibit 4.1 in Form S-4 as declared effective on January 5, 1998 (File No. 333-42847). **** Incorporated by reference in Qwest's Form 10-K for the year ended December 31, 1997. + Portions have been omitted pursuant to a request for confidential treatment. (b) Reports on Form 8-K: (i) On July 3, 2000, Qwest filed a Current Report on Form 8-K announcing the completion of the merger with U S WEST, Inc. (ii) On July 7, 2000, Qwest filed a Current Report on Form 8-K regarding a meeting with investors and financial analysts. (iii) On August 14, 2000, Qwest filed a Current Report on Form 8-K announcing its financial results for the second quarter of 2000. (iv) On September 8, 2000, Qwest filed a Current Report on Form 8-K regarding a meeting with financial analysts and members of the media that took place on September 7, 2000. The meeting discussed expected financial results for 2000 and 2001 as well as synergies expected from its acquisition of U S WEST, Inc. on June 30, 2000. (v) On September 13, 2000 Qwest filed a Current Report on Form 8-K regarding a financial analyst conference held on September 11, 2000. EX-10.44 2 d81481ex10-44.txt PURCHASE AGREEMENT DATED 8/16/00 1 PURCHASE AGREEMENT QWEST CAPITAL FUNDING, INC. $1,250,000,000 OF 7.75% NOTES DUE AUGUST 15, 2006 $1,750,000,000 OF 7.90% NOTES DUE AUGUST 15, 2010 UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST BY QWEST COMMUNICATIONS INTERNATIONAL INC. August 16, 2000 Salomon Smith Barney Inc. Lehman Brothers Inc. As Representatives of the several Initial Purchasers named in Schedule I hereto c/o Salomon Smith Barney Inc. 388 Greenwich Street New York, New York 10013 Ladies and Gentlemen: Qwest Capital Funding, Inc. (formerly known as U S WEST Capital Funding, Inc.), a Colorado corporation (the "COMPANY"), proposes to issue and sell to the several Initial Purchasers listed in Schedule I hereto (the "INITIAL PURCHASERS") for whom Salomon Smith Barney Inc. and Lehman Brothers Inc. are acting as representatives (the "REPRESENTATIVES"), $1,250,000,000 principal amount of its 7.75% Notes due August 15, 2006 (the "2006 Notes") and $1,750,000,000 principal amount of its 7.90% Notes due August 15, 2010 (the "2010 NOTES", together with the 2006 Notes, the "SECURITIES"). The Securities will be unconditionally guaranteed as to payment of principal, premium, if any, and interest (the "GUARANTEES") by Qwest Communications International Inc. (as successor to U S WEST, Inc. ("U S WEST")), a Delaware corporation (the "GUARANTOR"), and will be issued pursuant to the provisions of an Indenture, dated as of June 29, 1998, as amended by the First Supplemental Indenture, dated as of June 30, 2000 (as so amended, the "INDENTURE"), among the Company, the Guarantor and Bank One Trust Company, National Association, as trustee (the "TRUSTEE"). The Securities will have the benefit of a Registration Rights Agreement, dated as of August 16, 2000 (the "REGISTRATION RIGHTS AGREEMENT"), among the Company, the Guarantor and the Initial Purchasers, pursuant to which the Company and the Guarantor have agreed, for the benefit of the Initial Purchasers and their respective direct and indirect transferees and assigns, to register the Securities and the Guarantees under the Securities 2 Act of 1933, as amended (the "SECURITIES ACT") subject to the terms and conditions therein specified. The sale of the Securities to the Initial Purchasers will be made without registration of the Securities and the Guarantees under the Securities Act, in reliance upon exemptions therefrom. In connection with the sale of the Securities, the Company and the Guarantor have prepared a preliminary offering memorandum dated August 11, 2000 (the "PRELIMINARY OFFERING MEMORANDUM") and an offering memorandum dated the date hereof (the "OFFERING MEMORANDUM"), for the information of the Initial Purchasers and for delivery to prospective purchasers of the Securities. The terms Preliminary Offering Memorandum and Offering Memorandum shall be deemed to mean and include documents incorporated by reference therein. All references in this Agreement to financial statements and schedules and other information which is "contained," "included," "stated" or "given" in the Offering Memorandum (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Offering Memorandum. The Company, the Guarantor and the Initial Purchasers hereby agree as follows: 1. The Company agrees to issue and sell the Securities to the several Initial Purchasers as hereinafter provided, and each Initial Purchaser, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase, severally and not jointly, from the Company the respective principal amount of 2006 Notes set forth opposite such Initial Purchaser's name in Schedule I hereto at a price (the "PURCHASE PRICE") equal to 99.278% of their principal amount, and the principal amount of 2010 Notes set forth opposite such Initial Purchaser's name in Schedule I hereto at a Purchase Price equal to 99.135% of their principal amount, plus in each case accrued interest, if any, from August 21, 2000 to the date of payment and delivery. 2. The Company and the Guarantor understand that the Initial Purchasers intend (i) to offer privately pursuant to Rule 144A under the Securities Act their respective portions of the Securities as soon after this Agreement has become effective as in the judgment of the Initial Purchasers is advisable and (ii) initially to offer the Securities upon the terms set forth in the Offering Memorandum. Each of the Company and the Guarantor confirms that it has authorized the Initial Purchasers, subject to the restrictions set forth below, to distribute copies of the Offering Memorandum in connection with the offering of the Securities. Each Initial Purchaser hereby severally makes to the Company and the Guarantor the following representations and agreements: (i) it is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act; and (ii) (A) it will not solicit offers for, or offer to sell, the Securities by any form of general solicitation or general advertising (as those terms are used in 2 3 Regulation D under the Securities Act ("REGULATION D")) and (B) it will solicit offers for the Securities only from, and will offer the Securities only to, persons who it reasonably believes to be "qualified institutional buyers" within the meaning of Rule 144A under the Securities Act that in purchasing the Securities are deemed to have represented and agreed as provided in the Offering Memorandum. 3. Payment for the Securities shall be made by wire transfer in immediately available funds to the account specified by the Company to the Representatives at 9:00 A.M., New York City time, on August 21, 2000, or at such other time on the same or such other date, not later than the third Business Day thereafter, as the Representatives and the Company may agree upon in writing. The time and date of such payment are referred to herein as the "CLOSING DATE". As used herein, the term "BUSINESS DAY" means any day other than a day on which banks are permitted or required to be closed in New York City. Payment for the Securities shall be made against delivery with respect to Securities to be resold to "qualified institutional buyers" by the Initial Purchasers, to the nominee of The Depository Trust Company for the respective accounts of the several Initial Purchasers of the Securities of one or more global notes (collectively, the "GLOBAL NOTES") representing such Securities, with any transfer taxes payable in connection with the transfer to the Initial Purchasers of the Securities duly paid by the Company. The Global Notes will be made available for inspection by the Initial Purchasers at the office of Brown & Wood LLP, One World Trade Center, New York, New York 10048 not later than 1:00 P.M., New York City time, on the Business Day prior to the Closing Date. 4. The Company and the Guarantor represent and warrant to each Initial Purchaser that: (a) The Preliminary Offering Memorandum did not, in the form used by the Initial Purchasers to market the Securities, and the Offering Memorandum will not, in the form used by the Initial Purchasers to confirm sales of the Securities and as of the Closing Date, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at such dates, not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with written information furnished to the Company or the Guarantor by any Initial Purchaser, or on behalf of any Initial Purchaser by the Representatives, specifically for use therein; (b) the documents incorporated by reference in the Offering Memorandum (the "INCORPORATED DOCUMENTS"), when they were filed with the Securities and Exchange Commission (the "COMMISSION"), conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and any further documents so filed and incorporated by reference in the Offering Memorandum, when such documents are filed with the Commission, will conform 3 4 in all material respects to the requirements of the Exchange Act, and will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (c) the financial statements of U S WEST and the Guarantor, together with the related schedules and notes thereto, included and incorporated by reference in the Offering Memorandum present fairly the consolidated financial position of each such entity and its consolidated subsidiaries as of the dates indicated and the statement of operations, shareowners' equity and cash flows of each such entity and its consolidated subsidiaries for the periods specified; and said financial statements have been prepared in conformity with generally accepted accounting principles and practices applied on a consistent basis throughout the periods involved. The pro forma financial statements of the Guarantor and U S WEST and the related notes thereto included and incorporated by reference in the Offering Memorandum, to the best knowledge of the Company and the Guarantor, present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to the pro forma financial statements and have been properly compiled on the bases described therein and the assumptions used therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein; (d) since the respective dates as of which information is given in the Offering Memorandum, except as otherwise stated therein, (A) there has been no material adverse change in the financial condition or results of operations of the Company or of the Guarantor and its subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"), (B) there have been no transactions entered into by the Company or by the Guarantor or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company or the Guarantor and its subsidiaries, taken as a whole, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company or the Guarantor on any class of its capital stock, except for regular quarterly dividends on the Guarantor's common stock in amounts that are consistent with past practice; (e) this Agreement has been duly authorized, executed and delivered by each of the Company and the Guarantor; (f) the Indenture has been duly authorized, executed and delivered by each of the Company and the Guarantor and (assuming the due authorization, execution and delivery by the Trustee) constitutes the legal, valid and binding agreement of the Company and the Guarantor enforceable against each of them in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is 4 5 subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (g) the Registration Rights Agreement has been duly authorized by the Company and the Guarantor and, when executed and delivered by the Company and the Guarantor, will constitute a valid and binding agreement of each of the Company and the Guarantor, enforceable against the Company and the Guarantor in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and except that enforcement of rights to indemnification and contribution contained therein may be limited by applicable Federal or state laws or the public policy underlying such laws; (h) the Securities have been duly authorized and, at the Closing Date, will have been duly executed by the Company and, when authenticated, issued and delivered in the manner provided for in the Indenture and delivered against payment of the purchase price therefor as provided in this Agreement, will constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and entitled to the benefits of, the Indenture; (i) the Guarantees have been duly authorized and, at the Closing Date, will have been duly executed by the Guarantor and, when issued and delivered in the manner provided for in the Indenture, will constitute legal, valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and entitled to the benefits of, the Indenture; (j) the Exchange Notes (as defined in the Registration Rights Agreement) have been duly authorized and, when authenticated, issued and delivered in the manner provided for in the Indenture and issued and delivered in exchange for the Securities in the manner contemplated in the Registration Rights Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the 5 6 enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and entitled to the benefits of, the Indenture; (k) the Exchange Guarantees (as defined in the Registration Rights Agreement) have been duly authorized and, when authenticated, issued and delivered in the manner provided for in the Indenture and issued and delivered in the manner contemplated in the Registration Rights Agreement, will constitute valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (l) as of the Closing Date, the Securities, the Guarantees, the Exchange Notes, the Exchange Guarantees, the Indenture and the Registration Rights Agreement will conform in all material respects to the respective statements relating thereto contained in the Offering Memorandum; (m) the execution, delivery and performance of this Agreement and the Registration Rights Agreement and the consummation of the transactions contemplated herein and therein (including, without limitation, the issuance and sale of the Securities and the Guarantees) and compliance by the Company and the Guarantor with their respective obligations hereunder and thereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company, the Guarantor or any subsidiary of the Guarantor pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company, the Guarantor or any subsidiary of the Guarantor is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company, the Guarantor or any subsidiary of the Guarantor is subject (collectively, "AGREEMENTS AND INSTRUMENTS") (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or bylaws of the Company, the Guarantor or any subsidiary of the Guarantor or, to the best knowledge of the Company and the Guarantor, any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company, the Guarantor or any subsidiary of the Guarantor or any of their assets, 6 7 properties or operations. As used herein, a "REPAYMENT EVENT" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness of the Company, the Guarantor or any subsidiary of the Guarantor (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company, the Guarantor or any subsidiary of the Guarantor; (n) other than as set forth in the Offering Memorandum, there is not pending or, to the knowledge of the Company or the Guarantor, threatened any action, suit, proceeding, inquiry or investigation to which the Company, the Guarantor or any subsidiary of the Guarantor is a party or to which the assets, properties or operations of the Company, the Guarantor or any subsidiary of the Guarantor is subject, before or by any court or governmental agency or body, domestic or foreign, which might reasonably be expected to result in a Material Adverse Effect or which might reasonably be expected to materially and adversely affect the assets, properties or operations of the Company, the Guarantor and any subsidiary of the Guarantor, taken as a whole, or the consummation of the transactions contemplated by this Agreement or the Indenture or the performance by the Company or the Guarantor of their respective obligations thereunder; (o) the Guarantor and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "GOVERNMENTAL LICENSES") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them; the Guarantor and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Guarantor nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect; (p) none of the Company, the Guarantor or any of their respective affiliates (as defined in Rule 501(b) of Regulation D) has directly, or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the offering contemplated by the Offering Memorandum; (q) none of the Company, the Guarantor, any affiliate of the Company or the Guarantor or any person acting on its or their behalf has offered or sold the Securities by means of any general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act; 7 8 (r) the Securities satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act; (s) assuming the accuracy of the representations of the Initial Purchasers contained in Section 2 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities in the manner contemplated by this Agreement to register the Securities under the Securities Act or to qualify an indenture under the Trust Indenture Act of 1939 (the "TRUST INDENTURE ACT"); and (t) none of the transactions contemplated by this Agreement (including, without limitation, the use of the proceeds from the sale of the Securities) will violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including, without limitation, Regulations T, U, and X of the Board of Governors of the Federal Reserve System. 5. The Company and the Guarantor covenant and agree with each of the several Initial Purchasers as follows: (a) to deliver to the Initial Purchasers as many copies of the Offering Memorandum (including all amendments and supplements thereto) as the Initial Purchasers may reasonably request; (b) before distributing any amendment or supplement to the Offering Memorandum, to furnish to the Representatives a copy of the proposed amendment or supplement for review and not to distribute any such proposed amendment or supplement to which the Representatives reasonably object; (c) if, at any time prior to the earlier of (i) 9 months from the date of the Offering Memorandum and (ii) notice by the Representatives to the Company and the Guarantor of the completion of the initial placement of the Securities, any event shall occur as a result of which the Offering Memorandum as then amended or supplemented would include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply with law, forthwith to prepare and furnish, at the expense of the Company, to the Initial Purchasers and to the dealers (whose names and addresses the Representatives will furnish to the Company) to which Securities may have been sold by the Initial Purchasers on behalf of the Initial Purchasers and to any other dealers upon request, such amendments or supplements to the Offering Memorandum as may be necessary to correct such statement or omission or to effect compliance with law; (d) to endeavor to qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and to continue such qualification in effect so long as reasonably required for distribution of the Securities; PROVIDED that the Company 8 9 shall not be required to file a general consent to service of process in any jurisdiction; (e) during the period of two years after the date hereof, to furnish to the Initial Purchasers, as soon as practicable after the end of each fiscal year, a copy of the Guarantor's annual report to shareholders, if any, for such year, and to furnish to the Initial Purchasers and to counsel to the Initial Purchasers, (i) as soon as available, a copy of each report of the Guarantor filed with the Commission under the Exchange Act or mailed to stockholders, and (ii) from time to time, such other information concerning the Guarantor or the Company as the Initial Purchasers may reasonably request; (f) during the period beginning on the date hereof and continuing to and including the Business Day following the Closing Date, not to, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any of its senior debt securities having a maturity of one year or more without the prior written consent of the Representatives; (g) to use the net proceeds received by the Company from the sale of the Securities pursuant to this Agreement in the manner specified in the Offering Memorandum under the caption "Use of Proceeds"; (h) to furnish to the holders of the Securities no later than 90 days after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Guarantor and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the date of the Offering Memorandum), consolidated summary financial information of the Guarantor and its subsidiaries of such quarter in reasonable detail; (i) during the period of two years after the Closing Date, the Company and the Guarantor will not, and will not permit any of their respective controlled "affiliates" (as defined in Rule 144 under the Securities Act) to, resell any of the Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them; (j) whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder and under the Registration Rights Agreement, including without limiting the generality of the foregoing, all fees, costs and expenses (i) incident to the preparation, issuance, execution, authentication and delivery of the Securities, including any expenses of the Trustee, (ii) incident to the preparation, printing and distribution of the Offering Memorandum (including all exhibits, amendments and supplements thereto), (iii) incurred in connection with the registration or qualification and determination of eligibility for investment of the Securities under the laws of such jurisdictions as 9 10 the Representatives may designate (including reasonable fees of counsel for the Initial Purchasers and their disbursements) and the printing of memoranda relating thereto, (iv) in connection with the approval for trading of the Securities on any securities exchange or inter-dealer quotation system (as well as in connection with the designation of the Securities as PORTAL securities, if so requested), (v) in connection with the printing (including word processing and duplication costs) and delivery of this Agreement, the Indenture, any Preliminary and Supplemental Blue Sky Memoranda and any Legal Investment Survey and the furnishing to Initial Purchasers and dealers of copies of the Offering Memorandum, including mailing and shipping, as herein provided, (vi) payable to rating agencies in connection with the rating of the Securities, if applicable, and (vii) any expenses incurred by the Company in connection with a "road show" presentation to potential investors; (k) while the Securities remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) and cannot be sold without restriction under Rule 144(k) under the Securities Act, the Company and the Guarantor will, during any period in which the Guarantor is not subject to Section 13 or 15(d) under the Exchange Act or is not complying with the reporting requirements thereof, make available to the purchasers and any holder of Securities in connection with any sale thereof and any prospective purchaser of Securities and securities analysts, in each case upon request, the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act (or any successor thereto); (l) neither the Company nor the Guarantor will take any action prohibited by Regulation M under the Exchange Act, in connection with the distribution of the Securities contemplated hereby; (m) none of the Company, the Guarantor, any of their respective affiliates (as defined in Rule 501(b) under the Securities Act) or any person acting on behalf of the Company, the Guarantor or such affiliate will solicit any offer to buy or offer or sell the Securities by means of any form of general solicitation or general advertising, including: (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar medium or broadcast over television or radio; and (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising; and (n) none of the Company, the Guarantor, any of their respective affiliates (as defined in Regulation 501(b) of Regulation D under the Securities Act) or any person acting on behalf of the Company, the Guarantor or such affiliate will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) which will be integrated with the sale of the Securities in a manner which would require the registration under the Securities Act of the Securities and the Company and the Guarantor will take all action that is appropriate or necessary to assure that its offerings of other securities will not be integrated for purposes of the Securities Act with the offering contemplated hereby. 10 11 6. The several obligations of the Initial Purchasers hereunder to purchase the Securities on the Closing Date are subject to the performance by the Company and the Guarantor of their respective obligations hereunder and to the following additional conditions: (a) the representations and warranties of the Company and the Guarantor contained herein are true and correct on and as of the Closing Date as if made on and as of the Closing Date, the statements of the officers of the Company and the Guarantor made pursuant to Section 6(e) hereof are true and correct and the Company and the Guarantor shall have complied with all agreements and all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date; (b) except as previously disclosed to the Initial Purchasers by in writing the Company or the Guarantor prior to the execution of this Agreement, on or after the date of this Agreement and prior to the Closing Date, there shall not have occurred any downgrading, nor shall any notice have been given of (i) any downgrading, (ii) any intended or potential downgrading or (iii) any review or possible change that does not indicate an improvement, in the rating accorded any debt securities of or guaranteed by the Company or the Guarantor by any "nationally recognized statistical rating organization", as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; (c) since the respective dates as of which information is given in the Offering Memorandum, there shall not have been any change in the financial condition of the Company or of the Guarantor and its subsidiaries, taken as a whole, or in the earnings, affairs or business prospects of the Company or of the Guarantor and its subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Offering Memorandum as at the date hereof, the effect of which is, in the judgment of the Representatives, so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Securities on the Closing Date on the terms and in the manner contemplated in the Offering Memorandum; (d) the Representatives shall have received on and as of the Closing Date a certificate of the President, any Vice President, the Treasurer, any Assistant Treasurer or the Associate General Counsel of the Company in which such officers shall state that, to the best of their knowledge after reasonable investigation, the representations and warranties of the Company in this Agreement are true and correct as if made at and as of the Closing Date, that the Company has complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date and that, since the respective dates as of which information is given in the Offering Memorandum, there has been no material adverse change in the financial condition or results of operations of the Company, or, to the best knowledge of the Company, of Qwest, and its subsidiaries, taken as a whole, except as set forth in or contemplated by the Offering Memorandum as at the date hereof; 11 12 (e) the Representatives shall have received on and as of the Closing Date a certificate of the Chief Executive Officer, the President, any Vice President, the Treasurer, any Assistant Treasurer, or the Associate General Counsel of the Guarantor in which such officers shall state that, to the best of their knowledge after reasonable investigation, the representations and warranties of the Guarantor in this Agreement are true and correct as if made at and as of the Closing Date, that the Guarantor has complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date and that, since the respective dates as of which information is given in the Offering Memorandum, there has been no material adverse change in the financial condition or results of operations of the Guarantor and its subsidiaries, taken as a whole, except as set forth in or contemplated by the Offering Memorandum; (f) Holme Roberts & Owen LLP shall have furnished to the Initial Purchasers their written opinion, dated the Closing Date, in form and substance satisfactory to the Initial Purchasers, to the effect that: (i) The Company is a corporation duly incorporated, and is validly existing and in good standing under the laws of the State of Colorado, with corporate power to own, lease and operate its properties and to carry on its business as now being conducted. (ii) The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement has been duly executed and delivered by the Company. (iii) The execution, delivery and performance of the Indenture has been duly authorized by all necessary corporate action on the part of the Company, and the Indenture has been duly executed and delivered by the Company. (iv) The Registration Rights Agreement has been duly authorized by all necessary corporate action on the part of the Company, and the Registration Rights Agreement has been duly executed and delivered by the Company. In rendering such opinion, such counsel may rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and of public officials The opinion of Holme Roberts & Owen LLP described above shall be rendered to the Initial Purchasers at the request of the Company and shall so state therein. 12 13 (g) O'Melveny & Myers LLP shall have furnished to the Initial Purchasers their written opinion, dated the Closing Date, in form and substance satisfactory to the Initial Purchasers, to the effect that: (i) The Guarantor is a corporation duly incorporated, and is validly existing in good standing under the laws of the State of Delaware, with corporate power to own, lease and operate its properties and to carry on its business as described in the Offering Memorandum. (ii) The execution, delivery and performance of the Indenture have been duly authorized by all necessary corporate action on the part of the Guarantor, and the Indenture has been duly executed and delivered by the Guarantor. (iii) The execution, delivery and performance of this Agreement and the Registration Rights Agreement have been duly authorized by all necessary corporate action on the part of the Guarantor, and this Agreement and the Registration Rights Agreement have been duly executed and delivered by the Guarantor. (iv) The Indenture constitutes the legally valid and binding obligation of each of the Company and the Guarantor, enforceable against each of the Company and the Guarantor in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditor's rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. (v) The Securities, when duly executed and authenticated in the manner contemplated by the Indenture and issued and delivered to the Initial Purchasers against payment therefor in accordance with the provisions hereof, will be legally valid and binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditor's rights generally (including, without limitation, fraudulent conveyance laws), and by general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. (vi) The Guarantees, when duly executed in the manner contemplated by the Indenture and issued and delivered to the Initial Purchasers in 13 14 accordance with the provisions hereof, will be legally valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditor's rights generally (including, without limitation, fraudulent conveyance laws), and by general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. (vii) The Exchange Notes (as defined in the Registration Rights Agreement), when duly executed in the manner contemplated in the Indenture and issued and delivered in exchange for the Securities in the manner contemplated in the Registration Rights Agreement, will be legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to affecting creditors rights generally (including, without limitation, fraudulent conveyance laws), and by general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. (viii) The Exchange Guarantees (as defined in the Registration Rights Agreement), when duly executed in the manner contemplated in the Indenture and issued and delivered in the manner contemplated in the Registration Rights Agreement, will be legally valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or effecting creditors rights generally (including, without limitation, fraudulent conveyance laws), and by general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. (ix) The Registration Rights Agreement constitutes the legally valid and binding obligation of the Company and the Guarantor, enforceable against the Company and the Guarantor in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditor's rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and except that no opinion is 14 15 expressed with respect to the provisions contained in Section 4 of the Registration Rights Agreement. (x) No order, consent, permit or approval of or filing with any federal governmental authority is required on the part of the Company or the Guarantor for the execution and delivery of this Agreement, the Indenture or the issuance and sale of the Securities and the Guarantees to the Initial Purchasers pursuant to the terms of this Agreement, except such as may be required under applicable blue sky or state securities laws. (xi) The statements in the Offering Memorandum under the headings "Description of Notes", "Exchange Offer; Registration Rights" and "Notice to Investors", insofar as they summarize provisions of the Indenture or the Securities or constitute a summary of certain provisions of the documents referred to therein, fairly summarize the matters referred to therein. (xii) The Securities satisfy the requirement set forth in Rule 144A(d)(3) under the Securities Act. (xiii) Based upon the representations, warranties and agreements of the Company and the Guarantor in Sections 4(p), 4(q), 4(r), 5(m), 5(n) and 6(a) of this Agreement and of the Initial Purchasers in Section 2 of this Agreement and on the truth and accuracy of the representations and agreements deemed to be made by the purchasers of the Securities contained in the Offering Memorandum, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers under this Agreement or in connection with the initial resale of such Securities by the Initial Purchasers in accordance with Section 2 of this Agreement to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act; provided, however, that such counsel need not express any opinion with respect to the conditions under which the Securities may be further resold. (xiv) The documents incorporated by reference in the Offering Memorandum, on the respective dates they were filed, appeared on their face to comply in all material respects with the requirements as to form for reports on Form 10-K, Form 10-Q and Form 8-K, as the case may be, under the Securities Exchange Act of 1934, as amended, and Form S-4 under the Securities Act, and the related rules and regulations in effect at the respective dates of their filings, except that such counsel need express no opinion concerning the financial statements and other financial information contained or incorporated by reference therein. In rendering such opinion, such counsel may rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and the Guarantor and of public officials. Such counsel may also rely as to matters of Colorado law upon the opinion of Holme Roberts & Owen LLP 15 16 without independent verification. Such counsel need express no opinion as to matters relating to the Federal Communications Commission or any state public utilities commission or similar authority for the Company or the Guarantor, as applicable. In addition, such counsel may state that in connection with such counsel's participation in conferences in connection with the preparation of the Offering Memorandum, such counsel has not independently verified the accuracy, completeness or fairness of the statements contained or incorporated therein, and the limitations inherent in the examination made by such counsel and the knowledge available to such counsel are such that such counsel is unable to assume, and does not assume, any responsibility for such accuracy, completeness or fairness (except as otherwise specifically stated in paragraph (xii) above). However, such counsel shall state that on the basis of such counsel's review of the Offering Memorandum and the documents incorporated by reference therein and their participation in conferences in connection with the preparation of the Offering Memorandum, such counsel does not believe that the Offering Memorandum and the documents incorporated therein, considered as a whole, as of its issue date or on the date of the opinion, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. However, such counsel need express no opinion or belief as to the financial statements and other financial information contained or incorporated by reference in the Offering Memorandum or in the documents incorporated therein by reference. Such opinion may state that it does not address the impact on the opinions contained therein of any litigation or ruling relating to the divestiture by American Telephone and Telegraph Company of ownership of its operating telephone companies (the "DIVESTITURE"). The opinion of O'Melveny & Myers LLP described above shall be rendered to the Initial Purchasers at the request of the Company and shall so state therein. (h) Yash A. Rana, Esq., Associate General Counsel for the Company and the Guarantor shall have furnished to the Initial Purchasers his written opinion, dated the Closing Date, in form and substance satisfactory to the Initial Purchasers, to the effect that: (i) The execution, delivery and performance of this Agreement and the Registration Rights Agreement have been duly authorized by all necessary corporate action on the part of the Guarantor, and this Agreement has been duly executed and delivered by the Guarantor. (ii) All state regulatory consents, approvals, authorizations or other orders (except as to the state securities or blue sky laws, as to which such counsel need express no opinion) legally required for the execution of the Indenture and the issuance and sale of the Securities and Guarantees to the 16 17 Initial Purchasers pursuant to the terms of this Agreement have been obtained; provided that such counsel may rely on opinions of local counsel satisfactory to such counsel. (iii) To such counsel's knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation to which the Company, the Guarantor or any subsidiary of the Guarantor is a party or to which the assets, properties or operations of the Company, the Guarantor or any subsidiary of the Guarantor is subject, before or by any court or governmental agency or body, domestic or foreign, which (a) might reasonably be expected to result in a Material Adverse Effect, or (b) might reasonably be expected to materially and adversely affect the consummation by the Company or the Guarantor of the transactions contemplated by this Agreement, the Registration Rights Agreement or the Securities or the Indenture or the performance by the Company or the Guarantor of their respective obligations hereunder or thereunder. (iv) The execution, delivery and performance of this Agreement and the Registration Rights Agreement by the Company and the Guarantor will not (A) violate the charter or bylaws of the Company or the Guarantor, or (B) violate, breach or result in a default under any material contract, indenture, mortgage, loan agreement, note, lease or other material agreement known to such counsel; provided that such counsel need express no opinion as to the effect of the Company's or Guarantor's performance of its obligations under this Agreement or the Registration Rights Agreement on the compliance by the Company or the Guarantor with financial covenants in any such contract, indenture, mortgage, loan agreement, note, lease or other agreement. (v) To such counsel's knowledge, neither the Company, the Guarantor nor any of its subsidiaries is in violation of its charter or bylaws. Such counsel may state that is does not address the impact of the opinions contained therein on any litigation or ruling relating to the Divestiture. Such counsel need express no opinion with respect to matters relating to the Federal Communications Commission or state public utilities commissions for the Company or the Guarantor, as applicable. (i) Hogan & Hartson shall have furnished to the Initial Purchasers their written opinion, dated the Closing Date, in form and substance satisfactory to the Initial Purchasers, to the effect that no consent, approval, authorization or other action by, or filing or registration with, any federal or state government authority is required in connection with the execution and delivery by the Company or the Guarantor of this Agreement or the issuance and sale of the Securities to the Initial Purchasers pursuant to the terms of this Agreement. 17 18 (j) on the date of the issuance of the Offering Memorandum and also on the Closing Date, Arthur Andersen LLP and KPMG LLP shall have furnished to the Initial Purchasers letters, dated the respective dates of delivery thereof, in form and substance satisfactory to the Representatives, containing statements and information of the type customarily included in accountants "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Offering Memorandum; (k) the Initial Purchasers shall have received on and as of the Closing Date an opinion of Brown & Wood LLP, counsel to the Initial Purchasers, with respect to the validity of the Indenture and the Securities, and such other related matters as the Initial Purchasers may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (l) the Initial Purchasers shall have received prior to the Closing Date a copy of the Registration Rights Agreement, in the form and substance satisfactory to the Initial Purchasers, duly executed by the Company and the Guarantor, and the Registration Rights Agreement shall be in full force and effect at the Closing Date; and (m) on or prior to the Closing Date the Company shall have furnished to the Initial Purchasers such further certificates and documents as the Initial Purchasers shall reasonably request. 7. (a) The Company and the Guarantor jointly and severally agree to indemnify and hold harmless each Initial Purchaser against any losses, claims, damages or liabilities, joint or several, to which such Initial Purchaser may become subject, as incurred, under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Preliminary Offering Memorandum or the Offering Memorandum or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse each Initial Purchaser, as incurred, for any legal or other expenses reasonably incurred by such Initial Purchaser in connection with investigating or defending any such loss, claim, damage, liability or action or amounts paid in settlement of any litigation or investigation or proceeding related thereto if such settlement is effected with the written consent of the Company and the Guarantor; PROVIDED, HOWEVER, that the Company and the Guarantor will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any of such documents in reliance upon and in conformity with written information furnished to the Company or the Guarantor by any Initial Purchaser, or on behalf of any Initial Purchaser by the Representatives, specifically for use therein; and PROVIDED, FURTHER, that with respect to any untrue statement or omission or alleged untrue statement or omission made in the Preliminary Offering Memorandum, the 18 19 indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Initial Purchaser from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that any such loss, claim, damage or liability of such Initial Purchaser results from the fact that a copy of the Offering Memorandum (excluding material incorporated therein by reference) was not delivered to such person, if such Offering Memorandum corrected any such untrue statement or omission or alleged untrue statement or omission. (b) Each Initial Purchaser will indemnify and hold harmless the Company and the Guarantor against any losses, claims, damages or liabilities to which the Company or the Guarantor may become subject, as incurred, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Preliminary Offering Memorandum or the Offering Memorandum or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or the Guarantor by such Initial Purchaser, or on behalf of such Initial Purchaser by the Representatives, specifically for use therein, and will reimburse the Company and the Guarantor, as incurred, for any legal or other expenses reasonably incurred by the Company and the Guarantor in connection with investigating or defending any such loss, claim, damage, liability or action. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 7. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. The indemnifying party or parties shall not be liable under this Agreement with respect to any settlement made by any indemnified party or parties without prior written consent by the indemnifying party or parties to such settlement. (d) If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then 19 20 each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantor on the one hand and the Initial Purchasers on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantor on the one hand and the Initial Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantor on the one hand and the Initial Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Initial Purchasers. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Guarantor or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased by it were offered exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations in this subsection (d) to contribute are several in proportion to the respective principal amount of the Securities set forth opposite their names in Schedule I hereto, and not joint. (e) The obligations of the Company and the Guarantor under this Section 7 shall be in addition to any liability which the Company or the Guarantor may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Initial Purchasers under this Section 7 shall be in addition to any liability which the respective Initial Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company or the Guarantor within the meaning of the Securities Act or the Exchange Act. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Initial Purchaser or any person 20 21 controlling any Initial Purchaser or by or on behalf of the Company or the Guarantor or any person controlling the Company or the Guarantor and (iii) acceptance of and payment for any of the Securities. 8. Notwithstanding anything herein contained, this Agreement may be terminated in the absolute discretion of the Initial Purchasers, by notice given to the Company and the Guarantor, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market, the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of or guaranteed by the Company or the Guarantor shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities, or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Initial Purchasers, is material and adverse and which, in the judgment of the Initial Purchasers, makes it impracticable to market the Securities on the terms and in the manner contemplated in the Offering Memorandum. 9. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. 10. If, on the Closing Date any one or more of the Initial Purchasers shall fail or refuse to purchase Securities which it or they have agreed to purchase hereunder on such date, and the aggregate principal amount of Securities which such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase is not more than one-tenth of the aggregate principal amount of the Securities to be purchased on such date, the other Initial Purchasers shall be obligated severally in the proportions that the principal amount of Securities set forth opposite their respective names in Schedule I bears to the aggregate principal amount of Securities set forth opposite the names of all such non-defaulting Initial Purchasers, or in such other proportions as the Initial Purchasers may specify, to purchase the Securities which such defaulting Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase on such date; PROVIDED that in no event shall the principal amount of Securities that any Initial Purchaser has agreed to purchase pursuant to Section 1 be increased pursuant to this Section 10 by an amount in excess of one-tenth of such principal amount of Securities without the written consent of such Initial Purchaser. If, on the Closing Date any Initial Purchaser or Initial Purchasers shall fail or refuse to purchase Securities which it or they have agreed to purchase hereunder on such date, and the aggregate principal amount of Securities with respect to which such default occurs is more than one-tenth of the aggregate principal amount of Securities to be purchased on such date, and arrangements satisfactory to the Initial Purchasers, the Company and the Guarantor for the purchase of such Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Initial Purchaser, the Company or the Guarantor. In any such case either the Initial Purchasers, the Company or the Guarantor shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, 21 22 in the Offering Memorandum or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Initial Purchaser from liability in respect of any default of such Initial Purchaser under this Agreement. 11. If this Agreement shall be terminated by the Initial Purchasers, or any of them, because of any failure or refusal on the part of the Company or the Guarantor to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company or the Guarantor shall be unable to perform its obligations under this Agreement or any condition of the Initial Purchasers' obligations cannot be fulfilled, (i) the Company and the Guarantor shall remain responsible for the expenses to be paid or reimbursed by them pursuant to Section 5(j) and (ii), except in the event this Agreement is terminated pursuant to clauses (i), (iii) or (iv) of Section 8, the Company and the Guarantor agree to reimburse the Initial Purchasers or such Initial Purchasers as have so terminated this Agreement with respect to themselves, severally, for the out-of-pocket expenses reasonably incurred by such Initial Purchasers in connection with this Agreement or the offering contemplated hereunder, not exceeding $75,000, and for the fees and disbursements of their counsel. 12. This Agreement shall inure to the benefit of and be binding upon the Company, the Guarantor, the Initial Purchasers, any controlling persons referred to herein and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor by reason merely of such purchase. 13. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Initial Purchasers shall be given to the Initial Purchasers c/o Salomon Smith Barney, Inc., 388 Greenwich Street, New York, New York 10013 (telefax: (212) 316-5711); Attention: Office of the General Counsel. Notices to the Company and the Guarantor shall be given to each of them at 1801 California Street, Denver, Colorado 80202 (telefax: (303) 896-6468); Attention: Sean P. Foley, with a copy to General Counsel (telefax: (303) 296-5974). 14. This Agreement may be signed in counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF. 22 23 If the foregoing is in accordance with your understanding, please sign and return counterparts hereof. Very truly yours, QWEST CAPITAL FUNDING, INC. By: /s/ YASH RANA ------------------------------------- Name: Yash Rana Title: Associate General Counsel QWEST COMMUNICATIONS INTERNATIONAL INC. By: /s/ YASH RANA ------------------------------------- Name: Yash Rana Title: Associate General Counsel Accepted: August 16, 2000 SALOMON SMITH BARNEY INC. LEHMAN BROTHERS INC. By: SALOMON SMITH BARNEY INC. By: /s/ ALAN B. MITCHELL ----------------------- Name: Alan B. Mitchell Title: Vice President For themselves and as Representatives of the other Initial Purchasers named in Schedule I hereto. 23 24 SCHEDULE I
Principal Amount Principal Amount of 2006 Notes of 2010 Notes Initial Purchaser To Be Purchased To Be Purchased ----------------- ---------------- ---------------- Salomon Smith Barney Inc............................................. $ 384,050,000 $ 634,375,000 Lehman Brothers Inc.................................................. 384,050,000 634,375,000 J.P. Morgan Securities Inc........................................... 56,250,000 78,750,000 Banc of America Securities LLC....................................... 56,250,000 78,750,000 Chase Securities Inc................................................. 56,250,000 78,750,000 Donaldson, Lufkin & Jenrette Securities Corporation.................. 138,150,000 0 Goldman, Sachs & Co.................................................. 56,250,000 78,750,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated............................................. 56,250,000 78,750,000 ABN AMRO Incorporated................................................ 4,807,693 6,730,770 Banc One Capital Markets, Inc........................................ 4,807,693 6,730,770 Commerzbank Capital Markets Corp..................................... 4,807,693 6,730,770 Deutsche Bank Securities Inc......................................... 4,807,693 6,730,769 First Union Securities, Inc.......................................... 4,807,692 6,730,769 FleetBoston Robertson Stephens Inc................................... 4,807,692 6,730,769 McDonald Investments, Inc............................................ 4,807,692 6,730,769 Mellon Financial Markets, LLC........................................ 4,807,692 6,730,769 RBC Dominion Securities Corporation.................................. 4,807,692 6,730,769 U.S. Bancorp Piper Jaffray Inc....................................... 4,807,692 6,730,769 Utendahl Capital Partners, L.P....................................... 4,807,692 6,730,769 Wells Fargo Brokerage Securities, LLC................................ 4,807,692 6,730,769 The Williams Capital Group, L.P...................................... 4,807,692 6,730,769 ---------------- ---------------- Total $ 1,250,000,000 $1,750,000,000 ---------------- ----------------
Sch I-1 EX-10.45 3 d81481ex10-45.txt REGISTRATION RIGHTS AGREEMENT DATED 8/16/00 1 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made and entered into as of August 16, 2000 among Qwest Communications International Inc., a Delaware corporation (the "Guarantor"), Qwest Capital Funding, Inc., a Colorado corporation (the "COMPANY"), and the Initial Purchasers (as hereinafter defined). This Agreement is made pursuant to the Purchase Agreement dated August 16, 2000 (the "PURCHASE AGREEMENT"), among the Guarantor, the Company, as issuer of the 7.75% Notes due August 15, 2006 and the 7.90% Notes due August 15, 2010 (the "Notes"), and the Initial Purchasers, which provides for, among other things, the sale by the Company to the Initial Purchasers of the aggregate principal amount of Notes specified therein. The Notes will be unconditionally guaranteed as to payment of principal, premium, if any, and interest by the Guarantor (the "Guarantees", and together with the Notes, the "Securities"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Guarantor and the Company have agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. DEFINITIONS. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "ADVICE" shall have the meaning set forth in the last paragraph of Section 3 hereof. "AFFILIATE" has the same meaning as given to that term in Rule 405 under the Securities Act or any successor rule thereunder. "APPLICABLE PERIOD" shall have the meaning set forth in Section 3(s) hereof. "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 required by law or executive order to remain closed. "CLOSING TIME" shall mean the Closing Time as defined in the Purchase Agreement. "COMPANY" shall have the meaning set forth in the preamble to this Agreement and also includes the Company's successors and permitted assigns. "DEPOSITARY" shall mean The Depository Trust Company, or any other depositary appointed by the Company; PROVIDED, HOWEVER, that such depositary must have an address in the Borough of Manhattan, The City of New York. "EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2(b) hereof. 2 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended from time to time. "EXCHANGE GUARANTEES" shall mean the Guarantor's unconditional guarantee of principal, premium, if any, and interest of the Exchange Notes containing terms identical in all material respects to the Guarantees. "EXCHANGE NOTES" shall mean the 7.75% Notes due August 15, 2006 and the 7.90% Notes due August 15, 2010 issued by the Company under the Indenture containing terms identical in all material respects to the Notes (except that (i) interest thereon shall accrue from the last date on which interest was paid or duly provided for on the Notes or, if no such interest has been paid, from the date of their original issue, (ii) they will not contain terms with respect to transfer restrictions under the Securities Act, (iii) they will not provide for any Special Interest Premium thereon and (iv) they will be entitled to the benefit of the Exchange Guarantees) to be offered to Holders of Notes in exchange for Notes pursuant to the Exchange Offer. "EXCHANGE OFFER" shall mean the offer by the Company to the Holders to exchange all of the Registrable Securities for a like amount of Exchange Notes pursuant to Section 2(a) hereof. "EXCHANGE OFFER REGISTRATION" shall mean a registration under the Securities Act effected pursuant to Section 2(a) hereof. "EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "EXCHANGE PERIOD" shall have the meaning set forth in Section 2(a) hereof. "GUARANTEES" shall have the meaning set forth in the preamble to this Agreement. "HOLDER" shall mean any Initial Purchaser, for so long as it owns any Registrable Securities, and each of its successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities under the Indenture. "INDENTURE" shall mean the Indenture, dated as of June 29, 1998, between the Company, as issuer, the Guarantor (as successor to US WEST, Inc.) and Bank One Trust Company, National Association, as trustee, as the same may be amended or supplemented from time to time in accordance with the terms thereof. "INITIAL PURCHASERS" shall mean Salomon Smith Barney Inc., Lehman Brothers Inc., J.P. Morgan Securities Inc., Banc of America Securities LLC, Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, ABN AMRO Incorporated, Banc One Capital Markets, Inc., Commerzbank Capital Markets Corp., Deutsche Bank Securities Inc., First Union Securities, Inc., FleetBoston Robertson Stephens Inc., McDonald Investments, Inc., Mellon Financial Markets, LLC, RBC Dominion Securities Corporation, U.S. Bancorp Piper Jaffray Inc., Utendahl 2 3 Capital Partners, L.P., Wells Fargo Brokerage Services, LLC, and The Williams Capital Group, L.P. "INSPECTORS" shall have the meaning set forth in Section 3(n) hereof. "ISSUE DATE" shall mean August 21, 2000, the initial date of delivery of the Notes from the Company to the Initial Purchasers. "ISSUER" shall mean the Company as defined in the preamble hereto. "MAJORITY HOLDERS" shall mean the Holders of a majority of the aggregate principal amount of outstanding Notes and Exchange Notes. "NOTES" shall have the meaning set forth in the preamble to this Agreement. "PARTICIPATING BROKER-DEALER" shall have the meaning set forth in Section 3(t) hereof. "PERSON" shall mean an individual, partnership, corporation, trust or unincorporated organization, limited liability corporation, or a government or agency or political subdivision thereof. "PROSPECTUS" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all documents incorporated by reference therein. "PURCHASE AGREEMENT" shall have the meaning set forth in the preamble to this Agreement. "RECORDS" shall have the meaning set forth in Section 3(n) hereof. "REGISTRABLE SECURITIES" shall mean the Securities; PROVIDED, HOWEVER, that any Securities shall cease to be Registrable Securities when any of the following occurs: (i) a Registration Statement with respect to such Securities for the exchange or resale thereof shall have been declared effective under the Securities Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities shall have been sold to the public pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) under the Securities Act or are eligible to be sold without restriction as contemplated by Rule 144(k), (iii) such Securities shall have ceased to be outstanding or (iv) such Securities shall have been exchanged for Exchange Notes together with the Exchange Guarantees upon consummation of the Exchange Offer and are thereafter freely tradable by the Holder thereof (other than an Affiliate of the Company or the Guarantor). "REGISTRATION EXPENSES" shall mean any and all expenses incident to performance of or compliance by the Company and the Guarantor with this Agreement, including without limitation: (i) all SEC or National Association of Securities Dealers, Inc. (the "NASD") 3 4 registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any Holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of one counsel for all underwriters and Holders as a group in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities) and compliance with the rules of the NASD, (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, and in preparing or assisting in preparing, printing and distributing any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) the fees and disbursements of counsel for the Company and the Guarantor and of the independent certified public accountants of the Company and the Guarantor and its subsidiaries, including the expenses of any "cold comfort" letters required by or incident to the performance of and compliance with this Agreement, (vi) the reasonable fees and expenses of the Trustee and its counsel and any exchange agent or custodian, and (vii) the reasonable fees and expenses of any special experts retained by the Company and the Guarantor in connection with any Registration Statement. "REGISTRATION STATEMENT" shall mean any registration statement of the Company and the Guarantor which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "RULE 144(k) PERIOD" shall mean the period of two years (or such shorter period as may hereafter be referred to in Rule 144(k) under the Securities Act (or similar successor rule)) commencing on the Issue Date. "SEC" shall mean the Securities and Exchange Commission. "SECURITIES" shall have the meaning set forth in the preamble to this Agreement. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended from time to time. "SHELF REGISTRATION" shall mean a registration effected pursuant to Section 2(b) hereof. "SHELF REGISTRATION EVENT" shall have the meaning set forth in Section 2(b) hereof. "SHELF REGISTRATION EVENT DATE" shall have the meaning set forth in Section 2(b) hereof. "SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2(b) hereof which covers all of the Registrable Securities (except Registrable Securities which the Holders have elected not to include in such Shelf Registration Statement or the Holders of which have not complied with their obligations under the penultimate paragraph of Section 3 hereof or under the first paragraph of Section 2(b) hereof) on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, 4 5 including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "SPECIAL INTEREST PREMIUM" shall have the meaning set forth in Section 2(e) hereof. "TIA" shall have the meaning set forth in Section 3(k) hereof. "TRUSTEE" shall mean the trustee under the Indenture. 2. REGISTRATION UNDER THE SECURITIES ACT. (a) EXCHANGE OFFER. Except as set forth in Section 2(b) below, the Company and the Guarantor shall, for the benefit of the Holders, at the Company's cost, use its reasonable best efforts to (i) file with the SEC within 150 calendar days after the Issue Date an Exchange Offer Registration Statement on an appropriate form under the Securities Act relating to the Exchange Offer, (ii) cause such Exchange Offer Registration Statement to be declared effective under the Securities Act by the SEC not later than the date which is 210 calendar days after the Issue Date, (iii) keep such Exchange Offer Registration Statement effective for not less than 30 calendar days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to the Holders and (iv) cause the Exchange Offer to be consummated within 240 calendar days after the Issue Date. Promptly after the effectiveness of the Exchange Offer Registration Statement, the Company shall commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for a like principal amount of Exchange Notes together with the Exchange Guarantees (provided that such Holder (i) is not an Affiliate of the Company or the Guarantor, (ii) is not a broker-dealer tendering Registrable Securities acquired directly from the Company, (iii) acquires the Exchange Securities in the ordinary course of such Holder's business and (iv) has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing the Exchange Securities) to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and under state securities or blue sky laws. In connection with the Exchange Offer, the Company and the Guarantor shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) keep the Exchange Offer open for acceptance for a period of not less than 30 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "EXCHANGE PERIOD"); (iii) utilize the services of the Depositary for the Exchange Offer with respect to Notes represented by a global certificate; (iv) permit Holders to withdraw tendered Registrable Securities at any time prior to the close of business, New York City time, on the last Business Day of the Exchange Period, by sending to the institution specified in the notice to Holders, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable 5 6 Securities delivered for exchange, and a statement that such Holder is withdrawing his election to have such Registrable Securities exchanged; (v) notify each Holder that any Registrable Security not tendered by such Holder in the Exchange Offer will remain outstanding and continue to accrue interest but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and Participating Broker-Dealers as provided herein); and (vi) otherwise comply in all respects with all applicable laws relating to the Exchange Offer. As soon as practicable after the close of the Exchange Offer, the Company and the Guarantor shall: (i) accept for exchange all Registrable Securities or portions thereof duly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and letter of transmittal which is an exhibit thereto; (ii) deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Company and the Guarantor; and (iii) issue, and cause the Trustee under the Indenture to promptly authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the principal amount of the Notes as are surrendered by such Holder, and the Guarantor will execute the Exchange Guarantees. Interest on each Exchange Note issued pursuant to the Exchange Offer will accrue from the last date on which interest was paid or duly provided for on the Note surrendered in exchange therefor or, if no interest has been paid on such Note, from the Issue Date. To the extent not prohibited by any law or applicable interpretation of the staff of the SEC, the Company and the Guarantor shall use reasonable best efforts to complete the Exchange Offer as provided above, and shall comply with the applicable requirements of the Securities Act, the Exchange Act and other applicable laws in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions other than the conditions referred to in Section 2(b)(i) and (ii) below and those conditions that are customary in similar exchange offers. Each Holder of Registrable Securities who wishes to exchange such Registrable Securities for Exchange Securities in the Exchange Offer will be required to make certain customary representations in connection therewith, including, in the case of any Holder, representations that (i) it is not an Affiliate of the Company or the Guarantor, (ii) it is not a broker-dealer tendering Registrable Securities acquired directly from the Company, (iii) the Exchange Securities to be received by it are being acquired in the ordinary course of its business and (iv) at the time of the Exchange Offer, it has no arrangements or understandings with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities. The Company and the Guarantor shall inform the Initial Purchasers, after consultation with the Trustee, of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders in order to facilitate the tender of Registrable Securities in the Exchange Offer. 6 7 Upon consummation of the Exchange Offer in accordance with this Section 2(a), the provisions of this Agreement shall continue to apply, MUTATIS MUTANDIS, solely with respect to Exchange Securities held by Participating Broker-Dealers, and the Company and the Guarantor shall have no further obligation to register the Registrable Securities held by any Holder pursuant to Section 2(b) of this Agreement. (b) SHELF REGISTRATION. If (i) because of any change in law or in currently prevailing interpretations thereof by the staff of the SEC, the Company or the Guarantor is not permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof, (ii) the Exchange Offer is not consummated within 240 days after the Issue Date or (iii) upon the request of any Initial Purchaser with respect to any Registrable Securities held by it, if such Initial Purchaser is not permitted, in the reasonable opinion of Brown & Wood LLP, pursuant to applicable law or applicable interpretations of the staff of the SEC, to participate in the Exchange Offer and thereby receive securities that are freely tradeable without restriction under the Securities Act and applicable blue sky or state securities laws (other than due solely to the status of such Initial Purchaser as an Affiliate of the Company or the Guarantor or as a Participating Broker-Dealer)(any of the events specified in (i), (ii) or (iii) being a "SHELF REGISTRATION EVENT", and the date of occurrence thereof, the "SHELF REGISTRATION EVENT DATE"), then in addition to or in lieu of conducting the Exchange Offer contemplated by Section 2(a), as the case may be, the Company and the Guarantor shall promptly notify the Holders in writing thereof and shall, at its cost, file as promptly as practicable after such Shelf Registration Event Date and, in any event, within 90 days after such Shelf Registration Event Date, a Shelf Registration Statement providing for the sale by the Holders of all of the Registrable Securities (other than Registrable Securities owned by Holders who have elected not to include such Registrable Securities in such Shelf Registration Statement or who have not complied with their obligations under the penultimate paragraph of Section 3 hereof or under this paragraph, and shall use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective by the SEC as soon as practicable. No Holder of Registrable Securities shall be entitled to include any of its Registrable Securities in any Shelf Registration pursuant to this Agreement unless and until such Holder agrees in writing to be bound by all of the provisions of this Agreement applicable to such Holder and furnishes to the Company and the Guarantor in writing, within 15 days after receipt of a request therefor, such information as the Company and the Guarantor may, after conferring with counsel with regard to information relating to Holders that would be required by the SEC to be included in such Shelf Registration Statement or Prospectus included therein, reasonably request for inclusion in any Shelf Registration Statement or Prospectus included therein. Each Holder as to which any Shelf Registration is being effected agrees to furnish to the Company and the Guarantor all information with respect to such Holder necessary to make the information previously furnished to the Company and the Guarantor by such Holder not materially misleading. The Company and the Guarantor agree to use their reasonable best efforts to keep the Shelf Registration Statement continuously effective and the Prospectus usable for resales for the earlier of: (a) the Rule 144(k) Period or (b) such time as all of the securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be Registrable Securities (the "EFFECTIVENESS PERIOD"). The Company and the Guarantor shall not permit any securities other than (i) the Company's and the Guarantor's issued and outstanding securities possessing incidental registration rights and (ii) Registrable Securities, to 7 8 be included in the Shelf Registration. The Company and the Guarantor will, in the event a Shelf Registration Statement is declared effective, provide to each Holder of Registrable Securities covered thereby a reasonable number of copies of the Prospectus which is a part of the Shelf Registration Statement, notify each such Holder when the Shelf Registration has become effective and take any other action required to permit unrestricted resales of the Registrable Securities. The Company and the Guarantor further agree, if necessary, to supplement or amend the Shelf Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company and the Guarantor for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registrations, and the Company and the Guarantor agree to furnish to the Holders of Registrable Securities covered by such Shelf Registration Statement copies of any such supplement or amendment promptly after its being used or filed with the SEC. (c) EXPENSES. The Company and the Guarantor shall pay all Registration Expenses in connection with any Registration Statement filed pursuant to Section 2(a) and/or 2(b) hereof and will reimburse the Initial Purchasers for the reasonable fees and disbursements of Brown & Wood LLP incurred in connection with the Exchange Offer. Except as provided herein, each Holder shall pay all expenses of its counsel, underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. (d) EFFECTIVE REGISTRATION STATEMENT. An Exchange Offer Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; PROVIDED, HOWEVER, that if, after it has been declared effective, the offering of Registrable Securities pursuant to such Exchange Offer Registration Statement or Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Exchange Offer Registration Statement or Shelf Registration Statement will be deemed not to have been effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. The Company and the Guarantor will be deemed not to have used their reasonable best efforts to cause the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if they voluntarily take any action that would result in any such Registration Statement not being declared effective or that would result in the Holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period, unless such action is required by applicable law. (e) SPECIAL INTEREST PREMIUM. In the event that: (i) the Exchange Offer Registration Statement is not filed with the SEC on or prior to the 150th day after the Issue Date, then, commencing on the 151st day after the Issue Date, a special interest premium (the "Special Interest Premium") shall accrue on the principal amount of the Notes at a rate of 0.25% per annum; (ii) the Exchange Offer Registration Statement is not declared effective by the SEC on or prior to the 210th day after the Issue Date, then, commencing on the 211th day 8 9 after the Issue Date, a Special Interest Premium shall accrue on the principal amount of the Notes at a rate of 0.25% per annum; (iii) (A) the Company has not exchanged Exchange Notes for all Notes validly tendered, or the Guarantor has not executed the Exchange Guarantees in respect of the Exchange Notes, in accordance with the terms of the Exchange Offer on or prior to the 240th day after the Issue Date or (B) if the Shelf Registration Statement is required to be filed pursuant to Section 2(b) but is not declared effective by the SEC on or prior to the 240th day after the Issue Date, then, commencing on the 241st day after the Issue Date, a Special Interest Premium shall accrue on the principal amount of the Notes at the rate of 0.25% per annum; or (iv) the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective or the Prospectus ceases to be usable for resales (A) at any time prior to the expiration of the Effectiveness Period or (B) if related to corporate developments, public filings or similar events or to correct a material misstatement or omission in the Prospectus, for more than 60 days (whether or not consecutive) in any twelve-month period, then a Special Interest Premium shall accrue on the principal amount of the Notes at a rate of 0.25% per annum commencing on the day (in the case of (A) above), or the 61st day after (in the case of (B) above), such Shelf Registration Statement ceases to be effective or the Prospectus ceases to be usable for resales; PROVIDED, HOWEVER, that the aggregate amount of the Special Interest Premium in respect of the Notes may not exceed 0.25% per annum; PROVIDED, FURTHER, HOWEVER, that (1) upon the filing of the Exchange Offer Registration Statement (in the case of clause (i) above), (2) upon the effectiveness of the Exchange Offer Registration Statement (in the case of clause (ii) above), (3) upon the exchange of Exchange Notes for all Notes validly tendered and execution of the Exchange Guarantees (in the case of clause (iii)(A) above) or upon the effectiveness of the Shelf Registration Statement (in the case of clause (iii) (B) above) or (4) the earlier of (y) such time as the Shelf Registration Statement which had ceased to remain effective or the Prospectus which had ceased to be usable for resales again becomes effective and usable for resales and (z) the expiration of the Effectiveness Period (in the case of clause (iv) above), the Special Interest Premium on the principal amount of the Notes as a result of such clause (or the relevant subclause thereof) shall cease to accrue; PROVIDED, FURTHER, HOWEVER, that if the Exchange Offer Registration Statement is not declared effective by the SEC on or prior to the 240th day after the Issue Date and the Company and the Guarantor shall request Holders to provide the information required by the SEC for inclusion in the Shelf Registration Statement, the Notes owned by Holders who do not provide such information when required pursuant to Section 2(b) will not be entitled to any Special Interest Premium for any day after the 240th day after the Issue Date. Any Special Interest Premium due pursuant to Section 2(e)(i), (ii), (iii) or (iv) above will be payable in cash on the next succeeding February 15 or August 15, as the case may be, to Holders on the relevant record dates for the payment of interest pursuant to the Indenture. (f) SPECIFIC ENFORCEMENT. Without limiting the remedies available to the Holders, the Company and the Guarantor acknowledge that any failure by the Company and the Guarantor 9 10 to comply with its respective obligations under Section 2(a) and Section 2(b) hereof may result in material irreparable injury to the Holders for which there is no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of any such failure, any Holder may obtain such relief as may be required to specifically enforce the Company's and the Guarantor's obligations under Section 2(a) and Section 2(b) hereof. 3. REGISTRATION PROCEDURES. In connection with the obligations of the Company and the Guarantor with respect to the Registration Statements pursuant to Sections 2(a) and 2(b) hereof, the Company and the Guarantor shall use their reasonable best efforts to: (a) prepare and file with the SEC a Registration Statement or Registration Statements as prescribed by Sections 2(a) and 2(b) hereof within the relevant time period specified in Section 2 hereof on the appropriate form under the Securities Act, which form shall (i) be selected by the Company and the Guarantor, (ii) in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof and, in the case of an Exchange Offer, be available for the exchange of Registrable Securities, and (iii) comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; the Company and the Guarantor shall use their reasonable best efforts to cause such Registration Statement to become effective and remain effective (and, in the case of a Shelf Registration Statement, the Prospectus to be usable for resales) in accordance with Section 2 hereof; PROVIDED, HOWEVER, that if (1) such filing is pursuant to Section 2(b), or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2(a) is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford the Holders of the Registrable Securities and each such Participating Broker-Dealer, as the case may be, covered by such Registration Statement, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed; and the Company and the Guarantor shall not file any Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must be afforded an opportunity to review prior to the filing of such document if the Majority Holders of the Registrable Securities, depending solely upon which Holders must be afforded the opportunity of such review, or such Participating Broker-Dealer, as the case may be, their counsel or the managing underwriters, if any, shall reasonably object in a timely manner; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the Effectiveness Period or the Applicable Period, as the case may be, and cause each Prospectus to be supplemented, if so determined by the Company and the Guarantor or requested by the SEC, by any required prospectus supplement and as so supplemented to be filed pursuant to 10 11 Rule 424 (or any similar provision then in force) under the Securities Act, and comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder applicable to it with respect to the disposition of all securities covered by each Registration Statement during the Effectiveness Period or the Applicable Period, as the case may be, in accordance with the intended method or methods of distribution by the selling Holders thereof described in this Agreement (including sales by any Participating Broker-Dealer); (c) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities included in the Shelf Registration Statement, at least three Business Days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holder that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders of the Registrable Securities, (ii) furnish to each Holder of Registrable Securities included in the Shelf Registration Statement and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary prospectus, and any amendment or supplement thereto, and such other documents as such Holder or underwriter may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities and (iii) consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities included in the Shelf Registration Statement in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) in the case of a Shelf Registration, register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions by the time the applicable Registration Statement is declared effective by the SEC as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request in writing in advance of such date of effectiveness, and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; PROVIDED, HOWEVER, that the Company and the Guarantor shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (ii) file any general consent to service of process in any jurisdiction where it would not otherwise be subject to such service of process or (iii) subject itself to taxation in any such jurisdiction if it is not then so subject; (e) (1) in the case of a Shelf Registration or (2) if Participating Broker-Dealers from whom the Company and the Guarantor have received prior written notice that they will be utilizing the Prospectus contained in the Exchange Offer Registration Statement as provided in Section 3(s) hereof, are seeking to sell Exchange Securities and are required to deliver Prospectuses, promptly notify 11 12 each Holder of Registrable Securities, or such Participating Broker-Dealers, as the case may be, their counsel and the managing underwriters, if any, and promptly confirm such notice in writing (i) when a Registration Statement has become effective and when any post-effective amendments thereto become effective, (ii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement or Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the qualification of the Registrable Securities or the Exchange Securities to be offered or sold by any Participating Broker-Dealer in any jurisdiction described in Section 3(d) hereof or the initiation of any proceedings for that purpose, (iv) in the case of a Shelf Registration, if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any purchase agreement, securities sales agreement or other similar agreement cease to be true and correct in all material respects, (v) of the happening of any event or the failure of any event to occur or the discovery of any facts, during the Effectiveness Period, which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which causes such Registration Statement or Prospectus to omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, as well as any other corporate developments, public filings with the SEC or similar events causing such Registration Statement not to be effective or the Prospectus not to be useable for resales and (vi) of the reasonable determination of the Company and the Guarantor that a post-effective amendment to the Registration Statement would be appropriate; (f) obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (g) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities included within the coverage of such Shelf Registration Statement, without charge, at least one conformed copy of each Registration Statement relating to such Shelf Registration and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); (h) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends (except any customary legend borne by securities held through The Depository Trust Company or any similar depository) and in such denominations (consistent with the provisions of the Indenture and the officers' certificate establishing the forms and the terms of the Notes pursuant to the Indenture) and registered in such names as the selling Holders or the underwriters 12 13 may reasonably request at least two Business Days prior to the closing of any sale of Registrable Securities pursuant to such Shelf Registration Statement; (i) in the case of a Shelf Registration or an Exchange Offer Registration, promptly after the occurrence of any event specified in Section 3(e)(ii), 3(e)(iii), 3(e)(v) (subject to a 60-day grace period within any twelve-month period) or 3(e)(vi) hereof, prepare a supplement or post-effective amendment to such Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Company shall notify each Holder to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and each Holder hereby agrees to suspend use of the Prospectus until the Company and the Guarantor have amended or supplemented the Prospectus to correct such misstatement or omission; (j) obtain a CUSIP number for the Exchange Securities or the Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with certificates for the Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary; (k) cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, and effect such changes to such documents as may be required for them to be so qualified in accordance with the terms of the TIA and execute, and cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such documents to be so qualified in a timely manner; (l) in the case of a Shelf Registration, enter into such agreements (including underwriting agreements) as are customary in underwritten offerings and take all such other appropriate actions in connection therewith as are reasonably requested by the Holders of at least 25% in aggregate principal amount of the Registrable Securities in order to expedite or facilitate the registration or the disposition of the Registrable Securities; (m) in the case of a Shelf Registration, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, if requested by (x) an Initial Purchaser, in the case where such Initial Purchaser holds Notes acquired by it as part of its initial placement and Holders of at least 25% in aggregate principal amount of the Registrable Securities covered thereby: (i) make such representations and warranties to Holders of such Registrable Securities and the underwriters (if any), with respect to the business of the 13 14 Company, the Guarantor, the subsidiaries of the Guarantor, and if applicable, Quest Communications International Inc. as then conducted and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and the Guarantor and updates thereof (which may be in the form of a reliance letter) in form and substance reasonably satisfactory to the managing underwriters (if any) and the Holders of a majority in amount of the Registrable Securities being sold, addressed to each selling Holder and the underwriters (if any) covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters (it being agreed that the matters to be covered by such opinion may be subject to customary qualifications and exceptions); (iii) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriters from the independent certified public accountants of the Company, the Guarantor, and the subsidiaries of the Guarantor (and, if necessary, any other independent certified public accountants of any business acquired or to be acquired by the Guarantor for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings and such other matters as reasonably requested by such underwriters in accordance with Statement on Auditing Standards No. 72; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 4 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Securities covered by such Registration Statement and the managing underwriters) customary for such agreements with respect to all parties to be indemnified pursuant to said Section (including, without limitation, such underwriters and selling Holders); and in the case of an underwritten registration, the above requirements shall be satisfied at each closing under the related underwriting agreement or as and to the extent required thereunder; (n) if (1) a Shelf Registration is filed pursuant to Section 2(b) or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2(a) is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, make reasonably available for inspection by any selling Holder of Registrable Securities or Participating Broker-Dealer, as applicable, who certifies to the Company and the Guarantor that it has a current intention to sell Registrable Securities pursuant to the Shelf Registration, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any such selling Holder, Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "INSPECTORS"), at the offices where normally kept, during the Company's and the 14 15 Guarantor's normal business hours, all financial and other records, pertinent organizational and operational documents and properties of the Company, the Guarantor and the Guarantor's subsidiaries (collectively, the "RECORDS") as shall be reasonably necessary to enable them to conduct due diligence activities, and cause the officers, trustees and employees of the Company, the Guarantor and the Guarantor's subsidiaries to supply all relevant information in each case reasonably requested by any such Inspector in connection with such Registration Statement; records and information which the Company and the Guarantor determine, in good faith, to be confidential and any Records and information which it notifies the Inspectors are confidential shall not be disclosed to any Inspector except where (i) the disclosure of such Records or information is necessary to avoid or correct a material misstatement or omission in such Registration Statement, (ii) the release of such Records or information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or is necessary in connection with any action, suit or proceeding or (iii) such Records or information previously has been made generally available to the public; each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to agree in writing that Records and information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company and the Guarantor unless and until such is made generally available to the public through no fault of an Inspector or a selling Holder; and each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to further agree in writing that it will, upon learning that disclosure of such Records or information is sought in a court of competent jurisdiction, or in connection with any action, suit or proceeding, give notice to the Company and the Guarantor and allow the Company and the Guarantor at their expense to undertake appropriate action to prevent disclosure of the Records and information deemed confidential; (o) comply with all applicable rules and regulations of the SEC so long as any provision of this Agreement shall be applicable and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 50 days after the end of any 12-month period (or 105 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company and the Guarantor after the effective date of a Registration Statement, which statements shall cover said 12-month periods, provided that the obligations under this paragraph (o) shall be satisfied by the timely filing of quarterly and annual reports on Forms 10-Q and 10-K under the Exchange Act; (p) if an Exchange Offer is to be consummated, upon delivery of the Registrable Securities by Holders to the Company and the Guarantor (or to such other Person as directed by the Company and the Guarantor), in exchange for the Exchange 15 16 Securities, the Company shall mark, or cause to be marked, on such Notes delivered by such Holders that such Notes are being cancelled in exchange for the Exchange Securities; it being understood that in no event shall such Notes be marked as paid or otherwise satisfied; (q) cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; (r) take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby; (s) (A) in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," which section shall be reasonably acceptable to the Initial Purchasers or another representative of the Participating Broker-Dealers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities (a "PARTICIPATING BROKER-DEALER") and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgment of the Initial Purchasers or such other representative, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has delivered to the Company and the Guarantor the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary Prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request (the Company and the Guarantor hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto by any Person subject to the prospectus delivery requirements of the Securities Act, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto), (iii) use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such Persons must comply with such requirements under the Securities Act and applicable rules and regulations in 16 17 order to resell the Exchange Securities; PROVIDED, HOWEVER, that such period shall not be required to exceed 240 days (or such longer period if extended pursuant to the last sentence of Section 3 hereof) (the "APPLICABLE PERIOD"), and (iv) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision: "If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Securities received in respect of such Registrable Securities pursuant to the Exchange Offer"; and (y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, the broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act; and (B) in the case of any Exchange Offer Registration Statement, the Company and the Guarantor agree to deliver to the Initial Purchasers or to another representative of the Participating Broker-Dealers, if reasonably requested by an Initial Purchaser or such other representative of Participating Broker-Dealers, on behalf of the Participating Broker-Dealers upon consummation of the Exchange Offer (i) an opinion of counsel in form and substance reasonably satisfactory to such Initial Purchaser or such other representative of the Participating Broker-Dealers, covering the matters customarily covered in opinions requested in connection with Exchange Offer Registration Statements and such other matters as may be reasonably requested (it being agreed that the matters to be covered by such opinion may be subject to customary qualifications and exceptions), (ii) an officers' certificate substantially similar to that specified in Section 6(d) and (e) of the Purchase Agreement and such additional certifications as are customarily delivered in a public offering of debt securities and (iii) upon the effectiveness of the Exchange Offer Registration Statement, comfort letters, in each case, in customary form if permitted by Statement on Auditing Standards No. 72. The Company and the Guarantor may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company and the Guarantor such information regarding such seller as may be required by the staff of the SEC to be included in a Registration Statement. The Company and the Guarantor may exclude from such registration the Registrable Securities of any seller who unreasonably fails to furnish such information within a reasonable time after receiving such request. The Company and the Guarantor shall have no obligation to register under the Securities Act the Registrable Securities of a seller who so fails to furnish such information. 17 18 In the case of a Shelf Registration Statement, or if Participating Broker-Dealers who have notified the Company and the Guarantor that they will be utilizing the Prospectus contained in the Exchange Offer Registration Statement as provided in this Section 3(s) are seeking to sell Exchange Securities and are required to deliver Prospectuses, each Holder agrees that, upon receipt of any notice from the Company and the Guarantor of the occurrence of any event specified in Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(i) hereof or until it is advised in writing (the "ADVICE") by the Company and the Guarantor that the use of the applicable Prospectus may be resumed, and, if so directed by the Company and the Guarantor, such Holder will deliver to the Company and the Guarantor (at the Company's and the Guarantor's expense) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities or Exchange Securities, as the case may be, current at the time of receipt of such notice. If the Company and the Guarantor shall give any such notice to suspend the disposition of Registrable Securities or Exchangeable Securities, as the case may be, pursuant to a Registration Statement, the Company and the Guarantor shall use its reasonable best efforts to file and have declared effective (if an amendment) as soon as practicable after the resolution of the related matters an amendment or supplement to the Registration Statement and shall extend the period during which such Registration Statement is required to be maintained effective and the Prospectus usable for resales pursuant to this Agreement by the number of days in the period from and including the date of the giving of such notice to and including the date when the Company and the Guarantor shall have made available to the Holders (x) copies of the supplemented or amended Prospectus necessary to resume such dispositions or (y) the Advice. 4. INDEMNIFICATION AND CONTRIBUTION. (a) In connection with any Registration Statement, the Company and the Guarantor shall jointly and severally indemnify and hold harmless the Initial Purchasers, each Holder, each underwriter who participates in an offering of the Registrable Securities, each Participating Broker-Dealer, each Person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of their respective directors, officers, employees and agents, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto), covering Registrable Securities or Exchange Securities, as applicable, or the omission or alleged omission therefrom of a material fact required to be stated or necessary in order to make this statement therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such 18 19 untrue statement or omission, or any such alleged untrue statement or omission; provided that any such settlement is effected with the prior written consent of the Company and the Guarantor; and (iii) against any and all expenses whatsoever, as incurred (including the reasonable fees and disbursements of counsel chosen by such Holder, such Participating Broker-Dealer, or any underwriter (except to the extent otherwise expressly provided in Section 4(c) hereof)), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 4(a); PROVIDED, HOWEVER, that this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished in writing to the Company and the Guarantor by the Initial Purchasers or such Holder, underwriter or Participating Broker-Dealer for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). (b) Each of the Initial Purchasers and each Holder, underwriter or Participating Broken-Dealer agrees, severally and not jointly, to indemnify and hold harmless the Company and the Guarantor and each Person, if any, who controls the Company or the Guarantor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company and the Guarantor by such Initial Purchaser, Holder, underwriter or Participating Broker-Dealer expressly for use in such Registration Statement (or any amendment thereto), or any such Prospectus (or any amendment or supplement thereto); PROVIDED, HOWEVER, that in the case of a Shelf Registration Statement, no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement. (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have under this Section 4 to the extent that it is not materially prejudiced by such failure as a result thereof, and in any event shall not relieve it from liability which it may have otherwise on account of this Agreement. In the case of parties indemnified pursuant to Section 4(a) or (b) above, counsel to the indemnified parties shall be selected by such parties. An indemnifying party may participate at its own expense in the defense of such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified 19 20 party. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to local counsel), separate from their own counsel, for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional written release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) In order to provide for just and equitable contribution in circumstances under which any of the indemnity provisions set forth in this Section 4 is for any reason held to be unenforceable by an indemnified party although applicable in accordance with its terms, the Company, the Guarantor and the Holders shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company, the Guarantor and the Holders, as incurred; PROVIDED, HOWEVER, that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Company and the Guarantor and the Holders, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by this Agreement in such proportion as shall be appropriate to reflect the relative fault of the Company and the Guarantor, on the one hand, and the Holders, on the other hand, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantor, on the one hand, and of the Holders, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Guarantor, on the one hand, or by or on behalf of the Holders, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Guarantor and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 4 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the relevant equitable considerations. For purposes of this Section 4, each Affiliate of a Holder, and each director, officer and employee and Person, if any, who controls a Holder or such Affiliate within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Holder and each Person, if any, who controls the Company and the Guarantor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company and the Guarantor. 5. PARTICIPATION IN AN UNDERWRITTEN REGISTRATION. No Holder may participate in an underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in the underwriting arrangement approved by the 20 21 Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents reasonably required under the terms of such underwriting arrangements. 6. SELECTION OF UNDERWRITERS. The Holders of Registrable Securities covered by the Shelf Registration Statement who desire to do so may sell the Securities covered by such Shelf Registration in an underwritten offering, subject to the provisions of Section 3(l) hereof. In any such underwritten offering, the underwriter or underwriters and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of the Registrable Securities included in such offering; PROVIDED, HOWEVER, that such underwriters and managers must be reasonably satisfactory to the Company and the Guarantor. 7. MISCELLANEOUS. (a) RULE 144 AND RULE 144A. For so long as the Company and the Guarantor are subject to the reporting requirements of Section 13 or 15 of the Exchange Act and any Registrable Securities remain outstanding, the Company and the Guarantor will file the reports required to be filed by it under the Securities Act and Section 13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the SEC thereunder; PROVIDED, HOWEVER, that if the Company and the Guarantor ceases to be so required to file such reports, it will, upon the request of any Holder of Registrable Securities, (a) make publicly available such information as is necessary to permit sales of its securities pursuant to Rule 144 under the Securities Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales of its securities pursuant to Rule 144A under the Securities Act, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, (ii) Rule 144A under the Securities Act, as such rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company and the Guarantor will deliver to such Holder a written statement as to whether it has complied with such requirements. (b) NO INCONSISTENT AGREEMENTS. The Company and the Guarantor have not entered into, nor will the Company or the Guarantor on or after the date of this Agreement enter into, any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's and the Guarantor's other issued and outstanding securities under any such agreements. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company and the Guarantor has obtained the written consent of Holders of a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure; PROVIDED that no amendment, modification or supplement or 21 22 waiver or consent to the departure with respect to the provisions of Section 4 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder of Registrable Securities. Notwithstanding the foregoing sentence, (i) this Agreement may be amended, without the consent of any Holder of Registrable Securities, by written agreement signed by the Company, the Guarantor and the Initial Purchasers, to cure any ambiguity, correct or supplement any provision of this Agreement that may be inconsistent with any other provision of this Agreement or to make any other provisions with respect to matters or questions arising under this Agreement which shall not be inconsistent with other provisions of this Agreement, (ii) this Agreement may be amended, modified or supplemented, and waivers and consents to departures from the provisions hereof may be given, by written agreement signed by the Company, the Guarantor and the Initial Purchasers to the extent that any such amendment, modification, supplement, waiver or consent is, in their reasonable judgment, necessary or appropriate to comply with applicable law (including any interpretation of the Staff of the SEC) or any change therein and (iii) to the extent any provision of this Agreement relates to an Initial Purchaser, such provision may be amended, modified or supplemented, and waivers or consents to departures from such provisions may be given, by written agreement signed by such Initial Purchaser, the Guarantor and the Company. (d) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company and the Guarantor by means of a notice given in accordance with the provisions of this Section 7(d), which address initially is, with respect to each Initial Purchaser, the address set forth in the Purchase Agreement; and (ii) if to the Company or the Guarantor, initially at the Company's and Guarantor's address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 7(d). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture. (e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of the Initial Purchasers, including, without limitation and without the need for an express assignment, subsequent Holders; PROVIDED, HOWEVER, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the 22 23 terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. (f) THIRD PARTY BENEFICIARIES. Each Holder and any Participating Broker-Dealer shall be third party beneficiaries of the agreements made hereunder among the Initial Purchasers, the Guarantor and the Company, and the Initial Purchasers shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. (j) SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) SECURITIES HELD BY THE COMPANY OR ITS AFFILIATES. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company, the Guarantor or their Affiliates shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 23 24 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. QWEST COMMUNICATIONS INTERNATIONAL INC. By: /s/ YASH RANA ----------------------------------- Name: Yash Rana Title: Associate General Counsel QWEST CAPITAL FUNDING, INC. By: /s/ YASH RANA ----------------------------------- Name: Yash Rana Title: Associate General Counsel Confirmed and accepted as of the date first above written: SALOMON SMITH BARNEY INC. LEHMAN BROTHERS INC. By: SALOMON SMITH BARNEY INC. For itself and as Representative of the several Initial Purchasers By: /s/ ALAN B. MITCHELL -------------------------------- Authorized Signatory 24 EX-27 4 d81481ex27.txt FINANCIAL DATA SCHEDULE
5 1,000,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 417 0 4,236 0 252 5,746 23,840 0 72,088 9,100 15,560 0 0 41,160 132 72,088 0 11,592 3,650 3,650 0 0 732 196 160 36 0 0 0 36 .02 .02
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