-----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, AH1H+o3ryUqaymMAwAo/cGtDuv3hWM47BlRMyDbZk3vNI9GL5lvJWSZ/0elkAFZ2 3JU3k12LqGEIyC6BHgdAoA== 0000732718-96-000036.txt : 19961030 0000732718-96-000036.hdr.sgml : 19961030 ACCESSION NUMBER: 0000732718-96-000036 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19960930 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961029 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: US WEST INC CENTRAL INDEX KEY: 0000732718 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 840926774 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08611 FILM NUMBER: 96649085 BUSINESS ADDRESS: STREET 1: 7800 E ORCHARD RD STREET 2: SUITE 480 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3037936629 MAIL ADDRESS: STREET 1: 7800 EAST ORCHARD ROAD STREET 2: SUITE 480 CITY: ENGLEWOOD STATE: CO ZIP: 80111 8-K 1 FORM 8-K 4 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): October 23, 1996 U S WEST, Inc. (Exact name of registrant as specified in its charter) A Delaware Corporation Commission File IRS Employer Identification (State of incorporation) Number 1-8611 No. 84-0926774 7800 East Orchard Road, Englewood, Colorado 80111 (Address of principal executive offices, including Zip Code) Telephone Number (303) 793-6500 (Registrant's telephone number, including area code) Item 5. Other Events On October 23, 1996, U S WEST Communications Group released its third quarter earnings results. In addition, U S WEST Media Group released its third quarter earnings results on October 25, 1996. The releases and financial statements are attached hereto as Exhibits. Item 7. Exhibits Exhibit Description 4A Purchase Agreement, dated as of October 24, 1996, by and among U S WEST Financing II, U S WEST, Inc., and U S WEST Capital Funding, Inc. with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith Incorporated and each of the Underwriters named therein. 4B Amended and Restated Declaration of Trust of U S WEST Financing II, dated as of October 24, 1996, by and among, U S WEST, Inc. and the Trustees named therein. 4C Third Supplemental Indenture, dated as of October 24, 1996, by and among U S WEST Capital Funding, Inc., U S WEST, Inc. and Norwest Bank Minnesota, National Association, as Trustee. 4D Preferred Securities Guarantee Agreement, dated as of October 29, 1996, by U S WEST, Inc. and The First National Bank of Chicago, National Association, as Trustee for the benefit of the Holders. 27 Financial Data Schedule. 99A Press Release issued October 23, 1996 concerning the earnings results of U S WEST Communications Group for the third quarter of 1996. 99A.1 Unaudited Combined Statements of Income of U S WEST Communications Group for the quarters ended September 30, 1995 and 1996, filed in connection with the Press Release dated October 23, 1996. 99A.2 Unaudited Earnings Normalization Schedule of U S WEST Communications Group for the quarters ended September 30, 1995 and 1996, filed in connection with the Press Release dated October 23, 1996. 99A.3 Unaudited Selected Combined Group Data of U S WEST Communications Group for the quarters ended September 30, 1995 and 1996, filed in connection with the Press Release dated October 23, 1996. 99A.4 Unaudited Combined Balance Sheets of U S WEST Communications Group for the quarter ended September 30, 1996 and year ended December 31, 1995, filed in connection with the Press Release dated October 23, 1996. 99A.5 Unaudited Combined Statements of Cash Flows of U S WEST Communications Group for the nine-months periods ended September 30, 1995 and 1996, filed in connection with the Press Release dated October 23, 1996. 99A.6 Unaudited Statements of Income of U S WEST Communications, Inc. for the nine-months periods ended September 30, 1995 and 1996, filed in connection with the Press Release dated October 23, 1996. 99B Press Release issued October 25, 1996 concerning the earnings results of U S WEST Media Group for the third quarter of 1996. 99B.1 Unaudited Combined Statements of Income of U S WEST Media Group for the quarters and nine-months periods ended September 30, 1995 and 1996, filed in connection with the Press Release dated October 25, 1996. 99B.2 Unaudited Selected Combined Group Data of U S WEST Media Group for the quarters and nine-months periods ended September 30, 1995 and 1996, filed in connection with the Press Release dated October 25, 1996. 99B.3 Unaudited Combined Balance Sheets of U S WEST Media Group for the quarter ended September 30, 1996, and the year ended December 31, 1995, filed in connection with the Press Release dated October 25, 1996. 99B.4 Unaudited Combined Statements of Cash Flows of U S WEST Media Group for the nine-months periods ended September 30, 1995 and 1996, filed in connection with the Press Release dated October 25, 1996. 99B.5 Unaudited Selected Proportionate Data of U S WEST Media Group for the quarters and nine-months periods ended September 30, 1995 and 1996, filed in connection with the Press Release dated October 25, 1996. 99C.1 Unaudited Consolidated Statements of Income of U S WEST, Inc. for the quarters and nine-months periods ended September 30, 1995 and 1996. 99C.2 Unaudited Consolidated Balance Sheets of U S WEST, Inc. for the quarter ended September 30, 1996 and the year ended December 31, 1995. 99C.3 Unaudited Consolidated Statements of Cash Flows of U S WEST, Inc. for the nine-months periods ended September 30, 1995 and 1996. 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 hereunto duly authorized. U S WEST, Inc. /s/ STEPHEN E. BRILZ By:___________________________ Stephen E. Brilz Assistant Secretary Dated: October 28, 1996 EX-4 2 EXHIBIT 4A (..continued) EXHIBIT 4A U S WEST FINANCING II (a Delaware business trust) 19,200,000 Preferred Securities 8 % Trust Originated Preferred Securities ("TOPrS" SM) (Liquidation Amount of $25 Per Preferred Security) PURCHASE AGREEMENT Dated: October 24, 1996 ___________________ SM "Trust Originated Preferred Securities" and "TOPrS" are service marks of Merrill Lynch & Co., Inc.
TABLE OF CONTENTS SCHEDULES Schedule A - List of Underwriters Sch A 1 Schedule B - Pricing Information Sch B-1 EXHIBITS Exhibit A - Form of Opinion of Weil, Gotshal & Manges LLP A-1 Exhibit B - Form of Opinion of Stephen E. Brilz, Esq. B-1 Exhibit C - Form of Opinion of Morris, Nichols, Arsht & Tunnell C-1 Exhibit D - Form of Opinion of Pepper, Hamilton & Scheetz D-1
U S WEST FINANCING II (a Delaware business trust) 19,200,000 Preferred Securities 8 % Trust Originated Preferred Securities ("TOPrS" SM) (Liquidation Amount of $25 Per Preferred Security) PURCHASE AGREEMENT October 24, 1996 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Dean Witter Reynolds Inc. A.G. Edwards & Sons, Inc. PaineWebber Incorporated Prudential Securities Incorporated Smith Barney Inc. as Representatives of the several Underwriters c/o MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Ladies and Gentlemen: U S WEST FINANCING II (the "Trust"), a statutory business trust organized under the Business Trust Act (the "Delaware Act") of the State of Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del. C. Sections 3801 et seq.), U S WEST, Inc., a Delaware corporation (the "Guarantor"), and U S WEST Capital Funding, Inc., a Colorado corporation ("Capital Funding" and, together with the Trust and the Guarantor, the "Offerors") confirm their agreement (the ___________________ SM "Trust Originated Preferred Securities" and "TOPrS" are service marks of Merrill Lynch & Co., Inc. "Agreement") with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch and Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc., PaineWebber Incorporated, Prudential Securities Incorporated and Smith Barney Inc. are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Trust and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of 8 % Trust Originated Preferred Securities (liquidation amount of $25 per preferred security) of the Trust (the "Preferred Securities") set forth in said Schedule A. The Preferred Securities to be purchased by the Underwriters are hereinafter called the "Designated Securities." The Preferred Securities will be guaranteed by the Guarantor with respect to distributions and payments upon liquidation, redemption and otherwise (the "Preferred Securities Guarantee") pursuant to the Preferred Securities Guarantee Agreement (the "Preferred Securities Guarantee Agreement"), dated as of October 29, 1996, between the Guarantor and The First National Bank of Chicago, as Trustee, and entitled to the benefits of certain backup undertakings described in the Prospectus (as defined herein) with respect to Capital Funding's agreement pursuant to the Supplemental Indenture (as defined herein) to pay all expenses relating to administration of the Trust and the Guarantor's guarantee pursuant to the Supplemental Indenture of that undertaking (the "Undertakings"). The Preferred Securities and the related Preferred Securities Guarantees are referred to herein as the "Securities". The Offerors understand that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. The entire proceeds from the sale of the Securities will be combined with the entire proceeds from the sale by the Trust to the Guarantor of its common securities (the "Common Securities") guaranteed by the Guarantor, to the extent set forth in the Prospectus, with respect to distributions and payments upon liquidation, and redemption (the "Common Securities Guarantee" and together with the Preferred Securities Guarantee and the Debt Guarantee (as defined herein), the "Guarantees") pursuant to the Common Securities Guarantee Agreement (the "Common Securities Guarantee Agreement" and, together with the Preferred Securities Guarantee Agreement, the "Guarantee Agreements"), dated as of October 29, 1996, between the Guarantor and The First National Bank of Chicago, as Trustee, and will be used by the Trust to purchase $494,845,375 million aggregate principal amount of Subordinated Deferrable Interest Notes (the "Subordinated Debt Securities") to be issued by Capital Funding. The Preferred Securities and the Common Securities will be issued pursuant to the amended and restated declaration of trust of the Trust, dated as of October 24, 1996 (the "Declaration"), among the Guarantor, as Sponsor, the trustees named therein (the "Trustees") and the holders from time to time of undivided beneficial interests in the assets of the Trust. The Subordinated Debt Securities and the guarantee by the Guarantor of the payment of principal, premium, if any, and interest on the Subordinated Debt Securities (the "Debt Guarantee") will be issued pursuant to an indenture, dated as of September 6, 1995, among U S WEST, Inc., a Colorado corporation, Capital Funding and Norwest Bank, as trustee (the "Debt Trustee"), as supplemented by a Second Supplemental Indenture, dated as of October 31, 1995, among the Guarantor, Capital Funding and the Debt Trustee (as so supplemented, the "Base Indenture"), and a supplement to the Base Indenture, dated as of October 24, 1996 (the "Supplemental Indenture," and together with the Base Indenture and any other amendments or supplements thereto, the "Indenture"), among the Guarantor, Capital Funding and the Debt Trustee. The Offerors have filed with the Securities and Exchange Commission (the "Commission") a shelf registration statement on Form S-3 (No. 33-57889) covering the registration of (i) the Preferred Securities, (ii) the Preferred Securities Guarantee, (iii) the Subordinated Debt Securities and (iv) the Debt Guarantee under the Securities Act of 1933, as amended (the "1933 Act"), which permits the delayed or continuous offering of securities pursuant to Rule 415 of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations"). Promptly after execution and delivery of this Agreement, the Offerors will either (i) prepare and file a prospectus in accordance with the provisions of Rule 424(b) ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Offerors have elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and 424(b). The information included in such Term Sheet that was omitted from such registration statement at the time it became effective but that is deemed part of such registration statement at the time it became effective is referred to as "Rule 434 Information." Each prospectus used before such Rule 424(b) prospectus has been filed and any prospectus that omitted the Rule 434 Information, in each case that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto, schedules thereto, if any, and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became effective and including the Rule 434 Information is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement" and after such filing the term "Registration Statement" shall include the Rule 462 (b) Registration Statement. The final prospectus, including the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the Underwriters for use in connection with the offering of the Securities is herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the preliminary prospectus dated October 16, 1996 together with the Term Sheet and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus or the Prospectus (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 Registration Statement, any preliminary prospectus or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934 (the "1934 Act") which is incorporated by reference in the Registration Statement, such preliminary prospectus or the Prospectus, as the case may be. 1. Representations and Warranties. The Offerors jointly and severally represent and warrant to each Underwriter as of the date hereof (such date being hereinafter referred to as the "Representation Date") as follows: (a) Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act. At the respective times the Registration Statement became effective and at the Representation Date, the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendment thereto complied and will comply in all material respects with the requirements of the 1933 Act, the 1933 Act Regulations, the 1934 Act, the regulations of the Commission under the 1934 Act (the "1934 Act Regulations"), and the Trust Indenture Act of 1939 (the "1939 Act") and the rules and regulations of the Commission under the 1939 Act (the "1939 Act Regulations"), and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, as amended or supplemented, if applicable, at the Representation Date and at the Closing Time referred to in Section 2 hereof, will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Offerors in writing by any Underwriter through Merrill Lynch expressly for use in the Registration Statement or Prospectus. (b) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, there has been no material adverse change or any development involving a prospective material adverse change in the financial condition or results of operation of the Guarantor and its subsidiaries taken as a whole. 2. Sale and Delivery to Underwriters; Closing. (a) Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Trust agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Trust, at the price per security set forth in Schedule B, the number of Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) Commission. As compensation to the Underwriters for their commitments hereunder and in view of the fact that the proceeds of the sale of the Securities will be used to purchase the Subordinated Debt Securities of Capital Funding, Capital Funding hereby agrees to pay to the Representatives, for the accounts of the several Underwriters, a commission per security set forth in Schedule B as compensation to the Underwriters for their commitments under this Agreement. (c) Payment. Payment of the purchase price for, and delivery of certificates for, the Securities shall be made at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, or at such other place as shall be agreed upon by the Representatives and the Offerors, at 10:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Offerors (such time and date of payment and delivery being herein called "Closing Time"). Payment shall be made to the Trust by wire transfer of immediately available funds to a bank account designated by the Trust, against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Securities which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Securities to be purchased by any Underwriter whose funds have not been received by the Closing Time but such payment shall not relieve such Underwriter from its obligations hereunder. At the Closing Time, Capital Funding will pay, or cause to be paid, the commission payable at such time to the Underwriters under Section 2(b) hereof by wire transfer of immediately available funds to a bank account designated by Merrill Lynch. (d) Denominations; Registration. Certificates for the Securities shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time. The certificates for the Securities will be made available for examination and packaging by the Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time. 3. Covenants of the Offerors. Each of the Offerors jointly and severally covenants with each Underwriter as follows: (a) Compliance with Securities Regulations and Commission Requests. The Offerors, subject to Section 3(b), will comply with the requirements of Rule 434, as applicable, and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Offerors will promptly effect the filings necessary pursuant to Rule 424(b). The Offerors will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) Filing of Amendments. The Offerors will give the Representatives notice of their intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object unless the Offerors shall decide that such document must be filed in accordance with applicable law. (c) Delivery of Registration Statements. The Offerors will furnish to the Representatives copies of the Registration Statement, including all exhibits thereto, the Prospectus and all amendments and supplements to such documents, in each case as soon as available and in such quantities as are reasonably requested. The copies of the Registration Statement, the Prospectus and all amendments and supplements to such documents furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (d) Continued Compliance with Securities Laws. The Offerors will comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Offerors will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Offerors will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (e) Blue Sky Qualifications. The Offerors will use its best efforts, in cooperation with the Underwriters, to qualify the Preferred Securities and Subordinated Debt Securities for offering and sale under the applicable securities laws of such states and other jurisdictions as the Representatives may designate; provided, however, that each of the Offerors shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. (f) Rule 158. The Trust and the Guarantor will make generally available to their securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (g) Listing. The Offerors will use their reasonable best efforts to effect the listing of the Preferred Securities on the New York Stock Exchange; if the Preferred Securities are exchanged for Subordinated Debt Securities, Capital Funding will use its reasonable best efforts to effect the listing of the Subordinated Debt securities on the exchange on which the Preferred Securities were then listed. (h) Restriction on Sale of Securities. During a period of 30 days from the date of the Prospectus, neither the Trust, the Guarantor nor Capital Funding will, without the prior written consent of Merrill Lynch, directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any Preferred Securities or any securities convertible into or exercisable or exchangeable for Preferred Securities or file any registration statement under the 1933 Act with respect to any of the foregoing. The foregoing sentence shall not apply to any of the Securities to be sold hereunder. 4. Payment of Expenses. (a) Expenses. Capital Funding will pay all expenses incident to the performance of each Offeror's obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Preferred Securities to the Underwriters, (iv) the fees and disbursements of the Guarantor's, Capital Funding's and the Trust's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Term Sheets and of the Prospectus and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review, if any, by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Securities, (ix) the fees and expenses of the Debt Trustee, including the fees and disbursements of counsel for the Debt Trustee, in connection with the Indenture and the Subordinated Debt Securities; (x) the fees and expenses of the Property Trustee and Delaware Trustee, including the fees and disbursements of counsel for the Property Trustee and Delaware Trustee, in connection with the Declaration and the Certificate of Trust; (xi) any fees charged by securities rating services for rating the Preferred Securities and the Subordinated Debt Securities, (xii) the fees and expenses incurred in connection with the listing of the Preferred Securities and, if applicable, the Subordinated Debt Securities on the New York Stock Exchange, (xiii) the fees and expenses of any transfer agent or registrar for the Securities, and (xiv) the cost of qualifying the Preferred Securities with The Depository Trust Company. (a) Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, Capital Funding shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. 5. Conditions of Underwriters' Obligations. The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Offerors contained in Section 1 hereof, to the performance by the Offerors of their covenants and other obligations hereunder, and to the following further conditions: (a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. The Prospectus shall have been filed with the Commission in accordance with Rule 424(b) or, if the Offerors have elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b). (b) Opinion of Counsel. At Closing Time the Representatives shall have received: (i) The favorable opinion, dated as of Closing Time, of Weil, Gotshal & Manges LLP, counsel for the Offerors, in form and substance reasonably satisfactory to counsel for the Underwriters, substantially in the form set forth in Exhibit A. (ii) The favorable opinion, dated as of Closing Time, of Stephen E. Brilz, Esq., Corporate Counsel for U S WEST, Inc., in form and substance satisfactory to counsel for the Underwriters, substantially in the form set forth in Exhibit B. (iii) The favorable opinion, dated as of Closing Time, of Morris, Nichols, Arsht & Tunnell, special Delaware counsel for the Trust and the Guarantor, in form and substance satisfactory to counsel for the Underwriters, substantially in the form set forth in Exhibit C. (iv) The favorable opinion, dated as of Closing Time, of the Pepper, Hamilton & Scheetz, special Delaware counsel for The First National Bank of Chicago, as Property Trustee and First Chicago Delaware Inc., as Delaware Trustee under the Declaration, in form and substance satisfactory to counsel for the Underwriters, substantially in the form of Exhibit D. (v) The favorable opinion, dated as of Closing Time, of Skadden, Arps, Slate, Meagher & Flom ("SASM&F"), counsel for the Underwriters, in form and substance satisfactory to the Underwriters. In giving its opinion, SASM&F may rely as to certain matters of Colorado law upon the opinion of Stephen E. Brilz, Corporate Counsel for U S WEST, Inc., which shall be delivered in accordance with Section 5(b)(ii) hereto, and as to certain matters relating to The First National Bank of Chicago under the federal banking laws upon the opinion of Pepper, Hamilton & Scheetz, special Delaware counsel to the Property Trustee, which shall be delivered in accordance with Section 5(b)(iv) hereto. (c) Officers' Certificate. At Closing Time, since the date hereof or since the respective dates as of which information is given in the Prospectus, there shall not have occurred any change, or any development involving a prospective change, in or affecting particularly the business or properties of the Guarantor and any of its subsidiaries, taken as a whole, which, in the judgment of the Representatives, materially impairs the investment quality of the Designated Securities and the Representatives shall have received (i) a certificate, dated as of the Closing Time, of a Vice President of the Guarantor, (ii) a certificate, dated as of the Closing Time, of a Vice President of Capital Funding, and (iii) a certificate, dated as of the Closing Time, of a Trustee of the Trust, in each case in which such officers shall state that, to the best of their knowledge after reasonable investigation, the representations and warranties of the Offerors in this Agreement are true and correct, that the Offerors have complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Time, that no stop order suspending the effectiveness of the Registration Statement is in effect and no proceedings for that purpose are pending or are contemplated by the Commission and that, subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change in the financial position or results of operations of the Guarantor and any of its subsidiaries, taken as a whole, except as set forth in or contemplated by the Prospectus. (d) Accountant's Comfort Letter. At the time of the execution of this Agreement, the Representatives shall have received from each of Coopers & Lybrand L.L.P. and Arthur Andersen LLP a letter dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect that: (i) they are independent public accountants with respect to the Guarantor and its consolidated subsidiaries, including Capital Funding within the meaning of the 1933 Act and the 1933 Act Regulations; (ii) in their opinion, the consolidated financial statements and any supplementary financial information and schedules audited (and, if applicable, prospective financial statements and/or pro forma financial information examined) by them and included or incorporated by reference in the Registration Statement or the Prospectus comply as to form in all material respects with the applicable accounting requirements of the 1933 Act or the Exchange Act and the related published rules and regulations thereunder; and if applicable, they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the consolidated interim financial statements, selected financial data, statements and/or condensed financial statements derived from audited financial statements of the Guarantor for the periods specified in such letter, as indicated in their reports thereon, copies of which have been furnished to the Representatives; (iii) as to the letter from Arthur Andersen LLP, based upon limited procedures set forth in detail in such letter, nothing has come to their attention which causes them to believe that: (1) the unaudited consolidated financial statements and supporting schedules of the Guarantor included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations or are not presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement, (2) the unaudited amounts of revenues, net income and net income per share set forth under "U S WEST, Inc. Summary Financial Information" in the Prospectus were not determined on a basis substantially consistent with that used in determining the corresponding amounts in the audited financial statements included in the Registration Statement, or (3) at a specified date not more than five days prior to the date of this Agreement, there has been any change in the capital stock of the Guarantor and its subsidiaries, including Capital Funding, or any increase in the consolidated long-term debt of the Guarantor and its subsidiaries, including Capital Funding, or any decrease in consolidated net current assets or net assets as compared with the amounts shown on the date of the most recent consolidated balance sheet included in or incorporated by reference in the Registration Statement and the Prospectus (June 30, 1996 balance sheet included in the Registration Statement) or, during the period from the date of the most recent consolidated balance sheet included in or incorporated by reference in the Registration Statement and the Prospectus to a specified date not more than five days prior to the date of this Agreement, there were any decreases, as compared with the corresponding period in the preceding year, in consolidated revenues, net income or net income per share of the Guarantor and its subsidiaries, including Capital Funding, except in all instances for changes, increases or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur; and (iv) in addition to the examination referred to in their opinions and the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are included in the Registration Statement and Prospectus, or incorporated therein by reference, and which are specified by the Representatives, and have found such amounts, percentages and financial information to be in agreement with the relevant accounting, financial and other records of the Guarantor and its subsidiaries, including Capital Funding, identified in such letter. (e) Bring-down Comfort Letter. At Closing Time, the Representatives shall have received from each of Coopers & Lybrand L.L.P. and Arthur Andersen LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in their letters furnished pursuant to subsection (d) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time. (f) Maintenance of Rating. At Closing Time, the Preferred Securities and the Subordinated Debt Securities shall be rated in one of the four highest rating categories for long term debt ("Investment Grade") by any nationally recognized statistical rating agency, and the Trust shall have delivered to the Representatives a letter, dated the Closing Time, from such nationally recognized statistical rating agency, or other evidence satisfactory to the Representatives, confirming that the Preferred Securities and the Subordinated Debt Securities have Investment Grade ratings. (g) Approval of Listing. At Closing Time, the Preferred Securities shall have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance. (h) Additional Documents. At Closing Time counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Preferred Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Offerors in connection with the issuance and sale of the Preferred Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. (i) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representatives by notice to the Offerors at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4. 6. Indemnification. (a) Indemnification of Underwriters. The Offerors agree to jointly and severally indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act 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 the Registration Statement (or any amendment thereto), including the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) 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 govern-mental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Guarantor; and (iii) against any and all reasonable expense as incurred (including, subject to Section 6(c) hereof, the fees and disbursements of counsel chosen by Merrill Lynch), 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, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Trust, the Guarantor or Capital Funding by any Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided, further, that this indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any underwriter from whom the person asserting any such losses, liabilities, claims, damages or expenses purchased Securities, or any person controlling such Underwriter, if the Offerors sustain the burden that a copy of the Prospectus (as then amended or supplemented if the Offerors shall have furnished any such amendments or supplements thereto), but excluding documents incorporated or deemed to be incorporated by reference, was not sent or given by or on behalf of such Underwriter to such person, if such is required by law, at or prior to the written confirmation of the sale of such Securities to such person and if the Prospectus (as so amended or supplemented, but excluding documents incorporated or deemed to be incorporated by reference therein) would have corrected the defect giving rise to such loss, liability, claim, damage or expense, it being understood that this proviso shall have no application if such defect shall have been corrected in a document which is incorporated or deemed to be incorporated by reference in the Prospectus. (b) Indemnification of the Trust. The Guarantor and Capital Funding agree jointly and severally to indemnify the Trust against all loss, liability, claim, damage and expense whatsoever, as due from the Trust under Section 6(a) hereunder. (c) Indemnification of Offerors, Directors and Officers. Each Underwriter severally agrees to indemnify and hold harmless the Offerors, their directors, trustees, each of its officers who signed the Registration Statement, and each person, if any, who controls the Offerors within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Offerors by such Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (d) Actions against Parties; Notification. 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 otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party). If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action other than reasonable costs of investigation; provided, however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such indemnified party unless the indemnified party reasonably objects to such assumption on the ground that there may be legal defenses available to it which are different from or in addition to those available to such indemnifying party in which case, if such indemnified party so notified the indemnifying party in writing that such indemnified party will employ separate counsel, the indemnified party shall be entitled to employ separate counsel at the expense of the indemnifying party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any 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. 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. 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) 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 on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus, or, if Rule 434 is used, the corresponding location on the Term Sheet, bear to the aggregate initial public offering price of the Securities as set forth on such cover. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party 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 or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter 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 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1933 Act shall have the same rights to contribution as the Company. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint. 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers or Trustees of the Offerors submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Offerors, and shall survive delivery of the Preferred Securities to the Underwriters. 9. Termination of Agreement. (a) Termination; General. The Representatives may terminate this Agreement, by notice to the Offerors, at any time at or prior to Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Registration Statement, any material adverse change or any development involving a prospective material adverse change, in the financial condition or results of operations of the Guarantor and its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, or (ii) if there has occurred any outbreak of hostilities or material escalation thereof or other calamity or crisis the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Designated Securities, (iii) if trading in the Designated Securities has been suspended by the Commission, or if trading generally on the New York Stock Exchange has been suspended, limited or restricted or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by said exchange or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by either Federal, New York or Colorado authorities or (iv) if there has been any decrease in the ratings of any of the debt securities of the Guarantor or Capital Funding or of the Preferred Securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act) or such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the debt securities of the Guarantor or Capital Funding or of the Preferred Securities, except for such decreases or announcements which the Prospectus discloses have occurred or may occur. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in section 4 hereof. 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at Closing Time to purchase the Designated Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Designated Securities, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of Designated Securities, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Representatives or the Offerors shall have the right to postpone Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10. 11. Notices. 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 Underwriters shall be directed to the Representatives at North Tower, World Financial Center, New York, New York 10281-1201, attention of Robin Mass, Vice President; notices to the Trust, the Guarantor and Capital Funding shall be directed to them at 7800 East Orchard Road, Englewood, Colorado 80111, attention of Stephen E. Brilz, Esq., Corporate Counsel. 12. Parties. This Agreement shall each inure to the benefit of and be binding upon the Underwriters and the Trust, the Guarantor, and Capital Funding and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Trust, the Guarantor, and Capital Funding and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Trust, the Guarantor, and Capital Funding and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. 14. Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Trust a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Trust, the Guarantor, and Capital Funding in accordance with its terms. Very truly yours, U S WEST, INC. By__________________________________________ Name: Title: U S WEST CAPITAL FUNDING, INC. By__________________________________________ Name: Title: U S WEST FINANCING II By__________________________________________ Name: Title: Trustee By__________________________________________ Name: Title: Trustee CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DEAN WITTER REYNOLDS INC. A.G. EDWARDS & SONS, INC. PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES INCORPORATED SMITH BARNEY INC. By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By__________________________________________ Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. SCHEDULE A
Name of Underwriter Number of Securities - --------------------------------------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated 2,240,000 Dean Witter Reynolds Inc. 2,240,000 A.G. Edwards & Sons, Inc. 2,240,000 PaineWebber Incorporated 2,240,000 Prudential Securities Incorporated 2,240,000 Smith Barney Inc. 2,240,000 Robert W. Baird & Co. Incorporated 180,000 Bear, Stearns & Co. Inc. 180,000 Alex, Brown & Sons Incorporated 180,000 Cowen & Company 180,000 Dain Bosworth Incorporated 180,000 Dillon, Reed & Co, Inc. 180,000 Donaldson, Lufkin & Jenrette Securities Corporation 180,000 EVEREN Securities, Inc. 180,000 The Ohio Company 180,000 Oppenheimer & Co., Inc. 180,000 Piper Jaffray Inc. 180,000 Raymond James & Associates, Inc. 180,000 Tucker Anthony Incorporated 180,000 Wheat, First Securities, Inc. 180,000 Advest, Inc. 90,000 Artemis Capital Group 90,000 J.C. Bradford & Co. 90,000 JW Charles Securities, Inc. 90,000 Craigle Incorporated 90,000 Crowell, Weedon & Co. 90,000 Davenport & Co. of Virginia, Inc. 90,000 D. A. Davidson & Co. Incorporated 90,000 Fahnestock & Co. Inc. 90,000 Gibraltar Securities Co. 90,000 Gruntal & Co., Incorporated 90,000 J.J.B. Hilliard, W. L. Lyons, Inc. 90,000 Interstate/Johnson Lane Corporation 90,000 Janney Montgomery Scott Inc. 90,000 Josephthal Lyon & Ross Incorpoated 90,000 Kennedy, Cabot & Co. 90,000 Legg Mason Wood Walker, Incorporated 90,000 McDonald & Company Securities, Inc. 90,000 McGinn, Smith & Co., Inc. 90,000 Mesirow Financial, Inc. 90,000 Morgan Keegan & Company, Inc. 90,000 David A. Noyes & Company 90,000 Olde Discount Corporation 90,000 Pryor, McClendon, Counts & Co., Inc. 90,000 Ragen MacKenzie Incorporated 90,000 Rauscher Pierce Refsnes, Inc. 90,000 The Robinson-Humphrey Company, Inc. 90,000 Roney & Co., LLC 90,000 Scott & Stringfellow, Inc. 90,000 Muriel Siebert & Co., Inc. 90,000 Stifel, Nicolaus & Company, Incorporated 90,000 Stone & Youngberg 90,000 Sutro & Co. Incorporated 90,000 US Clearing Corp. 90,000 Utendahl Capital Partners, L.P. 90,000 Yamaichi International (America), Inc. 90,000 -------------------- Total 19,200,000 ====================
SCHEDULE B U S WEST FINANCING II 19,200,000 Preferred Securities 8 % Trust Originated Preferred Securities ("TOPrS") (Liquidation Amount of $25 Per Preferred Security) 15. The initial public offering price per security for the Preferred Securities, determined as provided in said Section 2, shall be $25.00. 16. The purchase price per security for the Preferred Securities to be paid by the several Underwriters shall be $25.00, being an amount equal to the initial public offering price set forth above. 17. The commission per Preferred Security to be paid by Capital Funding to the Underwriters for their commitments hereunder shall be $.7875; provided, however, that the commission per Preferred Security for sales of 10,000 or more Preferred Securities to a single purchaser shall be $.50. Exhibit A FORM OF OPINION OF WEIL, GOTSHAL & MANGES LLP TO BE DELIVERED PURSUANT TO SECTION 5(b)(i) (a) The Registration Statement is effective under the 1933 Act and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. (b) At the time the Registration Statement became effective and at the Representation Date, the Registration Statement (other than the Incorporated Documents, the financial statements and supporting schedules, included therein and other financial and statistical data included therein and those parts of the Registration Statement that constitute the Debt Trustee's and the Property Trustee's respective Statements of Eligibility and Qualification under the 1939 Act (form T-1), as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act, the 1933 Act Regulations, the 1939 Act, and the 1939 Act Regulations. (c) The statements in the Prospectus under the captions "Description of the Preferred Securities", "Description of the Subordinated Debt Securities and the Debt Guarantee", "Effect of Obligations under the Subordinated Debt Securities, the Debt Guarantee and the Preferred Securities Guarantee", in the Prospectus under the captions "Description of the Preferred Securities", "Description of the Preferred Securities Guarantees", and "Description of the Subordinated Debt Securities and the Debt Guarantees" insofar as they constitute summaries of legal matters or documents, have been reviewed by them and are accurate in all material respects. (d) The Purchase Agreement has been duly executed and delivered by the Offerors. (e) No federal authorization, approval, consent or order of any court or governmental authority or agency is required in connection with the issuance and sale of the Common Securities or the offering of the Preferred Securities, the Subordinated Debt Securities or the Guarantees, except such as have been obtained under the 1933 Act or the 1933 Act Regulations or the 1934 Act or the 1934 Act Regulations and the qualification of the Declaration and the Indenture under the 1939 Act. (f) The Declaration and the Preferred Securities Guarantee have been duly qualified under the 1939 Act. (g) Assuming that the Preferred Securities Guarantee Agreement has been duly authorized by the Guarantor, the Preferred Securities Guarantee Agreement has been duly executed and delivered by the Guarantor and assuming due authorization, execution and delivery by First Chicago, constitutes a valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except to the extent that enforcement thereof may be limited by the Bankruptcy Exceptions. (h) Assuming that the Indenture has been duly authorized by each of the Guarantor and Capital Funding and has been duly authorized, executed and delivered by the Debt Trustee, the Indenture has been duly executed and delivered by each of the Guarantor and Capital Funding and is a valid and binding obligation of each of the Guarantor and Capital Funding, enforceable against each of the Guarantor and Capital Funding in accordance with its terms, except to the extent that enforcement thereof may be limited by the Bankruptcy Exceptions; and the Indenture has been duly qualified under the 1939 Act. (i) Assuming that the Subordinated Debt Securities have been duly authorized by Capital Funding, the Subordinated Debt Securities have been duly executed by Capital Funding, and when authenticated in the manner provided in the Indenture and delivered against payment therefor as described in the Prospectus, will constitute valid and binding obligations of Capital Funding, enforceable against Capital Funding in accordance with their terms, except to the extent that enforcement thereof may be limited by the Bankruptcy Exceptions. (j) Assuming that the Debt Guarantee has been duly authorized by the Guarantor, the Debt Guarantee has been duly executed by the Guarantor, and when authenticated in the manner provided in the Indenture and delivered against payment therefor as described in the Prospectus, constitute a valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except to the extent that enforcement thereof may be limited by the Bankruptcy Exceptions. (k) The Trust will be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. (l) The Trust is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the 1940 Act. In addition, such counsel shall state that it has participated in conferences with officers and other representatives of the Offerors, representatives of the independent public accountants for the Offerors and with you and your counsel, at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed; such counsel has not independently verified the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus and the limitations inherent in the examination made by such counsel and the nature and extent of such counsel's participation in such conferences are such that such counsel is not passing upon, and is unable to assume, and does not assume, any responsibility for, the accuracy, completeness or fairness of such statements, except for those made under the captions "Description of the Preferred Securities", "Description of the Preferred Securities Guarantees", and "Description of the Subordinated Debt Securities and the Debt Guarantees"; however, based upon such counsel's participation in the aforesaid conferences, no facts have come to its attention which lead it to believe that the Registration Statement, and each amendment thereto, as of the date of the filing of the annual report on Form 10-K of the Guarantor for the year ended December 31, 1995 with the Commission (other than the financial statements and the notes thereto, the financial statements schedules, the other financial and statistical data therein and the operating data included in the Prospectus Supplement under the caption "Summary Historical and Pro Forma Financial Data", as to which such counsel need express no belief and those parts of the Registration Statement that constitute the Debt Trustee's and the Property Trustee's respective Statements of Eligibility and Qualification under the 1939 Act (form T-1)), contained any untrue statements of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendments or supplement or supplement thereto made by the Offerors prior to the Closing Time (except as aforesaid) includes any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of such Closing Time, either the Prospectus or any further amendment or supplement thereto made by the Offerors prior to such Closing Time (except as aforesaid) includes any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In giving such opinion, Weil, Gotshal & Manges LLP may rely as to matters governed by the laws of the State of Colorado on an opinion or opinions of Stephen E. Brilz, Esq., and as to certain matters governed by the laws of the State of Delaware, on an opinion or opinions of Morris, Nichols, Arsht & Tunnell, respectively, and as to certain matters relating to The First National Bank of Chicago under the federal banking laws on an opinion of Pepper, Hamilton & Scheetz, provided that such opinion or opinions shall be addressed to the Underwriters, shall be dated as of such date and shall expressly permit Weil, Gotshal & Manges LLP to rely thereon.\ Exhibit B FORM OF OPINION OF STEPHEN E. BRILZ, ESQ. TO BE DELIVERED PURSUANT TO SECTION 5(b)(ii) ( The Guarantor has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and Prospectus and to enter into and perform its obligations under the Purchase Agreement, the Declaration, the Indenture and each of the Guarantee Agreements and to purchase, own and hold the Common Securities issued by the Trust. ( Capital Funding has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Colorado with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and Prospectus and to enter into and perform its obligations under the Purchase Agreement and the Indenture. ( The Declaration has been duly authorized, executed and delivered by the Guarantor and each of the Regular Trustees. ( The Purchase Agreement, the Guarantee Agreements, the Indenture, the Subordinated Debt Securities and the Debt Guarantee have been duly authorized, executed and delivered by the Guarantor. ( The Purchase Agreement, the Indenture, the Subordinated Debt Securities, and the Debt Guarantee have been duly authorized, executed and delivered by Capital Funding. ( The execution, delivery and performance of the Purchase Agreement, the Declaration, the Preferred Securities, the Common Securities, the Indenture, the Subordinated Debt Securities, the Guarantee Agreements, the Indenture and the Guarantees and the consummation of the transactions contemplated herein and therein and compliance by the Offerors with their respective obligations hereunder and thereunder will not conflict with in any material matter or result in a material breach or violation of any term or provision of, or constitute a default under any indenture, mortgage, deed of trust, loan agreement, or other agreement or instrument known to such counsel to which the Guarantor, any of U S WEST Communications Group, Inc., U S WEST Communications Inc., U S WEST New Vector Group, Inc. and Capital Funding (the "Significant Subsidiaries") or the Trust is a party or by which any of them may be bound, or to which any of the property or assets of the Guarantor, any of the Significant Subsidiaries or the Trust is subject, nor will such action result in any violation of the provisions of the charter or by-laws of the Guarantor or of Capital Funding or the Declaration or the Certificate of Trust, or any statute (other than the Act or state securities or Blue Sky laws) or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Guarantor or any of its subsidiaries or any of their properties; except any statute, order, rule or regulation the violation of which would not have a material adverse effect on the consolidated financial position, shareholders' equity or results of the Guarantor taken as a whole. ( No state authorization, approval, consent or order of any court or governmental authority or agency is required in connection with the issuance and sale of the Common Securities or the offering of the Preferred Securities, the Subordinated Debt Securities or the Guarantees, except such as have been obtained under the 1933 Act or the 1933 Act Regulations and the qualification of the Declaration and the Indenture under the 1939 Act and such as may be required under state securities law. ( All of the issued and outstanding Common Securities of the Trust are directly owned by the Guarantor free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. ( The Property Trustee is the record holder of Subordinated Debt Securities and the Debt Guarantee and no security interest, mortgage, pledge, lien, encumbrance, claim or equity is noted thereon or on the register. ( Each of the documents incorporated by reference in the Registration Statement or Prospectus at the time they were filed or last amended (other than the financial statements and related schedules and other financial or statistical data included or incorporated by reference therein as to which such counsel need express no opinion), complied as to form in all material respects with the requirements of the 1933 Act, the 1933 Act Regulations, the 1934 Act, the 1934 Act Regulations, as applicable. In giving such opinion, Stephen E. Brilz, Esq. may rely as to certain matters governed by the laws of the State of Delaware or the State of New York on an opinion or opinions of Morris, Nichols, Arsht & Tunnell and Weil, Gotshal & Manges LLP, respectively, provided that such opinion or opinions shall be addressed to the Underwriters, shall be dated as of such date and shall expressly permit Stephen E. Brilz, Esq. to rely thereon. Exhibit C FORM OF OPINION OF MORRIS, NICHOLS, ARSHT & TUNNELL TO BE DELIVERED PURSUANT TO SECTION 5(b)(iii) ( The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Act; all filings required under the laws of the State of Delaware with respect to the creation and valid existence of the Trust as a business trust have been made; under the Delaware Act and the Declaration, the Trust has the business trust power and authority to (x) own property and conduct its business, all as described in the Prospectus, (y) enter into and perform its obligations under the Purchase Agreement, and (z) issue and perform its obligations under the Preferred Securities and the Common Securities. ( Assuming the Declaration has been duly authorized, executed and delivered by the Trustees and the Guarantor, the Declaration is a valid and binding obligation of the Guarantor and the Trustees, enforceable against the Guarantor and the Trustees, in accordance with its terms, except as enforcement thereof may be limited by the (i) bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance and other similar laws relating to or affecting the rights and remedies of creditors generally, (ii) principles of equity (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) considerations of public policy or the effect of applicable law relating to fiduciary duties. ( Under the Delaware Act and the Declaration, the execution and delivery by the Trust of the Purchase Agreement, and the performance by the Trust of its obligations thereunder, have been duly authorized by all necessary business trust action on the part of the Trust; and the Purchase Agreement has been duly executed by the Trust under the laws of Delaware. ( The Common Securities have been duly authorized by the Declaration and are validly issued and represent undivided beneficial interests in the assets of the Trust; and under the Delaware Act and the Declaration, the issuance of the Common Securities is not subject to preemptive rights. ( The Preferred Securities have been duly authorized by the Declaration and, when delivered to and paid for pursuant to this Agreement, will be validly issued, and (subject to the qualifications set forth herein) fully paid and non-assessable undivided beneficial interests in the assets of the Trust; the holders of the Preferred Securities, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; and under the Delaware Act and the Declaration, the issuance of the Preferred Securities is not subject to preemptive rights. Such counsel may note that the Preferred Security holders may be obligated, pursuant to the Declaration, to (i) provide indemnity and/or security in connection with and pay taxes or governmental charges arising from transfers of Preferred Security Certificates and the issuance of replacement Preferred Security Certificates, and (ii) provide security and indemnity in connection with requests of or directions to the Property Trustee to exercise its rights and powers under the Declaration. ( The issuance and sale by the Trust of the Preferred Securities and Common Securities; the execution, delivery and performance by the Trust of the Purchase Agreement; the consummation of the transactions contemplated herein; and compliance by the Trust with its obligations hereunder will not violate any of the provisions of the Certificate of Trust or the Declaration, or any applicable Delaware law or administrative regulation. ( Assuming that the Trust derives no income from or in connection with sources within the State of Delaware and has no assets, activities (other than having a Delaware Trustee as required by the Delaware Act and the filing of documents with the Delaware Secretary of State) or employees in the State of Delaware, no authorization, approval, consent or order of any Delaware court or governmental authority or agency is required to be obtained by the Trust solely in connection with the issuance and sale of the Common Securities and the Preferred Securities or the purchase by the Trust of the Subordinated Debt Securities and the Guarantees except such as have been obtained and such as may be required by state securities laws. Exhibit D FORM OF OPINION OF PEPPER, HAMILTON & SCHEETZ TO BE DELIVERED PURSUANT TO SECTION 5(b)(iv) ( The First National Bank of Chicago ("FNBC") is a national banking association with trust powers, duly organized, validly existing and in good standing under the laws of the United States, with all necessary power and authority to execute and deliver, and to carry out and perform its obligations under the terms of the Declaration and the Preferred Securities Guarantee. ( First Chicago Delaware Inc. ("FCD") is a Delaware corporation duly organized, validly existing and in good standing under the laws of Delaware, with full power and authority to execute and deliver, and to carry out and perform its obligations under the terms of the Declaration. ( The execution, delivery and performance by each of FNBC and FCD of the Declaration, and the execution, delivery and performance by FNBC, in its capacity as the Guarantee Trustee, of the Preferred Securities Guarantee, have been duly authorized by all necessary corporate action on the part of FNBC and FCD, respectively, in the case of the Declaration, and by FNBC, in the case of the Preferred Securities Guarantee. The Declaration and the Preferred Securities Guarantee, when duly executed and delivered by FNBC and FCD, respectively, in the case of the Declaration, and by FNBC, in its capacity as the Guarantee Trustee, in the case of the Preferred Securities Guarantee, will constitute the legal, valid and binding obligation of FNBC and FCD, in the case of the Declaration, and by FNBC, in the case of the Preferred Securities Guarantee, enforceable against FNBC and FCD in the case of the Declaration, and by FNBC, in its capacity as the Guarantee Trustee, in the case of the Preferred Securities Guarantee, in accordance with their terms. To the best of such counsel's knowledge, there are no actions, proceedings or investigations pending or threatened against or affecting FNBC or FCD before any court, arbitrator, administrative agency or other governmental authority which, if adversely decided, would materially and adversely affect either of FNBC or FCD's ability to carry out the transactions contemplated in the Declaration or, in the case of FNBC, in its capacity as the Guarantee Trustee, in the Preferred Securities Guarantee. ( The execution, delivery and performance by each of FNBC and FCD of the Declaration, and the execution, delivery and performance by FNBC, in its capacity as the Guarantee Trustee, of the Preferred Securities Guarantee, do not conflict with, or constitute a breach of, the articles of association or the certificate of incorporation, as the case may be, or bylaws. ( No consent, approval or authorization of, or registration with or notice to, any Delaware or federal banking authority is required for the execution, delivery or performance by each of FNBC and FCD of the Declaration, or by FNBC, in its capacity as the Guarantee Trustee, of the Preferred Securities Guarantee. In giving such opinion, Pepper, Hamilton & Scheetz may rely as to matters governed by the laws of the State of Colorado on an opinion of Stephen E. Brilz, Esq. provided that such opinion shall be addressed to the Underwriters, shall be dated as of such date and shall expressly permit Pepper, Hamilton & Scheetz to rely thereon. EX-4 3 EXHIBIT 4B (..continued) EXHIBIT 4B ___________________________________ AMENDED AND RESTATED DECLARATION OF TRUST U S WEST FINANCING II Dated as of October 24, 1996 ____________________________________
TABLE OF CONTENTS Page ---- ARTICLE I INTERPRETATION AND DEFINITIONS SECTION 1.1 Definitions 2 ARTICLE II TRUST INDENTURE ACT SECTION 2.1 Trust Indenture Act; Application 9 SECTION 2.2 Lists of Holders of Securities 10 SECTION 2.3 Reports by the Property Trustee 10 SECTION 2.4 Periodic Reports to Property Trustee 10 SECTION 2.5 Evidence of Compliance with Conditions Precedent 11 SECTION 2.6 Events of Default; Waiver 11 SECTION 2-7 Event of Default; Notice 13 ARTICLE III ORGANIZATION SECTION 3.1 Name 14 SECTION 3.2 Office 14 SECTION 3.3 Purpose 14 SECTION 3.4 Authority 15 SECTION 3.5 Title to Property of the Trust 15 SECTION 3.6 Powers and Duties of the Regular Trustees 15 SECTION 3.7 Prohibition of actions by the Trust and the Trustees 19 SECTION 3.8 Powers and Duties of the Property Trustee 21 SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee 23 SECTION 3.10 Certain Rights of Property Trustee 26 SECTION 3.11 Delaware Trustee 30 SECTION 3.12 Execution of Documents 30 SECTION 3.13 Not Responsible for Recitals or Issuance of Securities 30 SECTION 3.14 Duration of Trust. 30 SECTION 3.15 Mergers 31 ARTICLE IV SPONSOR SECTION 4.1 Sponsor's Purchase of Common Securities 33 SECTION 4.2 Responsibilities of the Sponsor. 34 ARTICLE V TRUSTEES SECTION 5.1 Number of Trustees 34 SECTION 5.2 Delaware Trustee 35 SECTION 5.3 Property Trustee; Eligibility 35 SECTION 5.4 Qualifications of Regular Trustees and Delaware Trustee Generally 37 SECTION 5.5 Initial Trustees 37 SECTION 5.6 Appointment, Removal and Resignation of Trustees 38 SECTION 5.7 Vacancies among Trustees 40 SECTION 5.8 Effect of Vacancies 40 SECTION 5.9 Meetings 40 SECTION 5.10 Delegation of Power 41 RTICLE VI DISTRIBUTIONS SECTION 6.1 Distributions 41 ARTICLE VII ISSUANCE OF SECURITIES SECTION 7.1 General Provisions Regarding Securities 42 ARTICLE VIII DISSOLUTION AND TERMINATION OF TRUST SECTION 8.1 Dissolution and Termination of Trust 43 ARTICLE IX TRANSFER OF INTERESTS SECTION 9.1 Transfer of Securities 45 SECTION 9.2 Transfer of Certificates 45 SECTION 9.3 Deemed Security Holders 46 SECTION 9.4 Book Entry Interests 46 SECTION 9.5 Notices to Clearing Agency 47 SECTION 9.6 Appointment of Successor Clearing Agency 47 SECTION 9.7 Definitive Preferred Security Certificates. 47 SECTION 9.8 Mutilated, Destroyed, Lost or Stolen Certificates. 48 ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.1 Liability 49 SECTION 10.2 Exculpation 50 SECTION 10.3 Fiduciary Duty 50 SECTION 10.4 Indemnification 52 SECTION 10.5 Outside Businesses 52 ARTICLE XI ACCOUNTING SECTION 11.1 Fiscal Year 53 SECTION 11.2 Certain Accounting Matters 53 SECTION 11.3 Banking 54 SECTION 11.4 Withholding 55 ARTICLE XII AMENDMENTS AND MEETINGS SECTION 12.1 Amendments 55 SECTION 12.2 Meetings of the Holders of Securities; Action by Written consent. 57 ARTICLE XIII REPRESENTATIONS OF PROPERTY TRUSTEE SECTION 13.1 Representations and Warranties of Property Trustee. 60 ARTICLE XIV MISCELLANEOUS SECTION 14.1 Notices 62 SECTION 14.2 Governing Law 63 SECTION 14.3 Intention of the Parties 63 SECTION 14.4 Headings 63 SECTION 14.5 Successors and Assigns 63 SECTION 14.6 Partial Enforceability 63 SECTION 14.7 Counterparts 64
CROSS-REFERENCE TABLE*
Section of Trust Indenture Act of 1939, as amended Section of Declaration - -------------------------- ---------------------- 310(a) 5.3(a) 310(b) 5.3(c) 310(c) Inapplicable 311(a) 2.2(b) 311(b) 2.2(b) 311(c) Inapplicable 312(a) 2.2(a) 312(b) 2.2(b) 313 2.3 314(a) 2.4 314(b) Inapplicable 314(c) 2.5 314(d) Inapplicable 314(f) Inapplicable 315(a) 3.9(b) 315(b) 2.8 315(c) 3.9(a) 315(d) 3.9(a) 316(a) Exhibit A, 2.6 316(c) 3.6(e) _______________ * This Cross-Reference Table does not constitute part of the Declaration and shall not affect the interpretation of any of its terms or provisions.
AMENDED AND RESTATED DECLARATION OF TRUST OF U S WEST FINANCING II October 24, 1996 AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and effective as of October 24, 1996 by the undersigned trustees (together with all other Persons from time to time duly appointed and serving as trustees in accordance with the provisions of this Declaration, the "Trustees"), U S WEST, Inc., a Delaware corporation, as trust sponsor (the "Sponsor"), and by the holders, from time to time, of undivided beneficial interests in the Trust to be issued pursuant to this Declaration; WHEREAS, certain of the Trustees and the Sponsor established a trust (the "Trust") under the Delaware Business Trust Act pursuant to a Declaration of Trust, dated as of March 1, 1995 (the "Original Declaration") and a Certificate of Trust filed with the Secretary of State of Delaware on March 1, 1995, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in certain Debentures of the Debenture Issuer and the Debenture Guarantee of the Sponsor endorsed thereon; WHEREAS, as of the date hereof, no interests in the Trust have been issued; WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration; and NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I INTERPRETATION AND DEFINITIONS SECTION 1.1 Definitions Unless the context otherwise requires: (a) Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Amended and Restated Declaration of Trust as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Exhibits are to Articles and Sections of and Exhibits to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "Authorized Officer" of a Person means any Person that is authorized to bind such Person. "Book Entry Interest" means a beneficial interest in a Global Certificate, ownership and transfers of which shall be maintained and made through book entries by a Clearing Agency as described in Section 9.4. "Business Day" means any day other than a day on which banking institutions in New York, New York are authorized or required by law to close. "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Sections 3801 et seq., as it may be amended from time to time. "Certificate" means a Common Security Certificate or a Preferred Security Certificate. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Preferred Securities and in whose name or in the name of a nominee of that organization, shall be registered a Global Certificate and which shall undertake to effect book entry transfers and pledges of the Preferred Securities. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means October 29, 1996. "Code" means the Internal Revenue Code of 1986, as amended. "Common Security" has the meaning specified in Section 7.1. "Common Securities Guarantee" means the guarantee agreement to be dated as of October 29, 1996 of the Sponsor in respect of the Common Securities. "Common Security Certificate" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Annex II to Exhibit A. "Covered Person" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of: (i) the Trust; or (ii) the Trust's Affiliates; and (b) any Holder of Securities. "Debenture Guarantee" means the guarantee by the Sponsor of the Debentures endorsed thereon. "Debenture Issuer" means U S WEST Capital Funding, Inc., a Colorado corporation. "Debenture Trustee" means Norwest Bank Minnesota, National Association, as trustee under the Indenture until a successor is appointed thereunder and thereafter means such successor trustee. "Debentures" means the series of Debentures to be issued by the Debenture Issuer under the Indenture to be held by the Property Trustee pursuant to Section 3.6(c), a specimen certificate for such series of Debentures being Exhibit B. "Delaware Trustee" has the meaning set forth in Section 5.2. "Definitive Preferred Security Certificates" has the meaning set forth in Section 9.4. "Distribution" means a distribution payable to Holders of Securities in accordance with Section 6.1. "DTC" means the Depository Trust Company, the initial Clearing Agency. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time or any successor legislation. "Event of Default" in respect of the Securities means an Event of Default (as defined in the Indenture) has occurred and is continuing in respect of the Debentures. "Global Certificate" has the meaning set forth in Section 9.4. "Holder" means a Person in whose name a Certificate representing a Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "Indemnified Person" means (a) any Trustee; (b) any Affiliate of any Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Trustee; or (d) any employee or agent of the Trust or its Affiliates. "Indenture" means the Indenture dated as of September 6, 1995 among the Debenture Issuer, U S WEST, Inc., a Colorado corporation, as guarantor, and Norwest Bank Minnesota, National Association, as trustee, as supplemented by a Second Supplemental Indenture dated as of October 31, 1995 among the Debenture Issuer, the Sponsor, as guarantor, and Norwest Bank Minnesota, National Association, as trustee, and any indenture supplemental thereto pursuant to which the Debentures and the Debenture Guarantee are to be issued. "Investment Company" means an investment company as defined in the Investment Company Act. "Investment Company Act" means the Investment Company Act of 1940, as amended from time to time or any successor legislation. "Legal Action" has the meaning set forth in Section 3.6(g). "Majority in liquidation amount of the Securities" means, except as provided in the terms of the Preferred Securities and by the Trust Indenture Act, Holder(s) of Securities voting together as a single class or, as the context may require, Holder(s) of Preferred Securities or Common Securities voting separately as a class, who vote Securities of a relevant class and the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of the Securities voted by such Holders represents more than 50% of the above stated liquidation amount of all Securities of such class. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Authorized Officers of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: 1. a statement that each officer signing the Certificate has read the covenant or condition and the definition relating thereto; 2. a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Certificate; 3. a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and 4. a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Paying Agent" has the meaning specified in Section 3.8(h). "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Securities Guarantee" means the guarantee agreement to be dated as of October 29, 1996 of the Sponsor in respect of the Preferred Securities. "Preferred Security" has the meaning specified in Section 7.1. "Preferred Security Beneficial Owner" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Preferred Security Certificate" means a certificate representing a Preferred Security substantially in the form of Annex I to Exhibit A. "Pricing Agreement" means the pricing agreement between the Trust, the Debenture Issuer, and the underwriters designated by the Regular Trustees with respect to the offer and sale of the Preferred Securities. "Property Trustee" means the Trustee meeting the eligibility requirements set forth in Section 5.3. "Property Trustee Account" has the meaning set forth in Section 3.8(c). "Purchase Agreement" means the Purchase Agreement for the offering and sale of Preferred Securities in the form of Exhibit C. "Quorum" means a majority of the Regular Trustees or if there are only two Regular Trustees, both of them. "Regular Trustee" means any Trustee other than the Property Trustee and the Delaware Trustee. "Responsible Officer" means, with respect to the Property Trustee, the chairman of the board of directors, the president, any vice-president, any assistant vice-president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or assistant trust officer or any other officer of the Property Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Securities" means the Common Securities and the Preferred Securities. "Securities Act" means the Securities Act of 1933, as amended. "66-2/3% in liquidation amount of the Securities" means, except as provided in the terms of the Preferred Securities and by the Trust Indenture Act, Holder(s) of Securities voting together as a single class or, as the context may require, Holder(s) of Preferred Securities or Common Securities, voting separately as a class, who vote Securities of a relevant class and the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions, to the date upon which the voting percentages are determined) of the Securities voted by such Holders represents 66-2/3% of the above-stated liquidation amount of all Securities of such class. "Special Event" has the meaning set forth in the terms of the Securities. "Sponsor" means U S WEST, Inc., a Delaware corporation or any permitted successor thereof under the Indenture, in its capacity as sponsor of the Trust. "Successor Property Trustee" means a successor Trustee possessing the qualifications to act as Property Trustee under Section 5.3(a). "10% in liquidation amount of the Securities" means, except as provided in the terms of the Preferred Securities and by the Trust Indenture Act, Holder(s) of Securities voting together as a single class or, as the context may require, Holder(s) of Preferred Securities or Common Securities, voting separately as a class, who vote Securities of a relevant class and the liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of the Securities voted by such Holders represents 10% of the above stated liquidation amount of all Securities of such class. "Treasury Regulations" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Trustee" or "Trustees" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. ARTICLE II TRUST INDENTURE ACT SECTION 2.1 Trust Indenture Act; Application. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions; (b) the Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act; (c) if and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control; and (d) the application of the Trust Indenture Act to this Declaration shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. SECTION 2.2 Lists of Holders of Securities. (a) Each of the Sponsor, the Debenture Issuer and the Regular Trustees on behalf of the Trust shall provide the Property Trustee (i) within 14 days after each record date for payment of Distributions, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders of the Securities ("List of Holders") as of such record date, provided that none of the Sponsor, the Debenture Issuer or the Regular Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Property Trustee by the Sponsor, the Debenture Issuer and the Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Property Trustee. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in its capacity as Paying Agent (if acting in such capacity) provided that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders; and (b) the Property Trustee shall comply with its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3 Reports by the Property Trustee Within 60 days after May 15 of each year, the Property Trustee shall provide to the Holders of the Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4 Periodic Reports to Property Trustee Each of the Sponsor, the Debenture Issuer, and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Section 2.5 Evidence of Compliance with Conditions Precedent. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration which relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6 Events of Default; Waiver. (a) The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default in respect of the Preferred Securities and its consequences provided that if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under the Declaration shall also not be waivable; or (ii) requires the consent or vote of the holders of greater than a majority in principal amount of the Debentures affected thereby (a "Super Majority") to be waived, the Event of Default under the Declaration may only be waived by the vote of the Holders of at least the proportion in liquidation amount of the Preferred Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Preferred Securities or impair any right consequent thereon. Any waiver by the Holders of the Preferred Securities of an Event of Default with respect to the Preferred Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote or consent of the Holders of the Common Securities. (b) The Holders of a Majority in liquidation amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below in the proviso to this Section 2.6(b), the Event of Default under the Declaration shall also be not waivable; or (ii) requires the consent or vote of a Super Majority to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below in the proviso to this Section 2.6(b), the Event of Default under the Declaration may only be waived by the vote of the Holders of at least the proportion in liquidation amount of the Preferred Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding, provided that, each Holder of Common Securities will be deemed to have waived any Event of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated and until such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Securities. Subject to the foregoing provisions of this Section 2.6(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of any Event of Default under the Indenture by the Property Trustee at the direction of the Holders of the Preferred Securities, constitutes a waiver of the corresponding Event of Default under this Declaration. SECTION 2.7 Event of Default; Notice. (a) The Property Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Securities, notices of all defaults with respect to the Securities known to the Property Trustee, unless such defaults have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby defined to be an Event of Default as defined in the Indenture, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); provided, that, except for a default in the payment of principal of (or premium, if any) or interest on any of the Debentures or in the payment of any sinking fund installment established for the Debentures, the Property Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers, of the Property Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Securities. (b) The Property Trustee shall not be deemed to have knowledge of any default except: (i) a default under Sections 6.01(a)(1) and 6.01(a)(2) of the Indenture; or (ii) any default as to which the Property Trustee shall have received written notice or a Responsible Officer charged with the administration of the Declaration shall have obtained written notice of. ARTICLE III ORGANIZATION SECTION 3.1 Name. The Trust is named "U S WEST Financing II", as such name may be modified from time to time by the Regular Trustees following written notice to the Holders of Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. SECTION 3.2 Office. The address of the principal office of the Trust is 7800 East Orchard Road, Englewood, Colorado 80111. On ten Business Days written notice to the Holders of Securities, the Regular Trustees may designate another principal office. SECTION 3.3 Purpose. The exclusive purposes and functions of the Trust are (a) to issue and sell Securities and use the proceeds from such sale to acquire the Debentures and the Debenture Guarantee, and (b) except as otherwise limited herein, to engage in only those other activities necessary, or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. It is the intention of all of the parties hereto that the Trust created hereunder constitutes a "grantor trust" for federal income tax purposes under the code, and all parties hereto, and the Holders of the Preferred Securities by the purchase of the Preferred Securities will be deemed to, agree to treat the Trust with such characterization. The provisions of this Agreement shall be interpreted consistently with such characterization. SECTION 3.4. Authority. Subject to the limitations provided in this Declaration and to the specific duties of the Property Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. Section 3.5 Title to Property of the Trust. Except as provided in Section 3.8 with respect to the Debentures, the Debenture Guarantee and the Property Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. Section 3.6 Powers and Duties of the Regular Trustees. The Regular Trustees shall have the exclusive power and authority and duty to cause the Trust to engage in the following activities: (a) to issue and sell the Preferred Securities and the Common Securities in accordance with this Declaration; provided, however, that the Trust may issue no more than one series of Preferred Securities and no more than one series of Common Securities, and, provided further, there shall be no interests in the Trust other than the Securities and the issuance of Securities shall be limited to a one-time, simultaneous issuance of both Preferred Securities and Common Securities on the Closing Date; (b) in connection with the issue and sale of the Preferred Securities, at the direction of the Sponsor, to: (i) execute and file with the Securities and Exchange Commission (the "Commission") the registration statement on Form S-3 prepared by the Sponsor in relation to the Preferred Securities, including any amendments thereto prepared by the Sponsor; (ii) execute and file any documents prepared by the Sponsor, or take any acts as determined by the Sponsor as necessary in order to qualify or register all or part of the Preferred Securities in any State in which the Sponsor has determined to qualify or register such Preferred Securities for sale; (iii) execute and file an application prepared by the Sponsor to the New York Stock Exchange or any other national stock exchange or the Nasdaq National Market for listing upon notice of issuance of any Preferred Securities; (iv) execute and file with the Commission a registration statement on Form 8-A prepared by the Sponsor relating to the registration of the Preferred Securities under Section 12(b) of the Exchange Act, including any amendments thereto prepared by the Sponsor; and (v) execute and enter into the Purchase Agreement providing for the sale of the Preferred Securities; (c) to acquire the Debentures and the Debenture Guarantee with the proceeds of the sale of the Preferred Securities and the Common Securities; provided, however, that the Regular Trustees shall cause legal title to the Debentures and the Debenture Guarantee to be owned by and held of record in the name of the Property Trustee for the benefit of the Holders of the Preferred Securities and the Common Securities; (d) to give the Debenture Issuer, the Sponsor and the Property Trustee prompt written notice of the occurrence of a Special Event; (e) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including for the purposes of 316(c) of the Trust Indenture Act and with respect to Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Preferred Securities and Common Securities as to such actions and applicable record dates; (f) to take all actions and perform such duties as may be required of the Regular Trustees pursuant to the terms of the Securities; (g) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.8(f), the Property Trustee has the exclusive power to bring such Legal Action; (h) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors, and consultants and pay reasonable compensation for such services; (i) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (j) to give the certificate to the Property Trustee required by Section 314(a)(4) of the Trust Indenture Act which certificate may be executed by any Regular Trustee; (k) to incur expenses which are necessary or incidental to carrying out any of the purposes of the Trust; (l) to act as, or appoint another Person to act as, registrar and transfer agent for the Securities; (m) to give prompt written notice to the Holders of the Securities of any notice received from the Debenture Issuer of its election to defer payments of interest on the Debentures by extending the interest payment period under the Indenture; (n) to execute all documents or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing; (o) to take all action which may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Securities or to enable the Trust to effect the purposes for which the Trust was created; (p) to take any action, not inconsistent with this Declaration or with applicable law, which the Regular Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.6 including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust to be classified for United States federal income tax purposes as a grantor trust; and (iii) cooperating with the Debenture Issuer to ensure that the Debentures will be treated as indebtedness of the Debenture Issuer for United States federal income tax purposes, provided that such action does not adversely affect the interests of Holders; and (q) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust. The Regular Trustees must exercise the powers set forth in this Section 3.6 in a manner which is consistent with the purposes, functions and characterization for federal income tax purposes of the Trust set out in Section 3.3 and the Regular Trustees shall not take any action which is inconsistent with the purposes, functions and characterization for federal income tax purposes of the Trust set forth in Section 3.3. Subject to this Section 3.6, the Regular Trustees shall have none of the powers or the authority of the Property Trustee set forth in Section 3.8. SECTION 3.7 Prohibition of Actions by the Trust and the Trustees (a) Notwithstanding any provision herein to the contrary, the Trust shall not, and the Trustees (including the Property Trustee) shall cause the Trust not to, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not and the Trustees (including the Property Trustee) shall cause the Trust not to: (i) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness other than loans represented by the Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; or (vii) other than as expressly provided in this Declaration and Exhibit A hereto, (A) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is waivable under Section 6.06 of the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable or (D) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, unless the Trust shall have received an opinion of counsel to the effect that such modification will not cause more than an insubstantial risk that for United States federal income tax purposes the Trust will not be classified as a grantor trust. SECTION 3.8 Powers and Duties of the Property Trustee. (a) The legal title to the Debentures and the Debenture Guarantee shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Holders of the Securities. The right, title and interest of the Property Trustee to the Debentures and the Debenture Guarantee shall vest automatically in each Person who may hereafter be appointed as Property Trustee as set forth in Section 5.6. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered; (b) the Property Trustee shall not transfer its right, title and interest in the Debentures and the Debenture Guarantee to the Regular Trustees or to the Delaware Trustee (if the Property Trustee does not also act as Delaware Trustee); (c) the Property Trustee shall: (i) establish and maintain a segregated non-interest bearing bank account (the "Property Trustee Account") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders of the Securities and, upon the receipt of payments of funds made in respect of the Debentures and Debenture Guarantee held by the Property Trustee, deposit such funds into the Property Trustee Account and make payments to the Holders of the Preferred Securities and the Common Securities from the Property Trustee Account in accordance with Section 6.1. Funds in the Property Trustee Account shall be held uninvested until disbursed in accordance with this Declaration. The Property Trustee Account shall be an account which is maintained with a banking institution the rating on whose long term unsecured indebtedness is at least equal to the rating assigned to the Preferred Securities by a "nationally recognized statistical rating organization", as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Preferred Securities and the Common Securities to the extent the Debentures are redeemed or mature; and (iii) upon notice of distribution issued by the Regular Trustees in accordance with the terms of the Preferred Securities and the Common Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Debentures and the Debenture Guarantee to Holders of Securities upon the Sponsor's election to dissolve the Trust in accordance with Section 8.1(a)(v); (d) the Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Securities; (e) the Property Trustee shall take any Legal Action which arises out of or in connection with an Event of Default or the Property Trustee's duties and obligations under this Declaration or the Trust Indenture Act; (f) no resignation of the Property Trustee shall be effective unless either: (i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of Securities pursuant to the terms of the Securities; or (ii) a Successor Property Trustee has been appointed and accepted that appointment in accordance with Section 5.6; (g) the Property Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Debentures and the Debenture Guarantee under the Indenture and, if an Event of Default occurs and is continuing, the Property Trustee shall, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures and the Debenture Guarantee subject to the rights of the Holders pursuant to the terms of such Securities; (h) the Property Trustee may authorize one or more Persons (each, a "Paying Agent") to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to the Preferred Securities and any such Paying Agent shall comply with 317(b) of the Trust Indenture Act. Any Paying Agent may be removed by the Property Trustee at any time and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Property Trustee; and (i) subject to this Section 3.8, the Property Trustee shall have none of the powers or the authority of the Regular Trustees set forth in Section 3.6; The Property Trustee must exercise the powers set forth in this Section 3.8 in a manner which is consistent with the purposes, functions and characterization for federal income tax purposes of the Trust set forth in Section 3.3 and the Property Trustee shall not take any action which is inconsistent with the purposes, functions and characterization for federal income tax purposes of the Trust set out in Section 3.3. SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee (a) The Property Trustee, before the occurrence of any Event of Default and after the curing or waiver of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration in Sections 2.2, 2.3, 2.7, 3.8, 3.9, 3.10 and 6.1 and in the terms of the Securities, and no implied covenants shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6), the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; (b) no provision of this Declaration shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration in Sections 2.2, 2.3, 2.7, 3.8, 3.9, 3.10 and 6.1 and in the terms of the Securities, and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Declaration; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Securities at the time outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Declaration; and (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 3.10 Certain Rights of Property Trustee. (A) Subject to the provisions of Section 3.9: (i) the Property Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any act of the Sponsor or the Regular Trustees contemplated by this Declaration shall be sufficiently evidenced by an Officers' Certificate; (iii) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part and request and rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Regular Trustees; (iv) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof); (v) the Property Trustee may consult with counsel and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Property Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (vi) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have provided to the Property Trustee adequate security and indemnity which would satisfy a reasonable person in the position of the Property Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Property Trustee provided, that, nothing contained in this Section 3.10(a)(vi) shall be taken to relieve the Property Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (vii) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Property Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Property Trustee to so act, or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action; (x) whenever in the administration of this Declaration the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (i) may request instructions from the Holders of the Securities which instructions may only be given by the Holders of the same proportion in liquidation amount of the Securities as would be entitled to direct the Property Trustee under the terms of the Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions; and (xi) except as otherwise expressly provided by this Declaration, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration. (b) No provision of this Declaration shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. SECTION 3.11 Delaware Trustee Notwithstanding any other provision of this Declaration other than Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Regular Trustees and the Property Trustee described in this Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of 3807 of the Business Trust Act. SECTION 3.12 Execution of Documents Unless otherwise determined by the Regular Trustees and except as otherwise required by the Business Trust Act, a majority of, or if there are only two, both of the Regular Trustees are authorized to execute on behalf of the Trust any documents which the Regular Trustees have the power and authority to execute pursuant to Section 3.6, provided that any listing application prepared by the Sponsor referred to in Section 3.6(b)(iii) may be executed by any Regular Trustee. SECTION 3.13 Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Securities. SECTION 3.14 Duration of Trust. The Trust, unless terminated pursuant to the provisions of Article VIII hereof, shall have existence for 55 years from the Closing Date. SECTION 3.15 Mergers. (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except as described in Section 3.15(b) and (c); (b) the Trust may, with the consent of a majority of the Regular Trustees and without the consent of the Holders of the Securities, the Delaware Trustee or the Property Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State; provided, that: (i) such successor entity (the "Successor Entity") either: (A) expressly assumes all of the obligations of the Trust under the Securities; or (B) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank with respect to Distributions and payments upon liquidation, redemption and maturity; (ii) the Debenture Issuer expressly acknowledges a trustee of the Successor Entity which possesses the same powers and duties as the Property Trustee as the Holder of the Debentures and the Sponsor expressly acknowledges such trustee of the Successor Entity as the holder of the Debenture Guarantee; (iii) the Preferred Securities or any Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed; (iv) such merger, consolidation, amalgamation or replacement does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization; (v) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the new entity); (vi) such successor entity has a purpose identical to that of the Trust; (vii) prior to such merger, consolidation, amalgamation or replacement, the Sponsor has received an opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the new entity); and (B) following such merger, consolidation, amalgamation or replacement, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (viii) the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Preferred Securities Guarantee; and (c) notwithstanding Section 3.15(b), the Trust shall not consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE IV SPONSOR SECTION 4.1 Sponsor's Purchase of Common Securities. On the Closing Date the Sponsor will purchase all the Common Securities issued by the Trust, at the same time as the Preferred Securities are sold, in an amount equal to 3% of the capital of the Trust. SECTION 4.2 Responsibilities of the Sponsor. In connection with the issue and sale of the Preferred Securities, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: 5. to prepare for filing by the Trust with the Commission a registration statement on Form S-3 in relation to the Preferred Securities, including any amendments thereto; 6. to determine the States in which to take appropriate action to qualify or register for sale all or part of the Preferred Securities and to take any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; 7. to prepare for filing by the Trust an application to the New York Stock Exchange or any other national stock exchange or the Nasdaq National Market for listing upon notice of issuance of any Preferred Securities; 8. to prepare for filing by the Trust with the Commission a registration statement on Form 8-A relating to the registration of the Preferred Securities under Section 12(b) of the Exchange Act, including any amendments thereto; and 9. to negotiate the terms of the Purchase Agreement providing for the sale of the Preferred Securities. ARTICLE V TRUSTEES SECTION 5.1 Number of Trustees. The number of Trustees shall initially be five (5), and: (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; provided, however, that the number of Trustees shall in no event be less than three (3); provided further that (1) one Trustee, in the case of a natural person, shall be a person who is a resident of the State of Delaware or that, if not a natural person, is an entity which has its principal place of business in the State of Delaware, (2) there shall be at least two Trustees who are employees or officers of, or are affiliated with the Sponsor; and (3) one Trustee shall be the Property Trustee for so long as this Declaration is required to qualify as an indenture under the Trust Indenture Act, and such Trustee may also serve as Delaware Trustee if it meets the applicable requirements. SECTION 5.2 Delaware Trustee. If required by the Business Trust Act, one Trustee (the "Delaware Trustee") shall be: (a) a natural person who is a resident of the State of Delaware; or (b) if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, provided that if the Property Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Property Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application. SECTION 5.3 Property Trustee; Eligibility. (a) There shall at all times be one Trustee which shall act as Property Trustee which shall: (i) not be an Affiliate of the Sponsor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.3(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published; (b) if at any time the Property Trustee shall cease to be eligible to so act under Section 5.3(a), the Property Trustee shall immediately resign in the manner and with the effect set forth in Section 5.6(c); (c) if the Property Trustee has or shall acquire any "conflicting interest" within the meaning of 310(b) of the Trust Indenture Act, the Property Trustee and the Holder of the Common Securities (as if it were the obligor referred to in 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of 310(b) of the Trust Indenture Act; and (d) the Preferred Securities Guarantee shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the first proviso contained in 310(b) of the Trust Indenture Act. SECTION 5.4 Qualifications of Regular Trustees and Delaware Trustee Generally. Each Regular Trustee and the Delaware Trustee (unless the Property Trustee also acts as Delaware Trustee) shall be either a natural person who is at least 21 years of age or a legal entity which shall act through one or more Authorized Officers. SECTION 5.5 Initial Trustees. The initial Regular Trustees under this Declaration shall be: James T. Anderson 7800 East Orchard Road Englewood, Colorado 80111 Rahn K. Porter 7800 East Orchard Road Englewood, Colorado 80111 Roger Fox 7800 East Orchard Road Englewood, Colorado 80111 The initial Delaware Trustee under this Declaration shall be: First Chicago Delaware Inc. 300 King Street Wilmington, Delaware 19801 The initial Property Trustee shall be: The First National Bank of Chicago One First National Plaza Suite 0126 Chicago, Illinois 60670-0126 Pursuant to Section 5.6(a)(i) hereof, the Sponsor hereby removes Charles J. Burdick as a Regular Trustee and Michael J. Majchrzak as the Delaware Trustee, each of whom was appointed as such in the Original Declaration. SECTION 5.6 Appointment, Removal and Resignation of Trustees. (a) Subject to Section 5.6(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of any Securities, by written instrument executed by the Sponsor; and (ii) after the issuance of any Securities by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; and (b) (i) the Trustee that acts as Property Trustee shall not be removed in accordance with Section 5.6(a) until a Successor Property Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Property Trustee and delivered to the Regular Trustees and the Sponsor; and (ii) the Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.6(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees and the Sponsor; and (c) a Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) no such resignation of the Trustee that acts as the Property Trustee shall be effective until a Successor Property Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Property Trustee and delivered to the Trust, the Sponsor and the resigning Property Trustee; or until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the holders of the Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee; and (d) the Holders of the Common Securities shall use their best efforts to promptly appoint a Successor Delaware Trustee or Successor Property Trustee as the case may be if the Property Trustee or the Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.6; and (e) if no Successor Property Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.6 within 60 days after delivery to the Sponsor and the Trust of an instrument of resignation, the resigning Property Trustee or Delaware Trustee may petition any court of competent jurisdiction for appointment of a Successor Property Trustee or Successor Delaware Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee, as the case may be. SECTION 5.7 Vacancies among Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.6. SECTION 5.8 Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee, or any one of them, shall not operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur, until such vacancy is filled by the appointment of a Regular Trustee in accordance with Section 5.6, the Regular Trustees in office, regardless of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. SECTION 5.9 Meetings. Meetings of the Regular Trustees shall be held from time to time upon the call of any Regular Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed by resolution of the Regular Trustees. Notice of any in-person meetings of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Regular Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. SECTION 5.10 Delegation of Power. (a) Any Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 3.6 including any registration statement or amendment thereto filed with the Commission or making any other governmental filing; and (b) the Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. ARTICLE VI DISTRIBUTIONS SECTION 6.1 Distributions. Holders shall receive Distributions in accordance with the applicable terms of the relevant Holder's Securities. Distributions shall be made on the Preferred Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Debenture Issuer makes a payment of interest (including Additional Interest (as defined in the Indenture)), premium and principal on the Debentures (or the Sponsor makes a payment in respect of the Debenture Guarantee) held by the Property Trustee (the amount of any such payment being a "Payment Amount"), the Property Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a "Distribution") of the Payment Amount to Holders. ARTICLE VII ISSUANCE OF SECURITIES 10. SECTION 7.1 General Provisions Regarding Securities (a) The Regular Trustees shall, on behalf of the Trust, issue one class of preferred securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit A and incorporated herein by reference (the "Preferred Securities"), and one class of common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit A and incorporated herein by reference (the "Common Securities"). The Trust shall have no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities; (b) the Certificates shall be signed on behalf of the Trust by the Regular Trustees (or if there are more than two Regular Trustees by any two of the Regular Trustees). Such signatures may be the manual or facsimile signatures of the present or any future Regular Trustee. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity of any Certificate. In case any Regular Trustee of the Trust who shall have signed any of the Certificates shall cease to be such Regular Trustee before the Certificate so signed shall be delivered by the Trust, such Certificate nevertheless may be delivered as though the person who signed such Certificate had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons who shall at the actual date of execution of such Security, be the Regular Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such a Regular Trustee. Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation of any stock exchange on which Securities may be listed, or to conform to usage; (c) the consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust; (d) upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable; and (e) every Person, by virtue of having become a Holder or a Preferred Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by this Declaration. ARTICLE VIII DISSOLUTION AND TERMINATION OF TRUST SECTION 8.1 Dissolution and Termination of Trust. (a) The Trust shall dissolve: (i) upon the bankruptcy of the Sponsor or the Debenture Issuer; (ii) upon the filing of a certificate of dissolution or its equivalent with respect to the Sponsor or the Debenture Issuer, upon the consent (other than in connection with a dissolution of the Trust pursuant to clause (v) of this Section 8.1(a)) of the holders of at least 66-2/3% in liquidation amount of the Securities, voting together as a single class, to file a certificate of cancellation with respect to the Trust, or the revocation of the charter of the Sponsor or the Debenture Issuer and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) upon the entry of a decree of judicial dissolution of the Sponsor, the Debenture Issuer or the Trust; (iv) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; (v) upon the election by the Sponsor, effective upon notice to the Trust, the Property Trustee and the Delaware Trustee, to dissolve the Trust in accordance with the terms of the Securities and all of the Debentures and Debenture Guarantees endorsed thereon shall have been distributed to the Holders of Securities in exchange for all of the Securities; or (vi) before the issuance of any Securities, with the consent of all of the Regular Trustees and the Sponsor; and (b) as soon as is practicable after the occurrence of an event referred to in Section 8.1(a) and upon the completion of the winding up of the Trust, one of the Regular Trustees (each Regular Trustee being hereby authorized to take such action) shall file a certificate of cancellation with the Secretary of State of the State of Delaware terminating the Trust; and (c) the provisions of Section 3.9 and Article X shall survive the termination of the Trust. ARTICLE IX TRANSFER OF INTERESTS SECTION 9.1 Transfer of Securities. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. Any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void; (b) subject to this Article IX, Preferred Securities shall be freely transferable; and (c) the Sponsor may not transfer the Common Securities. SECTION 9.2 Transfer of Certificates. The Regular Trustees shall provide for the registration of Certificates and of transfers of Certificates, which will be effected without charge but only upon payment (with such indemnity as the Regular Trustees may require) in respect of any tax or other government charges which may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Regular Trustees shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Regular Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration and the documents incorporated by reference herein. SECTION 9.3 Deemed Security Holders. The Trustees may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trustees shall have actual or other notice thereof. SECTION 9.4 Book Entry Interests. Unless otherwise specified in the terms of the Preferred Securities, the Preferred Securities Certificates, on original issuance, will be issued in the form of one or more, fully registered, global Preferred Security Certificates (each a "Global Certificate"), to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially be registered on the books and records of the Trust in the name of Cede & Co., the nominee of DTC, and no Preferred Security Beneficial Owner will receive a definitive Preferred Security Certificate representing such Preferred Security Beneficial Owner's interests in such Global Certificates, except as provided in Section 9.7. Unless and until definitive, fully registered Preferred Security Certificates (the "Definitive Preferred Security Certificates") have been issued to the Preferred Security Beneficial Owners pursuant to Section 9.7: (a) the provisions of this Section 9.4 shall be in full force and effect; (b) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Certificates and receiving approvals, votes or consents hereunder) as the Holder of the Preferred Securities and the sole holder of the Global Certificates and shall have no obligation to the Preferred Security Beneficial Owners; (c) to the extent that the provisions of this Section 9.4 conflict with any other provisions of this Declaration, the provisions of this Section 9.4 shall control; and (d) the rights of the Preferred Security Beneficial Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Preferred Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants. DTC will make book entry transfers among the Clearing Agency Participants and receive and transmit payments of Distributions on the Global Certificates to such Clearing Agency Participants; provided, that solely for the purposes of determining whether the Holders of the requisite amount of Preferred Securities have voted on any matter provided for in this Declaration, so long as Definitive Preferred Securities have not been issued, the Trustees may conclusively rely on, and shall be protected in relying on, any written instrument (including a proxy) delivered to the Trustees by the Clearing Agency setting forth the Preferred Security Beneficial Owners' votes or assigning the right to vote on any matter to any other Persons either in whole or in part. SECTION 9.5 Notices to Clearing Agency. Whenever a notice or other communication to the Preferred Security Holders is required under this Declaration, unless and until Definitive Preferred Security Certificates shall have been issued to the Preferred Security Beneficial Owners pursuant to Section 9.7, the Regular Trustees shall give all such notices and communications, specified herein to be given to the Preferred Security Holders, to the Clearing Agency, and shall have no notice obligations to the Preferred Security Beneficial Owners. SECTION 9.6 Appointment of Successor Clearing Agency. If any Clearing Agency elects to discontinue its services as securities depositary with respect to the Preferred Securities, the Regular Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to such Preferred Securities. SECTION 9.7 Definitive Preferred Security Certificates. If: (a) a Clearing Agency elects to discontinue its services as securities depositary with respect to the Preferred Securities and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 9.6; or (b) the Regular Trustees elect after consultation with the Sponsor to terminate the book entry system through the Clearing Agency with respect to the Preferred Securities, then: (c) Definitive Preferred Security Certificates shall be prepared by the Regular Trustees on behalf of the Trust with respect to such Preferred Securities; and 11. upon surrender of the Global Certificates by the Clearing Agency, accompanied by registration instructions, the Regular Trustees shall cause Definitive Certificates to be delivered to Preferred Security Beneficial Owners in accordance with the instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on and shall be protected in relying on, such instructions. The Definitive Preferred Security Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which Preferred Securities may be listed, or to conform to usage. SECTION 9.8 Mutilated, Destroyed, Lost or Stolen Certificates. If: (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless, then in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, any two Regular Trustees on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.8, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.1 Liability. (a) Except as expressly set forth in this Declaration, the Debenture Guarantee, the Securities Guarantees and the terms of the Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities which shall be made solely from assets of the Trust; and (ii) be required to pay to the Trust or to any Holder of Securities any deficit upon dissolution of the Trust or otherwise; and (b) Pursuant to 3803(a) of the Business Trust Act, the Holders of the Securities, in their capacity as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.2 Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (or, in the case of the Property Trustee, except as otherwise set forth in Section 3.9) or willful misconduct with respect to such acts or omissions; and (b) an Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. SECTION 10.3 Fiduciary Duty. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than duties imposed on the Property Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person; (b) unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between an Indemnified Person and any Covered Persons; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provide that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise; and (c) whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. SECTION 10.4 Indemnification. (a) To the fullest extent permitted by applicable law, the Sponsor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence (or, in the case of the Property Trustee, except as set forth in Section 3.9) or willful misconduct with respect to such acts or omissions; and (b) to the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Sponsor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Sponsor of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 10.4(a); and (c) the provisions of this Section 10.4 shall survive the termination of this Declaration. SECTION 10.5 Outside Businesses. Any Covered Person, the Sponsor, the Debenture Issuer, the Delaware Trustee and the Property Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Debenture Issuer, the Delaware Trustee, or the Property Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Debenture Issuer, the Delaware Trustee and the Property Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. ARTICLE XI ACCOUNTING SECTION 11.1 Fiscal Year. The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 11.2 Certain Accounting Matters. (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States federal income tax purposes. The books of account and the records of the Trust shall be examined by and reported upon, as of the end of each Fiscal Year, by a firm of independent certified public accountants selected by the Regular Trustees; (b) the Regular Trustees shall cause to be prepared and delivered to each of the Holders of Securities, within 90 days after the end of each Fiscal Year of the Trust, annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related statements of income or loss; (c) the Regular Trustees shall cause to be duly prepared and delivered to each of the Holders of Securities, any annual United States federal income tax information statement, required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust; and (d) the Regular Trustees shall cause to be duly prepared and filed with the appropriate taxing authority, an annual United States federal income tax return, on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority. SECTION 11.3 Banking. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures and the Debenture Guarantee held by the Property Trustee shall be made directly to the Property Trustee Account and no other funds of the Trust shall be deposited in the Property Trustee Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Property Trustee shall designate the sole signatories for the Property Trustee Account. SECTION 11.4 Withholding. The Trust and the Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Regular Trustee shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed over-withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Trust may reduce subsequent Distributions by the amount of such withholding. ARTICLE XII AMENDMENTS AND MEETINGS SECTION 12.1 Amendments. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may be amended by, and only by, a written instrument approved and executed by the Regular Trustees (or, if there are more than two Regular Trustees a majority of the Regular Trustees); provided, however, that: (i) no amendment shall be made, and any such purported amendment shall be void and ineffective, to the extent the result thereof would be to (A) cause the Trust to fail to be classified for the purposes of United States federal income taxation as a grantor trust; (B) educe or otherwise adversely affect the powers of the Property Trustee; or (C) cause the Trust to be deemed to be an Investment Company which is required to be registered under the Investment Company Act; (ii) t such time after the Trust has issued any Securities which remain outstanding, any amendment which would adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities; (iii) Section 9.1(c) and this Section 12.1 shall not be amended without the consent of all of the Holders of the Securities; (iv) Article IV shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities; and (v) the rights of the holders of the Common Securities under Article V to increase or decrease the number of, and appoint and remove Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities. (b) Notwithstanding Section 12.1(a)(ii), this Declaration may be amended without the consent of the Holders of the Securities to: (i) cure any ambiguity; (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration; and (iii) add to the covenants, restrictions or obligations of the Sponsor. (iv) to ensure the Trust's status as a grantor trust for federal income tax purposes. SECTOPM 12.2 Meetings of the Holders of Securities; Action by Written Consent. (a) Meetings of the Holders of any class of Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Preferred Securities are listed or admitted for trading. The Regular Trustees shall call a meeting of such class of Holders, if directed to do so by the Holders of at least 10% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Regular Trustees one or more calls in a writing stating that the signing Holders of Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the Security Certificates held by the Holders of Securities exercising the right to call a meeting and only those specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met; and (b) except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of Securities: (i) notice of any such meeting shall be given to all the Holders of Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Declaration or the rules of any stock exchange on which the Preferred Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of Securities owning not less than the minimum amount of Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to the Security Holder for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees; (ii) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; (iii) each meeting of the Holders of the Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate; and (iv) unless the Business Trust Act, the Trust Indenture Act, this Declaration, the terms of the Securities or the listing rules of any stock exchange on which the Preferred Securities are then listed or trading, otherwise provides, the Regular Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII REPRESENTATIONS OF THE PROPERTY TRUSTEE AND THE DELAWARE TRUSTEE SECTION 13.1 Representations and Warranties of Property Trustee. The Trustee which acts as initial Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Property Trustee's acceptance of its appointment as Property Trustee that: (a) The Property Trustee is a national banking association with trust powers, duly organized, validly existing and in good standing under the laws of the United States, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, the Declaration; (b) the execution, delivery and performance by the Property Trustee of the Declaration has been duly authorized by all necessary corporate action on the part of the Property Trustee. The Declaration has been duly executed and delivered by the Property Trustee, and it constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (c) the execution, delivery and performance of the Declaration by the Property Trustee does not conflict with or constitute a breach of the Articles of Organization or By-laws of the Property Trustee; (d) no consent, approval or authorization of, or registration with or notice to, any State or Federal banking authority is required for the execution, delivery or performance by the Property Trustee, of the Declaration; (e) the Property Trustee, pursuant to the Declaration, shall hold legal title and a valid ownership interest in the Debentures and the Debenture Guarantee under the law of its place of incorporation and Delaware law; and (f) if the Property Trustee also acts as the Delaware Trustee, the Delaware Trustee under Delaware law is either a natural person who is a resident of the State of Delaware or if not a natural person, an entity which maintains its principal place of business in the State of Delaware. SECTION 13.2 Representations and Warranties of Delaware Trustee. The Trustees which act as initial Delaware Trustee and initial Property Trustee each represent and warrant, jointly and severally, to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee and each Successor Property Trustee each represent and warrant, jointly and severally, to the Trust and the Sponsor at the time of the Successor Delaware Trustee's or Successor Property Trustee's, as the case may be, acceptance of its appointment as such that; (a) The Delaware Trustee under Delaware law is either a natural person who is a resident of the Sate of Delaware or if not a natural person, an entity which maintains its principal place of business in the State of Delaware; (b) the Delaware Trustee satisfies the requirments set forth in Section 5.2 and has the power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration and, if it is not a natural person, is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization; (c) the Delaware Trustee has been authorized to perform its obligations under the Certificate of Trust and this Declaration. This Declaration under Delaware law constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); and (d) no consent, approval or authorization of, or registration with or notice to, any State or Federal banking authority is required for the execution, delivery or performance by the Delaware Trustee of this Declaration. ARTICLE XIV MISCELLANEOUS SECTION 14.1 Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities): U S WEST FINANCING II c/o U S WEST, Inc. 7800 East Orchard Road Englewood, Colorado 80111 Attention: Treasurer (b) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as the Delaware Trustee may give notice of to the Holders of the Securities): First Chicago Delaware Inc. 300 King Street Wilmington, Delaware 19801 (c) if given to the Property Trustee, at the mailing address set forth below (or such other address as the Property Trustee may give notice of to the Holders of the Securities): THE FIRST NATIONAL BANK OF CHICAGO One First National Plaza Suite 0126 Chicago, Illinois 60670-0126 Attention: Corporate Trust Administration (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): U S WEST, Inc. 7800 East Orchard Road Englewood, Colorado 80111 Attention: Treasurer (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 14.2 Governing Law. This Declaration and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. SECTION 14.3 Intention of the Parties. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 14.4 Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 14.5 Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 14.6 Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 14.7 Counterparts. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. James T. Anderson as Trustee __________________________ Rahn K. Porter as Trustee __________________________ Roger Fox as Trustee __________________________ FIRST CHICAGO DELAWARE INC. as Trustee By: Name: Title: THE FIRST NATIONAL BANK OF CHICAGO as Trustee By: Name: Title: U S WEST, INC. as Sponsor By: Name: Title: EXHIBIT A TERMS OF SECURITIES EXHIBIT B SPECIMEN OF DEBENTURE EXHIBIT C PURCHASE AGREEMENT EXHIBIT A TERMS OF 8 % TRUST ORIGINATED PREFERRED SECURITIES 8 % TRUST ORIGINATED COMMON SECURITIES Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust, dated as of October 24, 1996 (as amended from time to time, the "Declaration"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration or, if not defined in such Declaration, as defined in the Prospectus referred to below): 1. DESIGNATION AND NUMBER. (a) Preferred Securities. 19,200,000 Preferred Securities of the Trust with an aggregate liquidation amount with respect to the assets of the Trust of Four Hundred Eighty Million Dollars ($480,000,000), and a liquidation amount with respect to the assets of the Trust of $25 per Preferred Security, are hereby designated for the purposes of identification only as "8 % Trust Originated Preferred Securities" (the "Preferred Securities"). The Preferred Security Certificates evidencing the Preferred Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange on which the Preferred Securities are listed. (b) Common Securities. 593,815 Common Securities of the Trust with an aggregate liquidation amount with respect to the assets of the Trust of Fourteen Million Eight Hundred Forty-Five Thousand Three Hundred Seventy-Five ($14,845,375), and a liquidation amount with respect to the assets of the Trust of $25 per Common Security, are hereby designated for the purposes of identification only as "8 % Trust Originated Common Securities" (the "Common Securities"). The Common Security Certificates evidencing the Common Securities shall be substantially in the form attached hereto as Annex II, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. 2. DISTRIBUTIONS. (a) Periodic Distributions payable on each Security will be fixed at a rate per annum of 8 % (the "Coupon Rate") of the stated liquidation amount of $25 per Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarter will bear interest thereon at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions" as used in these terms includes such periodic cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures or the Debenture Guarantee held by the Property Trustee. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed in such a 30-day month. (b) Distributions on the Securities will be cumulative, will accrue from October 29, 1996 and will be payable quarterly in arrears, on March 31, June 30, September 30, and December 31 of each year, commencing on December 31, 1996, except as otherwise described below. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding 20 consecutive quarters (each, an "Extension Period") and, as a consequence of such extension, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters. Payments of accrued Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. (c) Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. While the Preferred Securities remain in book-entry only form, the relevant record dates shall be one Business Day prior to the relevant payment dates which payment dates correspond to the interest payment dates on the Debentures. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment in respect of the Preferred Securities will be made as described under the heading "Description of the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust Company" in the Prospectus Supplement dated October 24, 1996 to the Prospectus dated October 31, 1995 (together, the "Prospectus") of the Trust included in the Registration Statement on Form S-3 of the Sponsor, the Debenture Issuer, the Trust and certain other business trusts. The relevant record dates for the Common Securities shall be the same record dates as for the Preferred Securities. If the Preferred Securities shall not continue to remain in book-entry only form, the relevant record dates for the Preferred Securities, shall conform to the rules of any securities exchange on which the securities are listed and, if none, shall be selected by the Regular Trustees, which dates shall be at least one Business Day but less than 60 Business Days before the relevant payment dates, which payment dates correspond to the interest payment dates on the Debentures. Distributions payable on any Securities that are not punctually paid on any Distribution payment date, as a result of the Debenture Issuer or the Sponsor having failed to make a payment under the Debentures or the Debenture Guarantee, as the case may be, will cease to be payable to the Person in whose name such Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date determined in accordance with the Indenture. If any date on which Distributions are payable on the Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (d) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Securities. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. In the event of any voluntary or involuntary dissolution, winding-up or termination of the Trust, the Holders of the Securities on the date of the dissolution, winding-up or termination as the case may be, will be entitled to receive out of the assets of the Trust available for distribution to Holders of Securities, after paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Business Trust Act, an amount equal to the aggregate of the stated liquidation amount of $25 per Security plus accrued and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"), unless, in connection with such dissolution, winding-up or termination, Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Securities, with an interest rate equal to the Coupon Rate of, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on, such Securities, shall be distributed on a Pro Rata basis to the Holders of the Securities in exchange for such Securities, after paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Business Trust Act. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Securities shall be paid on a Pro Rata basis. 4. REDEMPTION AND DISTRIBUTION. (a) Upon the repayment of the Debentures in whole or in part, whether at maturity or upon redemption, the proceeds from such repayment or payment shall be simultaneously applied to redeem Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed, at a redemption price of $25 per Security plus an amount equal to accrued and unpaid Distributions thereon at the date of the redemption, payable in cash (the "Redemption Price"). Holders will be given not less than 30 nor more than 60 days notice of such redemption. (b) If fewer than all the outstanding Securities are to be so redeemed, the Common Securities and the Preferred Securities will be redeemed Pro Rata and the Preferred Securities to be redeemed will be as described in Paragraph 4(f)(ii) below. (c) If, at any time, a Tax Event or an Investment Company Event (each as defined below, and each a "Special Event") shall occur and be continuing, the Debenture Issuer shall have the right, upon not less than 30 nor more than 60 days notice, to redeem the Debentures in whole or in part for cash within 90 days following the occurrence of such Special Event, and, following such redemption, Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed shall be redeemed by the Trust at the Redemption Price on a Pro Rata basis in accordance with Paragraph 8 hereof. The Common Securities will be redeemed Pro Rata with the Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities will have priority over the Common Securities with respect to payment of the Redemption Price. "Tax Event" means that the Regular Trustees shall have received an opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that on or after the date of the Prospectus Supplement, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority therefore or therein, or (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after the date of the Prospectus Supplement, there is more than an insubstantial risk that (i) the Trust is or will be within 90 days of the date thereof, subject to United States federal income tax with respect to interest accrued or received on the Debentures, (ii) the Trust is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges, or (iii) interest payable by the Debenture Issuer to the Trust on the Debentures is not, or within 90 days of the date thereof will not be, deductible, in whole or in part, by the Debenture Issuer for United States federal income tax purposes. "Investment Company Event" means that the Regular Trustees shall have received an opinion of a nationally recognized independent counsel experienced in practice under the Investment Company Act that, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is a more than an insubstantial risk that the Trust is or will be considered an Investment Company which is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after the date of the Prospectus Supplement. (d) The Trust may not redeem fewer than all the outstanding Securities unless all accrued and unpaid Distributions have been paid on all Securities for all quarterly Distribution periods terminating on or before the date of redemption. (e) In the event that the Sponsor makes the election referred to in Section 8.1(a)(v) of the Declaration, the Regular Trustees shall dissolve the Trust and, after paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Business Trust Act, cause Debentures, held by the Property Trustee, having an aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest equal to accrued and unpaid Distributions on and having the same record date for payment, as the Securities, to be distributed to the Holders of the Securities in liquidation of such Holders' interests in the Trust on a Pro Rata basis in accordance with paragraph 8 hereof. On and from the date fixed by the Regular Trustees for any distribution of Debentures and dissolution of the Trust: (i) the Securities will no longer be deemed to be outstanding, (ii) The Depository Trust Company (the "Depository") or its nominee (or any successor Clearing Agency or its nominee), as the record Holder of the Preferred Securities, will receive a registered global certificate or certificates representing the Debentures and the Debenture Guarantee to be delivered upon such distribution and (iii) any certificates representing Securities, except for certificates representing Preferred Securities held by the Depository or its nominee (or any successor Clearing Agency or its nominee), will be deemed to represent beneficial interests in the Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest equal to accrued and unpaid Distributions on such Securities until such certificates are presented to the Debenture Issuer or its agent for transfer or reissue. If the Debentures are distributed to Holders of the Securities, pursuant to the terms of the Indenture, the Debenture Issuer will use its best efforts to have the Debentures listed on the New York Stock Exchange or on such other exchange as the Preferred Securities were listed immediately prior to the distribution of the Debentures. (f) Redemption or Distribution Procedures. (i) Notice of any redemption of, or notice of distribution of Debentures in exchange for the Securities (a "Redemption/Distribution Notice") will be given by the Trust by mail to each Holder of Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this paragraph 4(f)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed, by first-class mail, postage prepaid, to Holders of Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Securities are to be redeemed, the Securities to be redeemed will be redeemed Pro Rata from each Holder of Securities, it being understood that, in respect of Preferred Securities registered in the name of and held of record by DTC (or any successor Clearing Agency) or any other nominee, the distribution of the proceeds of such redemption will be made to each Clearing Agency Participant (or person on whose behalf such nominee holds such securities) in accordance with the procedures applied by such agency or nominee. (iii) If Securities are to be redeemed and the Trust gives a Redemption/Distribution Notice which notice may only be issued if the Debentures are redeemed as set out in this paragraph 4 (which notice will be irrevocable) then (A) while the Preferred Securities are in book-entry only form, with respect to the Preferred Securities, by 12:00 noon, New York City time, on the redemption date, provided that the Debenture Issuer has paid the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Property Trustee will deposit irrevocably with the Depository (or successor Clearing Agency) funds sufficient to pay the Redemption Price with respect to the Preferred Securities and will give the Depository irrevocable instructions and authority to pay the Redemption Price to the Holders of the Preferred Securities, and (B) if the Preferred Securities are issued in definitive form, with respect to the Preferred Securities, and with respect to the Common Securities, provided that the Debenture Issuer has paid the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Property Trustee will pay the Redemption Price to the Holders of such Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date. If a Redemption/Distribution Notice shall have been given and funds deposited as required, if applicable, then immediately prior to the close of business on the date of such deposit, or on the redemption date, as applicable, Distributions will cease to accrue on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Regular Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Securities which have been so called for redemption. If any date fixed for redemption of Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of Securities is improperly withheld or refused and not paid either by the Property Trustee or by the Sponsor as guarantor pursuant to the relevant Securities Guarantee, Distributions on such Securities will continue to accrue, from the original redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to (A) in respect of the Preferred Securities, the Depository or its nominee (or any successor Clearing Agency or its nominee) if the Global Certificates have been issued or if Definitive Preferred Security Certificates have been issued, to the Holder thereof, and (B) in respect of the Common Securities to the Holder thereof. (v) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), provided the acquiror is not the Holder of the Common Securities or the obligor under the Indenture, the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. 5. VOTING RIGHTS - PREFERRED SECURITIES. (a) Except as provided under paragraphs 5(b) and 7 and as otherwise required by law and the Declaration, the Holders of the Preferred Securities will have no voting rights. (b) Subject to the requirements of the second to last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Preferred Securities voting separately as a class may direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under the Declaration, including (i) directing the time, method, and place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waiving any past default and its consequences that is waivable under Section 6.06 of the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, provided, however, that where a consent under the Indenture would require the consent or act of the Holders greater than a majority in principal amount of Debentures affected thereby (a "Super Majority"), the Property Trustee may only give such consent or take such action at the direction of the Holders of at least the proportion in liquidation amount of the Preferred Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Preferred Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Property Trustee or the Debenture Trustee as set forth above, the Property Trustee shall not take any action in accordance with the directions of the Holders of the Preferred Securities under this paragraph unless the Property Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Property Trustee fails to enforce its rights under the Declaration, any Holder of Preferred Securities may institute a legal proceeding directly against any Person to enforce the Property Trustee's rights under the Declaration, without first instituting a legal proceeding against the Property Trustee or any other Person. Any approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned by the Sponsor, or by any entity directly or indirectly controlling or controlled by or under direct or indirect common control with the Sponsor shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. 6. VOTING RIGHTS - COMMON SECURITIES. (a) Except as provided under paragraphs 6(b), 6(c) and 7 and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (b) The Holders of the Common Securities are entitled, in accordance with Article V of the Declaration, to vote to appoint, remove or replace any Trustee or to increase or decrease the number of Trustees. (c) Subject to Section 2.6 of the Declaration and only after all Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated and subject to the requirements of the second to last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Common Securities voting separately as a class may direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waiving any past default and its consequences that is waivable under Section 6.06 of the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, provided, however, that where a consent or action under the Indenture would require the consent or act of the Holders of greater than a majority in principal amount of Debentures affected thereby (a "Super Majority"), the Property Trustee may only give such consent or take such action at the direction of the Holders of at least the proportion in liquidation amount of the Common Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. Pursuant to this paragraph 6(c), the Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Common Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Property Trustee or the Debenture Trustee as set forth above, the Property Trustee shall not take any action in accordance with the directions of the Holders of the Common Securities under this paragraph unless the Property Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Property Trustee fails to enforce its rights under the Declaration, any Holder of Common Securities may institute a legal proceeding directly against any Person to enforce the Property Trustee's rights under the Declaration, without first instituting a legal proceeding against the Property Trustee or any other Person. Any approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. 7. AMENDMENTS TO DECLARATION AND INDENTURE. (a) In addition to any requirements under Section 12.1 of the Declaration, if any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than as described in Section 8.1 of the Declaration, then the Holders of outstanding Securities as a class, will be entitled to vote on such amendment or proposal (but not on any other amendment or proposal) and such amendment or proposal shall not be effective except with the approval of the Holders of at least 66-2/3% in liquidation amount of the Securities, voting together as a single class; provided, however, that if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of 66-2/3% in liquidation amount of such class of Securities. (b) In the event the consent of the Property Trustee as the holder of the Debentures and the Debenture Guarantee is required under the Indenture with respect to any amendment, modification or termination of the Indenture, the Debentures or the Debenture Guarantee, the Property Trustee shall request the direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of the Holders of greater than a majority in aggregate principal amount of the Debentures (a "Super Majority"), the Property Trustee may only give such consent at the direction of the Holders of at least the proportion in liquidation amount of the Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; provided, further, that the Property Trustee shall not take any action in accordance with the directions of the Holders of the Securities under this paragraph 7(b) unless the Property Trustee has been furnished an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. 8. PRO RATA. A reference in these terms of the Securities to any payment, distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default under the Indenture has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 9. RANKING. The Preferred Securities rank pari passu and payment thereon shall be made Pro Rata with the Common Securities except that where an Event of Default occurs and is continuing under the Indenture in respect of the Debentures held by the Property Trustee, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Preferred Securities. 10. LISTING. The Regular Trustees shall use their best efforts to cause the Preferred Securities to be listed for quotation on the New York Stock Exchange Limited. 11. ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE. Each Holder of Preferred Securities and Common Securities, by the acceptance thereof, agrees to the provisions of the Preferred Securities Guarantee and the Common Securities Guarantee, respectively, including the subordination provisions therein and to the provisions of the Indenture. 12 NO PREEMPTIVE RIGHTS. The Holders of the Securities shall have no preemptive rights to subscribe for any additional Securities. 13. MISCELLANEOUS. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Preferred Securities Guarantee and the Indenture to a Holder without charge on written request to the Trust at its principal place of business. ANNEX I [IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - This Preferred Security is a Global Certificate within the meaning of the Declaration hereinafter referred to and is registered in the name of The Depository Trust Company (the "Depository") or a nominee of the Depository. This Preferred Security is exchangeable for Preferred Securities registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Declaration and no transfer of this Preferred Security (other than a transfer of this Preferred Security as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository) may be registered except in limited circumstances. Unless this Preferred Security is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York) to the Trust or its agent for registration of transfer, exchange or payment, and any Preferred Security issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] Certificate Number Number of Preferred Securities CUSIP NO. 90338M204 Certificate Evidencing Preferred Securities of U S WEST FINANCING II 8 % Trust Originated Preferred Securities. (liquidation amount $25 per Preferred Security) U S WEST FINANCING II, a business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that (the "Holder") is the registered owner of preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 8 % Trust Originated Preferred Securities (liquidation amount $25 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of October 24, 1996, as the same may be amended from time to time (the "Declaration") including the designation of the terms of the Preferred Securities as set forth in Exhibit A to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Preferred Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Preferred Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Preferred Securities as evidence of indirect beneficial ownership in the Debentures. IN WITNESS WHEREOF, the Trust has executed this certificate this day of, 199__. as Trustee as Trustee _____________________ ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security Certificate to: _____________________________________________________________________________ _____________________________________________________________________________ _______________ (Insert assignee's social security or tax identification number) _____________________________________________________________________________ _____________________________________________________________________________ ________________________________________________________________________ (Insert address and zip code of assignee) and irrevocably appoints _____________________________________________________________________________ _____________________________________________________________________________ ________ agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: _______________________ Signature: __________________ (Sign exactly as your name appears on the other side of this Preferred Security Certificate) ANNEX II TRANSFER OF THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SET FORTH IN THE DECLARATION REFERRED TO BELOW Certificate Number Number of Common Securities Certificate Evidencing Common Securities of U S WEST FINANCING II Common Securities. (liquidation amount $25 per Common Security) U S WEST FINANCING II, a business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that (the "Holder") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 8 % Trust Originated Common Securities (liquidation amount $25 per Common Security) (the "Common Securities"). The Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of October 24, 1996, as the same may be amended from time to time (the "Declaration") including the designation of the terms of the Common Securities as set forth in Exhibit A to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Common Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Common Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Debentures. IN WITNESS WHEREOF, the Trust has executed this certificate this day of, 199. as Trustee as Trustee _____________________ ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: ____________________________________________________________________________ ____________________________________________________________________________ _______________ (Insert assignee's social security or tax identification number) ____________________________________________________________________________ ____________________________________________________________________________ ________________________________________________________________________ (Insert address and zip code of assignee) and irrevocably appoints ____________________________________________________________________________ ____________________________________________________________________________ ________ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: _______________________ Signature: __________________ (Sign exactly as your name appears on the other side of this Common Security Certificate) EX-4 4 EXHIBIT 4C (..continued) THIRD SUPPLEMENTAL INDENTURE, dated as of October 24, 1996 (the "Third Supplemental Indenture"), among U S WEST Capital Funding, Inc., a Colorado corporation (the "Company"), U S WEST, Inc., a Delaware corporation (the "Guarantor") and Norwest Bank Minnesota, National Association, as trustee (the "Trustee") under the Indenture dated as of September 6, 1995 among the Company, the Guarantor and the Trustee as supplemented by a Second Supplemental Indenture dated as of October 31, 1995 among the Company, the Guarantor and the Trustee (as so supplemented, the "Indenture"). WHEREAS, the Company and the Guarantor executed and delivered the Indenture to the Trustee to provide for the future issuance of the Company's unsecured subordinated debt securities guaranteed by the Guarantor, to be issued from time to time in one or more series as might be determined by the Company under the Indenture, in an unlimited aggregate principal amount which may be authenticated and delivered as provided in the Indenture; WHEREAS, pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of its Debt Securities to be known as its 8 % Subordinated Deferrable Interest Notes due 2036, and the Guarantor desires to provide for the issuance of a Guarantee of such Debt Securities (the "Note Guarantee" and, together with the Debt Securities, the "Notes"), the form and substance of such Notes and the Note Guarantee and the terms, provisions and conditions thereof to be set forth as provided in the Indenture and this Third Supplemental Indenture; WHEREAS, U S WEST Financing II, a Delaware statutory business trust (the "Trust"), has offered to the public $480,000,000 aggregate liquidation amount of its 8 % Trust Originated Preferred Securities (the "Preferred Securities"), representing undivided beneficial interests in the assets of the Trust and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Guarantor of $14,845,375 aggregate liquidation amount of its Common Securities, in $494,845,375 aggregate principal amount of the Notes; and WHEREAS, the Company and the Guarantor have requested that the Trustee execute and deliver this Third Supplemental Indenture, and all requirements necessary to make this Third Supplemental Indenture a valid instrument, in accordance with its terms, and to make the Notes, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company and to make the Guarantee endorsed thereon when executed by the Guarantor a valid obligation of the Guarantor, have been performed, and the execution and delivery of this Third Supplemental Indenture has been duly authorized in all respects: NOW THEREFORE, in consideration of the purchase and acceptance of the Notes by the holders thereof, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the Notes and the terms, provisions and conditions thereof, the Company and the Guarantor covenant and agree with the Trustee as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definition of Terms Unless the context otherwise requires: (a) a term defined in the Indenture has the same meaning when used in this Third Supplemental Indenture; (b) a term defined anywhere in this Third Supplemental Indenture has the same meaning throughout; (c) the singular includes the plural and vice versa; (d) a reference to a Section or Article is to a Section or Article of this Third Supplemental Indenture; (e) headings are for convenience of reference only and do not affect interpretation; (f) the following terms have the meanings given to them in the Declaration: (i) Clearing Agency (ii) Delaware Trustee; (iii) Property Trustee; (iv) Preferred Security Certificate; (v) Regular Trustees; and (vi) Special Event; and (g) the following terms have the meanings given to them in this Section 1.1(g): "Communications Stock" means the U S WEST Communications Group Common Stock, par value $.01 per share, of the Guarantor. "Declaration" means the Amended and Restated Declaration of Trust of U S WEST Financing II, a Delaware business trust, dated as of October [ ], 1996. "Dissolution Event" means that as a result of an election by the Guarantor, the Trust is to be dissolved in accordance with the Declaration and the Notes held by the Property Trustee are to be distributed to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Declaration. "Maturity Date" means the date on which the Notes mature and on which the principal shall be due and payable together with all accrued and unpaid interest thereon including Additional Interest, if any. "Media Stock" means the U S WEST Media Group Common Stock, par value $.01 per share, of the Guarantor. "Senior Indebtedness" means with respect to the Company or Guarantor, (i) the principal, premium, if any, and interest in respect of (A) indebtedness of such obligor for money borrowed and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by such obligor including, without limitation, in the case of the Guarantor, all obligations under its Liquid Yield Option Notes due 2011; (ii) all capital lease obligations of such obligor; (iii) all obligations of such obligor issued or assumed as the deferred purchase price of property, all conditional sale obligations of such obligor and all obligations of such obligor under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such obligor for the reimbursement on any letter of credit, banker's acceptance, security purchase facility or similar credit transaction; (v) all obligations of the type referred to in clauses (i) through (iv) of other persons for the payment of which such obligor is responsible or liable as obligor, guarantor or otherwise; and (vi) all obligations of the type referred to in clauses (i) through (v) of other persons secured by any lien on any property or asset of such obligor (whether or not such obligation is assumed by such obligor), except for (1) any such indebtedness that is by its terms subordinated to or pari passu with the Notes, as the case may be, and (2) any indebtedness including all other debt securities and guarantees in respect of those debt securities, initially issued to (y) any other U S WEST Trust or (z) any trusts, partnerships or any other entities affiliated with the Guarantor which is a financing vehicle of the Guarantor ("Financing Entity") in connection with an issuance by such Financing Entity of preferred securities or other securities which are similar to the Preferred Securities, including, without limitation, the 7.96% Subordinated Deferrable Interest Notes due 2025 issued by the Company to U S West Financing I (the "7.96% Notes") and the guarantee by the Guarantor of the 7.96% Notes (the "7.96% Notes Guarantee"). ARTICLE II GENERAL TERMS AND CONDITIONS OF THE NOTES SECTION 2.1 Designation and Principal Amount There is hereby authorized: (a) a series of Debt Securities designated the "8 % Subordinated Deferrable Interest Notes due 2036", limited in aggregate principal amount to $494,845,375, which amount shall be as set forth in any written order of the Company for the authentication and delivery of Notes pursuant to Section 2.4 of the Indenture; and (b) a Guarantee of such Debt Securities. SECTION 2.2 Maturity The Maturity Date will be October 29, 2036. SECTION 2.3 Form and Payment Except as provided in Section 2.4, the Notes shall be issued in fully registered certificated form without interest coupons. Principal and interest on the Notes issued in certificated form will be payable, the transfer of such Notes will be registrable and such Notes will be exchangeable for Notes bearing identical terms and provisions at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Security Register. Notwithstanding the foregoing, so long as the registered holder of any Notes is the Property Trustee, the payment of the principal of and interest (including Additional Interest, if any) on such Notes held by the Property Trustee will be made at such place and to such account as may be designated by the Property Trustee. SECTION 2.4 Global Note In connection with a Dissolution Event; (a) the Notes in certificated form may be presented to the Trustee by the Property Trustee in exchange for a Global Note in an aggregate principal amount equal to all Outstanding Notes, to be registered in the name of the Depository, or its nominee, and delivered by the Trustee to the Depository for crediting to the accounts of its participants pursuant to the instructions of the Regular Trustees. The Company upon any such presentation shall execute a Global Note in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with the Indenture and this Third Supplemental Indenture. Payments on the Notes issued as a Global Note will be made to the Depository; and (b) if any Preferred Securities are held in non book-entry certificated form, the Notes in certificated form may be presented to the Trustee by the Property Trustee and any Preferred Security Certificate which represents Preferred Securities other than Preferred Securities held by the Clearing Agency or its nominee ("Non Book-Entry Preferred Securities") will be deemed to represent beneficial interests in Notes presented to the Trustee by the Property Trustee having an aggregate principal amount equal to the aggregate liquidation amount of the Non Book-Entry Preferred Securities until such Preferred Security Certificates are presented to the Security Registrar for transfer or reissuance at which time such Preferred Security Certificates will be cancelled and a Note registered in the name of the holder of the Preferred Security Certificate or the transferee of the holder of such Preferred Security Certificate as the case may be, with an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Security Certificate cancelled will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with the Indenture and this Third Supplemental Indenture. On issue of such Notes, Notes with an equivalent aggregate principal amount that were presented by the Property Trustee to the Trustee will be deemed to have been cancelled. SECTION 2.5 Interest (a) Each Note will bear interest at the rate of 8 % per annum (the "Coupon Rate") from the original date of issuance until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Coupon Rate, payable (subject to the provisions of Article Four) quarterly in arrears on March 31, June 30, September 30 and December 31 of each year (each, an "Interest Payment Date"), commencing on December 31, 1996, to the person in whose name such Note or any predecessor Note is registered, at the close of business on the regular record date for such interest installment, which, in respect of any Notes of which the Property Trustee is the registered holder of or a Global Note, shall be the close of business on the Business Day next preceding that Interest Payment Date. Notwithstanding the foregoing sentence, if (i) the Preferred Securities are no longer in book-entry only form or (ii) a Dissolution Event has occurred and subsequent thereto the Notes are not represented by a Global Note pursuant to the provisions of Section 2.11(c) of the Indenture, the Company may select a regular record date for such interest installment which shall be any date at least one Business Day before an Interest Payment Date. (b) The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest in computed, will be computed on the basis of the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on the Notes is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (c) If at any time while the Property Trustee is the holder of any Notes, the Trust or the Property Trustee is required to pay any taxes, duties assessments or governmental changes of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any case, the Company will pay as additional interest ("Additional Interest") on the Notes held by the Property Trustee, such additional amounts as shall be required so that the net amounts received and retained by the Trust and the Property Trustee after paying such taxes, duties assessments or other governmental changes will be equal to the amounts the Trust and the Property Trustee would have received had no such taxes, duties, assessments or other government changes been imposed. ARTICLE III REDEMPTION OF THE NOTES SECTION 3.1 Special Event Redemption If a Special Event has occurred and is continuing then, notwithstanding Section 3.2 but subject to Section 3.3(c), the Company shall have the right, upon not less than 30 days' nor more than 60 days' notice to the registered holders of the Notes to redeem the Notes in whole or in part for cash within 90 days following the occurrence of such Special Event at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption (the "Redemption Price"). SECTION 3.2 Optional Redemption by Company Subject to the provisions of Article Three of the Indenture and to Section 3.3(c), the Company shall have the right to redeem the Notes, in whole or in part, from time to time, on or after October 29, 2001, at the Redemption Price. Any redemption pursuant to this paragraph will be made upon not less than 30 days' nor more than 60 days' notice to the registered holder of the Notes, at the Redemption Price. SECTION 3.3 Redemption Procedures (a) If the Notes are only partially redeemed pursuant to Section 3.1 or Section 3.2, the Notes will be redeemed pro rata or by any other method utilized by the Trustee; provided that if at the time of redemption, the Notes are registered as a Global Note, the Depository shall determine the principal amount of such Notes held by each Noteholder to be redeemed in accordance with its procedures. (b) The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or at such earlier time as the Company determines and specifies in the notice of redemption, provided the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price by 11:00 a.m. on the date such Redemption Price is to be paid. (c) If a partial redemption of the Notes would result in the delisting of the Preferred Securities issued by the Trust from any national securities exchange or other organization on which the Preferred Securities are then listed, the Company shall not be permitted to effect such partial redemption and may only redeem the Notes in whole. SECTION 3.4 No Sinking Fund The Notes are not entitled to the benefit of any sinking fund. ARTICLE IV EXTENSION OF INTEREST PAYMENT PERIOD SECTION 4.1 Extension of Interest Payment Period Subject to the provisions of Section 7.2, the Company shall have the right, at any time during the term of the Notes, from time to time to extend the interest payment period of such Notes for up to 20 consecutive quarters (the "Extended Interest Payment Period"). To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 4.1, will bear interest thereon at the Coupon Rate for each quarter of the Extended Interest Payment Period. At the end of the Extended Interest Payment Period the Company shall pay all interest accrued and unpaid on the Notes including any Additional Interest ("Deferred Interest") which shall be payable to the holders of the Notes in whose names the Notes are registered in the Security Register on the first record date after the end of the Extended Interest Payment Period. Before the termination of any Extended Interest Payment Period, the Company may further extend such period, provided that such period together with all such further extensions thereof shall not exceed 20 consecutive quarters. Upon the termination of any Extended Interest Payment Period and upon the payment of all Deferred Interest then due, the Company may select a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof. SECTION 4.2 Notice of Extension (a) If the Property Trustee is the only registered holder of the Notes at the time the Company selects an Extended Interest Payment Period, the Company shall give written notice to both the Regular Trustees and the Property Trustee of its selection of such Extended Interest Payment Period one Business Day before the earlier of (i) the next succeeding date on which Distributions on the Trust Securities issued by the Trust are payable, or (ii) the date the Trust is required to give notice of the record date or the date such Distributions are payable to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Preferred Securities issued by the Trust, but in any event at least one Business Day before such record date. (b) If the Property Trustee is not the only holder of the Notes at the time the Company selects an Extended Interest Payment Period, the Company shall give the holders of the Notes written notice of its selection of such Extended Interest Payment Period 10 Business Days before the earlier of (i) the next succeeding Interest Payment Date, or (ii) the date the Company is required to give notice of the record or payment date of such interest payment to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Notes. (c) The quarter in which any notice is given pursuant to paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the 20 quarters permitted in the maximum Extended Interest Payment Period permitted under Section 4.1. ARTICLE V EXPENSES AND GUARANTEE SECTION 5.1 Payment of Expenses In connection with the offering, sale and issuance of the Notes to the Property Trustee in connection with the sale of the Trust Securities by the Trust, the Company shall: (a) pay for all costs and expenses relating to the offering, sale and issuance of the Note, including commissions to the underwriters payable pursuant to the Underwriting Agreement and the Pricing Agreement and compensation of the Trustee under the Indenture in accordance with the provisions of Section 7.06 of the Indenture; (b) pay for all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of the Trust, the offering, sale and issuance of the Trust Securities (including commissions to the underwriters in connection therewith), the fees and expenses of the Property Trustee and the Delaware Trustee, the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets); and (c) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. SECTION 5.2 Guarantee of Payment of Expenses The Guarantor hereby fully and unconditionally guarantees the due and punctual payment of all amounts that become due and payable by the Company to any Person pursuant to Section 5.1. ARTICLE VI SUBORDINATION SECTION 6.1 Agreement to Subordinate The Company and the Guarantor covenant and agree, and each holder of Notes issued hereunder by holder's acceptance thereof likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article Six; and each holder of a Note, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of, premium, if any, and interest on all Notes issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company, whether outstanding at the date of this Indenture or thereafter incurred. The payment by the Guarantor of any obligation due under the Note Guarantee issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Guarantor, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article Six shall prevent the occurrence of any default or Event of Default hereunder. SECTION 6.2 Default on Senior Indebtedness In the event and during the continuation of any default by the Company or the Guarantor in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company or the Guarantor, as the case may be, or in the event that the maturity of any Senior Indebtedness of the Company or the Guarantor, as the case may be, has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption and sinking fund payments) of, or premium, if any, or interest on the Notes, including payment with respect to any obligation due under the Guarantees. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any holder when such payment is prohibited by the preceding paragraph of this Section 6.2, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. SECTION 6.3 Liquidation; Dissolution; Bankruptcy Upon any payment by the Company or the Guarantor, or distribution of assets of the Company or the Guarantor of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company or the Guarantor, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Indebtedness of the Company or the Guarantor, as the case may be, shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company or the Guarantor, as the case may be, on account of the principal (and premium, if any) or interest on the Notes; and upon any such dissolution or winding-up or liquidation or reorganization any payment by the Company or the Guarantor, or distribution of assets of the Company or the Guarantor of any kind or character, whether in cash, property or securities, to which the holders of the Note or the Trustee would be entitled to receive from the Company or the Guarantor, as the case may be, except for the provisions of this Article Six, shall be paid by the Company or the Guarantor, as the case may be, or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Notes or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company or the Guarantor, as the case may be (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company or the Guarantor, as the case may be) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the holders of Notes or to the Trustee. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company or the Guarantor of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee or the holders of the Notes before all Senior Indebtedness of the Company or the Guarantor is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, and their respective interests may appear, as calculated by the Company or the Guarantor, for application to the payment of all Senior Indebtedness of the Company or the Guarantor, as the case may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness. For purposes of this Article Six, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company or the Guarantor as reorganized or readjusted, or securities of the Company or the Guarantor or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article Six with respect to the Notes to the payment of all Senior Indebtedness of the Company or the Guarantor, as the case may be, that may at the time be outstanding, provided that (i) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company or the Guarantor with, or the merger of the Company or the Guarantor into, another corporation or the liquidation or dissolution of the Company or the Guarantor following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article Ten of the Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 6.3 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Ten of the Indenture. Nothing in Section 6.2 or in this Section 6.3 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.6 of the Indenture. SECTION 6.4 Subrogation Subject to the payment in full of all Senior Indebtedness of the Company or the Guarantor, the rights of the holders of the Notes shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company or the Guarantor, as the case may be, applicable to such Senior Indebtedness until the principal of (and premium, if any) and interest on the Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders for such Senior Indebtedness of any cash, property or securities to which the holders of the Notes or the Trustee would be entitled except for the provisions of this Article Six, and no payment over pursuant to the provisions of this Article Six, to or for the benefit of the holders of such Senior Indebtedness by holders of the Notes or the Trustee, shall, as between (i) the Company, its creditors other than holders of Senior Indebtedness of the Company, and the holders of the Notes or (ii) the Guarantor, its creditors other than the holders of Senior Indebtedness of the Guarantor, and the holders of the Notes, be deemed to be a payment by the Company or the Guarantor, as the case may be, to or on account of such Senior Indebtedness. It is understood that the provisions of this Article Six are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holders of such Senior Indebtedness on the other hand. Nothing contained in this Article Six or elsewhere in this Indenture or in the Notes is intended to or shall impair, as between (i) the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the holders of the Notes or (ii) the Guarantor, its creditors other than the holders of Senior Indebtedness of the Guarantor, and the holders of the Notes, the obligation of the Company or the Guarantor, as the case may be, which is absolute and unconditional, to pay to the holders of the Notes the principal of (and premium, if any) and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Notes and creditors of the Company or the Guarantor, as the case may be, other than the holders of Senior Indebtedness of the Company or the Guarantor, as the case may be, nor shall anything herein or therein prevent the Trustee or the holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under the Indenture, subject to the rights, if any, under this Article Six of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company or the Guarantor, as the case may be, received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company or the Guarantor referred to in this Article Six, the Trustee, subject to the provisions of Section 7.1 of the Indenture, and the holders of the Notes, shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the holders of the Notes, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company or the Guarantor, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Six. SECTION 6.5 Trustee to Effectuate Subordination Each holder of Notes by such holder's acceptance thereof authorizes and directs the Trustee on such holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Six and appoints the Trustee such holder's attorney-in-fact for any and all such purposes. SECTION 6.6 Notice by the Company and the Guarantor. The Company or the Guarantor shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company or the Guarantor that would prohibit the making of any payment of monies to or by the Trustee in respect of the Notes pursuant to the provisions of this Article Six. Notwithstanding the provisions of this Article Six or any other provision of the Indenture and this Third Supplemental Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Notes pursuant to the provisions of this Article Six, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Principal Office of the Trustee from the Company or the Guarantor or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 7.1 of the Indenture, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 6.6 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (or premium, if any) or interest on any Note), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. The Trustee, subject to the provisions of Section 7.1 of the Indenture, shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness of the Company or the Guarantor, as the case may be (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Indebtedness to participate in any payment or distribution pursuant to this Article Six, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Six, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 6.7 Rights of the Trustee; Holders of Senior Indebtedness The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article Six in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Indebtedness of the Company or the Guarantor, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Six, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and, subject to the provisions of Section 7.1 of the Indenture, the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall pay over or deliver to holders of Notes, the Company, the Guarantor or any other Person money or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article Six or otherwise. SECTION 6.8 Subordination May Not Be Impaired No right of any present or future holder of any Senior Indebtedness of the Company or the Guarantor to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or the Guarantor, as the case may be, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company or the Guarantor, as the case may be, with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness of the Company or the Guarantor may, at any time and from time to time, without the consent of or notice to the Trustee or the holders of the Notes, without incurring responsibility to the holders of the Notes and without impairing or releasing the subordination provided in this Article Six or the obligations hereunder of the holders of the Notes to the holders of such Senior Indebtedness, do any one or more the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company or the Guarantor, as the case may be, and any other Person. ARTICLE VII COVENANTS SECTION 7.1 Listing on Exchanges If the Notes are to be issued as a Global Note in connection with the distribution of the Notes to the holders of the Preferred Securities issued by the Trust upon a Dissolution Event, the Company will use its best efforts to list such Notes on the New York Stock Exchange or on such other exchange as the Preferred Securities are then listed. SECTION 7.2 Limitation on Dividends; Transactions with Affiliates Section 4.06 of the Indenture is hereby amended and restated in its entirety as follows: SECTION 4.06 Limitation on Dividends; Transactions with Affiliates If (i) the Company shall have given notice of its election to defer payments of interest on the Notes by extending the interest payment period as provided in Section 4.1 of the Third Supplemental Indenture and such period, or any extension thereof, shall be continuing, (ii) there shall have occurred any event that would constitute an Event of Default or (iii) the Guarantor shall be in default with respect to its payment of any obligations under the Preferred Securities Guarantee or the Common Securities Guarantee, then (a) the Guarantor and the Company shall not declare or pay any dividend on, make any distribution with respect to, or redeem, purchase or make a liquidation payment with respect to, any of its capital stock, including, in the case of the Guarantor, the Communications Stock and the Media Stock, and (b) the Guarantor and the Company shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Guarantor or the Company which rank pari passu with or junior to such Notes, including the 7.96% Notes and the 7.96% Notes Guarantee; provided, however, that clause (a) of this Section 4.06 shall not apply to any stock dividends paid by the Guarantor where the dividend stock is the same stock as that on which the dividend is being paid. SECTION 7.3 Covenants as to the Trust Section 4.07 of the Indenture is hereby amended and restated in its entirety as follows: SECTION 4.07 Covenants as to the Trust For so long as the Trust Securities of the Trust remain outstanding, the Guarantor will (i) directly or indirectly maintain 100% ownership of the Common Securities; provided, however, that any permitted successor of the Guarantor under the Indenture may succeed to the Guarantor's ownership of the Common Securities and (ii) use its reasonable efforts to cause the Trust (a) to remain a statutory business trust, except in connection with the distribution of the Notes to the holders of Trust Securities in liquidation of the Trust, the redemption of all of the Trust Securities or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and (b) to otherwise continue to be classified as a grantor trust for United States federal income tax purposes. ARTICLE VIII FORM OF NOTE SECTION 8.1 Form of Note The Notes, the Note Guarantee and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the following forms: (FORM OF FACE OF NOTE) [IF THE NOTE IS TO BE A GLOBAL NOTE, INSERT - This Note is a Global Note within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depository or a nominee of a Depository. This Note is exchangeable for Notes registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Indenture, and no transfer of this Note (other than a transfer of this Note as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository) may be registered except in limited circumstances. Unless this Note is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any Note issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] No. __________________ $______________ U S WEST Capital Funding, Inc. 8 % SUBORDINATED DEFERRABLE INTEREST NOTE DUE 2036 U S WEST CAPITAL FUNDING, INC., a Colorado corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to _______________ or registered assigns, the principal sum of _____________ Dollars on October 29, 2036, and to pay interest on said principal sum from October 29, 1996 or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on March 31, June 30, September 30 and December 31 of each year commencing December 31, 1996 at the rate of 8 % per annum until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Note is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Note (or one or more Predecessor Securities, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment [which shall be the close of business on the business day next preceding such Interest Payment Date unless otherwise provided for in the Indenture]. [IF PURSUANT TO THE PROVISIONS OF SECTION 2.11(C) OF THE INDENTURE THE NOTES ARE NO LONGER REPRESENTED BY A GLOBAL NOTE -- which shall be the close of business on the ____ business day next preceding such Interest Payment Date.] Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date, and may be paid to the person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of this series of Notes not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Note shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America which at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Security Register. Notwithstanding the foregoing, so long as the Holder of this Note is the Property Trustee, the payment of the principal of (and premium, if any) and interest on this Note will be made at such place and to such account as may be designated by the Property Trustee. The indebtedness evidenced by this Note is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Note is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such Holder upon said provisions. This Note shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Note are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be executed. Dated _________ ___, 1996 U S WEST CAPITAL FUNDING, INC. By____________________________ Name: Title: SEAL Attest: By_____________________ Name: Title: Secretary (FORM OF CERTIFICATE OF AUTHENTICATION) CERTIFICATE OF AUTHENTICATION This is one of the Notes of the series of Notes described in the within-mentioned Indenture. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By_______________________ Authorized Signatory [FORM OF GUARANTEE] FOR VALUE RECEIVED, U S WEST, Inc., a Delaware corporation (the "Guarantor"), hereby unconditionally guarantees to the holder of the Security upon which this Guarantee is endorsed the due and punctual payment of the principal of, sinking fund payment, if any, premium, if any, or interest on said Security, when and as the same shall become due and payable, whether at maturity, upon redemption or otherwise, according to the terms thereof and of the Indenture referred to therein. The Guarantor agrees to determine, at least one Business Day prior to the date upon which a payment of principal of, sinking fund payment, if any, premium, if any, or interest on said Security is due and payable, whether the Company has available the funds to make such payment as the same shall become due and payable. In case of the failure of the Company punctually to pay any such principal, sinking fund payment, if any, premium, if any, or interest, the Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at maturity, upon redemption, or otherwise, and as if such payment were made by the Company. The Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrevocable, and absolute, irrespective of the validity, regularity, or enforceability of said Security of said Indenture, the absence of any action to enforce the same, any waiver or consent by the Holder of said Security with respect to any provisions thereof, the recovery of any judgment against the Company or any action to enforce the same, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to said Security or indebtedness evidenced thereby, and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in said Security and in this Guarantee. The Guarantor shall be subrogated to all rights of the holder of said Security against the Company in respect of any amounts paid by the Guarantor pursuant to the provisions of this Guarantee; provided, however, that the Guarantor shall not, without the consent of the holders of all of the Securities then outstanding, be entitled to enforce or to receive any payments arising out of or based upon such right of subrogation until the principal of and premium, if any, and interest on all Securities shall have been paid in full or payment thereof shall have been provided for in accordance with said Indenture. Notwithstanding anything to the contrary contained herein, if following any payment of principal or interest by the Company on the Securities to the holders of the Securities it is determined by a final decision of a court of competent jurisdiction that such payment shall be avoided by a trustee in bankruptcy (including any debtor-in-possession) as a preference under 11 U.S.C. Section 547 and such payment is paid by such holder to such trustee in bankruptcy, then and to the extent of such repayment, the obligations of the Guarantor hereunder shall remain in full force and effect. The obligations of the Guarantor under this Guarantee are, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Guarantee is issued subject to the provisions of the Indenture with respect thereto. Each Holder of the Security upon which this Guarantee is endorsed, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder of the Security upon which this Guarantee is endorsed, by his or her acceptance thereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each Holder upon said provisions. This Guarantee shall not be valid or become obligatory for any purpose with respect to a Security until the certificate of authentication on such Security shall have been signed by the Trustee (or the Authentication Agent). This Guarantee shall be governed by the laws of the State of New York. IN WITNESS WHEREOF, U S WEST, Inc. has caused this Guarantee to be executed. U S WEST, Inc. [SEAL] By: By: Name: Name: Title: Secretary Title: (FORM OF REVERSE OF NOTE) This Note is one of a duly authorized series of Securities of the Company (herein sometimes referred to as the "Notes"), specified in the Indenture, all issued or to be issued in one or more series under and pursuant to an indenture (the "Base Indenture") dated as of September 6, 1995 among the Company U S WEST Inc., a Colorado corporation, as Guarantor (the "Guarantor") and Norwest Bank Minnesota, National Association, as Trustee (the "Trustee"), as supplemented by the Second Supplemental Indenture dated as of October 31, 1995 among the Company, the Guarantor and the Trustee and the Third Supplemental Indenture dated as of October [ ], 1996 among the Company, the Guarantor and the Trustee (the Base Indenture as so supplemented, the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. By the terms of the Indenture, the Notes are issuable in series which may vary as to amount, date of maturity, rate of interest and in other respects as in the Indenture provided. This series of Notes is limited in aggregate principal amount as specified in said Third Supplemental Indenture. Because of the occurrence and continuation of a Special Event, the Company shall have the right to redeem this Note at the option of the Company, without premium or penalty, in whole or in part, at the principal amount together with any interest accrued thereon to the date of such redemption (the "Redemption Price"). The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or at such earlier time as the Company determines. The Company shall have the right to redeem this Note at the option of the Company, without premium or penalty, in whole or in part at any time on or after October 29, 2001, at the Redemption Price. Any redemption pursuant to this paragraph will be made upon not less than 30 nor more than 60 days' notice, at the Redemption Price. If the Notes are only partially redeemed by the Company, the Notes will be redeemed pro rata or by lot or by any other method utilized by the Trustee; provided that if, at the time of redemption, the Notes are registered as a Global Note, the Depository shall determine the principal amount of such Notes held by each Noteholder to be redeemed in accordance with its procedures. In the event of redemption of this Note in part only, a new Note or Notes of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Notes may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes of each series affected at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Notes; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Notes of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the Holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holders of each Note then outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Notes of any series at the time outstanding affected thereby, on behalf of all of the Holders of the Notes of such series, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to such series, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any of the Notes of such series and except as provided in Section 4.06 of the Base Indenture. Any such consent or waiver by the registered Holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Note and of any Note issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Note at the time and place and at the rate and in the money herein prescribed. The Company shall have the right at any time during the term of the Notes from time to time to extend the interest payment period of such Notes to up to 20 consecutive quarters (an "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Notes to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that such Extended Interest Payment Period together with all such further extensions thereof shall not exceed 20 consecutive quarters. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may select a new Extended Interest Payment Period. As provided in the Indenture and subject to certain limitations therein set forth, this Note is transferable by the registered holder hereof on the Security Register of the Company, upon surrender of this Note for registration of transfer at the office or agency of the Company in the borough of Manhattan, the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Note, the Company, the Trustee, any paying agent and any Security Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Note shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Security Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Note Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. [The debentures of this series are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof.] [This Global Note is exchangeable for Notes in definitive form only under certain limited circumstances set forth in the Indenture. Notes of this series so issued are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof.] As provided in the Indenture and subject to certain limitations [herein and] therein set forth, Notes of this series [so issued] are exchangeable for a like aggregate principal amount of Notes of this series of a different authorized denomination, as requested by the Holder surrendering the same. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ARTICLE IX ORIGINAL ISSUE OF NOTES AND GUARANTEES SECTION 9.1 Original Issue of Notes and Guarantees Upon execution of this Third Supplemental Indenture, Notes in the aggregate principal amount of $412,371,150 may be executed by the Company and Guarantees endorsed thereon executed by the Guarantor. Such Notes and Guarantees endorsed thereon may be delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes to or upon the written order of the Company, signed by its President or any Vice President and its Secretary or an Assistant Secretary, without any further action by the Company. ARTICLE X MISCELLANEOUS SECTION 10.1 Ratification of Indenture The Indenture, as supplemented by this Third Supplemental Indenture, is in all respects ratified and confirmed, and this Third Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. The provisions of this Third Supplemental Indenture shall supersede the provisions of the Indenture to the extent the Indenture is inconsistent herewith. SECTION 10.2 Trustee Not Responsible for Recitals The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this Third Supplemental Indenture. SECTION 10.3 Governing Law This Third Supplemental Indenture and each Note shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State. SECTION 10.4 Separability In case any one or more of the provisions contained in this Third Supplemental Indenture or in the Notes shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Third Supplemental Indenture or of the Notes, but Third Supplemental Indenture and the Notes shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. SECTION 10.5 Counterparts This Third Supplemental Indenture may be executed in any number of counterparts each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, on the date or dates indicated in the acknowledgements and as of the day and year first above written. U S WEST Capital Funding, Inc. By:___________________________ Name: Title: Attest: By:___________________________ Name: Title: U S WEST, Inc. By: Name: Title: Attest: By:____________________________ Name: Title: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By:____________________________ Name: Title: STATE OF ) COUNTY OF ) ss.: On the day of, 1996, before me personally came to be known, who, being by me duly sworn, did depose and say that he is the of U S WEST CAPITAL FUNDING, INC., one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to the said instrument is such corporation seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. NOTARY PUBLIC Commission expires [seal] STATE OF ) COUNTY OF ) SS.: On the day of, 1996, before me personally came to be known, who, being by me duly sworn, did depose and say that he is the of U S WEST, INC., one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to the said instrument is such corporation seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. NOTARY PUBLIC Commission expires [seal] EX-4 5 EXHIBIT 4D (..continued) ____________________________________ U S WEST, INC. AND THE FIRST NATIONAL BANK OF CHICAGO, TRUSTEE PREFERRED SECURITIES GUARANTEE AGREEMENT Dated as of October 29, 1996 ____________________________________ PREFERRED SECURITIES GUARANTEE AGREEMENT This PREFERRED SECURITIES GUARANTEE AGREEMENT ("Guarantee Agreement"), dated as of October 29, 1996, is executed and delivered by U S WEST, Inc., a Delaware corporation (the "Guarantor"), and The First National Bank of Chicago, National Association, as trustee (the "Preferred Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of U S WEST Financing II, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of October 24, 1996, among the trustees of the Issuer named therein, the Guarantor as Sponsor and the holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof $480,000,000 aggregate stated liquidation amount of Preferred Securities designated the 8 % Trust Originated Preferred Securities (the "Preferred Securities"); WHEREAS, as incentive for the Holders to purchase the Preferred Securities, the Guarantor desires to irrevocably and unconditionally to agree, to the extent set forth in this Guarantee Agreement, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "Common Securities Guarantee Agreement") in substantially identical terms to this Guarantee Agreement for the benefit of the holders of the Common Securities (as defined herein) except that if an Event of Default (as defined in the Indenture (as defined herein)), has occurred and is continuing, the rights of holders of the Common Securities to receive Guarantee Payments under the Common Securities Guarantee are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments under this Guarantee Agreement. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1 Definitions and Interpretation In this Guarantee Agreement, unless the context otherwise requires: (a) Capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "the Guarantee Agreement" or "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933 as amended or any successor rule thereunder. "Common Securities" means the securities representing common undivided beneficial interests in the assets of the Issuer. "Covered Person" means any Holder or beneficial owner of Preferred Securities. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Guarantee Agreement. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Issuer: (i) any accrued and unpaid Distributions which are required to be paid on such Preferred Securities to the extent the Issuer shall have funds available therefore, (ii) the redemption price, including all accrued and unpaid Distributions to the date of redemption (the "Redemption Price") to the extent the Issuer has funds available therefor, with respect to any Preferred Securities called for redemption by the Issuer, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Issuer (other than in connection with the distribution of Debentures to the Holders in exchange for Preferred Securities as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Issuer shall have funds available therefor and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "Liquidation Distribution"). If an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of the holders of the Common Securities to receive Guarantee Payments under the Common Securities Guarantee Agreement are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments. "Guarantor" shall mean U S WEST, Inc., a Delaware corporation or any permitted successor thereof under the Indenture, in its capacity as guarantor under this Guarantee Agreement. "Holder" shall mean any holder, as registered on the books and records of the Issuer, of any Preferred Securities; provided, however, that in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any entity directly or indirectly controlling or controlled by or under direct or indirect common control with the Guarantor. "Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives or agents of the Preferred Guarantee Trustee. "Indenture" means the Indenture dated as of September 6, 1995 among U S WEST Capital Funding, Inc., a Colorado corporation (the "Debenture Issuer"), U S WEST, Inc., a Colorado corporation, as guarantor and Norwest Bank Minnesota, National Association, as trustee, as supplemented by a Second Supplemental Indenture dated as of October 31, 1995 among the Debenture Issuer, the Guarantor, as guarantor and Norwest Bank Minnesota, National Association, as trustee, and any indenture supplemental thereto pursuant to which certain subordinated debt securities of the Debenture Issuer (the "Debentures") and the guarantee of the Guarantor endorsed thereon (the "Debenture Guarantee") are to be issued to the Property Trustee of the Issuer. "Majority in liquidation amount of the Preferred Securities" means, except as provided by the Trust Indenture Act, Holder(s) of Preferred Securities voting separately as a class, who vote Preferred Securities and the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of the Preferred Securities voted by such Holders represents more than 50% of the above stated liquidation amount of all Preferred Securities. "66-2/3% in Liquidation amount of the Preferred Securities" means, Holders of Preferred Securities voting separately as a class, who vote Preferred Securities and the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are to be determined) of the Preferred Securities voted by such Holders represents more than 66-2/3% of the above stated liquidation amount of all Preferred Securities. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Authorized Officers of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee Agreement shall include: (a) a statement that each officer signing the Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Guarantee Trustee" means The First National Bank of Chicago until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement and thereafter means each such Successor Preferred Guarantee Trustee. "Responsible Officer" means, with respect to the Preferred Guarantee Trustee, the chairman of the board of directors, the president, any vice-president, any assistant vice-president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or assistant trust officer or any other officer of the Preferred Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Successor Preferred Guarantee Trustee" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.1. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. ARTICLE II TRUST INDENTURE ACT SECTION 2.1 Trust Indenture Act; Application (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions; and (b) if and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.2 Lists of Holders of Securities. (a) The Guarantor shall provide the Preferred Securities Trustee (i) within 14 days after January 1 and June 30 of each year, a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Preferred Securities ("List of Holders") as of such date, provided that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Preferred Guarantee Trustee by the Guarantor, and (ii) at any other time, within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Preferred Guarantee Trustee. The Preferred Guarantee may destroy any List of Holders previously given to it on receipt of a new List of Holders; and (b) the Preferred Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3 Reports by the Preferred Guarantee Trustee. Within 60 days after May 15 of each year, the Preferred Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by 313 of the Trust Indenture Act, if any, in the form and in the manner provided by 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of 313(d) of the Trust Indenture Act. SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.5 Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Guarantee Agreement which relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6 Events of Default; Waiver. The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.7 Event of Default; Notice. (a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Preferred Securities, notices of all Events of Default known to the Preferred Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, that, the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers, of the Preferred Guarantee Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Preferred Securities. (B) The Preferred Guarantee Trustee shall not be deemed to have knowledge of any Event of Default except any Event of Default as to which the Preferred Guarantee Trustee shall have received written notice or a Responsible Officer charged with the administration of the Declaration shall have obtained written notice of. SECTION 2.8 Conflicting Interests The Declaration shall be deemed to be specifically described in this Guarantee Agreement for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee. (a) This Guarantee Agreement shall be held by the Preferred Guarantee Trustee for the benefit of the Holders of the Preferred Securities and the Preferred Guarantee Trustee shall not transfer this Guarantee Agreement to any Person except a Holder of Preferred Securities exercising his or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered. (b) If an Event of Default has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders of the Preferred Securities. (c) The Preferred Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6), the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; (d) no provision of this Guarantee Agreement shall be construed to relieve the Preferred Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement, and no implied covenants or obligations shall be read into this Guarantee Agreement against the Preferred Guarantee; and (B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Preferred Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts; (iii) the Preferred Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Preferred Securities at the time outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Guarantee Agreement; and (iv) no provision of this Guarantee Agreement shall require the Preferred Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 3.2 Certain Rights of Preferred Guarantee Trustee (a) Subject to the provisions of Section 3.1: (i) the Preferred Guarantee Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Guarantor contemplated by this Guarantee Agreement shall be sufficiently evidenced by an Officers' Certificate; (iii) whenever in the administration of this Guarantee Agreement, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part and request and rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor; (iv) the Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof); (v) the Preferred Guarantee Trustee may consult with counsel and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates, and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction; (vi) the Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee adequate security and indemnity which would satisfy a reasonable person in the position of the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Guarantee Trustee provided, that, nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee Agreement; (vii) the Preferred Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders of the Preferred Securities and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act, or as to its compliance with any of the terms and provisions of this Guarantee Agreement, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action; and (x) whenever in the administration of this Guarantee Agreement the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Preferred Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Preferred Securities, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions; and (b) No provision of this Guarantee Agreement shall be deemed to impose any duty or obligation on the Preferred Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Preferred Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Preferred Guarantee Trustee shall be construed to be a duty. (c) No provision of this Guarantee Agreement shall be deemed to empower the Preferred Guarantee Trustee to vary the investment of any Holder of the Preferred Securities or to act in a manner inconsistent with the status of the Issuer as a grantor trust for federal income tax purposes. SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee. The recitals contained in this Guarantee shall be taken as the statements of the Guarantor and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representations as to the validity or sufficiency of this Guarantee Agreement. ARTICLE IV PREFERRED GUARANTEE TRUSTEE SECTION 4.1 Preferred Guarantee Trustee; Eligibility. (a) There shall at all times be a Preferred Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published; (b) if at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c); and (c) if the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.2 Appointment, Removal and Resignation of Preferred Guarantee Trustee. (a may be appointed or removed without cause at any time by the Guarantor; (b) the Preferred Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor; (c) the Preferred Guarantee Trustee appointed to office shall hold office until a Successor Preferred Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Guarantee Trustee; and (d) if no Successor Preferred Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Preferred Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a Successor Preferred Guarantee Trustee. ARTICLE V GUARANTEE SECTION 5.1 Guarantee The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim which the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. SECTION 5.2 Waiver of Notice and Demand The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3 Obligations Not Affected The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation on the Holders or any other Person to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4 Rights of Holders (a) The Holders of a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust or power conferred upon Preferred Guarantee Trustee under this Guarantee Agreement; and (b) if the Preferred Guarantee Trustee fails to enforce this Guarantee Agreement, any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce the Preferred Guarantee Trustee's rights under this Guarantee Agreement, without first instituting a legal proceeding against the Issuer, the Preferred Guarantee Trustee or any other Person. SECTION 5.5 Guarantee of Payment This Guarantee Agreement creates a guarantee of payment and not of collection. SECTION 5.6 Subrogation The Guarantor shall be subrogated to all (if any) rights of the Holders of Preferred Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Guarantee Agreement; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.7 Independent Obligations The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Preferred Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof. ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.1 Limitation of Transactions So long as any Preferred Securities remain outstanding, (a) the Guarantor will not (and the Guarantor will cause the Debenture Issuer not to) declare or pay any dividend on, or make any distributions with respect to, or redeem, purchase, or make a liquidation payment with respect to, any of its capital stock, including in the case of the Guarantor, the U S WEST Communications Group Common Stock, par value $.01 per share, and the U S WEST Media Group Common Stock, par value $.01 per share, and (b) the Guarantor will not (and the Guarantor will cause the Debenture Issuer not to) make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities (including guarantees) which rank pari passu with or junior to the Debentures, if at such time (i) there shall have occurred any Event of Default or (ii) there shall have occurred any Event of Default under the Declaration; provided, that, clause (a) above does not apply to any stock dividends paid by the Guarantor where the dividend stock is the same as that on which the dividend is being paid. SECTION 6.2 Ranking This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, including the Debenture Guarantee, (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock; provided, that, this Guarantee Agreement shall be pari passu with the guarantee issued by the Guarantor in connection with the 7.96% Trust Originated Preferred Securities of U S WEST Financing I. ARTICLE VII TERMINATION SECTION 7.1 Termination This Guarantee Agreement shall terminate upon full payment of the Redemption Price of all Preferred Securities, upon the distribution of the Debentures to the Holder's of all of the Preferred Securities or upon full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Preferred Securities Guarantee. ARTICLE VIII INDEMNIFICATION SECTION 8.1 Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee Agreement or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions; and (b) an Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions (as defined in the Declaration) to Holders of Preferred Securities might properly be paid. SECTION 8.2 Indemnification (a) To the fullest extent permitted by applicable law, the Guarantor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this in accordance with this Guarantee Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of negligence or willful misconduct with respect to such acts or omissions; and (b) to the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Guarantor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Guarantor of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 8.2(a). ARTICLE IX MISCELLANEOUS SECTION 9.1 Successors and Assigns All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. SECTION 9.2 Amendments Except with respect to any changes which do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of at least 66-2/3% in liquidation amount of the Preferred Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders of the Securities apply to the giving of such approval. SECTION 9.3 Notices All notices provided for in this Guarantee Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) if given to the Preferred Guarantee Trustee at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Preferred Securities): The First National Bank of Chicago One First National Plaza Suite 0126 Chicago Illinois 60670-0126 (b) if given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): U S WEST, Inc. 7800 East Orchard Road Englewood, Colorado 80111 (c) if given to any Holder of Preferred Securities, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.4 Benefit This Guarantee Agreement is solely for the benefit of the Holders of the Preferred Securities and subject to Section 3.1(a) is not separately transferable from the Preferred Securities. SECTION 9.5 Governing Law THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. U S WEST, Inc. By: Name: Title: THE FIRST NATIONAL BANK OF CHICAGO as Preferred Guarantee Trustee By: Name: Title: CROSS-REFERENCE TABLE*
Section of Trust Indenture Section of Act of 1939, as amended Guarantee Agreement - --------------------------- -------------------- 310(a) 4.1(a) 310(b) 4.1(c) 310(c) Inapplicable 311(a) 2.2(b) 311(b) 2.2(b) 311(c) Inapplicable 312(a) 2.2(a) 312(b) 2.2(b) 313 2.3 314(a) 2.4 314(b) Inapplicable 314(c) 2.5 314(d) Inapplicable 314(f) Inapplicable 315(a) 3.1(b) 315(b) 2.7 315(c) 3.1(a) 315(d) 3.1(a) 316(a) 5.4(a), 2.6 _______________ * This Cross-Reference Table does not constitute part of the Preferred Securities Guarantee Agreement and shall not affect the interpretation of any of its terms or provisions.
EX-99 6 EXHIBIT 99A U S WEST COMMUNICATIONS GROUP 1996 THIRD QUARTER EARNINGS PAGE U S WEST Communications, Inc. 1801 California Street Denver, Colorado 80202 [U S WEST Communications logo and registered trademark] News Release Release Date: October 23, 1996 Contact: Dave Banks (303) 804-6752 U S WEST COMMUNICATIONS RECORDS ANOTHER QUARTER OF STRONG GROWTH IN CORE OPERATIONS; ACCESS LINES AND VOLUMES AT RECORD LEVELS ENGLEWOOD, Colo. -- U S WEST Communications Group (NYSE:USW) today announced record quarterly revenues and continued record access line growth -- among the best in the industry -- as well as strong growth rates in new products and local services. These results, tempered by higher -- but moderating -- operating expenses, led to normalized quarterly net income of $ 282 million, up 2.2 percent over the same period in 1995. Further adjusting for certain one-time expenses associated with the company's Omaha video operations, net income would have grown 6.2 percent. Third quarter operating highlights include: - - Earnings per share (EPS) were unchanged from last year at $.59 on a normalized basis. Further adjusting for the one-time operating costs associated with the Omaha video operations, EPS would have been $.61, a 3.4 percent increase. - - Access line growth, among the strongest in the nation, continues to accelerate in U S WEST Communications 14-state region, increasing 5.1 percent (excluding the sale of selected rural telephone exchanges) over the past 12 months. This includes 4.0 percent growth in residential lines, growth in business lines of 7.9 percent, and a growth rate of 31.7 percent in residential additional lines. - - A 5.3 percent increase in operating revenues to $2.52 billion from $2.39 billion in the third quarter, 1995. This quarter's revenue performance was driven by continued strong local service revenue growth of 9.3 percent. It was also bolstered by strong growth in high-capacity services provided to our large business customers, one of the most competitive segments of the industry. - - Strong revenue growth in new products, such as Caller ID, Voice Messaging, and data networking services, up nearly 50 percent from the same period in 1995. Within this category, revenues from CLASS services (which include Caller ID) were up approximately 90 percent. !NTERPRISE [registered trademark], the data networking services division of U S WEST Communications, reported a revenue increase of more than 100 percent compared to the same period a year ago. - - Continued strong penetration of custom calling features such as Call Waiting, Call Forwarding, and 3-way Calling, driven by innovative marketing of tailored product bundles. - - The company intensified its efforts to control costs which led to a reduction of approximately 1,000 employee positions during the quarter, 500 of which will leave the company's payroll during the fourth quarter. This contributed to a productivity increase of 4.6 percent as measured by employees per 10,000 access lines. That figure now stands at 31.2 versus 32.7 last year. Operating expenses were up over the same period in 1995 by 5.1 percent at $1.94 billion, an improvement over the 1996 second quarter increase of 8.0 percent. Expense increases were driven by: - - Increased volume due to unprecedented access-line growth -- resulting from the strong regional economy of the west -- and continuing service-improvement initiatives. The company had a net gain of 197,000 access lines in the third quarter, a 25 percent increase compared with third quarter, 1995. A majority of this growth occurred outside the company's five major metro areas, and more than half of the residential gain was on primary -- versus additional -- lines. While initial costs for provisioning this type of growth are higher than if a greater percentage were on second lines or in metro areas, primary line growth spread more evenly across the 14-state territory is great for the future of the business. - - Increased costs associated with retail sales and marketing programs, which are helping drive unprecedented revenue growth and positioning U S WEST Communications as competitors enter new markets. "I'm pleased with U S WEST Communications Group's improving service quality and strong revenue growth," said Richard McCormick, chairman and chief executive officer of U S WEST, Inc. "Those are critical elements in being fit for an increasingly competitive marketplace." Sol Trujillo, president and chief executive officer of U S WEST Communications Group, said U S WEST Communications' third quarter performance shows the company's commitment to customers is stronger than ever. "We have kept our promises to our customers by improving service," Trujillo said. "That has been our number one priority. At the same time, we're doing a great job stimulating growth in revenues and new products. That shows our aggressive marketing efforts are paying off." "Our challenge now is to flow more of the dollars from these successes in the core business to the bottom line and generate cash for continued investment in the business," Trujillo added. "We've begun to see the results of our initiatives to improve our cost structure, and I'm confident that we'll continue to improve in the coming quarters. This will translate to improved shareowner value." THIRD QUARTER OPERATING HIGHLIGHTS Operating highlights for the quarter include: - - On September 5, U S WEST Communications Group joined many of its industry counterparts in appealing and asking for a stay of selected portions of the FCC's August 8 interconnection order. Last week, the Federal 8th Circuit Court stayed essentially the same parts of the order U S WEST had requested, pending the outcome of appeals, which are expected sometime in early 1997. - - Marked improvement in many service quality measures. For instance, orders "held" more than 30 days for primary service at the end of September, 1996 were 2,033, less than half of the 4,144 at the end of September, 1995 and were only 37 percent of the 5,439 at the end of September, 1994. As well, 90 percent of the company's customers now reach a customer service representative within three rings, compared to only about 70 percent in 1994. The company achieved this performance despite net new access line gains 43 percent higher than in 1995. Further, order activity is typically highest during the third quarter. This usually causes an upward spike in held orders at this time of year. No such spike occurred in 1996. (An order is "held" when the company cannot deliver service immediately upon receipt of that order.) - - Continued to drive increased residential penetration levels of value-added services: Call Waiting, 39.8 %; Caller ID, 20.1 %; Voice Messaging, 15.6 %. - - Continued aggressive deployment of U S WEST Network 21. This state-of-the-art, fiber-optic, bi-directional SONET ring architecture offers unprecedented survivability, reliability and flexibility for high-capacity services. These state-of-the-art rings dwarf in size what alternative access providers have put in place. Customers in Denver, Phoenix and Seattle are currently receiving the benefits of this enhanced self-healing network, and construction is currently underway in other key cities. - - !NTERPRISE continued to enhance its Frame Relay network, and by year-end, expects to have 38,000 Frame Relay ports in service. That division also began implementing FT-1 Frame Relay Service in preparation for entering the interLATA market. This offering will allow !NTERPRISE to package local and long distance data services for lower-cost, one-stop shopping. During the third quarter, !NTERPRISE also successfully introduced Audio Conferencing Dial Out Services, and began a controlled introduction of its new Managed Data Services, a suite of services that helps customers build and manage data internetworks. U S WEST Communications Group provides telecommunications and high-speed data services to more than 25 million customers in 14 western and midwestern states. The company is one of two major groups that make up U S WEST. U S WEST is in the connections business, helping customers share information, entertainment and communications services in local markets worldwide. U S WEST's other major group, U S WEST Media Group (NYSE:UMG), is involved in domestic and international cable and wireless networks, directory publishing and interactive multimedia services. - ------------------------- [Safe Harbor statement: Some of the information presented in or in connection with this announcement constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors that could cause actual results to differ from expectations include: (i) different than anticipated competition from new entrants into the local exchange and intralata toll markets, (ii) changes in demand for the Company's products and services, including optional custom calling features, (iii) different than anticipated employee levels, capital expenditures, and operating expenses as a result of unusually rapid, in-region growth, (iv) the gain or loss of significant customers, and (v) regulatory changes affecting the telecommunications industry, including changes that could have an impact on the competitive environment in the local exchange market.] - - 30 - Note: This release and the attached tables are available on the internet by accessing U S WEST's internet site: www.uswest.com. EX-99 7 EXHIBIT 99A1 Exhibit 99 A1
COMBINED STATEMENTS OF INCOME U S WEST COMMUNICATIONS GROUP (UNAUDITED) Quarter Ended Nine Months Ended September 30, % September 30, % In millions 1996 1995 Change 1996 1995 Change - ----------------------- -------------------------------------------- OPERATING REVENUES Local service $1,208 $1,105 9.3 $3,532 $3,231 9.3 Interstate access 606 594 2.0 1,854 1,774 4.5 Intrastate access 192 186 3.2 571 558 2.3 Long-distance network 272 298 (8.7) 840 891 (5.7) Other services 237 206 15.0 683 591 15.6 ---------------- ---------------- Total operating revenue 2,515 2,389 5.3 7,480 7,045 6.2 ---------------- ---------------- OPERATING EXPENSES Employee-related 900 835 7.8 2,688 2,479 8.4 Other operating 402 404 (0.5) 1,177 1,099 7.1 Taxes other than income taxes 94 95 (1.1) 291 306 (4.9) Depreciation & amort 545 513 6.2 1,580 1,514 4.4 ---------------- ---------------- Total operating expenses 1,941 1,847 5.1 5,736 5,398 6.3 ---------------- ---------------- Income from operations 574 542 5.9 1,744 1,647 5.9 Interest expense 111 108 2.8 332 315 5.4 Gains on sales of rural telephone exchanges 2 34 (94.1) 51 112 (54.5) Other expense - net 10 14 (28.6) 22 30 (26.7) ---------------- ---------------- Income before inc taxes, extd item & cum effect of chg in acctg princ 455 454 0.2 1,441 1,414 1.9 Income tax provision 169 162 4.3 537 514 4.5 ---------------- ---------------- Income before extd item & cum effect of chg in acctg princ 286 292 (2.1) 904 900 0.4 Extraordinary item: Early extinguishment of debt, net of tax - (5) - - (5) - ---------------- ---------------- Income before cum effect of chg in acctg princ 286 287 (0.3) 904 895 1.0 Cum effect of chg in acctg princ, net of tax - - - 34 - - ---------------- ---------------- NET INCOME $286 $287 (0.3) $938 $895 4.8 ================ ================ 5 COMBINED STATEMENTS OF INCOME U S WEST COMMUNICATIONS GROUP (UNAUDITED) Quarter Ended Nine Months Ended In millions, except September 30, % September 30, % per share amounts 1996 1995 Change 1996 1995 Change - -------------------------------- ------- ------------- ------- ------ Average common shares outstanding (#1) 478.4 471.2 1.5 476.7 470.1 1.4 ================ ================ Earnings per common share: (1) Income before extraordi- nary item & cumulative effect of change in accounting principle $0.60 $0.62 (3.2) $1.90 $1.91 (0.5) Extraordinary item - (0.01) - - (0.01) - Cumulative effect of change in accounting principle - - - 0.07 - - ---------------- ---------------- Earnings per common share $0.60 $0.61 (1.6) $1.97 $1.90 3.7 ================ ================ 1: Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communi- cations Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 have been presented on a pro forma basis to reflect the two classes of stock as if they were outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc.
6 EX-99 8 EXHIBIT 99A2 EXHIBIT 99A2
EARNINGS NORMALIZATION SCHEDULE U S WEST COMMUNICATIONS GROUP (UNAUDITED) Quarter Ended Nine Months Ended In millions, except September 30, % September 30, % per share amounts 1996 1995 Change 1996 1995 Change - -------------------------------- ------- ------------- ------- ------ NORMALIZED INCOME: Reported net income $286 $287 (0.3) $938 $895 4.8 Adjustments to normalize net income: Rural exchange sales (1) (21)(95.2) (31) (70)(55.7) Recapitalization costs - 5 - - 5 - Extraordinary item - net of tax - 5 - - 5 - Cumulative effect of change in accounting principle-net of tax - - - (34) - - Current year impact of accounting change - net of tax (3) - - (13) - - ---------------- ---------------- Normalized income $282 $276 2.2 $860 $835 3.0 ================ ================ NORMALIZED EARNINGS PER COMMON SHARE: Reported net income $0.60 $0.61 (1.6) $1.97 $1.90 3.7 Adjustments to normalize net income: Rural exchange sales - (0.04) - (0.06) (0.14)(57.1) Recapitalization costs - 0.01 - - 0.01 - Extraordinary item - net of tax - 0.01 - - 0.01 - Cumulative effect of change in accounting principle-net of tax - - - (0.07) - - Current year impact of accounting change - net of tax (0.01) - - (0.03) - - ---------------- ---------------- Normalized earnings per common share $0.59 $0.59 - $1.81 $1.78 1.7 ================ ================
7 EX-99 9 EXHIBIT 99A3 EXHIBIT 99A3
SELECTED COMBINED GROUP DATA U S WEST COMMUNICATIONS GROUP (UNAUDITED) Dollars in Quarter Ended Nine Months Ended millions, except September 30, % September 30, % per share amounts 1996 1995 Change 1996 1995 Change - ------------------------------- ------- ------------- ------- ------ Access lines (thousands) (1): Business 4,482 4,178 7.3 4,482 4,178 7.3 Consumer 10,771 10,442 3.2 10,771 10,442 3.2 Total access lines 15,253 14,620 4.3 15,253 14,620 4.3 Normalized access lines 15,369 14,620 5.1 15,369 14,620 5.1 Billed access minutes of use (millions): Interstate 12,976 12,027 7.9 38,674 35,501 8.9 Intrastate 2,612 2,404 8.7 7,808 6,988 11.7 Total minutes of use 15,588 14,431 8.0 46,482 42,489 9.4 Employees: Communications Grp 50,351 50,849 (1.0) 50,351 50,849 (1.0) Telephone operations 47,568 47,868 (0.6) 47,568 47,868 (0.6) Dividends per common share (2) $0.535 $0.535 - $1.605 $1.605 - Common shares outstanding (2) 479.2 471.7 1.6 479.2 471.7 1.6 Capital expenditures $662 $730 (9.3) $2,008 $1,923 4.4 EBITDA (3) $1,119 $1,055 6.1 $3,324 $3,161 5.2 EBITDA margin 44.5% 44.2% - 44.4% 44.9% - Return on equity (4) 29.7% 36.2% - 32.2% 37.2% - Debt-to-capital ratio: Communications Grp 64.0% 66.0%# - 64.0% 66.0%# - Telephone operations only 61.9% 63.1%# - 61.9% 63.1%# - # As of December 31, 1995. 1: 1995 access lines have been restated to conform to current year presentation. 2: Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communi- cations Group common stock and U S WEST Media Group common stock. The common shares outstanding and dividends per common share at September 30, 1995 are presented on a pro forma basis and assumed to be equal to the common shares outstanding for U S WEST, Inc. 3: Earnings before interest, taxes, depreciation, amortization, and other (EBITDA). EBITDA also excludes gains on asset sales. 4: Based on income before one time items.
8 EX-99 10 EXHIBIT 99A4 EXHIBIT 99A4
COMBINED BALANCE SHEETS U S WEST COMMUNICATIONS GROUP (UNAUDITED) September 30, December 31, In millions 1996 1995 - -------------------------------------- --------------------------- ASSETS Current assets: Cash and cash equivalents $106 $172 Accounts and notes receivable 1,593 1,617 Inventories and supplies 185 193 Deferred tax asset 231 259 Prepaid and other 67 51 --------------------------- Total current assets 2,182 2,292 --------------------------- Property, plant and equipment - net 13,799 13,529 Other assets 841 764 --------------------------- Total assets $16,822 $16,585 =========================== LIABILITIES AND EQUITY Current liabilities: Short-term debt $1,115 $1,065 Accounts payable 661 851 Dividends payable 257 254 Other 1,551 1,437 --------------------------- Total current liabilities 3,584 3,607 --------------------------- Long-term debt 5,661 5,689 Postretirement and other postemployment benefit obligations 2,331 2,351 Deferred taxes, credits and other 1,429 1,462 Communications Group equity 3,817 3,476 --------------------------- Total liabilities and equity $16,822 $16,585 ===========================
9 EX-99 11 EXHIBIT 99A5 EXHIBIT 99A5
COMBINED STATEMENTS OF U S WEST COMMUNICATIONS GROUP CASH FLOWS (UNAUDITED) Nine Months Ended September 30, In millions 1996 1995 - --------------------------------------------------------------------- OPERATING ACTIVITIES Net income $938 $895 Adjustments to net income: Depreciation and amortization 1,580 1,514 Gains on sales of rural telephone exchanges (51) (112) Cumulative effect of change in accounting principle (34) - Deferred income taxes and amortization of investment tax credits (11) 121 Changes in operating assets and liabilities: Restructuring payments (114) (254) Postretirement medical and life costs, net of cash fundings (28) (156) Accounts and notes receivable 24 (204) Inventories, supplies and other (14) (63) Accounts payable and accrued liabilities 72 (33) Other - net (5) (10) - --------------------------------------------------------------------- Cash provided by operating activities 2,357 1,698 - --------------------------------------------------------------------- INVESTING ACTIVITIES Expenditures for property, plant and equipment (1,891) (1,703) Proceeds from sales of rural telephone exchanges 130 162 Proceeds from (payments on) disposals of property, plant and equipment (1) (1) - --------------------------------------------------------------------- Cash (used for) investing activities (1,762) (1,542) - --------------------------------------------------------------------- FINANCING ACTIVITIES Net proceeds from issuance of short-term debt 195 365 Proceeds from issuance of long-term debt 16 499 Repayments of long-term debt (278) (256) Dividends paid on common stock (703) (694) Proceeds from issuance of common stock 109 - Advance to Media Group - (105) - --------------------------------------------------------------------- Cash (used for) financing activities (661) (191) - --------------------------------------------------------------------- CASH AND CASH EQUIVALENTS Decrease (66) (35) Beginning balance 172 116 - --------------------------------------------------------------------- Ending balance $106 $81 =====================================================================
10 EX-99 12 EXHIBIT 99A6 EXHIBIT 99A6
STATEMENTS OF INCOME U S WEST Communications, Inc. (UNAUDITED) (Telephone Operations Only) Quarter Ended Nine Months Ended September 30, % September 30, % In millions 1996 1995 Change 1996 1995 Change - -------------------------------- ------- ------------- ------- ------ OPERATING REVENUES Local service $1,208 $1,105 9.3 $3,532 $3,231 9.3 Interstate access 606 594 2.0 1,854 1,774 4.5 Intrastate access 192 186 3.2 571 558 2.3 Long-distance network 272 298 (8.7) 840 891 (5.7) Other services 178 151 17.9 507 455 11.4 ---------------- ---------------- Total operating revenue 2,456 2,334 5.2 7,304 6,909 5.7 ---------------- ---------------- OPERATING EXPENSES Employee-related* 848 780 8.7 2,525 2,277 10.9 Other operating* 386 403 (4.2) 1,148 1,159 (0.9) Taxes other than income taxes 92 92 - 284 299 (5.0) Depreciation & amort 541 507 6.7 1,565 1,499 4.4 ---------------- ---------------- Total operating expenses 1,867 1,782 4.8 5,522 5,234 5.5 ---------------- ---------------- Income from operations 589 552 6.7 1,782 1,675 6.4 Interest expense 104 98 6.1 308 284 8.5 Gains on sales of rural telephone exchanges 2 34 (94.1) 51 112 (54.5) Other expense - net 10 10 - 25 43 (41.9) ---------------- ---------------- Income before inc taxes, extd item & cum effect of chg in acctg princ 477 478 (0.2) 1,500 1,460 2.7 Income tax provision 183 173 5.8 574 543 5.7 ---------------- ---------------- Income before extd item & cum effect of chg in acctg princ 294 305 (3.6) 926 917 1.0 Extraordinary item: Early extinguishment of debt, net of tax - (5) - - (5) - ---------------- ---------------- Income before cum effect of chg in acctg princ 294 300 (2.0) 926 912 1.5 Cum effect of chg in acctg princ, net of tax - - - 34 - - ---------------- ---------------- NET INCOME $294 $300 (2.0) $960 $912 5.3 ================ ================ *Employee-related expenses for the nine months ended September 30, 1996 include the impacts of employee transfers from affiliated Communications Group companies to U S WEST Communications, Inc. (USWC) during the first half of 1995. Prior to the transfers, these affiliate employee costs were billed to USWC and reflected as affiliate expense, which is included in other operating expenses.
11 EX-99 13 EXHIBIT 99B U S WEST MEDIA GROUP 7800 East Orchard Road Englewood, Colorado 80111 [U S WEST Media Group logo and registered mark] News Release Release Date: October 25, 1996 Contact: Blair Johnson Cathy Fowler (303) 793-6296 (303) 793-6509 MEDIA GROUP REPORTS THIRD-QUARTER OPERATING CASH FLOW INCREASE OF 22 PERCENT ENGLEWOOD, Colo. - U S WEST Media Group (NYSE: UMG) today reported record third-quarter results, driven by robust growth in its cable, wireless and directory operations. For the quarter ending September 30, Media Group reported -- on a proportionate basis: - A 22-percent increase in operating cash flow compared with the third quarter last year -- excluding the effects of a one-time charge of $35 million to streamline operations at U S WEST Direct and U S WEST International. For the quarter, operating cash flow was $410 million excluding the charge. Operating cash flow, which represents earnings before interest, taxes, depreciation and amortization (EBITDA), is an important measure of operating performance. - A 20-percent increase in revenue. During the quarter, Media Group generated $1.5 billion in revenue. - A 17-percent increase in customers worldwide. Media Group now serves 6.5 million customers. Because Media Group participates in numerous joint ventures, the company uses proportionate accounting to reflect its relative share of operating revenues and expenses associated with these operations. "This has been an excellent quarter for Media Group," said Richard McCormick, U S WEST chairman and chief executive officer. "These results demonstrate our success in delivering more services to more customers in more markets. And we'll take another big step next month when Media Group closes its merger with Continental Cablevision." Chuck Lillis, U S WEST Media Group president and chief executive officer, said Media Group's third-quarter performance reflects its commitment to delivering superior operating results. "All three of our businesses reported record-level results," Lillis said. "Our cable subscriber growth in Atlanta is twice the industry average. Domestic cellular cash flow reached an all-time high. And directory revenue growth led that industry again. "The charge we're taking this quarter reflects our continued focus on streamlining operations to reduce costs," Lillis said. "Within the next year, we expect to recoup the $35 million through costs savings." Proportionate operating highlights for the quarter by line of business include: - CABLE AND TELEPHONY: Subscriber growth of 6 percent for MediaOne, the Atlanta cable operation, exceeded the industry average for the seventh consecutive quarter. MediaOne ended the quarter with 511,000 customers. This strong subscriber growth produced revenue of $60 million, an 11-percent increase on a comparable basis to last year. Operating cash flow was $28 million, an 8-percent increase. Meanwhile, Media Group's investment in Time Warner Entertainment (TWE) generated operating cash flow of $151 million, a 12-percent increase from third quarter last year. Media Group's international properties also produced strong subscriber growth. Those ventures now serve 647,000 subscribers, a 41-percent increase on a comparable basis. - WIRELESS: For the first time ever, operating cash flow margins in domestic cellular operations passed the 45-percent mark, driven by subscriber growth and operational efficiencies. For the quarter, operating cash flow increased 48 percent, to $113 million. The subscriber base increased 43 percent to 1.7 million customers. International wireless operations also exhibited strong customer growth. Media Group's international properties now serve 419,000 wireless customers, a 55-percent increase. - DIRECTORIES: U S WEST Direct continues its strong revenue growth. Boosted by a 4-percent increase in revenue per advertiser, U S WEST Direct reported revenue of $274 million, a 7-percent increase from the same period last year. For the quarter, Media Group reported net income of $18 million, or 4 cents per common share. U S WEST Media Group is involved in domestic and international cable and telephony, wireless communications, and directory and information services. For 1995, U S WEST Media Group reported proportionate revenues of $5.1 billion. Media Group is one of two major groups that make up U S WEST, a company in the connections business helping customers share information, entertainment and communications services in local markets worldwide. U S WEST's other major group, U S WEST Communications, provides telecommunications services to more than 25 million customers in 14 western and midwestern states. Some of the information presented in or in connection with this announcement constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors that could cause actual results to differ from expectations include: (i) a change in economic conditions in the various markets served by the Company's operations that could adversely affect the level of demand for cable, wireless, directory or other services offered by the Company, (ii) greater than anticipated competitive activity requiring new pricing for Company services, (iii) higher than anticipated start-up costs associated with new business opportunities, (iv) regulatory changes affecting the telecommunications industry, (v) increases in fraudulent activity with respect to wireless services, or (vi) delays in the development of anticipated technologies, or the failure of such technologies to perform according to expectations. Note: This release and the attached tables are available on the Internet by accessing U S WEST's Internet site: www.uswest.com KEY SELECTED PROPORTIONATE OPERATING HIGHLIGHTS BY LINE OF BUSINESS (ALL CHANGES ARE IN COMPARISON TO 3Q 1995) CABLE AND TELEPHONY MEDIAONE - - 511,000 customers, a 6% increase - - Revenue of $60 million, an 11% increase on a comparable basis - - Operating cash flow of $28 million, an 8% increase INTERNATIONAL - - 647,000 subscribers, a 41% increase on a comparable basis - - Revenue of $57 million, a 78% increase - - Operating cash flow loss of $10 million*, unchanged from a year ago TIME WARNER ENTERTAINMENT (TWE) - - A 4% cable subscriber increase - - Revenue of $693 million, a 17% increase - - Operating cash flow of $151 million, a 12% increase WIRELESS U S WEST CELLULAR - - 1.7 million customers, a 43% increase - - Revenue of $286 million, a 29% increase - - Operating cash flow of $113 million, a 48% increase - - Operating cash flow, as a percent of net operating revenue, of 45% INTERNATIONAL - - 419,000 subscribers, a 55% increase - - Revenue of $111 million, a 48% increase - - Operating cash flow of $4 million*, compared to break-even last year DIRECTORY AND INFORMATION SERVICES U S WEST DIRECT - - Revenue of $274 million, a 7% increase - - Operating cash flow of $137 million*, a 7% increase INTERNATIONAL - - Revenue of $54 million, a 93% increase - - Operating cash flow of $6 million*, compared to a loss of $3 million last year U S WEST MEDIA GROUP COMBINED GAAP RESULTS - - Revenue of $694 million - - Operating cash flow of $231 million - - Net income of $18 million - - Earnings per common share of 4 cents * Reported proportionate operating cash flow has been normalized to exclude the effects of charges of $25 million for U S WEST Direct and $10 million for U S WEST International. EX-99 14 EXHIBIT 99B1 Exhibit 99B1
COMBINED STATEMENTS OF INCOME U S WEST MEDIA GROUP (UNAUDITED) Quarter Ended Nine Months Ended September 30, % September 30, % In millions 1996 1995 Change 1996 1995 Change - ---------------------------------------------------- ------- ------- SALES AND OTHER REVENUES Directory $316 $292 8.2 $908 $856 6.1 Wireless 315 246 28.0 869 676 28.6 Cable 60 56 7.1 176 165 6.7 Other 3 10 (70.0) 12 28 (57.1) -------------- ---------------- Total revenues $694 $604 14.9 $1,965 $1,725 13.9 -------------- ---------------- EXPENSES Costs of sales and other revenues 221 193 14.5 626 539 16.1 Selling, general and administrative 242 204 18.6 698 634 10.1 Depreciation & amort 79 60 31.7 216 181 19.3 -------------- ---------------- Total 542 457 18.6 1,540 1,354 13.7 -------------- ---------------- Income from operations 152 147 3.4 425 371 14.6 Interest expense 30 29 3.4 80 89 (10.1) Equity losses in unconsol ventures 81 38 - 224 128 75.0 Guaranteed minority interest expense 12 2 - 36 2 - Other income (expense) - net 10 6 66.7 (24) 24 - -------------- ---------------- Income before income taxes & extd item 39 84 (53.6) 61 176 (65.3) Income taxes 21 51 (58.8) 51 103 (50.5) -------------- ---------------- Income before extd item 18 33 (45.5) 10 73 (86.3) Extraordinary item: Early extinguishment of debt, net of tax - (4) - - (4) - -------------- ---------------- NET INCOME 18 29 (37.9) 10 69 (85.5) Preferred dividends 1 1 - 3 3 - -------------- ---------------- EARNINGS AVAILABLE FOR COMMON STOCK $17 $28 (39.3) $7 $66 (89.4) ============== ================
5
COMBINED STATEMENTS OF INCOME U S WEST MEDIA GROUP (UNAUDITED) Quarter Ended Nine Months Ended In millions, except September 30, % September 30, % per share amounts 1996 1995 Change 1996 1995 Change - ---------------------------------------------------- ------- ------- Average common shares outstanding (1) 473.9 471.2 0.6 473.5 470.1 0.7 ============== ================ Earnings per common share: (1) Income available for common stock before extraordinary item $0.04 $0.07 (42.9) $0.01 $0.15 (93.3) Extraordinary item - (0.01) - - (0.01) - -------------- ------- ------- Earnings per common share $0.04 $0.06 (33.3) $0.01 $0.14 (92.9) ============== ================ 1: Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 have been presented on a pro forma basis to reflect the two classes of stock as if they were outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc.
6 EX-99 15 EXHIBIT 99B2 Exhibit 99B2
SELECTED COMBINED GROUP DATA (UNAUDITED) U S WEST MEDIA GROUP Dollars in millions; Quarter Ended Nine Months Ended statistics in September 30, % September 30, % thousands 1996 1995 Change 1996 1995 Change - --------------------------- ------- ------- ------- ------- ------- REVENUES U S WEST Direct $274 $257 6.6 $812 $761 6.7 Other directories 42 35 20.0 96 95 1.1 MediaOne 60 56 7.1 176 165 6.7 NewVector: Service 286 223 28.3 792 616 28.6 Equipment 29 23 26.1 77 60 28.3 ---------------- ----------------- Total NewVector 315 246 28.0 869 676 28.6 Other 3 10 (70.0) 12 28 (57.1) ---------------- ----------------- Total revenues $694 $604 14.9 $1,965 $1,725 13.9 EBITDA (1) U S WEST Direct $112 $128 (12.5) $382 $384 (0.5) Other directories 2 (20) - (32) (67) 52.2 MediaOne 28 26 7.7 83 74 12.2 NewVector 127 85 49.4 307 217 41.5 Other (38) (12) - (99) (56) (76.8) ---------------- ----------------- Total EBITDA $231 $207 11.6 $641 $552 16.1 Other Data: U S WEST Direct (Yellow Pages) Net Income $66 $75 (12.0) $224 $225 (0.4) Advertisers 482 473 1.9 482 473 1.9 MediaOne (Atlanta Cable) Basic subscribers FCC equivalents 511 482 6.0 511 482 6.0 Homes passed 877 840 4.4 877 840 4.4 U S WEST NewVector (Wireless) Subscribers (consolidated) 1,816 1,269 43.1 1,816 1,269 43.1 Proportionate POPs managed (millions) 20.0 19.5 2.6 20.0 19.5 2.6 1: Earnings before interest, taxes, depreciation, amortization and other (EBITDA). EBITDA also excludes equity losses and guaranteed minority interest expense. Note: Certain reclassifications have been made to conform to the current year presentation.
7 EX-99 16 EXHIBIT 99B3 EXHIBIT 99B3
COMBINED BALANCE SHEETS U S WEST MEDIA GROUP (UNAUDITED) September 30, December 31, In millions 1996 1995 - --------------------------------------- -------------------------- ASSETS Current assets: Cash and cash equivalents $54 $20 Accounts and notes receivable 391 287 Deferred directory costs 254 247 Other assets 137 187 -------------------------- Total current assets 836 741 -------------------------- Property, plant and equipment - net 1,428 1,148 Investment in Time Warner Entertainment 2,493 2,483 Intangible assets - net 1,791 1,798 Investment in international ventures 1,371 1,511 Net investment in assets held for sale 404 429 Other assets 530 505 -------------------------- Total assets $8,853 $8,615 ========================== LIABILITIES AND EQUITY Current liabilities: Short-term debt $613 $836 Accounts payable 247 235 Deferred revenue and customer deposits 85 87 Other payables 419 411 -------------------------- Total current liabilities 1,364 1,569 -------------------------- Long-term debt 1,741 1,265 Deferred taxes, credits and other 632 658 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company- guaranteed debentures 600 600 Preferred stock subject to mandatory redemption 51 51 Media Group equity 4,574 4,599 Company LESOP guarantee (109) (127) -------------------------- Total equity 4,465 4,472 -------------------------- Total liabilities and equity $8,853 $8,615 ==========================
8 EX-99 17 EXHIBIT 99B4 EXHIBIT 99B4
COMBINED STATEMENTS OF U S WEST MEDIA GROUP CASH FLOWS (UNAUDITED) Nine Months Ended September 30, In millions 1996 1995 - --------------------------------------------------------------------- OPERATING ACTIVITIES Net income $10 $69 Adjustments to net income: Depreciation and amortization 216 181 Equity losses in unconsolidated ventures 223 128 Deferred income taxes (57) (28) Provision for uncollectibles 46 37 Changes in operating assets and liabilities: Accounts and notes receivable (115) (52) Deferred directory costs, prepaid and other 5 (18) Accounts payable and accrued liabilities 45 107 Other - net 47 40 - --------------------------------------------------------------------- Cash provided by operating activities 420 464 - --------------------------------------------------------------------- INVESTING ACTIVITIES Expenditures for property, plant and equipment (361) (240) Investment in international ventures (227) (576) Cash (to) from investment in assets held for sale 176 (108) Other - net (41) (269) - --------------------------------------------------------------------- Cash (used for) investing activities (453) (1,193) - --------------------------------------------------------------------- FINANCING ACTIVITIES Net proceeds from issuances of short-term debt (8) 323 Repayments of long-term debt (283) (384) Proceeds from issuance of trust originated preferred securities - net - 581 Proceeds from issuance of long-term debt 330 - Proceeds from issuance of common stock 31 104 Preferred dividends paid (3) (3) Advance from Communications Group - 105 Purchase of treasury stock - (63) - --------------------------------------------------------------------- Cash provided by financing activities 67 663 - --------------------------------------------------------------------- CASH AND CASH EQUIVALENTS Increase (Decrease) 34 (66) Beginning balance 20 93 - --------------------------------------------------------------------- Ending balance $54 $27 ===================================================================== Note: Certain reclassifications within the financial statements have made to conform to the current year presentation.
9 EX-99 18 EXHIBIT 99B5 EXHIBIT 99B5
SELECTED PROPORTIONATE DATA (UNAUDITED) (1) U S WEST MEDIA GROUP Cable and Telecommunications Wireless Domestic Dollars in millions (2) Int'l Domestic Int'l - --------------------------------------------------------------------- QTR Ended September 30, 1996 Revenues $753 $57 $286 $111 EBITDA 176 (16) 106 1 Net income (loss) (18) (51) 46 (28) Subscribers/advertisers (thousands) 3,023 647 1,664 419 QTR Ended September 30, 1995 Revenues $649 $32 $221 $75 EBITDA 156 (10) 76 - Net income (loss) (11) (23) 24 (16) Subscribers/advertisers (thousands) 2,790 599 1,162 271 Nine Months Ended September 30, 1996 Revenues $2,168 $157 $787 $298 EBITDA 516 (36) 253 1 Net income (loss) (26) (157) 88 (70) Nine Months Ended September 30, 1995 Revenues $1,890 $82 $580 $200 EBITDA 431 (34) 188 (25) Net income (loss) (39) (36) 56 (76) (1) Proportionate data reflects the Media Group's relative ownership interest in revenues and EBITDA for both its consolidated and equity method entities. Proportionate data is not required by GAAP or intended to replace the Combined Financial Statements prepared in accordance with GAAP. (2) Includes the Media Group's 25.51 percent pro-rata priority and residual equity interests in reported TWE results.
10
SELECTED PROPORTIONATE DATA (UNAUDITED) (1) U S WEST MEDIA GROUP Directory & Corp Information Services & Dollars in millions Domestic Int'l Other Total - --------------------------------------------------------------------- QTR Ended September 30, 1996 Revenues $276 $54 $3 $1,540 EBITDA 108 5 (5) 375 Net income (loss) 59 3 7 18 Subscribers/advertisers (thousands) 482 264 - 6,499 QTR Ended September 30, 1995 Revenues $264 $28 $11 $1,280 EBITDA 108 (3) 10 337 Net income (loss) 65 (6) (4) 29 Subscribers/advertisers (thousands) 473 254 - 5,549 Nine Months Ended September 30, 1996 Revenues $826 $131 $9 $4,376 EBITDA 349 5 (30) 1,058 Net income (loss) 193 (9) (9) 10 Nine Months Ended September 30, 1995 Revenues $784 $72 $27 $3,635 EBITDA 318 (7) 14 885 Net income (loss) 186 (11) (11) 69 (1) Proportionate data reflects the Media Group's relative ownership interest in revenues and EBITDA for both its consolidated and equity method entities. Proportionate data is not required by GAAP or intended to replace the Combined Financial Statements prepared in accordance with GAAP.
11 EX-99 19 EXHIBIT 99C1 EXHIBIT 99C1
CONSOLIDATED STATEMENTS OF U S WEST, Inc. INCOME (UNAUDITED) Quarter Ended Nine Months Ended September 30, % September 30, % In millions 1996 1995 Change 1996 1995 Change - ------------------------------ ------- -------------- ------- ------- SALES & OTHER REVENUES $3,179 $2,964 7.3 $9,353 $8,686 7.7 OPERATING EXPENSES Employee-related 1,105 1,007 9.7 3,246 2,982 8.9 Other operating 623 592 5.2 1,823 1,661 9.8 Taxes other than income taxes 101 103 (1.9) 319 330 (3.3) Depreciation & amort 624 573 8.9 1,796 1,695 6.0 ---------------- ---------------- Total operating expense 2,453 2,275 7.8 7,184 6,668 7.7 ---------------- ---------------- Income from operations 726 689 5.4 2,169 2,018 7.5 Interest expense 140 137 2.2 411 404 1.7 Equity losses in unconsol ventures 81 38 - 224 128 75.0 Gains on sales of rural telephone exchanges 2 34 (94.1) 51 112 (54.5) Guaranteed minority interest expense 12 2 - 36 2 - Other expense - net 1 8 (87.5) 47 6 - ---------------- ---------------- Income before inc taxes, extd item & cum effect of chg in acctg princ 494 538 (8.2) 1,502 1,590 (5.5) Income tax provision 190 213 (10.8) 588 617 (4.7) ---------------- ---------------- Income before extd item, cum effect of chg in acctg princ 304 325 (6.5) 914 973 (6.1) Extraordinary item: Early extinguishment of debt - net of tax - (9) - - (9) - ---------------- ---------------- Income before cum effect of chg in acctg princ 304 316 (3.8) 914 964 (5.2) Cumulative effect of change in accounting principle - net of tax - - - 34 - - ---------------- ---------------- NET INCOME 304 316 (3.8) 948 964 (1.7) Preferred dividends 1 1 - 3 3 - ---------------- ---------------- EARNINGS AVAILABLE FOR COMMON STOCK $303 $315 (3.8) $945 $961 (1.7) ================ ================
- 1 -
CONSOLIDATED STATEMENTS OF U S WEST, Inc. INCOME (UNAUDITED) Quarter Ended Nine Months Ended In millions, except September 30, % September 30, % per share amounts 1996 1995 Change 1996 1995 Change - ------------------------------ ------- -------------- ------- ------- COMMUNICATIONS GROUP: Average common shares outstanding (1) 478.4 471.2 1.5 476.7 470.1 1.4 ================ ================ Earnings per common share: (1) Income before extraordi- nary item & cumulative effect of change in accounting principle $0.60 $0.62 (3.2) $1.90 $1.91 (0.5) Extraordinary item - (0.01) - - (0.01) - Cumulative effect of change in accounting principle - - - 0.07 - - ---------------- ---------------- Earnings per common share $0.60 $0.61 (1.6) $1.97 $1.90 3.7 ================ ================ MEDIA GROUP: Average common shares outstanding (1) 473.9 471.2 0.6 473.5 470.1 0.7 ================ ================ Earnings per common share: (1) Income available for common stock before extraordinary item $0.04 $0.07 (42.9) $0.01 $0.15 (93.3) Extraordinary item - (0.01) - - (0.01) - ---------------- ---------------- Earnings per common share $0.04 $0.06 (33.3) $0.01 $0.14 (92.9) ================ ================ 1 Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communi- cations Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 have been presented on a pro forma basis to reflect the two classes of stock as if they were outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc.
- 2 -
CONSOLIDATED STATEMENTS OF U S WEST, Inc. INCOME (UNAUDITED) Dollars in millions, Quarter Ended Nine Months Ended except per share September 30, % September 30, % amounts 1996 1995 Change 1996 1995 Change - ------------------------------ ------- -------------- ------- ------- U S WEST, Inc. Average common shares outstanding (#1) - 471.2 - - 470.1 - ================ ================ Earnings per common share: (1) Income available for common stock before extraordinary item $ - $0.69 - $ - $2.06 - Extraordinary item - (0.02) - - (0.02) - ---------------- ---------------- Earnings per common share $ - $0.67 - $ - $2.04 - ================ ================ SELECTED CONSOLIDATED DATA Capital expenditures $776 $818 (5.1) $2,337 $2,183 7.1 Debt-to-capital ratio (2) 50.6% 50.7%# - 50.6% 50.7%# - Employees 60,837 61,123 (0.5) 60,837 61,123 (0.5) EBITDA $1,350 $1,262 7.0 $3,965 $3,713 6.8 EBITDA margin 42.5% 42.6% - 42.4% 42.8% - # As of December 31, 1995. 1 Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communi- cations Group common stock and U S WEST Media Group common stock. 2 Ratio includes preferred securities and other preferred stock as a component of total capital. Including debt related to the net investment in assets held for sale, preferred securities and other preferred stock, the Company's percentage of debt to total capital was 55.4% at September 30, 1996 and 56.4% at December 31, 1995.
- 3 - EX-99 20 EXHIBIT 99C2 EXHIBIT 99C2
CONSOLIDATED BALANCE SHEETS U S WEST, Inc. (UNAUDITED) September 30, December 31, In millions 1996 1995 - --------------------------------------- -------------------------- ASSETS Current assets: Cash and cash equivalents $160 $192 Accounts and notes receivable 1,973 1,886 Inventories and supplies 198 227 Deferred tax asset 251 282 Prepaid and other 354 322 ------------------------- Total current assets 2,936 2,909 ------------------------- Property, plant and equipment - net 15,227 14,677 Investment in Time Warner Entertainment 2,493 2,483 Intangible assets - net 1,791 1,798 Investment in international ventures 1,371 1,511 Net investment in assets held for sale 404 429 Prepaid and other assets 1,361 1,264 ------------------------- Total assets $25,583 $25,071 ========================= LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Short-term debt $1,728 $1,901 Accounts payable 831 975 Dividends payable 257 254 Other payables 2,050 1,922 ------------------------- Total current liabilities 4,866 5,052 ------------------------- Long-term debt 7,402 6,954 Postretirement and other post- employment benefit obligations 2,420 2,433 Deferred taxes, credits and other 1,962 2,033 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company- guaranteed debentures 600 600 Preferred stock subject to mandatory redemption 51 51 Common shareowners' equity: Common shares 8,396 8,228 Retained earnings (deficit) 41 (115) LESOP guarantee (109) (127) Foreign currency translation adjustments (46) (38) ------------------------- Total common shareowners' equity 8,282 7,948 ------------------------- Total liabilities & shareowners' equity $25,583 $25,071 =========================
- 4 - EX-99 21 EXHIBIT 99C3 EXHIBIT 99C3
CONSOLIDATED STATEMENTS OF U S WEST, Inc. CASH FLOWS (UNAUDITED) Nine Months Ended September 30, In millions 1996 1995 - --------------------------------------------------------------------- OPERATING ACTIVITIES Net income $948 $964 Adjustments to net income: Depreciation and amortization 1,796 1,695 Equity losses in unconsolidated ventures 223 128 Gains on sales of rural telephone exchanges (51) (112) Cumulative effect of change in accounting principle (34) - Deferred income taxes and amortization of investment tax credits (68) 93 Changes in operating assets and liabilities: Restructuring payments (126) (268) Postretirement medical and life costs, net of cash fundings (20) (86) Accounts and notes receivable (87) (219) Inventories, supplies and other (9) (81) Accounts payable and accrued liabilities 171 88 Other - net 34 21 - --------------------------------------------------------------------- Cash provided by operating activities 2,777 2,223 - --------------------------------------------------------------------- INVESTING ACTIVITIES Expenditures for property, plant and equipment (2,252) (1,943) Investment in international ventures (227) (576) Proceeds from disposals of property, plant and equipment 129 161 Cash (to) from net investment in assets held for sale 176 (108) Other - net (41) (269) - --------------------------------------------------------------------- Cash (used for) investing activities (2,215) (2,735) - --------------------------------------------------------------------- FINANCING ACTIVITIES Net proceeds from issuance of short-term debt 187 688 Proceeds from issuance of long-term debt 346 499 Repayments of long-term debt (561) (640) Proceeds from issuance of trust originated preferred securities - net - 581 Dividends paid on common and preferred stock (706) (697) Proceeds from issuance of common stock 140 43 Purchases of treasury stock - (63) - --------------------------------------------------------------------- Cash (used for) provided by financing activities (594) 411 - --------------------------------------------------------------------- CASH AND CASH EQUIVALENTS Decrease (32) (101) Beginning balance 192 209 - --------------------------------------------------------------------- Ending balance $160 $108 ===================================================================== Note: Certain reclassifications within the financial statements have been made to conform to the current year presentation.
- 5 - EX-27 22 FDS
5 0000732718 U S WEST, INC. 1,000,000 3-MOS 9-MOS DEC-31-1996 DEC-31-1996 SEP-30-1996 SEP-30-1996 160 160 0 0 1,973 1,973 0 0 198 198 2,936 2,936 34,265 34,265 19,038 19,038 25,583 25,583 4,866 4,866 7,402 7,402 651 651 0 0 8,396 8,396 (114) (114) 25,583 25,583 3,179 9,353 3,179 9,353 0 0 0 0 2,453 7,184 0 0 140 411 494 1,502 190 588 304 914 0 0 0 0 0 34 304 948 .60 1.97 .60 1.97
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