As filed with the Securities and Exchange Commission on April 17, 2003
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Broadwing Inc.
(Exact name of registrant as specified in its charter)
| Ohio (State or Other Jurisdiction of Incorporation or Organization) |
4813 (Primary Standard Industrial Classification Code Number) |
31-1056105 (I.R.S. Employer Identification Number) |
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201 East Fourth Street Cincinnati, Ohio 45202 (513) 397-9900 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) |
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Jeffrey C. Smith, Esq. Chief Human Resources Officer, General Counsel and Corporate Secretary Broadwing Inc. 201 East Fourth Street Cincinnati, Ohio 45202 (513) 397-9900 (Name, address, including zip code, and telephone number, including area code, of agent for service) |
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Copies to: |
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| William V. Fogg, Esq. Cravath, Swaine & Moore LLP 825 Eighth Avenue New York, New York 10019 (212) 474-1000 |
Arnold B. Peinado, III, Esq. Milbank, Tweed, Hadley & McCloy LLP 1 Chase Manhattan Plaza New York, New York 10005 (212) 530-5000 |
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Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective and the conditions to the consummation of the offer described herein have been satisfied or, to the extent permitted, waived.
If any of the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered |
Amount to be Registered |
Proposed Maximum Offering Price per Unit |
Proposed Maximum Aggregate Offering Price(3) |
Amount of Registration Fee(4) |
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|---|---|---|---|---|---|---|---|---|
| Common Stock, par value $0.01 per share(1) | 11,076,707(2) | (3) | $45,950,000 | $3,717.36 | ||||
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
Information contained in this prospectus and solicitation statement is not complete and may be changed. We may not complete the exchange offer and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus and solicitation statement is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| Prospectus and Solicitation Statement | Subject to completion dated, , 2003 |
[Broadwing logo]
OFFER TO EXCHANGE
11,076,707 Shares of Broadwing Common Stock
for the entire outstanding aggregate principal amount of
Broadwing Communications Inc. 9% Senior Subordinated Notes due 2008
and
CONSENT SOLICITATION
Broadwing Inc. ("Broadwing") is implementing a five-point restructuring plan (the "Restructuring Plan"), which is intended to strengthen its financial position, maintain the strength and stability of its local telephone business, reduce the cash expenditures at its Broadwing Communications Inc. subsidiary ("BCI"), facilitate the evaluation of strategic alternatives and reduce its debt balances over time. To date, Broadwing has secured additional sources of capital, amended its credit facilities and entered into an agreement to sell its broadband business by selling substantially all of the assets of certain of BCI's operating subsidiaries.
Also as part of the Restructuring Plan, we are offering to exchange 11,076,707 shares of our common stock (the "Broadwing Common Stock") for the entire outstanding aggregate principal amount of 9% Senior Subordinated Notes Due 2008 of BCI (the "BCI 9% Notes") upon the terms and subject to the conditions specified in this prospectus and solicitation statement and the related consent and letter of transmittal.
Concurrently with the exchange offer, we are also soliciting consents from holders of BCI 9% Notes to amend the indenture under which the notes were issued to eliminate all restrictive covenants. The exchange offer and consent solicitation will expire on , 2003 at 5:00 p.m., New York City time, unless extended.
The exchange offer and consent solicitation are conditioned upon, among other conditions, our receipt of valid tenders and consents from holders of not less than 95% of the outstanding BCI 9% Notes. Holders of notes representing approximately 92.2% of the outstanding aggregate principal amount of BCI 9% Notes have already agreed with us to tender their notes and give their consents.
If the exchange offer and consent solicitation are not completed, we will evaluate our other strategic alternatives regarding BCI, which may include the filing by BCI for protection under Chapter 11 of the U.S. Bankruptcy Code.
Shares of Broadwing Common Stock are listed on the NYSE under the symbol "BRW," and the last reported trading price on April 14, 2003 was $3.93.
SEE
"RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF ISSUES
THAT YOU SHOULD CONSIDER WITH RESPECT TO THE
EXCHANGE OFFER AND CONSENT SOLICITATION.
Neither the Securities and Exchange Commission nor any state securities commission has approved
or disapproved of these securities or this transaction, passed upon the merits or fairness of this transaction,
or passed upon the adequacy or accuracy of this prospectus and solicitation statement.
Any representation to the contrary is a criminal offense.
LEHMAN BROTHERS
Dealer Manager and Solicitation Agent
, 2003
For you to validly tender BCI 9% Notes pursuant to the exchange offer and deliver the related consents to the proposed amendments to the indenture governing the BCI 9% Notes, either: (1) you must submit a properly completed and duly executed consent and letter of transmittal, or an agent's message in connection with a book-entry transfer, together with any required signature guarantees and any other required documents, must be transmitted to and received by The Bank of New York, as the exchange agent, at its address set forth on the back cover of this prospectus and solicitation statement and either (x) certificates for tendered BCI 9% Notes must be received by the exchange agent at such address or (y) such BCI 9% Notes must be tendered pursuant to the procedures for book-entry tender set forth below (and a confirmation of receipt of such tender received), in each case, before the expiration date or (2) you must comply with the guaranteed delivery procedures described in "The Exchange Offer and Consent Solicitation—Procedure for Tendering and Consenting."
If you are the record owner of your notes and you tender your notes directly to the exchange agent, you will not have to pay any fees or commissions. If you hold your notes through a broker, bank or other nominee, and your broker tenders the notes on your behalf, your broker may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply.
This prospectus and solicitation statement and the letter of transmittal contain important information that should be read before any decision is made with respect to a tender of BCI 9% Notes.
The exchange offer is not being made to (nor will tenders of BCI 9% Notes be accepted from or on behalf of) holders in any jurisdiction in which the making of the exchange offer and consent solicitation is not in compliance with applicable laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the exchange offer and consent solicitation to be made by a licensed broker or dealer, the exchange offer and consent solicitation will be deemed to be made on our behalf by the dealer manager and solicitation agent or one or more registered brokers or dealers licensed under the laws of that jurisdiction.
The delivery of this prospectus and solicitation statement shall not under any circumstances create any implication that the information contained herein is correct as of any time subsequent to the date hereof or that there has been no change in the information set forth herein or in any attachments hereto or in the affairs of Broadwing or any of its subsidiaries or affiliates since the date hereof.
No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this prospectus and solicitation statement and, if given or made, such information or representation may not be relied upon as having been authorized by Broadwing or the dealer manager and solicitation agent.
This document incorporates important business and financial information about Broadwing and BCI from documents filed with the Securities and Exchange Commission (the "SEC") that have not been included in or delivered with this document. This information is available at a web site maintained by the SEC at www.sec.gov, as well as from other sources. See "Where You Can Find More Information" beginning on page 95.
You may also request copies of these documents from us, without charge, upon written or oral request to Jeffrey C. Smith, General Counsel, 201 East Fourth Street, Cincinnati, Ohio 45202, (513) 397-9900. If you request any such documents from us, we will mail them to you by first class mail or another equally prompt means within one business day after we receive your request.
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Page |
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| QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER AND CONSENT SOLICITATION | 1 | ||
| SUMMARY | 5 | ||
| RISK FACTORS | 14 | ||
| Risk Factors Related to the Exchange Offer and Consent Solicitation | 14 | ||
| Risk Factors Related to the Business of Broadwing | 18 | ||
| Risk Factors Related to the Business of BCI | 25 | ||
| FORWARD-LOOKING STATEMENTS | 30 | ||
| SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA | 31 | ||
| CAPITALIZATION | 33 | ||
| UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION | 35 | ||
| STOCK PRICES AND DIVIDENDS | 52 | ||
| BACKGROUND OF THE EXCHANGE OFFER AND CONSENT SOLICITATION | 53 | ||
| The Restructuring Plan and Recent Developments | 54 | ||
| Consequences for BCI | 61 | ||
| RELATIONSHIP BETWEEN BROADWING AND BCI | 63 | ||
| Broadwing Inc. | 63 | ||
| Broadwing Communications Inc. | 63 | ||
| Relationship of Directors and Executive Officers of BCI with Broadwing | 63 | ||
| Intercompany Arrangements | 64 | ||
| THE EXCHANGE OFFER AND CONSENT SOLICITATION | 66 | ||
| Reasons for and Purpose of the Exchange Offer and Consent Solicitation | 66 | ||
| General | 66 | ||
| Conditions of the Exchange Offer and Consent Solicitation | 67 | ||
| Exchange and Voting Agreement | 68 | ||
| Waiver and Release | 69 | ||
| Timing of the Exchange Offer and Consent Solicitation | 69 | ||
| Extension, Termination and Amendment | 69 | ||
| Exchange of BCI 9% Notes | 70 | ||
| Cash Instead of Fractional Shares of Broadwing Common Stock | 70 | ||
| Procedure for Tendering and Consenting | 71 | ||
| Guaranteed Delivery | 72 | ||
| Effects of Tenders and Consents | 73 | ||
| Withdrawal of Tenders and Revocation of Consents | 73 | ||
| The Proposed Amendments | 74 | ||
| Liquidity | 75 | ||
| Certain Legal and Regulatory Matters | 75 | ||
| Financing of the Exchange Offer | 75 | ||
| Dealer Manager and Solicitation Agent | 75 | ||
| Exchange Agent | 76 | ||
| CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS | 77 | ||
| DESCRIPTION OF BROADWING CAPITAL STOCK | 81 | ||
| DESCRIPTION OF BROADWING AND BCI INDEBTEDNESS | 86 | ||
| LEGAL MATTERS | 94 | ||
| EXPERTS | 94 | ||
| WHERE YOU CAN FIND MORE INFORMATION | 95 | ||
| SCHEDULE I—CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF BROADWING | S-I-1 | ||
| SCHEDULE II—CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF BCI | S-II-1 | ||
| ANNEX A—FORM OF SUPPLEMENTAL INDENTURE | A-1 | ||
| ANNEX B—EXCHANGE AND VOTING AGREEMENT | B-1 | ||
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QUESTIONS AND ANSWERS ABOUT
THE EXCHANGE OFFER AND CONSENT SOLICITATION
The following are some questions regarding the exchange offer and consent solicitation that you may have as a holder of BCI 9% Notes and the answers to those questions. We urge you to read carefully the remainder of this prospectus and solicitation statement and the related consent and letter of transmittal because the information in this section is not complete. Additional important information is contained in the remainder of this prospectus and solicitation statement and the consent and letter of transmittal. As used in this prospectus and solicitation statement, the terms "we," "us," "our" and "Broadwing" refer to Broadwing Inc. and, if appropriate in the context, its subsidiaries. The term "BCI" refers to Broadwing Communications Inc. and, if appropriate in the context, its subsidiaries.
We are also seeking consents to amend the indenture under which the BCI 9% Notes were issued to eliminate all restrictive covenants. If you tender your BCI 9% Notes in the exchange offer, you must deliver a corresponding consent to the proposed amendments to the indenture. You may not deliver consents without tendering your BCI 9% Notes in the exchange offer. Your completion, execution and delivery of a consent and letter of transmittal will be deemed to constitute your consent to the proposed amendments with respect to the tendered BCI 9% Notes unless such notes are properly withdrawn in the manner and during the periods described herein.
The exchange offer and consent solicitation are conditioned upon, among other conditions, our receipt of valid tenders and consents from holders of not less than 95% of the outstanding aggregate principal amount of BCI 9% Notes and the first stage closing of our broadband sale. See "The Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation."
Holders of notes representing approximately 92.2% of the outstanding aggregate principal amount of BCI 9% Notes have already agreed with us to tender their notes and give their consents. See "The Exchange Offer and Consent Solicitation—Exchange and Voting Agreement."
See "The Exchange Offer and Consent Solicitation—Reasons for and Purpose of the Exchange Offer and Consent Solicitation."
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You will not receive any fractional shares of Broadwing Common Stock. Instead, the exchange agent for the exchange offer, acting as your agent, will aggregate any fractional shares issuable and sell them for your account. The proceeds realized by the exchange agent on the sale of fractional shares will be distributed to you and the other tendering noteholders on a pro rata basis, net of commissions.
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After the completion of the exchange offer, we will own most of the outstanding aggregate principal amount of the BCI 9% Notes, which we believe will adversely affect the liquidity and price at which the remaining BCI 9% Notes will trade. The BCI 9% Notes will also be eligible for termination of registration under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). See the Risk Factors entitled, "The liquidity of BCI 9% Notes after the completion of the exchange offer and consent solicitation will be reduced" and "Upon the execution of the supplemental indenture and the consummation of the exchange offer and consent solicitation and the BCI preferred exchange offer, BCI will no longer be required to file reports with the SEC pursuant to the Exchange Act."
For more information about the procedures for tendering your notes in the exchange offer and consenting to the amendments in the consent solicitation, see "The Exchange Offer and Consent Solicitation."
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As of March 31, 2003 we had received commitments to tender and consent from holders of approximately 92.2% of the outstanding aggregate principal amount of the BCI 9% Notes.
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This summary highlights selected information from this prospectus and solicitation statement and may not contain all of the information that is important to you. To better understand the proposed exchange offer and consent solicitation, we urge you to read this entire document carefully, as well as those additional documents to which we refer you. See "Where You Can Find More Information."
Background of the Exchange Offer and Consent Solicitation
Beginning with our acquisition of BCI in November 1999, we have pursued a strategy of building an integrated high capacity communications network by using our financial resources to leverage BCI's strategic assets. We have used cash flow from our other businesses as well as borrowings under our credit facilities to finance the buildout and increase the capacity of BCI's national optical network, as well as to meet BCI's other cash needs.
In 2001, the business environment for BCI and the broader telecommunications industry deteriorated rapidly and significantly and currently remains weak. Factors contributing to this weakness include a generally weak U.S. economy, overcapacity in the broadband industry and continuing financial difficulties at companies in related industries, including many of BCI's telecommunications carrier customers.
In general, BCI has incurred substantial operating and net losses. To finance BCI's capital expenditure and operating activities, as well as its preferred stock dividends and repayments of long-term debt, we have made significant capital contributions and intercompany loans to BCI. As a result of those contributions and loans and the effects of a weak U.S. economy and telecommunications industry, we have become highly leveraged.
The Restructuring Plan and Recent Developments
In response to BCI's deteriorating financial results and concerns over our liquidity, in October 2002 we announced a five-point Restructuring Plan. The Restructuring Plan is intended to strengthen our financial position, maintain the strength and stability of our local telephone business, reduce the cash expenditures at BCI, facilitate the evaluation of strategic alternatives and reduce our debt balances over time. We have made substantial progress in implementing the Restructuring Plan. To date, we have entered into an agreement for the sale of our broadband business, secured additional sources of capital, amended our credit facilities, entered into a supplemental indenture amending the terms of our Convertible Subordinated Notes (as defined in "Description of Broadwing and BCI Indebtdness—Broadwing—Convertible Subordinated Notes") and are in the process of exchanging and retiring preferred stock and debt at BCI.
On February 22, 2003, we entered into an agreement to sell our broadband business by agreeing to sell substantially all of the assets of certain of BCI's operating subsidiaries to C III Communications, LLC and C III Communications Operations, LLC for approximately $129 million in cash, subject to certain purchase price adjustments, and the assumption of certain liabilities and operating contractual commitments. The sale is subject to customary closing conditions, including the approval by the Federal Communications Commission (the "FCC") and relevant state public utility commissions. After the completion of the sale the only remaining BCI subsidiaries with operating assets will be Broadwing Technology Solutions Inc., an information technology consulting subsidiary, and Broadwing Telecommunications Inc., a subsidiary whose assets service Cincinnati Bell's long distance business. We anticipate the first stage closing of the sale of our broadband business to be completed by the end of the second quarter of 2003.
On March 26, 2003, we received $350 million of gross cash proceeds from the issuance of 16% Senior Subordinated Discount Notes due 2009 (the "16% Notes") as part of the Goldman mezzanine
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financing (as defined in "Description of Broadwing and BCI Indebtedness—Broadwing—16% Senior Subordinated Discount Notes due 2009"). Also, as part of the Goldman mezzanine financing, we issued 17.5 million warrants, each to purchase one share of Broadwing Common Stock at $3.00 per share, to the purchasers of the 16% Notes. The 16% Notes indenture contains numerous restrictive covenants, including restrictions on our ability to make further investments or other cash infusions in BCI and its subsidiaries and certain corporate separateness covenants that require us to maintain legal and operational separation between BCI and its subsidiaries, on one hand, and Broadwing and its other subsidiaries, on the other hand.
On March 26, 2003, we permanently prepaid $220 million in borrowings under our term and revolving credit facilities and made a $90 million payment under our revolving credit facility with the net cash proceeds from the Goldman mezzanine financing and amended the terms of our credit facilities to provide us with greater liquidity for our operations. The amendment extended the maturity on our revolving credit facility from 2004 to 2006 and accelerated a portion of our term loan A facility from 2004 to 2003. However, like the 16% Notes indenture, the amendment imposes restrictions on our ability to make future investments or other cash infusions in BCI and its subsidiaries and includes certain corporate separateness covenants that require us to maintain legal and operational separation between BCI and its subsidiaries, on one hand, and Broadwing and its other subsidiaries, on the other hand. As of February 28, 2003, under the terms of the 16% Notes indenture and the terms of the our amended credit facilities, we had the ability to invest or otherwise provide an additional $58.4 million to BCI and its subsidiaries. The amendment also provided that BCI's subsidiary, Broadwing Communications Services Inc., will be prohibited from making any additional borrowings under the credit facilities.
On March 26, 2003, we executed a supplemental indenture in respect of the indenture governing the Convertible Subordinated Notes. The supplemental indenture amended certain terms governing the Convertible Subordinated Notes, including providing that the involuntary or voluntary bankruptcy of BCI or its subsidiaries will not constitute an event of default. The supplemental indenture also adjusted the rate of accretion to 9.00% per annum from March 26, 2003 through July 21, 2004 and to 2.25% per annum from July 21, 2004 to July 21, 2009 (during which period the Convertible Subordinated Notes bear cash interest at a rate of 63/4% per annum).
Concurrent with the exchange offer and consent solicitation, we are also offering to exchange (the "BCI preferred exchange offer") 14,148,518 shares of Broadwing Common Stock for the 395,210 outstanding shares of BCI Preferred Stock (as defined in "Description of Broadwing and BCI Indebtedness—BCI—121/2% Junior Exchangeable Preferred Stock"), or 35.8 shares of Broadwing Common Stock for each share of BCI Preferred Stock. The BCI preferred exchange offer is conditioned, among other things, upon us receiving tenders of 662/3% of the outstanding shares of BCI Preferred Stock. Holders of shares of the outstanding BCI Preferred Stock representing approximately 67.4% of the outstanding BCI Preferred Stock have already agreed to tender their shares and give their consents. The expiration date of the BCI preferred exchange offer is expected to be , 2003. If the BCI preferred exchange offer is completed, in connection therewith we will effect a merger of a newly-formed wholly owned subsidiary of Broadwing with and into BCI in which any remaining shares of BCI Preferred Stock not tendered in the BCI preferred exchange offer will be converted into the same number of shares of Broadwing Common Stock that holders of such shares would have received in the BCI preferred exchange offer. The consummation of the BCI preferred exchange offer is not a condition to the consummation of this exchange offer and consent solicitation.
Retirement of BCI 121/2% Notes
We intend to call BCI's remaining $0.8 million aggregate principal amount outstanding of 121/2% Senior Notes due 2005 on or prior to the completion of the exchange offer and consent solicitation. (as described in "Description of Broadwing and BCI Indebtedness—BCI—121/2% Senior Notes due 2005").
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See "Background of the Exchange Offer and Consent Solicitation—The Restructuring Plan and Recent Developments" for a more detailed discussion of the Restructuring Plan.
Consequences for BCI
BCI conducts substantially all of its operations through its subsidiaries and is dependent upon dividends or other intercompany transfers of funds from its subsidiaries in order to meet its obligations. After the completion of the sale of our broadband business, the only remaining BCI subsidiaries with operating assets will be Broadwing Technology Solutions Inc., an information technology consulting subsidiary, and Broadwing Telecommunications Inc., a subsidiary whose assets service Cincinnati Bell's long distance business. See "Unaudited Pro Forma Condensed Consolidated Financial Information—Broadwing Communications Inc." for BCI's pro forma results of operations and balance sheet after giving effect to the sale of our broadband business. However, upon the completion of the sale, BCI will retain substantial liabilities. There can be no assurances that BCI will be able to generate sufficient cash from its remaining operations or that additional sources of financing will be available to it, in light of the funding constraints described above, to enable it to service the substantial liabilities remaining after the sale of our broadband business or to fund its other liquidity needs.
Furthermore, there will be little or no remaining net cash proceeds from the sale of our broadband business to fund BCI's working capital, capital expenditures and other general corporate requirements. Under the amended terms of our credit facilities, the proceeds from the sale of our broadband business will be used to pay BCI's remaining liabilities and claims and current ordinary course operating expenses. Any remaining net proceeds will be applied 60% to prepay our credit facilities and 40% to pay certain of BCI's other obligations, provided that, in the event of a bankruptcy of BCI or any of its subsidiaries, 100% of any such remaining net proceeds must be applied to prepay our credit facilities. If there are any proceeds remaining after BCI's obligations have been satisfied, those amounts must be applied to pay down Broadwing's credit facilities.
In the past, we have made capital contributions and intercompany loans to BCI to finance BCI's operating activities and other obligations, including its preferred stock dividends and repayments of long-term debt. In 2002, BCI received intercompany loans from us of $23.3 million and capital contributions of $1.9 million. Currently, the 16% Notes indenture and the amended terms of the credit facilities restrict our ability to continue funding BCI and its subsidiaries. As of February 28, 2003, we had the ability to invest or otherwise provide an additional $58.4 million to BCI. The restrictions on our ability to fund BCI and its subsidiaries are described in "Description of Broadwing and BCI Indebtedness—Broadwing—16% Senior Subordinated Discount Notes due 2009." If BCI requires funds in excess of the amounts we are permitted to provide under the 16% Notes indenture and the amended terms of the credit facilities, there can be no assurances that the holders of the 16% Notes or the lenders under the credit facilities will consent to us providing additional money to allow BCI to meet its obligations. If we are unable to fund BCI going forward, BCI may explore alternative transactions or sources of financing, including borrowing money or raising equity capital. There can be no assurances that any such transactions could be consummated on acceptable terms, or at all.
As of March 26, 2003, BCI's subsidiary, Broadwing Communications Services Inc., had borrowed $223.0 million under our credit facilities. However, the amended terms of our credit facilities prohibit any additional borrowings by BCI or its subsidiaries, including Broadwing Communications Services Inc. Because BCI has relied on our credit facilities in the past to fund its operations, the restrictions on future borrowings might adversely affect BCI's ability to access sufficient cash to meet its obligations.
The uncertainty of future cash flows of BCI combined with the funding constraints discussed above have prompted PricewaterhouseCoopers LLP, BCI's independent accountants, to include a going concern explanatory paragraph in their report filed in connection with the stand-alone financial statements of BCI. The going concern explanatory paragraph means that, in the opinion of
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PricewaterhouseCoopers LLP, there exists substantial doubt about BCI's ability to continue as a going concern and its ability to realize its assets and discharge its liabilities in the normal course of business.
If BCI is unable to finance its operations or meet its remaining commitments going forward, it may be forced to seek protection from its creditors under Chapter 11.
See "Background of the Exchange Offer and Consent Solicitation—Consequences for BCI" for a more detailed discussion of the Restructuring Plan.
Reasons for the Exchange Offer and Consent Solicitation
The exchange offer and consent solicitation are an integral part of the Restructuring Plan. The Restructuring Plan and the sale of our broadband business will enable us to simplify our capital structure and focus on our remaining operations. The exchange offer and consent solicitation will improve our financial position and reduce remaining cash expenditures at BCI. The consent solicitation will eliminate all restrictive covenants in the indenture governing the BCI 9% Notes, thereby providing us with increased operational and financial flexibility in dealing with the remainder of BCI's assets and liabilities following the completion of the sale of our broadband business.
See "The Exchange Offer and Consent Solicitation—Reasons for and Purpose of the Exchange Offer and Consent Solicitation."
The Exchange Offer and Consent Solicitation
We are offering to exchange 241.06 shares of Broadwing Common Stock for each outstanding $1,000 aggregate principal amount of BCI 9% Notes validly tendered and not properly withdrawn prior to the expiration date. Because the number of shares of Broadwing Common Stock you will receive for each $1,000 aggregate principal amount of BCI 9% Notes is fixed, the value of the shares of Broadwing Common Stock at the time you receive them could be less than their value at the time you tender your BCI 9% Notes.
Assuming the exchange offer and consent solicitation are completed, all outstanding shares of BCI Preferred Stock are tendered and accepted for exchange pursuant to the BCI preferred exchange offer, and giving effect to the exercise of the 17.5 million warrants issued as part of the Goldman mezzanine financing, there would be 261,678,129 shares of Broadwing Common Stock outstanding on March 31, 2003. Based on this information, the former holders of BCI 9% Notes would hold approximately 4.2% of the outstanding shares of Broadwing Common Stock if the entire outstanding aggregate principal amount of BCI 9% Notes were validly tendered and accepted for exchange in the exchange offer.
We will retain all the BCI 9% Notes we receive in the exchange offer. You will not be paid any accrued and unpaid interest if you exchange your BCI 9% Notes pursuant to the exchange offer. Also, you will not receive any fractional shares. Instead, the exchange agent for the exchange offer, acting as your agent, will aggregate any fractional shares issuable and sell them for your account. The proceeds realized by the exchange agent on the sale of fractional shares will be distributed to you and the other tendering holders of BCI 9% Notes on a pro rata basis, net of commissions.
Concurrently with the exchange offer, we are also soliciting consents from holders of BCI 9% Notes to amendments to the indenture under which the notes were issued to eliminate all restrictive covenants. You may not deliver consents without tendering your BCI 9% Notes in the exchange offer. Your completion, execution and delivery of a consent and letter of transmittal will be deemed to constitute your consent to the proposed amendments with respect to the BCI 9% Notes tendered thereby unless such notes are properly withdrawn in the manner and during the periods described herein.
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The term "expiration date" means 5:00 p.m., New York City time, on , 2003, unless we extend the period of time for which the exchange offer and consent solicitation are open, in which case the term "expiration date" means the latest time and date on which the exchange offer and consent solicitation, as so extended, expire.
As of March 31, 2003, holders representing approximately 92.2% of the outstanding aggregate principal amount of BCI 9% Notes have agreed with us to tender their notes and give their consents. See "The Exchange Offer and Consent Solicitation—Exchange and Voting Agreement."
If the exchange offer and consent solicitation are not completed, we will evaluate our strategic alternatives regarding BCI. These may include the filing by BCI for protection under Chapter 11.
The proposed amendments to the indenture pursuant to which the BCI 9% Notes were issued will eliminate all restrictive covenants, including:
See "Annex A—Form of Supplemental Indenture."
Conditions to the Completion of the Exchange Offer and Consent Solicitation
Our obligation to complete the exchange offer and consent solicitation is subject to the following conditions described under "The Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation":
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Exchange and Voting Agreement
On March 24, 2003, we entered into an exchange and voting agreement with Harch Capital Management, Inc., Muzinich & Co. Credit and Allianz Investment Management, pursuant to which each of these holders of BCI 9% Notes agreed to tender all of their BCI 9% Notes and to consent to the amendments to the indenture governing the BCI 9% Notes. In addition, each party to the exchange and voting agreement agreed to use commercially reasonable efforts to complete the exchange offer and consent solicitation. In the aggregate, these holders own notes representing approximately 92.2% of the outstanding aggregate principal amount of BCI 9% Notes. See "The Exchange Offer and Consent Solicitation—Exchange and Voting Agreement."
Waiver and Release
Each holder of BCI 9% Notes by tendering and accepting Broadwing Common Stock pursuant to the exchange offer waives and releases Broadwing, BCI and their affiliates, and the respective directors, officers and employees of Broadwing, BCI and their affiliates from certain liabilities and claims against Broadwing, BCI or their affiliates, or against any of their respective officers, directors, employees and stockholders. See "The Exchange Offer and Consent Solicitation—Waiver and Release."
Certain Risk Factors
Investment in the Broadwing Common Stock issuable in the exchange offer involves a high degree of risk. In deciding whether to tender your notes pursuant to the exchange offer and deliver related consents pursuant to the consent solicitation, you should carefully read this prospectus and solicitation statement, including the risk factors, as well as the documents incorporated by reference into this prospectus and solicitation statement. See "Risk Factors" for a more complete discussion of these and other factors to consider in connection with the exchange offer and consent solicitation.
Trading Price Information
Broadwing Common Stock is quoted on the NYSE under the symbol "BRW," and the last traded price for Broadwing Common Stock on the NYSE on April 14, 2003 was $3.93 per share. You are urged to obtain current market quotations.
Timing of the Exchange Offer and Consent Solicitation
We hope to complete the exchange offer and consent solicitation concurrently with the first stage closing of the sale of our broadband business, which is anticipated to close by the end of the second quarter of 2003. Consequently, the exchange offer and consent solicitation are currently scheduled to expire on , 2003; however, we may extend the exchange offer and consent solicitation from time to time as necessary until all the conditions to the exchange offer and consent solicitation have been satisfied or, where permissible, waived. See "The Exchange Offer and Consent Solicitation—Extension, Termination and Amendment."
Extension, Termination and Amendment
We expressly reserve the right, in our sole discretion, at any time or from time to time, to extend the period of time during which the exchange offer and consent solicitation remain open if any condition to the exchange offer and consent solicitation has not been satisfied, and we can do so by giving oral notice followed by written notice of such extension to the exchange agent. If we decide to extend the exchange offer and consent solicitation, we will make an announcement to that effect no
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later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. We are not making any assurances that we will exercise our right to extend the exchange offer and consent solicitation, although we may do so until all conditions have been satisfied, or where permissible, waived. During any such extension, all BCI 9% Notes previously tendered and not properly withdrawn and all related consents previously given and not properly revoked will remain subject to the exchange offer and consent solicitation, respectively, subject to your right to withdraw your BCI 9% Notes and revoke the related consents.
Subject to the SEC's applicable rules and regulations, we also reserve the right, in our sole discretion, at any time or from time to time, (1) to delay our acceptance for exchange or our exchange of any BCI 9% Notes pursuant to the exchange offer, regardless of whether we previously accepted the BCI 9% Notes for exchange, or to terminate our exchange offer and not accept for exchange or exchange any BCI 9% Notes not previously accepted for exchange or exchanged, upon the failure of any of the conditions of the exchange offer and consent solicitation to be satisfied and (2) to waive any conditions (subject to the limitations on waivers described under "The Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation") or otherwise to amend the exchange offer and consent solicitation in any respect, by giving oral notice followed by written notice of such delay, termination or amendment to the exchange agent and by making a public announcement. We will follow any extension, termination, amendment or delay with a public announcement as promptly as practicable. In the case of an extension, any such announcement will be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. Subject to applicable law (including Rule 14d-4(d) and 14d-6(c) under the Exchange Act, which require that any material change in the information published, sent or given to the noteholders in connection with the exchange offer be promptly sent to noteholders in a manner reasonably designed to inform noteholders of such change) and without limiting the manner in which we may choose to make any public announcement, we assume no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service.
Exchange of BCI 9% Notes
Upon the terms and subject to the conditions of the exchange offer, we will accept for exchange, and will exchange, BCI 9% Notes validly tendered and not properly withdrawn as promptly as practicable after the expiration date. We will retain all the BCI 9% Notes we receive in the exchange offer.
Procedures For Tendering and Delivering Consents
To validly tender your BCI 9% Notes pursuant to the exchange offer and consent to the proposed amendments pursuant to the consent solicitation, you must either: (1) complete, execute and transmit a consent and letter of transmittal, along with any required signature guarantees, or an agent's message, in connection with a book-entry transfer, and any other required documents, to the exchange agent at the address set forth on the back cover of this prospectus and solicitation statement and certificates for tendered BCI 9% Notes must be received by the exchange agent at such address, or those BCI 9% Notes must be tendered pursuant to the procedures for book-entry tender set forth in "The Exchange Offer and Consent Solicitation" (and a confirmation of receipt of such tender received), in each case before the expiration date, or (2) comply with the guaranteed delivery procedures set forth in "The Exchange Offer and Consent Solicitation—Guaranteed Delivery." Holders of BCI 9% Notes tendered via book-entry or guaranteed delivery procedures will still be required to complete and execute the consent and letter of transmittal.
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Withdrawal of Tenders and Revocation of Consents
To withdraw your notes from the exchange offer and to revoke related consents from the consent solicitation, send a written or facsimile transmission notice of withdrawal to the exchange agent at the appropriate address specified on the back cover of this prospectus and solicitation statement prior to the expiration date. Your notice of withdrawal must comply as to form with the requirements set forth in this prospectus and solicitation statement. See "The Exchange Offer and Consent Solicitation—Withdrawal of Tenders and Revocation of Consents."
Exchange Agent and Dealer Manager and Solicitation Agent
Questions and requests for assistance may be directed to The Bank of New York, the exchange agent, or to Lehman Brothers, the dealer manager and solicitation agent, at their respective addresses and telephone numbers set forth on the back cover of this prospectus and solicitation statement. Requests for additional copies of this prospectus and solicitation statement and the consent and letter of transmittal may be directed to The Bank of New York or Lehman Brothers.
Accounting Treatment
Our acquisition of the BCI 9% Notes through the exchange offer will be accounted for as an extinguishment of debt. As such, there would be a gain or loss upon consummation of the exchange that will be recorded on the statement of operations of BCI and, through consolidation, Broadwing's statement of operations.
BCI will eliminate the BCI 9% Notes, with a carrying value of $46.0 million, from its balance of long-term debt and record a gain or loss in its statement of operations to the extent the carrying value of the BCI 9% Notes of $46.0 million, exceeds or is less than the fair value of Broadwing Common Stock issued in the exchange offer. The fair value of the Broadwing Common Stock issued in the exchange offer would be reflected as a payable to Broadwing on BCI's balance sheet. We will record a receivable from BCI in the amount of the fair value of Broadwing Common Stock issued in the exchange offer. We will also record an increase in additional paid-in capital to the extent the fair value of Broadwing Common Stock issued in the exchange offer exceeds its par value.
On a consolidated basis, long-term debt as reflected in BCI's balance sheet with a carrying value of $46.0 million will be eliminated and the amount of additional paid-in capital and par value of Broadwing Common Stock issued will increase by the fair value of the common stock issued upon consummation of the exchange. The difference between the carrying value of long-term debt eliminated and fair value of Broadwing Common Stock issued will be recorded as a gain or loss on the exchange in the statement of operations.
Consolidated Financial Data
For selected historical consolidated financial information concerning Broadwing and BCI for the five years ended December 31, 2002, see "Selected Historical Consolidated Financial Data." For unaudited condensed consolidated pro forma financial information concerning Broadwing and BCI (a) for the year ended December 31, 2002, giving effect to (1) the Goldman mezzanine financing, the amendment to the terms of our credit facilities and the supplemental indenture amending the terms of the Convertible Subordinated Notes, (2) the sale of our broadband business, (3) the exchange offer and (4) the BCI preferred exchange offer and (b) for the years ended December 31, 2001 and 2000, giving effect to the sale of broadband business only, see "Unaudited Pro Forma Condensed Consolidated Financial Information."
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Certain U.S. Federal Income Tax Considerations
The exchange of BCI 9% Notes for Broadwing Common Stock will be a taxable exchange for U.S. Federal income tax purposes. You will recognize gain or loss on the exchange equal to the difference between the fair market value of the Broadwing Common Stock (including fractional shares) exchanged for your BCI 9% Notes and your tax basis in the BCI 9% Notes surrendered in the exchange. For a further discussion of certain U.S. Federal income tax considerations relating to the exchange offer that might be applicable to you, see "Certain U.S. Federal Income Tax Considerations."
Regulatory Approvals
We may not complete the exchange offer and consent solicitation until the registration statement, of which this prospectus and solicitation statement is a part, is declared effective by the SEC. We are not aware of any other regulatory approvals necessary to complete the exchange offer and consent solicitation.
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In deciding whether to tender your notes pursuant to the exchange offer and deliver related consents pursuant to the consent solicitation, we urge you to read this prospectus and solicitation statement and the documents incorporated by reference into this prospectus and solicitation statement carefully. You should also consider the risk factors described below. These risks and uncertainties could result in a material adverse effect on our businesses, financial condition and results of operations and could result in a material decline in the trading price of the Broadwing Common Stock.
Risk Factors Related to the Exchange Offer and Consent Solicitation
Because the number of shares of Broadwing Common Stock that you receive in the exchange offer is fixed, the value of the shares of Broadwing Common Stock at the time you receive them could be less than their value at the time you tender your BCI 9% Notes.
In the exchange offer, each $1,000 aggregate principal amount of BCI 9% Notes will be exchanged for 241.06 shares of Broadwing Common Stock. This is a fixed exchange ratio. The exchange offer does not provide for an adjustment in the exchange ratio even if there is an increase or a decrease in the trading price of the Broadwing Common Stock between the date of this prospectus and solicitation statement and the expiration date of the exchange offer and consent solicitation. The trading price of the Broadwing Common Stock will likely be different on the date of the expiration of the exchange offer and consent solicitation than it is today because of ordinary trading fluctuations as well as changes in the business, operations or prospects of Broadwing, market reactions to the exchange offer and consent solicitation and the Restructuring Plan, possible other acquisitions or dispositions by us, general market and economic conditions and other factors. See "Stock Prices and Dividends."
The trading price of Broadwing Common Stock may be volatile; securities class actions during the time of such volatility may have a material impact on the financial condition and operating results of our business.
The trading price of Broadwing Common Stock may fluctuate substantially as a result of periodic variations in the actual or anticipated financial results of our businesses or of other companies in the telecommunications industry. In addition, the stock market has experienced price and volume fluctuations due to the general weakness in the U.S. economy and other factors that have affected the trading price of many telecommunications stocks. These fluctuations have sometimes been unrelated or disproportionate to the operating performance of these companies. Fluctuations such as these have affected and are likely to continue to affect the trading price of Broadwing Common Stock. In addition, many of the risks described below in "Risk Factors Related to the Business of Broadwing" and "Risk Factors Related to the Business of BCI" could materially and adversely affect the trading price of Broadwing Common Stock.
Furthermore, securities class actions have often been instituted against companies following periods of volatility and decline in the trading prices of such companies' securities. In 2002 and 2003, a number of putative class action and derivative lawsuits were filed against us and our officers and directors. These lawsuits allege violations of, inter alia, the securities laws and the Employee Retirement Income Security Act of 1974, as amended. We intend to defend these actions vigorously. However, such litigation could result in substantial costs and have a material impact on the financial condition and operating results of our business. We could be required to pay substantial damages, including compensatory damages, attorneys' fees and other costs, if we were to lose any of these lawsuits.
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The trading price of Broadwing Common Stock may decline due to future issuances of shares.
As of March 31, 2003, there were approximately 218,952,904 million shares of Broadwing Common Stock outstanding. Each depositary share representing one-twentieth of a share of our 63/4% Preferred Stock (as defined in "Description of Broadwing Capital Stock") may be redeemed at any time at the option of the holders, for 1.44 shares of Broadwing Common Stock, or 4,477,410 total shares, and our Convertible Subordinated Notes may be redeemed at the option of the holders for shares of Broadwing Common Stock at an initial conversion price of $29.89 per share, or 17,107,503 total shares, based on the accreted value of the Convertible Subordinated Notes as of March 31, 2003. In connection with the Goldman mezzanine financing, we issued 17,500,000 warrants, each to purchase one share of Broadwing Common Stock at $3.00 per share. These warrants are exercisable at any time until March 26, 2013. If the exchange offer is completed and the entire outstanding aggregate principal amount of BCI 9% Notes outstanding is tendered and accepted for exchange, we will issue an additional 11,076,707 shares of Broadwing Common Stock. If the BCI preferred exchange offer is completed and all outstanding shares of BCI Preferred Stock are tendered and accepted for exchange, we will issue an additional 14,148,518 shares of Broadwing Common Stock. In addition, our board of directors has approved the grant of options to purchase an aggregate of 50,000,000 shares to our employees, executives and directors and, as of March 31, 2003, options to purchase 36,487,000 shares have been issued and remain outstanding. The issuance or expected issuance of a large number of shares of Broadwing Common Stock (or unexercised warrants convertible into Broadwing Common Stock) at any time after the date of this prospectus and solicitation statement could negatively affect the trading price of Broadwing Common Stock.
Upon consummation of the exchange offer and consent solicitation, holders of BCI 9% Notes who tender their notes will become holders of Broadwing Common Stock; holders of BCI 9% Notes who tender their notes will lose their right to interest and principal payments with respect to their BCI 9% Notes.
We own a number of businesses other than BCI. Accordingly, as a holder of Broadwing Common Stock, you will be subject to the risks and liabilities affecting all of our businesses, as well as the risks and liabilities affecting BCI's businesses. The trading price of the Broadwing Common Stock could decline as a result of various factors, including the results of operations, financial condition and prospects of our businesses other than BCI.
Furthermore, holders of BCI 9% Notes who tender their notes will lose their rights to the payment of principal and interest on the BCI 9% Notes.
The sole director of BCI has potential conflicts of interest in the exchange offer, consent solicitation and the supplemental indenture; our board of directors has potential conflicts of interest in the exchange offer and consent solicitation.
You should be aware that certain significant conflicts of interest exist for the sole member of the BCI board of directors. Thomas L. Schilling, the sole member of the BCI board of directors, also serves as the Chief Financial Officer of Broadwing. Mr. Schilling's compensation is ultimately determined by the compensation committee of the Broadwing board of directors. In addition, on February 3, 2003, we entered into an amended employment agreement with Mr. Schilling, whereby Mr. Schilling was incentivized to sell our broadband business, amend the terms of the credit facilities and remain at Broadwing through the completion of our Restructuring Plan. If these objectives are achieved, Mr. Schilling will be entitled to a success bonus equal to 50% of the sum of his annual base salary plus his bonus target. We do not expect that the exchange offer and consent solicitation or the supplemental indenture will be evaluated by any independent directors of BCI. See "Relationship
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Between Broadwing and BCI—Relationship of Directors and Executive Officers of BCI with Broadwing."
You should also be aware that Broadwing's directors and executive officers have interests in the Restructuring Plan that are different from, or in addition to, or that might conflict with, the interests of the holders of the BCI 9% Notes. Kevin W. Mooney, who is both Chief Executive Officer and a director of Broadwing, also entered into an amended employment agreement with us, whereby Mr. Mooney was incentivized to sell our broadband business, amend the terms of the credit facilities and remain at Broadwing through the completion of our Restructuring Plan. If these objectives are achieved, Mr. Mooney will be entitled to a success bonus equal to 100% of the sum of his annual base salary plus his bonus target. Jeffrey C. Smith is the Chief Human Resources Officer, General Counsel and Corporate Secretary of Broadwing and is an executive officer of BCI. Mr. Smith also entered into an amended employment agreement with us, whereby he was incentivized to sell our broadband business, amend the terms of the credit facilities and remain at Broadwing through the completion of our Restructuring Plan. If these objectives are achieved, Mr. Smith will be entitled to a success bonus equal to 50% of the sum of his annual base salary plus his bonus target. In addition, both Mary E. McCann and John F. Cassidy are executive officers of both Broadwing and BCI. Our board of directors were aware of these interests and conflicts when it determined to approve the exchange offer and consent solicitation pursuant to the Restructuring Plan.
The proposed amendments to the indenture will eliminate many protections intended for the holders of BCI 9% Notes.
If the exchange offer and consent solicitation are completed, the proposed amendments to the indenture pursuant to which the BCI 9% Notes were issued will eliminate all restrictive covenants, including:
If the proposed amendments are adopted, the amended terms of the BCI 9% Notes will afford less protection to holders than that currently set forth in the indenture. If the exchange offer and consent solicitation are completed, each non-exchanging holder of BCI 9% Notes will be bound by the proposed amendments even if such holder did not consent to the proposed amendments.
Consents with respect to at least a majority in principal amount of the outstanding BCI 9% Notes must be received in order to amend the indenture under which the BCI 9% Notes were issued. As of March 31, 2003, holders of notes representing approximately 92.2% of the outstanding aggregate principal amount of BCI 9% Notes have agreed with Broadwing to tender their notes and give their
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consents. See "The Exchange Offer and Consent Solicitation—Exchange and Voting Agreement." Each non-exchanging holder of BCI 9% Notes will be bound by such amended indenture even if such holder did not give its consent.
The liquidity of BCI 9% Notes after the completion of the exchange offer and consent solicitation will be reduced.
If some holders of BCI 9% Notes do not elect to participate in the exchange offer there may be BCI 9% Notes outstanding after our acceptance of the notes tendered pursuant to the exchange offer.
The trading market for BCI 9% Notes outstanding immediately after the exchange offer could become limited or nonexistent due to the reduction in the amount of BCI 9% Notes outstanding after completion of the exchange offer. If a market for the unexchanged BCI 9% Notes exists after consummation of the exchange offer, the BCI 9% Notes may trade at a discount to the price at which they would trade if the exchange offer had not been consummated, depending on prevailing interest rates, the market for similar securities and other factors. We cannot assure you that an active market in the unexchanged BCI 9% Notes will exist or be maintained and cannot assure you as to the prices at which the unexchanged BCI 9% Notes may trade.
Upon the execution of the supplemental indenture and the consummation of the exchange offer and consent solicitation and the BCI preferred exchange offer, BCI will no longer be required to file reports with the SEC pursuant to the Exchange Act.
Pursuant to the terms of the indenture governing the BCI 9% Notes and the certificate of designation governing the BCI Preferred Stock, BCI is required to file periodic reports with the SEC as specified in Sections 13 and 15(d) of the Exchange Act. In connection with the BCI preferred exchange offer, we are also currently soliciting consents to amend the BCI Preferred Stock certificate of designation to eliminate BCI's periodic reporting requirements. Holders of shares representing at least 66-2/3% of the outstanding shares of BCI Preferred Stock must consent to an amendment of the BCI Preferred Stock certificate of designation, and as of March 31, 2003 holders of shares representing approximately of 67.4% of the outstanding shares of BCI Preferred Stock have already agreed to give their consents. Upon the effectiveness of the proposed amendments, the indenture governing the BCI 9% Notes will no longer require BCI to file reports with the SEC.
BCI's status as a non-filing company would limit the amount of information about BCI that would be required to be made publicly available under the Exchange Act and could have a negative impact on the trading market of any BCI 9% Notes outstanding after the completion of the exchange offer and consent solicitation.
An alternative to the exchange offer may be the filing by BCI for protection under Chapter 11.
If the exchange offer is not completed, BCI may be forced to seek an alternative to exchanging the BCI 9% Notes. BCI may considering filing for protection under Chapter 11, through which BCI's plan of reorganization could be on terms less favorable to holders of BCI 9% Notes than the terms of the exchange offer. In addition, there is a risk that distributions, if any, to holders of BCI 9% Notes under a liquidation or under a protracted and non-orderly restructuring would be substantially delayed and diminished.
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We do not intend to pay cash dividends on the Broadwing Common Stock in the foreseeable future.
We have not paid a dividend on the Broadwing Common Stock since 1999. We do not anticipate paying cash dividends on the Broadwing Common Stock in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, capital requirements, restrictions in our debt agreements, earnings and other factors deemed relevant by our board of directors. We cannot assure you that the agreements governing our current and future indebtedness will permit us to pay dividends on our common stock. See "Stock Prices and Dividends—Broadwing's Dividend Policy."
Anti-takeover provisions of Ohio General Corporation Law, our amended articles of incorporation and our rights agreement may affect the value of the Broadwing Common Stock.
Certain provisions of the Ohio General Corporation Law may discourage or prevent a third party from acquiring control of Broadwing. Such provisions may discourage bids for the Broadwing Common Stock at a premium over the trading price and may adversely affect the trading price and voting and other rights of the holders of Broadwing Common Stock.
Our amended articles of incorporation authorize our board of directors to issue Series A Preferred Stock in connection with our rights agreement. Under our rights agreement, rights attach to each share of Broadwing Common Stock outstanding and, when exercisable, entitle the registered holder to purchase from Broadwing one one-thousandth of a share of Broadwing Series A Preferred Stock. The issuance of Broadwing Series A Preferred Stock could make it more difficult for a third party to acquire us. We have no present plans to issue shares of Series A Preferred Stock. See "Description of Broadwing Capital Stock—Preferred Stock" and "Description of Broadwing Capital Stock—Anti-takeover Effects of Ohio Law" for a more complete description of our capitalization and the effects of the Ohio General Corporation Law on certain actions that we may take.
Risk Factors Related to the Business of Broadwing
Recent and expected losses.
We have reported a net loss of $377.1 million, $286.2 million and $4.2 billion for the years ended December 31, 2000, 2001 and 2002, respectively. The increase in net loss from 2001 to 2002 was due primarily to the pre-tax asset impairment charge of approximately $2.2 billion related to our broadband business, the establishment of a valuation allowance of $1.1 billion against certain Federal and State deferred tax assets and the $2.0 billion expense resulting from a change in accounting principle, net of taxes, related to the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". The decrease in net loss from 2000 to 2001 was due primarily to loss on investments of $356 million realized in 2000 offset partially by the restructuring charges we took in connection with our November 2001 restructuring plan, the depreciation associated with our optical network assets and certain asset impairment charges. There can be no assurance that we will return to profitability in the future. Failure to generate net income will have a material adverse effect on our ability to fulfill our obligations and on our business and prospects generally.
Our financial condition could be adversely affected if we are unable to realize fully our deferred tax assets.
As of December 31, 2002, we had total deferred tax assets of $1.196 billion, including a deferred tax asset of $288 million relating to $822 million of U.S. Federal net operating loss carryforwards and a deferred tax asset of $139 million relating to state and local net operating loss carryforwards. In addition, we had other deferred tax assets, principally related to the fourth quarter 2002 impairment charge related to our broadband business. As of December 31, 2002, a valuation allowance of
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$1,189 million was recorded against our total deferred tax assets of $1,196 million. For more information concerning our net operating loss carryforwards, deferred tax assets and valuation allowance, see Note 11 of Notes to Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended in December 31, 2002. Although we believe that we will be able to realize fully our deferred tax assets, if we were unable to do so, as a result of insufficient taxable income or otherwise, our business, financial condition and results of operations could be adversely affected.
We are highly leveraged.
We are highly leveraged and have significant debt service obligations. As of December 31, 2002, we had outstanding indebtedness of $2,558 million and a total shareholders' deficit of $2,548 million. As of December 31, 2002, we had the ability to borrow an additional $164 million under our revolving credit facility, subject to compliance with certain conditions. On March 26, 2003, we completed an amendment to our credit facilities, which included the extension of the maturity of our revolving credit facility from 2004 to 2006, and the acceleration of a portion of our term loan facilities from 2004 to 2003.
Our substantial debt could have important consequences to you, including the following:
Servicing indebtedness requires a significant amount of cash, and our ability to generate cash depends on many factors beyond our control.
We expect to obtain the cash to make payments on our credit facilities and other indebtedness and to fund working capital, capital expenditures and other general corporate requirements from our operations, additional sources of debt financing and borrowings under our credit facilities. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, additional sources of debt financing will be available to us or that future borrowings will be available to us under the credit facilities, in each case, in amounts sufficient to
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enable us to service our indebtedness or to fund our other liquidity needs. If we cannot service our indebtedness, we will have to take actions such as reducing or delaying capital expenditures, strategic acquisitions, investments and joint ventures, selling assets, restructuring or refinancing indebtedness or seeking additional equity capital, which may adversely affect our customers and affect their willingness to remain customers. We cannot assure you that any of these remedies could, if necessary, be effected on commercially reasonable terms, or at all. In addition, the terms of existing or future debt instruments may restrict us from adopting any of these alternatives.
Successful completion of our Restructuring Plan is critical to our success.
The Restructuring Plan is intended to strengthen our financial position, maintain the strength and stability of our local telephone business, reduce the cash expenditures at BCI, facilitate the evaluation of strategic alternatives and reduce our debt balances over time. To date, we have restructured BCI to reduce expenses, restructured Cincinnati Bell Telephone to realign sales and marketing, entered into an agreement for the sale of our broadband business, secured an additional source of capital, amended our credit facilities, entered into a supplemental indenture amending the terms of our Convertible Subordinated Notes and are in the process of exchanging and retiring debt and preferred stock at BCI. Nevertheless, there can be no assurances that the Restructuring Plan or any of the restructuring initiatives under the Restructuring Plan will be successful. The sale of our broadband business is expected to close in 2003, however, there can be no assurances that we will be able to complete the sale. Also, there can be no assurance that the exchange offer and consent solicitation or the BCI preferred exchange offer will be successfully completed. If we fail to successfully implement the Restructuring Plan, our business, financial condition and results of operations would be adversely affected.
There can be no assurances that Broadwing will be successful in its efforts to complete the sale of our broadband business; there will be little or no remaining cash proceeds from the sale of our broadband business to fund BCI's general corporate requirements.
On February 22, 2003, we entered into an agreement to sell our broadband business by agreeing to sell substantially all of the assets of certain of BCI's operating subsidiaries to C III Communications, LLC and C III Communications Operations, LLC for approximately $129 million in cash, subject to certain purchase price adjustments, and the assumption of certain liabilities and operating contractual commitments. The sale is subject to customary closing conditions, including the approval by the FCC and relevant state public utility commissions. See "Background of the Exchange Offer and Consent Solicitation—The Restructuring Plan and Recent Developments" for a description of additional conditions to the sale. The sale is expected to close in 2003, however, there can be no assurances that the sale of our broadband business will be completed on acceptable terms, or at all. If we are unable to complete this sale, BCI could face material adverse consequences, including bankruptcy. In addition, pursuant to the terms of the 16% Notes indenture and our amended credit facilities there are significant restrictions on our ability to make future investments or other cash infusions in BCI and its subsidiaries.
Furthermore, there will be little or no remaining net cash proceeds from the sale of our broadband business to fund BCI's working capital, capital expenditures and other general corporate requirements. Under the amended terms of our credit facilities, the proceeds from the sale of our broadband business will be used to pay BCI's remaining liabilities and claims and current ordinary course operating expenses. Any remaining net proceeds will be applied 60% to prepay our credit facilities and 40% to pay certain of BCI's other obligations, provided that, in the event of a bankruptcy of BCI or any of its subsidiaries, 100% of any such remaining net proceeds must be applied to prepay our credit facilities. If there are any proceeds remaining after BCI's obligations have been satisfied, those amounts must be applied to pay down Broadwing's credit facilities.
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We depend on the credit facilities to provide liquidity.
We depend on the credit facilities to provide for financing requirements in excess of amounts generated by operations.
In November 1999, we obtained credit facilities of $1.8 billion from a group of lending institutions. The credit facilities were increased to $2.1 billion in January 2000 and again to $2.3 billion in June 2001. Total availability under the credit facilities decreased to $1.825 billion as of December 31, 2002 following a $335 million prepayment of the outstanding term debt facilities in the first quarter of 2002 (with proceeds from the sale of substantially all of the assets of our Cincinnati Bell Directory subsidiary), $5 million in scheduled repayments of the term debt facilities and $135 million in scheduled amortization of the revolving credit facility.
On March 26, 2003, we completed an amendment to the credit facilities, which included the extension of the maturity on the revolving credit facility from 2004 to 2006, and the acceleration of a portion of the maturities on the term loan facilities from 2004 to 2003. As of March 26, 2003, the credit facilities consisted of $644 million in revolving credit maturing on March 1, 2006, $516 million in term loans from banking institutions maturing in various amounts in 2003 and 2004 and $444 million in term loans from non-banking institutions maturing in various amounts between 2003 and 2007.
However, the ability to borrow from the credit facilities is predicated on our and our subsidiaries' compliance with covenants that have been negotiated with the lenders. Failure to satisfy these covenants could severely constrain our ability to borrow under the credit facilities. As of December 31, 2002, Broadwing was in compliance with all of the covenants of the credit facilities.
The credit facilities and other indebtedness impose significant restrictions on us.
Our debt instruments impose, and the terms of any future debt may impose, operating and other restrictions. These restrictions will affect, and in many respects will limit or prohibit, among other things, our and our subsidiaries' ability to:
In addition, our credit facilities include other and more restrictive covenants and materially limit our ability to prepay other debt and preferred stock while debt under the credit facilities is outstanding. The agreements governing the credit facilities also require us to achieve specified financial and
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operating results and maintain compliance with specified financial ratios. We are highly leveraged and it is uncertain whether we will continue to remain in compliance with these agreements.
The restrictions contained in the terms of the credit facilities and our other debt instruments could:
A breach of any of these restrictive covenants or our inability to comply with the required financial ratios could result in a default under the credit facilities. See "—We depend on the credit facilities to provide liquidity" for a description of the effects of a default under the credit facilities.
Increased competition could affect profitability and cash flow.
There is substantial competition in the telecommunications industry. Competition may intensify due to the efforts of existing competitors to address difficult market conditions through reduced pricing, bundled offerings or otherwise, as well as a result of the entrance of new competitors and the development of new technologies, products and services. If we cannot offer reliable, value-added services on a price competitive basis in any of our markets, we could be adversely impacted by competitive forces. In addition, if we do not keep pace with technological advances or fail to respond timely to changes in competitive factors in the industry, we could lose market share or experience a decline in our revenue and profit margins.
Cincinnati Bell Telephone faces competition from other local exchange carriers, wireless services providers, interexchange carriers, cable providers and Internet access providers. We believe Cincinnati Bell Telephone will face greater competition as more competitors emerge and focus resources on the Greater Cincinnati metropolitan area.
Cincinnati Bell Wireless is one of six active wireless service providers in the Cincinnati and Dayton, Ohio metropolitan market areas, including Cingular, Sprint PCS, T-Mobile, Verizon and Nextel, all of which are nationally known. We anticipate that competition will cause the market prices for wireless products and services to decline in the future. Cincinnati Bell Wireless's ability to compete will depend, in part on its ability to anticipate and respond to various competitive factors affecting the telecommunications industry. Furthermore, there has been a trend in the wireless communications industry towards consolidation of wireless service providers through joint ventures, reorganizations and acquisitions. We expect this consolidation to lead to larger competitors who have greater resources or who offer more services than Cincinnati Bell Wireless.
Our other subsidiaries operate in a largely local or regional area, and each of these subsidiaries faces significant competition. Cincinnati Bell Any Distance's competitors include large national long-distance carriers such as AT&T Corp., WorldCom Inc. and Sprint Corporation. Cincinnati Bell Public Communications competes with several other public payphone providers, some of which are national in scope and offer lower prices for coin-based local calling services. Our payphone subsidiary, Cincinnati Bell Public Communications, has also continued to be adversely impacted by the growing popularity of wireless communications.
The effect of the foregoing competition could have a material adverse impact on our businesses, financial condition and results of operations. This could result in increased reliance of borrowed funds and could impact our ability to maintain our optical, wireline and wireless networks.
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Significant capital expenditures will be required to maintain the network.
Capital expenditures of $844 million in 2000 decreased to $649 million in 2001, and decreased again in 2002 to $176 million. We may incur significant additional capital expenditures as a result of unanticipated expenses, regulatory changes and other events that impact our business. If we fail to adequately maintain our networks or expand them to meet customer needs, there could be a material adverse impact on our business, financial condition and results of operations.
Regulatory initiatives may impact our profitability.
Several of our subsidiaries are subject to regulatory oversight of varying degrees at both the state and federal levels. A significant portion of Cincinnati Bell Telephone's revenue is derived from pricing plans that require regulatory overview and approval. Different interpretations by regulatory bodies may result in adjustments to revenue in future periods. In recent years, these regulated pricing plans have resulted in decreasing or fixed rates for some services. In the future, regulatory initiatives that would put us at a competitive disadvantage or mandate lower rates for our services could result in lower profitability and cash flow for us.
At the federal level, Cincinnati Bell Telephone is subject to the Telecommunications Act of 1996, including the rules subsequently adopted by the FCC to implement the 1996 Act, which we expect to impact Cincinnati Bell Telephone's in-territory local exchange operations in the form of greater competition.
At the state level, Cincinnati Bell Telephone conducts local exchange operations in portions of Ohio, Kentucky and Indiana and, consequently, is subject to regulation by the Public Utilities Commissions ("PUC") in those states. In Ohio, the PUC has concluded a proceeding to establish permanent rates that Cincinnati Bell Telephone can charge to competitive local exchange carriers for unbundled network elements, although some elements will remain subject to interim rates indefinitely. The Kentucky commission recently initiated a similar case to establish rates for unbundled network elements in Kentucky. The establishment of these rates is intended to facilitate market entry by competitive local exchange carriers. Cincinnati Bell Telephone is also subject to an Alternative Regulation Plan (the "plan") in Ohio. The current plan gives Cincinnati Bell Telephone pricing flexibility in several competitive service categories in exchange for its commitment to freeze certain basic residential service rates during the term of the plan. The term of the current plan will expire on June 30, 2003. On March 1, 2003, Cincinnati Bell Telephone filed a letter of intent with the PUC seeking to extend its current plan. Failure to obtain approval of a new plan with similar pricing flexibility could have an adverse impact on its operations.
Cincinnati Bell Wireless' FCC licenses to provide wireless services are subject to renewal and revocation. Although the FCC has routinely renewed wireless licenses in the past, we cannot be assured that challenges will not be brought against those licenses in the future. Revocation or non-renewal of Cincinnati Bell Wireless' licenses would result in lower operating results and cash flow for Broadwing.
There are currently many regulatory actions under way and being contemplated by federal and state authorities regarding issues that could result in significant changes to the business conditions in the telecommunications industry. No assurance can be given that changes in current or future regulations adopted by the FCC or state regulators, or other legislative, administrative, or judicial initiatives relating to the telecommunications industry, would not have a material adverse effect on our business, financial condition and results of operations.
Attracting and retaining highly qualified employees is necessary for competitive advantage.
We seek to achieve competitive advantage by hiring and retaining highly skilled personnel. We believe this is of particular importance in an industry that depends on innovation and execution in
23
order to attract and retain customers. If we fail to attract or retain these skilled personnel, our business, financial condition and results of operations could be materially impacted.
Our success depends on the introduction of new products and services.
Our success depends, in part, on being able to anticipate the needs of current and future enterprise, carrier and residential customers. We seek to meet these needs through new product introductions, service quality, technological superiority and the ability to bundle services together in packages that are attractive to our customers. If we fail to anticipate the needs of these customers or to introduce the new products and services necessary to attract or retain them, it would have a material adverse impact on our business, financial condition and results of operations.
Continuing softness in the U.S. economy is having a disproportionate effect in the telecommunications industry.
In 2001, the business environment for the telecommunications industry deteriorated significantly and rapidly and remains weak. This was primarily due to: the general weakness in the U.S. economy, which was exacerbated by the events of September 11, 2001, and concerns regarding terrorism; pressure on prices for broadband services due to substantial excess fiber capacity in most markets; and forecasted demand for broadband services not being realized as a result of the state of the economy, the bankruptcy or liquidation of a substantial number of Internet companies, and financial difficulties experienced by many telecommunications customers. We expect these trends to continue, including reduced business from financially troubled customers and downward pressure on prices due to reduced demand and overcapacity. If these trends do continue, there could be a material adverse impact on our business, financial condition and results of operations.
Terrorist attacks and other acts of violence or war may affect the financial markets and our business, financial condition and results of operations.
As a result of the September 11, 2001 terrorist attacks and subsequent events, there has been considerable uncertainty in world financial markets. The full effect of these events, as well as concerns about future terrorist attacks, on the financial markets is not yet known, but could adversely affect our ability to obtain financing on terms acceptable to us, or at all, to finance our capital expenditures or working capital.
Terrorist attacks may negatively affect our operations and financial condition. There can be no assurance that there will not be further attacks against the United States or U.S. businesses or armed conflict involving the United States. Additionally, the recent escalation in tensions between the United States and Iraq has resulted in U.S. military action in Iraq. Further terrorist attacks or other acts of violence or war may directly impact our physical facilities or those of our customers and vendors. These events could cause consumer confidence and spending to decrease or result in increased volatility in the United States and world financial markets and economy. They could result in an economic recession in the United States or abroad. Any of these occurrences could have a material adverse impact on our business, financial condition and results of operations.
We expect significant changes in the wireless communications industry.
The wireless communications industry is experiencing significant technological change. This includes the increasing pace of digital upgrades, evolving industry standards, ongoing improvements in the capacity and quality of digital technology, shorter development cycles for new products and changes in consumer needs and preferences. In addition, uncertainty exists as to the pace and extent that customer demand for wireless services will continue to increase. As a result, the prospects of our wireless business and those of the industry remain uncertain.
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Risk Factors Related to the Business of BCI
Several of the risk factors described above relating to the business of Broadwing also pertain to the business of BCI, including the ones entitled:
Other Risk Factors Related to the Business of BCI
In addition, the following risk factors also relate to the business of BCI.
BCI is highly leveraged.
BCI is highly leveraged and has significant debt service obligations. As of December 31, 2002, BCI had aggregate outstanding indebtedness of $1.738 billion and a total shareholders' deficit of $2.562 billion. Of BCI's debt outstanding as of December 31, 2002, $1.493 billion is debt owed to Broadwing.
BCI's substantial debt could have important consequences to you, including the following:
Servicing indebtedness requires a significant amount of cash, and BCI's ability to generate cash depends on many factors beyond its control; Broadwing's ability to finance BCI's operations is restricted.
BCI expects to obtain needed cash from operations and, to the limited extent still allowed under various credit documents, from third party borrowings and intercompany loans from Broadwing. BCI's ability to generate cash is also subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. BCI cannot assure you that its business will generate
25
sufficient cash flow from operations, additional sources of funding will be available to it, or that future borrowings will be available to it in amounts sufficient to enable it to service its indebtedness or to fund its other liquidity needs.
On March 26, 2003, we received $350 million of gross cash proceeds from the issuance of the 16% Notes as part of the Goldman mezzanine financing. The 16% Notes indenture contains numerous restrictions on the ability of Broadwing to make further investments in BCI. Specifically, under the 16% Notes indenture, Broadwing and its restricted subsidiaries may not (1) make any restricted payments to, (2) issue capital stock to, (3) make any investment in (including guaranteeing the obligations and purchasing assets for BCI), or (4) allow any tax reimbursement for the benefit of BCI beyond a certain amount. On March 26, 2003, we amended the terms of our credit facilities, which now also impose restrictions on our ability to make further investments in BCI under terms similar to those in the 16% Notes indenture.
In the past, we have made capital contributions and intercompany loans to BCI to finance BCI's operating activities and other obligations, including its preferred stock dividends and repayments of long-term debt. In 2002, BCI received intercompany loans from us of $23.3 million and capital contributions of $1.9 million. Because the 16% Notes indenture and the amended terms of the credit facilities have restricted our ability to continue funding BCI, as of February 28, 2003, we had the ability to invest an additional $58.4 million in BCI. If BCI requires funds in excess of the amounts permitted by the 16% Notes indenture and the amended terms of the credit facilities, there can be no assurances that the holders of the 16% Notes or the lenders under the credit facilities will consent to us investing additional money to allow BCI to meet its obligations.
As of March 26, 2003, BCI's subsidiary, Broadwing Communications Services Inc., had borrowed $223.0 million under our credit facilities. However, the amended terms of our credit facilities prohibit any additional borrowings by BCI or its subsidiaries. Because BCI has relied on our credit facilities in the past to fund its operations, the restrictions on future borrowings might adversely affect its ability to access sufficient cash to meet its obligations.
If we are unable to fund BCI going forward, and because Broadwing Communications Services Inc. can no longer borrow under our credit facilities, BCI may explore alternative transactions or sources of financing, including borrowing money or raising equity capital. There can be no assurances that any such transactions could be consummated on acceptable terms, or at all. The uncertainty of future cash flows of BCI combined with the funding constraints discussed above have prompted PricewaterhouseCoopers LLP, BCI's independent accountants, to include a going concern explanatory paragraph in their report filed in connection with the stand-alone financial statements of BCI. The going concern explanatory paragraph means that, in the opinion of PricewaterhouseCoopers LLP, there exists substantial doubt about BCI's ability to continue as a going concern and its ability to realize its assets and discharge its liabilities in the normal course of business. If BCI is unable to finance its operations or meet its remaining obligations going forward, it may be forced to seek protection from its creditors under Chapter 11.
BCI depends on the receipt of dividends or other intercompany transfers from its subsidiaries.
BCI conducts substantially all of its operations through its subsidiaries and substantially all of its operating assets are held directly by its subsidiaries. BCI will therefore be dependent upon dividends or other intercompany transfers of funds from these subsidiaries in order to make interest and principal payments on or redeem the BCI 9% Notes and to meet its other obligations. See "Unaudited Pro Forma Condensed Consolidated Financial Information—Broadwing Communications Inc." for BCI's pro forma results of operations and balance sheet after giving effect to the sale of the broadband business.
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Accordingly, in the event of the dissolution, bankruptcy, liquidation or reorganization of BCI, amounts may not be available for payments on the BCI 9% Notes until after the payment in full of the claims of creditors of its subsidiaries.
Increased competition could affect profitability and cash flow.
There is substantial competition in the telecommunications industry. Competition may intensify due to the efforts of existing competitors to address difficult market conditions through reduced pricing, bundled offerings or otherwise as a result of the entrance of new competitors and the development of new technologies, products and services. Price competition has been intense and may further intensify. If BCI cannot offer reliable, value-added services on a price competitive basis in any of its markets, it could be adversely impacted by competitive forces. In addition, if BCI does not keep pace with technological advances or fails to respond timely to changes in competitive factors in the industry, it could lose market share or experience a decline in its revenue and profit margins.
BCI faces significant competition from companies such as AT&T Corp., WorldCom Inc., Sprint Corporation, Level 3 Communications, Inc., Qwest Communications International Inc. and several emerging and recapitalized competitors. The significant capacity of these competitors could result in decreasing prices. In addition, some competitors are experiencing financial difficulties or are in bankruptcy reorganization. Competitors in financial distress or competitors emerging from bankruptcy with lower cost capital structures, substantial excess fiber capacity in most markets and forecasted demand for broadband services not being realized as a result of the state of the economic and financial difficulties experienced by many of BCI's telecommunications carriers' customers all could exacerbate downward pricing pressure in the telecommunications industry.
The effect of the foregoing competition could have a material adverse impact on BCI's businesses, financial condition and results of operations. This could result in increased reliance on borrowed funds and could adversely impact BCI's ability to maintain its optical network.
Network utilization is dependent on maintaining rights-of-way and permits.
The utilization of BCI's network depends on maintaining rights-of-way and required permits from railroads, utilities, governmental authorities and third-party landlords on satisfactory terms and conditions. BCI cannot guarantee that it will be able to maintain all of the existing rights and permits. Although BCI expects to maintain and renew existing agreements, the loss of a substantial number of existing rights and permits would have a material adverse impact on BCI's business, financial condition and results of operations. For portions of its network that BCI leases or purchases use rights from third parties, BCI must rely on such third parties' maintenance of all necessary rights-of-way and permits. Some agreements that BCI may rely on to use portions of other companies' networks could be terminated if associated rights-of-way were terminated.
Significant Capital Expenditures Will be Required to Maintain the Network.
Capital expenditures of $600 million in 2000 decreased to $472 million in 2001 and decreased again in 2002 to $65 million. BCI could incur significant additional capital expenditures as a result of unanticipated expenses, regulatory changes and other events that impact the business. If BCI fails to adequately maintain its networks to meet customer needs, there could be a material adverse impact on BCI's business, financial condition and results of operations.
BCI's broadband business relies, in part, on portions of others' networks.
BCI uses network resources owned by other companies for portions of its network. It obtains the right to use such network portions through both operating leases and IRU agreements in which it pays for the right to use such other companies' fiber assets and through agreements in which it exchanges
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the use of portions of its network for the use of portions of such other companies' networks. In several of those agreements, the counterparty is responsible for network maintenance and repair. In the event a counterparty to a lease, IRU or an exchange suffers financial distress or bankruptcy, BCI may not be able to enforce its rights to use such network assets or, even if it could continue to use such network assets, it could incur material expenses related to maintenance and repair. BCI also could incur material expenses if it was required to locate alternative network assets. BCI cannot assure you that it would be successful in obtaining reasonable alternative network assets if it needed them. Failure to obtain usage of alternative network assets, if necessary, could have a material adverse impact on BCI's business, financial condition and results of operations.
A significant portion of our revenue is derived from telecommunications carriers.
Eight of BCI's top ten customers, which as a group accounted for approximately 38% of its total revenue in 2002, are large telecommunications carriers. Several of BCI's customers have been impacted by negative industry trends. Four of BCI's largest customers, who accounted for approximately 14% of revenue in 2002 were in Chapter 11 bankruptcy proceedings. Non-IRU revenue from these customers approximated 7% of consolidated revenue in 2002. The remaining revenue from these customers, approximating 7% of consolidated revenue, was generated by the amortization of IRU agreements and the early termination of two IRUs, for which consideration had been previously received. In addition, interexchange carriers generated approximately 57% of the broadband business revenue in 2002. Most of BCI's arrangements with large customers do not provide it with guarantees that customer usage will be maintained at current levels. Industry pressures have caused telecommunications carriers to look aggressively for ways to cut costs, which has resulted in reduced demand and reduced prices. In addition, construction of their own facilities by certain of our customers, construction of additional facilities by competitors or further consolidation in the telecommunications industry involving our customers could lead such customers to reduce or cease their use of our network. To the extent these large customers cease to employ our network to deliver their services, or cannot pay outstanding accounts receivable balances, BCI could experience a material adverse impact on its business, financial condition and results of operations.
BCI depends on limited sources for some key network components.
Where possible and practical, BCI utilizes commercially available technologies and products from a variety of vendors. However, for example, BCI relies on one supplier, Corvis Corporation, for its advanced optical switching and transport equipment on the core of its long-haul network. There can be no assurance that BCI will be able to obtain such equipment from Corvis in the future. If BCI cannot obtain adequate replacement equipment or services from Corvis or an acceptable alternate vendor, it could experience a material adverse impact on its business, financial condition and results of operations. Corvis Corporation is also the majority owner of C III Communications, LLC, the entity that has entered into an agreement to purchase our broadband business. See "Background of the Exchange Offer and Consent Solicitation—The Restructuring Plan and Recent Developments" for a description of the sale of our broadband business.
Network failure and transmission delays and errors could expose us to potential liability.
BCI's network utilizes a variety of communication equipment, software, operating protocols and components of others' networks for the high-speed transmission of data and voice traffic among various locations. Such equipment, software and physical locations could malfunction, suffer physical damages or otherwise become impaired. BCI is held to high quality and delivery standards in its customer contracts. Network failures or delays in data delivery could cause service interruptions resulting in losses to its customers. Failures or delays could expose BCI to claims by its customers that could have a material impact on BCI's business, financial condition and results of operations.
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Risk Factors Related to the Business of BCI After the Sale of Our Broadband Business
Furthermore, an additional risk factor would relate to the business of BCI after the completion of the sale of our broadband business.
If the sale of our broadband business is completed, substantially all of the operating assets of certain of BCI's subsidiaries will have been sold and BCI will have retained substantial liabilities and contingent liabilities.
BCI conducts substantially all of its operations through its subsidiaries and is therefore dependent upon dividends or other intercompany transfers of funds from its subsidiaries in order to meet its obligations. After the completion of the sale of our broadband business, the only remaining BCI subsidiaries with operating assets will be Broadwing Technology Solutions Inc., an information technology consulting subsidiary, and Broadwing Telecommunications Inc., a subsidiary whose assets service Cincinnati Bell's long distance business. See "Unaudited Pro Forma Condensed Consolidated Financial Information—Broadwing Communications Inc." for BCI's pro forma results of operations and balance sheet after giving effect to the sale of our broadband business. Upon the completion of the sale of our broadband business, BCI will retain substantial liabilities. In addition, BCI will retain obligations related to its contingent liabilities, including an ongoing contract dispute over BCI's agreement to construct a fiber route system. Although we believe BCI is due significant amounts under the contract, the timing and outcome of this dispute is not currently predictable. For more information concerning this contingent liability, see Note 20 of Notes to Consolidated Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2002. The carrying value of the current and long-term liabilities to be retained totaled $1,643 million and $271 million, respectively, as of December 31, 2002.
Furthermore, there will be little or no remaining net cash proceeds from the sale of our broadband business to fund BCI's working capital, capital expenditures and other general corporate requirements. Under the amended terms of our credit facilities, the proceeds from the sale of our broadband business will be used to pay BCI's remaining liabilities and claims and current ordinary course operating expenses. Any remaining net proceeds will be applied 60% to prepay our credit facilities and 40% to pay certain of BCI's other obligations, provided that, in the event of a bankruptcy of BCI or any of its subsidiaries, 100% of any such remaining net proceeds must be applied to prepay our credit facilities. If there are any proceeds remaining after BCI's obligations have been satisfied, those amounts must be applied to pay down Broadwing's credit facilities. There can be no assurances that BCI will be able to generate sufficient cash from its remaining operations, that Broadwing will be able or willing to make intercompany loans to BCI or that additional sources of financing will be available to BCI to enable BCI to service the substantial liabilities remaining from the sale of our broadband business or to fund its other liquidity needs. If BCI is unable to fund its operations after the sale of substantially all of its operating assets, BCI may explore alternative transactions or sources of financing, including borrowing money or raising equity capital. There can be no assurances that any such transactions could be consummated on acceptable terms, or at all.
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This prospectus and solicitation statement contains "forward-looking" statements, as defined in federal securities laws including the Private Securities Litigation Reform Act of 1995, which are based on our (together with our majority-owned consolidated subsidiaries over which we exercise control) current expectations, estimates and projections. Statements that are not historical facts, including statements about the beliefs, expectations and future plans and strategies of Broadwing, are forward-looking statements. These include any statements regarding:
Actual results may differ materially from those expressed or implied in forward-looking statements. These statements involve potential risks and uncertainties, which include, but are not limited to:
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they were made. We do not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
For a further discussion of such risks, uncertainties and assumptions, see "Risk Factors." You are urged to consider these factors in evaluating the forward-looking statements.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We are providing the following information to assist you in analyzing the financial aspects of the exchange offer. We urge you to read all the information contained in the following table together with the historical financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the annual and other reports filed by Broadwing and BCI with the SEC and incorporated by reference into this prospectus and solicitation statement. See "Where You Can Find More Information."
Broadwing Inc.
The selected historical consolidated financial data as of December 31, 1998, 1999, 2000, 2001 and 2002 and for each of the years ended December 31, 1998, 1999, 2000, 2001 and 2002 have been derived from our audited consolidated financial statements and the related notes.
| |
1998 |
1999 |
2000 |
2001 |
2002 |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
(dollars in millions) |
||||||||||||||||
| Operating Data | |||||||||||||||||
| Revenue | $ | 791.6 | $ | 1,030.1 | $ | 1,973.7 | $ | 2,271.6 | $ | 2,155.9 | |||||||
| Operating expenses excluding restructuring and other charges (credits) | 655.6 | 921.0 | 1,978.1 | 2,247.3 | 2,011.4 | ||||||||||||
| Restructuring, impairment and other charges (credits)(a) | (1.1 | ) | 10.9 | (0.8 | ) | 245.4 | 2,238.0 | ||||||||||
| Operating income (loss) | 137.1 | 98.2 | (3.6 | ) | (221.1 | ) | (2,093.5 | ) | |||||||||
| Interest expense and other financing costs(b) | 24.1 | 61.6 | 163.6 | 168.1 | 164.2 | ||||||||||||
| Loss (gain) on investments(c) | — | — | 356.3 | (11.8 | ) | 10.7 | |||||||||||
| Income (loss) from continuing operations before income taxes, extraordinary items and cumulative effect of change in accounting principle | 83.3 | 25.4 | (584.9 | ) | (412.3 | ) | (2,325.5 | ) | |||||||||
| Net income (loss) | $ | 149.9 | $ | 31.4 | $ | (377.1 | ) | $ | (286.2 | ) | $ | (4,222.3 | ) | ||||
| Earnings (loss) per common share from continuing operations(d): | |||||||||||||||||
| Basic | $ | 0.41 | $ | 0.06 | $ | (1.95 | ) | $ | (1.50 | ) | $ | (11.18 | ) | ||||
| Diluted | $ | 0.40 | $ | 0.05 | $ | (1.95 | ) | $ | (1.50 | ) | $ | (11.18 | ) | ||||
| Dividends declared per common share | $ | 0.40 | $ | 0.20 | $ | — | $ | — | $ | — | |||||||
| Weighted average common shares outstanding (millions) | |||||||||||||||||
| Basic | 136.0 | 144.3 | 211.7 | 217.4 | 218.4 | ||||||||||||
| Diluted | 138.2 | 150.7 | 211.7 | 217.4 | 218.4 | ||||||||||||
Financial Position |
|||||||||||||||||
| Property, plant and equipment, net | $ | 697.8 | $ | 2,510.9 | $ | 2,978.6 | $ | 3,059.3 | $ | 867.9 | |||||||
| Total assets(e) | 1,041.8 | 6,505.4 | 6,477.6 | 6,312.0 | 1,467.6 | ||||||||||||
| Long-term debt(b) | 366.8 | 2,136.0 | 2,507.0 | 2,702.0 | 2,354.7 | ||||||||||||
| Total debt(b) | 553.0 | 2,145.2 | 2,521.0 | 2,852.0 | 2,558.4 | ||||||||||||
| Minority Interest(f) | — | 434.0 | 433.8 | 435.7 | 443.9 | ||||||||||||
| Redeemable preferred stock(g) | — | 228.6 | — | — | — | ||||||||||||
| Shareowners' equity (deficit)(e) | 142.1 | 2,132.8 | 2,021.5 | 1,678.4 | (2,548.3 | ) | |||||||||||
| Other Data | |||||||||||||||||
| Cash flow provided by operating activities | $ | 205.9 | $ | 314.3 | $ | 328.4 | $ | 259.5 | $ | 192.6 | |||||||
| Capital expenditures | 143.4 | 381.0 | 843.7 | 648.5 | 175.9 | ||||||||||||
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Broadwing Communications Inc.
The selected historical financial data as of December 31, 1998 and November 9, 1999 and for the year ended December 31, 1998 and the period from January 1 to November 9, 1999 have been derived from BCI's predecessor's, IXC Communications, Inc., audited financial statements and the related notes. The selected historical financial data as of December 31, 1999, 2000, 2001 and 2002 and for each of the period from November 10 to December 31, 1999 and the years ended December 31, 2000, 2001 and 2002 have been derived from BCI's audited financial statements and the related notes.
| |
Predecessor |
BCI |
||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
1998 |
Period from Jan. 1 to Nov. 9, 1999 |
Period from Nov. 10 to Dec. 31, 1999 |
2000 |
2001 |
2002 |
||||||||||||||
| |
(dollars in millions) |
|||||||||||||||||||
| Operating Data(a): | ||||||||||||||||||||
| Revenue | $ | 668.6 | $ | 568.2 | $ | 99.0 | $ | 1,004.6 | $ | 1,197.6 | $ | 1,068.1 | ||||||||
| Operating loss | (30.8 | ) | (214.1 | ) | (46.5 | ) | (225.7 | ) | (502.1 | ) | (2,437.6 | ) | ||||||||
| Loss (gain) on investments | — | 23.8 | — | 394.5 | (11.6 | ) | (0.2 | ) | ||||||||||||
| Loss before extraordinary item | (95.5 | ) | (281.0 | ) | (38.9 | ) | (463.3 | ) | (382.2 | ) | (2,533.7 | ) | ||||||||
| Extraordinary loss | (67.0 | ) | — | (6.6 | ) | — | — | — | ||||||||||||
| Cumulative effect of change in accounting principle(b) | — | — | — | — | — | 2,008.7 | ||||||||||||||
| Net loss | $ | (162.5 | ) | $ | (281.0 | ) | $ | (45.5 | ) | $ | (464.6 | ) | $ | (388.4 | ) | $ | (4,542.4 | ) | ||
Financial Position(a): |
||||||||||||||||||||
| Property, plant and equipment, net (c) | $ | 983.7 | $ | 1,726.4 | $ | 2,103.9 | $ | 2,182.0 | $ | 54.7 | ||||||||||
| Total assets | 1,748.2 | 5,147.2 | 4,994.2 | 4,977.8 | 239.1 | |||||||||||||||
| Total debt and capital lease obligations(d) | 693.0 | 1,046.2 | 1,057.1 | 1,563.5 | 1,737.9 | |||||||||||||||
| Redeemable preferred stocks(e) | 447.9 | 418.2 | 421.0 | 417.8 | 414.4 | |||||||||||||||
| Shareowner's equity (deficit)(f) | (72.5 | ) | 2,463.6 | 2,394.0 | 2,024.6 | (2,561.8 | ) | |||||||||||||
Other Financial data(a) |
||||||||||||||||||||
| Cash flow from operating activities | $ | 202.3 | $ | 71.5 | $ | 87.8 | $ | (32.7 | ) | $ | (111.4 | ) | $ | (94.9 | ) | |||||
| Capital Expenditures | 476.4 | 479.1 | 165.0 | 599.9 | 472.0 | 64.9 | ||||||||||||||
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We are providing the following information to assist you in analyzing the financial aspects of the exchange offer. We urge you to read all the information contained in the following table together with the historical financial statements and related notes contained in the annual and other reports filed by Broadwing and BCI with the SEC and incorporated by reference into this prospectus and solicitation statement. See "Where You Can Find More Information."
Broadwing Inc.
The following table sets forth our capitalization as of December 31, 2002 (1) on an actual basis, (2) as adjusted to give effect to our amendment and payment of a portion of our credit facilities, the Goldman mezzanine financing and the execution of a supplemental indenture to the indenture governing our Convertible Subordinated Notes (collectively, the "financing transactions"), (3) as further adjusted to give effect to the sale of our broadband business announced on February 22, 2003 (the "broadband sale"), (4) as further adjusted to give effect to the BCI preferred exchange offer (assuming all shares of BCI Preferred Stock are tendered and accepted for exchange) and (5) as further adjusted to give effect to the exchange offer being made by this prospectus and solicitation statement (assuming the entire outstanding aggregate principal amount of BCI 9% Notes are tendered and accepted for exchange). For a more detailed description of our capitalization, see "Description of Broadwing Capital Stock" and "Description of Broadwing and BCI Indebtedness." The following table is not adjusted to give effect to the proposed redemption of $0.8 million aggregate principal amount outstanding of BCI's 121/2% Senior Notes due 2005.
| |
As of December 31, 2002 |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
(dollars in millions) |
|||||||||||||||||
| |
Actual |
As adjusted for the financing transactions |
As adjusted for the financing transactions and the broadband sale |
As adjusted for the financing transactions, the broadband sale and the BCI preferred exchange offer |
As adjusted for the financing transactions, the broadband sale, the BCI preferred exchange offer and the exchange offer |
|||||||||||||
| Broadwing Inc. | ||||||||||||||||||
| Cash and cash equivalents: | $ | 44.9 | $ | 44.9 | $ | 174.2 | $ | 174.2 | $ | 174.2 | ||||||||
| Restricted cash | 7.0 | — | — | — | — | |||||||||||||
| Total debt (including current portion): | ||||||||||||||||||
| Revolving credit facility | 588.0 | 373.5 | 373.5 | 379.0 | 379.5 | |||||||||||||
| Term loan facilities | ||||||||||||||||||
| Term loan A | 569.1 | 516.2 | 516.2 | 516.2 | 516.2 | |||||||||||||
| Term loan B | 339.4 | 307.8 | 307.8 | 307.8 | 307.8 | |||||||||||||
| Term loan C | 151.6 | 137.5 | 137.5 | 137.5 | 137.5 | |||||||||||||
| Total credit facilities | 1,648.1 | 1,335.0 | 1,335.0 | 1,340.5 | 1,341.0 | |||||||||||||
71/4% Senior secured notes |
49.6 |
49.6 |
49.6 |
49.6 |
49.6 |
|||||||||||||
| Capital lease obligations and vendor financing | 41.6 | 41.6 | 38.6 | 38.6 | 38.6 | |||||||||||||
| Cincinnati Bell Telephone notes | 269.5 | 269.5 | 269.5 | 269.5 | 269.5 | |||||||||||||
| 16% notes | — | 302.5 | 302.5 | 302.5 | 302.5 | |||||||||||||
| 121/2% Senior notes (BCI) | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | |||||||||||||
| 9% Senior subordinated notes (BCI) | 46.0 | 46.0 | 46.0 | 46.0 | — | |||||||||||||
| Convertible subordinated notes | 502.8 | 502.8 | 502.8 | 502.8 | 502.8 | |||||||||||||
| Total debt | 2,558.4 | 2,547.8 | 2,544.8 | 2,550.3 | 2,504.8 | |||||||||||||
12.5% Preferred stock (BCI) |
414.4 |
414.4 |
414.4 |
— |
— |
|||||||||||||
Shareowners' deficit: |
||||||||||||||||||
| 63/4% Cumulative preferred stock | 129.4 | 129.4 | 129.4 | 129.4 | 129.4 | |||||||||||||
| Common shareowners' deficit | (2,677.7 | ) | (2,633.9 | ) | (2,194.7 | ) | (1,754.9 | ) | (1,708.5 | ) | ||||||||
| Total shareowners' deficit | (2,548.3 | ) | (2,504.5 | ) | (2,065.3 | ) | (1,625.5 | ) | (1,579.1 | ) | ||||||||
| Total capitalization | $ | 424.5 | $ | 457.7 | $ | 893.9 | $ | 924.8 | $ | 925.7 | ||||||||
33
Broadwing Communications Inc.
The following table sets forth BCI's capitalization as of December 31, 2002 (1) on an actual basis, (2) as adjusted to give effect to the broadband sale, (3) as further adjusted to give effect to the BCI preferred exchange offer (assuming all shares of BCI Preferred Stock are tendered and accepted for exchange) and (4) as further adjusted to give effect to the exchange offer being made by this prospectus and solicitation statement (assuming the entire outstanding aggregate principal amount of BCI 9% Notes are tendered and accepted for exchange). For a more detailed description of BCI's capitalization, see "Description of Broadwing Capital Stock" and "Description of Broadwing and BCI Indebtedness." The following table is not adjusted to give effect to the proposed redemption of $0.8 million aggregate principal amount outstanding of BCI's 121/2% Senior Notes due 2005.
| |
As of December 31, 2002 |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
(dollars in millions) |
||||||||||||||
| |
Actual |
As adjusted for the broadband sale |
As adjusted for the broadband sale and the BCI preferred exchange offer |
As adjusted for the broadband sale, the BCI preferred exchange offer and the exchange offer |
|||||||||||
| Broadwing Communications Inc. | |||||||||||||||
| Cash and cash equivalents: | $ | 2.9 | $ | 132.2 | $ | 132.2 | $ | 132.2 | |||||||
| Total debt (including current portion): | |||||||||||||||
| Total credit facilities | 193.0 | 193.0 | 193.0 | 193.0 | |||||||||||
| Intercompany payable to parent | 1,492.7 | 1,492.7 | 1,552.7 | 1,599.7 | |||||||||||
| Capital leases and vendor financing | 5.5 | 2.5 | 2.5 | 2.5 | |||||||||||
| 121/2% Senior notes (BCI) | 0.8 | 0.8 | 0.8 | 0.8 | |||||||||||
| 9% Senior subordinated notes (BCI) | 46.0 | 46.0 | 46.0 | — | |||||||||||
| Total debt | 1,738.0 | 1,735.0 | 1,795.0 | 1,796.0 | |||||||||||
12.5% Preferred stock |
414.4 |
414.4 |
— |
— |
|||||||||||
Shareowner's deficit: |
|||||||||||||||
| Common shareowner's deficit | (2,561.8 | ) | (2,122.6 | ) | (1,737.3 | ) | (1,737.4 | ) | |||||||
| Total shareowner's deficit | (2,561.8 | ) | (2,122.6 | ) | (1,737.3 | ) | (1,737.4 | ) | |||||||
Total capitalization |
$ |
(409.4 |
) |
$ |
26.8 |
$ |
57.7 |
$ |
58.6 |
||||||
34
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
We are providing the following information to assist you in analyzing the financial aspects of the exchange offer. We urge you to read all the information contained in this section together with the historical financial statements and related notes contained in the annual and other reports filed by Broadwing and BCI with the SEC and incorporated by reference into this prospectus and solicitation statement. See "Where You Can Find More Information."
Broadwing Inc.
The following unaudited pro forma condensed consolidated financial information reflects Broadwing's results of operations for the year ended December 31, 2002 and Broadwing's balance sheet as of December 31, 2002, after giving effect to all of the pro forma transactions described below. The unaudited pro forma statement of operations gives effect to the following transactions as if they had occurred on January 1, 2002, and the unaudited pro forma balance sheet as of December 31, 2002 gives effect to the following transactions as if they had occurred as of that date. In addition, the unaudited pro forma condensed consolidated financial information reflects Broadwing's results of operations for the years ended December 31, 2001 and December 31, 2000, after giving effect to only the broadband sale described below, as we expect to present the operations of our broadband business as a discontinued operation effective in the first quarter of 2003. The pro forma transactions include the following:
(a) The March 26, 2003 financing transactions, which included the following three items:
(1) Our receipt of $350 million of gross cash proceeds from the issuance of 16% Notes. The indenture governing the 16% Notes contains covenants, including restrictions on the Company's ability to fund the operations of BCI and its subsidiaries. Proceeds from the Goldman mezzanine financing, net of fees of $40 million related to the Goldman mezzanine financing and the amendment to our credit facilities, were used to pay down borrowings under the Company's credit facilities. In addition, purchasers of the 16% Notes received 17.5 million warrants, each to purchase one share of Broadwing Common Stock at $3.00 per share, which were valued at $47.5 million upon issuance.
(2) The amendment of our credit facilities which, among other things, extended the maturity on our revolving credit facility, accelerated the maturity of a portion of our term loan A facility, increased the interest rates, revised the financial covenants and allowed for the broadband sale.
(3) The execution of a supplemental indenture in respect of the indenture governing the Convertible Subordinated Notes. The supplemental indenture provides that a bankruptcy of BCI and its subsidiaries would not constitute an event of default, amends the definition of change of control by increasing the ownership threshold deemed to be a change of control from 20% of outstanding shares to 45% of outstanding shares and includes covenants restricting our ability to incur debt and consummate certain asset dispositions. The supplemental indenture also adjusted the rate of accretion to 9.00% per annum from March 26, 2003 through July 21, 2004 and to 2.25% per annum from July 21, 2004 to July 21, 2009 (during which period the Convertible Subordinated Notes bear cash interest at a rate of 6.75% per annum payable semi-annually on January 21 and July 21 of each year, commencing on January 21, 2005).
(b) On February 22, 2003, we entered into a definitive agreement to sell our broadband business by agreeing to sell substantially all of the assets of certain of BCI's operating subsidiaries to C III Communications, LLC and C III Communications Operations, LLC, for approximately $129 million in cash, subject to certain purchase price adjustments, and the assumption of certain
35
liabilities and operating contractual commitments. The sale is subject to certain closing conditions, including approval by the FCC and relevant state public utility commissions. In addition, we have indemnified the buyers against certain potential claims. The fair value of such indemnifications has not been reflected in the unaudited pro forma condensed consolidated financial information, as the amount, if any, is expected to be immaterial. After the completion of the broadband sale, the only remaining BCI subsidiaries with operating assets will be Broadwing Technology Solutions Inc., an information technology consulting subsidiary, and Broadwing Telecommunications Inc., a subsidiary whose assets service Cincinnati Bell's long distance business. We anticipate the first stage closing of the broadband sale to be completed by the end of the second quarter of 2003. We will retain a 3% interest in the new company. This investment is not reflected in the unaudited pro forma condensed consolidated financial information because its value is not expected to be material. We expect to present the broadband business being sold as a discontinued operation effective in the first quarter of 2003.
(c) The BCI preferred exchange offer and the exchange offer, in connection with which we expect to issue approximately 25.2 million new shares of Broadwing Common Stock, an increase of 12% in the number of shares outstanding, assuming all shares of BCI Preferred Stock and the entire outstanding aggregate principal amount of BCI 9% Notes are tendered and accepted for exchange in the BCI preferred exchange offer and the exchange offer, respectively.
The unaudited pro forma condensed consolidated financial information does not reflect the intended call of BCI's remaining $0.8 million aggregate principal amount outstanding of 121/2% Senior Notes due 2005.
The unaudited pro forma condensed consolidated financial information presented includes the above items as the financing transactions occurred after the balance sheet date and are considered to be material to existing and potential investors; and the consummation of the broadband sale is probable based on the definitive agreements signed on February 22, 2003. In addition, consummation of the exchange offer and the BCI preferred exchange offer are contingent upon the first stage closing of the broadband sale.
The adjustments, which are based upon available information and upon assumptions that we believe to be reasonable, are described in the accompanying notes. The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and is not indicative of the operating results or financial position that would have occurred if the transactions described above had been completed on the dates indicated, nor is it indicative of future operating results or financial position if the transactions described above are completed.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical consolidated financial statements and the related notes incorporated by reference herein.
36
Broadwing Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(dollars in millions)
| |
Year Ended December 31, 2002 |
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Actual |
Adjustments for the financing transactions |
Adjustments for broadband sale |
Adjustments for BCI preferred exchange offer |
Adjustments for exchange offer |
Pro forma as adjusted |
|||||||||||||||
| Revenue | $ | 2,155.9 | $ | — | $ | (920.9 | )(b) | $ | — | $ | — | $ | 1,235.0 | ||||||||
| Costs and Expenses | |||||||||||||||||||||
| Cost of services and products (excluding depreciation included below) | 1,027.7 | — | (476.1 | )(b) | — | — | 551.6 | ||||||||||||||
| Selling, general and administrative | 487.4 | — | (270.1 | )(b) | — | — | 217.3 | ||||||||||||||
| Depreciation | 471.0 | — | (284.7 | )(b) | — | — | 186.3 | ||||||||||||||
| Amortization | 25.3 | — | (24.8 | )(b) | — | — | 0.5 | ||||||||||||||
| Restructuring | 37.1 | — | (32.5 | )(b) | — | — | 4.6 | ||||||||||||||
| Asset impairments and other | 2,200.9 | — | (2,180.6 | )(b) | — | — | 20.3 | ||||||||||||||
| Total costs and expenses | 4,249.4 | — | (3,268.8 | ) | — | — | 980.6 | ||||||||||||||
| Operating income (loss) | (2,093.5 | ) | — | 2,347.9 | — | — | 254.4 | ||||||||||||||
| Minority interest expense | 57.6 | — | 0.5 | (b) | (45.9 | )(d) | — | 12.2 | |||||||||||||
| Interest expense and other financing costs | 164.2 | 97.4 | (a) | — | — | (4.1 | )(c) | 257.5 | |||||||||||||
| Loss on investments | 10.7 | — | 0.2 | (b) | — | — | 10.9 | ||||||||||||||
| Other expense (income), net | (0.5 | ) | — | 1.1 | (b) | — | — | 0.6 | |||||||||||||
| Loss from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle | (2,325.5 | ) | (97.4 | ) | 2,346.1 | 45.9 | 4.1 | (26.8 | ) | ||||||||||||
| Income tax expense (e) | 105.7 | — | — | — | — | 105.7 | |||||||||||||||
| Loss from continuing operations before discontinued operations and cumulative effect of change in accounting principle | (2,431.2 | ) | (97.4 | ) | 2,346.1 | 45.9 | 4.1 | (132.5 | ) | ||||||||||||
| Preferred stock dividends | 10.4 | — | — | — | — | 10.4 | |||||||||||||||
| Numerator for EPS and EPS assuming dilution-loss applicable to common shareowners | $ | (2,441.6 | ) | $ | (97.4 | ) | $ | 2,346.1 | $ | 45.9 | $ | 4.1 | $ | (142.9 | ) | ||||||
| Basic Earnings (Loss) Per Common Share | |||||||||||||||||||||
| Loss from continuing operations | $ | (11.18 | ) | $ | (0.45 | ) | $ | 10.74 | $ | 0.20 | $ | 0.02 | $ | (0.59 | ) | ||||||
| Diluted Earnings (Loss) Per Common Share | |||||||||||||||||||||
| Loss from continuing operations | $ | (11.18 | ) | $ | (0.45 | ) | $ | 10.74 | $ | 0.20 | $ | 0.02 | $ | (0.59 | ) | ||||||
| Weighted Average Common Shares Outstanding (millions) (f) | |||||||||||||||||||||
| Basic | 218.4 | — | — | 14.1 | 11.1 | 243.6 | |||||||||||||||
| Diluted | 218.4 | — | — | 14.1 | 11.1 | 243.6 | |||||||||||||||
37
Broadwing Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(dollars in millions)
| |
Year Ended December 31, 2001 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Actual |
Adjustments for broadband sale |
Pro forma as adjusted |
|||||||||
| Revenue | $ | 2,271.6 | $ | (1,043.3 | )(b) | $ | 1,228.3 | |||||
| Costs and Expenses | ||||||||||||
| Cost of services and products (excluding depreciation included below) | 1,130.9 | (581.3 | )(b) | 549.6 | ||||||||
| Selling, general and administrative | 561.6 | (293.3 | )(b) | 268.3 | ||||||||
| Depreciation | 441.2 | (268.8 | )(b) | 172.4 | ||||||||
| Amortization | 113.6 | (110.7 | )(b) | 2.9 | ||||||||
| Restructuring | 93.4 | (72.7 | )(b) | 20.7 | ||||||||
| Asset impairments and other | 152.0 | (150.7 | )(b) | 1.3 | ||||||||
| Total costs and expenses | 2,492.7 | (1,477.5 | ) | 1,015.2 | ||||||||
| Operating Income (Loss) | (221.1 | ) | 434.2 | 213.1 | ||||||||
| Minority interest expense | 51.3 | 0.2 | (b) | 51.5 | ||||||||
| Equity loss in unconsolidated entities | 4.0 | (4.0 | )(b) | — | ||||||||
| Interest expense and other financing costs | 168.1 | — | 168.1 | |||||||||
| Gain on investments | (11.8 | ) | 11.6 | (b) | (0.2 | ) | ||||||
| Other income, net | (20.4 | ) | 0.4 | (b) | (20.0 | ) | ||||||
| Loss from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle | (412.3 | ) | 426.0 | 13.7 | ||||||||
| Income tax expense (benefit) | (96.5 | ) | 125.5 | (e) | 29.0 | |||||||
| Loss from continuing operations before discontinued operations and cumulative effect of change in accounting principle | (315.8 | ) | 300.5 | (15.3 | ) | |||||||
| Preferred stock dividends | 10.4 | — | 10.4 | |||||||||
| Numerator for EPS and EPS assuming dilution-loss applicable to common sharehowners | $ | (326.2 | ) | $ | 300.5 | $ | (25.7 | ) | ||||
Basic Earnings (Loss) Per Common Share |
||||||||||||
| Loss from continuing operations | $ | (1.50 | ) | $ | 1.38 | $ | (0.12 | ) | ||||
Diluted Earnings (Loss) Per Common Share |
||||||||||||
| Loss from continuing operations | $ | (1.50 | ) | $ | 1.38 | $ | (0.12 | ) | ||||
Weighted Average Common Shares Outstanding (millions)(f) |
||||||||||||
| Basic | 217.4 | — | 217.4 | |||||||||
| Diluted | 217.4 | — | 217.4 | |||||||||
38
Broadwing Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(dollars in millions)
| |
Year Ended December 31, 2000 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Actual |
Adjustments for broadband sale |
Pro forma as adjusted |
|||||||||
| Revenue | $ | 1,973.7 | $ | (926.1 | )(b) | $ | 1,047.6 | |||||
| Costs and Expenses | ||||||||||||
| Cost of services and products (excluding depreciation included below) | 939.0 | (503.8 | )(b) | 435.2 | ||||||||
| Selling, general and administrative | 579.6 | (308.9 | )(b) | 270.7 | ||||||||
| Depreciation | 346.0 | (196.0 | )(b) | 150.0 | ||||||||
| Amortization | 113.5 | (109.8 | )(b) | 3.7 | ||||||||
| Restructuring | (0.8 | ) | — | (0.8 | ) | |||||||
| Total costs and expenses | 1,977.3 | (1,118.5 | ) | 858.8 | ||||||||
| Operating Income (Loss) | (3.6 | ) | 192.4 | 188.8 | ||||||||
| Minority interest expense | 44.1 | 0.1 | (b) | 44.2 | ||||||||
| Equity loss in unconsolidated entities | 15.5 | (15.5 | )(b) | — | ||||||||
| Interest expense and other financing costs | 163.6 | — | 163.6 | |||||||||
| Loss (gain) on investments | 356.3 | (394.5 | )(b) | (38.2 | ) | |||||||
| Other expense, net | 1.8 | (0.3 | )(b) | 1.5 | ||||||||
| Loss from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle | (584.9 | ) | 602.6 | 17.7 | ||||||||
| Income tax expense (benefit) | (181.6 | ) | 203.1 | (e) | 21.5 | |||||||
| Loss from continuing operations before discontinued operations and cumulative effect of change in accounting principle | (403.3 | ) | 399.5 | (3.8 | ) | |||||||
| Preferred stock dividends | 8.1 | — | 8.1 | |||||||||
| Numerator for EPS and EPS assuming dilution-loss applicable to common shareowners | $ | (411.4 | ) | $ | 399.5 | $ | (11.8 | ) | ||||
Basic Earnings (Loss) Per Common Share |
||||||||||||
| Loss from continuing operations | $ | (1.95 | ) | $ | 1.89 | $ | (0.06 | ) | ||||
Diluted Earnings (Loss) Per Common Share |
||||||||||||
| Loss from continuing operations | $ | (1.95 | ) | $ | 1.89 | $ | (0.06 | ) | ||||
Weighted Average Common Shares Outstanding (millions)(f) |
||||||||||||
| Basic | 211.7 | — | 211.7 | |||||||||
| Diluted | 211.7 | — | 211.7 | |||||||||
39
Broadwing Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(dollars in millions)
| |
As of December 31, 2002 |
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Actual |
Adjustments for the financing transactions |
Adjustments for broadband sale |
Adjustments for BCI preferred exchange offer |
Adjustments for exchange offer |
Pro forma as adjusted |
|||||||||||||||
| Assets | |||||||||||||||||||||
| Current assets | |||||||||||||||||||||
| Cash and cash equivalents | $ | 44.9 | $ | — | $ | 129.3 | (l) | $ | — | $ | — | $ | 174.2 | ||||||||
| Restricted cash | 7.0 | (7.0 | )(i) | — | — | — | — | ||||||||||||||
| Receivables, less allowances | 290.6 | — | (93.5 | )(l) | — | — | 197.1 | ||||||||||||||
| Materials and supplies | 32.2 | — | — | — | — | 32.2 | |||||||||||||||
| Deferred income tax benefits | 11.3 | — | — | — | — | 11.3 | |||||||||||||||
| Prepaid expenses and other current assets | 23.8 | — | (9.2 | )(l) | — | — | 14.6 | ||||||||||||||
| Total current assets | 409.8 | (7.0 | ) | 26.6 | — | — | 429.4 | ||||||||||||||
Property, plant and equipment, net |
867.9 |
— |
(53.5 |
)(l) |
— |
— |
814.4 |
||||||||||||||
| Goodwill, net of accumulated amortization | 40.9 | — | — | — | — | 40.9 | |||||||||||||||
| Other intangibles, net | 66.9 | — | — | — | — | 66.9 | |||||||||||||||
| Other noncurrent assets | 82.1 | 40.2 | (g) | (6.9 | )(l) | — | — | 115.4 | |||||||||||||
| Total assets | $ | 1,467.6 | $ | 33.2 | $ | (33.8 | ) | $ | — | $ | — | $ | 1,467.0 | ||||||||
Liabilities and Shareowners' Deficit |
|||||||||||||||||||||
| Current liabilities | |||||||||||||||||||||
| Short-term debt | $ | 203.7 | $ | 90.4 | (h) | $ | (2.3 | )(l) | $ | — | $ | — | $ | 291.8 | |||||||
| Accounts payable | 129.4 | — | (59.4 | )(l) | — | — | 70.0 | ||||||||||||||
| Current portion of unearned revenue and customer deposits | 108.9 | — | (77.8 | )(l) | — | — | 31.1 | ||||||||||||||
| Accrued taxes | 84.4 | — | — | — | — | 84.4 | |||||||||||||||
| Accrued restructuring | 41.1 | — | — | — | — | 41.1 | |||||||||||||||
| Other current liabilities | 169.6 | — | (40.2 | )(l) | (30.9 | )(r) | (0.9 | )(m) | 97.6 | ||||||||||||
| Total current liabilities | 737.1 | 90.4 | (179.7 | ) | (30.9 | ) | (0.9 | ) | 616.0 | ||||||||||||
| Long-term debt, less current portion | 2,354.7 | (101.0 | )(i) | (0.7 | )(l) | 5.5 | (v) | (45.5 | )(n) | 2,213.0 | |||||||||||
| Unearned revenue, less current portion | 276.5 | — | (276.5 | )(l) | — | — | — | ||||||||||||||
| Deferred income tax liabilities | 37.2 | — | — | — | — | 37.2 | |||||||||||||||
| Other noncurrent liabilities | 166.5 | — | (16.1 | )(l) | — | — | 150.4 | ||||||||||||||
| Total liabilities | 3,572.0 | (10.6 | ) | (473.0 | ) | (25.4 | ) | (46.4 | ) | 3,016.6 | |||||||||||
| Minority interest | 443.9 | — | — | (414.4 | )(s) | — | 29.5 | ||||||||||||||
| Commitments and contingencies | — | — | — | — | — | — | |||||||||||||||
| Shareowners' Deficit | |||||||||||||||||||||
| 63/4% Cumulative Convertible Preferred Stock | 129.4 | — | — | — | — | 129.4 | |||||||||||||||
| Common shares, $.01 par value | 2.3 | — | — | 0.2 | (t) | 0.1 | (o) | 2.6 | |||||||||||||
| Additional paid-in capital | 2,365.1 | 47.5 | (j) | — | 445.1 | (u) | 46.9 | (p) | 2,904.6 | ||||||||||||
| Accumulated deficit | (4,885.6 | ) | (3.7 | )(k) | 439.2 | (l) | (5.5 | )(v) | (0.6 | )(q) | (4,456.2 | ) | |||||||||
| Accumulated other comprehensive loss | (13.8 | ) | — | — | — | — | (13.8 | ) | |||||||||||||
| Common shares in treasury, at cost: | (145.7 | ) | — | — | — | — | (145.7 | ) | |||||||||||||
| Total shareowners' deficit | (2,548.3 | ) | 43.8 | 439.2 | 439.8 | 46.4 | (1,579.1 | ) | |||||||||||||
| Total liabilities and shareowners' deficit | $ | 1,467.6 | $ | 33.2 | $ | (33.8 | ) | $ | — | $ | — | $ | 1,467.0 | ||||||||
40
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
Broadwing
41
42
43
Broadwing Communications Inc.
The following unaudited pro forma condensed consolidated financial information reflects BCI's results of operations for the year ended December 31, 2002 and BCI's balance sheet as of December 31, 2002, after giving effect to all of the pro forma transactions described below. The unaudited pro forma statement of operations gives effect to the following transactions as if they had occurred on January 1, 2002, and the unaudited pro forma balance sheet as of December 31, 2002 gives effect to the following transactions as if they had occurred as of that date. In addition, the unaudited pro forma condensed consolidated financial information reflects BCI's results of operations for the years ended December 31, 2001 and December 31, 2000, after giving effect to only the broadband sale described below, as we expect to present the operations of our broadband business as a discontinued operation effective in the first quarter of 2003. The pro forma transactions include the following:
(a) The March 26, 2003 amendment of our credit facilities which, among other things, extended the maturity on our revolving credit facility, accelerated the maturity of a portion of our term loan A facility, increased the interest rates, revised the financial covenants and allowed for the broadband sale.
(b) On February 22, 2003, we entered into a definitive agreement to sell our broadband business by agreeing to sell substantially all of the assets of certain of BCI's operating subsidiaries to C III Communications, LLC and C III Communication Operations, LLC for approximately $129 million in cash, subject to certain purchase price adjustments, and the assumption of certain liabilities and operating contractual commitments. The sale is subject to certain closing conditions, including approval by the FCC and relevant state public utility commissions. In addition, we have indemnified the buyers against certain potential claims. The fair value of such indemnifications has not been reflected in the unaudited pro forma condensed consolidated financial information, as the amount, if any, is expected to be immaterial. After the completion of the broadband sale, the only remaining BCI subsidiaries with operating assets will be Broadwing Technology Solutions Inc., an information technology consulting subsidiary, and Broadwing Telecommunications Inc., a subsidiary whose assets service Cincinnati Bell's long distance business. Broadwing anticipates the first stage closing of the broadband sale to be completed by the end of the second quarter of 2003. Broadwing will retain a 3% interest in the new company. This investment is not reflected in the unaudited pro forma condensed consolidated financial information because its value is not expected to be material. Broadwing expects to present the broadband business as a discontinued operation effective in the first quarter of 2003.
(c) The BCI preferred exchange offer and the exchange offer, in connection with which Broadwing expects to issue approximately 25.2 million new shares of Broadwing Common Stock, an increase of 12% in the number of shares outstanding, assuming all shares of BCI Preferred Stock and the entire outstanding aggregate principal amount of BCI 9% Notes are tendered and accepted for exchange in the BCI preferred exchange offer and the exchange offer, respectively.
The unaudited pro forma condensed consolidated financial information does not reflect the intended call of BCI's remaining $0.8 million aggregate principal amount of outstanding 12-1/2% Senior Notes due 2005.
The unaudited pro forma condensed consolidated financial information presented includes the above items as the financing transactions occurred after the balance sheet date and are considered to be material to existing and potential investors; and the consummation of the broadband sale is probable based on the definitive agreements signed on February 22, 2003. In addition, consummation of the BCI preferred exchange offer and the exchange offer are contingent upon the first stage closing of the broadband sale.
44
The adjustments, which are based upon available information and upon assumptions that we believe to be reasonable, are described in the accompanying notes. The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and is not indicative of the operating results or financial position that would have occurred if the transactions described above had been completed on the dates indicated, nor is it indicative of future operating results or financial position if the transactions described above are completed.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical consolidated financial statements and the related notes incorporated by reference herein.
45
BCI
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(dollars in millions)
| |
As of December 31, 2002 |
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Actual |
Adjustments for amendment of credit facilities |
Adjustments for broadband sale |
Adjustments for BCI preferred exchange offer(z) |
Adjustments for exchange offer |
Pro forma as adjusted |
|||||||||||||||
| Revenue | |||||||||||||||||||||
| Service revenue | $ | 950.6 | $ | — | $ | (900.0 | )(x) | $ | — | $ | — | $ | 50.6 | ||||||||
| Product revenue | 117.5 | — | (4.1 | )(x) | — | — | 113.4 | ||||||||||||||
| Total revenue | 1,068.1 | — | (904.1 | ) | — | — | 164.0 | ||||||||||||||
Costs and expenses |
|||||||||||||||||||||
| Cost of services (excluding depreciation included below) | 552.2 | — | (517.7 | )(x) | — | — | 34.5 | ||||||||||||||
| Cost of products | 103.4 | — | (1.9 | )(x) | — | — | 101.5 | ||||||||||||||
| Selling, general and administrative | 301.0 | — | (277.2 | )(x) | — | — | 23.8 | ||||||||||||||
| Depreciation | 291.1 | — | (284.7 | )(x) | — | — | 6.4 | ||||||||||||||
| Amortization | 24.8 | — | (24.8 | )(x) | — | — | — | ||||||||||||||
| Restructuring | 32.6 | — | (32.5 | )(x) | — | — | 0.1 | ||||||||||||||
| Asset impairments and other | 2,200.6 | — | (2,180.6 | )(x) | — | — | 20.0 | ||||||||||||||
| Total costs and expenses | 3,505.7 | — | (3,319.4 | ) | — | — | 186.3 | ||||||||||||||
| Operating loss | (2,437.6 | ) | — | 2,415.3 | — | — | (22.3 | ) | |||||||||||||
Interest expense and other financing costs |
71.6 |
1.9 |
(w) |
— |
— |
(4.1 |
)(y) |
69.4 |
|||||||||||||
| Gain on investments | (0.2 | ) | — | 0.2 | (x) | — | — | — | |||||||||||||
| Other income, net | (1.6 | ) | — | 1.6 | (x) | — | — | — | |||||||||||||
| Loss from operations before income taxes and cumulative effect of change in accounting principle | (2,507.4 | ) | (1.9 | ) | 2,413.5 | — | 4.1 | (91.7 | ) | ||||||||||||
| Income tax expense (kk) | 26.3 | — | — | — | — | 26.3 | |||||||||||||||
| Loss from operations before cumulative effect of change in accounting principle | $ | (2,533.7 | ) | $ | (1.9 | ) | $ | 2,413.5 | $ | — | $ | 4.1 | $ | (118.0 | ) | ||||||
46
BCI
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(dollars in millions)
| |
Year Ended December 31, 2001 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Actual |
Adjustments for broadband sale |
Pro forma as adjusted |
|||||||||
| Revenue | ||||||||||||
| Service revenue | $ | 1,070.7 | $ | (1,027.9 | )(x) | $ | 42.8 | |||||
| Product revenue | 126.9 | (14.4 | )(x) | 112.5 | ||||||||
| Total revenue | 1,197.6 | (1,042.3 | ) | 155.3 | ||||||||
Costs and expenses |
||||||||||||
| Cost of services (excluding depreciation included below) | 659.0 | (624.2 | )(x) | 34.8 | ||||||||
| Cost of products | 101.1 | (1.8 | )(x) | 102.9 | ||||||||
| Selling, general and administrative | 329.6 | (298.4 | )(x) | 31.2 | ||||||||
| Depreciation | 273.4 | (268.8 | )(x) | 4.6 | ||||||||
| Amortization | 110.7 | (110.7 | )(x) | — | ||||||||
| Restructuring | 73.9 | (72.7 | )(x) | 1.2 | ||||||||
| Asset impairments and other | 152.0 | (150.7 | )(x) | 1.3 | ||||||||
| Total costs and expenses | 1,699.7 | (1,523.7 | ) | 176.0 | ||||||||
Operating loss |
(502.1 |
) |
481.4 |
(20.7 |
) |
|||||||
Equity loss in unconsolidated entities |
4.0 |
(4.0 |
)(x) |
— |
||||||||
| Interest expense and other financing costs | 68.1 | — | 68.1 | |||||||||
| Gain on investments | (11.6 | ) | 11.6 | (x) | — | |||||||
| Other expense, net | — | 0.6 | (x) | 0.6 | ||||||||
| Loss from operations before income taxes and cumulative effect of change in accounting principle | (562.6 | ) | 473.2 | (89.4 | ) | |||||||
| Income tax benefit | (174.2 | ) | 142.4 | (kk) | (31.8 | ) | ||||||
| Loss from operations before cumulative effect of change in accounting principle | $ | (388.4 | ) | $ | 330.8 | $ | (57.6 | ) | ||||
47
BCI
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(dollars in millions)
| |
Year Ended December 31, 2000 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Actual |
Adjustments for broadband sale |
Pro forma as adjusted |
|||||||||
| Revenue | ||||||||||||
| Service revenue | $ | 939.0 | $ | (920.2 | )(x) | $ | 18.8 | |||||
| Product revenue | 65.6 | (13.1 | )(x) | 52.5 | ||||||||
| Total revenue | 1,004.6 | (933.3 | ) | 71.3 | ||||||||
Costs and expenses |
||||||||||||
| Cost of services (excluding depreciation included below) | 545.0 | (529.5 | )(x) | 15.5 | ||||||||
| Cost of products | 54.8 | (7.2 | )(x) | 47.6 | ||||||||
| Selling, general and administrative | 323.5 | (308.9 | )(x) | 14.6 | ||||||||
| Depreciation | 197.1 | (196.0 | )(x) | 1.1 | ||||||||
| Amortization | 109.9 | (109.8 | )(x) | 0.1 | ||||||||
| Restructuring | — | — | — | |||||||||
| Asset impairments and other | — | — | — | |||||||||
| Total costs and expenses | 1,230.3 | (1,151.4 | ) | 78.9 | ||||||||
| Operating loss | (225.7 | ) | 218.1 | (7.6 | ) | |||||||
Equity loss in unconsolidated entities |
15.5 |
(15.5 |
)(x) |
— |
||||||||
| Interest expense and other financing costs | 68.3 | — | 68.3 | |||||||||
| Loss on investments | 394.5 | (394.5 | )(x) | — | ||||||||
| Other expense, net | 1.9 | (0.3 | )(x) | 1.6 | ||||||||
| Loss from operations before income taxes and cumulative effect of change in accounting principle | (705.9 | ) | 628.4 | (77.5 | ) | |||||||
| Income tax benefit | (241.3 | ) | 212.9 | (kk) | (28.4 | ) | ||||||
| Loss from operations before cumulative effect of change in accounting principle | $ | (464.6 | ) | $ | 415.5 | $ | (49.1 | ) | ||||
48
BCI
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(dollars in millions)
| |
As of December 31, 2002 |
||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Actual |
Adjustments for amendment of credit facilities(aa) |
Adjustments for broadband sale |
Adjustments for BCI preferred exchange offer |
Adjustments for exchange offer |
Pro forma as adjusted |
|||||||||||||||
| Assets | |||||||||||||||||||||
| Current Assets | |||||||||||||||||||||
| Cash and cash equivalents | $ | 2.9 | $ | — | $ | 129.3 | (bb) | $ | — | $ | — | $ | 132.2 | ||||||||
| Receivables, less allowances | 162.0 | — | (93.5 | )(bb) | — | — | 68.5 | ||||||||||||||
| Prepaid expenses and other current assets | 12.5 | — | (9.2 | )(bb) | — | — | 3.3 | ||||||||||||||
| Total current assets | 177.4 | — | 26.6 | — | — | 204.0 | |||||||||||||||
| Property, plant and equipment, net | 54.7 | — | (53.5 | )(bb) | — | — | 1.2 | ||||||||||||||
| Other noncurrent assets | 7.0 | — | (6.9 | )(bb) | — | — | 0.1 | ||||||||||||||
| Total Assets | $ | 239.1 | $ | — | $ | (33.8 | ) | $ | — | $ | — | $ | 205.3 | ||||||||
Liabilities and Shareowner's Deficit |
|||||||||||||||||||||
| Current Liabilities | |||||||||||||||||||||
| Current portion of long-term debt | $ | 4.8 | $ | — | $ | (2.3 | )(bb) | $ | — | $ | — | $ | 2.5 | ||||||||
| Intercompany payable to Parent Company, net | 1,492.7 | — | — | 60.0 | (gg) | 47.0 | (cc) | 1,599.7 | |||||||||||||
| Accounts payable | 62.8 | — | (59.4 | )(bb) | — | — | 3.4 | ||||||||||||||
| Accrued service cost | 32.7 | — | (32.7 | )(bb) | — | — | — | ||||||||||||||
| Accrued taxes | 52.0 | — | — | — | — | 52.0 | |||||||||||||||
| Accrued restructuring | 39.9 | — | — | — | — | 39.9 | |||||||||||||||
| Current portion of unearned revenue and customer deposits | 77.8 | — | (77.8 | )(bb) | — | — | — | ||||||||||||||
| Other current liabilities | 59.6 | — | (7.5 | )(bb) | (30.9 | )(hh) | (0.9 | )(dd) | 20.3 | ||||||||||||
| Total current liabilities | 1,822.3 | — | (179.7 | ) | 29.1 | 46.1 | 1,717.8 | ||||||||||||||
| Long-term debt, less current portion | 240.5 | — | (0.7 | )(bb) | — | (46.0 | )(ee) | 193.8 | |||||||||||||
| Unearned revenue, less current portion | 290.7 | — | (290.7 | )(bb) | — | — | — | ||||||||||||||
| Other noncurrent liabilities | 33.0 | — | (1.9 | )(bb) | — | — | 31.1 | ||||||||||||||
| Total liabilities | 2,386.5 | — | (473.0 | ) | 29.1 | 0.1 | 1,942.7 | ||||||||||||||
| 121/2% Junior Exchangeable Preferred Stock; $.01 par value | 414.4 | — | — | (414.4 | )(ii) | — | — | ||||||||||||||
| Commitments and contingencies | — | — | — | — | — | — | |||||||||||||||
| Shareowner's Deficit | |||||||||||||||||||||
| Common stock, $0.01 par value; 100,000,000 shares authorized; 500,000 shares issued and outstanding at December 31, 2002 and 2001 | — | — | — | — | — | — | |||||||||||||||
| Additional paid-in capital | 2,879.1 | — | — | 385.3 | (jj) | — | 3,264.4 | ||||||||||||||
| Accumulated deficit | (5,440.9 | ) | — | 439.2 | (bb) | — | (0.1) | (ff) | (5,001.8 | ) | |||||||||||
| Total shareowner's deficit | (2,561.8 | ) | — | 439.2 | 385.3 | (0.1 | ) | (1,737.4 | ) | ||||||||||||
| Total Liabilities and Shareowner's Deficit | $ | 239.1 | $ | — | $ | (33.8 | ) | $ | — | $ | — | $ | 205.3 | ||||||||
49
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
Broadwing Communications Inc.
50
51
The stock price and dividend information should be read in conjunction with the audited and unaudited historical financial statements of Broadwing and BCI, including the related notes, incorporated by reference into this prospectus and solicitation statement, and "Selected Historical Consolidated Financial Data." See "Where You Can Find More Information."
Broadwing Common Stock is listed on the NYSE. Broadwing Common Stock trades under the symbol "BRW." The following table shows, for the calendar quarters indicated, based on published financial sources (1) the high and low sales prices per share of Broadwing Common Stock as reported on the New York Stock Exchange Composite Transaction Tape and (2) the cash dividends per share of Broadwing Common Stock.
| |
Broadwing Common Stock |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| |
High |
Low |
Dividend |
||||||
| 2002: | |||||||||
| First Quarter | $ | 10.55 | $ | 5.55 | — | ||||
| Second Quarter | 8.60 | 2.09 | — | ||||||
| Third Quarter | 3.43 | 1.80 | — | ||||||
| Fourth Quarter | 4.26 | 1.15 | — | ||||||
2003: |
|||||||||
| First Quarter | $ | 4.95 | $ | 3.43 | — | ||||
At April 14, 2003, the last reported closing prices per share of Broadwing Common Stock was $3.93. The trading price of shares of Broadwing Common Stock is subject to fluctuation. You are urged to obtain current market quotations.
At March 31, 2003, there were approximately 94,000 holders of record of Broadwing Common Stock.
Broadwing's Dividend Policy
The holders of Broadwing Common Stock receive dividends if and when declared by our board of directors out of legally available funds. We have not paid a dividend on Broadwing Common Stock since 1999 and do not anticipate paying dividends on Broadwing Common Stock in the foreseeable future. Furthermore, our future ability to pay dividends is restricted by certain covenants and agreements pertaining to outstanding indebtedness.
52
BACKGROUND OF THE EXCHANGE OFFER AND CONSENT SOLICITATION
Beginning with our acquisition of BCI in November 1999, we have pursued a strategy of building an integrated high capacity communications network by using our financial resources to leverage BCI's strategic assets. Since that time we have used cash flow from our Cincinnati Bell Telephone and Cincinnati Bell Wireless businesses, as well as borrowings under our credit facilities, to finance the buildout and increase the capacity of BCI's national optical network and to meet BCI's other cash needs, including cash used in operating and financing activities.
In 1999, 2000 and 2001, capital expenditures by BCI in connection with the buildout of its network were $644.1 million ($479.1 million of which were made prior to our acquisition of BCI), $599.9 million and $472.0 million, respectively. By the end of 2001, BCI had largely completed the buildout of its network. For 2002, capital expenditures by BCI were $64.9 million, primarily reflecting the maintenance and optimization of BCI's network.
Beginning in 2001, the business environment for BCI and the broader telecommunications industry deteriorated significantly and rapidly and currently remains weak. This was primarily due to: the general weakness in the U.S. economy, which was exacerbated by the events of September 11, 2001, and concerns regarding terrorism; pressure on prices for broadband services due to substantial excess fiber capacity in most markets, and forecasted demand for broadband services not being realized as a result of the state of the economy, the bankruptcy or liquidation of a substantial number of Internet companies, and financial difficulties experienced by many of BCI's telecommunications carrier customers.
Prior to and since our acquisition of BCI, BCI has incurred substantial operating and net losses and used cash in operating activities. In 2000 and 2001, BCI had operating losses of $225.7 million and $502.1 million, respectively, net losses of $464.6 million and $388.4 million, respectively, and net cash used in operating activities of $32.7 million and $111.4 million, respectively. For 2002, BCI had operating losses of $2.4 billion and net losses of $4.5 billion and net cash used in operating activities of $94.9 million. BCI's operating and net losses in 2001 and 2002 included charges relating to restructuring plans of $73.9 million and $32.6 million, respectively. In addition, in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," as a result of, among other things, the deterioration of BCI's business described above, we determined that the goodwill of BCI was impaired as of January 1, 2002 and we recorded an impairment charge of $2.0 billion, net of taxes, in the second quarter of 2002. In addition, in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets", we recorded a noncash pre-tax asset impairment charge of approximately $2.2 billion relating to BCI in the results for the fourth quarter.
To finance BCI's capital expenditures and operating activities, as well as its preferred stock dividends and repayments of long-term debt, we have made capital contributions and intercompany loans to BCI. We have financed these capital contributions and intercompany loans from cash flow from our Cincinnati Bell Telephone and Cincinnati Bell Wireless businesses, as well as through borrowings under our credit facilities. In 2000 and 2001, BCI received intercompany loans from us of $532.7 million and $479.5 million, respectively, received capital contributions from us of $520.5 million and $65.3 million, respectively, and made direct borrowings under our credit facilities of $0 and $42.0 million, respectively. For 2002, BCI received intercompany loans from us of $23.3 million, received $1.9 million in capital contributions from us, and made borrowings under our credit facilities of $151.0 million. As of December 31, 2002, $1.5 billion was outstanding under the intercompany note from us to BCI. As a result of those loans and the effects of a weak U.S. economy and telecommunications industry, we ourselves are highly leveraged.
53
The Restructuring Plan and Recent Developments
In response to BCI's deteriorating financial results and concerns over our liquidity, in October 2002 we announced our five-point Restructuring Plan. The Restructuring Plan is intended to strengthen our financial position, maintain the strength and stability of our local telephone business, reduce the cash expenditures at BCI, facilitate the evaluation of strategic alternatives and reduce our debt balances over time. We have made substantial progress in implementing the Restructuring Plan. To date, we have entered into an agreement for the sale of our broadband business, secured additional sources of capital, amended our credit facilities, entered into a supplemental indenture amending the terms of our Convertible Subordinated Notes and are in the process of exchanging and retiring debt and preferred stock at BCI.
To this end, on October 29, 2002, we announced our intention to restructure BCI to reduce its expenses by approximately $200.0 million per year and enable it to become cash flow positive. To date we have targeted telecommunication line cost reductions of 25% over a six-month period through network grooming, optimization, and rate negotiations; reduced BCI's workforce by 500 positions; and significantly reduced activity related to BCI's unprofitable wholesale international voice business. In addition, Cincinnati Bell Telephone initiated a restructuring to realign sales and marketing to better focus on enterprise customers. The plan includes initiatives to reduce the workforce by approximately 38 positions. We recorded a restructuring charge of approximately $15 million during the fourth quarter of 2002 related to employee severance benefits and contract terminations.
In addition, below is a summary of recent developments in connection with our Restructuring Plan.
Sale of our broadband business
On February 22, 2003, we entered into a definitive agreement (the "purchase agreement") to sell our broadband business by agreeing to sell substantially all of the operating assets of certain of BCI's operating subsidiaries (the "BCI selling subsidiaries") to C III Communications, LLC and C III Communications Operations, LLC (the "buyers") for approximately $129 million in cash, subject to certain purchase price adjustments, and the assumption of certain liabilities and operating contractual commitments. The $129 million purchase price will be decreased if (1) certain cash net revenue and cash EBITDA minus capital expenditures targets set forth in the purchase agreement are not met, up to a maximum decrease of $14.3 million, or (2) certain specified accounts receivables are not collected as set forth in the purchase agreement, up to a maximum decrease of $7.5 million. Furthermore, the $129 million purchase price will be increased or decreased based on the level of working capital, or current assets minus current liabilities, of the BCI selling subsidiaries at the first stage closing (as defined below) and the second stage closing (as defined below). In connection with the foregoing purchase price adjustments, $13.75 million of the $129 million purchase price will be deposited in escrow accounts pursuant to the purchase agreement and certain escrow agreements. In addition, pursuant to the purchase agreement, $23.11 million of the $129 million purchase price will be deposited in an escrow account pending the second stage closing.
We will retain a 3% interest in the new company and will account for our investment in that company as a cost-based investment. The carrying value of the current and long-lived assets to be purchased totaled $102.7 million and $60.4 million, respectively, as of December 31, 2002. The carrying value of the current and long-term liabilities to be assumed totaled $179.7 million and $293.2 million, respectively, as of December 31, 2002. We anticipate the first stage closing of the sale of our broadband business to be completed by the end of the second quarter of 2003.
The sale of our broadband business will be completed in two stages. The first stage closing will take place when the BCI selling subsidiaries obtain FCC and state public utility commission consents necessary to effectuate the transfer of customer contracts that generate at least 80% of the revenues of
54
the BCI selling subsidiaries' businesses being sold (the "first stage closing"). Each party's obligation to effect the first stage closing is subject to the satisfaction or waiver of the following condition:
The obligations of the buyers to effect the first stage closing are subject to the satisfaction or waiver of the following conditions:
The obligations of the BCI selling subsidiaries to effect the first stage closing are subject to the satisfaction or waiver of the following conditions:
55
The second stage closing will take place after the last FCC and the last state public utility commission consents necessary to effectuate the transfer of customer contracts have been obtained (the "second stage closing"). The respective obligations of the buyers and the BCI selling subsidiaries to effect the second stage closing are subject to:
The purchase agreement provides that "material adverse effect" means a material adverse effect on the business, operations, assets, condition (financial or other) or results of operations of the businesses sold or BCI selling subsidiaries or the buyers as the context requires; provided, that none of the following shall be deemed, either alone or in combination, to constitute a material adverse effect:
The purchase agreement may be terminated at any time prior to either the first stage or second stage closing by:
56
Each party will pay its own costs and expenses, including legal and accounting expenses, related to the sale of our broadband business, irrespective of when incurred and whether or not the sale of our broadband business is completed.
Broadwing and the BCI selling subsidiaries have agreed that for a period of 36 months following the first stage closing, except under certain enumerated circumstances, none of Broadwing or any of the BCI selling subsidiaries will directly or indirectly (and Broadwing and the BCI selling subsidiaries will use their commercially reasonable efforts to cause their respective affiliates not to), (i) compete (as defined in the purchase agreement) with the broadband businesses sold pursuant to the purchase agreement within the continental U.S. or (ii) solicit, divert or attempt to solicit or divert a customer or supplier, unless the customer or supplier does not compete with the broadband businesses sold pursuant to the purchase agreement. In addition, Broadwing and the BCI selling subsidiaries have agreed that for a period of 36 months following the second stage closing, neither they nor any of their respective affiliates (other than any directors, officers or employees of Broadwing, the BCI selling subsidiaries or their respective affiliates provided not in their capacity as such) will directly or indirectly solicit for employment or hire as an employee or consultant, any employee of BCI or the BCI selling subsidiaries who works primarily in the broadband business and who accepts the employment offer of the buyers pursuant to the terms of the purchase agreement or other employees of the buyers or their affiliates engaged in the broadband business unless such employee's employment is previously terminated by the buyers.
In connection with the purchase agreement, the buyers and BCI selling subsidiaries entered into several additional commercial and services agreements, including an agreement whereby the buyers will sell long distance minutes at wholesale rates for resale by Broadwing Telecommunications Inc. to business and residential customers in certain territories, a sales agency agreement for the marketing by Cincinnati Bell Telephone of the buyers' services in certain territories, a reciprocal collocation
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agreement for the accommodation of existing network equipment or other facilities and a dedicated IP services agreement whereby the buyers will provide dedicated IP services to Broadwing Technology Solutions Inc. After the first stage closing, the buyers have the right (but not the obligation) to enter into certain collateral services agreements with the BCI selling subsidiaries on terms to be mutually acceptable to the buyers and the BCI selling subsidiaries.
The BCI selling subsidiaries, jointly and severally, on one hand, and the buyers, on the other hand, (the BCI selling subsidiaries or the buyers, whichever has the obligation to indemnify, is the "indemnifying party") have agreed to indemnify the other party and its affiliates and any employee, representative, agent, director, officer, partner, member or principal, as applicable, or the assign of such party and its affiliates (each, an "indemnified party") from and against all claims related to or arising out of or resulting from, liabilities, losses, damages, costs and expenses (including reasonable attorneys', accountants' and experts' fees and costs, and costs and expenses of establishing entitlement to indemnification) (collectively, the "losses") incurred by any indemnified party related to or arising out of or resulting from (i) any breach of or inaccuracy in any representation or warranty of the indemnifying party in the purchase agreement or any collateral agreement or (ii) the breach by the indemnifying party of any covenant or agreement of that party contained in the purchase agreement or any collateral agreement. The BCI selling subsidiaries and the buyers will not have any liability for any losses arising from claims under clause (i) of the preceding sentence (other than claims or losses with respect to representations and warranties related to title, authorization or tax matters or related to brokers' or similar fees) (collectively, the "specified claims"), unless the aggregate of all losses for which the BCI selling subsidiaries or the buyers, respectively, would be liable exceeds on a cumulative basis $500,000, provided that in the event such losses exceed $500,000, the liability will be from the first dollar of losses. The BCI selling subsidiaries' or the buyers' respective aggregate liability for (i) all losses arising from specified claims will not exceed 50% of the purchase price, (ii) all losses arising from representations and warranties related to title and authorization matters will not exceed the purchase price (provided that the BCI selling subsidiaries' or buyers' respective aggregate liabilities under clauses (i) and (ii) will not exceed the purchase price) and (iii) all losses arising from representations and warranties related to tax matters or related to brokers' or similar fees will not be subject to any limitations.
The representations and warranties of the buyers and the BCI selling subsidiaries in the purchase agreement and any collateral agreements will survive the first stage closing for 18 months, except the environmental warranties will survive for three years, tax warranties will survive for the applicable statutes of limitations plus 90 days and title and authorization warranties will survive forever.
The BCI selling subsidiaries have further agreed jointly and severally to indemnify the buyers and any other indemnified party of the buyers from and against losses relating to any of BCI's assets and liabilities excluded from the purchase agreement, certain litigation and other matters, certain taxes of the BCI selling subsidiaries and the failure of the BCI selling subsidiaries to comply with the provisions of any bulk transfer laws which may be applicable. The buyers have agreed jointly and severally to indemnify the BCI selling subsidiaries and any other indemnified party of the BCI selling subsidiaries from and against losses relating to the liabilities and obligations assumed and businesses acquired pursuant to the purchase agreement, certain taxes for which the buyers are responsible, liabilities and obligations with respect to the conduct of the broadband business after the first stage closing, to the extent arising out of, or resulting from, facts, events or circumstances occuring after the first stage closing (other than due to any failure to comply or breach of any of the BCI selling subsidiaries or any of their affiliates, whether before, on or after the first stage closing) and any third party claims arising out of the buyers' election to effect the second stage closing prior to the date on which the last FCC and the last state public utility commission consents necessary to effect transfer of the remaining assets have been obtained.
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In connection with the purchase agreement, we agreed to deliver a parent guaranty in favor of the buyers, guaranteeing (1) all payments required to be made by the BCI selling subsidiaries under the purchase agreement and (2) the performance and observance and compliance with all covenants, agreements, obligations, liabilities, representations and warranties of the BCI selling subsidiaries under the purchase agreement. Also, Broadwing agreed to be jointly and severally liable with the BCI selling subsidiaries for their covenant to (1) (a) retire the BCI 9% Notes and the 121/2% Notes or (b) to obtain a consent and/or waiver from holders of the 9% Notes and the 121/2% Notes with respect to the sale of our broadband business, in either case on or prior to the first stage closing date and (2) use their best efforts to retire or exchange the BCI Preferred Stock or to obtain any necessary consents and/or waivers from the holders of the BCI Preferred Stock with respect to the sale of our broadband business, in either case on or prior to the first stage closing date. Broadwing's liability under its guaranty will not exceed the BCI selling subsidiaries' underlying liability pursuant to the purchase agreement.
In connection with the purchase agreement, Corvis Corporation, the majority owner of the buyers, also delivered a parent guaranty in favor of the BCI selling subsidiaries, guaranteeing (1) the payment by the buyers of the purchase price and (2) the performance and observance and compliance with all covenants, agreements, obligations, liabilities, representations and warranties of the buyers under the purchase agreement. Corvis Corporation's liability under its guaranty will not exceed the buyers' underlying liability pursuant to the purchase agreement.
After the second stage closing, the Broadwing name will be the sole and exclusive property of the buyers or their affiliates. Prior to the first stage closing, the BCI selling subsidiaries and their affiliates (including Broadwing and BCI) have agreed to amend their corporate names to remove the Broadwing name or any similar name likely to be confused or associated with the Broadwing name, and before the second stage closing they will make commercially reasonable efforts to cause the registration of the new names with the appropriate governmental bodies. In addition to the corporate name change, the BCI selling subsidiaries and their affiliates will cease using the Broadwing name, except in certain limited circumstances.
Under the amended terms of our credit facilities, the proceeds from the sale of our broadband business will be used to pay BCI's remaining liabilities and claims and current ordinary course operating expenses. Any remaining net proceeds will be applied 60% to prepay our credit facilities and 40% to pay certain of BCI's other obligations, provided that, in the event of a bankruptcy of BCI or any of its subsidiaries, 100% of any such remaining net proceeds must be applied to prepay our credit facilities. If there are any proceeds remaining after BCI's obligations have been satisfied, those amounts must be applied to pay down Broadwing's credit facilities.
Goldman Mezzanine Financing
On March 26, 2003, we received $350 million of gross cash proceeds from the issuance of 16% Notes as part of the Goldman mezzanine financing. Also as part of the Goldman mezzanine financing, we issued 17.5 million warrants, each to purchase one share of Broadwing Common Stock at $3.00 per share, to the purchasers of the 16% Notes. The 16% Notes indenture contains numerous restrictive covenants, including provisions that restrict our ability to make future investments or other cash infusions in BCI and its subsidiaries and impose legal and operational separations between BCI and its subsidiaries, on one hand, and us and any of our other subsidiaries, on the other hand. As of February 28, 2003, we had the ability to invest an additional $58.4 million in BCI based on these provisions.
See "Description of Broadwing and BCI Indebtedness—Broadwing—16% Senior Subordinated Discount Notes due 2009" for a more complete description of the Goldman mezzanine financing.
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Amendment to the Terms of Our Credit Facilities
On March 26, 2003, we permanently prepaid $220 million in borrowings under our term and revolving credit facilities and made a $90 million prepayment under our revolving credit facility with the net cash proceeds from the Goldman mezzanine financing and amended the terms of our credit facilities to provide us with greater liquidity for our operations. The amendment extended the maturity on our $643.6 million revolving credit facility to March 1, 2006 and changed the scheduled commitment reductions under the revolving credit facility to be limited to four equal quarterly reductions of $50 million each in 2005 in an aggregate amount equal to $200 million in 2005. The remainder of the revolving credit facility will mature on March 1, 2006. The amendment also permits the sale of our broadband business under the credit facilities, but requires us to apply 60% of the remaining net cash proceeds (after the payment of BCI's remaining liabilities and claims and current ordinary course operating expenses) from the sale of our broadband business to prepay the credit facilities and 40% to pay certain of BCI's other obligations, provided that, in the event of a bankruptcy of BCI or any of its subsidiaries, 100% of any such remaining net proceeds must be applied to prepay our credit facilities.
The amendment contains numerous restrictions, similar to those contained in the 16% Notes indenture, on our ability to make future investments or other cash infusions in BCI and its subsidiaries and imposes corporate separateness covenants that require us to maintain legal and operational separation between BCI and its subsidiaries, on one hand, and Broadwing and its other subsidiaries, on the other hand. The financial covenants were adjusted to, among other things, exclude BCI and its subsidiaries from the calculations and the amendment provided that BCI and its subsidiaries will be prohibited from making any additional borrowings under the credit facilities.
As part of the amendment to the terms of our credit facilities, the interest rate increased to 425 basis points above LIBOR on the revolving credit facility and 375 basis points above LIBOR on the term loan facilities. The commitment fee for the unused portion of the revolving credit facility was increased to 0.625% at all levels of usage and we paid an amendment fee in connection with the changes to the credit facilities in amounts equal to 75 basis points for the revolving credit facility and 37.5 basis points for each of the term loan A, B, and C credit facilities.
See "Description of Broadwing and BCI Indebtedness—Credit Facilities" for a more complete description of the amended terms of the credit facilities.
Convertible Subordinated Notes Supplemental Indenture
On March 26, 2003, we executed a supplemental indenture in respect of the Convertible Subordinated Notes. The supplemental indenture amended certain terms of the Convertible Subordinated Notes indenture, including:
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See "Description of Broadwing and BCI Indebtedness—Broadwing—Convertible Subordinated Notes due 2009" for a more complete description of the terms of the Convertible Subordinated Notes.
BCI preferred exchange offer
Concurrent with the exchange offer and consent solicitation, we are also offering to exchange 14,148,518 shares of Broadwing Common Stock for the 395,210 outstanding shares of BCI Preferred Stock, or 35.8 shares of Broadwing Common Stock for each outstanding share of BCI Preferred Stock. The BCI preferred exchange offer is conditioned, among other things, upon us receiving tenders with respect to 662/3% of the outstanding shares of BCI Preferred Stock. On March 24, 2003, we entered into an exchange and voting agreement with holders of the BCI Preferred Stock representing approximately 67.4% of the outstanding shares of BCI Preferred Stock, pursuant to which each of those holders agreed to tender all of their shares of BCI Preferred Stock in the BCI preferred exchange offer. The expiration date of the BCI preferred exchange offer is expected to be , 2003. The consummation of the BCI preferred exchange offer is not a condition to the consummation of the exchange offer and consent solicitation. If the BCI preferred exchange offer is completed, in connection therewith we will effect a merger of a newly-formed wholly owned subsidiary of Broadwing with and into BCI in which any remaining shares of BCI Preferred Stock not tendered in the BCI preferred exchange offer will be converted into the same number of shares of Broadwing Common Stock that holders of such shares would have received in the BCI preferred exchange offer.
Retirement of BCI 121/2% Notes
We intend to call BCI's remaining $0.8 million aggregate principal amount outstanding of 121/2% Senior Notes due 2005 on or prior to the completion of the exchange offer and consent solicitation (as described in "Description of Broadwing and BCI Indebtedness—BCI—121/2% Senior Notes due 2005").
Consequences for BCI
BCI conducts substantially all of its operations through its subsidiaries and is dependent upon dividends or other intercompany transfers of funds from its subsidiaries in order to meet its obligations. After the completion of the sale of our broadband business the only remaining BCI subsidiaries with operating assets will be Broadwing Technology Solutions Inc., an information technology consulting subsidiary, and Broadwing Telecommunications Inc., a subsidiary whose assets service Cincinnati Bell's long distance business. See "Unaudited Pro Forma Condensed Consolidated Financial Information—Broadwing Communications Inc." for BCI's pro forma results of operations and balance sheet after giving effect to the sale of our broadband business.
However, upon the completion of the sale of our broadband business, BCI will retain substantial liabilities. The carrying value of the current and long-term liabilities to be retained totaled $1,643 million and $271 million, respectively, as of December 31, 2002. There can be no assurances that BCI will be able to generate sufficient cash from its remaining operations or that additional sources of
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financing will be available to it to enable it to service these liabilities or to fund its other liquidity needs.
Furthermore, there will be little or no remaining net cash proceeds from the sale of our broadband business to fund BCI's working capital, capital expenditures and other general corporate requirements. Under the amended terms of our credit facilities, the proceeds from the sale of our broadband business will be used to pay BCI's remaining liabilities and claims and current ordinary course operating expenses. Any remaining net proceeds will be applied 60% to repay our credit facilities and 40% to pay certain of BCI's other obligations, provided that, in the event of a bankruptcy of BCI or any of its subsidiaries, 100% of any such remaining net proceeds will be applied to repay our credit facilities. If there are any proceeds remaining after BCI's obligations have been satisfied, those amounts must be applied to pay down Broadwing's credit facilities.
In the past, we have made capital contributions and intercompany loans to BCI to finance BCI's operating activities and other obligations, including its preferred stock dividends and repayments of long-term debt. In 2002, BCI received intercompany loans from us of $23.3 million and capital contributions of $1.9 million. Currently, the 16% Notes indenture and the amended terms of the credit facilities restrict our ability to continue funding BCI. As of February 28, 2003, we had the ability to invest or otherwise provide an additional $58.4 million in BCI. If BCI requires funds in excess of the amounts we are permitted to provide under the 16% Notes indenture and the amended terms of the credit facilities, there can be no assurances that the holders of the 16% Notes or the lenders under the credit facilities will consent to Broadwing investing additional money to allow BCI to meet its obligations. If we are unable to fund BCI going forward, BCI may explore alternative transactions or sources of financing, including borrowing money or raising equity capital. There can be no assurances that any such transactions could be consummated on acceptable terms, or at all.
As of March 26, 2003, BCI's subsidiary, Broadwing Communications Services Inc., had borrowed $223.0 million under our credit facilities. However, the amended terms of our credit facilities prohibit any additional borrowings by BCI or its subsidiaries. Because BCI has relied on our credit facilities in the past to fund its operations, the restrictions on future borrowings might adversely affect BCI's ability to access sufficient cash to meet its obligations.
The uncertainty of future cash flows of BCI combined with the funding constraints discussed above have prompted PricewaterhouseCoopers LLP, BCI's independent accountants, to include a going concern explanatory paragraph in their report filed in connection with the stand-alone financial statements of BCI. The going concern explanatory paragraph means that, in the opinion of PricewaterhouseCoopers LLP, there exists substantial doubt about BCI's ability to continue as a going concern and its ability to realize its assets and discharge its liabilities in the normal course of business.
If BCI is unable to finance its operations or meet its remaining commitments going forward, it may be forced to seek protection from its creditors under Chapter 11.
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RELATIONSHIP BETWEEN BROADWING AND BCI
Broadwing Inc.
We were incorporated under the laws of Ohio in 1983 and remain incorporated under the laws of Ohio. We have our principal offices at 201 East Fourth Street, Cincinnati, Ohio 45202, and our telephone number is (513) 397-9900. We are a full-service, local and national provider of data and voice communications services, and a regional provider of wireless communications services. We provide service on a national level by combining our national optical network and Internet backbone and our local network with a well-regarded brand name and reputation for service. We currently operate in four business segments: broadband, local, wireless and other. On February 22, 2003, we entered into a purchase agreement to sell substantially all of our broadband business. The broadband segment consists of the operating assets of certain subsidiaries of BCI. See "—Broadwing Communications Inc." below. The local segment provides local telephone service, network access, data transport, high-speed and dial-up Internet access, inter-lata toll, as well as other ancillary products and services to customers in southwestern Ohio, northern Kentucky and southeastern Indiana. Services are provided through our Cincinnati Bell Telephone subsidiary. The wireless segment comprises the operations of Cincinnati Bell Wireless LLC, a venture with AT&T Wireless Services in which we own 80.1% and AT&T Wireless Services owns the remaining 19.9%. Cincinnati Bell Wireless provides advanced wireless digital personal communications services and sales of related communications equipment to customers in its Greater Cincinnati and Dayton, Ohio operating areas. The other segment combines the operations of Cincinnati Bell Any Distance and Cincinnati Bell Public Communications.
Broadwing Communications Inc.
We currently own 100% of the common stock of BCI. BCI's principal offices are located at 1122 Capital of Texas Highway South, Austin, Texas 78746-6426, and its telephone number is (512) 328-1112. BCI was incorporated in Delaware in 1994 under the name IXC Communications, Inc. and became Broadwing Communications Inc. in 1999 after it was merged with a wholly-owned subsidiary of Broadwing. BCI is an Austin, Texas based provider of data and voice communications services. These services are provided over approximately 18,700 route miles of fiber-optic transmission facilities. BCI's revenue is generated by broadband transport through private line and indefeasible right of use agreements, Internet services utilizing technology based on Internet protocol and switched voice services provided to both wholesale and retail customers. BCI also offers data collocation, information technology consulting and other services.
On February 22, 2003, we entered into an agreement to sell our broadband business by agreeing to sell substantially all of the assets of certain of BCI's operating subsidiaries to C III Communications, LLC and C III Communications Operations, LLC for approximately $129 million in cash, subject to certain purchase price adjustments, and the assumption of certain liabilities and operating contractual commitments. The sale is subject to customary closing conditions, including the approval by the FCC and relevant state public utility commissions. After the completion of the sale of our broadband business, the only remaining BCI subsidiaries with operating assets will be Broadwing Technology Solutions Inc., an information technology consulting subsidiary, and Broadwing Telecommunications Inc., a subsidiary whose assets service Cincinnati Bell's long distance business. We anticipate the first stage closing of the sale of our broadband business to be completed by the end of the second quarter of 2003.
Relationship of Directors and Executive Officers of BCI with Broadwing
Except as set forth in this prospectus and solicitation statement (including the exchange and voting agreement described in "The Exchange Offer and Consent Solicitation—Exchange and Voting Agreement"), neither we nor, to the best of our knowledge, any of our directors, executive officers or
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other affiliates (a) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of BCI, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or voting of any securities of BCI, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss, or the giving or withholding of proxies, (b) have engaged in contracts, negotiations or transactions with BCI or its affiliates concerning a merger, consolidation, acquisition, tender offer or other acquisition of securities, election of directors or a sale or other transfer of a material amount of assets or (c) have had any other transaction with BCI or any of its executive officers, directors or affiliates that would require disclosure under the rules and regulations of the SEC applicable to the exchange offer or the consent solicitation. Except for the shares of BCI common stock that we or our affiliates own as disclosed in this prospectus and solicitation statement, neither we nor any of our affiliates beneficially own any BCI shares or have effected any transaction in the shares within the past 60 days.
You should be aware that certain conflicts of interest exist for the sole member of the BCI board of directors with respect to Broadwing. Thomas L. Schilling, the Chief Financial Officer of Broadwing since September, 2002 has also served as the sole director and Chief Financial Officer of BCI since July, 2002; therefore the exchange offer and consent solicitation will not be evaluated by any independent directors of BCI. Since September, 2002, Kevin M. Mooney, the Chief Executive Officer of Broadwing, has also served as the Chief Executive Officer of BCI, and John F. Cassidy, a director and Chief Operating Officer of Broadwing since September, 2002, is also an executive officer of BCI. In addition, Mary McCann and Jeffrey Smith are executive officers of both Broadwing and BCI. Mr. Schilling's, Mr. Mooney's, Mr. Cassidy's, Ms. McCann's and Mr. Smith's compensation are ultimately determined by the compensation committee of the Broadwing board of directors. In addition, on February 3, 2003, we entered into separate amended employment agreements with Mr. Schilling, Mr. Mooney and Mr. Smith whereby Mr. Schilling, Mr. Mooney and Mr. Smith were incentivized to sell our broadband business, amend the terms of the credit facilities and remain at Broadwing through the completion of our Restructuring Plan. If these objectives are achieved, Mr. Schilling will be entitled to a success bonus equal to 50% of the sum of his annual base salary plus his bonus target, Mr. Mooney will be entitled to a success bonus equal to 100% of the sum of his annual base salary plus his bonus target and Mr. Smith will be entitled to a success bonus equal to 50% of the sum of his annual base salary plus his bonus target. See the Risk Factor entitled, "The sole director of BCI has potential conflicts of interest in the exchange offer, consent solicitation and the supplemental indenture; our board of directors has potential conflicts of interest in the exchange offer and consent solicitation."
You should also be aware that Broadwing's directors and executive officers have interests in the Restructuring Plan that are different from, or in addition to, or that might conflict with, the interests of the holders of the BCI 9% Notes. See the Risk Factor entitled, "The sole director of BCI has potential conflicts of interest in the exchange offer, consent solicitation and the supplemental indenture; our board of directors has potential conflicts of interest in the exchange offer and consent solicitation." Our board of directors was aware of these interests and conflicts when it determined to approve the exchange offer and consent solicitation pursuant to the Restructuring Plan.
Intercompany Arrangements
BCI is a party to an intercompany note dated as of June 26, 2001 between itself and Broadwing, payable to us and evidencing the loans provided by us to BCI for its operating, investing and financing needs. The intercompany note bears interest at the rate applicable to borrowings by us under our credit facilities, which rate is adjusted monthly. As of December 31, 2002, the aggregate amount outstanding under the intercompany note obligation was $1.5 billion.
From time to time, BCI and its subsidiaries (the "BCI group") engage in transactions with Broadwing and/or our other subsidiaries other than BCI and its subsidiaries (the "Broadwing group").
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In particular, the Broadwing group performs certain oversight and management functions for the BCI group, including, but not limited to, general management, payroll processing, cash management and benefit plan management. Corporate expenses incurred by the Broadwing group on behalf of the BCI group are allocated, on a month-to-month basis, to the BCI group based on the modified Massachusetts Formula, a common method of expense allocation.
Broadwing and its subsidiaries, including the BCI group, participate in the defined Broadwing benefit pension plan and post-retirement health and life benefit plans. The BCI group is charged an expense related to its portion of the plan, on a month-to-month basis, based on the "all participants" allocation method, pursuant to which the allocation of expenses of the plan are calculated by independent actuaries. In 2001 and 2002, the BCI group recorded income under the benefit plan totaling $1.1 million and $1.6 million, respectively.
Cincinnati Bell Telephone, our wholly owned subsidiary, provides payroll, accounts-payable services and benefit related services, on a month-to-month basis for the BCI group. The rate payable for these services is based on a "per check" fee commensurate with commercially available third party processing rates. The BCI group paid $0.9 million and $0.3 million in 2001 and 2002, respectively, for these services.
Broadwing Technology Services, a subsidiary of BCI, provides subcontracting services to Cincinnati Bell Telephone for certain of Cincinnati Bell Telephone's customers who have contracted for managed internet and hardware services. In 2001 and 2002, Cincinnati Bell Telephone paid $0 and $0.5 million, respectively, for these services. Broadwing Technology Solutions Inc. also provides help desk support and break fix services for the Broadwing information technology infrastructure.
The BCI group also engages in commercial transactions with the Broadwing group in which these entities act as sales agents to third parties in respect of services, provided by the BCI group. On a month-to-month basis, the BCI group sells long distance switched voice minutes to customers in the Greater Cincinnati, Ohio area under the Cincinnati Bell Any Distance brand name. The commission paid by the BCI group to Cincinnati Bell Any Distance is based on market rate margins earned in the resale of long distance switched voice minutes to third parties. On a month-to-month basis, the BCI Group sells broadband transport and data and Internet services to customers in the Greater Cincinnati, Ohio area under the Cincinnati Bell Telephone brand name. The commission paid by the BCI group to Cincinnati Bell Telephone is based on market rates for the resale of such services to third parties.
Cincinnati Bell provides data collocation space in its Cincinnati data center to Broadwing Technology Solutions Inc.
On January 1, 2002, Broadwing contributed the net assets of its managed hosting business to the BCI group. The transaction was based on the book value of the assets, which approximated fair value.
All of these transactions are performed under terms and conditions (including compensation) that are equivalent to or better than those that the BCI group could obtain on an arm's length basis from unaffiliated third parties.
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THE EXCHANGE OFFER AND CONSENT SOLICITATION
Reasons for and Purpose of the Exchange Offer and Consent Solicitation
The exchange offer and consent solicitation are an integral part of the Restructuring Plan. The Restructuring Plan and the sale of our broadband business will enable us to simplify our capital structure and focus on our remaining operations. The exchange offer and consent solicitation will improve our financial position and reduce remaining cash expenditures at BCI. The consent solicitation will eliminate all restrictive covenants in the indenture governing the BCI 9% Notes, thereby providing us with increased operational and financial flexibility in dealing with the remainder of BCI's assets and liabilities following the completion of the sale of our broadband business.
General
We are offering to exchange 11,076,707 shares of Broadwing Common Stock for the $45,950,000 outstanding aggregate principal amount of BCI 9% Notes, or 241.06 shares of Broadwing Common Stock for each outstanding $1,000 aggregate principal amount of BCI 9% Notes validly tendered and not properly withdrawn prior to the expiration date of the exchange offer and consent solicitation.
We will retain all the BCI 9% Notes we receive in the exchange offer. You will not be paid any accrued and unpaid interest if you exchange your BCI 9% Notes pursuant to the exchange offer. Also, you will not receive any fractional shares of Broadwing Common Stock. Instead, the exchange agent for the exchange offer, acting as your agent, will aggregate any fractional shares issuable and sell them for your account. The proceeds realized by the exchange agent on the sale of fractional shares will be distributed to you and the other tendering holders of BCI 9% Notes on a pro rata basis, net of commissions.
Concurrently with the exchange offer, we are soliciting consents from the holders of BCI 9% Notes to the proposed amendments to the indenture. For a description of the proposed amendments to the indenture, see "—The Proposed Amendments." Holders of BCI 9% Notes who desire to tender their notes will be required to consent to the proposed amendments to the indenture. The proper completion, execution and delivery of a consent and letter of transmittal by a holder tendering BCI 9% Notes pursuant to the exchange offer will constitute the consent of such holder to the proposed amendments unless properly withdrawn in the manner and during the period described herein. Holders may not deliver consents without tendering their BCI 9% Notes in the exchange offer and we will not accept any such consents.
If you are the record owner of your BCI 9% Notes and you tender your notes directly to the exchange agent, you will not be obligated to pay any charges or expenses of the exchange agent or any brokerage commissions. If you own your notes through a broker or other nominee, and your broker tenders the notes on your behalf, your broker may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply. Except as set forth in the instructions to the consent and letter of transmittal, transfer taxes on the exchange of BCI 9% Notes pursuant to the exchange offer will be paid by us.
The term "expiration date" means 5:00 p.m., New York City time, on , 2003, unless we extend the period of the time for which the exchange offer and consent solicitation is open, in which case the term "expiration date" means the latest time and date on which the exchange offer and consent solicitation, as so extended, expire.
Our obligation to exchange shares of Broadwing Common Stock for BCI 9% Notes tendered pursuant to the exchange offer is subject to several conditions referred to below under "—Conditions of the Exchange Offer and Consent Solicitation."
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If the exchange offer and consent solicitation are not completed, we will evaluate our strategic alternatives regarding BCI. These may include the filing by BCI for protection under Chapter 11.
None of the Broadwing board of directors, the dealer manager and solicitation agent nor the exchange agent has made a recommendation to any holder of the BCI 9% Notes, and each is remaining neutral as to whether you should tender notes into the exchange offer and give consent pursuant to the consent solicitation. You must make your own investment decision with regards to the exchange offer and consent solicitation based upon your own assessment of the market value of the BCI 9% Notes, the likely value of the Broadwing Common Stock you will receive, your liquidity needs and your investment objectives.
Conditions of the Exchange Offer and Consent Solicitation
Notwithstanding any other provision of the exchange offer and consent solicitation, and without prejudice to our other rights, we will not be required to accept for exchange or, subject to any applicable rules of the SEC, exchange any shares of Broadwing Common Stock for BCI 9% Notes, and we may terminate, extend or amend the exchange offer and consent solicitation if, at the expiration date, any of the following conditions have not been satisfied or, to the extent permitted, waived. We will not waive the registration statement effectiveness condition.
Minimum Tender Condition
There must be validly tendered and not properly withdrawn prior to the expiration date of the exchange offer and consent solicitation an aggregate principal amount of BCI 9% Notes that constitutes at least 95% of the total outstanding aggregate principal amount of BCI 9% Notes as of the date that we accept the notes for exchange pursuant to the exchange offer and consent solicitation. As of March 31, 2003, holders of notes representing approximately 92.2% of the outstanding aggregate principal amount of BCI 9% Notes have agreed with us to tender their notes and give their consents. See "—Exchange and Voting Agreement."
Registration Statement Effectiveness
The exchange offer and consent solicitation are conditioned upon the registration statement on Form S-4, of which this prospectus and solicitation statement is a part, being declared effective under the Securities Act, as amended, and not being subject to any stop order suspending its effectiveness or any proceedings seeking a stop order.
First Stage Closing of the Sale of Our Broadband Business
The exchange offer and consent solicitation are conditioned upon the first stage closing of the sale of our broadband business having been consummated on or before June 30, 2003 in accordance with the terms set forth in the purchase agreement as of February 22, 2003 for the sale of our broadband business. Conditions to the consummation of the first stage closing are described in "Background of the Exchange Offer and Consent Solicitation—The Restructuring Plan and Recent Developments."
Other Conditions to the Exchange Offer and Consent Solicitation
The exchange offer and consent solicitation are also subject to the conditions that, at the time of the expiration date of the exchange offer, none of the following shall have occurred and be continuing which, in our good faith judgment, regardless of the circumstances, makes it impossible or inadvisable to proceed with the exchange offer or consent solicitation:
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The foregoing conditions are solely for our benefit and we may assert them regardless of the circumstances giving rise to any such conditions. We may also, in our reasonable discretion, waive these conditions in whole or in part (subject to the limitations on waiver described in the first paragraph of this section). The determination by us as to whether any condition has been satisfied shall be conclusive and binding on all parties. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed a continuing right which may be asserted at any time and from time to time.
Exchange and Voting Agreement
On March 24, 2003, we entered into an exchange and voting agreement with Harch Capital Management, Inc., Muzinich & Co. Credit and Allianz Investment Management (together, the "signing noteholders"), pursuant to which each of signing noteholders agreed to tender all of their BCI 9% Notes to us in the exchange offer and to consent to the amendments to the indenture governing the BCI 9% Notes in the consent solicitation and each party to the exchange and voting agreement have agreed to use commercially reasonable efforts to complete the exchange offer and consent solicitation. In the aggregate, the signing noteholders or their transferees own notes representing approximately 92.2% of the outstanding aggregate principal amount of BCI 9% Notes.
Each signing noteholder may transfer its BCI 9% Notes only if such signing noteholder notifies us prior to the transfer and agrees to cause the transferee to execute and deliver an acknowledgement whereby the transferee agrees to be bound by the terms of the exchange and voting agreement for as long as the agreement is in effect.
Unless the exchange offer and consent solicitation has been completed, the exchange and voting agreement will terminate upon the earliest to occur of:
See "Annex B—Exchange and Voting Agreement."
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Waiver and Release
Each holder of BCI 9% Notes, by tendering and accepting Broadwing Common Stock pursuant to the exchange offer, and Broadwing, by accepting the BCI 9% Notes for exchange pursuant to the exchange offer, unconditionally releases, and forever discharges and acquits, each of the other signatories to the exchange and voting agreement, their parents, subsidiaries and affiliates, and any of their respective directors, officers, executives, employees, attorneys, advisors, representatives and shareholders (the "released persons"), from all, and all manner of, actions, suits, debts, claims, duties, payment and performance of all obligations, liabilities and indebtedness of every kind, direct or indirect, determined or undetermined, at law or in equity, whether or not asserted or raised and existing or alleged to exist or to have existed, at any time, which such signatory ever had or has or may have at this time against any released person, arising out of, relating to, or incurred in connection with, the BCI 9% Notes, the indenture governing the BCI 9% Notes, the exchange and voting agreement, the exchange offer and consent solicitation, or any transaction entered into thereunder or any action taken or omitted to be taken by the released persons thereunder. The waiver and release are part of the consideration for exchange of the BCI 9% Notes. The waiver may not be effective to waive liabilities under the federal securities laws.
Timing of the Exchange Offer and Consent Solicitation
We hope to complete the exchange offer and consent solicitation concurrently with the first stage closing of the sale of our broadband business, which is anticipated to close by the end of the second quarter of 2003. Consequently, the exchange offer and consent solicitation are currently scheduled to expire on , 2003; however, we may extend the exchange offer and consent solicitation from time to time as necessary until all conditions to the exchange offer and consent solicitation have been satisfied or waived. For more information, see "—Extension, Termination and Amendment."
Extension, Termination and Amendment
We expressly reserve the right, in our sole discretion, at any time or from time to time, to extend the period of time during which the exchange offer and consent solicitation remain open if any condition to the exchange offer and consent solicitation has not been satisfied, and we can do so by giving oral or written notice of such extension to the exchange agent. If we decide to extend the exchange offer and consent solicitation, we will make an announcement to that effect no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. We are not making any assurances that we will exercise our right to extend the exchange offer and consent solicitation, although we may do so until all conditions have been satisfied or, where permissible, waived. During any such extension, all BCI 9% Notes previously tendered and not properly withdrawn and all related consents previously delivered and not properly revoked will remain subject to the exchange offer and consent solicitation, respectively, subject to your right to withdraw your BCI 9% Notes and revoke the related consents. See "—Withdrawal of Tenders and Revocation of Consents."
Subject to the SEC's applicable rules and regulations, we also reserve the right, in our sole discretion, at any time or from time to time, (1) to delay our acceptance for exchange or our exchange of any BCI 9% Notes pursuant to the exchange offer, regardless of whether we previously accepted BCI 9% Notes for exchange, or to terminate the exchange offer and not accept for exchange or exchange any BCI 9% Notes not previously accepted for exchange or exchanged, upon the failure of any of the conditions of the exchange offer and consent solicitation to be satisfied and (2) to waive any condition (subject to the limits on waiver described under "The Exchange Offer and Consent Solicitation—Conditions of the Exchange Offer and Consent Solicitation") or otherwise to amend the exchange offer in any respect, by giving oral followed by written notice of such delay, termination or amendment to the exchange agent and by making a public announcement. We will follow any extension, termination, amendment or delay, as promptly as practicable, with a public announcement.
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In the case of an extension, any such announcement will be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. Subject to applicable law (including Rules 14d-4(d) and 14d-6(c) under the Exchange Act, which require that any material change in the information published, sent or given to the noteholders in connection with the exchange offer must be promptly sent to noteholders in a manner reasonably designed to inform noteholders of such change) and without limiting the manner in which we may choose to make any public announcement, we assume no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service.
We confirm to you that if we make a material change in the terms of the exchange offer or the information concerning the exchange offer, or if we waive a material condition of the exchange offer, we will extend the exchange offer to the extent required under the Exchange Act. If, prior to the expiration date, we decrease the percentage of BCI 9% Notes being sought or increase or decrease the consideration offered to holders of BCI 9% Notes, such increase or decrease will be applicable to all holders whose BCI 9% Notes are accepted for exchange pursuant to the exchange offer, and if, at the time notice of any such increase or decrease is first published, sent or given to holders of BCI 9% Notes, the exchange offer is scheduled to expire at any time earlier than the tenth business day from and including the date that such notice is first so published, sent or given, the exchange offer will be extended until the expiration of such ten business day period. For purposes of the exchange offer and consent solicitation, a "business day" means any day other than a Saturday, Sunday or a federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time.
Exchange of BCI 9% Notes
Upon the terms and subject to the conditions of the exchange offer (including, if the exchange offer is extended or amended, the terms and conditions of any such extension or amendment), Broadwing will accept for exchange and will exchange, BCI 9% Notes validly tendered and not properly withdrawn as promptly as practicable after the expiration date. In addition, subject to the applicable rules of the SEC, we expressly reserve the right to delay acceptance of or the exchange of BCI 9% Notes in order to comply with any applicable law.
For purposes of the exchange offer, we will be deemed to have accepted for exchange BCI 9% Notes validly tendered and not properly withdrawn as, if and when we notify the exchange agent of our acceptance of the tenders of notes pursuant to the exchange offer. The exchange agent will deliver the shares of Broadwing Common Stock in exchange for BCI 9% Notes pursuant to the exchange offer and cash instead of fractional shares of Broadwing Common Stock as soon as practicable. The exchange agent will act as agent for holders tendering BCI 9% Notes for the purpose of receiving Broadwing Common Stock from us and transmitting such stock to you.
If we do not accept any tendered BCI 9% Notes for exchange pursuant to the terms and conditions of the exchange offer for any reason, or if certificates are submitted for more BCI 9% Notes than are tendered, we will return certificates for such unexchanged BCI 9% Notes without expense to the tendering noteholder or, in the case of BCI 9% Notes tendered by book-entry transfer of such notes into the exchange agent's account at The Depository Trust Company, or "DTC," pursuant to the procedures set forth below under "—Procedure for Tendering and Consenting," those BCI 9% Notes will be credited to an account maintained within DTC as soon as practicable following expiration or termination of the exchange offer. If we do not accept at least a majority in aggregate principal amount of the BCI 9% Notes for exchange, the supplemental indenture will not be effective.
Cash Instead of Fractional Shares of Broadwing Common Stock
We will not issue certificates representing fractional shares of Broadwing Common Stock pursuant to the exchange offer. The exchange agent, acting as agent for holders of BCI 9% Notes otherwise
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entitled to receive fractional shares of Broadwing Common Stock, will aggregate all fractional shares and sell them for the accounts of such stockholders. The proceeds realized by the exchange agent upon the sale of such fractional shares will be distributed, net of commissions, to such noteholders on a pro rata basis. Such cash payments will be made through the exchange agent if the BCI 9% Notes are tendered to the exchange agent or, if such notes are tendered through DTC, through DTC.
NONE OF THE EXCHANGE AGENT, BROADWING, BCI OR THE DEALER MANAGER AND SOLICITATION AGENT WILL GUARANTEE ANY MINIMUM PROCEEDS FROM THE SALE OF SHARES OF BROADWING COMMON STOCK, AND NO INTEREST WILL BE PAID ON ANY SUCH PROCEEDS.
Procedure for Tendering and Consenting
For you to validly tender BCI 9% Notes pursuant to the exchange offer and deliver the related consents to the proposed amendments, either: (1) you must submit a properly completed and duly executed consent and letter of transmittal, together with any required signature guarantees, or an agent's message in connection with a book-entry transfer, and any other required documents, must be transmitted to and received by the exchange agent at its address set forth on the back cover of this prospectus and solicitation statement and either (x) certificates for tendered BCI 9% Notes must be received by the exchange agent at such address or (y) such BCI 9% Notes must be tendered pursuant to the procedures for book-entry tender set forth below (and a confirmation of receipt of such tender received (we refer to this confirmation below as a "book-entry confirmation")), in each case before the expiration date, or (2) you must comply with the guaranteed delivery procedure described below. Holders of BCI 9% Notes tendered via book-entry or the guaranteed delivery procedure will still be required to properly complete and execute the consent and letter of transmittal.
The term "agent's message" means a message, transmitted by DTC to and received by, the exchange agent, and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the participant in DTC tendering the BCI 9% Notes which are the subject of the book-entry confirmation, that the participant has received and agrees to be bound by the terms of the consent and letter of transmittal and that we may enforce that agreement against the participant.
The exchange agent will establish accounts with respect to the BCI 9% Notes at DTC for purposes of the exchange offer and consent solicitation within two business days after the date of this prospectus and solicitation statement, and any financial institution that is a participant in DTC may make book-entry delivery of BCI 9% Notes by causing DTC to transfer such BCI 9% Notes into the exchange agent's account in accordance with DTC's procedures for such transfer. However, although delivery of BCI 9% Notes may be effected through book-entry at DTC, the consent and letter of transmittal (or a manually-signed facsimile of such document), with any required signature guarantees, or an agent's message in connection with a book-entry transfer, and any other required documents, must, in any case, be transmitted to and received by the exchange agent at its address specified on the back cover of this prospectus and solicitation statement prior to the expiration date, or the guaranteed delivery procedures described below must be followed.
Signatures on all letters of transmittal must be guaranteed by an eligible institution, except in cases in which BCI 9% Notes are tendered either by a registered holder of the notes who has not completed the box entitled "Special Issuance Instructions" on the consent and letter of transmittal or for the account of an eligible institution.
If the certificates for BCI 9% Notes are registered in the name of a person other than the person who signs the consent and letter of transmittal, the certificates must be endorsed or accompanied by appropriate note powers, in either case signed exactly as the name or names of the registered owner or
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owners appear on the certificates, with the signature(s) on the certificates or note powers guaranteed in the manner we have described above.
THE METHOD OF DELIVERY OF BCI 9% NOTES CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC, IS AT YOUR OPTION AND RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, WE RECOMMEND REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO CASH RECEIVED PURSUANT TO THE EXCHANGE OFFER, YOU MUST PROVIDE THE EXCHANGE AGENT WITH YOUR CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY WHETHER YOU ARE SUBJECT TO BACKUP WITHHOLDING OF FEDERAL INCOME TAX BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE CONSENT AND LETTER OF TRANSMITTAL. SOME NOTEHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATIONS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING REQUIREMENTS. SEE "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS."
Guaranteed Delivery
If you wish to tender your BCI 9% Notes pursuant to the exchange offer and your certificates are not immediately available or you cannot deliver the certificates and all other required documents to the exchange agent prior to the expiration date or cannot complete the procedure for book-entry transfer on a timely basis, your BCI 9% Notes may nevertheless be tendered, so long as all of the following conditions are satisfied:
You may deliver the notice of guaranteed delivery by hand or transmit it by facsimile transmission or mail it to the exchange agent and must include a guarantee by an eligible institution in the form set forth in that notice.
In all cases, we will exchange BCI 9% Notes tendered and accepted for exchange pursuant to the exchange offer only after timely receipt by the exchange agent of certificates for such BCI 9% Notes (or timely confirmation of a book-entry transfer of such securities into the exchange agent's account at DTC as described above), properly completed and duly executed letter(s) of transmittal, or an agent's message in connection with a book-entry transfer, and any other required documents.
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Effects of Tenders and Consents
By executing a consent and letter of transmittal as set forth above, you irrevocably appoint our designees as your attorneys-in-fact and proxies, each with full power of substitution, to the full extent of your rights with respect to your BCI 9% Notes tendered and accepted for exchange by us. Such appointment is effective when and only to extent that we accept for exchange the BCI 9% Notes that you have tendered with the exchange agent. All such proxies shall be considered coupled with an interest in the tendered BCI 9% Notes and therefore shall not be revocable. Upon the effectiveness of such appointment, all prior proxies given by you will be revoked, and no subsequent proxies may be given (and, if given, will not be deemed effective). We will, with respect to the BCI 9% Notes for which the appointment is effective, be empowered, among other things, to exercise all of your voting rights, if any, and other rights as we, in our sole discretion, deem proper.
We will determine all questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of BCI 9% Notes, in our sole discretion, and our determination shall be final and binding. We reserve the absolute right to reject any and all tenders of BCI 9% Notes determined by us not to be in proper form or the acceptance of or exchange for which may, in the opinion of our counsel, be unlawful. Subject to the applicable rules and regulations of the SEC, we also reserve the absolute right to waive any of the conditions of the exchange offer and consent solicitation (other than the registration statement effectiveness condition), or any defect or irregularity in the tender of any BCI 9% Notes. No tender of BCI 9% Notes will be deemed to have been made until all defects and irregularities in the tender of such notes have been cured or waived. Neither we, the exchange agent, the dealer manager nor any other person will be under any duty to give notification of any defects or irregularities in the tender of BCI 9% Notes or will incur any liability for failure to give any such notification. Our interpretation of the terms and conditions of the exchange offer and consent solicitation (including the consent and letter of transmittal and instructions thereto) will be final and binding.
The tender of BCI 9% Notes pursuant to any of the procedures described above will constitute a binding agreement between you and us upon the terms and subject to the conditions of the exchange offer and consent solicitation.
Withdrawal of Tenders and Revocation of Consents
BCI 9% Notes tendered pursuant to the exchange offer may be withdrawn at any time prior to the expiration date. Consents given pursuant to the consent solicitation may be revoked at any time prior to the expiration date by the withdrawal of a tender of BCI 9% Notes. Any withdrawal of tendered BCI 9% Notes prior to the expiration date will be deemed to be a revocation of the related consent. Tenders may not be withdrawn and consents may not be revoked after the expiration date.
For your withdrawal to be effective, the exchange agent must receive from you a written or facsimile transmission notice of withdrawal at its address set forth on the back cover of this prospectus and solicitation statement, and your notice must include your name, address, social security number, the certificate number(s) and the aggregate principal amount of BCI 9% Notes to be withdrawn as well as the name of the registered holder, if it is different from that of the person who tendered the notes.
An eligible institution (as defined below) must guarantee all signatures on the notice of withdrawal, unless the BCI 9% Notes to be withdrawn have been tendered for the account of any eligible institution. Most banks, savings and loan associations and brokerage houses are able to effect these signature guarantees for you. An "eligible institution" is a financial institution that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program. If BCI 9% Notes have been tendered pursuant to the procedures for book-entry tender as set forth above under "—Procedure for Tendering and Consenting," any notice of withdrawal must specify the name and number of the account at DTC
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to be credited with the withdrawn BCI 9% Notes and must otherwise comply with DTC's procedures. If certificates have been delivered or otherwise identified to the exchange agent, the name of the registered holder and the serial numbers of the particular certificates evidencing the BCI 9% Notes withdrawn must also be furnished to the exchange agent, as stated above, prior to the physical release of the certificates. We will decide all questions as to the form and validity (including time of receipt) of any notice of withdrawal, in our sole discretion, and our decision shall be final and binding.
Neither we, the exchange agent, the dealer manager and solicitation agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or will incur any liability for failure to give any such notification. Any BCI 9% Notes properly withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer. However, you may re-tender withdrawn BCI 9% Notes by following one of the procedures described under "—Procedure for Tendering and Consenting" or "—Guaranteed Delivery" at any time prior to the expiration date.
Under the exchange and voting agreement, the holders have agreed not to withdraw their tendered notes and not to revoke their consents. See "—Exchange and Voting Agreement."
The Proposed Amendments
We are soliciting the consent of holders of BCI 9% Notes to the proposed amendments. The proposals, if adopted and effected, will eliminate all voting rights and restrictive covenants in the indenture under which the BCI 9% Notes were issued, including:
Consents with respect to at least a majority of the outstanding aggregate principal amount of BCI 9% Notes must be received in order to amend the applicable indenture in the manner contemplated above. If the requisite consents are received with respect to the BCI 9% Notes and the exchange offer and consent solicitation is completed, then we will execute a supplemental indenture that gives effect to the proposed amendments with respect to the BCI 9% Notes and the indenture, as so amended, will become effective on the date we complete the exchange offer.
As of March 31, 2003, holders of notes representing approximately 92.2% of the outstanding aggregate principal amount of BCI 9% Notes have agreed with Broadwing to tender their notes and give their consents. See "—Exchange and Voting Agreement." Each non-exchanging holder of BCI 9% Notes will be bound by such amended indenture even if such holder did not give its consent. If the exchange offer is terminated or withdrawn, the proposed amendments will not become effective and all consents will be deemed revoked.
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For more complete information regarding the voting rights and restrictive covenants to be deleted we urge you to review the existing indenture and the form of Supplemental Indenture. See "Where You Can Find More Information" and see "Annex A—Form of Supplemental Indenture."
Liquidity
Following the completion of the exchange offer, the liquidity and trading price of the remaining untendered 9% Notes held by the public and the rights of the holders of those notes may be adversely affected.
Certain Legal and Regulatory Matters
Except as set forth in this prospectus and solicitation statement, we are not aware of any material filing, approval or other action by or with any governmental authority or administrative or regulatory agency that would be required for our acquisition or ownership of BCI 9% Notes. We intend to make all required filings under the Securities Act of 1933 (the "Securities Act") and the Exchange Act.
Financing of the Exchange Offer
The shares of Broadwing Common Stock required to consummate the exchange offer are available from our authorized but unissued shares of Broadwing Common Stock. Fees and expenses in connection with the exchange offer are estimated to be approximately $0.5 million, including the SEC filing fee and the fees of the exchange agent, the dealer manager and solicitation agent, the financial printer, counsel, accountants and other professionals. We will obtain all of such funds from our available capital resources.
Dealer Manager and Solicitation Agent
Subject to the terms and conditions set forth in the dealer manager and consent solicitation agreement, between us and Lehman Brothers Inc., we have retained Lehman Brothers Inc. to act as dealer manager and solicitation agent in connection with the exchange offer and consent solicitation. Lehman Brothers Inc. will receive customary compensation for such services and will be reimbursed for reasonable out-of-pocket expenses incurred in performing its services, including reasonable fees and expenses for legal counsel. In addition, we have agreed to indemnify the dealer manager and solicitation agent against certain liabilities, including liabilities under federal securities laws, and will contribute to payments the dealer manager and solicitation agent may be required to make in respect thereof.
The dealer manager and solicitation agent and certain of its affiliates from time to time have provided in the past and may provide in the future investment banking, commercial lending and financial advisory services to us and certain of our affiliates in the ordinary course of business. They receive customary fees and/or commissions for such services. Lehman Brothers Inc. is acting as lead advisor to us in connection with the sale of our broadband business and co-advisor to us in connection with the execution of the amendments to our credit facilities for which it will receive customary compensation.
Neither the dealer manager and solicitation agent nor the exchange agent assumes any responsibility for the accuracy or completeness of the information contained in this prospectus and solicitation statement or any documents incorporated herein by reference or for any failure to disclose events that may have occurred and may affect the significance or accuracy of such information.
The dealer manager and solicitation agent will assist with the mailing of this prospectus and solicitation statement and related materials to holders of BCI 9% Notes, respond to inquiries of and provide certain information to holders of BCI 9% Notes in connection with the exchange offer and
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consent solicitation. Questions regarding the terms of the exchange offer and consent solicitation can be directed to the dealer manager and solicitation agent at the address and telephone number set forth on the back cover of this prospectus and solicitation statement.
We are not aware of any jurisdiction in which the making of the exchange offer and consent solicitation is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the exchange offer and consent solicitation or the acceptance of Broadwing Common Stock pursuant to the exchange offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. If, after such good faith effort, we cannot comply with any such law, the exchange offer and consent solicitation will not be made to (nor will tenders of BCI 9% Notes be accepted from or on behalf of) the holders of BCI 9% Notes residing in such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require the exchange offer and consent solicitation to be made by a licensed broker or dealer, the exchange offer and consent solicitation will be deemed to be made on our behalf by the dealer manager and solicitation agent or one or more registered brokers or dealers licensed under the laws of the jurisdiction.
No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this prospectus and solicitation statement and, if given or made, such information or representation may not be relied upon as having been authorized by Broadwing or the dealer manager and solicitation agent.
Exchange Agent
We have retained The Bank of New York to act as exchange agent. We will pay The Bank of New York reasonable and customary compensation for its services in connection with the exchange offer and consent solicitation, reimburse it for its reasonable out-of-pocket expenses and indemnify it against certain liabilities and expenses in connection with the exchange offer and consent solicitation, including liabilities under federal securities laws.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following are the material U.S. Federal income tax consequences of the exchange offer. This discussion is based on the Internal Revenue Code of 1986 (the "Code"), as amended, applicable Treasury regulations, administrative interpretations and court decisions as in effect as of the date of this prospectus, all of which might change, possibly with retroactive effect.
This discussion addresses only persons who hold their BCI 9% Notes as a capital asset. It does not address all aspects of U.S. Federal income taxation that might be relevant to a holder of BCI 9% Notes in light of that holder's particular circumstances or to a holder of BCI 9% Notes subject to special rules, such as:
Tendering Holders
Taxable Exchange
The exchange of BCI 9% Notes for Broadwing Common Stock will be treated as a taxable exchange for U.S. Federal income tax purposes. Consequently, a holder of BCI 9% Notes who tenders BCI 9% Notes in the exchange offer (a "Tendering Holder") will recognize gain or loss on the exchange equal to the difference between (i) the fair market value of the Broadwing Common Stock (including fractional shares) exchanged therefor (other than Broadwing Common Stock attributable to accrued interest, which will be taxable as ordinary income) and (ii) the Tendering Holder's adjusted tax basis in the BCI 9% Notes surrendered in the exchange. The gain or loss will be long-term capital gain or loss if the Tendering Holder's holding period for the BCI 9% Notes is more than one year. The deductibility of capital losses is subject to limitations.
A Tendering Holder's adjusted tax basis in BCI 9% Notes will generally be the price that the holder paid for the BCI 9% Notes increased by the amount of any market discount previously included in income by such holder with respect to the BCI 9% Notes and reduced (but not below zero) by any amortizable bond premium allowable as a deduction with respect to the BCI 9% Notes. Market discount on a BCI 9% Note is generally the excess of the principal amount of the BCI 9% Note over the holder's tax basis in the note at the time of its acquisition. Amortizable bond premium on a BCI 9% Note is the excess of the tax basis of a BCI 9% Note to a holder immediately after its acquisition over the principal amount of the BCI 9% Note payable at maturity. A Tendering Holder who has acquired BCI 9% Notes with market discount generally will be required to treat a portion of any gain on the exchange of such BCI 9% Notes as ordinary income to the extent of the market discount accrued to the date of the exchange less any accrued market discount previously reported as ordinary income.
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Allocation of Consideration
Although the matter is not free from doubt, we believe, and intend to take the position that, no portion of the value of the Broadwing Common Stock to which a Tendering Holder is entitled as a result of the exchange offer should be considered a separate fee for consenting to the adoption of the proposed amendments to the indenture governing the BCI 9% Notes (the "Proposed Amendments"). The IRS, however, might take a different view. If a portion of the Broadwing Common Stock is treated as a separate fee for consenting to the Proposed Amendments, it is possible that such portion would be taxable as ordinary income. In that case, the amount allocable to a consent fee would not be included in the holder's amount realized for purposes of determining gain or loss on the exchange offer.
Cash in Lieu of Fractional Shares
A Tendering Holder who receives cash in lieu of a fractional share will be treated as if the holder received the fractional share and then sold it for the amount of cash received. The Tendering Holder will recognize short-term capital gain or loss on the deemed sale of the fractional share for cash equal to the excess of the cash received over the Tendering Holder's tax basis in the fractional share.
Backup Withholding
The exchange agent will be required to withhold 30% of the gross proceeds to which a Tendering Holder is entitled pursuant to the exchange offer unless the holder provides its taxpayer identification number (i.e., social security number or employer identification number) and certifies that the number is correct, or an exemption from backup withholding applies. Each holder of BCI 9% Notes will need to complete and sign the Form W-9 that will be included in the transmittal letter to avoid backup withholding, or establish in a manner satisfactory to the exchange agent that an exemption from backup withholding applies.
Tax Return Disclosure and Investor List Requirements
Recently promulgated Treasury regulations require taxpayers that participate in "reportable transactions" to disclose those transactions on their tax returns by attaching IRS Form 8886 and to retain information related to those transactions. In addition, material advisers of a "reportable transaction" are required to maintain records including lists identifying investors in the transaction and to furnish those records to the IRS upon demand. A transaction might be a "reportable transaction" based upon any of several factors, one or more of which might be present with respect to this exchange offer. As a result, a Tendering Holder might be required to disclose its participation in the exchange offer on its tax return. Tendering Holders should consult their own tax advisers concerning their possible disclosure obligation with respect to the exchange offer and should be aware that we and other participants in the exchange offer might be required to report this transaction and maintain an investor list.
Non-Tendering Holders
The U.S. Federal income tax consequences to holders of BCI 9% Notes that do not tender their notes in the exchange offer ("Non-Tendering Holders") are unclear. The U.S. Federal income tax treatment of the adoption of the Proposed Amendments will depend on whether such adoption will be considered a "significant modification" of the BCI 9% Notes under applicable Treasury regulations and, if so, whether such adoption will qualify as recapitalization of BCI under Section 368(a)(1)(E) of the Code. As described below, although the matter is not free from doubt, we believe that it is likely that the adoption of the Proposed Amendments will be considered a significant modification of the BCI 9% Notes and that the adoption of the Proposed Amendments should not qualify as a recapitalization. As
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a result, the adoption of the Proposed Amendments should constitute a taxable deemed exchange of BCI 9% Notes for new BCI 9% Notes ("New BCI 9% Notes").
The discussion below assumes that the BCI 9% Notes and New BCI 9% Notes will be respected as debt of BCI. If, however, the BCI 9% Notes or New BCI 9% Notes are recharacterized as equity of BCI, the tax consequences to Non-Tendering Holders could vary from the consequences described below. Non-Tendering Holders should consult their tax advisers regarding the tax consequences to them of a potential recharacterization of the BCI 9% Notes or New BCI 9% Notes as equity.
Significant Modification
Under applicable Treasury regulations, the modification of a debt instrument is a significant modification if, based on all the facts and circumstances and taking into account all modifications of the debt instrument, the legal rights and obligations under the debt instrument are altered in a manner that is "economically significant." Although the matter is not free from doubt, we believe that it is likely that the adoption of the Proposed Amendments will result in a significant modification of the BCI 9% Notes because those amendments would alter the legal rights and obligations of a holder of BCI 9% Notes in an economically significant manner. If the adoption of the Proposed Amendments is considered a significant modification of the BCI 9% Notes, such adoption would result in a deemed exchange of the BCI 9% Notes for New BCI 9% Notes (a "Deemed Exchange").
If, however, the adoption of the Proposed Amendments does not constitute a significant modification of the BCI 9% Notes, a Non-Tendering Holder would not recognize any income, gain or loss for U.S. Federal income tax purposes as a result of the adoption of the Proposed Amendments. In that case, a Non-Tendering Holder's adjusted tax basis and holding period in the BCI 9% Notes after the adoption of the Proposed Amendments would be the same as the holder's adjusted tax basis and holding period in the BCI 9% Notes immediately before the adoption of the Proposed Amendments.
Recapitalization
A Deemed Exchange would be a taxable exchange for U.S. Federal income tax purposes unless the Deemed Exchange qualified as a recapitalization under Section 368(a)(1)(E) of the Code. Whether a Deemed Exchange would qualify as a tax-free recapitalization depends on, among other things, whether the BCI 9% Notes and the New BCI 9% Notes are "securities" within the meaning of Section 354 of the Code.
The rules for determining whether a debt instrument is a security for U.S. Federal income tax purposes are unclear. The term "security" is not defined in the Code or Treasury regulations and has not been clearly defined by judicial decisions. The determination of whether a debt instrument is a security requires an overall evaluation of the nature of the debt instrument, with the term of the instrument usually regarded as one of the most significant factors. In general, a debt instrument with a term of less than five years will not be considered a security for U.S. Federal income tax purposes. Accordingly, although the issue is not free from doubt, because the New BCI 9% Notes will have a term of less than five years from the date of the closing of this exchange offer, we believe that the New BCI 9% Notes should not be treated as securities. As a result, we believe that a Deemed Exchange should not qualify as a recapitalization under Section 368(a)(1)(E) of the Code.
If, as we expect, a Deemed Exchange does not qualify as a recapitalization, a Non-Tendering Holder would recognize gain or loss equal to the difference between (i) the "issue price" of the New BCI 9% Notes (as described below under "Issue Price of New BCI 9% Notes") and (ii) such holder's adjusted tax basis in the BCI 9% Notes deemed exchanged therefor. In addition, a Non-Tendering Holder's adjusted tax basis in the New BCI 9% Notes would be equal to the issue price of the New BCI 9% Notes and the holder would have a holding period in the New BCI 9% Notes commencing on the day after the Deemed Exchange. All or a portion of any recognized gain would be taxed as
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ordinary income rather than as capital gain if the Non-Tendering Holder acquired the BCI 9% Notes at market discount.
It is not clear whether a loss realized by a Non-Tendering Holder would be disallowed under the wash sale provisions of Section 1091 of the Code, which applies to the sale of "securities." It is possible that the IRS could assert that the BCI 9% Notes and the New BCI 9% Notes are securities for purposes of Section 1091 even if they do not treat the BCI 9% Notes or New BCI 9% Notes as securities under Section 354 of the Code as discussed above.
If, contrary to expectations, a Deemed Exchange does qualify as a tax-free recapitalization, a Non-Tendering Holder would not recognize any gain or loss in connection with the Deemed Exchange or the adoption of the Proposed Amendments, and a holder's adjusted tax basis and holding period in the BCI 9% Notes after the adoption of the Proposed Amendments would be the same as the holder's adjusted tax basis and holding period in the BCI 9% Notes immediately before the adoption of the Proposed Amendments.
Issue Price of New BCI 9% Notes
The issue price of New BCI 9% Notes will depend on whether a substantial amount of the BCI 9% Notes or the New BCI 9% Notes is "traded on an established market" within the meaning of the applicable Treasury regulations, regardless of whether a Deemed Exchange qualifies as a recapitalization. If the New BCI 9% Notes are traded on an established market, their issue price would be their fair market value on the date of the exchange. If the New BCI 9% Notes are not traded on an established market but the BCI 9% Notes are traded on an established market, the issue price of the New BCI 9% Notes would be equal to the fair market value of the BCI 9% Notes exchanged therefor. If neither the BCI 9% Notes nor the New BCI 9% Notes are traded on an established market, the issue price of the New BCI 9% Notes would be equal to their stated principal amount.
Although the matter is not free from doubt, we believe that neither the BCI 9% Notes nor the New BCI 9% Notes will be considered to be traded on an established market and, as a result, the issue price of the New BCI 9% Notes will be equal to their stated principal amount.
Original Issue Discount
Subject to a statutory de minimis exception, and regardless of whether a Deemed Exchange qualifies as a tax-free recapitalization, if the issue price of the New BCI 9% Notes is less than their stated redemption price at maturity, the New BCI 9% Notes would be treated as issued with original issue discount ("OID") for U.S. Federal income tax purposes. In that case, Non-Tendering Holders would generally be required to include OID in gross income under a constant yield method in advance of receipt of cash payments attributable to that income, regardless of whether the holder is a cash or accrual method taxpayer. If, as we believe, the issue price of the New BCI 9% Notes is their stated principal amount, the New BCI 9% Notes would not be issued with OID.
THE FOREGOING DISCUSSION IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER AND IS NOT A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER. THIS DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES THAT MIGHT VARY WITH, OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. IN ADDITION, IT DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE OFFER. ACCORDINGLY, WE URGE EACH HOLDER OF BCI 9% NOTES TO CONSULT ITS OWN TAX ADVISER TO DETERMINE THE PARTICULAR U.S. FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES TO IT OF THE EXCHANGE OFFER.
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DESCRIPTION OF BROADWING CAPITAL STOCK
The following summary of our capital stock is subject in all respects to applicable provisions of the Ohio General Corporation Law, our amended articles of incorporation and amended regulations and our rights agreement. See "Where You Can Find More Information."
General
The total authorized shares of capital stock of Broadwing consist of (1) 480,000,000 shares of Broadwing Common Stock, par value $.01 per share, (2) 1,357,299 shares of voting preferred stock without par value and (3) 1,000,000 shares of non-voting preferred stock without par value (together with the voting preferred stock, referred to as preferred stock). Our board of directors has designated 400,000 voting preferred shares as Series A Preferred Shares.
At December 31, 2002, approximately 226,598,844 shares of Broadwing Common Stock were issued and 218,690,375 shares were outstanding, and 155,250 shares of preferred stock were issued and outstanding, all of which were 63/4% Preferred Stock (defined herein).
Broadwing Common Stock
Each holder of Broadwing Common Stock is entitled to cast one vote for each share held of record on all matters submitted to a vote of the shareholders, including the election of directors. Holders of Broadwing Common Stock are entitled to receive dividends or other distributions declared by our board of directors. The right of the board of directors to declare dividends, however, is subject to the rights of any holders of preferred stock of Broadwing and certain requirements under Ohio law.
Preferred Stock
Our board of directors is authorized to provide for the issuance from time to time of Broadwing preferred stock in series and, as to each series, to fix the designation, the dividend rate and the date or dates from which such dividends will be cumulative, the times when and the prices at which the preferred stock will be redeemable, the voluntary and involuntary liquidation prices, the sinking fund provisions, if any, applicable to such series, the conversion or exchange privileges, if any, of such series, the restrictions, if any, upon the payment of dividends or other distributions and upon the creation of indebtedness, if any, and any other rights, preferences and limitations.
63/4% Cumulative Convertible Preferred Stock
Holders of the 63/4% Cumulative Convertible Preferred Shares (the "63/4% Preferred Stock") are entitled to cast one vote per whole share that they own on all matters submitted to a vote of the shareholders, including the election of directors. Holders of the 63/4% Preferred Stock and holders of Broadwing Common Stock will vote together as a single class, unless otherwise provided by law or our amended articles of incorporation. The approval of each holder of the Existing 63/4% Preferred Stock is necessary to:
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In addition, the approval of at least two-thirds of the votes entitled to be cast by holders of the 63/4% Preferred Stock is required to amend our amended articles of incorporation to affect adversely the specified rights, preferences, privileges or voting rights of holders of the 63/4% Preferred Stock.
Upon the accumulation of accrued and unpaid dividends on the 63/4% Preferred Stock in an amount equal to six full quarterly dividends (whether or not consecutive), the number of members of our board of directors will be immediately and automatically increased by two (unless previously increased pursuant to the terms of any other series of preferred stock upon which like rights have been conferred), and the holders of a majority of the 63/4% Preferred Stock, voting together as a class (pro rata, based on liquidation preference) with the holders of any other series of preferred stock upon which like rights have been conferred and are exercisable, will be entitled to elect two members to the Broadwing board of directors. Voting rights arising as a result of this accumulation of accrued and unpaid dividends will continue until such time as all dividends in arrears on the 63/4% Preferred Stock are paid in full or the number of outstanding 63/4% Preferred Stock is reduced to 13,500 or less.
Dividends on the 63/4% Preferred Stock are payable quarterly and accrue at a rate of 63/4% per annum per share on a liquidation preference of $1,000 per share, or $67.50 per annum per share. Dividends may, at our option, be paid in shares of Broadwing Common Stock if, and only if, the documents governing our indebtedness that existed as of March 30, 1998, prohibit the payment of such dividends in cash. We are allowed to pay dividends only if permitted by Ohio law.
Unless previously redeemed or repurchased, the 63/4% Preferred Stock is convertible, at the option of the holders, at any time, into shares of Broadwing Common Stock at a rate, subject to adjustment in certain events, of 28.84 shares of Broadwing Common Stock for each share of the 63/4% Preferred Stock.
The 63/4% Preferred Stock may be redeemed at our option at the redemption prices specified below (expressed as percentages of the liquidation preference thereof), in each case, together with an amount equal to accrued and unpaid dividends on the 63/4% Preferred Stock (excluding any declared dividends for which the record date has passed), and other specified amounts, upon prior written notice, during the 12-month period commencing on April 1 of each of the years set forth below:
| Year |
Redemption Price |
|
|---|---|---|
| 2003 | 103.38% | |
| 2004 | 102.70% | |
| 2005 | 102.03% | |
| 2006 | 101.35% | |
| 2007 | 100.68% | |
| 2008 and thereafter | 100.00% |
In order to protect the interests of holders of the 63/4% Preferred Stock, our amended articles of incorporation provide for adjustment of the conversion rate and related terms in the case of certain consolidations, mergers or changes of control. In the event of the liquidation, dissolution or winding up of the business of Broadwing, holders of the 63/4% Preferred Stock are entitled to receive the liquidation preference of $1,000 per share plus all accrued and unpaid dividends.
The 63/4% Preferred Stock is issued as and represented by depositary shares. Each depositary shares represents one-twentieth of a share of the 63/4% Preferred Stock. A holder of depositary shares of the 63/4% Preferred Stock only has voting rights equal to the number of whole shares of the 63/4% Preferred Stock represented by such depositary shares of the 63/4% Preferred Stock.
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Series A Preferred Stock
The Series A Preferred Stock is designated in connection with our rights agreement. No shares of Broadwing Series A Preferred Stock are currently outstanding.
Broadwing Rights Plan
Under our rights agreement, rights attach to each share of Broadwing Common Stock outstanding and, when exercisable, entitle the registered holder to purchase from us one one-thousandth of a share of our Series A Preferred Stock without par value at a purchase price of $125 per one one-thousandth of a share, subject to adjustment.
The rights will not be exercisable until the earlier to occur of:
The rights will expire on May 2, 2007, unless such date is extended or unless the rights are earlier redeemed or exchanged by Broadwing, in each case as summarized below.
In the event that a person or group acquires beneficial ownership of 15% (or 20% in the case of investment advisors under the Investment Advisers Act of 1940, subject to certain limitations) or more of the outstanding shares of Broadwing Common Stock, each holder of a right, other than rights beneficially owned by such person or group, which become void, will have the right to receive upon exercise that number of shares of Broadwing Common Stock having a market value of two times the purchase price provided for in the right. In the event that we are acquired in a merger or other business combination transaction or 50% or more of our consolidated assets or earning power is sold after a person or group acquires beneficial ownership of 15% (or 20% in the case of investment advisors under the Investment Advisers Act of 1940, subject to certain limitations) or more of the outstanding shares of Broadwing Common Stock, each holder of a right will thereafter have the right to receive upon exercise that number of shares of common stock of the acquiring company (or its ultimate parent in certain circumstances) which at the time of such transaction will have a market value of two times the purchase price provided for in the right. As an enforcement mechanism, the rights agreement prohibits us from entering into any such transaction unless the other party agrees to comply with the provisions of the rights.
The purchase price payable and the number of units of preferred stock or other securities or property assumable upon exercise of the rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the preferred stock, (ii) if holders of the preferred stock are granted certain rights or warrants to subscribe for preferred stock or convertible securities at less than the current trading price of the preferred stock or (iii) upon the distribution to holders of the preferred stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above).
At any time after a person or group acquires beneficial ownership of 15% (or 20% in the case of investment advisors under the Investment Advisers Act of 1940, subject to certain limitations) or more
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of the outstanding shares of Broadwing Common Stock and prior to the acquisition by such person or group of 50% or more of the then outstanding shares of Broadwing Common Stock, our board of directors may exchange the rights (other than rights owned by such person or group which have become void), in whole or in part, for Broadwing Common Stock or our Series A Preferred Stock.
At any time prior to a person or group acquiring beneficial ownership of 15% (or 20% in the case of investment advisors under the Investment Advisers Act of 1940, subject to certain limitations) or more of the outstanding shares of Broadwing Common Stock, our board of directors may redeem the rights in whole, but not in part, at a redemption price of $.01 per right, subject to adjustment, or amend the terms of the rights, in each case without the consent of the holders of the rights, at such time, on such basis and with such conditions as our board of directors may establish. However, no amendment may decrease the redemption price of the rights.
Series A Preferred Stock purchasable upon exercise of the rights is not redeemable. Series A Preferred Stock has dividend, voting and liquidation rights that are intended to result in the value of a one one-thousandth interest in a share of the Series A Preferred Stock purchasable upon exercise of each right approximating the value of one share of Broadwing Common Stock. Until a right is exercised, the holder thereof, as such, will have no rights as a shareholder of Broadwing, including, without limitation, the right to vote or to receive dividends.
The rights may have anti-takeover effects. The rights will cause substantial dilution to a person or group of persons that attempts to acquire Broadwing by a share acquisition on terms not approved by our board of directors. The rights should not interfere with any merger or other business combination approved by our board of directors prior to the time that a person or group has acquired 15% (or 20% in the case of investment advisors under the Investment Advisers Act of 1940, subject to certain limitations) or more of the outstanding shares of Broadwing Common Stock since the rights may be redeemed or amended by us until such time.
Warrants
In connection with our issuance of the 16% Notes, the initial purchasers of the 16% Notes will receive warrants to purchase 17.5 million shares of Broadwing Common Stock at a price of $3.00 per share. The number of shares of Broadwing Common Stock to be issued under these warrants will be adjusted for the following:
The warrants are exercisable at any time on or prior to March 26, 2013. The holders of the warrants have the right to require us to register the warrants or the Broadwing Common Stock
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underlying the warrants for sale pursuant to a shelf registration statement under the Securities Act. Furthermore, if a shelf registration has not been declared effective and we propose to register any of our equity securities under the Securities Act, the holders of the warrants have the right to request that their warrants or the Broadwing Common Stock underlying the warrants be registered, subject to certain limitations, together with our other equity securities.
Anti-takeover Effects of Ohio Law
Ohio law contains several anti-takeover provisions that apply to corporations like Broadwing. We are subject to these provisions because there are no opt-out provisions in our amended articles of incorporation or amended regulations with respect to these provisions.
Chapter 1704 of the Ohio General Corporation Law applies to a broad range of business combinations between an Ohio corporation and an interested shareholder. The Ohio law definition of "business combination" includes mergers, consolidations, combinations or majority share acquisitions. An "interested shareholder" is defined as a shareholder who, directly or indirectly, exercises or directs the exercise of 10% or more of the voting power of the corporation. Chapter 1704 of the Ohio General Corporation Law restricts corporations from engaging in business combinations with interested shareholders, unless the articles of incorporation provide otherwise, for a period of three years following the date on which the shareholder became an interested shareholder, unless the board of directors of the corporation have approved the business combination or the interested shareholder's acquisition of shares of the corporation prior to the date the shareholder became an interested shareholder. After the initial three-year moratorium, Chapter 1704 prohibits such transactions absent approval by the board of directors of the interested shareholder's acquisition of shares of the corporation prior to the date that the shareholder becomes an interested shareholder, approval by disinterested shareholders of the corporation or the transaction meeting certain statutorily defined fair price provisions.
Under Section 1701.831 of the Ohio General Corporation Law, unless the articles of incorporation provide otherwise, any control share acquisition of a corporation can be made only with the prior approval of the corporation's shareholders. A "control share acquisition" is defined as any acquisition of shares of a corporation that, when added to all other shares of that corporation owned by the acquiring person, would enable that person to exercise levels of voting power in any of the following ranges: at least 20% but less than 331/3%; at least 331/3% but less than 50%; or 50% or more.
See the Risk Factor entitled, "Anti-takeover provisions of Ohio General Corporation Law, our amended articles of incorporation and our rights agreement may affect the value of the Broadwing Common Stock."
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DESCRIPTION OF BROADWING AND BCI INDEBTEDNESS
Credit Facilities
General
In November 1999, we obtained credit facilities of $1.8 billion from a group of lending institutions. The credit facilities were increased to $2.1 billion in January 2000 and again to $2.3 billion in June 2001. Total availability under the credit facilities decreased to $1.825 billion as of December 31, 2002, following a $335 million prepayment of the outstanding term debt facilities in the first quarter of 2002 (resulting from the sale of substantially all of the assets of Cincinnati Bell Directory), $5 million in scheduled repayments of the term debt facilities and $135 million in scheduled amortization of the revolving credit facility. On March 26, 2003, we permanently prepaid $220 million in borrowings under our term and revolving credit facilities and made a $90 million payment under our revolving credit facility with the net cash proceeds from the Goldman mezzanine financing and amended certain terms of our credit facilities.
As of March 26, 2003, the credit facilities consist of $644 million in revolving credit maturing on March 1, 2006, and having four equal quarterly scheduled commitment reductions during 2005 in an aggregate amount equal to $200 million, $516 million in term loans from banking institutions, maturing in various amounts during 2003 and 2004, and $444 million in term loans from nonbanking institutions, maturing in various amounts between 2003 and 2007.
Use of Credit Facilities
At December 31, 2002, Broadwing had drawn approximately $1.648 billion from the credit facilities' capacity of $1.825 billion, and had outstanding letters of credit totaling $13 million, leaving $164 million in additional borrowing capacity under the facilities. The credit facilities borrowings have been used by Broadwing to refinance its debt and debt assumed as part of the merger with IXC in November 1999 and to fund its capital expenditure program and other working capital needs.
Prior to December 2001, BCI relied solely on advances from Broadwing for funding of its operations and capital program in excess of cash provided by its operating activities. In December 2001, BCI's subsidiary Broadwing Communications Services Inc. began borrowing funds directly from the credit facilities. As of March 26, 2003, Broadwing Communications Services Inc. had $223 million of borrowings under our credit facilities. Under the amended terms of our credit facilities, BCI and its subsidiaries will no longer be able to borrow from the credit facilities.
Interest Rates
Borrowings under the credit facilities bear interest, at our election, at either (i) LIBOR plus 425 basis points in the case of the revolving credit facility or 375 basis points in the case of the term facilities or (ii) the base rate (as defined below) plus 325 basis points in the case of the revolving credit facility or 275 basis points in the case of the term facilities. The "base rate" is equal to the higher of the base rate at Citibank, N.A. and the Federal Funds Rate plus one-half of one percent.
Maturity and Amortization
Loans under the term loan A facility mature on November 9, 2004, and amortize under a schedule providing for quarterly installments in aggregate annual amounts of $258 million and $258 million in 2003 and 2004, respectively. Loans under the term loan B facility mature on December 30, 2006 and amortize under a schedule providing for quarterly installments in aggregate annual principal amounts of $3.1 million, $3.1 million, $3.1 million and $298.5 million in 2003, 2004, 2005 and 2006, respectively. Loans under the term loan C facility mature on June 29, 2007 and amortize under a schedule providing for quarterly installments in aggregate annual principal amounts of $1.4 million, $1.4 million,
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$1.4 million, $67.0 million and $66.3 million in 2003, 2004, 2005, 2006 and 2007, respectively. The revolving credit facility matures on March 1, 2006, and amortizes under a schedule providing for four equal quarterly reductions of $50 million each in 2005 in an aggregate amount equal to $200 million.
Fees
We have paid or will pay certain commitment fees to the lenders on the undrawn portions of their commitments at rates payable quarterly ranging from 37.5 basis point to 75 basis point of the unused amount of borrowings of the revolving credit facility. In 2002, these commitment fees amounted to approximately $1 million.
We have also paid and will pay letter of credit fees on the available amount under all outstanding letters of credit, a commission to each bank of 0.25% per annum based on its letter of credit commitment and customary fees for the issuance of letters of credit. These fees are paid quarterly and in 2002, amounted to approximately $0.2 million.
In connection with the March 26, 2003 amendment of the terms of our credit facilities, we agreed to pay an amendment fee in an amount equal to 75 basis points for the revolving credit facility and 37.5 basis points for each of the term loan A, B, and C credit facilities.
Prepayments
Subject to certain limited exceptions, borrowings under the credit facilities are required to be pre-paid: (1) in an amount equal to 75% of excess cash flow for each fiscal year commencing with the fiscal year ended December 31, 2003; (2) in an amount equal to 100% of net cash proceeds of certain sales, leases, transfers or other dispositions of assets by us or our subsidiaries subject to reinvestment rights in certain cases; (3) 100% of net cash proceeds from the issuance of certain debt obligations by us or any Subsidiary Guarantor (as defined in the credit facilities) and (4) 50% of the net cash proceeds from issuances of Broadwing Common Stock or our preferred stock to the extent such net cash proceeds exceed $50 million.
Voluntary prepayments of borrowings under the credit facilities and voluntary reductions of the unutilized parts of the credit facilities commitments are, subject to proper notice, permitted at any time.
Guarantees
We and our subsidiaries (other than Cincinnati Bell Telephone and certain Cincinnati Bell Wireless subsidiaries), guarantee borrowings made by us and Broadwing Communications Services Inc. under the credit facilities. BCI and its subsidiaries (other than our Mutual Signal subsidiaries) guarantee borrowings by Broadwing Communications Services Inc., but not borrowings by Broadwing, under the credit facilities.
Security
Our obligations under the financing documents governing the credit facilities are secured by perfected first priority pledges and security interests in (1) substantially all of the equity interests of our subsidiaries (other than Cincinnati Bell Wireless LLC and our Mutual Signal subsidiaries) and (2) substantially all of our and each of our subsidiaries (other than Cincinnati Bell Telephone, certain Cincinnati Bell Wireless subsidiaries and our Mutual Signal subsidiaries) other tangible and intangible assets, including, without limitation, real property and fixtures, accounts receivable, inventory, contract rights, equipment, intellectual property, general intangibles, investment property and proceeds of the foregoing; provided that the assets of BCI and its subsidiaries only secure borrowings by Broadwing Communications Services Inc., but not borrowings by Broadwing, under the credit facilities.
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Covenants
The financing documents governing the credit facilities contain financial covenants that require us to maintain certain debt to EBITDA, senior secured debt to EBITDA and interest coverage ratios, as well as limit us to certain maximum capital expenditures. The credit facilities also contain restrictive covenants that, among other things, limit our ability to incur additional debt or liens; pay dividends; repurchase Broadwing Common Stock; sell, lease, transfer or dispose of assets; and make investments and merge with another company. As of December 31, 2002, we were in compliance with all of the covenants of the credit facilities.
Events of Default
The credit facilities provide for events of default customary to facilities of this type, including non-payment of principal, interest or other amounts; incorrectness of representations and warranties in any material respect; violation of covenants; cross-default and cross-acceleration; certain events of bankruptcy or insolvency; certain material judgments; invalidity of any loan or security document; change of control and certain ERISA events.
In March 2003, we obtained an amendment that provided that a bankruptcy or insolvency of BCI or any of its subsidiaries, a judgment against BCI or any of its subsidiaries and breaches by BCI or any of its subsidiaries of the negative covenants would not constitute an event of default with respect to Broadwing. These terms continue to allow remedies to be exercised against BCI and are treated as BCI events of default.
BCI Arrangements
Pursuant to the amendment we obtained in March 2003, future net cash investments or other cash infusions in BCI and its subsidiaries after October 1, 2002, will be limited (subject to certain exceptions) to an aggregate amount not to exceed the sum of (a) $118 million plus (b) the aggregate amount of net cash dividends and distributions paid by BCI and its subsidiaries to us after October 1, 2002 and plus or minus (c) the net position of BCI and its subsidiaries under our centralized cash management system. Also, corporate separateness covenants require us to maintain legal and operational separation between BCI and its subsidiaries, on one hand, and Broadwing and its other subsidiaries, on the other hand.
16% Senior Subordinated Discount Notes due 2009
On March 26, 2003, we received $350 million of gross cash proceeds from the issuance of 16% Senior Subordinated Discount Notes Due 2009 (the "16% Notes") as part of the mezzanine financing transaction led by Goldman Sachs & Co. (the "Goldman mezzanine financing"). Interest on the 16% Notes will be payable on each June 30 and December 31 of 2003 through 2006 and then on each of June 30, 2007, January 20, 2008 and on the maturity date on January 20, 2009. Of the 16% interest, 12% is paid in cash and 4% is accreted on the aggregate principal amount. The 16% Notes may be redeemed at Broadwing's option, in whole or in part, at the redemption prices (expressed as a percentage of the accreted value of the 16% Notes being prepaid as of the redemption date) set forth below, plus accrued and unpaid interest to the date of redemption, during the twelve-month period beginning on March 26, 2006:
| Period |
Redemption Price |
|
|---|---|---|
| March 26, 2006 to March 25, 2007 | 108% | |
| March 26, 2007 to March 25, 2008 | 106% | |
| March 26, 2008 to January 19, 2009 | 104% |
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In addition, purchasers of the 16% Notes received 17.5 million warrants, subject to antidilution provisions, each to purchase one share of Broadwing Common Stock at $3.00 per share.
If we default in the payment of the principal of, interest on, or other amounts payable in respect of its other indebtedness in the aggregate principal amount of $20 million or more and such default permits the holder thereof to declare such indebtedness immediately due and payable, the holders of at least 25% of the aggregate principal amount at maturity of the 16% Notes may declare the principal thereunder immediately due and payable. Certain other customary events of default include payment defaults, failure to observe or perform the affirmative and negative covenants, including those relating to the restrictions on our dealings with BCI, material breaches of representations and warranties, judgments for payments exceeding $30 million in the aggregate and voluntary and involuntary bankruptcy proceedings. Certain of the events of default fall away or become less restrictive upon either the 16% Notes being widely distributed or Broadwing attaining specified credit ratings.
Upon the occurrence of a change of control, we are required to repurchase the 16% Notes at a purchase price equal to 101% of the accreted value thereof, plus accrued and unpaid interest to the date of repurchase.
The indenture governing the 16% Notes also restricts our ability to make investments or other cash infusions in BCI and its subsidiaries. Specifically, we may not, among other things, (1) make any restricted payments to, (2) issue capital stock to, (3) make any investment in (including guaranteeing obligations or purchasing assets for BCI or making any payments in respect of operating expenses or net operating losses of BCI), or (4) allow any tax reimbursement for the benefit of BCI beyond an aggregate amount of $118 million (plus net cash dividends or net cash distributions made by BCI to us) after October 1, 2002. As of February 28, 2003, we had the ability to invest or otherwise provide an additional $58.4 million in BCI. This restriction does not apply to (q) certain permitted obligations, as defined under the terms of our credit facilities, (r) any customary non-cash transition arrangements or other related services provided for the benefit of a buyer in connection with a disposition of any properties or assets of BCI or its subsidiaries, (s) the accrual and capitalization of interest on intercompany notes issued by BCI and its subsidiaries to us, (t) the issuance of capital stock and a limited amount of cash pursuant to the exchange offer and the BCI preferred exchange offer, (u) guarantees by us of certain BCI borrowings under the credit facilities, (v) liens on our assets securing certain BCI borrowings under the credit facilities, (w) scheduled principal and interest payments made or guaranteed by us in respect of certain BCI borrowings under the credit facilities, scheduled interest payments with respect to the BCI 9% Notes and the 121/2% Notes and the redemption of the 121/2% Notes at the applicable redemption premium, (x) payments made by us under the guarantee of certain BCI borrowings under the credit facilities, (y) non-cash payments made in the form of reductions in the principal amount of any intercompany notes issued by BCI to us in respect of net operating losses of BCI used by us or other investments in the form of reductions of any intercompany notes and (z) payments by BCI of non-cash managements fees to us of up to $2 million per quarter. The indenture also imposes several affirmative covenants on Broadwing to maintain corporate and financial separateness from BCI.
The indenture governing the 16% Notes contains certain customary covenants for notes of this type, including, without limitation, with respect to Broadwing and its subsidiaries (excluding BCI and its subsidiaries), limitations on dividends and other restricted payments, dividend and other payment restrictions affecting its subsidiaries, indebtedness, asset dispositions, transactions with affiliates, liens, issuances and sales of capital stock of subsidiaries, issuances of senior subordinated debt, restrictions on dealing with BCI and its subsidiaries, and mergers and consolidations. Certain of these covenants fall away or become less restrictive when either of the following events occur: (1) the initial purchasers no longer hold more than 50% of the 16% Notes and we believe the number of beneficial holders exceeds 25 or (2) we receive a senior implied debt rating of at least BB+ from S&P and Ba1 from Moody's and senior subordinated debt rating of at least BB- from S&P and Ba3 from Moody's.
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So long as the Goldman Sachs-affiliated purchasers own 25% of the aggregate principal amount at maturity of the 16% Notes originally acquired by them, GS Mezzanine Partners II, L.P. will be entitled to designate a non-voting observer to attend and participate in (but not vote at) all meetings of the board of directors of Broadwing.
Convertible Subordinated Notes
In July 1999, we entered into an agreement with Oak Hill Capital Partners, L.P. pursuant to which Oak Hill Partners agreed to purchase $400 million of our 63/4% Convertible Subordinated Notes Due 2009 (the "Convertible Subordinated Notes"). On March 26, 2003, we entered into a supplemental indenture with The Bank of New York, as Trustee and, with the consent of the holders of the Convertible Subordinated Notes, amended certain terms governing the Convertible Subordinated Notes.
Prior to July 21, 2004, cash interest will not accrue or be payable on the Convertible Subordinated Notes, but the Convertible Subordinated Notes will accrete on a daily basis, compounded semi-annually on January 21 and July 21 of each year, at the rate of 63/4% per annum of the accreted value from July 21, 1999 through March 26, 2003, at the rate of 9.00% per annum of the accreted value from March 27, 2003 through July 21, 2004 and at the rate of 2.25% per annum of the accreted value from July 21, 2004 through July 21, 2009. Beginning on July 21, 2004, we will pay cash interest at the rate of 63/4% on $1,393.65 for each $1,000 of original issue price of the Convertible Subordinated Notes semi-annually on January 21 and July 21 of each year, commencing on January 21, 2005. In addition, beginning on July 21, 2004, we will have the option to elect to pay cash interest semi-annually on January 21 and July 21 of each year in lieu of the 2.25% accretion.
For the fiscal year ended December 31, 2002, we recorded noncash interest expense of approximately $32.3 million related to the Convertible Subordinated Notes.
At the option of the holder, the Convertible Subordinated Notes are convertible into Broadwing Common Stock at an initial conversion price of $29.89 per common share, subject to customary antidilution provisions. We may redeem all of the Convertible Subordinated Notes, or any portion of the Convertible Subordinated Notes in minimum multiples of $100,000,000 of original issue price, at any time on or after July 21, 2005, at the following redemption prices (expressed in percentages of the full accreted value of the Convertible Subordinated Notes on the redemption date), plus accrued and unpaid interest to the date of redemption:
| Period |
Redemption Prices |
|
|---|---|---|
| From July 21, 2005 through July 20, 2006 | 104.500% | |
| From July 21, 2006 through July 20, 2007 | 102.250% | |
| From July 21, 2007 through July 20, 2008 | 101.125% | |
| July 21, 2008 and thereafter | 100.000% |
If a change of control occurs before July 21, 2004 in which all or a portion of the consideration received by our shareholders is in cash, then the holder of each Convertible Subordinated Note may elect to receive an amount equal to the product of (i) the ratio (expressed as a percentage) of cash to total consideration received by our shareholders and (ii) the difference between the full accreted value of such Convertible Subordinated Notes and the accreted value of such note on the date the change of control occurs (the "full cash payment"). Upon the occurrence of a change of control, we are required to offer to repurchase the Convertible Subordinated Notes at a cash price equal to the greater of (i) the sum of 101% of the accreted value of the Convertible Subordinated Notes and the full cash payment and (ii) the fair market value of the Convertible Subordinated Notes as if they had been converted into Broadwing Common Stock immediately prior to the change of control, in each case plus any accrued and unpaid cash interest thereon to the date of repurchase. The supplemental indenture provides that neither the sale of our broadband business nor any other sale of the operating assets of
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BCI or its subsidiaries would constitute a change of control. The supplemental indenture also amended the definition of change of control by increasing the ownership threshold deemed to be a change of control from 20% of the outstanding shares to 45% of the outstanding shares.
On March 26, 2003, we entered into a supplemental indenture to provide that the commencement of or consent to any involuntary or voluntary bankruptcy proceeding with respect to BCI or any of its subsidiaries would not constitute an event of default under the Convertible Subordinated Notes.
If we default in the observance or performance of any agreement relating to senior indebtedness in an amount in excess of $250 million, the effect of which has resulted in an acceleration of such senior indebtedness, then the holders of 25% of the aggregate accreted value of the Convertible Subordinated Notes may declare the accreted value of the Convertible Subordinated Notes immediately due and payable.
The supplemental indenture contains covenants restricting our and our restricted subsidiaries' ability to incur debt and issue preferred stock and to consummate asset dispositions.
So long as Oak Hill Capital Partners, L.P., OHCP Ocean I, LLC, OHCP Ocean III, LLC, OHCP Ocean IV, LLC, OHCP Ocean V LLC, Oak Hill Securities Fund, L.P. and Oak Hill Securities Fund II, L.P. hold in the aggregate at least two-thirds of the Convertible Subordinated Notes issued, they shall be entitled to designate one director to our board of directors.
71/4% Notes due 2023
In July 1993, we issued $50.0 million in aggregate principal amount of 71/4% notes due 2023 (the "71/4% Notes"). The indenture related to these 71/4% Notes does not subject us to restrictive financial covenants. However, the 71/4% Notes do contain a covenant that provides that if we incur certain liens on our property or assets, we must secure the outstanding 71/4% Notes equally and ratably with the indebtedness or obligations secured by such liens. The 71/4% Notes are secured with our assets by virtue of the lien granted under our credit facilities.
As of December 31, 2002, $49.6 million in aggregate principal amount of the 71/4% Notes ($50 million face amount, net of unamortized discount of $0.4 million) remains outstanding. Interest on the 71/4% Notes is payable semi-annually on June 15 and December 15. The 71/4% Notes may not be redeemed by us prior to maturity. The indenture governing the 71/4% Notes contains a covenant that provides that if we incur certain liens on our property or assets, we must secure the outstanding bonds equally and ratably with the indebtedness or obligations secured by such liens.
If we or our subsidiary, Cincinnati Bell Telephone, default in the payment of the principal of, interest on, or other amounts payable in respect of or fail to perform or comply with any of our other agreements in respect of, and of our other indebtedness instruments in the aggregate principal amount of $20 million or more and such default or failure permits the holder thereof to declare such indebtedness immediately due and payable, then the holders of at least 25% of the aggregate principal amount of the 71/4% Notes may declare the principal of the 71/4% Notes immediately due and payable.
Cincinnati Bell Telephone—6.30% Unsecured Senior Debentures due 2028
In November 1998, Cincinnati Bell Telephone issued $150 million in aggregate principal amount of 6.30% unsecured senior debentures due 2028 (the "6.30% Debentures"). Interest on the 6.30% Debentures is payable semi-annually on June 1 and December 1 of each year. The 6.30% Debentures are redeemable, as a whole or in part, at the option of Cincinnati Bell Telephone, at any time or from time to time, at the redemption price equal to the greater of (i) 100% of the principal amount and (ii) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 20 basis points.
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If we or Cincinnati Bell Telephone default in the payment of the principal of, interest on, or other amounts payable in respect of, or fail to perform or comply with any of our other agreements in respect of, any of our other indebtedness in the aggregate principal amount of $20 million or more and such default or failure permits the holder thereof to declare such indebtedness immediately due and payable, the holders of at least 25% of the aggregate principal amount of the 6.30% Debentures may declare the principal of the 6.30% Debentures immediately due and payable.
The 6.30% Debentures also contain a covenant that provides that if Cincinnati Bell Telephone incurs certain liens on its property or assets, Cincinnati Bell Telephone must secure the relevant debt securities equally and ratably with the indebtedness or obligations secured by such liens. The Cincinnati Bell Telephone indenture also limits certain sales of assets.
Cincinnati Bell Telephone—Guaranteed Medium Term Notes
At December 31, 2002, Cincinnati Bell Telephone had $120.0 million in corporate notes outstanding that are guaranteed by us. These notes, which are not guaranteed by other subsidiaries of ours, have original maturities of 30 to 40 years and mature at various intervals between 2003 and 2028. In August 2002, $20 million of the Cincinnati Bell Telephone notes matured and were retired by us. As of December 31, 2002, $99.5 million ($100 million face amount, net of unamortized discount of $0.5 million) was considered long-term indebtedness and $20 million due December 30, 2003 was classified as short term debt. Interest rates on this indebtedness range from 6.24% to 7.27%. These notes also contain a covenant that provides that if Cincinnati Bell Telephone incurs certain liens on its property or assets, it must secure the outstanding notes equally and ratably with the indebtedness or obligations secured by such liens.
If we or Cincinnati Bell Telephone default in the payment of the principal of, interest on, or other amounts payable in respect of, or fail to perform or comply with any of our other agreements in respect of, any of our other indebtedness in the aggregate principal amount of $20 million or more and such default or failure permits the holder thereof to declare such indebtedness immediately due and payable, the holders of at least 25% of the aggregate principal amount of each medium term note may declare the principal of that medium term note immediately due and payable.
121/2% Senior Notes due 2005
We intend to call the $0.8 million aggregate principal amount outstanding of 121/2% Senior Notes due 2005 (the "121/2% Notes") on or prior to the completion of the exchange offer and consent solicitation.
The 121/2% Notes were originally issued in an aggregate principal amount of $285 million, the balance of which was redeemed by BCI through a tender offer in 1998. Interest on the 121/2% Notes is payable semi-annually on each April 1 and October 1. The 121/2% Notes may be redeemed at BCI's option, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest to the date of redemption, during the twelve-month period beginning on October 1 of the years set forth:
| Period |
Redemption Prices |
|
|---|---|---|
| 2002 | 103.125% | |
| 2003 | 101.563% | |
| 2004 and thereafter | 100.000% |
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Upon the occurrence of a change of control, BCI is required to repurchase the 121/2% Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase.
The commencement of or consent to any involuntary or voluntary bankruptcy proceeding with respect to BCI would constitute an event of default under the 121/2% Notes, pursuant to which the all outstanding 121/2% Notes would be due and payable immediately without further action or notice. The holders of a majority in aggregate principal amount of the then outstanding 121/2% Notes by written notice to the trustee may on behalf of all of the holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing events of default have been cured or waived.
121/2% Junior Exchangeable Preferred Stock
We are currently offering to exchange 14,148,518 shares of Broadwing Common Stock for the 395,210 outstanding shares of the BCI 121/2% Junior Exchangeable Preferred Stock (the "BCI Preferred Stock") in the BCI preferred exchange offer. See "Background of the Exchange Offer and Consent Solicitation—The Restructuring Plan and Recent Developments—BCI preferred exchange offer" for more details.
The BCI Preferred Stock is mandatorily redeemable on August 15, 2009 at a price equal to its liquidation preference of $1,000 per share, plus accrued and unpaid dividends, which amounted to $426.1 million at December 31, 2002, including accrued dividends of $30.9 million. Dividends on the BCI Preferred Stock are payable quarterly in arrears on each February 15, May 15, August 15 and November 15. Through November 15, 1999, dividends on the BCI Preferred Stock were being effected through additional shares of BCI Preferred Stock. On November 16, 1999, BCI converted to a cash pay option for these dividends. Recently, BCI deferred the payment of the quarterly dividends due August 15, 2002, November 15, 2002 and February 15, 2003. On or after August 15, 2002, each shares of the BCI Preferred Stock may be redeemed at any time, in whole or in part, at BCI's option, at the redemption prices set forth below, plus, without duplication, an amount in cash equal to all accrued and unpaid dividends to the date fixed for redemption (including an amount in cash equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date) if redeemed during the 12-month period beginning August 15 of each of the years set forth below:
| Period |
Redemption Prices |
|
|---|---|---|
| 2003 | 105.000% | |
| 2004 | 103.750% | |
| 2005 | 102.500% | |
| 2006 | 101.250% | |
| 2007 and thereafter | 100.000% |
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Frost Brown Todd LLC, special counsel to Broadwing, will pass on the validity of the Broadwing Common Stock to be issued to holders of BCI 9% Notes in the exchange offer and consent solicitation. Broadwing is also represented by Cravath, Swaine & Moore LLP, New York, New York and by Richards, Layton & Finger, P.A., Wilmington, Delaware. The dealer manager and solicitation agent is represented by Milbank, Tweed, Hadley & McCloy LLP, New York, New York.
The financial statements incorporated in the registration statement, of which this prospectus and solicitation statement are a part, by reference to the Annual Report of Broadwing Inc. on Form 10-K for the year ended December 31, 2002 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
The financial statements incorporated in the registration statement, of which this prospectus and solicitation statement are a part, by reference to the Annual Report of Broadwing Communications Inc. on Form 10-K for the year ended December 31, 2002 has been so incorporated in reliance on the report (which contains an explanatory paragraph relating to the BCI's ability to continue as a going concern as described in Note 1 to the financial statements) of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
Broadwing and BCI file annual, quarterly and special reports, proxy statements and other information with the SEC under the Exchange Act. You may read and copy these reports and other information filed by Broadwing and BCI at the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet world wide web site that contains reports, proxy statements and other information about issuers, like Broadwing and BCI, who file electronically with the SEC through the Electronic Data Gathering, Analysis and Retrieval System (EDGAR) system. The address of this site is http://www.sec.gov.
You may also inspect reports, proxy statements and other information about Broadwing and BCI at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
This prospectus and solicitation statement constitutes a part of a registration statement on Form S-4 we filed with the SEC to register the Broadwing Common Stock to be issued pursuant to the exchange offer. As allowed by SEC rules, this prospectus and solicitation statement does not contain all the information set forth in the registration statement or the exhibits to the registration statement. You may obtain copies of the Form S-4 (and any amendments) in the manner described above.
The SEC allows us to "incorporate by reference" information into this prospectus and solicitation statement, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus and solicitation statement, except for any information superseded by information in, or incorporated by reference in, this prospectus and solicitation statement. This prospectus and solicitation statement incorporates by reference the documents set forth below that Broadwing and BCI have previously filed with the SEC. These documents contain important information about Broadwing and BCI and their financial condition.
| Broadwing Inc. SEC Filings (Commission File No. 1-8519) |
Period |
|
|---|---|---|
| Annual Report on Form 10-K | Fiscal Year ended December 31, 2002 | |
Proxy Statement |
Filed on March 31, 2003 |
|
Current Reports on Form 8-K |
Filed on January 13, 2003, February 6, 2003, February 25, 2003, February 28, 2003 and March 27, 2003. |
Broadwing Communications Inc. SEC Filings (Commission File No. 1-15307) |
Period |
|
|---|---|---|
| Annual Report on Form 10-K | Fiscal Year ended December 31, 2002 | |
Current Report on Form 8-K |
Filed on February 25, 2003 and February 28, 2003 |
All documents filed by Broadwing and BCI with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act from the date of this prospectus and solicitation statement to the date that shares are accepted for exchange pursuant to the exchange offer (or the date that the exchange offer is terminated) shall also be deemed to be incorporated by reference into this prospectus and solicitation statement and to be a part hereof from the date of filing of such documents. Any statement contained in this prospectus and solicitation statement, or in a document incorporated by reference, shall be deemed to be modified or superseded to the extent that a statement contained in this prospectus and solicitation statement or in any other subsequently filed document incorporated by reference, modifies
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or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus and solicitation statement.
COPIES OF DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE FROM US WITHOUT CHARGE UPON REQUEST TO OUR EXCHANGE AGENT, THE BANK OF NEW YORK, 101 BARCLAY STREET, NEW YORK, NEW YORK 10286, TELEPHONE: (212) 815-3738. IF YOU REQUEST ANY SUCH DOCUMENTS FROM US, WE WILL MAIL THEM TO YOU BY FIRST CLASS MAIL, OR ANOTHER EQUALLY PROMPT MEANS, WITHIN ONE BUSINESS DAY AFTER WE RECEIVE YOUR REQUEST.
We have not authorized anyone to give any information or make any representation about the exchange offer and consent solicitation that is different from, or in addition to, that contained in this prospectus and solicitation statement or in any of the materials that we have incorporated by reference into this prospectus and solicitation statement. Therefore, you should not rely on any other information. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this document are unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies.
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Schedule I
CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF BROADWING
The following table sets forth the name and present principal occupations or employment, and material occupations, positions, officers or employment for the past five years of each director and executive officer of Broadwing. Unless otherwise indicated, positions held shown in the following table are positions with Broadwing. Except as set forth below, each such person is a citizen of the United States of America. None of the persons listed below beneficially own any BCI 9% Notes. Also, none of the listed persons, during the past five years, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or find any violation of such laws. Except as otherwise noted, the current business address for each person listed below is c/o Broadwing Inc., 201 East Fourth Street, Cincinnati, Ohio 45202.
Directors of Broadwing
| Name |
Present Principal Occupation or Employment and Material Positions Held During the Past Five Years |
|
|---|---|---|
| Kevin M. Mooney | Chief Executive Officer of Broadwing since September 2002; Director since September 2002; Chief Operating Officer from November 2001 to September 2002; Executive Vice President and Chief Financial Officer from September 1998 to November 2001; Senior Vice President and Chief Financial Officer of Cincinnati Bell Telephone since January 1998; Vice President and Controller of Broadwing, 1996-1998. | |
Daniel J. Meyer |
Chairman since September 2002; Director since 1999; Retired Chairman and Chief Executive Officer of Milacron, Inc. (a manufacturer of metal working and plastics processing machinery and systems); President of Milacron, Inc. from 1998-1999; Chairman and Chief Executive Officer of Milacron, Inc. from 1999 to 2001; and Chief Executive Officer of Milacron, Inc. since 1990. Mr. Meyer is also a director for AK Steel Corporation and Hubbell Incorporated. |
|
John F. Cassidy |
Director since September 2002; Chief Operating Officer of Broadwing since September 2002; President and Chief Operating Officer of Cincinnati Bell from May 2000; President of Cincinnati Bell Enterprises since August 1999; President of Cincinnati Bell Wireless since 1996. |
|
Lawrence J. Bouman |
Director since 2001; Consultant since 1999; Executive Vice President-Product evelopment of Qwest Communications International Inc. From 1998-1999; Chief Technology Officer of LCI International, Inc. from 1995-1998. Mr. Bouman is also a director of Metasolv Software Inc. |
|
Phillip R. Cox Cox Financial Corporation 105 East Fourth Street Suite 600 Cincinnati, OH 45202 |
Director since 1993; President and Chief Executive Officer of Cox Financial Corporation (a financial planning services company) since 1972; director of Federal Reserve Bank of Cleveland, Cinergy Corp., Touchstone Mutual Funds, and Long Stanton Manufacturing Company. |
|
S-I-1
J. Taylor Crandall Oak Hill Capital Management, Inc. 2775 Sand Hill Road, Suite 220 Menlo Park, CA 94025 |
Director since 1999; Managing Partner of Oak Hill Capital Management, Inc. and Chief Operating Officer of Keystone. Mr. Crandall is also a director of the American Skiing Company, Interstate Hotels Corporation, U.S. Oncology Inc. and Monstar Hospitality Corporation. He serves on the Board of Advisors of Oak Hill Capital Partners and Oak Hill Strategic Partners, L.P. Mr. Crandall is a member of Investment Committees of Insurance Partners, L.P. and Brazos Fund, L.P.; and a member of the Advisory Committees of Boston Ventures Limited Partnership V and B-K Capital Partners, L.P. |
|
Karen M. Hoguet Federated Department Stores, Inc. 7 West Seventh Street Cincinnati, OH 45202 |
Director since 1999; Chief Financial Officer and Senior Vice President of Federated Department Stores, Inc. (owner and operator of retail department stores); Senior Vice President of Federated Department Stores, Inc. since 1991; Treasurer of Federated Department Stores, Inc. from 1992-1999; and Chief Financial Officer of Federated Department Stores, Inc. since 1997. |
|
Mary D. Nelson |
Director since 1994; retired; President of Nelson & Co. (consulting actuaries) from 1975-1999. Mrs. Nelson served as a director of Blount International, Inc. and its subsidiary, Blount Inc., from 1986-1999 and is currently a director of The Union Central Life Insurance Company. |
|
Carl Redfield Cisco Systems, Inc. 170 W. Tasman Drive, Bldg. A San Jose, CA 95134 |
Director since 2000; Senior Vice President of Worldwide Manufacturing/Logistics, Cisco Systems, Inc. since 1997; Vice President, Manufacturing/Logistics of Cisco Systems, nc. 1993-1999. Mr. Redfield is also a director of VA Software Corporation. |
|
David B. Sharrock |
Director since 1987; consultant since 1994; Executive Vice President and Chief Operating Officer of Marion Merrell Dow Inc. (a researcher, manufacturer and seller of pharmaceutical products) from 1989-1993; President and Chief Operating Officer of Merrell Dow Pharmaceuticals Inc. from 1988-1989. Mr. Sharrock is also a director of Interneuron Pharmaceuticals Inc., Incara Pharmaceutical, Inc., Praecis Pharmaceutical, Inc. and MGI Pharma, Inc. |
|
John M. Zrno |
Director since 1999; retired; President and Chief Executive Officer of IXC Communications, Inc. from June 1999-November 1999; President and Chief Executive Officer of ALC Communications Corporation from 1988-1995 Mr. Zrno is also a director of BullsEye Telecom. |
S-I-2
Executive Officers of Broadwing
| Name |
Present Principal Occupation or Employment and Material Positions Held During the Past Five Years |
|
|---|---|---|
| Kevin M. Mooney | See " — Directors of Broadwing." | |
John F. Cassidy |
See " — Directors of Broadwing." |
|
Thomas Schilling |
Chief Financial Officer since July 2002; Senior Vice President of Finance and Administration from 1999 to 2002; Chief Financial Officer of AutoTrader.com from 1998 to 1999; Managing Director of MCI Systemhouse from 1997 to 1998. |
|
Jeffrey C. Smith |
Chief Human Resources Officer since November 2001; General Counsel and Corporate Secretary since February 2001; Chief Legal/Administrative Officer since November 1999; Senior Vice President of IXC Communications, Inc. from September 1997 until November 1999; Vice President, General Counsel and Secretary of IXC Communications, Inc. from January 1997 until September 1997. |
|
Mary E. McCann |
Senior Vice President of Internal Controls since July 2002; Senior Vice President, Corporate Finance from December 2001 to July 2002; Vice President, Controller from February 1999 to December 2001; Director of Financial Planning of Cincinnati Bell Telephone from April 1998 to February 1999; Manager of Financial Reporting and Analysis of Cincinnati Bell Telephone from August 1996 to April 1998. |
|
Michael W. Callaghan |
Senior Vice President, Corporate Development since March 1999; Vice President, Corporate Development of Convergys Corporation, 1998 to 1999; Vice President, Corporate Development from 1994 to 1998. |
S-I-3
Schedule II
CERTAIN INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF BCI
The following table sets forth the name and the present principal occupations or employment, and material occupations, positions, offices or employment for the past five years of each director and executive officer of BCI. Unless otherwise indicated, positions held shown in the following table are positions with BCI. Except as set forth below, each such person is a citizen of the United States of America. None of the persons listed below beneficially own any BCI 9% Notes. Also, none of the listed persons, during the past five years, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. Except as other wise noted, the current business address for each person listed below is c/o Broadwing Communications Inc., 1122 Capital of Texas Highway South, Austin, Texas, 78746.
Sole Director of BCI
| Name |
Present Principal Occupation or Employment and Material Positions Held During the Past Five Years |
|
|---|---|---|
| Thomas L. Schilling | Chief Financial Officer and Director of BCI since July 2002. See "Schedule I: Certain Information Concerning the Directors and Executive Officers of Broadwing—Executive Officers of Broadwing." |
Executive Officers of BCI
| Name |
Present Principal Occupation or Employment and Material Positions Held During the Past Five Years |
|
|---|---|---|
| Kevin M. Mooney | See "Schedule I: Certain Information Concerning the Directors and Executive Officers of Broadwing—Directors of Broadwing." | |
John F. Cassidy |
See "Schedule I: Certain Information Concerning the Directors and Executive Officers of Broadwing—Directors of Broadwing." |
|
Thomas L. Schilling |
See "— Sole Director of BCI." |
|
Robert Shingler |
President of BCI since October 2002; President of Voice Operations of BCI from April 2002 to October 2002. Prior to April 2002, Chairman/CEO of Albion Connect, a telecommunications software provider, and employed for 20 years at Bell South Corporation and its subsidiaries in a variety of leadership positions. |
|
Mary E. McCann |
See "Schedule I: Certain Information Concerning the Directors and Executive Officers of Broadwing—Executive Officers of Broadwing." |
|
Jeffrey C. Smith |
See "Schedule I: Certain Information Concerning the Directors and Executive Officers of Broadwing—Executive Officers of Broadwing." |
|
Michael R. Jones |
Chief Technology Officer since October 2001; Senior Vice President, Network Engineering and Operations from February 2000 to October 2001; Vice President, Network Facilities and Construction from November 1999 to February 2000; Vice President, Network Facilities and Construction of IXC Communications, Inc. from July 1997 to November 1999. |
S-II-1
Annex A
FORM OF SUPPLEMENTAL INDENTURE
BROADWING COMMUNICATIONS INC.
(f/k/a IXC Communications, Inc.)
9% Senior Subordinated Notes due 2008
FIRST SUPPLEMENTAL INDENTURE
Dated as of [ ], 2003
THE BANK OF NEW YORK
(f/k/a IBJ Schroder Bank & Trust Company),
as Trustee
A-1
FIRST SUPPLEMENTAL INDENTURE dated as of [ ], 2003, by and between Broadwing Communications Inc. (f/k/a IXC Communications, Inc.), a Delaware corporation (the "Company"), and The Bank of New York (f/k/a IBJ Schroder Bank & Trust Company), as trustee (the "Trustee").
Whereas, the Company and the Trustee have entered into an Indenture dated as of April 21, 1998 (the "Indenture"), pursuant to which the Company issued its 9% Senior Subordinated Notes due 2008 (the "Securities");
Whereas, Section 9.02 of the Indenture provides that the Company and the Trustee may amend the Indenture and the Securities with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding;
Whereas, the Board of Directors of the Company has authorized the Company to approve certain amendments to the Indenture (the "Proposed Amendments") and the Company desires to amend certain provisions of the Indenture, as set forth in Article I hereof;
Whereas, pursuant to the prospectus and solicitation statement of Broadwing Inc., the parent of the Company ("Parent"), dated [ ], 2003, and any amendments or supplements thereto (the "Solicitation Statement"), Parent commenced an exchange offer for any and all of the outstanding Securities and solicited the consents of the Holders of the Securities to the Proposed Amendments;
Whereas, the Holders of a majority in outstanding principal amount of the Securities have consented to the Proposed Amendments effected by this First Supplemental Indenture;
Whereas, all things necessary to make this First Supplemental Indenture a valid agreement, in accordance with the terms of the Indenture, have been done.
Now, Therefore, this First Supplemental Indenture witnesseth that, for and in consideration of the premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
Amendments to Indenture
Section 1.01. Amendments to Articles 4, 5, 6 and 8. Effective upon the date (the "Expiration Date") that Parent accepts Securities for exchange pursuant to the Solicitation Statement, each of Section 4.02 (SEC Reports), Section 4.03 (Limitation on Indebtedness), Section 4.04 (Limitation on Restricted Payments), Section 4.05 (Limitation on Restrictions on Distributions from Restricted Subsidiaries), Section 4.06 (Limitation on Sales of Assets and Subsidiary Stock), Section 4.07 (Limitation on Affiliate Transactions), Section 4.08 (Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries), Section 4.09 (Change of Control) and clauses (ii), (iii) and (iv) of Section 5.01 (When Company May Merge or Transfer Assets) of the Indenture is hereby deleted in its entirety and replaced with "Intentionally Omitted". All references to such deleted sections are also hereby deleted in their entirety, including without limitation all references, direct or indirect, thereto in Section 6.01 (Events of Default) and Section 8.01 (Discharge of Liability on Securities; Defeasance).
Section 2.01. Interpretation. This First Supplemental Indenture is an indenture supplemental to and in implementation of the Indenture, and said Indenture and this First Supplemental Indenture shall henceforth be read together as though they constitute one instrument, except that, in case of
A-2
conflict, the provisions of this First Supplemental Indenture will control. In case of conflict between the terms and conditions contained in the Securities and those contained in the Indenture as amended and supplemented by this First Supplemental Indenture, the provisions of the Indenture as amended and supplemented by this First Supplemental Indenture shall control.
Section 2.02. Confirmation. The Indenture as amended and supplemented by this First Supplemental Indenture is in all respects confirmed and preserved and shall bind every Holder of the Securities.
Section 2.03. Definitions. Capitalized terms used in this First Supplemental Indenture and not otherwise defined herein shall have the respective meanings set forth in the Indenture. Any defined terms present in the Indenture, but no longer used as a result of the amendments made by this First Supplemental Indenture shall be eliminated.
Section 2.04. Headings. The headings of the Articles and Sections of this First Supplemental Indenture have been inserted for convenience of reference only, and are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof.
Section 2.05. Governing Law. The laws of the State of New York shall govern this First Supplemental Indenture.
Section 2.06. Conflict with Trust Indenture Act. If any provision of this First Supplemental Indenture limits, qualifies or conflicts with any provisions of the TIA that is required under the TIA to be part of and govern any provision of this First Supplemental Indenture, the provision of the TIA shall control.
Section 2.07. Severability. In case any provision in this First Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 2.08. Benefits of Supplemental Indenture, etc. Nothing in this First Supplemental Indenture or the Securities, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder and the Holders of the Securities, any benefit of any legal or equitable right, remedy or claim under the Indenture, this First Supplemental Indenture or the Securities.
Section 2.09. Successors. All agreements of the Company in this First Supplemental Indenture shall bind its successors. All agreements of the Trustee in this First Supplemental Indenture shall bind its successors.
Section 2.10. Counterparts. This First Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
Section 2.11. Effectiveness. The provisions of this First Supplemental Indenture will take effect immediately upon its execution and delivery by the Trustee in accordance with the provisions of Section 9.02 of the Indenture; provided that the amendments to the Indenture set forth in Section 1.01 of this First Supplemental Indenture shall become operative as specified in Section 1.01 hereof.
Section 2.12. Acceptance by Trustee. The Trustee accepts the amendments to the Indenture effected by this First Supplemental Indenture and agrees to execute the trust created by the Indenture as hereby amended, but only upon the terms and conditions set forth in the Indenture.
Section 2.13. Responsibility of Trustee. The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture.
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In Witness Whereof, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the date first written above.
| BROADWING COMMUNICATIONS INC. | |||
By: |
Name: Title: |
||
THE BANK OF NEW YORK, as Trustee |
|||
By: |
Name: Title: |
||
A-4
ANNEX B
THIS
AGREEMENT IS NOT AN OFFER WITH RESPECT TO ANY SECURITIES OR
A SOLICITATION OF ANY KIND. SUCH AN OFFER OR SOLICITATION WILL BE
MADE ONLY IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS
EXCHANGE AND VOTING AGREEMENT, dated as of March 24, 2003, by and among Broadwing Inc., an Ohio corporation (the "Company"), and the undersigned beneficial owners of (or investment managers or advisors for accounts or funds that own) the 9% Senior Subordinated Notes due 2008 (the "Notes") of Broadwing Communications Inc., a Delaware corporation and a subsidiary of the Company ("BCI") (together with their applicable transferees, successors and assigns, each a "Noteholder" and, collectively, the "Noteholders").
WHEREAS, the Company intends to offer to exchange (the "Exchange Offer") any and all outstanding Notes for shares of the Company's common stock, par value $0.01 per share (the "Broadwing Stock"), and concurrently with making the Exchange Offer, the Company plans to engage in a related solicitation (the "Consent Solicitation") of consents of the Noteholders to certain amendments to the Indenture (as defined below) to, among other things, eliminate all restrictive covenants therein all as contemplated by the Exchange Offer and Consent Solicitation;
WHEREAS, the Company and the Noteholders have engaged in good faith negotiations with the objective of consummating the Exchange Offer and Consent Solicitation substantially on the terms set forth in the Term Sheet attached hereto as Annex A, as each may be amended in accordance with the terms hereof; and
WHEREAS, the Company and the Noteholders desire that the Company conduct the Exchange Offer and the Consent Solicitation as soon as practicable all as contemplated by the Exchange Offer and Consent Solicitation.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the parties signatory to this Agreement hereby agrees as follows:
1. Definitions. Capitalized terms used and not defined in this Agreement have the meaning ascribed to them in the Term Sheet, and the following terms shall have the following meanings:
"Agreement" means this Exchange and Voting Agreement, including the Schedule and Annex hereto.
"Indenture" means the Indenture dated as of April 21, 1998, between BCI (as successor to IXC Communications, Inc.) and IBJ Schroder Bank & Trust Company, pursuant to which the Notes were issued, as amended and supplemented through the date hereof.
"Person" means any individual, partnership, corporation, limited liability company, association, trust, joint venture, unincorporated organization, governmental unit or other entity.
"Securities Act" means the Securities Act of 1933, as amended.
"Term Sheet" means that certain Term Sheet attached hereto as Annex A which sets forth the material terms and conditions of the Exchange Offer and Consent Solicitation. The Term Sheet shall be deemed a part of this Agreement and references to the Agreement shall be deemed to include the Term Sheet.
"Transfer" means to directly or indirectly (i) sell (through a direct sale, constructive sale or otherwise), pledge, assign, encumber, grant a proxy, grant an option with respect to, transfer or dispose
B-1
of any participation or interest (voting or otherwise) in or (ii) enter into an agreement, voting trust, commitment or other arrangement to sell (through a direct sale, constructive sale or otherwise), pledge, assign, encumber, grant a proxy, grant an option with respect to, transfer or dispose of any participation or interest (voting or otherwise) in, or the act thereof. The term "constructive sale" means a short sale with respect to the subject security, entering into or acquiring an offsetting derivative contract with respect to such security, entering into or acquiring a futures or forward contract to deliver such security or entering into any other hedging or other derivative transaction that has the effect of materially changing the economic benefits and risks of ownership.
2. Agreement to Complete the Exchange Offer and Consent Solicitation. Subject to the terms and conditions of this Agreement, the parties to this Agreement agree to use commercially reasonable efforts to complete the Exchange Offer and Consent Solicitation. The obligations of the parties hereunder are several and not joint and no party hereto shall be responsible for the failure of any other party hereto to perform its obligations hereunder.
3. Agreements of the Company. (a) The Company agrees to use its commercially reasonable efforts to commence the Exchange Offer and the Consent Solicitation as promptly as practicable, to do all things reasonably necessary and appropriate in furtherance thereof, including filing any related documents with the Securities and Exchange Commission (the "Commission").
(b) Nothing in this Agreement shall be deemed to prevent the Company or BCI from taking, or failing to take, any action that it is obligated to take (or fail to take) in the performance of any fiduciary or similar duty which the Company or BCI owes to any other Person; it being understood and agreed that if any such action (or failure to act) results in an alteration of the terms of the Exchange Offer and Consent Solicitation not permitted by Section 6, this Agreement and all of the obligations and undertakings of the parties set forth in this Agreement shall terminate and expire.
4. Agreements of the Noteholders. Subject to the terms and conditions of this Agreement:
(a) Each Noteholder agrees with each of the other parties to this Agreement, in connection with and conditioned upon the consummation of the Exchange Offer and Consent Solicitation and when solicited in accordance with applicable securities law, to:
(i) tender (or cause to be tendered) all of the Notes held by such Noteholder in exchange for shares of Broadwing Stock pursuant to and in accordance with the Exchange Offer and Consent Solicitation within 10 business days following the commencement of the Exchange Offer;
(ii) vote (or cause to be voted) its Notes to grant its consent pursuant to the Consent Solicitation and agree to the amendments to the Indenture; and
(iii) not withdraw or revoke any (or cause not to be withdrawn or revoked) of the foregoing unless and until this Agreement is terminated in accordance with its terms.
Each Noteholder acknowledges that by tendering its Notes in the Exchange Offer, it will be deemed to have delivered the consents required in the Consent Solicitation for the amendments to the Indenture.
(b) Each Noteholder agrees, so long as this Agreement remains in effect, not to Transfer any of the Notes held by it, in whole or in part, unless the transferee agrees in writing to be bound by the terms of this Agreement. In the event that any Noteholder Transfers any of the Notes, as a condition precedent to such Transfer, such Noteholder shall notify the Company prior to such transfer and agrees to cause the transferee to execute and deliver an acknowledgement, in form reasonably satisfactory to the Company, whereby such transferee agrees to be bound by the terms of this Agreement for so long as this Agreement shall remain in effect. Such acknowledgement shall be executed and delivered to the Company prior to the consummation of such Transfer. Any Transfer of the Notes in violation of the foregoing shall be deemed void.
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(c) Each Noteholder agrees, so long as this Agreement remains in effect, not to commit any act that could restrict or otherwise affect its legal power, authority or right to tender or vote all of the Notes then owned of record or beneficially by it. So long as this Agreement remains in effect, such Noteholder will not enter into any voting agreement with any person or entity with respect to any of such Notes, grant any person or entity any proxy (revocable or irrevocable) or power of attorney with respect to any of such Notes, deposit any of such Notes in a voting trust or otherwise enter into any agreement or arrangement with any person or entity limiting or affecting such Noteholder's legal power, authority or right to vote such Notes to grant its consent pursuant to the Consent Solicitation and agree to the amendments to the Indenture.
(d) Each Noteholder agrees that it will permit public disclosure, including in a press release and in the registration statement for the Exchange Offer and Consent Solicitation, of the contents of this Agreement, including, but not limited to, the commitments contained in this Section 4 and the Term Sheet.
(e) Each Noteholder further agrees that it will not object to, or otherwise commence or support any proceeding or material action to oppose, the Exchange Offer and Consent Solicitation and shall not take any action that (x) is materially inconsistent with its representations, warranties and agreements set forth herein or (y) would unreasonably delay the consummation of the Exchange Offer and Consent Solicitation.
5. Effectiveness of this Agreement. The effectiveness of this Agreement, and the respective obligations of the parties under this Agreement, are conditioned upon the receipt by the Company of the consent and signature hereto of each of the Noteholders listed on Schedule A hereto; provided that such Noteholders hold in the aggregate not less than 80% of the aggregate outstanding principal amount of the Notes.
6. Amendments to the Exchange Offer and Consent Solicitation. The Company shall not alter the material terms and conditions of the Exchange Offer and Consent Solicitation in a manner adverse to the Noteholders without the prior written consent of the Noteholders. Notwithstanding the foregoing, the Company may extend the expiration date of the Exchange Offer, if at the time of any such extension the conditions to closing set forth in the Exchange Offer shall not have been satisfied or waived as provided in this Agreement.
7. Termination of Agreement. Notwithstanding anything to the contrary set forth in this Agreement unless the Exchange Offer and Consent Solicitation have been consummated as provided in this Agreement, this Agreement and all of the obligations and undertakings of the parties set forth in this Agreement shall terminate and expire upon the earliest to occur of:
(i) mutual written consent of the Company and each Noteholder;
(ii) a material alteration by the Company of the terms of the Exchange Offer and Consent Solicitation not permitted under Section 6;
(iii) written notice from the Company to the Noteholders of the Company's intent to terminate this Agreement upon a determination by the Board of Directors that such termination is in the best interests of the Company;
(iv) written notice from the Company or any Noteholder to the other parties hereto after July 15, 2003, if the closing of the Exchange Offer and Consent Solicitation has not occurred on or before such date; and
(v) written notice from the Company to the Noteholders, if the "First Stage Closing" referred to in the Agreement for the Purchase and Sale of Assets dated as of February 22, 2003 (the "Sale Agreement") between certain subsidiaries of BCI, as Sellers, and the Buyers party thereto shall not
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have been consummated by June 30, 2003 in accordance with the terms currently set forth in the Sale Agreement.
8. Representations and Warranties. (a) Each of the signatories to this Agreement represents and warrants to the other signatories to this Agreement that:
(i) if an entity, it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite corporate, partnership or other power and authority to enter into this Agreement and to carry out the transactions contemplated by, and perform its respective obligations under, this Agreement;
(ii) the execution, delivery and performance by it of this Agreement do not and shall not (A) violate any provision of law, order, rule or regulation applicable to it or any of its affiliates or its certificate of incorporation or bylaws or other organizational documents or those of any of its subsidiaries or (B) conflict with, result in the breach of or constitute (with due notice or lapse of time or both) a default under any material contractual obligations to which it or any of its affiliates is a party or under its certificate of incorporation, bylaws or other governing instruments;
(iii) the execution, delivery and performance by it of this Agreement do not and shall not require any registration or filing with, the consent or approval of, notice to, or any other action with respect to, any Federal, state or other governmental authority or regulatory body, except for (A) the registration under the Securities Act of the shares of the Broadwing Stock to be issued in the Exchange Offer and such consents, approvals, authorizations, registrations or qualifications as may be required under the state securities or Blue Sky laws in connection with the issuance of those shares, (B) the filing with the Commission of a Statement on Schedule TO with respect to the Exchange Offer, including the exhibits thereto and (C) such other filings as may be necessary or required by the Commission;
(iv) assuming the due execution and delivery of this Agreement by each of the other parties hereto, this Agreement is the legally valid and binding obligation of it, enforceable against it in accordance with its terms; and
(v) it has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement.
(b) Each of the Noteholders further represents and warrants to the other signatories to this Agreement that:
(i) as of the date of this Agreement, such Noteholder (together with its affiliates) is the beneficial owner of, or the investment adviser or manager for the beneficial owners of, the aggregate principal amount of Notes, set forth opposite such Noteholder's name on Schedule A hereto, with the sole power and authority to vote and dispose of such Notes, and such Notes are owned free and clear of any liens, encumbrances, equities or claims;
(ii) as of the date of this Agreement and for so long as this Agreement remains in effect, such Noteholder has full legal power, authority and right to vote all of such Notes then of record or beneficially owned by it to grant its consent pursuant to the Consent Solicitation and agree to the amendments to the Indenture without the consent, approval of, or any other action on the part of, any other person or entity; and such Noteholder has not entered into voting agreement (other than this Agreement) with any person or entity with respect to any of such Notes, granted to any person or entity any of such Notes, deposited any such Notes in a voting trust or entered into any arrangement or agreement with any person or entity limiting or affecting its legal power, authority or right to vote such Notes on any matter;
(iii) such Noteholder has reviewed, or has had the opportunity to review, with the assistance of professional and legal advisors of its choosing, sufficient information necessary for such
B-4
Noteholder to decide to tender its Notes and grant its consent pursuant to the Exchange Offer and Consent Solicitation, respectively; and
(iv) as of the date of this Agreement, such Noteholder is not aware of any event that, due to any fiduciary or similar duty to any other Person, would prevent it from taking any action required of it under this Agreement.
9. No Public Announcement. ach Noteholder agrees that it shall not make any announcement or disclosure regarding this Agreement or the transactions contemplated herein without the prior written consent of the Company.
10. Good Faith. Each of the signatories to this Agreement agrees to cooperate in good faith with each other to facilitate the performance by the parties of their respective obligations hereunder and the purposes of this Agreement.
11. Amendments and Modifications. Except as otherwise expressly provided in this Agreement, this Agreement shall not be amended, changed, supplemented, waived or otherwise modified or terminated except by instrument in writing signed by each of the parties hereto.
12. No Waiver. Each of the signatories to this Agreement expressly acknowledges and agrees that, except as expressly provided in this Agreement, nothing in this Agreement is intended to, or does, in any manner waive, limit, impair or restrict the ability of any party to this Agreement to protect and preserve all of its rights, remedies and interests, including, without limitation, with respect to its claims against and interests in BCI.
13. Stop Transfer Restriction. In furtherance of this Agreement, each of the Noteholders shall, and hereby does, authorize the Company's counsel to notify BCI's transfer agent that a stop transfer restriction has been imposed with respect to all of the Notes owned by such Noteholder (and that this Agreement places limits on the voting and transfer of such Notes). Notwithstanding the foregoing sentence, if such a stop transfer is imposed and this Agreement is terminated, the Noteholders shall, and do hereby, authorize the Company's counsel to notify BCI's transfer agent that the stop transfer is terminated and the Company shall (and shall cause BCI to) provide any and all notices or instructions to reflect such termination.
14. Further Assurances. Each of the signatories to this Agreement hereby further covenants and agrees to execute and deliver all further documents and agreements and take all further action that may be reasonably necessary or desirable in order to enforce and effectively implement the terms and conditions of this Agreement and the Exchange Offer and Consent Solicitation.
15. Complete Agreement. This Agreement, including the Schedule and Annex hereto, constitutes the complete agreement between the signatories to this Agreement with respect to the subject matter hereof and supersedes all prior and contemporaneous negotiations, agreements and understandings with respect to the subject matter hereof. The provisions of this Agreement shall be interpreted in a reasonable manner to effect the intent of the signatories to this Agreement.
16. Notices. All notices, requests, demands, claims and other communications hereunder shall be in writing and shall be (a) transmitted by hand delivery, (b) mailed by first class, registered or certified mail, postage prepaid, (c) transmitted by overnight courier, or (d) transmitted by telecopy, and in each case, if to the Company, at the address set forth below:
Broadwing
Inc.
201 East Fourth Street
Cincinnati, OH 45202
Attention: Thomas W. Bosse, Esq.
Facsimile: (513) 397-9557
Telephone: (513) 397-9900
B-5
with a copy to:
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, NY 10019
Facsimile: (212) 474-3700
Telephone: (212) 474-1000
Attention: William V. Fogg, Esq.
and Robert Townsend, Esq.
if to a Noteholder, to the address set forth on the signature pages to this Agreement.
Notices mailed or transmitted in accordance with the foregoing shall be deemed to have been given upon receipt.
17. Governing Law. This Agreement shall be governed in all respects by the laws of the State of New York.
18. Jurisdiction; Waiver of Jury Trial. By its execution and delivery of this Agreement, each of the signatories to this Agreement irrevocably and unconditionally agrees that any legal action, suit or proceeding against it with respect to any matter under or arising out of or in connection with this Agreement or for recognition or enforcement of any judgment rendered in any such action, suit or proceeding, shall be brought in a federal or state court of competent jurisdiction in the State of New York in the Borough of Manhattan. By its execution and delivery of this Agreement, each of the signatories to this Agreement irrevocably accepts and submits itself to the jurisdiction of a court of competent jurisdiction in the State of New York, as applicable under the preceding sentence, with respect to any such action, suit or proceeding.
Each of the signatories to this Agreement waives its right to trial by jury in any suit, action or proceeding with respect to this Agreement and the transactions contemplated hereby.
19. Consent to Service of Process. Each of the signatories to this Agreement irrevocably consents to service of process by mail at the address listed with the signature of each such party on the signature pages to this Agreement. Each of the signatories to this Agreement agrees that its submission to jurisdiction and consent to service of process by mail is made for the express benefit of each of the other signatories to this Agreement.
20. Specific Performance. It is understood and agreed by each of the signatories to this Agreement that money damages would not be a sufficient remedy for any breach of this Agreement by any party and each non-breaching party shall be entitled to specific performance, injunctive, rescissionary or other equitable relief as remedy for any such breach.
21. Headings. The headings of the sections, paragraphs and subsections of this Agreement are inserted for convenience only and shall not affect the interpretation hereof.
22. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of the signatories to this Agreement and their respective successors, permitted assigns, heirs, executors, administrators and representatives. The agreements, representations and obligations of the undersigned parties under this Agreement are, in all respects, several and not joint.
23. Additional Notes. If, after the date hereof, a Noteholder acquires beneficial or record ownership of any additional Notes for itself or any account or fund managed by such Noteholder (any such Notes, "Additional Notes"), such Noteholder shall notify the Company of such acquisition and the provisions of this Agreement shall be applicable to such Additional Notes as if such Additional Notes had been Notes owned by such Noteholder as of the date hereof. The provisions of the immediately preceding sentence shall be effective with respect to Additional Notes without action by any person or
B-6
entity immediately upon the acquisition by such Noteholder of beneficial or record ownership of such Additional Notes.
24. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page by facsimile shall be as effective as delivery of a manually executed counterpart.
25. No Third-Party Beneficiaries. This Agreement shall be solely for the benefit of the signatories to this Agreement, and no other Person or entity shall be a third-party beneficiary hereof.
26. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
27. Consideration. It is hereby acknowledged by each of the signatories to this Agreement that no consideration (other than the obligations of the other parties under this Agreement) has been paid or shall be due or paid to the parties for their agreement to support the Exchange Offer and Consent Solicitation in accordance with the terms and conditions of this Agreement, other than the Company's agreement to use commercially reasonable efforts to obtain approval of confirmation of the Exchange Offer and Consent Solicitation in accordance with the terms and conditions of this Agreement.
28. Mutual Release. (a) In consideration of the agreements set forth herein and subject to paragraph (b) below (including that the releases provided for in this Section 28 are effective only upon the consummation of the Exchange Offer and Consent Solicitation), each of the signatories hereto hereby unconditionally releases, and forever discharges and acquits, each of the other signatories hereto, their parents, subsidiaries and affiliates and their respective directors, officers, executives, employees, attorneys, advisors, representatives and shareholders (the "Released Persons"), from all, and all manner of, actions, suits, debts, claims, duties, payment and performance of all obligations, liabilities and indebtedness of every kind, direct or indirect, determined or undetermined, at law or in equity, whether or not asserted or raised and existing or alleged to exist or to have existed, at any time, which such signatory ever had or has or may have at this time against any Released Person, arising out of, relating to, or incurred in connection with, the Notes, the Indenture, this Agreement or the Exchange Offer and Consent Solicitation, or any transaction entered into hereunder or thereunder or any action taken or omitted to be taken by the Released Persons hereunder or thereunder (collectively, the "Released Claims").
(b) The releases provided for by paragraph (a) above shall be effective upon the consummation of the Exchange Offer and Consent Solicitation. The release by a signatory hereto will not apply if and to the extent that any payment or delivery, in whole or in part, by or on behalf of another signatory hereto under or in connection with this Agreement or the Exchange Offer and Consent Solicitation is rescinded or must be otherwise restored, whether as a result of any proceedings in bankruptcy, insolvency or reorganization or otherwise, all as though such payment or delivery had not been made. Each signatory hereto hereby covenants not to sue or pursue any legal or equitable action against any other signatory hereto with respect to any Released Claim, and if any such signatory shall breach such covenant, then (i) such non-breaching signatory shall be entitled to collect from such breaching signatory all reasonable out-of-pocket costs and expenses, including attorneys' fees, losses, claims and damages, incurred by such non-breaching signatory that are directly related to the defense of such action and (ii) the release granted to such breaching signatory by such non-breaching signatory shall be void ab initio and shall be deemed never to have been given.
[SIGNATURES BEGIN ON NEXT PAGE]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed and delivered by its duly authorized officers as of the date first written above.
| BROADWING INC. | |||
By: |
/s/ MARK W. PETERSON Name: Mark W. Peterson Title: Vice President & Treasurer |
||
HARCH CAPITAL MANAGEMENT, INC. |
||||
By: |
||||
| /s/ MICHAEL E. LEWITT Name: Michael E. Lewitt Title: President |
||||
621 Northwest 53rd St., 1 Park Place, Suite 620 Boca Raton, FL 33847 |
||||
MUZINICH & CO. CREDIT |
||||
By: |
||||
| /s/ DANIEL NACCARELLA Name: Daniel Naccarella Title: Chief Financial Officer |
||||
450 Park Avenue 1 New York, NY 10022 |
||||
ALLIANZ INVESTMENT MANAGEMENT |
||||
By: |
||||
| /s/ CHARLES J. DUDLEY Name: Charles J. Dudley Title: Vice President |
||||
55 Greens Farms Road Westport, CT 06881 |
||||
B-8
Schedule A
To the Exchange and Voting Agreement
Noteholder and Principal Amount of Notes Held
| Name |
Principal Amount |
|
|---|---|---|
| Harch Capital Management, Inc. | $XX | |
| Muzinich & Co. Credit | XX | |
| Allianz Investment Management | XX | |
| $40,633,000 |
B-9
Annex A
To the Exchange and Voting Agreement
Broadwing Inc.
Term Sheet For Proposed Exchange Offer and Consent Solicitation
This Term Sheet sets forth the principal terms and conditions, as each may be amended in accordance with the terms of the Exchange and Voting Agreement (the "Agreement"), by which Broadwing Inc. (the "Company") intends to offer to exchange (the "Exchange Offer") any and all outstanding 9% Senior Subordinated Notes due 2008 (the "Notes") of Broadwing Communications Inc. ("BCI") for shares of the Company's common stock, par value $0.01 per share (the "Broadwing Stock"), and concurrently with making the Exchange Offer, the Company plans to engage in a related solicitation (the "Consent Solicitation") of consents of the holders of the Notes to certain amendments to the related indenture under which the Notes were issued to, among other things, eliminate all restrictive covenants. The Company also shall have the option to pay a portion of the Exchange Offer consideration in cash. Capitalized terms used and not defined herein shall have the meanings assigned to them in the Agreement.
| EXCHANGE OFFER: | Each Noteholder, in exchange for all outstanding Notes (plus accumulated and unpaid interest thereon) owned by such Noteholder, will receive on the date of the closing of the Exchange Offer and Consent Solicitation (the "Closing Date") a number of shares of Broadwing Stock determined by multiplying (i) the fraction, the numerator of which is the aggregate principal amount of Notes owned by such Noteholder on the Closing Date, and the denominator of which is the aggregate principal amount of Notes outstanding on the Closing Date, by (ii) 11,076,253. The Company shall have the option to pay a portion of the Exchange Offer consideration in cash, but in no event shall such cash payment exceed 1% of the total Exchange Offer consideration. | |
The consummation of the Exchange Offer will be subject to the condition that there be validly tendered and not withdrawn not less than 95% of the aggregate outstanding principal amount Notes (the "Minimum Tender Condition"). |
||
The Exchange Offer will include a simultaneous solicitation of consents (each, a "Consent") to amendments to the indenture under which the Notes were issued to, among other things, eliminate all restrictive covenants therein and such other provisions as shall be determined by the Company. |
||
All tendering holders of Notes will be deemed to have delivered a Consent with respect to any Notes tendered. |
||
CONDITIONS TO CLOSING: |
The Exchange Offer and Consent Solicitation will be subject to certain conditions that may be waived by Broadwing in its sole discretion, such conditions being substantially to the following effect: |
|
(i) the Minimum Tender Condition shall have been met; |
||
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(ii) the registration statement registering the Exchange Offer and Solicitation Consent having been declared effective by the Commission; |
||
(iii) the "First Stage Closing" referred to in the Sale Agreement shall have been consummated on or before June 30, 2003 in accordance with the terms currently set forth in the Sale Agreement; |
||
(iv) the absence of any threatened or pending litigation or other legal action relating to the Exchange Offer or Consent Solicitation; |
||
(v) the absence of any material adverse change in the financial markets, any disruption in the banking system or any commencement of a war involving the United States (excluding the current U.S. military action in Iraq); |
||
(vi) no merger, acquisition or other business combination proposal for the Company shall have been proposed; and |
||
(vii) no governmental approvals are required in order to complete the Exchange Offer and Consent Solicitation. |
||
GOVERNING LAW: |
New York law. |
B-11
Facsimile copies of the consent and letter of transmittal, properly completed and duly executed will be accepted. The consent and letter of transmittal, certificates for BCI 9% Notes and any other required documents should be sent or delivered by each holder of BCI 9% Notes or his or her broker, dealer, commercial bank, trust company or other nominee to the exchange agent at its address set forth below:
The Exchange Agent for the Exchange Offer
and Consent Solicitation is:
The Bank of New York
Reorganization Department, 7e
Attention: Diane Amoroso
101 Barclay Street
New York, New York 10286
Telephone:
(212) 815-3738
Facsimile: (212) 298-1915
Questions or requests for assistance or additional copies of this prospectus and solicitation statement and the consent and letter of transmittal may be directed to the dealer manager and solicitation agent at its address and telephone number set forth below. Noteholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the exchange offer and consent solicitation.
The Dealer Manager and Solicitation Agent for the Exchange Offer
and Consent Solicitation is:
LEHMAN BROTHERS
Liability Management Group
Attention: Darrell Chiang
745 Seventh Avenue
New York, New York 10019
Toll
Free: (800) 438-3242
Collect: (212) 528-7581
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS AND SOLICITATION STATEMENT
Item 20. Indemnification of Directors and Officers.
With certain exceptions to the following limitation, Ohio law provides that a director is liable in damages for any action he or she takes or fails to take only if it is proved by clear and convincing evidence in a court of competent jurisdiction that such action or failure to act was taken with deliberate intent to cause injury to the corporation or undertaken with reckless disregard for the best interests of the corporation.
Under Ohio law, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any proceeding, other than an action by or in the right of the corporation, because the person is or was a director or officer, against liability reasonably incurred by the director or officer in connection with the proceeding if either:
Under Ohio law, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any proceeding, by or in the rights of the corporation to procure a judgment in its favor, because the person is or was a director or officer against liability reasonably incurred by the director or officer in connection with the proceeding if the director or officer acted in good faith and in a manner the director or officer reasonably believed to be in or not opposed to the best interests of the corporation, except that a corporation may not indemnify a director or officer if either:
Under Ohio law, to the extent that a director or officer has been successful on the merits or otherwise in defense of the proceeding, the director or officer must be indemnified against expenses actually and reasonably incurred by him or her in connection with that proceeding.
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Ohio law provides that any indemnification for a director or officer, unless ordered by a court, is subject to a determination that the director or officer has met the applicable standard of conduct. The determination will be made by either:
Ohio law provides that the corporation must pay expenses as they are incurred by the director or officer in defending the proceeding if the director or officer undertakes to:
Under Ohio law, a corporation may advance the expenses before the final disposition of a proceeding if the director or officer undertakes to repay the amount if it is ultimately determined that the director or officer is not entitled to indemnification.
Ohio law gives a corporation the power to purchase and maintain insurance on behalf of any director or officer against any liability asserted against, and incurred in his or her capacity as a director or officer, whether or not the corporation would have the power to indemnify the director or officer against this liability under Ohio law.
The Broadwing amended regulations provide that Broadwing will indemnify directors and officers to the fullest extent permitted by law.
Item 21. Exhibits.
| Exhibit Number |
Description |
|
|---|---|---|
| 3.1(a) | Amended Articles of Incorporation of Broadwing Inc. (incorporated by reference to Exhibit (3)(a) to Form 10-Q for the three months ended June 30, 2000, File No. 1-8519). | |
| 3.1(b) | Amended Regulations of Broadwing Inc. (incorporated by reference to Exhibit 3.2 to Registration Statement No. 2-96054). | |
| 3.2(a) | Restated Certificate of Incorporation of Broadwing Communications Inc., as amended (incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended December 31, 2002, File No. 1-5367). | |
| 3.2(b) | Bylaws of Broadwing Communications Inc., as amended (incorporated by reference to Exhibit 3.2 to Form 10-Q for the quarter ended September 30, 1999, File No. 1-5367). | |
| (4)(a) | Provisions of the Amended Articles of Incorporation and the Amended Regulations of the registrant, which define the rights of holders of Broadwing Common Shares and Broadwing Preferred Shares, are incorporated by reference to such Amended Articles filed as Exhibit (3)(a) hereto and such Amended Regulations filed as Exhibit (3)(b) hereto. |
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| (4)(b)(i) | Rights Agreement dated as of April 29, 1997, between Broadwing and The Fifth Third Bank which includes the form of Certificate of Amendment to the Amended Articles of Incorporation of Broadwing as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Stock as Exhibit C (incorporated by reference to Exhibit 4.1 to Broadwing's Registration Statement on Form 8-A filed on May 1, 1997). | |
| (4)(b)(ii) | Amendment No. 1 to the Rights Agreement dated as of July 20, 1999, between Broadwing and The Fifth Third Bank (incorporated by reference to Exhibit 1 to Amendment No. 1 of Broadwing's Registration Statement on Form 8-A filed on August 6, 1999). | |
| (4)(b)(iii) | Amendment No. 2 to the Rights Agreement dated as of November 2, 1999, between Broadwing and The Fifth Third Bank (incorporated by reference to Exhibit 1 to Amendment No. 2 of Broadwing's Registration Statement on Form 8-A filed on November 8, 1999). | |
| (4)(b)(iv) | Amendment No. 3 to the Rights Agreement dated as of June 10, 2002, between Broadwing and The Fifth Third Bank. (Exhibit 1 to Amendment No. 3 of Broadwing's Registration Statement on Form 8-A filed on July 2, 2002). | |
| (4)(c)(i) | Indenture dated July 1, 1993, between Cincinnati Bell Inc., Issuer, and The Bank of New York, Trustee, in connection with $50,000,000 of Cincinnati Bell Inc. 71/4% Notes Due June 15, 2023 (incorporated by reference to Exhibit 4-A to Form 8-K, date of report July 12, 1993, File No. 1-8519). | |
| (4)(c)(ii) | Indenture dated as of October 27, 1993, among Cincinnati Bell Telephone Company, as Issuer, Cincinnati Bell Inc., as Guarantor, and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4-A to Form 8-K, date of report October 27, 1993, File No. 1-8519). | |
| (4)(c)(iii) | Indenture dated as of November 30, 1998 among Cincinnati Bell Telephone Company, as Issuer, Cincinnati Bell Inc., as Guarantor, and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4-A to Form 8-K, dated of report November 30, 1998, File No. 1-8519). | |
| (4)(c)(iv) | Investment Agreement dated as of July 21, 1999, among Cincinnati Bell, Oak Hill Capital Partners L.P. and certain related parties of Oak Hill (incorporated by reference to Exhibit 4.9 to Form S-4 filed on September 13, 1999, File No. 1-8519). | |
| (4)(c)(v)(1) | Indenture dated as of July 21, 1999 among Cincinnati Bell Inc., and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.10 to Form S-3 filed on November 10, 1999, File No. 1-8519). | |
| (4)(c)(v)(2) | First Supplemental Indenture dated as of March 26, 2003, between Broadwing Inc. (f/k/a Cincinnati Bell Inc.), as Issuer, and The Bank of New York, as Trustee (incorporated by reference to Exhibit (4)(c)(v)(2) to Form 10-K for the year ended December 31, 2002, File No. 1-8519). |
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| (4)(c)(vi) | Indenture dated as of March 26, 2003, by and among Broadwing Inc., as Issuer, Cincinnati Bell Public Communications Inc., ZoomTown.com Inc., Cincinnati Bell Any Distance Inc., Cincinnati Bell Telecommunications Services Inc., Broadwing Financial LLC, Cincinnati Bell Wireless Company, Cincinnati Bell Wireless Holdings LLC and Broadwing Holdings Inc., as Guarantors, and The Bank of New York, as Trustee, in connection with $350,000,000 of Broadwing Inc. Senior Subordinated Discount Notes Due 2009 (incorporated by reference to Exhibit (4)(c)(vi) to Form 10-K for the year ended December 31, 2002, File No. 1-8519). | |
| (4)(c)(vii) | Warrant Agreement, dated as of March 26, 2003, by and between Broadwing Inc., GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., and other purchasers (incorporated by reference to Exhibit (4)(c)(vii) to Form 10-K for the year ended December 31, 2002, File No. 1-8519). | |
| (4)(c)(viii) | Exchange and Registration Rights Agreement, dated as of March 26, 2003, by and between Broadwing Inc., GS Mezzanine Partners II, L.P., GS Mezzanine II Offshore, L.P., and other purchasers (incorporated by reference to Exhibit (4)(c)(viii) to Form 10-K for the year ended December 31, 2002, File No. 1-8519). | |
| (4)(c)(ix) | Equity Registration Rights Agreement, dated as of March 26, 2003, by and between Broadwing Inc., GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., and other purchasers (incorporated by reference to Exhibit (4)(c)(ix) to Form 10-K for the year ended December 31, 2002, File No. 1-8519). | |
| (4)(c)(x)(1) | Purchase Agreement, dated as of March 26, 2003, by and between Broadwing Inc., GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., and any other affiliate purchaser of Senior Subordinated Notes due 2009 of Broadwing Inc (incorporated by reference to Exhibit (4)(c)(x)(1) to Form 10-K for the year ended December 31, 2002, File No. 1-8519). | |
| (4)(c)(x)(2) | First Amendment to Purchase Agreement, dated as of March 26, 2003, by and between Broadwing Inc., GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., and other purchasers of Senior Subordinated Notes due 2009 of Broadwing Inc (incorporated by reference to Exhibit (4)(c)(x)(2) to Form 10-K for the year ended December 31, 2002, File No. 1-8519). | |
| (4)(c)(xi) | No other instrument which defines the rights of holders of long term debt of the registrant is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request. | |
| (4)(d)(1) | Indenture dated as of April 21, 1998, between IXC Communications, Inc. and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.3 of the April 22, 1998 Form 8-K). | |
| (4)(d)(2) | Form of Supplemental Indenture, between Broadwing Communications Inc. (f/k/a IXC Communications, Inc.) and The Bank of New York (f/k/a IBJ Schroder Bank & Trust Company), as Trustee (included as Annex A to the prospectus and solicitation statement, which is a part of this registration statement). | |
| 5 | Opinion of Frost Brown Todd LLC regarding the validity of the securities being registered (to be filed by amendment). |
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| (10)(i)(1) | Credit Agreement dated as of November 9, 1999, amended and restated as of March 26, 2003, among Broadwing Inc. (f/k/a Cincinnati Bell Inc.) and Broadwing Communications Service, Inc. (f/k/a IXC Communications Services, Inc.), as the Borrowers, the Initial Lenders, Initial Issuing Banks and Swing Line Banks named therein, Bank of America, N.A., as Syndication Agent, Citicorp USA, Inc., as Administrative Agent, Credit Suisse First Boston and The Bank of New York, as Co-Documentation Agents, PNC Bank, N.A., as Agent and Salomon Smith Barney Inc. and Banc of America Securities LLC, as Joint Lead Arrangers and Joint Book Managers (incorporated by reference to Exhibit (10)(i)(1) to Form 10-K, for the year ended December 31, 2002, File No. 1-8519). | |
| (10)(i)(A)(2) | Asset Purchase Agreement by and among Broadwing Inc., Cincinnati Bell Directory Inc. and CBD Media, Inc., dated as of February 4, 2002 (incorporated by reference to Exhibit (10)(i)(A)(2) to Form 10-K for the year ended December 31, 2001, File No. 1-8519). | |
| (10)(i)(A)(3) | Asset Purchase Agreement between Broadwing Communications Services Inc., Broadwing Communications Services of Virginia, Inc., Broadwing Communications Real Estate Services LLC, Broadwing Services LLC, IXC Business Services LLC, Broadwing Logistics LLC, Broadwing Telecommunications Inc., IXC Internet Services, Inc. and MSM Associates, Limited Partnership and C III Communications, LLC and C III Communications Operations, LLC, dated as of February 22, 2003 (incorporated by reference to Exhibit (10)(i)(A)(3) to Form 10-K for the year ended December 31, 2002, File No. 1-8519). | |
| (10)(iii)(A)(1) | Short Term Incentive Plan of Broadwing Inc., as amended and restated effective July 24, 2000 (incorporated by reference to Exhibit (10)(iii)(A)(1) to Form 10-Q for the three months ended June 30, 2000, File No. 1-8519). | |
| (10)(iii)(A)(2) | Broadwing Inc. Deferred Compensation Plan for Outside Directors, as amended and restated effective July 24, 2000 (incorporated by reference to Exhibit (10)(iii)(A)(3) to Form 10-Q for the three months ended June 30, 2000, File No. 1-8519). | |
| (10)(iii)(A)(3)(i) | Broadwing Inc. Pension Program, as amended and restated effective July 24, 2000 (incorporated by reference to Exhibit (10)(iii)(A)(4) to Form 10-Q for the three months ended June 30, 2000, File No. 1-8519). | |
| (10)(iii)(A)(3)(ii) | Cincinnati Bell Pension Program, as amended and restated effective March 3, 1997 (incorporated by reference to Exhibit (10)(iii)(A)(3)(ii) to Form 10-K for 1997, File No. 1-8519). | |
| (10)(iii)(A)(4) | Broadwing Inc. Executive Deferred Compensation Plan, as amended and restated effective July 24, 2000 (incorporated by reference to Exhibit (10)(iii)(A)(5) to Form 10-Q for the three months ended June 30, 2000, File No. 1-8519). | |
| (10)(iii)(A)(5) | Broadwing Inc. 1997 Long Tern Incentive Plan, as amended and restated effective July 24, 2000 (incorporated by reference to Exhibit (10)(iii)(A)(1) to Form 10-Q for the three months ended June 30, 2000, File No. 1-8519). | |
| (10)(iii)(A)(6) | Cincinnati Bell Inc. (now known as Broadwing Inc.) 1997 Stock Option Plan for Non-Employee Directors, as revised and restated effective February 1, 1999 (incorporated by reference to Exhibit (10)(iii)(A)(15) to Form 10-K for 1998, File No. 1-8519). |
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| (10)(iii)(A)(7) | Cincinnati Bell Inc. (now known as Broadwing Inc.) 1989 Stock Option Plan (incorporated by reference to Exhibit (10)(iii)(A)(14) to Form 10-K for 1989, File No. 1-8519). | |
| (10)(iii)(A)(8) | Employment Agreement dated January 1, 1999, between Broadwing and Kevin W. Mooney (incorporated by reference to Exhibit (10)(iii)(A)(ii) to Form 10-K for 1998, File No. 1-8519). | |
| (10)(iii)(A)(8.1) | Amendment to Employment Agreement effective September 20, 2002 between Broadwing and Kevin W. Mooney (incorporated by reference to Exhibit (10)(iii)(A)(9.1) to Form 10-Q for the three months ended September 30, 2002, File No. 1-8519). | |
| (10)(iii)(A)(8.2) | Amendment to Employment Agreement effective February 3, 2003 between Broadwing and Kevin W. Mooney (incorporated by reference to Exhibit (10)(iii)(A)(8.2) to Form 10-K for 2002, File No. 1-8519. | |
| (10)(iii)(A)(9) | Employment Agreement effective December 4, 2001, between Broadwing and Michael W. Callaghan (incorporated by reference to Exhibit (10)(iii)(A)(10) to Form 10-K for 2001, File No. 1-8519). | |
| (10)(iii)(A)(9.1) | Amendment to Employment Agreement effective February 3, 2003 between Broadwing and Michael W. Callaghan (incorporated by reference to Exhibit (10)(iii)(A)(9.1) to Form 10-K for 2002, File No. 1-8519). | |
| (10)(iii)(A)(10) | Employment Agreement effective January 1, 1999, between Broadwing and John F. Cassidy (incorporated by reference to Exhibit (10)(iii)(A)(11.1) to Form 10-Q for the three months ended September 30, 2002, File No. 1-8519). | |
| (10)(iii)(A)(11) | Employment Agreement effective January 1, 2000, between Broadwing and Jeffrey C. Smith. (incorporated by reference to Exhibit (10)(iii)(A)(12) to Form 10-Q for the quarter ended March 31, 2001, File No. 1-8519). | |
| (10)(iii)(A)(11.1) | Amendment to Employment Agreement effective September 20, 2002 between Broadwing and Jeffrey C. Smith (incorporated by reference to Exhibit (10)(iii)(A)(12.1) to Form 10-Q for the quarter ended September 30, 2002, File No. 1-8519). | |
| (10)(iii)(A)(11.2) | Amendment to Employment Agreement effective February 3, 2003 between Broadwing and Jeffrey C. Smith (incorporated by reference to Exhibit (10)(iii)(A)(11.2) to Form 10-K for 2002, File No. 1-8519). | |
| (10)(iii)(A)(12) | Employment Agreement effective July 24, 2002 between Broadwing and Thomas L. Schilling (incorporated by reference to Exhibit (10)(iii)(A)(13) to Form 10-Q for the quarter ended June 30, 2002, File No. 1-8519). | |
| (10)(iii)(A)(12.1) | Amendment to Employment Agreement effective February 3, 2003 between Broadwing and Thomas L. Schilling (incorporated by reference to Exhibit (10)(iii)(A)(12.1) to Form 10-K for 2002, File No. 1-8519). | |
| 21 | Subsidiaries of the Registrant (incorporated by reference to Exhibit 21(a) to Form 10-K for 2001; File No. 1-8519). | |
| 23(a) | Consent of PricewaterhouseCoopers LLP, independent accountants of Broadwing Inc. and Broadwing Communications Inc. (filed herewith). | |
| 23(b) | Consent of Frost Brown Todd LLC (contained in Exhibit 5) (to be filed by amendment). | |
| 24 | Power of Attorney (included in Signature Page). |
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| 99.1 | Exchange and Voting Agreement, dated as of March 24, 2003, by and among Broadwing Inc., and the beneficial owners of (or investment managers or advisors for accounts or funds that own) the 9% Senior Subordinated Notes due 2008 of Broadwing Communications Inc., a subsidiary of Broadwing Inc. (included as Annex B to the prospectus and solicitation statement, which is a part of this registration statement). | |
| 99.2 | Exchange and Voting Agreement, dated as of March 24, 2003, by and among Broadwing Inc., and the beneficial owners of (or investment managers or advisors for accounts or funds that own) the 121/2% Series B Junior Exchangeable Preferred Stock due 2009 of Broadwing Communications Inc., a subsidiary of Broadwing Inc. (incorporated by reference to Exhibit (99.4) to Form 10-K for the year ended December 31, 2002, File No. 1-8519). | |
| 99(a) | Form of Consent and Letter of Transmittal (including the Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9) (filed herewith). | |
| 99(b) | Form of Notice of Guaranteed Delivery (filed herewith). | |
| 99(c) | Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (filed herewith). | |
| 99(d) | Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (filed herewith). |
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Item 22. Undertakings.
provided, however, that paragraphs 1(a) and 1(b) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") that are incorporated by reference in this registration statement.
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Pursuant to the requirements of the Securities Act, each of the registrants certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Cincinnati, Ohio on April 17, 2003.
| BROADWING INC. | |||||
By |
/s/ THOMAS SCHILLING |
||||
| Name: | Thomas Schilling | ||||
| Title: | Chief Financial Officer | ||||
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Each person whose signature appears below constitutes and appoints Thomas Schilling and James H. Reynolds and each of them, his or her true and lawful attorney-in-fact and agent, with full power and substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, any registration statement filed pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, agent, or his substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| SIGNATURE |
TITLE |
DATE |
||
|---|---|---|---|---|
| BROADWING INC. | ||||
/s/ KEVIN W. MOONEY Kevin W. Mooney |
Principal Executive Officer; Chief Executive Officer and Director |
April 17, 2003 |
||
/s/ THOMAS SCHILLING Thomas Schilling |
Principal Financial Officer; Chief Financial Officer |
April 17, 2003 |
||
/s/ JOHN F. CASSIDY John F. Cassidy |
Chief Operating Officer and Director |
April 17, 2003 |
||
/s/ JAMES H. REYNOLDS James H. Reynolds |
Principal Accounting Officer; Vice President and Controller |
April 17, 2003 |
||
/s/ DANIEL J. MEYER Daniel J. Meyer |
Chairman of the Board; Director |
April 17, 2003 |
||
/s/ LAWRENCE J. BOUMAN Lawrence J. Bouman |
Director |
April 17, 2003 |
||
/s/ PHILLIP R. COX Phillip R. Cox |
Director |
April 17, 2003 |
||
/s/ J. TAYLOR CRANDALL J. Taylor Crandall |
Director |
April 17, 2003 |
||
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/s/ KAREN M. HOGUET Karen M. Hoguet |
Director |
April 17, 2003 |
||
/s/ MARY D. NELSON Mary D. Nelson |
Director |
April 17, 2003 |
||
/s/ CARL REDFIELD Carl Redfield |
Director |
April 17, 2003 |
||
/s/ DAVID S. SHARROCK David S. Sharrock |
Director |
April 17, 2003 |
||
/s/ JOHN M. ZRNO John M. Zrno |
Director |
April 17, 2003 |
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