================================================================= GENUITY BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2002 (ISSN XXXX-XXXX) November 29, 2002 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 609-392-0900 FAX 609-392-0040 ----------------------------------------------------------------- GENUITY BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Danilo R. Munoz, Jr., Frauline Sinson-Abangan, and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of GENUITY BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO GENUITY BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF GENUITY, INC. [00002] COMPANY'S CONSOLIDATED BALANCE SHEET AT SEPT. 30, 2002 [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING [00004] GENUITY DEBTORS' CHAPTER 11 DATABASE [00005] LIST OF THE DEBTORS' 40-LARGEST UNSECURED CREDITORS [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [00007] DEBTORS' MOTION TO HONOR PREPETITION EMPLOYEE OBLIGATIONS [00008] LEVEL 3 OUTLINES BROAD TERMS FOR GENUITY TRANSACTION [00009] VERIZON SUPPORTS GENUITY'S CHAPTER 11 FILING [00010] ALLEGIANCE SAYS LEVEL 3 WILL ASSUME AOL SUPPORT CONTRACT KEY DATE CALENDAR ----------------- 11/27/02 Voluntary Petition Date 12/12/02 Deadline for filing Schedules of Assets and Liabilities 12/12/02 Deadline for filing Statement of Financial Affairs 12/12/02 Deadline for filing Lists of Leases and Contracts 12/17/02 Deadline to provide Utilities with adequate assurance 01/26/03 Deadline to make decisions about lease dispositions 02/25/03 Deadline to remove actions pursuant to F.R.B.P. 9027 03/27/03 Expiration of Debtors' Exclusive Plan Proposal Period 05/26/03 Expiration of Debtors' Exclusive Solicitation Period 11/26/04 Deadline for Debtors' Commencement of Avoidance Actions Organizational Meeting with UST to form Committees Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO GENUITY BANKRUPTCY NEWS ----------------------------------------------------------------- GENUITY BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of GENUITY BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. To continue receiving GENUITY BANKRUPTCY NEWS, please complete the form below and return it by fax or e-mail to: Bankruptcy Creditors' Service, Inc. 24 Perdicaris Place Trenton, NJ 08618 Telephone (609) 392-0900 Fax (609) 392-0040 E-mail: peter@bankrupt.com We have published similar newsletters tracking billion-dollar insolvency proceedings since 1990, starting with Federated Department Stores. 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Re-mailing of GENUITY BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF GENUITY, INC. ----------------------------------------------------------------- Geniuty, Inc. 225 Presidential Way Woburn, Massachusetts 01801 Telephone (781) 865-2000 Fax (781) 865-3936 http://www.genuity.com Genuity (NASDAQ: GENU and NM: Genuity A-RegS 144) is a global company with offices and operations throughout the U.S., Europe, Asia and Latin America and is a leading provider of enterprise IP networking services. The company combines its Tier 1 network with a full portfolio of managed Internet services, including dedicated and broadband access, Internet security, Voice over IP (VoIP), and Web hosting to provide converged voice and data solutions. Genuity, Inc., is the non-operating parent corporation of the Genuity Group. The Genuity Group has three primary operating subsidiaries: * Genuity Solutions, Inc. -- providing managed Internet services through a global fiber optic network; * Genuity Telecom, Inc. -- a common carrier that offers high-bandwidth, high-speed, fiber optic network services for voice and data applications; and * Genuity International Networks, Inc. -- which presently holds certain international network assets. Genuity Solutions, Genuity Telecom and Genuity International all are wholly-owned direct subsidiaries of Genuity, Inc. The Genuity Group offers comprehensive suites of managed Internet infrastructure services, including dedicated and broadband access, Web hosting and content delivery, and value added services such as Voice over IP and managed Internet security services. The Genuity Group also operates a global fiber optic network that consists of broadband fiber optic cable throughout the United States, points of Internet access to end users, secure data centers and undersea and international fiber optic cable capacity. The Genuity Group's large base of on-network users and content, combined with their extensive network, positions the Genuity Group as one of the leading Internet backbone providers in the world. In 2001, the Genuity Group recognized over $1.22 billion in revenue and had approximately 4,400 employees in the United States and abroad. Genuity generates revenues from four primary sources: Access Internet access services include dial- 77% Services up, dedicated and broadband access and voice-over-IP for service providers andenterprise customers. Internet access customers typically sign one or two-year contracts providing for monthly recurring service fees that are earned and recognized based on either fixed fees or usage. Access also includes revenue associated with the development, operation and maintenance of a nationwide dial-up network for America Online, Inc. Hosting & Web hosting services provide reliable 10% Value-Added hosting and high-speed network Services infrastructure as well as flexible, fast and secure hosting platforms and an experienced technical support staff. Web hosting services include managed hosting, collocation, content delivery and high end managed storage. Value-added services include managed security services and virtual private networks for secure data transmission and professional consulting. Web hosting and value- added services customers typically sign contracts ranging from one or two years, although a three-year contract is available for certain hosting services. Hosting revenues are based primarily on monthly fees for server management, physical facilities and bandwidth utilization. Revenues for security and virtual private network service contracts are earned and recorded based on fixed, monthly recurring fees. Transport Transport services include services 8% Services such as asynchronous transfer mode, or ATM, and private line services. ATM transfer service, a form of high-speed data transfer, is targeted primarily at enterprises, carriers and Internet service providers with high-bandwidth voice, video and data transmission requirements. Private line service provides dedicated point-to- point transport services through non-switched, non-usage sensitive dedicated facilities. Transport revenues are earned and recognized based on customer usage of circuit mileage and capacity. Transport customers typically sign one or two-year contracts. International International revenues include all 5% Revenues international revenues for access, web hosting and value-added services, and transport. These revenues are recognized on a basis consistent with domestic services. The international contracts typically range from one to two years, although longer term contracts are available for certain services. Genuity's History Genuity traces its roots back more than half a century. The company began in 1948 as a partnership called Bolt Beranek and Newman -- which later incorporated and ultimately became BBN Corporation. In 1969, under a contract with the federal government, BBN developed and operated the ARPANET, the world's first packet switched network and the predecessor of today's Internet. Over the course of the next three decades, BBN continued to play a leading role in the evolution of the Internet. For example, BBN engineers sent the world's first e-mail message and put the famous "@" sign into e-mail addresses. It also helped develop the TCP/IP protocol, the basic communication "language" of the Internet. In September 1997, BBN was acquired by GTE Corporation. GTE combined BBN with its existing Internet services business, and named the resulting company GTE Internetworking Incorporated. Until mid-2000, GTEI operated as a wholly owned subsidiary of GTE. In July 1998, GTE and the Bell Atlantic Corporation agreed to a merger of equals to form an entity that would be known as Verizon Communications Inc. This merger required the approval of the Federal Communications Commission. As part of the order approving the merger, the FCC required that GTEI be spun-off into a new, separate public company, and that the merged GTE/Bell Atlantic own no more than 10% of the new company. The FCC imposed these conditions due to requirements contained in section 271 of the Telecommunications Act of 1996. Specifically, the FCC considers many of the services offered by Genuity to be "long distance services." Under section 271 of the 1996 Act, the merged GTE/Bell Atlantic is not permitted to offer long distances services, or own more than 10% of a company that offers them, until it has complied with certain rules relating to opening its local networks to competition in the territories -- thirteen states plus the District of Columbia -- where Bell Atlantic had been the primary local phone company. To date, Verizon has complied with market opening requirements in eleven of those states. Verizon has publicly stated that it expects to complete the process in all fourteen territories in early 2003. In April 2000, in preparation for its separation from GTE, GTEI changed its name to Genuity Inc. The June 2000 Recapitalization & IPO On June 22, 2000, GTE executed a Recapitalization Agreement, under which it exchanged all of its shares of Genuity common stock for shares of a new class of stock -- Class B common -- that would equal 9.5% of the total number of shares of Genuity common stock once the Initial Public Offering of Genuity Class A shares was completed. On June 30, 2000, Genuity completed its IPO. Also on that date, GTE and Bell Atlantic closed their merger and commenced doing business as Verizon. As of that date, Verizon owned 9.5% of Genuity through its Class B shares. The public owned 90.5% of Genuity through the Class A shares. Consistent with the FCC Order and the Recapitalization Agreement, Verizon had the option, once it had eliminated the regulatory restrictions on its ability to offer long distance service in the former Bell Atlantic territories, to regain control of Genuity by converting its Class B shares to a new class of common stock -- Class C -- that would represent approximately 80% of the outstanding common stock and would have approximately 95% of the voting control of Genuity. The remainder of the common stock of Genuity would continue to be held by the public. Verizon Backs Away Prior to July 24, 2002, it was assumed by Genuity management -- whose belief was supported by public statements from Verizon, Daniel Patrick O'Brien, Chief Financial Officer and Executive Vice President of Genuity Inc. stresses -- that Verizon would exercise its option and reassume control of Genuity once it had completed the process of complying with section 271 of the 1996 Act, probably at some point in early to mid 2003. However, at approximately 4:30 p.m. Eastern time on July 24, 2002, Verizon informed Genuity by telephone -- with written confirmation delivered simultaneously by courier -- that it would not be exercising its option and was, in fact, converting all but one of its Class B shares into Class A shares totaling just under 10% of the common stock of Genuity. The effect of this action was that Verizon was relinquishing its option to regain control of Genuity. Prior to Verizon taking this action on July 24, 2002, Mr. O'Brien relates, Verizon had not informed Genuity or any member of Genuity's management, and neither Genuity nor its management were aware, that Verizon would elect not to exercise its option. Mr. O'Brien says that Verizon's unexpected relinquishment of its option resulted in an immediate Event of Default under credit facilities Genuity had entered into in 2001 with both Verizon and with a consortium of global banks. Prior to Verizon's action, Genuity was in full compliance with all covenants under both the Verizon and the bank credit facilities. Genuity's Prepetition Debt Structure Genuity entered into a credit facility, dated March 5, 2001, with Verizon Investments Inc, providing up to $2.0 billion of financing. Borrowings under the Verizon Facility total approximately $1.15 billion today. Genuity also has an unsecured $2.0 billion committed revolving credit facility with a syndicate of lenders comprised of nine participating banks under the terms of an Amended and Restated Credit Agreement, dated as of September 24, 2001. The terms of the Bank Facility were amended and restated primarily to provide Genuity with the option of using available amounts under the facility through the issuance of letters of credit by the Bank Group. The Bank Facility is guaranteed by Genuity Telecom and Genuity Solutions. The Bank Facility also requires that Verizon maintain, or has the ability to realize through the exercise of its option in Genuity, a voting ownership interest equal to at least 50% of the combined voting power of all voting stocks of Genuity. On September 27, 2001, a $1.15 billion letter of credit was issued under the Bank Facility to back a private placement bond transaction. The bond transaction was consummated as of the same date and for the same amount. Interest on the bonds is payable quarterly in arrears. To secure payment of interest on the bonds, Genuity is required to maintain a $23 million cash reserve. The bonds mature on August 20, 2005. The remaining amount available for borrowing under the Bank Facility could be drawn by the issuance of letters of credit or by making an advance. In accordance with the terms of the Bank Facility, on July 22, 2002, Genuity sought to borrow the remaining $850 million available under the facility. Since the borrowing request, eight members of the Bank Group have honored their obligations under the Bank Facility and loaned Genuity $723 million. Deutsche Bank AG declined to honor the Company's borrowing request and Genuity's sued this member of the Bank Group (Genuity v. Deutche Bank, Case No. 02 cv 11502 GAO (D. Mass)). Deutsche Bank, in its answer to Genuity's lawsuit, insists it was not obligated to fund the draw. Genuity owes approximately $1.67 billion under the Bank Facility today. Genuity's Finances Deteriorate The Genuity Group's net loss increased to $4.0 billion in 2001 compared with $947.5 million in 2000, in part due to a recording of a special charge of $2.6 billion to reduce the carrying value of its network assets and goodwill. In response to these significant continuing net losses, the Genuity Group announced a plan to reduce future expenditures on May 3, 2001. This plan resulted in a 16% reduction of full-time equivalent employees and a reduction of capital expenditures from $2.2 billion to $1.4 billion and, eventually, down to $1.2 billion. In addition, the Genuity Group reduced its capital expenditure program for the four-year period ending December 31, 2004 to between $4.0 billion and $5.0 billion. On November 1, 2001, the Genuity Group announced another company- wide restructuring and cost savings plan. Under this new plan, the Genuity Group reduced its work force by an additional 21%. The Genuity Group also undertook a review of its leased facilities for opportunities for consolidation and future cost savings. As a result of this review, approximately fifty-eight locations were identified as sites which would be vacated. Moreover, in July 2002, the Genuity Group reduced its workforce by an additional 22.5%. Due to the actions taken in the second and fourth quarters of 2001, the Genuity Group recorded a special charge of approximately $177.3 million associated with the reduction in work force and capital expenditure programs. As of September 30, 2002, the Genuity Group had paid out approximately $94.2 million in connection with the special charge, including costs relating to employee severance and related benefits. On August 10, 2002, Genuity's board of directors voted to no longer provide funding to Integra, a company in which the Genuity Group held a 93% common stock interest. On September 3, 2002, Integra filed for bankruptcy with the Commercial Court of Nanterre in France, and on October 1, 2002 the Commercial Court approved the liquidation of Integra. Based on these events, the Genuity Group recorded an impairment loss of approximately $72 million in the third quarter of 2002. Verizon's announcement that it would not take back control of Genuity prompted the Genuity Group to assess the carrying value of its long-lived assets. The Genuity Group determined that there had been a substantial decline in the value of network and related equipment within the industry since December 31, 2001, and that Verizon's decision had adversely affected its long-term prospects. As a result, the Genuity Group recorded an additional impairment charge of approximately $986 million during the third quarter of 2002. Then, on July 24, 2002, Verizon informed Genuity that it had elected not to take back control of Genuity. The Bank Facility and the Verizon Facility provide that an event of default would exist in the event that Verizon no longer maintained or had the ability to realize a controlling voting interest. Accordingly, with Verizon announcing that it would not exercise its option to reassume control of Genuity, these two credit facilities are now in default. Standstill Agreements with the Banks On July 29, 2002, Genuity, Genuity Solutions and Genuity Telecom entered into a fourteen-day standstill agreement with the Bank Group, so that the parties could seek to renegotiate Genuity's debts. Similarly, on August 13, 2002, Genuity, Genuity Solutions and Genuity Telecom entered into a standstill agreement with Verizon. The standstill agreements with the Bank Group and Verizon subsequently were extended several times -- ultimately until November 25, 2002, when the standstill agreements expired at 10:00 p.m. Level 3 to the Rescue During the standstill periods, the Genuity Group focused on various restructuring alternatives which included, among other things, strategic opportunities, asset sales and seeking relief under the Bankruptcy Code. On November 26, 2002, the Debtors reached a definitive agreement with Level 3 Communications, Inc. Under the Purchase Agreement, Level 3 will acquire the Debtors' Tier 1 network, their operations and a substantial portion of the customer base for approximately $242.2 million in cash, subject to certain purchase price adjustments, and intends to assume a significant portion of liabilities in connection with the Debtors' existing long-term operating agreements. Mr. O'Brien says that the Debtors believe that the Purchase Agreement -- coupled with certain proposed bidding procedures -- will ensure that the Debtors obtain the highest and best offer for the assets to be purchased by Level 3. Because the Debtors believe that the value of their estates will be maximized through the Purchase Agreement and because the funds that will be generated by the proposed sale are instrumental to this result, the Debtors' ability to maximize the value of their estates will be jeopardized unless the sale to Level 3 can be completed quickly. Accordingly, the Debtors have commenced their chapter 11 cases to consummate the Purchase Agreement and thus protect the businesses of the Genuity Group and value for all of their constituents. Current Cash Position As of the Petition Date, the Debtors and their affiliated entities have approximately $830 million at their disposal to fund ongoing operations. Genuity projects expenses will exceed revenues by $25.5 million between now and Christmas: GENUITY, INC., et al. ESTIMATED CASH RECEIPTS AND DISBURSEMENTS For the 30-Day Period From November 27, 2002 to December 26, 2002 Receipts: $62,100,000 Disbursements: Salaries and benefits $19,200,000 Circuit costs 38,100,000 Facilities & Related 5,900,000 Lease Payments 3,300,000 Maintenance 6,100,000 Taxes 3,000,000 Equipment 3,900,000 Contractors 2,800,000 Deposits 2,000,000 Critical/Foreign Vendors/Shippers 8,000,000 Other Operating Expenses 5,300,000 ----------- Total projected disbursements $97,600,000 ----------- Net projected cash flow ($25,500,000) =========== ----------------------------------------------------------------- [00002] COMPANY'S CONSOLIDATED BALANCE SHEET AT SEPT. 30, 2002 ----------------------------------------------------------------- GENUITY INC. CONDENSED CONSOLIDATED BALANCE SHEETS At September 30, 2002 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $938,222,000 Restricted cash 26,313,000 Receivables, less allowances of $24,665,000 138,163,000 Other current assets 49,492,000 -------------- Total current assets 1,152,190,000 Property, Plant and Equipment, Net 751,356,000 Goodwill, Net --- Intangibles, Net 22,496,000 Other Assets 17,482,000 -------------- Total assets $1,943,524,000 ============== LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Short-term obligations, including $2.8 billion of debt in default $2,986,529,000 Accounts payable 138,818,000 Accrued compensation and related liabilities 15,976,000 Accrued circuits 99,479,000 Accrued liabilities 191,736,000 Deferred revenue and advanced payments 121,275,000 -------------- Total current liabilities 3,553,813,000 Long-Term Obligations 297,307,000 Other Liabilities 115,036,000 -------------- Total liabilities 3,966,156,000 Stockholders' Deficit: Preferred stock-$0.01 par value; 2,500,000 shares authorized; no shares issued and outstanding --- Class A common stock-$0.01 par value; 80,000,000 shares authorized; 11,403,576 shares issued and outstanding 114,000 Class B common stock-$0.01 par value; 1,050,000 shares authorized; 1 share issued and outstanding --- Class C common stock-$0.01 par value; 40,000,000 shares authorized; no shares issued and outstanding --- Additional paid-in capital 6,109,016,000 Accumulated other comprehensive loss (1,978,000) Accumulated deficit (8,129,784,000) -------------- Total stockholders' deficit (2,022,632,000) -------------- Total liabilities and stockholders' deficit $1,943,524,000 ============== ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING ----------------------------------------------------------------- Genuity To Be Acquired By Level 3 Deal Forms New Business Unit with Genuity Name Proposed Purchase to be Completed Through Voluntary Chapter 11 Proceeding Operations to Continue without Interruption WOBURN, Massachusetts -- November 27, 2002 -- In a deal that brings together two companies with a rich history of innovation and Internet Protocol (IP) experience, Genuity Inc. (Nasdaq:GENU) today announced that it has reached a definitive agreement with Level 3 (Nasdaq: LVLT), an international communications and information services company, to acquire substantially all of Genuity's assets and operations for $242 million, subject to adjustments. The deal forms a stronger, well-capitalized, financially stable service provider with a full portfolio of managed IP services. Under the terms of the proposed acquisition, which has the full support of Genuity's two largest creditors -- the global consortium of banks that provided Genuity with a line of credit and Verizon Communications that provided a separate line of credit -- Level 3 will operate Genuity as a separate business unit headquartered in Woburn, Mass., that focuses on managed IP services for the enterprise market. The addition of Genuity will enhance Level 3's business services offerings and enable greater network efficiency through the addition of Genuity's more than 3,000 customers. In addition to maintaining the Genuity brand, Level 3 will acquire Genuity's Tier 1 network, its operations and its customer base, including its domestic contracts with America Online, Inc. (AOL) and certain of its domestic contracts with Verizon, as well as a significant portion of Genuity's existing long-term operating agreements. Verizon also will continue to resell Genuity's services to its enterprise customers. To facilitate the acquisition process, Genuity and certain of its subsidiaries are filing voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. Assuming approval of the company's reorganization plan by the bankruptcy court and the closing of the transaction, Genuity's creditors will receive the money Level 3 is paying for Genuity's assets as well as additional cash on Genuity's balance sheet after the close of the transaction. With more than $800 million in cash to fund the company's operations, Genuity will continue to operate its business and serve its customers without interruption during the transitional period. "Upon learning of Verizon's decision to relinquish its right to reintegrate Genuity, we sought a solution that would most benefit our creditors, our customers and our employees," said Genuity Chairman and Chief Executive Officer Paul R. Gudonis. "This agreement represents a positive outcome for these groups because it helps ensure continuity of the services we provide to our customers, as well as the ability to realize the benefits of a stronger, more financially sound service provider." Complementary Lines of Business Gudonis noted that Level 3 shares Genuity's commitment to build on its existing assets and its established success in providing customers with wholesale and enterprise IP networking services. "We were attracted to Level 3 in part because of its desire to capitalize on the success we've had in providing managed IP services to enterprises. The Internet has become a critical part of the way companies do business, and with this agreement, customers will be able to use our managed services such as dedicated access, voice over IP, VPNs and security and Web hosting to gain a competitive advantage." "There is a unique and compelling fit between Genuity and Level 3," said James Q. Crowe, Level 3's chief executive officer. "The transaction combines the assets and operations of Genuity, the company that helped invent the Internet, with Level 3, the company that built the first network fully optimized for Internet Protocol-based communications. Both companies are experienced providers of optical and IP-based services, and both are Tier 1 Internet backbone providers with industry-leading quality of service. Genuity's transport and dedicated and dial-up Internet access business - more than 80 percent of revenue - is complementary to Level 3's transport, managed modem and IP services business. "Level 3 and Genuity share cultures of technological excellence and innovation. Genuity literally helped conceive the key technologies that underpin the Internet, while Level 3 has pioneered developments in softswitch technology and MPLS services, and revolutionized bandwidth provisioning with its ONTAP process. We believe that, together, we can build on that strong combined legacy." Gudonis added, "Our proposed agreement with Level 3 provides a logical and natural fit. Both organizations are customer- focused, rich in intellectual resources, and proven leaders in the industry. Going forward, new and existing customers will benefit from the company's comprehensive range of complementary services and an enhanced portfolio of offerings." The Acquisition Process As a routine matter, ongoing employee compensation and benefit programs are being presented to the court for approval as part of the company's "first-day" motions. The company expects that the court will approve these requests at its first-day hearing, thereby ensuring that employees will be paid and that benefit programs will remain intact. Vendors will be paid in the ordinary course for all goods furnished and services rendered subsequent to the filing. This protection afforded to vendors under the Bankruptcy Code, combined with the company's cash position, will ensure an uninterrupted flow of goods and services necessary to operate Genuity's business during this process. In conjunction with the Chapter 11 filing and as required under Section 363 of the Code, Genuity also filed a motion for the establishment of bidding procedures for an auction that allows other qualified bidders to submit better offers for its assets. The company anticipates that the acquisition will be completed in the first quarter of 2003, pending approval of the bankruptcy court and certain government regulatory agencies. Today's action follows several months of negotiations with the group of banks that provided Genuity's $2 billion line of credit and Verizon Communications, which lent Genuity $1.15 billion, on a restructuring of the company's debt. The negotiations followed Verizon's decision on July 24, 2002 to relinquish its option to acquire a controlling interest in Genuity. This resulted in a default for Genuity under its credit facilities with the banks and Verizon. Genuity and its lenders subsequently agreed on several standstills while continuing negotiations. Ultimately, Genuity's senior management and its Board of Directors determined that this acquisition would ensure the continued integrity of its operations and provide the best possible result for the company. Although Genuity International Inc., a U.S. subsidiary of Genuity, is included in the filing, local subsidiaries located outside of the United States are excluded from the filing. Genuity filed its voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of New York. About Genuity Genuity is a leading provider of enterprise IP networking services. The company combines its Tier 1 network with a full portfolio of managed Internet services, including dedicated and broadband access, Internet security, Voice over IP (VoIP), and Web hosting to provide converged voice and data solutions. With annual revenues of more than $1 billion, Genuity (NASDAQ: GENU and NM: Genuity A-RegS 144) is a global company with offices and operations throughout the U.S., Europe, Asia and Latin America. Additional information about Genuity can be found at http://www.genuity.com About Level 3 Communications Based in Broomfield, Colo., Level 3 is an international communications and information services company. The company offers a wide range of communications services over its 20,000 mile broadband fiber optic network including Internet Protocol (IP) services, broadband transport, colocation services, and patented Softswitch-based managed modem and voice services. The company offers information services through its wholly-owned subsidiaries, (i)Structure and Software Spectrum. (i)Structure provides managed IT infrastructure services and enables businesses to outsource costly IT operations. Software Spectrum is a global business-to-business software services provider specializing in enterprise software management, licensing and support. ----------------------------------------------------------------- [00004] GENUITY DEBTORS' CHAPTER 11 DATABASE ----------------------------------------------------------------- Debtor entities filing separate chapter 11 petitions: Case No. Debtor Entity -------- ------------- 02-43550 Genuity Solutions, Inc. 02-43551 BBN Advanced Computers Inc. 02-43552 BBN Certificate Services Inc. 02-43553 BBN Instruments Corporation 02-43554 BBN Telecom Inc. 02-43555 Bolt Beranek and Newman Corporation 02-43556 Genuity Business Trust 02-43557 Genuity Employee Holdings LLC 02-43558 Genuity Inc. 02-43559 Genuity International, Inc. 02-43560 Genuity International Networks LLC 02-43561 Genuity International Networks Inc. 02-43562 Genuity Telecom Inc. 02-43563 LightStream Corporation 02-43564 Nap.Net, L.L.C. Chapter 11 Petition Date: November 27, 2002 Bankruptcy Court: United States Bankruptcy Court Southern District of New York Alexander Hamilton Custom House One Bowling Green, 5th Floor New York, New York 10004-1408 Telephone (212) 668-2870 Bankruptcy Judge: The Honorable Prudence Carter Beatty Debtors' Bankruptcy Counsel: J. Gregory Milmoe, Esq. Sally McDonald Henry, Esq. Cheri L. Hoff, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone (212) 735-3000 Fax (212) 735-2000 - and - Eric M. Davis, Esq. David R. Hurst, Esq. Patricia A. Widdoss, Esq. Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square Wilmington, Delaware 19801 Telephone (302) 651-3000 Fax (302) 651-3001 - and - Skadden, Arps, Slate, Meagher & Flom LLP One Beacon Street Boston, Massachusetts 02108 Debtors' Financial Advisor: Barry Ridings Daniel Aronson Frank A. ("Terry") Savage Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, NY 10020 Telephone (212) 632-6000 U.S. Trustee: Carolyn S. Schwartz United States Trustee for Region 2 33 Whitehall Street, Suite 2100 New York, NY 10004 Telephone (212) 510-0500 ----------------------------------------------------------------- [00005] LIST OF THE DEBTORS' 40-LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ The Chase Manhattan Bank, as paying agent 270 Park Avenue New York, NY 10017 Attn: Constance Coleman T: 212-270-0372 F: 212-270-4584 Bond Debt $1,150,000,000 Verizon Investments Inc. 1095 Avenue of the Americas New York, NY 10036 Attn: Janet Garrity T: 302-761-4210 F: 302-761-4228/9 Bank Debt $1,150,000,000 Allegiance 9101 North Central Expressway Dallas, TX 75231 Attn: John Dumbleton Phone 214-261-8625 Fax 214-261-8690 Trade Debt $304,523,000 Verizon 1095 Avenue of the Americas New York, NY 10036 Attn: Bill Michelli T: 972-465-4074 F: 972-465-4922 Trade Debt $205,064,425 The Chase Manhattan Bank 270 Park Avenue New York, NY 10017 Attn: Constance Coleman T: 212-270-0372 F: 212-270-4584 Bank Debt $151,235,294 QWEST 421 SW Oak Room 730 Portland, OE 97204 Attn: Nanette Parker T: 503-425-5212 F: 503-425-3300 Trade Debt $127,513,311 Citicorp USA, Inc. 388 Greenwich Street New York, NY 10013 Attn: Maureen Maroney T: 212-816-8434 F: 212-816-8063 Bank Debt $90,741,176 Credit Suisse First Boston Eleven Madison Ave. New York, NY Attn: Robert Hetu T: 212-325-4542 F: 212-325-8309 Bank Debt $90,741,176 BNP Paribas 787 Seventh Ave. 7th Floor New York, NY 10019 Attn: Brian Foster T: 212-841-2686 F: 212-841-2369 Bank Debt $60,494,118 Nortel Networks 275 N. Corporat e Drive Brookfield, WI 53045 Attn: Brian Trnkus T: 914-773-2404 F: 914-773-2606 Trade Debt $46,042,318 The Industrial Bank of Japan 1251 Avenue of the Americas New York, NY 10020 Attn: Bill Kennedy T: 212-282-4570 F: 212-282-4383 Bank Debt $30,247,059 Toronto Dominion (Texas), Inc. 31 W 52nd St. New York, NY 10019 Attn: Randy Bingham T: 212-827-7445 F: 212-827-7240 Bank Debt $30,247,059 The Bank of New York One Wall Street New York, NY 10286 Attn: Mike Masters T: 212-635-8742 F: 212-635-8593 Bank Debt $30,247,059 Wachovia Bank, N.A. 191 Peachtree Street, N.E. Atlanta, GA 30303 Attn: Charlie Barham III T: 404-332-6556 F: 404-332-5016 Bank Debt $30,247,059 InterXion Nederland BV Gyroscoopweg 144 1044 AZ Amsterdam P.O. Box 59150 1040 KD Amsterdam The Netherlands Attn: Ton Bastiaenen T: +31 (0) 20 8878100 F: +31 (0) 20 8878101 Trade Debt $15,584,000 1300 Federal LLC PO Box 27883 Newark, NJ 07101-7883 Attn: Keith Barket T: 212-867-5436 F: 212-692-2000 Trade Debt $14,338,000 Cisco Systems 3535 Garrett Avenue Santa Clara, CA 95051 Attn: Mike Penner T: 415-442-1452 F: 415-442-1010 Trade Debt $12,917,494 Comdisco, Inc. 6111 North River Road Rosemont, IL 60018 Attn: Sanford Tassell T: 847-698-3000 F: 610-225-1741 Trade Debt $8,264,946 BELLSOUTH Suite 400 1800 Century Boulevard Atlanta, GA 30345 Attn: Anthony Cutright T: 404-829-8569 F: 404-728-8671 Trade Debt $8,972,358 State Street Bank & Trust Co. 2 Avenue De Lafayette Corporate Trust 6th Floor Boston, MA 02110 Attn: Charles Pinta T: 617-662-1781 F: 617-662-1458 Bond Debt $7,487,000 WORLDCOM 5000 Technology Dr. Weldon Springs, MO 63304 Attn: Lynn Lueddecke T: 636-793-1195 F: 636-329-7230 Trade Debt $6,667,853 SBC Southwestern Bell 1010 Pine Room 13-W-18 St Louis, MO 63101 Attn: Becky Hill T: 314-505-3941 F: 314-331-1374 Trade Debt $4,798,139 UUNET P.O. Box 85080 Richmond, VA 23285-4100 Attn: Kathy Salfen T: 800-488-6384 x4901 F: 703-886-0549 Trade Debt $4,516,504 AT&T P.O. Box 27-680 Kansas City, MO 64180-0680 Attn: Tena Johnson T: 800-722-6440 x 5673 F: 800-547-1333 Trade Debt $4,658,485 Sprint 105 West St. James Street M/C NCTRBF0201 Tarboro, NC 27886 Attn: Stacy Watson T: 800-890-2832 F: 800-449-3564 Trade Debt $2,514,094 Silicon Graphics, Inc. 1600 Amphitheatre Parkway Mountain View, CA 94043 Attn: Jan Soules T: 650-933-4754 F: 650-933-0811 Trade Debt $1,969,000 ITC Deltacom 1791 O G Skinner Drive West Point, GA 31833 Attn: Tony Carter T: 800 421-2455 x1204 F: 706-645-8989 Trade Debt $1,800,067 Nextlink P.O. Box 71056 Las Vegas, NV 89170 Attn: Customer Care T: 702-990-1000 F: 702-990-8989 Trade Debt $1,676,547 British Telephone Southend Billing Office XSAC3 PP2A/03 Southern ATE 221 London Road Westcliff-on-Sea SS0 7BT Attn: Customer Support T: 0800 515460 F: 01702 344326 Trade Debt $1,619,904 MFS P.O.BOX 790351 ST. LOUIS, MO 63179-0351 Attn: Lynn Lueddecke T: 636-793-1195 F: 636-793-5738 Trade Debt $1,590,084 PricewaterhouseCoopers LLP 11 Madison Avenue New York, NY 10010 Attn: Robin Lissak T: 646-598-4460 F: 646-598-4824 Trade Debt $1,500,000 NCR Corporation P.O. Box 7524S Charlotte, NC 25275-5245 Attn: Maribeth Freiberger T: 937-445-0276 F: 937-445-3409 Trade Debt $1,350,702 Level 3 Communications LLC 1025 Eldorado Blvd. Broomfield, CO 80021 Attn: Wayne Olinger T: 720-888-3470 F: 720-888-5214 Trade Debt $1,089,676 GTS (EBONE) Ebone Broadband Services Ltd. 2 Customer Plaza Harbourmatster Place Dublin 1, Ireland Attn: Steve Bond T: 016315000 F: 016315050 Trade Debt $861,502 Covad Communications 2330 Central Expressway Santa Clara, CA 95050 Attn: Lisa Blais T: 781-280-5817 F: 408-616-6501 Trade Debt $727,479 Focal Comm. Corp. Of IL 135 S. Lasalle Street Dept. 3546 Chicago, IL 60674-3546 Attn: Melissa Edwards T: 312-895-8324 F: 312-895-8403 Trade Debt $706,569 Sun Micro Systems 500 Eldorado Blvd Broomfield, CO 80021 Attn: Lori Elvington T: 303-272-5916 x75916 F: 303-464-6924 Trade Debt $683,756 Baltimore Director of Finance 200 Holliday Street Baltimore, MD 21202 Attn: Customer Service T: 410-396-3979 F: 410-545-3866 Tax Debt $666,723 Santa Clara County Tax Collector County Government Center East Wing 70 W. Hedding St. San Jose, CA 95110-1767 Attn: Sara Johnson, Tax Collector T: 408-808-7900 F: 408-279-0357 Tax Debt $649,015 Ameritech 800 Jorie Blvd. Oakbrook, IL 60523 Attn: Johnnie Sears T: 800-480-8088 F: 312-220-2360 Trade Debt $614,514 ----------------------------------------------------------------- [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES ----------------------------------------------------------------- Pursuant to Rule 1015 of the Federal Rules of Bankruptcy Procedure, the Debtors ask the Court to direct joint administration of their separate Chapter 11 cases for procedural purposes. J. Gregory Milmoe, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP tells Judge Beatty that Genuity, Inc., directly or indirectly owns a controlling interests in each of the other Debtors. Therefore, the Debtors are "affiliates" within the meaning of 11 U.S.C. Sec. 101(2) of the Bankruptcy Code and joint administration of their estates is appropriate under Rule 1015 of the Federal Rules of Bankruptcy Procedure. Mr. Milmoe argues it would be extremely wasteful and taxing for the Clerk of Court to maintain separate dockets and for parties to file dozens repetitive motions, applications, and other pleadings in these cases. Joint administration will permit the Clerk to use a single general docket for the Debtors' cases and to combine notices to creditors and other parties-in-interest. Joint administration of the Debtors' cases will also protect parties-in-interest by ensuring that they will be apprised of various matters in each the Debtors' Chapter 11 cases. Finding substantial merit in the Debtors' request, Judge Beatty directs joint administration of the Debtors' cases as if they were one. Judge Beatty directs that all pleadings and papers filed in these cases be captioned: UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK -------------------------------x In re: : Chapter 11 : Genuity Inc., et al., : Case No. 02-43558 (PCB) : Debtors. : (Jointly Administered) -------------------------------x Judge Beatty makes it clear that joint administration is a procedural mechanism and does not affect any party's right to request or oppose substantive consolidation of the Debtors' estates. ----------------------------------------------------------------- [00007] DEBTORS' MOTION TO HONOR PREPETITION EMPLOYEE OBLIGATIONS ----------------------------------------------------------------- Genuity's worldwide workforce consists of: 2,400 full-time employees; 8 part-time employees, 6 independent contractors and 64 agency contractors that perform functions that would otherwise be performed by employees. Genuity owes prepetition employee-related obligations consisting of: (a) accrued but unpaid prepetition wages, salaries, commissions, stipends, bonuses, other compensation and withholding taxes, (b) accrued vacation, (c) expense reimbursements; and (d) other Employee Benefits generally offered by billion- dollar companies. The Debtors' domestic salaried and hourly Employees are paid bi-weekly. The Debtors' non-domestic salaried and hourly employees generally are paid monthly. In addition, certain of the Employees (primarily sales staff and licensed agents) are paid advances on expected but unearned commissions in arrears based upon sales made for the prior period. Commission payments are paid as an advance six weeks in arrears to domestic Employees and four weeks in arrears to non-domestic employees. In addition, certain of the Employees (primarily those performing technical services) are paid an on-call stipend based upon the time they are required to be available to work outside their regularly-scheduled work hours. In the next 30-day period, Chief Financial Officer and Executive Vice President Daniel Patrick O'Brien tells Judge Beatty, Genuity expects to pay: $18,800,000 to non-officer and director Employees; and $400,000 to Officers and Directors The Debtors estimate that, as of the Petition Date, accrued but unpaid wages, salaries, commissions, stipends, bonuses, other compensation and withholding taxes aggregate to approximately $2,000,000 and that accrued vacation pay aggregates to approximately $9,300,000. [James Crowe, Level 3's Chief Executive Officer, and Genuity spokesman John Vicenzo told Bloomberg News reporters in an interview Wednesday that jobs cuts are likely, but declined to say how many of the company's employees may be terminated.] The Debtors fear that if prepetition benefit, compensation and reimbursement amounts aren't honored in the ordinary course, Employees will suffer extreme personal hardship and may be unable to pay their basic living expenses. Clearly, J. Gregory Milmoe, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP says, this would destroy Employee morale and result in unmanageable Employee turnover during the critical early stages of the Debtors' chapter 11 cases. The Debtors submit that any significant deterioration in morale at this time will substantially and adversely impact the Debtors and their ability to reorganize, thereby resulting in immediate and irreparable harm to the Debtors and their estates. Thus, to retain the Employees and maintain their morale under the difficult circumstances imposed by chapter 11, the Debtors seek authority to satisfy the Prepetition Employee Obligations and to continue to provide postpetition Employee Benefits. The Debtors submit that the amounts to be paid to the Employees pursuant to this Motion are reasonable compared with the importance and necessity of preserving Employee loyalty and morale and with the difficulties and losses the Debtors likely will suffer if those amounts are not paid. Accordingly, the Debtors seek authorization to pay the Prepetition Employee Obligations (or to maintain accrued levels of benefits and continue such accrual where payment is not yet due) all in accordance with the policies, plans and programs that were in place prior to the Petition Date. Relying on the well-settled doctrine of necessity, Sally McDonald Henry, Esq., at Skadden Arps reminds Judge Beatty, courts have repeatedly recognized "the existence of the judicial power to authorize a debtor in a reorganization case to pay prepetition claims where such payment is essential to the continued operations of the debtor." In re Ionosphere Clubs, Inc., 98 B.R. 174, 176 Bankr. (S.D.N.Y. 1989); In re Chateaugay Corp., 80 B.R. 279 (S.D.N.Y. 1987). Id. at 826; see also 2 Collier, Bankruptcy par. 105.01, at 105-3 (15th ed. 1996) (the purpose of section 105(a) is to "assure the Bankruptcy Court's power to take whatever action is appropriate or necessary in aid of the exercise of its jurisdiction."). The United States Supreme Court first articulated the doctrine of necessity over a century ago, in Miltenberger v. Logansport, C. & S.W. Ry. Co., 106 U.S. 286 (1882). In Miltenberger, a railroad receivership, the Supreme Court approved the lower court's use of receivership funds to pay pre-receivership debts owed to employees, vendors and suppliers, among others, where such payments were necessary to preserve the receivership property and the integrity of the business in receivership. The modern test under the doctrine of necessity is largely unchanged from the Supreme Court's observations in Miltenberger. See, e.g., In re Lehigh & New England Ry. Co., 657 F.2d at 581-82 ("[I]n order to justify payment under the "necessity of payment" rule, a real and immediate threat must exist that failure to pay will place the [debtor's] continued operation . . . in serious jeopardy."); In re Ionosphere Clubs, 98 B.R. at 176 ("this rule recognizes the existence of the judicial power to authorize a debtor in a reorganization case to pay pre-petition claims where such payment is essential to the continued operation of the debtor."); In re Just For Feet, Inc., 242 B.R. 821, 826 (D. Del. 1999) (test is whether payment of prepetition claim is "essential to the survival of the debtor during the chapter 11 reorganization"); In re NVR L.P., 147 B.R. 126, 127 (Bankr. E.D. Va. 1992) ("the court can permit the pre- plan payment of a pre-petition obligation when essential to the continued operation of the debtor."); In re Eagle-Picher Ind., Inc., 124 B.R. 1021, 1023 (Bankr. S.D. Ohio 1991) ("to justify payment of a prepetition unsecured creditor, a debtor must show that the payment is necessary to avert a serious threat to the Chapter 11 process."). "The doctrine of necessity is a widely accepted component of modern bankruptcy jurisprudence," Ms. Henry says. "The continued service and dedication of the Employees is critical to the Debtors and the prospects for a successful reorganization." Ms. Henry directs Judge Beatty's attention to other chapter 11 cases in the Southern District of New York where the Court has drawn on its broad equitable powers under 11 U.S.C. Sec. 105(a) to authorize payment of prepetition employee claims when, as in this case, nonpayment or delay would damage a debtor's business or its ability to reorganize: In re PhyCor, Inc., Case No. 02-40278 (PCB) (Bankr. S.D.N.Y. Jan. 31, 2002); In re Global Crossing Ltd., Case No. 02-40188 (REG) (Bankr. S.D.N.Y. Jan. 28, 2002); In re Enron Corp., Case No. 01-16033 (AJG) (Bankr. S.D.N.Y. Dec. 3, 2001); In re Bethlehem Steel Corporation, et al., Case No. 01- 15288 (BRL) (Bankr. S.D.N.Y. Oct. 15, 2001); In re CWT Specialty Stores, Inc., Case No. 00-10758 (JHG) (Bankr. S.D.N.Y. Feb. 29, 2000). ----------------------------------------------------------------- [00008] LEVEL 3 OUTLINES BROAD TERMS FOR GENUITY TRANSACTION ----------------------------------------------------------------- BROOMFIELD, Colorado -- November 27, 2002 -- Level 3 Communications, Inc. (Nasdaq: LVLT) and Genuity Inc. (Nasdaq: GENU) announced today that they have signed a definitive agreement under which Level 3 will acquire substantially all of the assets of the Massachusetts-based communications company. Level 3 will pay up to $242 million in cash and assume a significant portion of existing long-term operating agreements to acquire Genuity's assets and operations. To facilitate the transaction, Genuity today is filing voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. Level 3's cash consideration at closing could be reduced subject to certain material adjustments. Closing expected first quarter 2003 Closing is expected to occur during the first quarter of 2003. The transaction is subject to approval by the bankruptcy court and certain government regulatory agencies. "This transaction represents the best outcome for the key constituencies of both Genuity and Level 3," said Paul R. Gudonis, chairman and chief executive officer of Genuity. "Both companies, as well as Genuity's largest customers and creditors, have signed agreements supporting the transaction. "We're particularly pleased that all of the key parties have come together in support of this acquisition. For Genuity's customers, the transaction will result in a stronger, financially sound, operationally reliable provider of communications services. For Genuity's business partners, the agreement will help ensure business relationships continue with the least possible disruption. And for employees, this transaction offers the maximum possible opportunity for the greatest number of people. "Genuity has a long and proud history, and we know that Level 3 shares our vision of the future of fiber optics and IP communications. We look forward to continuing our work with the leadership team at Level 3 in the weeks ahead." "There is a unique and compelling fit between Genuity and Level 3," said James Q. Crowe, Level 3's chief executive officer. "The transaction combines the assets and operations of Genuity, the company that helped invent the Internet, with Level 3, the company that built the first network fully optimized for Internet Protocol-based communications. Both companies are experienced providers of optical and IP-based services, and both are Tier 1 Internet backbone providers with industry-leading quality of service. Genuity's transport and dedicated and dial-up Internet access business -- more than 80 percent of revenue -- is complementary to Level 3's transport, managed modem and IP services business. "Level 3 and Genuity share cultures of technological excellence and innovation," said Crowe. "Genuity literally helped conceive the key technologies that underpin the Internet, while Level 3 has pioneered developments in softswitch technology and MPLS services, and revolutionized bandwidth provisioning with its ONTAP process. We believe that, together, we can build on that strong combined legacy." Based in Woburn, Mass., Genuity operates an international IP network. The company provides dial-up and dedicated Internet access, transport, managed security and VPN, hosting and other services to communications companies, enterprises and government agencies. Its largest customers are Verizon Communications and America Online, which accounted for greater than 60 percent of its $223 million in revenue for the third quarter of 2002. Key customers and banks sign agreements All but one of Genuity's banks have signed an agreement in support of the transaction. Verizon has executed a new multi-year contract to purchase wholesale dial-up, IP, transport and other services from Level 3, to take effect when the transaction closes. "Verizon is very pleased to be entering into this partnership, under which Level 3 will become Verizon's primary supplier of backbone services," said Lawrence T. Babbio, vice chairman and president of Verizon. "We have been very pleased with the creativity and service brought to us by Level 3 in the past, and we look forward to this expanded relationship." "This agreement will significantly expand our relationship with Verizon, one of the world's premier telecommunications carriers," said Charles C. Miller, vice chairman of Level 3. "Verizon is extremely sophisticated in building and operating advanced communications networks, and we are very pleased that they have chosen to incorporate Level 3's backbone services into those networks. After the transaction with Genuity, Level 3 will be a clear leader in supplying backbone services to carriers such as Verizon." America Online has signed an agreement consenting to the transaction that contemplates Level 3 acquiring America Online's network services agreement with Genuity. "America Online already has an important, longstanding relationship with Level 3," said Geraldine MacDonald, senior vice president for global access networks at America Online. "We are in support of this transaction, which provides us with the assurance of stability and a seamless continuation of service. We've been very pleased with the service Level 3 has provided in the past, and we look forward to a continuing positive relationship." In addition, Allegiance Telecom Inc., Genuity's largest network supplier, supports the transaction. "We have a longstanding and mutually beneficial relationship with Level 3," said Royce Holland, chairman and CEO of Allegiance Telecom, Inc. "We support this transaction and look forward to continuing our relationship with Level 3 as the transaction moves forward." New operating company to be formed As part of this transaction, Level 3 is also acquiring Genuity's managed services business and its associated enterprise customers and product set. "We recognize the importance of these customers and are committed to ensuring they receive the highest quality service without disruption," said Kevin O'Hara, president and chief operating officer of Level 3. "As a result, we plan to combine these operations with those of our (i)Structure subsidiary in order to focus on the needs of those customers. That new managed services operating company will do business under the name 'Genuity,' a recognized leader in that market." Transaction terms Under the terms of the Level 3-Genuity agreement: -- Level 3 will pay up to $242 million in cash and assume a significant portion of existing long-term operating agreements for Genuity's U.S. assets and operations; -- Level 3's cash consideration at closing could be reduced subject to certain material adjustments; -- The cash on Genuity's balance sheet, together with Level 3's cash consideration, will be distributed to creditors of Genuity; -- Closing is subject to, among other customary conditions, receipt of Hart-Scott-Rodino approval and other relevant regulatory approvals, as well as bankruptcy court approval. "Given the substantial similarities between the companies' strategic approach, service offerings and geographical reach, this transaction creates opportunities to increase sales while achieving significant cost efficiencies that the parties believe are unique," said Sureel Choksi, chief financial officer of Level 3. "It preserves Level 3's fully funded status, while accelerating the point in time when Level 3 expects to become free cash flow positive. The combined organization will be an industry leader with strength in growing markets, including IP access and backbone services." Level 3's acquisition strategy Crowe noted that the agreement with Genuity is consistent with Level 3's overall acquisition strategy. "As we have said in the past, we evaluate every potential acquisition according to its ability to generate positive cash flow from high credit quality customers," Crowe said. "We look for opportunities to acquire recurring revenues that come predominantly from services we already provide in geographic areas that we already serve, with customers consistent with our existing customer base. Above all, we are committed to remaining fully funded to free cash flow breakeven and improving our financial position. Our agreement with Genuity meets all of these key criteria. "We look forward to working together to close this transaction and have the support of the key parties involved. At the same time, as with any acquisition, there is a risk that the Genuity transaction may not be completed, and we continue to analyze and consider other opportunities." Level 3 will hold a conference call to discuss today's announcement on Monday, December 2, at 11 a.m. eastern time. To join the call, please dial 612-326-1003. A live broadcast of the call can also be heard on Level 3's web site at www.level3.com . An audio replay of the call will also be accessible through the web site or by dialing 320-365-3844 -- Access Code 662298. About Level 3 Communications Level 3 (Nasdaq: LVLT) is an international communications and information services company. The company offers a wide range of communications services over its 20,000 mile broadband fiber optic network including Internet Protocol (IP) services, broadband transport, colocation services, and patented Softswitch-based managed modem and voice services. Its Web address is http://www.Level3.com The company offers information services through its wholly- owned subsidiaries, (i)Structure and Software Spectrum. (i)Structure provides managed IT infrastructure services and enables businesses to outsource costly IT operations. Its Web address is http://www.i-structure.com Software Spectrum is a global business-to-business software services provider specializing in enterprise software management, licensing and support. Its web address is http://www.softwarespectrum.com ----------------------------------------------------------------- [00009] VERIZON SUPPORTS GENUITY'S CHAPTER 11 FILING ----------------------------------------------------------------- NEW YORK -- November 27, 2002 -- Earlier today Genuity Inc. filed for Chapter 11 bankruptcy protection. Immediately prior to the filing, Level 3 Communications Inc. agreed to purchase, subject to regulatory and bankruptcy court approval, certain of Genuity's assets and operations, including certain of Genuity's commercial contracts with Verizon. The following response should be attributed to Lawrence T. Babbio Jr., Verizon vice chairman and president. "As a significant creditor and customer of Genuity, we fully support this transaction. We are delighted that we've been able to resolve many complex issues in a way that benefits both the customers of Verizon and Genuity, and Genuity's creditors. "We are also pleased that Verizon's willingness to continue existing commercial arrangements with Level 3 enabled Genuity to agree to this transaction. "We look forward to using the services of an existing network provider like Level 3 to supplement and extend our product offerings to our customers." ----------------------------------------------------------------- [00010] ALLEGIANCE SAYS LEVEL 3 WILL ASSUME AOL SUPPORT CONTRACT ----------------------------------------------------------------- Dallas, Texas -- November 27, 2002 -- Allegiance Telecom, Inc. (Nasdaq: ALGX), an integrated communications provider, announced today that as a result of Level 3 Communications, Inc.'s (Nasdaq: LVLT) acquisition of Genuity Inc. (Nasdaq: GENU), Level 3 has agreed to assume the contract between Allegiance Telecom and Genuity Solutions, Inc. Under its contract with Genuity, Allegiance provides Genuity Solutions, Inc. with data services to support Genuity's contract with America Online (AOL). "The announcement today by Level 3 Communications and Genuity is an important event for Allegiance Telecom because it means business as usual," said Tom Lord, executive vice president for corporate development and chief financial officer at Allegiance Telecom. "Genuity's financial condition and long-term survival has been a question in the marketplace for several months -- a question that has been answered now that Level 3 Communications has announced its intent to assume the Allegiance/Genuity contract as part of its acquisition of Genuity. While Genuity's financial condition has been a question for the marketplace, Genuity has made timely payments to Allegiance and it is current on its payment obligations under the contract," he said. "Both companies have been important Allegiance partners for a number of years -- Genuity is our largest customer, and Level 3 Communications provides us with network services," Lord said. "Allegiance looks forward to working with Level 3 Communications to continue to provide the high quality of services that Genuity customers, such as AOL, demand. As a result of today's announcement, we also look forward to sitting down with Level 3 Communications to explore how both parties can further leverage the Genuity contract and our existing relationship," he said. Allegiance Telecom -- http://www.algx.com -- is a facilities-based integrated communications provider headquartered in Dallas, Texas. As the leader in competitive local service for medium and small businesses, Allegiance offers "One source for business telecom(TM)" -- a complete package of telecommunications services, including local, long distance, international calling, high-speed data transmission and Internet services. Allegiance serves 36 major metropolitan areas in the U.S. with its single source provider approach. Allegiance's common stock is traded on the Nasdaq National Market under the symbol ALGX. *** End of Issue No. 1 *** ------------------------------------------------------------------------- Peter A. Chapman peter@bankrupt.com http://bankrupt.com ------------------------------------------------------------------------- Recommended Reading: Professor Stuart Gilson's newest title, "Creating Value Through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups." List Price: $79.95 -- Discounted to $55.96 at http://amazon.com/exec/obidos/ASIN/0471405590/internetbankrupt -------------------------------------------------------------------------