Separately, KPNQwest announced plans for a major European expansion with the acquisition of Global TeleSystems, Inc.’s (GTS) Ebone and Central Europe businesses for approximately $580 million (645 million euro), including the assumption of debt. At the completion of the acquisition, KPNQwest will have a $450 million (500 million euro) credit facility to fully fund the combined company until it becomes free cash flow positive in the fourth quarter of 2003.

Owning a larger stake in KPNQwest is a well-timed strategic opportunity as KPNQwest significantly expands its pan-European leadership position; fully funds its business plan after a major acquisition, and accelerates free cash flow, said Qwest Chairman and CEO Joseph P. Nacchio, who also serves as chairman of the KPNQwest board.

The changes in the governance of KPNQwest eliminate a complicated structure that was useful when we set up the joint venture in late 1998, Nacchio added. We expect the new structure will free KPNQwest to respond faster to changing market conditions and accelerate its growth.

After Qwest purchases the KPN shares, the KPNQwest supervisory board will consist of six members. Qwest will nominate three directors, KPN will nominate one director and two directors will be independent of both Qwest and KPN. Qwest will retain its special rights to approve certain strategic decisions of KPNQwest.

KPN’s equivalent special approval rights will be eliminated, but KPN will retain certain minority shareholder protection rights. The obligations of Qwest and KPN to not compete with KPNQwest in Europe will be terminated. However, if KPN engages in certain competitive activities, KPN’s minority shareholder protection rights will be eliminated, and KPN’s nominee on the KPNQwest supervisory board must be replaced by someone who is not affiliated with KPN.

There are currently approximately 451 million shares of KPNQwest outstanding. As part of the purchase, the voting power of each Class A and B share will be reduced from 10 votes per share to one vote per share, which is the same as the voting power of each Class C share. After the purchase, Qwest will hold 214 million Class B shares, or about 47.5% of the voting power, and KPN will hold 180 million Class A shares, or about 40% of the voting power.

Current restrictions on Qwest’s sale of its KPNQwest shares will be eliminated, except that Qwest will grant to KPN certain tag-along rights if Qwest were to sell any shares. Current restrictions on KPN’s sale of KPNQwest shares will be modified to permit KPN to sell these shares in underwritten public offerings, in private transactions to institutional purchasers who agree to be subject to the sale restrictions or, beginning in 2003, in market transactions, subject to significant volume limitations. The buyer will receive publicly-held Class C shares. The buy-sell arrangements in the joint venture agreement among the parties will also be eliminated.

Neither Qwest nor KPN will have any obligation to make capital contributions to KPNQwest. Qwest will continue to account for its proportionate share of KPNQwest’s profit or loss under the equity method of accounting.

As part of the share purchase transaction, KPN will grant to Qwest an option to purchase some or all of KPN’s shares in KPNQwest in March 2002. Qwest is under no obligation to exercise the option, which is assignable to third parties. Until the option expires, any permitted sale of shares by KPN will be subject to a right of first refusal by Qwest.

Qwest expects to close the purchase of KPN shares before December 31, 2001. The share purchase is subject to several conditions, including the execution of definitive transaction documents, consents of workers’ councils of KPN and KPNQwest, antitrust approval in the United States and Europe, and approval by KPNQwest shareholders.

SOURCE: COMPANY PRESS RELEASE