SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Securities Exchange Act of 1934 (Amendment No. )
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
LEVEL 3 COMMUNICATIONS, INC.
(Name of Registrant as Specified in its Charter)
Person(s) Filing Proxy Statement, if other than the Registrant)
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LEVEL 3 COMMUNICATIONS, INC.
3555 Farnam Street
Omaha, NE 68131
June 17, 1998
Dear Stockholder:
You are cordially invited to attend the Annual
Meeting of Stockholders of Level 3 Communications,
Inc. ("Level 3") to be held at 9:30 a.m. on July 14,
1998, at The Joslyn Art Museum, 2200 Dodge Street,
Omaha, Nebraska.
At the Annual Meeting you will be asked to
consider and act upon the following matters: (a) the
reelection to the Board of Directors of Level 3 of
three Class I Directors for a three-year term until
the 2001 Annual Meeting of Stockholders; (b) the
adoption of a program relating to the issuance of
Outperform Stock Options pursuant to the Level 3 1995
Stock Plan, amended and restated as of April 1, 1998;
and (c) the transaction of such other business as may
properly come before the Annual Meeting.
The Level 3 Board of Directors recommends that
its stockholders reelect three Class I directors for a
three-year term until the 2001 Annual Meeting of
Stockholders and approve the proposed Outperform Stock
Option program pursuant to the Level 3 1995 Stock
Plan. See "REELECTION OF CLASS I DIRECTORS PROPOSAL"
and "ADOPTION OF OUTPERFORM STOCK OPTION PROGRAM
PROPOSAL," respectively.
Information concerning the matters to be
considered and voted upon at the Annual Meeting is set
forth in the attached Notice of Annual Meeting and
Proxy Statement. It is important that your shares be
represented at the Annual Meeting, regardless of the
number you hold. Therefore, whether or not you plan
to attend the Annual Meeting, as soon as possible
please either delivery your proxy by telephone, as
described in the enclosed telephone voting
instructions, or sign, date and return your proxy card
in the envelope that has been provided. This will not
prevent you from voting your shares in person if you
subsequently choose to attend the Annual Meeting.
Sincerely,
/s/ Walter Scott, Jr.
Walter Scott, Jr.
Chairman of the Board
LEVEL 3 COMMUNICATIONS, INC.
3555 Farnam Street
Omaha, NE 68131
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held July 14, 1998
To the Stockholders of Level 3 Communications, Inc.:
The Annual Meeting of Stockholders of Level 3
Communications, Inc., a Delaware corporation
("Level 3"), will be held at The Joslyn Art Museum,
2200 Dodge Street, Omaha, Nebraska at 9:30 a.m. on
July 14, 1998 for the following purposes:
1. To reelect the three class I Directors to the Board
of Directors of Level 3 for a three-year term until
the 2001 Annual Meeting of Stockholders;
2. To adopt a program to relating to the issuance of
Outperform Stock Options pursuant to the Level 3 1995
Stock Plan, amended and restated as of April 1, 1998;
and
3. To transact such other business as may properly
come before the meeting or any adjournments or
postponements thereof.
The Board of Directors has fixed the close of
business on June 10, 1998 as the record date for the
determination of the holders of the common stock, par
value $.01 per share of Level 3 (the "Level 3 Common
Stock") entitled to notice of, and to vote at, the
meeting. Accordingly, only holders of record of Level
3 Common Stock at the close of business on such date
will be entitled to notice of and to vote at the
Annual Meeting and any adjournment or postponement
thereof.
The three Class I Directors will be elected by a
plurality of the votes cast by holders of Level 3
Common Stock present in person or by proxy and
entitled to vote at the Annual Meeting. The proposal
to adopt a program to relating to the issuance of
Outperform Stock Options pursuant to the Level 3 1995
Stock Plan requires the affirmative vote of the
holders of a majority of the votes entitled to be cast
in respect of all outstanding shares of Level 3 Common
Stock present in person or by proxy at the Annual
Meeting and entitled to vote thereon.
The matters to be considered at the Annual
Meeting are more fully described in the accompanying
Proxy Statement, and the annexes thereto, which form a
part of this Notice.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND
THE ANNUAL MEETING. TO ENSURE YOUR REPRESENTATION AT
THE ANNUAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE. A POSTAGE-PREPAID ENVELOPE IS
ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER ATTENDING
THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THAT
STOCKHOLDER HAS RETURNED A PROXY.
By Order of the Board of Directors
/s/ Walter Scott, Jr.
Walter Scott, Jr.
Chairman of the Board
Dated: June 17, 1998
LEVEL 3 COMMUNICATIONS, INC.
3555 Farnam Street
Omaha, NE 68131
Proxy Statement
June 17, 1998
ANNUAL MEETING OF STOCKHOLDERS
July 14, 1998
SOLICITATION AND VOTING
This Proxy Statement ("Statement") is furnished
in connection with the solicitation of proxies on
behalf of the Board of Directors (the "Board") of
Level 3 Communications, Inc. ("Level 3" or the
"Company") to be voted at the Annual Meeting of
Stockholders to be held on July 14, 1998, or any
adjournment thereof (the "Annual Meeting"). This
Proxy Statement, the Notice of Annual Meeting and the
accompanying Proxy are being mailed to Stockholders on
or about June 22, 1998.
As of June 10, 1998, the record date for the
determination of persons entitled to vote at the
Annual Meeting, there were 152,608,312 shares of the
Company's Common Stock, par value $.01 per share (the
"Common Stock"), outstanding. Each share of Common
Stock is entitled to one vote on each matter to be
voted upon by the Stockholders at the Annual Meeting.
The three Class I Directors will be elected by a
plurality of the votes cast by holders of Level 3
Common Stock present in person or by proxy and
entitled to vote at the Annual Meeting. The proposal
to adopt the Outperform Stock Option program pursuant
to the Level 3 1993 Stock Plan requires the
affirmative vote of the holders of a majority of the
votes entitled to be cast in respect of all
outstanding shares of Level 3 Common Stock present in
person or by proxy at the Annual Meeting and entitled
to vote thereon.
The presence, in person or by proxy, of the
holders of a majority of the issued and outstanding
shares of Common Stock entitled to vote as of the
Record Date is required to constitute a quorum at the
Annual Meeting. Under applicable Delaware law,
abstentions and "broker non-votes" (that is, proxies
from brokers or nominees indicating that such persons
have not received instructions from the beneficial
owner or other persons entitled to vote shares as to a
matter with respect to which the brokers or nominees
do not have discretionary power to vote) will be
treated as present for purposes of determining the
presence of a quorum at the Annual Meeting. If such a
quorum should not be present, the Annual Meeting may
be adjourned from time to time until the necessary
quorum is obtained.
All shares of Common Stock represented by
properly executed proxies which are returned and not
revoked will be voted in accordance with the
instructions, if any, given therein. If no
instruction are provided in a proxy, it will be voted
FOR the Board's nominees for Director, FOR adoption of
Outperform Stock Option program, and in accordance
with the proxy-holders' best judgment as to any other
business raised at the Annual Meeting. If you elect
to delivery your proxy by telephone as described in
the enclosed telephone voting instructions, your
shares will be voted as you direct. Your telephone
delivery authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and
returned your proxy card.
Any Stockholder who delivers, whether by
telephone or through the mail, a proxy may revoke it
at any time before it is voted by delivering to the
Secretary of the Company a written statement revoking
the proxy, by executing and delivering a later dated
proxy, by using the telephone voting procedures, or by
voting in person at the Annual Meeting.
Level 3 will bear its own cost of solicitation of
proxies. In addition to the use of the mails, proxies
may be solicited by the directors and officers of
Level 3 by personal interview, telephone, telegram or
e-mail. Such directors and officers will not receive
additional compensation for such solicitation but may
be reimbursed for out-of-pocket expenses incurred in
connection therewith. Arrangements may also be made
with brokerage firms and other custodians, nominees
and fiduciaries to forward solicitation materials to
the beneficial owners of shares of Level 3 Common
Stock held of record by such persons, in which case
Level 3 will reimburse such brokerage firms,
custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection
therewith.
REELECTION OF CLASS I DIRECTORS PROPOSAL
The Level 3 Board of Directors currently consists
of 11 directors, divided into three classes,
designated Class I, Class II and Class III. Each of
Class I and Class II currently consists of four
directors and Class III consists of three directors.
Three of the current four Class I directors are
standing for reelection. At the Annual Meeting, these
Class I Directors will be reelected to hold office for
a three-year term until the 2001 annual meeting, or
until their successors have been elected and
qualified. If any nominee shall, prior to the Annual
Meeting, become unavailable for election as a
Director, the persons named in the accompanying form
of proxy will vote for that nominee, if any, in their
discretion as may be recommended by the Level 3 Board
of Directors, or the Level 3 Board of Directors may
reduce the number of Directors to eliminate the
vacancy.
Mr. Robert B. Daugherty, 76, who has been a
Director of the Company since January 1986, has
determined not to seek reelection to the Board of
Directors. Mr. Daugherty has tendered his resignation
from the Board of Directors, which resignation is to
be effective on July 14, 1998. The remaining members
of the Board of Directors, as provided in the Level 3
By-laws, will appoint a successor to Mr. Daugherty,
who will serve until the 2001 Annual Meeting with the
other Class I Directors.
Information as to Nominees for Election as Class I Directors
The respective ages, positions with Level 3,
business experience, directorships in other companies
and Level 3 Board of Directors committee memberships,
of the nominees for election are set forth below.
Walter Scott, Jr., 67, has been the Chairman of
the Board of the Company since September 1979, and a
director of the Company since April 1964. Mr. Scott
has been Chairman Emeritus of Peter Kiewit Sons', Inc.
since March 31, 1998. Prior to March 31, 1998, Mr.
Scott was the Chief Executive Officer of the Company
for more than the past five years. Mr. Scott is also
a director of Berkshire Hathaway Inc., Burlington
Resources Inc., CalEnergy Company, Inc., ConAgra,
Inc., Commonwealth Telephone Enterprises, Inc.
("Commonwealth Telephone"), RCN Corporation
("RCN"), U.S. Bancorp and Valmont Industries, Inc.
Mr. Scott is a member of the Executive Committee of
the Level 3 Board of Directors.
James Q. Crowe, 48, has been the President and
Chief Executive Officer of the Company since August
1997 and a director of the Company since June 1993.
Mr. Crowe was an executive officer of MFS
Communications Company, Inc. ("MFS") from its
inception to its sale to WorldCom, Inc. ("WorldCom")
on December 31, 1997. Mr. Crowe served as Chairman of
the Board of MFS from 1988 until December 1997, Chief
Executive Officer from November 1991 until December
1997 and was President from January 1988 to June 1989
and April 1990 until January 1992. Mr. Crowe was also
Chairman of the Board of WorldCom from January 1997
until July 1997. Mr. Crowe is currently a director of
Commonwealth Telephone, RCN and InaCom Communications,
Inc. Mr. Crowe is a member of the Executive Committee
of the Level 3 Board of Directors.
Charles M. Harper, 70, has been a Director of the
Company since January 1986. Mr. Harper was Chairman
of the Board of RJR Nabisco Holdings Corp. ("RJR
Nabisco") from May 1993 to May 1996 and Chief
Executive Officer of RJR Nabisco from May 1993 until
December 1995. Prior to that, Mr. Harper was Chairman
of the Board and Chief Executive Officer of ConAgra,
Inc. Mr. Harper is currently a Director of ConAgra,
Inc., E.I. DuPont de Nemours and Company, Norwest
Corporation and Valmont Industries.
The Board of Directors unanimously recommends a vote FOR the nominees
named above.
Explanatory Note
On March 31, 1998, the Company exchanged for all
of its then outstanding Class C Stock, all of the
capital stock of a subsidiary (the "Construction
Subsidiary") holding the stock of Kiewit Construction
Group Inc. ("KCG"), the construction subsidiary of
the Company (the "Split-Off"). In connection with
the Split-Off, the Company was renamed "Level 3
Communications, Inc." and the Construction Subsidiary
was renamed "Peter Kiewit Sons', Inc."
Information presented in this Proxy Statement
relating to periods prior to March 31, 1998, relate to
information for the members of the Company's Board of
Directors and executive officers at that time.
Board of Directors' Meetings
The Level 3 Board of Directors had six formal
meetings in 1997 and acted by written consent action
on six occasions. In 1997, no director attended less
than 75% of the meetings of the PKS Board and the
committees of which he was a member.
Executive Committee
The Executive Committee exercises, to the maximum
extent permitted by law, all powers of the Board of
Directors between board meetings, except those
functions assigned to specific committees.
Audit Committee
The Audit Committee reviews the services provided
by Level 3's independent auditors, consults with the
independent auditors and reviews the need for internal
auditing procedures and the adequacy of internal
controls.
In connection with the Company's relocation of
its principal executive offices to Broomfield,
Colorado, members of management, in consultation with
the Audit Committee, are in the process of reviewing
the designation of independent auditors to audit the
Level 3 financial statements for the 1998 fiscal year.
Compensation Committee
The Compensation Committee determines the
compensation of the Chief Executive Officer and
reviews the compensation and stock option awards of
all other executives.
Compensation Committee Interlocks and Insider
Participations
Prior to the Split-Off, the Compensation
Committee of the Company consisted of Messrs.
Daugherty and Harper and Mr. Peter Kiewit, Jr., none
of whom is an officer or employee of Level 3. Each of
Messrs. Daugherty, Harper and Kiewit purchased Common
Stock from Level 3 in 1997. See "Certain
Relationships and Related Transactions." After the
Split-Off, the Compensation Committee of the Company
consists of Messrs. Michael B. Yanney, David C.
McCourt and Richard R. Jaros, none of whom is an
officer or employee of the Company. Each of Messrs.
Yanney and McCourt purchased Common Stock from the
Company in 1997. Mr. Jaros has entered into a
separation agreement with the Company, pursuant to
which, among other things, he has received certain
severance payments. See "Certain Relationships and
Related Transactions."
Compensation Committee Report
The Executive Compensation Committee of the Board
of Directors of the Company prior to the Split-Off
furnished the following report on executive
compensation for the period prior to the Split-Off:
The Executive Compensation Committee of the Board
of Directors prior to the Split-Off was composed
entirely of non-employee directors. This Committee is
responsible for reviewing and approving, on an annual
basis, the compensation of the Company's chief
executive officer and the other executive officers of
the Company. The objectives of the Company's
executive compensation program are to (a) support the
achievement of desired Company performance,
(b) provide compensation that will attract and retain
superior talent, (c) reward performance, and (d) align
the executive officers' interests with the success of
the Company by placing a portion of total compensation
at risk. The executive compensation program has two
elements: salaries and bonuses. The program provides
base salaries which are intended to be competitive
with salaries provided by other comparable companies.
Bonuses are the vehicle by which executive officers
can earn additional compensation depending on
individual, business unit, and Company performance.
In 1996 the Board adopted, and the shareholders
approved, the Peter Kiewit Sons', Inc. Bonus Plan
("Bonus Plan"), and the Compensation Committee
established certain Performance Goals under the Bonus
Plan for 1996 and for subsequent years. The
Compensation Committee has certified that for 1997 the
maximum Performance Goals under the Bonus Plan have
been met. The Compensation Committee uses its
discretion, subject to the Bonus Plan, to set
executive compensation at levels warranted in its
judgment by external, internal, or individual
circumstances.
The Committee determines the salary and bonus of
the chief executive officer, Mr. Walter Scott, Jr. In
1997, the Committee separately looked at Mr. Scott's
responsibilities, contributions and performance as to
the construction business ("Construction") and the
remaining businesses of the Company ("Diversified").
The Committee approved an annual salary (for the 1997-
1998 pay cycle) for Mr. Scott of $150,000 as to
Construction, and $700,000 as to Diversified. In
recognition of Mr. Scott's Contributions to the
Company's performance in 1997, the Committee has
approved a bonus of $1,000,000 as to Construction, and
$1,000,000 as to Diversified. A number of factors
were considered in setting Mr. Scott's bonus. These
factors included meeting the Bonus Plan Performance
Goals, the Company's overall performance, the increase
in the combined stock formula prices, as well as Mr.
Scott's personal effort and accomplishments in
managing the Company. The Committee reviewed each
factor as to both Construction and Diversified. After
considering all of the factors, the Committee felt the
approved bonus was well within a reasonable range.
The foregoing report, dated March 30, 1998, has
been furnished by the Executive Compensation
Committee, Messrs. Daugherty, Harper and Kiewit.
Executive Compensation
The table below shows the annual compensation of
the chief executive officer and the next four most
highly compensated executive officers of the Company
for the 1997 fiscal year (the "Named Executive
Officers").
Name and Principal Year Salary Bonus Other Annual
Position Compensation
($) ($) ($)
Walter Scott, Jr. 1997 872,551 2,000,000 191,109(1)
Chairman of the 1996 715,000 2,000,000 276,400(1)
Board 1995 630,000 1,250,000 157,800(1)
Kenneth E. Stinson 1997 476,669 1,500,000
Executive Vice 1996 402,500 900,000
President 1995 351,300 600,000
Richard Geary 1997 285,919 770,000
Executive Vice 1996 270,750 600,000
President of 1995 252,800 525,000
Kiewit Construction Group
George B. Toll, Jr.1997 257,705 650,000
Executive Vice 1996 231,250 500,000
President of 1995 201,250 400,000
Kiewit Construction Group
Allan K. Kirkwood 1997 221,250 360,000
Senior Vice 1996 192,350 310,000
President of 1995 166,150 240,000
Kiewit Pacific Co.
(1) Other Annual Compensation means perquisites and
other personal benefits received by each of the Named
Executive Officers, if over $50,000. The only
reportable amounts are the non-business use of Company
aircraft attributable to Mr. Scott . Aircraft usage
values are calculated under federal income tax
regulations and are reported as taxable income by Mr.
Scott. Each of the Named Executive Officers other
than Mr. Scott set forth above is now employed by
Peter Kiewit Sons', Inc. and is no longer an officer
of the Company. Mr. Scott continues as Chairman of
the Board of the Company, but is no longer the Chief
Executive Officer of the Company.
No Named Executive Officer received any
restricted stock awards, stock options, stock
appreciation rights ("SARs") or long-term incentive
performance ("LTIP") payouts for the fiscal year
ended December 27, 1997.
Richard R. Jaros, who resigned as an Executive
Vice President of the Company effective July 31, 1997,
received a salary of $458,574 and a bonus of $262,350
for fiscal year 1997. Messrs. Crowe, R. Douglas
Bradbury, Kevin J. O'Hara and Terrence J. Ferguson,
the four current executive officers of the Company who
were employed by the Company during 1997, were paid
salaries for 1997 of $144,129, $102,564, $82,051 and
$52,019 respectively, and no other reportable
compensation, during 1997. Each such executive
officer was employed by the Company for only part of
fiscal year 1997.
Director's Compensation
During 1997, each of the directors of the Company
who were not employed by the Company during 1997
received directors fees consisting of an annual
retainer of $30,000 (pro-rated in the case of Mr.
Crowe, who was employed by the Company for part of
1997) and fees of $1,200 per board meeting and $1,500
for the annual stockholder's meeting.
Certain Relationships and Related Transactions
In connection with his retention as Chief
Executive Officer of the Company in August 1997, Mr.
Crowe entered into an engagement agreement (the
"Engagement Agreement") with the Company. Under the
Engagement Agreement, the Company acquired from Mr.
Crowe, Mr. Bradbury and Mr. Ferguson, Broadband
Capital Group, L.L.C., a company formed to develop
investment opportunities, for a purchase price of
$68,523, the owners' cash investment in that company.
Pursuant to the Engagement Agreement, the Company sold
5,000,000 shares of Common Stock to Mr. Crowe and
1,250,000 shares of Common Stock to Mr. Bradbury, in
each case at $10.85 per share. The Engagement
Agreement also provided that the Company would make
available for sale, from time to time prior to the
consummation of the Split-Off, to certain employees of
the Company designated by Mr. Crowe, including Mr.
O'Hara and Mr. Ferguson, in connection with the
implementation of the current business plan of the
Company ("Employees"), up to an aggregate of 5,250,000
shares of Common Stock at $10.85 per share. The
Company entered into agreements with each Employee
that provided that the Company may repurchase any
Common Stock sold to the Employee if the Employee
resigns at any time before January 1, 1999.
On August 5, 1997, the Company purchased a jet
aircraft from a company controlled by Mr. Crowe for
$5.7 million, the price paid by the company for the
aircraft in June 1997. The Company and Mr. Crowe have
entered into an aircraft operating lease, under which
Mr. Crowe may lease the aircraft for personal use at
rates specified by certain Federal Aviation
Administration regulations. The Company anticipates
that Mr. Crowe will lease approximately 15% of the
aircraft's annual flight time, and will pay the
Company approximately $70,000 per year at the current
lease rate.
The Company entered into a separation agreement
with Mr. Jaros, a director of the Company, in
connection with the resignation of Mr. Jaros as
President of Kiewit Diversified Group Inc., a
subsidiary of the Company, effective July 31, 1997.
Under the separation agreement, the Company paid Mr.
Jaros $1.8 million on July 31, and agreed to pay Mr.
Jaros the balance of his 1997 salary ($187,500)
between August 1 and December 31, 1997 and a bonus
payment of $262,350 when the Company made its
customary executive bonus payments in 1998. The
Company also agreed to amend the option agreements
with Mr. Jaros with respect to the options to purchase
750,000 shares of Common Stock at $8.08 per share
granted to Mr. Jaros in 1995, and the options to
purchase 250,000 shares of Common Stock at $9.90 per
share granted to Mr. Jaros in 1996, to provide that
those options would be fully vested on July 31, 1997,
and would be exercisable at any time during the ten-
year term of the original option agreements.
In December 1996, the Company agreed to sell
50,000 shares of Common Stock to Mr. Harper, 50,000
shares of Common Stock to Mr. Daugherty and 40,000
shares of Common Stock to Mr. Kiewit, in each case at
$9.90 per share. Those stock purchase transactions
were consummated in March 1997. In October 1997, the
Company sold 50,000 shares of Common Stock to Mr.
Yanney and 50,000 shares of Common Stock to Mr.
McCourt, in each case at $10.85 per share.
The Company loaned George B. Toll, Jr. $800,000
during 1994 in connection with the purchase of a
residence and relocation expenses. The full principal
amount of his demand note payable to the Company is
currently outstanding. Mr. Toll was a director and
executive officer of the Company prior to the Split-
Off, but is no longer either a director or executive
officer of the Company.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain
information with respect to the beneficial ownership
of Level 3 Common Stock as of June 8, 1998 by the
Company's directors, certain executive officers and
directors and those executive officers as a group, and
each person known by the Company to beneficially own
more than 5% of the outstanding Level 3 Common Stock.
Number of
Shares of Percent of
Name Common Stock Common Stock
Walter Scott, Jr.(1) 17,686,591 12.1%
James Q. Crowe 5,666,360 3.9%
R. Douglas Bradbury 1,277,595 *
Kevin J. O'Hara(2) 878,080 *
Robert B. Daugherty -- *
William L. Grewcock(3) 5,763,707 3.9%
Charles M. Harper 95,000 *
Richard R. Jaros(4) 1,748,749 1.2%
Robert E. Julian 1,996,790 1.4%
David C. McCourt 57,500 *
Kenneth E. Stinson 365,814 *
Michael B. Yanney 50,000 *
Directors and Executive Officers
As a Group (12 persons) 35,586,186 24.2%
Donald L. Sturm(5) 9,186,875 6.2%
* Less than 1%.
(1) Includes 49,850 shares of Common Stock held by the
Suzanne Scott Irrevocable Trust as to which Mr. Scott
shares voting and investment powers.
(2) Includes 23,000 shares of Common Stock held by
Kevin J. O'Hara Family LTD Partnership.
(3) Includes 577,320 shares of Common Stock held by
Grewcock Family Limited Partnership. Includes 175,615
shares of Common Stock held by the Bill & Berniece
Grewcock Foundation as to which Mr. Grewcock shares
voting and investment powers.
(4) Includes 185,000 shares of Common Stock held by
the Jaros Family Limited Partnership. Includes 600,000
shares of Common Stock held by Mr. Jaros and 400,000
shares of Common Stock subject to options held by a
grantor trust, of which Mr. Jaros is the residual
beneficiary. See "Certain Transactions and
Relationships."
(5) Mr. Sturm's business address is 3033 East First
Avenue, Denver, Colorado 80206. Based solely on Mr.
Sturm's Schedule 13-D dated May 5, 1998, Mr. Sturm
owns 7,805,155 shares of Common Stock, and has voting
and investment power with respect to 1,306,720 shares
held by trusts and partnerships established for family
members and beneficially owns 75,000 shares as a
member of the board of directors of the University of
Denver.
Performance Graph
The following performance graph shall not be
deemed to be incorporated by reference by means of any
general statement incorporating by reference this
Proxy Statement into any filing under the Securities
Act of 1933, as amended or the Securities Exchange Act
of 1934, except to the extent that the Company
specifically incorporates such information by
reference, and shall not otherwise be deemed filed
under such acts.
The graphs below compare the cumulative total
return (stock appreciation plus reinvested dividends)
of the Company's common stock with four indexes of
publicly traded stocks. Prior to the Split-Off, the
Company had two classes of common stock, Class C Stock
and Class D Stock. For the substantially part of the
periods presented the Company's stock was not publicly
traded. Beginning in the fourth quarter 1997, the
Company's Class D Stock commenced trading on the over-
the-counter market of the National Association of
Securities Dealers, Inc. During the fourth quarter,
the only quarter during which trading occurred, the
range of the high and low bid information for the
Class D Stock was $20.41 to $29.00. The Common Stock
of the Company now trades on The Nasdaq National
Market under the symbol "LVLT.".
Pursuant to the terms of the Company's Restated
Certificate of Incorporation for all periods presented
in the graphs depicted below, the Company's stock was
valued by a formula contained in the Restated
Certificate of Incorporation. Company stock was valued
at the end of the Company's fiscal year and the formula
value was reduced as dividends are declared during the
following year. For purposes of the graphs, it has
been assumed that dividends were immediately reinvested
in additional shares of the Company's common stock,
although such reinvestment was not permitted in actual
practice. Although the Company's fiscal year ended on
the last Saturday in December, its stock is compared
against indexes which assume a fiscal year ending
December 31.
Because of two corporate restructuring events
during the last five years, further assumptions about
total return are required. The Company's stock was
reclassified on January 8, 1992. Each old share of
Class C Stock was exchanged for one new share of Class
C Stock and one share of Class D Stock. The five year
cumulative total return is shown as if the change
occurred on January 1, 1992.
On September 30, 1995, the Company distributed to
its Class D stockholders by way of a tax free dividend
its stock holdings in MFS Communications Company, Inc.
For each share of Class D Stock, 1.741 shares of MFS
common stock and .651 share of MFS preferred stock were
distributed. On the distribution date, 1.741 shares of
MFS common stock had a public market value of $76.17
and .651 share of MFS preferred stock had a value of
$.65 (together, a "distribution unit" of $76.82).
For purposes of the graph below, it is assumed that
each distribution unit was immediately sold for $76.82
and the proceeds reinvested in additional shares of
Class D Stock, which then had the reduced formula price
of $40.40 per share.
The formula value of the new Class C Stock was
linked to the performance of the Company's Construction
& Mining Group (which was split-off from the Company in
the Split-Off transaction); that Group's revenues come
primarily from construction operations. The formula
value of the Class D Stock was linked to the
performance of the Company's Diversified Group (which
are the operations that remained in the Company after
the Split-Off), which is primarily engaged in
communications, information services and coal mining
businesses.
The first graph compares the cumulative total
return of the Company's Class C Stock for the five year
period 1993-1997 with the Standard and Poors' Composite
500 Index and the Dow Jones Heavy Construction Index.
The graph assumes that the value of the investment was
$100 on December 31, 1992 and that all dividends and
other distributions were reinvested.
[PERFORMANCE GRAPH]
1992 1993 1994 1995 1996 1997
Class C Stock 100 123.64 146.79 192.99 251.25 326.63
S&P 500 Index 100 110.83 111.53 153.45 172.29 251.64
Dow Jones 100 104.91 100.95 140.86 133.86 101.05
Heavy Construction Index
The second graph compares the cumulative total
return of the Company's Class D shares for the five
year period 1992-1997 with the Dow Jones Coal Index and
the NASDAQ Telecommunications Index. The graph assumes
that the value of the investment was $100 on December
31, 1992, and that all dividends and other
distributions were reinvested.
[PERFORMANCE GRAPH]
1992 1993 1994 1995 1996 1997
Class D Stock 100.00 118.44 120.14 289.28 319.96 343.55
Dow Jones 100.00 147.29 144.45 152.48 166.15 142.53
Coal Index
NASDAQ 100.00 154.19 128.69 168.51 172.29 254.48
Telecommunications Index
APPROVAL OF OUTPERFORM STOCK OPTION PROGRAM PROPOSAL
On April 1, 1998, the Compensation Committee of
the Board of Directors (the "Committee"), under the
Company's 1995 Stock Plan (Amended and Restated as of
April 1, 1998) (the "Plan"), granted, subject to
stockholder approval, outperform stock options
("OSOs") to certain employees. The OSOs are being
granted pursuant to a program (the "OSO Program"),
which is part of the Plan. The OSOs are designed to
provide management the incentive to maximize
stockholder value and to reward the members of
management only when the Common Stock outperforms the
Standard & Poor's 500 Index. In order to ensure the
Company's ability to fully deduct compensation paid
under the OSO Program for income tax purposes, the OSO
Program has been structured to qualify as
"performance-based compensation" for purposes of
Section 162(m) ("Section 162(m)") of the Internal
Revenue Code of 1986, as amended (the "Code"). In
order to be fully deductible, the material terms and
conditions of the OSO Program must be disclosed to and
approved by a majority of the Company's stockholders.
If the OSO Program is not approved by the stockholders,
the program will not be implemented and all Awards
previously granted thereunder will be canceled. The
following is a summary of the material terms and
conditions of the OSO Program.
Purpose
The OSO Program was designed by the Company so
that its stockholders receive a market return on their
investment before OSO holders ("Grantees") receive
any return on their awards (each an "Award"). The
Company believes that the OSO Program aligns directly
management's and stockholders' interests by basing
stock option value on the Company's ability to
outperform the market in general, as measured by the
Standard & Poor's 500 Index. Participants in the OSO
Program do not realize any value from awards unless the
Level 3 Common Stock, par value $.01 per share (the
"Common Stock") price outperforms the Standard &
Poor's 500 Index. When the stock price gain is greater
than the corresponding gain on the Standard & Poor's
500 Index, the value received for awards under the OSO
Program is based on a formula involving a multiplier
related to how much the Common Stock outperforms the
Standard & Poor's 500 Index. To the extent that the
Common Stock outperforms the Standard & Poor's 500
Index, the value of OSOs to an Grantee may exceed the
value of non-qualified stock options.
Eligibility
The OSO Program is designed to motivate and
reward employees for achieving Company performance
above the overall stock market. Participation will be
limited to those employees selected by the Committee
for participation. As of April 1, 1998, the
approximate number of persons eligible to participate
is 500.
Administration - Grant of Awards
The OSO Program will be administered by the
Committee under and pursuant to the terms of the Plan.
The Committee will have the power to grant Awards with
respect to shares of Common Stock ("Award Shares"),
with each Award having an initial per share strike
price equal to the fair market value of one share of
Common Stock as of the date of grant (the "Initial
Price"). The Committee, in its sole discretion, has
the authority, among other things, to determine the
employees to whom, and the time or times at which,
Awards will be granted, to determine the number of
shares covered by an Award, to interpret the OSO
Program, and to make all other determinations deemed
advisable for the administration of the OSO Program.
Maximum Award
The maximum number of shares of Common Stock with
respect to which Awards may be granted to any one
individual in any calendar year is 300,000, provided,
that such number shall be determined prior to the
application of the Multiplier (as defined below).
Adjustment of Initial Price
The Initial Price shall be adjusted upward or
downward as of the date of exercise of the Award (the
"Adjusted Price"), by a percentage equal to the
aggregate increase or decrease (expressed as a whole
percentage point followed by three decimal places) in
the Standard and Poor's 500 Index over the period (the
"Period") beginning on the date of grant and ending
on the trading day immediately preceding the date of
exercise of the Award (the "Aggregate Percentage S&P
Performance"). For purposes of determining the
Aggregate Percentage S&P Performance with respect to
any Period, the Standard and Poor's 500 Index as of
the first day of the Period shall be deemed to equal
the closing value of such index on the trading day
immediately preceding the first day of the Period, and
the Standard and Poor's 500 Index on the last day of
the Period shall be deemed to equal the average
closing value of such index over the ten-consecutive-
trading day period immediately preceding the last day
of such Period.
Term
The term of each Award shall be four (4) years
from the date of grant (subject to a shorter period
upon termination of employment with the Company) after
which the Award shall expire.
Vesting and Exercisability
Subject to any accelerated vesting as provided
below, the Award shall become vested over a period of
two years at the rate of 1/8 of the total number of
Award Shares (rounded up to the nearest whole share)
on the last day of each three (3) calendar months from
the date of grant, such that the Award will become
fully vested on the day preceding the second
anniversary of the date of grant (the "Full Vesting
Date"); provided, however, that, subject to any
accelerated exercisability, no portion of the Award
shall become exercisable until the Full Vesting Date
at which time the Award shall become fully
exercisable.
Accelerated Vesting and Exercisability
In the event that a Grantee dies or suffers a
"Disability" (as determined by the Committee), his
Award shall become fully vested and fully exercisable.
In accordance with the authority granted to the
Committee in Section 9.2(b) of the Plan, on the
effective date of a "Change in Control" (as defined
in the Plan), (i) all Awards shall be canceled as to
any unexercised Award Shares, (ii) the Company or its
successor shall pay to each Grantee in consideration
thereof an amount of cash equal to the value of the
unexercised portion of his Award, assuming for this
purpose that the Award had been exercised after the
closing of trading of Stock on the day during the 60-
day period ending on the date of the Change in Control
which produces the highest such value, and (iii) any
required withholding related to such payment shall be
satisfied by withholding the appropriate amount of
cash from such payment.
Payment
Upon exercise, the Committee, in its sole
discretion, will deliver to the Grantee with respect
to and in cancellation of each Award Share as to which
his Award is exercised, either (a) a number of whole
shares of Common Stock with a "Fair Market Value" (as
defined in the Plan) on the trading day immediately
preceding the date of exercise (rounded up to the
nearest whole share) equal to the product of (A) the
Fair Market Value of a share of Common Stock on the
trading day immediately preceding the date of
exercise, less the Adjusted Price, multiplied by (B)
the "Multiplier" (as defined below), (b) cash equal
to the aggregate value of the Common Stock determined
pursuant to clause (a) above, or (c) a combination of
Common Stock and cash, in any proportion the Committee
may determine, having the same aggregate value as the
Common Stock determined pursuant to clause (a) above,
in each case subject to withholding by the Company.
Multiplier
The Multiplier shall be based on the "Outperform
Percentage" (as defined in the following sentence)
for the Period, determined on the date of exercise.
The Outperform Percentage shall be the excess of the
annualized percentage change (expressed as a whole
percentage point followed by three decimal places) in
the Fair Market Value of the Common Stock over the
Period, determined in accordance with the last
sentence of this paragraph (the "Annualized
Percentage Company Stock Price Change"), over the
annualized percentage increase or decrease (expressed
as a whole percentage point followed by three decimal
places) in the Standard & Poor's 500 Index over the
Period (the "Annualized Percentage S&P Performance").
For purposes of determining the Annualized Percentage
S&P Performance with respect to any Period, the
Standard & Poor's 500 Index shall be determined in
accordance with the last sentence of the paragraph
entitled Adjustment of Initial Price above. The
Multiplier shall be rounded to three decimal places,
and be determined as follows:
If Outperform Percentage is: The Multiplier will equal:
0% or less 0
More than 0%
but less than 11% [Outperform Percentage *
8/11] * 100.( E.g., if
Outperform Percentage = 5%,
Multiplier = [.05 * 8/11] *
100 = 3.636)
11% or more 8.0
For purposes of determining the Annualized
Percentage Company Stock Price Change with respect to
any Period, the Fair Market Value of the Stock on the
first day of the Period shall be the Fair Market Value
on the trading day immediately preceding the first day
of the Period, and the Fair Market Value on the last
day of the Period shall be deemed to equal the average
Fair Market Value over the ten-consecutive-trading day
period immediately preceding the last day of such
Period.
Other Terms
The Committee may provide such other terms and
conditions not inconsistent with the terms and
conditions described herein with respect to any Award
as it deems appropriate.
Market Value
As of June 15, 1998, the closing price of the
Common Stock was $54.0625.
Withholding
The Company will have the right to withhold any
taxes required by law to be withheld with respect to
the exercise of any Awards. The Committee, in its
sole discretion, may permit a participant to satisfy
tax withholding obligations, in whole or in part,
either (i) by having the Company withhold from the
Common Stock and/or cash to be issued upon the
exercise of an Award an amount having a fair market
value equal to the withholding amount or (ii) by
delivering to the Company sufficient Common Stock or
cash to satisfy the withholding amount due.
Adjustments
If any change is made to the Common Stock by
reason of any merger, consolidation, reorganization,
recapitalization, stock dividend, split-up, exchange
of shares, change in corporate structure, or
otherwise, appropriate adjustments will be made by the
Committee to the kind and number of Common Stock and
price per share subject to each outstanding Award.
Tax Gross-Up
The Plan allows the Committee discretion to
provide in any Award agreement for a tax gross-up in
the event that payments with respect to the exercise
of Awards are deemed to be "excess parachute
payments" for purposes of Section 280G of the Code.
Non-transferability
Except as provided by the Committee in an Award
agreement, no Award, nor any right or interest
therein, is assignable or transferable except by will
or the laws of descent and distribution, and during
the lifetime of the Grantee, Awards are exercisable
only by the Grantee or his or her legal
representative.
Termination or Amendment
The Board may terminate the OSO Program at any
time, provided that no such action shall deprive
Grantees of their rights under outstanding Awards. The
Board may also amend the OSO Program from time to time
as its deems desirable; provided, however, without the
requisite approval of the stockholders, the OSO Program
may not be amended where such stockholder approval is
required in order for the OSO Program to continue to
qualify as "performance-based compensation" within
the meaning of Section 162(m).
Federal Income Tax Consequences
The following is a brief discussion of the Federal
income tax consequences of transactions under the OSO
Program based on the Code, as in effect as of the date
hereof. The OSO Program is not qualified under Section
401(a) of the Code. This discussion is not intended to
be exhaustive and does not describe the state or local
tax consequences.
Except as noted below, (1) no income is realized
by the Grantee at the time the Award is granted; (2)
generally, at exercise, ordinary income is realized by
the Grantee in an amount equal to the value of the
shares of Common Stock and cash received and the
Company is generally entitled to a tax deduction in the
same amount subject to applicable tax withholding
requirements; and (3) upon the subsequent sale of any
Common Stock received by the grantee upon the exercise
of an Award, appreciation (or depreciation) after the
date of exercise is treated as either short-term, mid-
term or long-term capital gain (or loss) depending on
how long the shares have been held.
New Plan Benefits
The following Table sets forth the Awards made to
the following individuals by the Committee on June 15,
1998.
Name and Position Dollar Value Number of Units
James Q. Crowe N/A 40,000
R. Douglas Bradbury N/A 12,500
Kevin J. O'Hara N/A 12,500
Executive Officer Group N/A 65,000
Non-Executive Director Group N/A 3,944
Employee Group N/A 224,361
Inasmuch as all future Awards will be granted at
the sole discretion of the Committee, such benefits
under the OSO Program are not determinable.
The Board of Directors unanimously recommends a vote FOR approval
of the OSO Program.
OTHER MATTERS
It is not anticipated that any matters other than
those described in this Proxy Statement will be brought
before the Annual Meeting. If any other matters are
presented, however, it is the intention of the persons
named in the proxy to vote the proxy in accordance with
the discretion of the persons named in the proxy.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder intends to
present at the 1999 Annual Meeting must be received by
Level 3 on or before May 14, 1999, but no earlier than
April 14, 1999 to be included in the proxy material of
Level 3 relating to such meeting. In addition, such
proposal must also include a brief description of the
business to be brought before the annual meeting, the
stockholder's name and record address, the number of
shares of Common Stock which are owned beneficially or
of record by such stockholder, a description or any
arrangements or understandings between the stockholder
and any other person in connection with such proposal
and any material interest of such stockholder in such
proposal and a representation that the stockholder
intends to appear in person or by proxy at the Annual
Meeting. If the stockholder wishes to nominate one or
more persons for election as a director, such
stockholder's notice must comply with additional
provisions as set forth in the Level 3 By-laws,
including certain information with respect to the
persons nominated for election as directors and any
information relating to the stockholder that would be
required to be disclosed in a Proxy Filing. Any such
proposals should be directed to the Secretary, Level 3
Communications, Inc., 3555 Farnam Street, Omaha,
Nebraska 68131.
Exhibit A
ANNUAL MEETING OF STOCKHOLDERS
Tuesday, July 14, 1998
9:30 a.m.
The Joslyn Art Museum
2200 Dodge Street
Omaha, Nebraska 68131
(Please detach here)
LEVEL 3 COMMUNICATIONS, INC.
Revocable Proxy Solicited on Behalf of the Board of Directors
THE UNDERSIGNED STOCKHOLDER of Level 3 Communications, Inc. (the
"Company") hereby appoints Terrence J. Ferguson and Neil J. Eckstein the
lawful attorneys and proxies of the undersigned with full power of
substitution to vote, as designated on the reverse side, all shares of
Common Stock of the Company which the undersigned is entitled to vote at
the Annual Meeting of Stockholders to be held on Tuesday, July 14, 1998,
at 9:30 a.m. at the Joslyn Art Museum, 2200 Dodge Street, Omaha, Nebraska
68131, and at any and all adjournments and postponements thereof with
respect to the proposals set forth on the reverse side and described in
the Notice of Annual Meeting and Proxy Statement dated June 17, 1998,
receipt of which is hereby acknowledged.
This proxy, when properly completed and returned, will be voted in
the manner directed herein by the undersigned stockholder. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" THE NOMINEES AND
OTHER PROPOSALS LISTED ON THE REVERSE SIDE AND, IN THE DISCRETION OF
THE PROXYHOLDER, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING AND AT ANY ADJOURNMENTS AND POSTPONEMENTS THEREOF.
(continued and to be dated and signed on the reverse side)
VOTE BY TELEPHONE
Call Toll Free on a Touch-Tone Telephone COMPANY #
1-800-240-6326 CONTROL #
Your telephone vote authorizes the named proxies to vote your shares in
the same manner as if you had marked, signed and returned your proxy card.
The deadline for telephone voting is noon (ET) on July 13, 1998. If you
receive more than one proxy card, you must telephone your vote for each.
1. Using a touch-tone telephone, dial 1-800-240-6326. You may dial
this toll free number at your convenience 7 days/week, 24 hours/day
until the deadline. When prompted, enter the 3-digit Company Number
located in the box on the upper right hand corner of this section of
the proxy card. When prompted, enter your numerical Control Number
that follows the Company Number.
OPTION #1: To vote on all four items as the Level 3 Communications,
Inc. Board of Directors recommends, press "1". When asked,
please confirm your vote by pressing 1 again - THANK YOU
FOR VOTING.
OPTION #2: If you choose to vote on each item separately, press "0".
You will hear these instructions:
Proposal 1: To vote FOR all nominees, press "1"; to
WITHHOLD FOR ALL nominees, press "9"; to WITHHOLD FOR AN
INDIVIDUAL nominee, press "0" and listen to the instructions.
Proposal 2: To vote FOR, press "1"; AGAINST, press "9";
ABSTAIN, press "0"
Proposal 3: To vote FOR, press "1"; AGAINST, press "9";
ABSTAIN, press "0"
When asked, please confirm your vote by pressing "1" - THANK YOU FOR VOTING
IF YOU VOTE BY TELEPHONE, DO NOT MAIL YOUR PROXY UNLESS YOU INTEND TO
REVOKE YOUR TELEPHONE VOTE.
The latest vote received will be the one counted.
(Please detach here)
(continued from reverse side)
1. ELECTION OF DIRECTORS:
[ ] FOR the election of all [ ] WITHHOLD authority to vote
nominees listed below for all nominees listed below
[ ] EXCEPTIONS (To withhold authority for any individual nominee
listed below, mark the "Exceptions" box and strike a line
through that nominee's name.)
Nominees: 01 Walter Scott, Jr. 02 James Q. Crowe 03 Charles M. Harper
2. TO ADOPT THE PROGRAM relating to the issuance of Outperform Stock
Options pursuant to the Level 3 1995 Stock Plan, amended and restated
as of April 1, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN THEIR DISCRETION, the proxies are authorized to vote upon such
other business as may properly come before the meeting and at any
adjournments and postponements thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE PROMPTLY SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED
ENVELOPE.
----------------------------------
SIGNATURE DATE
-----------------------------------
SIGNATURE DATE
Please date and sign exactly as your name appears to the left. When
signing as a fiduciary, representative or corporate officer, give full
title as such. If you receive more than one proxy card, please sign
and return all cards received.
