FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period__________to__________
Commission file number 0-15658
LEVEL 3 COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0210602
(State of Incorporation) (I.R.S. Employer
Identification No.)
1025 Eldorado Blvd., Broomfield, CO 80021
(Address of principal executive offices) (Zip Code)
(720) 888-1000
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports(s)), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each class of the issuer's common stock, as
of October 29, 1999:
Common Stock 341,076,021 shares
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Condensed Statements of Operations
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Cash Flows
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statements of Comprehensive Income
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
<PAGE>
<TABLE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
(dollars in millions, except share data) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
Revenue $ 134 $ 106 $ 342 $ 296
Costs and Expenses:
Cost of revenue 100 47 243 138
Depreciation and amortization 63 15 155 31
Selling, general and administrative expenses 178 96 460 199
Write-off of in-process research & development - - - 30
----- ----- ----- -----
Total costs and expenses 341 158 858 398
----- ----- ----- -----
Loss from Operations (207) (52) (516) (102)
Other Income (Expense):
Interest income 51 53 158 124
Interest expense, net (34) (46) (132) (86)
Gain on equity investee stock transactions 5 4 116 25
Other, net (35) (31) (65) (78)
----- ----- ----- -----
Total other income (expense) (13) (20) 77 (15)
----- ----- ----- -----
Loss Before Income Taxes and
Discontinued Operations (220) (72) (439) (117)
Income Tax Benefit 73 23 143 28
----- ----- ----- -----
Loss from Continuing Operations (147) (49) (296) (89)
Discontinued Operations:
Gain on split-off of Construction Group - - - 608
Gain on disposition of energy business,
net of income tax expense of $175 - - - 324
----- ----- ----- -----
Earnings from discontinued operations - - - 932
----- ----- ----- -----
Net Earnings (Loss) $(147) $ (49) $(296) $ 843
===== ===== ===== =====
Earnings (Loss) Per Share (Basic and Diluted):
Continuing operations $(.43) $(.16) $(.89) $(.30)
===== ===== ===== =====
Discontinued operations $ - $ - $ - $3.11
===== ===== ===== =====
Net earnings (loss) $(.43) $(.16) $(.89) $2.81
===== ===== ===== =====
Net earnings (loss), excluding gain on
split-off of Construction Group $(.43) $(.16) $(.89) $ .78
===== ===== ===== =====
- ------------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
<TABLE>
<S> <C> <C>
September 30, December 31,
(dollars in millions, except share data) 1999 1998
- --------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 1,486 $ 842
Marketable securities 2,732 2,863
Restricted cash and securities 528 32
Accounts receivable, net 118 57
Income taxes receivable 163 54
Other 43 29
------- -------
Total Current Assets 5,070 3,877
Property, Plant and Equipment, net 3,072 1,061
Investments 363 323
Other Assets, net 330 261
-------- -------
$ 8,835 $ 5,522
======== =======
- -------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(unaudited)
<TABLE>
<S> <C> <C>
September 30, December 31,
(dollars in millions, except share data) 1999 1998
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 653 $ 276
Current portion of long-term debt 6 5
Accrued payroll and employee benefits 62 16
Accrued interest 81 33
Deferred revenue 84 1
Other 53 39
------ -------
Total Current Liabilities 939 370
Long-Term Debt, less current portion 3,977 2,641
Deferred Income Taxes 40 86
Accrued Reclamation Costs 97 96
Other Liabilities 251 164
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, authorized
10,000,000 shares;
no shares outstanding in 1999 and 1998 - -
Common Stock:
Common Stock, $.01 par value, authorized
1,500,000,000 shares;
340,689,116 shares outstanding in 1999
and 307,874,706 outstanding in 1998 3 3
Class R, $.01 par value, authorized
8,500,000 shares;
no shares outstanding in 1999 and 1998 - -
Additional paid-in capital 2,435 765
Accumulated other comprehensive (loss)
income (4) 4
Retained earnings 1,097 1,393
------- ------
Total Stockholders' Equity 3,531 2,165
------- -------
$ 8,835 $ 5,522
======= =======
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(unaudited)
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30,
(dollars in millions) 1999 1998
- ------------------------------------------------------------------------------
Cash flows from continuing operations:
Net cash provided by continuing operations $ 408 $ 128
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities 4,369 2,882
Purchases of marketable securities (4,254) (5,132)
Capital expenditures (2,154) (409)
Investments (3) (24)
Proceeds from sale of property, plant and
equipment and other investments 11 26
Other 1 -
------ ------
Net cash used in investing activities (2,030) (2,657)
Cash flows from financing activities:
Issuance of long-term debt, net of issuance costs 1,250 1,937
Payments on long-term debt including current portion (5) (7)
Increase in cash and restricted securities (495) -
Issuances of common stock 1,498 21
Proceeds from exercise of stock options 18 7
Exchange of Class C Stock for Common Stock, net - 122
------ ------
Net cash provided by financing activities 2,266 2,080
Cash flows from discontinued operations:
Proceeds from sale of energy operations,
net of income tax payments of $144 million - 1,015
------ ------
Net cash provided by discontinued operations - 1,015
------ ------
Net change in cash and cash equivalents 644 566
Cash and cash equivalents at beginning of year 842 87
------ ------
Cash and cash equivalents at end of period $ 1,486 $ 653
======= ======
The activities of the Construction & Mining Group have been removed from the
consolidated condensed statements of cash flows in 1998. The Construction Group
had cash flows of ($62) million for the three months ended March 31, 1998.
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 1999
(unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Accumulated
Additional Other
Common Paid-in Comprehensive Retained
(dollars in millions) Stock Capital Income (Loss) Earnings Total
- ----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 $ 3 $ 765 $ 4 $ 1,393 $ 2,165
Common Stock:
Issuances, net - 1,504 - - 1,504
Stock options exercised - 18 - - 18
Stock option grants - 88 - - 88
Income tax benefit from
exercise of options - 60 - - 60
Net Loss - - - (296) (296)
Other Comprehensive Loss - - (8) - (8)
------ ------- ------ ------ ------
Balance at September 30, 1999 $ 3 $ 2,435 $ (4) $ 1,097 $ 3,531
====== ======= ====== ======= =======
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
(dollars in millions) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
Net (Loss) Earnings $ (147) $ (49) $ (296) $ 843
Other Comprehensive Income (Loss) Before Tax:
Foreign currency translation adjustments 9 - 1 1
Unrealized holding loss arising during period - (4) (2) (1)
Reclassification adjustment for gains
included in net (loss) earnings - - (12) (8)
----- ----- ----- -----
Other Comprehensive Income (Loss) Before Tax 9 (4) (13) (8)
Income Tax (Expense) Benefit Related to Items of
Other Comprehensive Income (Loss) (3) 1 5 3
----- ----- ----- -----
Other Comprehensive Income (Loss) Net of Taxes 6 (3) (8) (5)
----- ----- ----- -----
Comprehensive (Loss) Income $ (141) $ (52) $(304) $ 838
====== ===== ===== =====
- ------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
1. Basis of Presentation
The consolidated condensed balance sheet of Level 3 Communications, Inc. and
subsidiaries ("Level 3" or the "Company"), at December 31, 1998 has been
condensed from the Company's audited balance sheet as of that date. All other
financial statements contained herein are unaudited and, in the opinion of
management, contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of financial position, results of
operations and cash flows for the periods presented. The Company's accounting
policies and certain other disclosures are set forth in the notes to the
consolidated financial statements contained in the Company's Annual Report on
Form 10-K, for the year ended December 31, 1998. These financial statements
should be read in conjunction with the Company's audited consolidated financial
statements and notes thereto. The preparation of the consolidated condensed
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amount of revenue and expenses during the reported
period. Actual results could differ from these estimates.
The Company has embarked on a plan to become a facilities-based provider (that
is, a provider that owns or leases a substantial portion of the property, plant
and equipment necessary to provide its services) of a broad range of integrated
communications services in the United States, Europe and Asia. To reach this
goal, the Company is expanding substantially the business of its PKS Information
Services, Inc. subsidiary and creating, through a combination of construction,
purchase and leasing of facilities and other assets, an international,
end-to-end, facilities-based communications network (the "Business Plan"). The
Company is building the network based on Internet Protocol technology in order
to leverage the efficiencies of this technology to provide lower cost
communications services.
In 1997, the Company agreed to sell its energy assets to MidAmerican Energy
Holding Company, Inc. (f/k/a CalEnergy Company, Inc.) ("MidAmerican") and to
separate the construction operations ("Construction Group") from the Company. On
January 2, 1998, the Company completed the sale of its energy assets to
MidAmerican. On March 31, 1998, the Company completed the split-off of the
Construction Group to stockholders that held Class C Stock. Therefore, the
results of operations of both businesses have been classified as discontinued
operations on the consolidated condensed statements of operations for 1998.
On May 1, 1998, the Company's Board of Directors changed Level 3's fiscal year
end from the last Saturday in December to a calendar year end. The additional
four days for the period ending September 30, 1998, were not material to the
overall results of operations and cash flows.
The results of operations for the nine months ended September 30, 1999, are not
necessarily indicative of the results expected for the full year.
Where appropriate, items within the consolidated condensed financial statements
have been reclassified from the previous periods to conform to current period
presentation.
2. Reorganization - Discontinued Construction Operations
Prior to March 31, 1998, the Company had a two-class capital structure. The
Company's Class C Stock reflected the performance of the Construction Group and
the Class D Stock reflected the performance of the other businesses, including
communications, information services and coal mining. In 1997 the Board of
Directors of Level 3 approved a proposal for the separation of the Construction
Group from the other operations of the Company through a split-off of the
Construction Group (the "Split-off"). In December 1997, the Company's
stockholders approved the Split-off and in March 1998, the Company received a
ruling from the Internal Revenue Service that stated the Split-off would be
tax-free to U.S. stockholders. The Split-off was effected on March 31, 1998. As
a result of the Split-off, the Company no longer owns any interest in the
Construction Group. Accordingly, the separate financial statements and
management's discussion and analysis of financial condition and results of
operations of Peter Kiewit Sons', Inc. should be obtained to review the results
of operations of the Construction Group for the three months ended March 31,
1998.
On March 31, 1998, the Company reflected the fair value of the Construction
Group as a distribution to the Class C stockholders because the distribution was
considered non-pro rata as compared to the Company's previous two-class capital
stock structure. The Company recognized a gain of $608 million within
discontinued operations, equal to the difference between the carrying value of
the Construction Group and its fair value in accordance with Financial
Accounting Standards Board Emerging Issues Task Force Issue 96-4, "Accounting
for Reorganizations Involving a Non-Pro Rata Split-off of Certain Nonmonetary
Assets to Owners". No taxes were provided on this gain due to the tax-free
nature of the Split-off.
In connection with the Split-off, the Class D Stock became the common stock of
Level 3 Communications, Inc. ("Common Stock"), and shortly thereafter, began
trading on the Nasdaq National Market under the symbol "LVLT".
3. Discontinued Energy Operations
On January 2, 1998, the Company completed the sale of its energy assets to
MidAmerican. These assets included approximately 20.2 million shares of
MidAmerican common stock (assuming the exercise of 1 million options held by
Level 3), Level 3's 30% interest in CE Electric and Level 3's investments in
international power projects in Indonesia and the Philippines. Level 3
recognized an after-tax gain on the disposition of $324 million and the
after-tax proceeds of approximately $967 million from the transaction are being
used in part to fund the Business Plan. Results of operations for the period
through January 2, 1998 were not considered significant and the gain on
disposition was calculated using the carrying amount of the energy assets as of
December 27, 1997.
4. Earnings (Loss) Per Share
Basic earnings (loss) per share have been computed using the weighted average
number of shares during each period. The Company had a loss from continuing
operations for the three and nine month periods ended September 30, 1999 and
1998. Therefore, the dilutive impact of the Convertible Subordinated Notes and
the 21,534,433 options and warrants outstanding at September 30, 1999 and
19,690,144 options and warrants outstanding at September 30, 1998 have not been
included in the computation of diluted earnings (loss) per share because the
resulting computation would have been anti-dilutive.
Effective August 10, 1998, the Company issued a dividend of one share of Level 3
Common Stock for each share of Level 3 Common Stock outstanding. All share
information and per share data have been restated to reflect the stock dividend.
The following details the earnings (loss) per share calculations for Level 3
Common Stock:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Loss From Continuing Operations (in millions) $ (147) $ (49) $ (296) $ (89)
Discontinued Operations:
Gain on Split-off of Construction Group - - - 608
Earnings from Discontinued Energy Operations - - - 324
-------- ------- ------- -------
Earning from Discontinued Operations - - - 932
-------- ------- ------- -------
Net Earnings (Loss) $ (147) $ (49) $ (296) $ 843
======== ======= ======= =======
Total Number of Weighted Average Shares
Outstanding Used to Compute Basic and
Diluted Earnings Per Share (in thousands) 340,298 306,515 332,039 300,151
======= ======= ======= =======
Earnings (Loss) Per Share (Basic and Diluted):
Continuing operations $ (.43) $ (.16) $ (.89) $ (.30)
======= ======= ======= =======
Discontinued operations $ - $ - $ - $ 3.11
======= ======= ======= =======
Net earnings (loss) $ (.43) $ (.16) $ (.89) $ 2.81
======= ======= ======= =======
Net earnings (loss), excluding gain on Split-off
of Construction Group $ (.43) $ (.16) $ (.89) $ .78
======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
5. Acquisitions
On January 5, 1999, Level 3 acquired BusinessNet Ltd. ("BusinessNet"), a leading
London-based Internet service provider in a largely stock-for-stock transaction
valued at $12 million and accounted for as a purchase. After completion of
certain adjustments, the Company agreed to issue approximately 400,000 shares of
Common Stock and paid $1 million in cash in exchange for all of the issued and
outstanding shares of BusinessNet's capital stock. Of the approximately 400,000
shares Level 3 agreed to issue in connection with the acquisition, approximately
150,000 shares of Level 3 Common Stock have been pledged to Level 3 to secure
certain indemnification obligations of the former BusinessNet stockholders. In
October 1999, Level 3 released approximately 42,000 shares pursuant to the
acquisition agreement. The pledge of the remaining shares will terminate
approximately 18 months from the acquisition date, unless otherwise extended
pursuant to the terms of the acquisition agreement. Liabilities exceeded assets
acquired, and goodwill of $16 million was recognized from the transaction which
is being amortized over five years.
On April 23, 1998, the Company acquired XCOM Technologies, Inc. ("XCOM"), a
privately held company that has developed technology which provides certain key
components necessary for the Company to develop an interface between its
Internet Protocol-based network and the existing public switched telephone
network. The Company issued approximately 5.3 million shares of Level 3 Common
Stock and 0.7 million options and warrants to purchase Level 3 Common Stock in
exchange for all the stock, options and warrants of XCOM.
The Company accounted for this transaction, valued at $154 million, as a
purchase. Of the total purchase price, $115 million was originally allocated to
in-process research and development and was taken as a nondeductible charge to
earnings in the second quarter of 1998. The purchase price exceeded the fair
value of the net assets acquired by $30 million which was recognized as
goodwill.
In October 1998, the Securities and Exchange Commission ("SEC") issued new
guidelines for valuing acquired research and development which are applied
retroactively. The Company believes its accounting for the acquisition was made
in accordance with generally accepted accounting principles and established
appraisal practices at the time of the acquisition. However, due to the
significance of the charge relative to the total value of the acquisition, the
Company reviewed the facts with the SEC. Consequently, using the revised
guidelines and assumptions, the Company reduced the charge for in-process
research and development from $115 to $30 million, and increased the related
goodwill by $85 million. The goodwill associated with the XCOM transaction is
being amortized over a five year period. The results for the three and nine
months ended September 30, 1998 have been restated to reflect the reduced charge
for in-process research and development and increased amortization expense.
The Company believes that its resulting charge for acquired research and
development conforms to the SEC's expressed guidelines and methodologies.
However, no assurances can be given that the SEC will not require additional
adjustments.
The cumulative operating results of BusinessNet, XCOM and other 1998
acquisitions were not significant relative to the Company's 1999 and 1998
results.
For the Company's acquisitions, the excess purchase price over the fair market
value of the underlying assets was allocated to goodwill and other intangible
assets and property based upon preliminary estimates of fair value. The final
purchase price allocation for XCOM did not vary significantly from preliminary
estimates. The Company does not believe that the final purchase price allocation
will vary significantly from the preliminary estimates for the entities acquired
after September 30, 1998.
6. Property, Plant and Equipment, net
Construction in Progress
The Company is currently constructing its communications network. Costs
associated directly with the uncompleted network and interest expense incurred
during construction are capitalized based on the weighted average accumulated
construction expenditures and the interest rates related to borrowings
associated with the construction. Certain gateway facilities, local networks and
operating equipment have been placed in service during 1999. These assets are
being depreciated over their useful lives, primarily ranging from 3-25 years. As
other segments of the network are placed in service, the assets will be
depreciated over their useful lives.
The Company is currently developing business support systems required for its
Business Plan. The external direct costs of software, materials and services,
payroll and payroll related expenses for employees directly associated with the
project and interest costs incurred when developing the business support systems
are capitalized. Upon completion of the projects, the total costs of the
business support systems are amortized over their useful lives of 3 years.
For the nine months ended September 30, 1999, the Company invested $2,021
million in its communications business, including $825 million on the U.S.
intercity network, $464 million on international networks, $144 million on
transoceanic networks and $419 million on gateway facilities and local networks.
Capitalized business support systems and network construction costs that have
not been placed in service have been classified as construction-in-progress
within Property, Plant and Equipment below.
<TABLE>
<S> <C> <C> <C>
Accumulated Book
(dollars in millions) Cost Depreciation Value
- --------------------------------------------------------------------------------
September 30, 1999
Land and Mineral Properties $ 41 $ (16) $ 25
Facility and Leasehold Improvements:
Communications 162 (4) 158
Information Services 26 (3) 23
Coal Mining 73 (63) 10
CPTC 91 (8) 83
Operating Equipment:
Communications 369 (64) 305
Information Services 59 (36) 23
Coal Mining 115 (104) 11
CPTC 17 (6) 11
Network Construction Equipment 91 (7) 84
Furniture and Office Equipment 103 (33) 70
Other 126 (31) 95
Construction-in-Progress 2,174 - 2,174
------ ----- ------
$3,447 $ 375 $3,072
====== ===== ======
December 31, 1998
Land and Mineral Properties $ 37 $ (16) $ 21
Facility and Leasehold Improvements:
Communications 80 (1) 79
Information Services 24 (2) 22
Coal Mining 74 (61) 13
CPTC 91 (5) 86
Operating Equipment:
Communications 245 (18) 227
Information Services 53 (30) 23
Coal Mining 119 (104) 15
CPTC 17 (4) 13
Network Construction Equipment 46 (1) 45
Furniture and Office Equipment 67 (10) 57
Other 72 (2) 70
Construction-in-Progress 390 - 390
------- ------ ------
$ 1,315 $ (254) $1,061
====== ====== ======
- --------------------------------------------------------------------------------
</TABLE>
7. Investments
The Company holds significant equity positions in two publicly traded companies;
RCN Corporation ("RCN") and Commonwealth Telephone Enterprises, Inc.
("Commonwealth Telephone"). RCN is a facilities-based provider of communications
services to the residential market primarily in the northeastern United States
and California. RCN provides local and long distance phone, cable television and
Internet services in several markets; including Boston, New York, Washington,
D.C., and California's San Francisco to San Diego corridor.
Commonwealth Telephone holds Commonwealth Telephone Company, an incumbent local
exchange carrier operating in various rural Pennsylvania markets, and CTSI,
Inc., a competitive local exchange carrier which commenced operations in 1997.
On September 30, 1999, Level 3 owned approximately 35% and 48% of the
outstanding shares of RCN and Commonwealth Telephone, respectively, and accounts
for each entity using the equity method. The market value of the Company's
investment in the two entities was $1,092 million and $468 million,
respectively, on September 30, 1999.
The Company recognizes gains from the sale, issuance and repurchase of stock by
its subsidiaries and equity method investees in its statement of operations.
During 1999, RCN issued stock in a public offering and for certain transactions
which diluted the Company's ownership of RCN from 41% at December 31, 1998 to
35% at September 30, 1999. The increase in the Company's proportionate share of
RCN's net assets as a result of these transactions resulted in a pre-tax gain of
$5 million and $116 million for the Company for the three and nine months ended
September 30, 1999. The Company also recognized a gain of $4 million and $25
million for the three and nine months ended September 30, 1998 related to stock
transactions of RCN.
In October 1999, RCN announced that Vulcan Ventures, Inc. had agreed to invest
$1.65 billion in RCN. This transaction, expected to close during the first
quarter of 2000, is in the form of preferred stock convertible to 26.6 million
shares of RCN common stock. The preferred shares must be converted to common
shares within a three to seven year period at $62 per share. Level 3, based on
current market conditions, expects to recognize a significant gain when Vulcan
Ventures, Inc. converts its RCN preferred stock to RCN common stock.
The following is summarized financial information of RCN and Commonwealth
Telephone for the three and nine months ended September 30, 1999 and 1998, and
as of September 30, 1999 and December 31, 1998 (in millions):
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
Operations 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
RCN Corporation:
Revenue $ 70 $ 58 $ 204 $ 148
Net loss available to common shareholders (96) (53) (232) (170)
Level 3's share:
Net loss (37) (22) (89) (75)
Goodwill amortization - - (1) -
----- ----- ------ -----
Equity in net loss $ (37) $ (22) $ (90) $ (75)
===== ===== ====== =====
Commonwealth Telephone Enterprises:
Revenue $ 68 $ 58 $ 192 $ 167
Net income available to common shareholders 6 3 17 12
Level 3's share:
Net income 3 2 8 6
Goodwill amortization - - (1) (1)
----- ----- ------ -----
Equity in net income $ 3 $ 2 $ 7 $ 5
===== ===== ====== =====
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Commonwealth
RCN Telephone
Corporation Enterprises
Financial Position 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Current assets $ 1,704 $ 1,093 $ 85 $ 79
Other assets 1,150 815 403 354
------- ------- ------ -----
Total assets 2,854 1,908 488 433
Current liabilities 192 178 84 85
Other liabilities 1,766 1,282 262 223
Minority interest 129 77 - -
Preferred stock 249 - - -
------- ------- ------ -----
Total liabilities and preferred stock 2,336 1,537 346 308
------- ------- ------ -----
Common Equity $ 518 $ 371 $ 142 $ 125
======= ======= ====== =====
Level 3's share:
Equity in net assets $ 184 $ 150 $ 68 $ 60
Goodwill 26 34 54 56
------- ------- ------ -----
$ 210 $ 184 $ 122 $ 116
======= ======= ====== =====
- --------------------------------------------------------------------------------
</TABLE>
Investments at September 30, 1999 and December 31, 1998 also include $23 million
for the Company's investment in the Pavilion Towers office buildings in Aurora,
Colorado.
8. Other Assets, net
At September 30, 1999 and December 31, 1998 other assets consisted of the
following:
<TABLE>
<S> <C> <C>
(in millions) 1999 1998
- ----------------------------------------------------------------------------------------
Goodwill:
XCOM, net of accumulated amortization of $32 and $15 $ 80 $ 100
GeoNet, net of accumulated amortization of $3 and $1 18 20
BusinessNet, net of accumulated amortization of $3 and $- 13 -
Other, net of accumulated amortization of $5 and $1 15 19
Prepaid Network Assets 51 -
Deferred Debt Issuance Costs 106 67
Deferred Development and Financing Costs 15 15
Unrecovered Mine Development Costs 14 15
Leases 6 9
Timberlands 3 3
Other 9 13
------ ------
Total other assets $ 330 $ 261
====== ======
- ----------------------------------------------------------------------------------------
</TABLE>
9. Long-Term Debt
6% Convertible Subordinated Notes
On September 14, 1999, the Company received $798 million of proceeds, after
transaction costs, from an offering of $823 million aggregate principal amount
of its 6% Convertible Subordinated Notes Due 2009 ("Subordinated Notes"). The
Subordinated Notes are unsecured and subordinated to all existing and future
senior indebtedness of the Company. Interest on the notes accrues at 6% per year
and is payable each year in cash on March 15 and September 15. The principal
amount of the notes will be due on September 15, 2009. The Subordinated Notes
may be converted into shares of common stock of the Company at any time prior to
maturity, unless the Company has caused the conversion rights to expire. The
conversion rate is 15.3401 shares per each $1,000 principal amount of
Subordinated Notes, subject to adjustment in certain circumstances. On or after
September 15, 2002, Level 3, at its option, may cause the conversion rights to
expire. Level 3 may exercise this option only if the current market price
exceeds approximately $91.27 (which represents 140% of the conversion price) for
20 trading days within any period of 30 consecutive trading days including the
last day of that period.
Debt issuance costs of $25 million were capitalized and are being amortized as
interest expense over the term of the Subordinated Notes.
Senior Secured Credit Facilities
On September 30, 1999, certain Level 3 subsidiaries entered into $1.375 billion
of secured credit facilities ("Senior Secured Credit Facilities"). The
facilities are comprised of a senior secured revolving credit facility in the
amount of $650 million and a two-tranche senior secured term loan facility
aggregating $725 million. The secured term loan facility consists of a $450
million tranche A and a $275 million tranche B term loan facilities.
On September 30, 1999, Level 3 borrowed $475 million under the secured term loan
facility. The $475 million and prepaid interest have been placed in an interest
bearing escrow account until the Company receives the remaining state regulatory
approvals necessary to close this financing. The Company expects to receive all
the necessary regulatory approvals during the fourth quarter of 1999.
The obligations under the revolving credit facility are secured by substantially
all the assets of Level 3 and, subject to certain exceptions, its wholly owned
domestic subsidiaries (other than the borrower under the term loan facilities).
Such assets will also secure a portion of the term loan facilities.
Additionally, all obligations under the term loan facilities will be secured by
the equipment that is purchased with the proceeds of the term loan facilities.
Amounts drawn under the secured credit facility will bear interest, at the
option of the Company, at the alternate base rate or reserve-adjusted LIBOR plus
applicable margins. The applicable margins for the revolving credit facility and
tranche A term loan facility range from 50 to 175 basis points over the
alternate base rate and from 150 to 275 basis points over LIBOR and are fixed
for the tranche B term loan facility at 2.5% over the alternate base rate and
3.5% over LIBOR. Interest and commitment fees on the revolving credit facility
and the term loan facilities are payable quarterly with specific rates
determined by actual borrowings under each facility.
The revolving credit facility provides for automatic and permanent quarterly
reductions of the amount available for borrowing under that facility, commencing
at $17.25 million on March 31, 2004, and increasing to approximately $61 million
per quarter. The tranche A term loan facility amortizes in consecutive quarterly
payments beginning on March 31, 2004, commencing at $9 million per quarter and
increasing to $58.5 million per quarter. The revolving credit facility and
tranche A term loan facility mature on September 30, 2007. The tranche B term
loan facility amortizes with substantially all of the scheduled payments due in
equal amounts from March 31, 2007 to January 15, 2008.
The Senior Secured Credit Facilities contain certain covenants, which among
other things, limit additional indebtedness, dividend payments, certain
investments and transactions with affiliates. Level 3 and the borrowers must
also comply with specific financial and operational tests and maintain certain
financial ratios.
Debt Issuance costs of $23 million were capitalized and will be amortized as
interest expense over the terms of Senior Secured Credit Facilities.
Level 3 currently intends to use the proceeds from the Senior Secured Credit
Facilities and Subordinated Notes for working capital, capital expenditures and
other general corporate purposes in connection with the implementation of its
business plan, including the acquisition of telecommunications assets.
9.125% Senior Notes
On April 28, 1998, the Company received $1.94 billion of net proceeds from an
offering of $2 billion aggregate principal amount 9.125% Senior Notes Due 2008
("Senior Notes"). Interest on the notes accrues at 9.125% per year and is
payable on May 1 and November 1 each year in cash.
Debt issuance costs of $65 million were capitalized and are being amortized as
interest expense over the term of the Senior Notes.
10.5% Senior Discount Notes
On December 2, 1998, the Company sold $834 million aggregate principal amount at
maturity of 10.5% Senior Discount Notes Due 2008 ("Senior Discount Notes"). The
sales proceeds of $500 million, excluding debt issuance costs, were recorded as
long term debt. Interest on Senior Discount Notes accretes at a rate of 10.5%
per annum, compounded semiannually, to an aggregate principal amount of $834
million by December 1, 2003. Cash interest will not accrue on the Senior
Discount Notes prior to December 1, 2003; however, the Company may elect to
commence the accrual of cash interest on all outstanding Senior Discount Notes
on or after December 1, 2001. Accrued interest expense for the nine months ended
September 30, 1999 on the Senior Discount Notes of $40 million was added to
long-term debt.
Debt issuance costs of $14 million have been capitalized and are being amortized
as interest expense over the term of the Senior Discount Notes.
The Company capitalized $35 and $65 million of interest expense and amortized
debt issuance costs related to network construction and business systems
development projects for the three and nine months ended September 30, 1999 and
$5 million and $6 million for the three and nine months ended September 30,
1998.
10. Employee Benefit Plans
The Company adopted the recognition provisions of SFAS No. 123, "Accounting for
Stock Based Compensation" ("SFAS No. 123") in 1998. Under SFAS No. 123, the fair
value of an option (as computed in accordance with accepted option valuation
models) on the date of grant is amortized over the vesting periods of the
options. The recognition provisions of SFAS No. 123 are applied prospectively
upon adoption. As a result, the recognition provisions are applied to all stock
awards granted in the year of adoption and are not applied to awards granted in
previous years unless those awards are modified or settled in cash after
adoption of the recognition provisions. Although the recognition of the value of
the stock awards results in compensation or professional expenses in an entity's
financial statements, the expense differs from other compensation and
professional expenses in that these charges will not be settled in cash, but
rather, generally, through issuance of common stock.
The Company believes that the adoption of SFAS No. 123 will result in material
non-cash charges to operations in 1999 and thereafter. The amount of the
non-cash charges will be dependent upon a number of factors, including the
number of grants and the fair value of each grant estimated at the time of its
award.
Non-Qualified Stock Options and Warrants
The Company granted 55,100 nonqualified stock options with a fair value of $1
million ("NQSO") to employees during the nine months ended September 30, 1999.
The expense recognized for the three and nine months ended September 30, 1999
for NQSOs and warrants outstanding at September 30, 1999 in accordance with SFAS
No. 123 was $1 million and $5 million, respectively. In addition to the expense
recognized, the Company capitalized less than $1 million and $1 million of
non-cash compensation costs for the three and nine months ended September 30,
1999, respectively, related to NQSOs and warrants for employees directly
involved in the construction of the Internet Protocol network and the
development of the business support systems. As of September 30, 1999, the
Company had not recognized $7 million of compensation costs for NQSOs and
warrants granted in 1998 and 1999. The Company recognized $3 million and $9
million of expense for the three and nine months ended September 30, 1998 for
NQSOs and warrants granted during the nine months ended September 30, 1998. In
addition to the expense recognized, the Company capitalized $1 million of
non-cash compensation costs for the three and nine months ended September 30,
1998.
Outperform Stock Option Plan
In April 1998, the Company adopted an outperform stock option ("OSO") program
that was designed so that the Company's stockholders would receive a market
return on their investment before OSO holders receive any return on their
options. 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 ("S&P") 500 Index. Participants in the OSO program do not realize any
value from awards unless the Common Stock price outperforms the S&P 500 Index.
When the stock price gain is greater than the corresponding gain on the S&P 500
Index, the value received for awards under the OSO plan is based on a formula
involving a multiplier related to the level by which the Common Stock
outperforms the S&P 500 Index. To the extent that the Common Stock outperforms
the S&P 500, the value of OSOs to a holder may exceed the value of non-qualified
stock options.
OSO grants are made quarterly to participants employed on the date of the grant.
Each award vests in equal quarterly installments over two years and has a
four-year life. Each award typically has a two-year moratorium on exercising
from the date of grant. As a result, once a participant is 100% vested in the
grant, the two year moratorium expires. Therefore, each grant has an exercise
window of two years.
The fair value recognized under SFAS No. 123 for the 2,309,247 OSOs granted to
employees for services performed for the nine months ended September 30, 1999
was $139 million. The Company recognized $35 million and $74 million of
compensation expense for the three and nine months ended September 30, 1999 for
OSOs granted in 1999 and 1998. In addition to the expense recognized, $2 million
and $5 million of non-cash compensation was capitalized for the three and nine
months ended September 30, 1999 for employees directly involved in the
construction of the Internet Protocol network and development of business
support systems. As of September 30, 1999, the Company had not recognized $99
million of compensation costs for OSOs granted in 1998 and 1999. The Company
recognized $9 million and $14 million of expense for the three and nine months
ended September 30, 1998 for OSOs outstanding at September 30, 1998. In addition
to the expense recognized the Company capitalized $1 million of non-cash
compensation for the three and nine months ended September 30, 1998.
Shareworks and Restricted Stock
The Company recorded $3 million and $7 million of non-cash compensation expense
for the three and nine months ended September 30, 1999 related to the Shareworks
and restricted stock programs adopted in the third quarter of 1998. As of
September 30, 1999, the Company had not recognized $9 million of compensation
costs for Shareworks and restricted stock granted in 1998 and 1999. The non-cash
compensation expense for the Shareworks and restricted stock programs was less
than $1 million for the three and nine months ended September 30, 1998.
11. Stockholders' Equity
On March 9, 1999 the Company closed the offering of 28.75 million shares of its
Common Stock through an underwritten public offering. The net proceeds from the
offering of approximately $1.5 billion after underwriting discounts and offering
expenses will be used for working capital, capital expenditures, acquisitions
and other general corporate purposes in connection with the implementation of
the Company's Business Plan.
12. Industry Data
In 1998, the Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to stockholders. Operating segments are components of an
enterprise for which separate financial information is available and which is
evaluated regularly by the Company's chief operating decision maker, or decision
making group, in deciding how to allocate resources and assess performance.
Operating segments are managed separately and represent strategic business units
that offer different products and serve different markets.
The Company's reportable segments include: communications and information
services (including communications, computer outsourcing and systems integration
segments), and coal mining. Other primarily includes California Private
Transportation Company L.P. ("CPTC"), a privately owned tollroad in southern
California, equity investments and other corporate assets and overhead not
attributable to a specific segment.
Industry data for the Company's discontinued construction and energy operations
are not included.
EBITDA, as defined by the Company, consists of earnings (loss) before interest,
income taxes, depreciation, amortization, non-cash operating expenses (including
stock-based compensation and in-process research and development charges) and
other non-operating income or expense. The Company excludes noncash compensation
due to its adoption of the expense recognition provisions of SFAS No. 123.
EBITDA is commonly used in the communications industry to analyze companies on
the basis of operating performance. EBITDA is not intended to represent cash
flow for the periods.
The information presented in the table below includes information for the three
and nine month periods ended September 30, 1999 and 1998 for all income
statement and cash flow information presented and as of September 30, 1999 and
December 31, 1998 for all balance sheet information presented.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Communications & Information Services
Computer Systems Coal
(dollars in millions) Communications Outsourcing Integration Mining Other Total
- ---------------------------------------------------------------------------------------------------------
1999
Three Months Ended September 30, 1999
Revenue $ 36 $ 17 $ 16 $ 60 $ 5 $ 134
EBITDA (105) 4 (4) 25 (25) (105)
Capital Expenditures 903 2 - 1 33 939
Depreciation and
Amortization 51 3 1 2 6 63
Nine Months Ended September 30, 1999
Revenue $ 69 $ 51 $ 48 $ 158 $ 16 $ 342
EBITDA (272) 11 (7) 64 (71) (275)
Capital Expenditures 2,021 7 1 1 124 2,154
Depreciation and
Amortization 111 7 4 4 29 155
1998
Three Months Ended September 30, 1998
Revenue $ 8 $ 16 $ 13 $ 63 $ 6 $ 106
EBITDA (39) 3 (4) 27 (12) (25)
Capital Expenditures 243 1 - - 21 265
Depreciation and
Amortization 9 2 - 1 3 15
Nine Months Ended September 30, 1998
Revenue $ 14 $ 46 $ 42 $ 178 $ 16 $ 296
EBITDA (68) 11 (7) 73 (27) (18)
Capital Expenditures 350 10 3 1 45 409
Depreciation and
Amortization 14 6 1 4 6 31
Identifiable Assets
September 30, 1999 $ 3,119 $ 63 $ 51 $ 347 $5,255 $8,835
December 31, 1998 1,072 59 42 362 3,987 5,522
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The following information provides a reconciliation of EBITDA to loss from
continuing operations for the three and nine months ended September 30, 1999 and
1998:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------
EBITDA $ (105) $ (25) $ (275) $ (18)
Depreciation and Amortization Expense (63) (15) (155) (31)
Non-Cash Compensation Expense (39) (12) (86) (23)
Write-off of In-Process Research and Development - - - (30)
------- ------ ----- ------
Loss from Operations (207) (52) (516) (102)
Other (Expense) Income (13) (20) 77 (15)
Income Tax Benefit 73 23 143 28
------- ------ ------ ------
Loss from Continuing Operations $ (147) $ (49) $ (296) $ (89)
======= ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
13. Related Party Transactions
Peter Kiewit Sons', Inc. ("Kiewit") acted as the general contractor on several
significant projects for the Company in 1999 and 1998. These projects include
the intercity network, local loops and gateway sites, the Company's new
corporate headquarters in Colorado and a new data center in Tempe, Arizona.
Kiewit provided approximately $592 million and $37 million of construction
services related to these projects in the first nine months of 1999 and 1998,
respectively.
Level 3 also receives certain mine management services from Kiewit. The expense
for these services was $9 million and $23 million for the three and nine months
ended September 30, 1999, respectively and $10 million and $27 million for the
three and nine months ended September 30, 1998, respectively, and is recorded in
selling, general and administrative expenses.
14. Other Matters
Prior to the Split-off, as of January 1 of each year, holders of Class C Stock
had the right to convert Class C Stock into Class D Stock, subject to certain
conditions. In January 1998, holders of Class C Stock converted 2.3 million
shares, with a redemption value of $122 million, into 21 million shares of Class
D Stock (now known as Common Stock).
In August 1999 the Company was named as a defendant in Schweizer vs. Level 3
Communications, Inc. et. al., a purported national class action, filed in the
District Court, County of Boulder, State of Colorado which involves the
Company's right to install its fiber optic cable network in easements and
right-of-ways crossing the plaintiffs' land. In general, the Company obtained
the rights to construct its network from railroads, utilities, and others, and
is installing its network along the rights-of-way so granted. Plaintiffs in the
purported class action assert that they are the owners of lands over which the
Company's fiber optic cable network passes, and that the railroads, utilities,
and others who granted the Company the right to construct and maintain its
network did not have the legal ability to do so. The action purports to be on
behalf of a national class of owners of land over which the Company's network
passes or will pass. The complaint seeks damages on theories of trespass,
unjust enrichment and slander of title and property, as well as punitive
damages. Although the Company is not aware of any additional similar claims,
the issues in the Schweizer litigation that may be based on similar or
different legal theories. Although it is too early for the Company to reach a
conclusion as to the ultimate outcome of this litigation, management
believes that the Company has substantial defenses to the claims asserted in the
Schweizer action (and any similar claims which may be named in the future), and
intends to defend them vigorously.
The Company is involved in various other lawsuits, claims and regulatory
proceedings incidental to its business. Management believes that any resulting
liability for legal proceedings beyond that provided should not materially
affect the Company's financial position, future results of operations or future
cash flows.
Level 3 filed with the Securities and Exchange Commission a "universal" shelf
registration statement covering up to $3.5 billion of common stock, preferred
stock, debt securities and depositary shares that became effective February 17,
1999. On March 9, 1999 the Company received approximately $1.5 billion from the
sale of 28.75 million shares of Common Stock and on September 14, 1999 the
Company sold $823 million aggregate principal amount of its 6% Convertible
Subordinated Notes under the "universal" shelf registration statement.
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the Company's
consolidated condensed financial statements (including the notes thereto),
included elsewhere herein.
This document contains forward looking statements and information that are based
on the beliefs of management as well as assumptions made by and information
currently available to the Company. When used in this document, the words
"anticipate", "believe", "estimate" and "expect" and similar expressions, as
they relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in this document. For a
more detailed description for these risks and factors, please see the Company's
additional filings with the Securities and Exchange Commission.
Recent Developments
BusinessNet Ltd. Acquisition
On January 5, 1999, Level 3 acquired BusinessNet Ltd., a leading London-based
Internet service provider in a largely stock-for-stock transaction valued at $12
million and accounted for as a purchase. After completion of certain
adjustments, the Company agreed to issue approximately 400,000 shares of Common
Stock and paid $1 million in cash in exchange for all of the issued and
outstanding shares of BusinessNet's capital stock. Of the approximately 400,000
shares Level 3 agreed to issue in connection with the acquisition, approximately
150,000 shares of its common stock have been pledged to Level 3 to secure
certain indemnification obligations of the former BusinessNet stockholders. In
October 1999, Level 3 released approximately 42,000 shares pursuant to the
acquisition agreement. The pledge of the remaining shares will terminate
approximately 18 months from the transaction date. Liabilities exceeded assets
acquired, and goodwill of $16 million was recognized from the transaction which
is being amortized over five years.
Common Stock Offering
On March 9, 1999 the Company closed the offering of 28.75 million shares of its
Common Stock through a public offering under the February 17, 1999 "universal"
shelf registration statement. The net proceeds from the offering of
approximately $1.5 billion, after underwriting discounts and offering expenses,
will be used for working capital, capital expenditures, acquisitions and other
general corporate purposes in connection with the implementation of the Business
Plan.
Increase in Authorized Shares Outstanding
On February 25, 1999, the Board of Directors approved an increase in the number
of authorized shares of Common Stock from 500 million to 1 billion. On April 12,
1999, the Board of Directors approved a further increase in the number of
authorized shares of Common Stock by 500 million to 1.5 billion. The Company's
stockholders approved the increase in authorized shares at its 1999 Annual
Meeting held on May 27, 1999.
Transatlantic Cable
On April 23, 1999, Level 3 announced that it had contracted with Tyco Submarine
Systems Ltd. to design and build a transatlantic terabit cable system from Long
Island, New York to North Cornwall, UK. The cable system is expected to be in
service by September 2000 and is expected to cost between $600 to $800 million.
The total cost will depend on how the cable is upgraded over time. Level 3 has
prefunded the purchase of significant amounts of undersea capacity as part of
the Business Plan, but may require additional funding depending on the cable's
ultimate structure, pre-construction sales and ownership.
European Network
Level 3 announced on April 29, 1999 that it had finalized contracts relating to
construction of Ring 1 of its European network in France, Belgium, the
Netherlands, Germany and the United Kingdom. Ring 1, which is approximately
2,000 miles, will connect Paris, Frankfurt, Amsterdam, Brussels and London. The
network is expected to be ready for service by September 2000. Ring 1 is part of
the approximately 4,750 mile intercity network that will ultimately connect a
minimum of 13 local city networks in Europe. This European network will be
linked to the Level 3 North American intercity network by the Level 3
transatlantic terabit cable system currently under development, also expected to
be ready for service by September 2000.
On July 26, 1999, the Company announced two important developments of its
European network build with agreements with Eurotunnel and Alcatel. Eurotunnel
will provide Level 3 with multiple cross-Channel cables between the United
Kingdom and continental Europe. Eurotunnel will install and supply Level 3 with
multiple cross-Channel cables between the United Kingdom and France through the
high-security service tunnel. The first of these cables will be completed by the
first quarter of 2000. Subsequent cables will be installed to upgrade and expand
the network as and when required or when new fiber technology becomes available.
Alcatel will provide Level 3 with a cross-Channel undersea cable link between
the United Kingdom and Belgium. Alcatel will design, develop, and install an
undersea cable to link the Level 3 network between the United Kingdom and
Belgium. The cable system is already under development and is expected to be
completed during the first quarter of 2000.
Colt Cost Sharing Agreement
On May 4, 1999, Level 3 and Colt Telecom Group plc ("Colt") announced an
agreement to share costs for the construction of European networks. The
agreement calls for Level 3 to share construction costs of Colt's planned 1,600
mile intercity German network linking Berlin, Cologne, Dusseldorf, Frankfurt,
Hamburg, Munich and Stuttgart. In return, Colt will share construction costs of
Ring 1 of Level 3's planned European network.
Lucent Agreement
On June 23, 1999 Level 3 announced a minimum four year, $250 million strategic
agreement with Lucent Technologies to purchase Lucent systems, including new
software switches or "softswitches." The minimum purchase commitment is subject
to certain conditions and has the potential to grow to $1 billion over five
years.
Under this non-exclusive agreement, Lucent will provide Level 3 its Lucent
Technologies Softswitch, a software switch for Internet Protocol networks that
is intended to combine the reliability and features that customers expect from
the public switched telephone network with the cost effectiveness and
flexibility of Internet Protocol technology. With the Lucent Softswitch, Level 3
expects to provide a full range of Internet Protocol-based communications
services similar in quality and ease of use to service on traditional circuit
voice networks. In addition, the companies also agreed to collaborate on future
enhancements of softswitches and gateway products to support next-generation
broadband services for business and consumers that will combine high-quality
voice and video communications with Internet-style web data services.
6% Convertible Subordinated Notes
Level 3 filed a "universal" shelf registration statement covering up to $3.5
billion of common stock, preferred stock, debt securities and depository shares
that became effective February 17, 1999. On September 14, 1999 the Company
closed the offering of $823 million aggregate principal amount of its 6%
Convertible Subordinated Notes Due 2009. The net proceeds from the offering of
approximately $798, after underwriting discounts and offering expenses, will be
used for working capital, capital expenditures, acquisitions and other general
corporate purposes in connection with the implementation of its business plan,
including the acquisition of telecommunications assets.
Senior Secured Credit Facilities
On September 30, 1999 the Company entered into $1.375 billion of senior secured
credit facilities. The facilities are comprised of a senior secured revolving
credit facility in the amount of $650 million and a two-tranche senior secured
term loan facility aggregating $725 million. At September 30, 1999 the Company
borrowed $475 million under the two-tranche secured term loan facility. These
funds and the prepaid interest are restricted until certain state regulatory
approvals are obtained.
Results of Operations
In late 1997, the Company announced a plan to increase substantially its
information services business and to expand the range of services it offers by
building an advanced, international, facilities based communications network
based on Internet Protocol technology. Since the Business Plan represents a
significant expansion of the Company's communications and information services
business, the Company does not believe that the Company's financial condition
and results of operations for prior periods will serve as a meaningful
indication of the Company's future financial condition or results of operations.
The Company expects to incur substantial net operating losses for the
foreseeable future and it may not be able to achieve or sustain operating
profitability in the future.
Third Quarter 1999 vs. Third Quarter 1998
Revenue for the quarters ended September 30, is summarized as follows (in
millions):
<TABLE>
<S> <C> <C>
1999 1998
Communications and Information Services $ 69 $ 37
Coal Mining 60 63
Other 5 6
----- -----
$ 134 $ 106
===== =====
</TABLE>
Communications and information services revenue for the three months ended
September 30, 1999 increased 86% compared to the same period in 1998. New
products which the Company began offering in late 1998 and early 1999, including
private line, colocation and managed modem services, provided $36 million of
revenue for the communications segment in 1999. In 1998, communications revenue
of $8 million was directly attributable to XCOM which was acquired in April
1998. A significant portion of XCOM's revenue is attributable to reciprocal
compensation agreements with Bell Atlantic. These agreements require the company
originating a call to compensate the company terminating the call. The Federal
Communication Commission ("FCC") has been considering whether local carriers are
obligated to pay compensation to each other for the transport and termination of
calls to Internet service providers when a local call is placed from an end user
of one carrier to an Internet service provider served by the competing local
exchange carrier. Earlier this year, the FCC determined that it had no rule
addressing inter-carrier compensation for these calls. The FCC also released for
comment alternative federal rules to govern compensation for these calls in the
future. If state commissions, the FCC or the courts determine that inter-carrier
compensation does not apply, carriers, including the Company, may be unable to
recover their costs or will be compensated at a significantly lower rate and may
be required to refund amounts previously received. In May 1999 the
Massachusetts Department of Public Utilities ruled that Bell Atlantic was no
longer required to pay the established reciprocal compensation rates for certain
services. As a result Level 3 elected, effective at the beginning of the second
quarter of 1999, not to recognize this revenue source until these uncertainties
were resolved. Bell Atlantic also notified the Company that it would escrow all
amounts due the Company under the reciprocal compensation agreements until the
issue was resolved. The Company reached a tentative agreement with Bell Atlantic
in October 1999. The agreement establishes new intercarrier or reciprocal
compensation rates between the two carriers and assures that the Company will be
paid for the traffic it terminates from Bell Atlantic. As part of the agreement,
the Company and Bell Atlantic have also settled past disputes over reciprocal
compensation billing issues. The implementation of the new rate structure and
the reciprocal compensation billing settlements are contingent upon certain
conditions including approval by relevant regulatory authorities. Revenue
attributable to the Bell Atlantic settlement agreement will not be recognized
until the uncertainties related to the regulatory approvals have been resolved.
Revenue for the computer outsourcing and systems integration businesses
increased 6% and 23% to $17 million and $16 million, respectively. The growth
for the computer outsourcing business is attributable to additional services
provided to existing customers while the increase in system integration revenue
is due to application outsourcing work performed for new clients.
Coal mining revenue decreased $3 million, or 5% in the third quarter of 1999
compared to the same period in 1998. This decrease is primarily due to the
expiration of a long-term coal contract in 1998. The expiration of these
contracts are expected to result in a 10% decline in coal revenues in 1999.
Partially offsetting this decline was an increase in shipments taken by
Commonwealth Edison Company ("Commonwealth"). Commonwealth is obligated to
purchase annually, minimum amounts of coal; however, it is Commonwealth's option
as to when the coal will be purchased.
If current market conditions continue, the Company will experience a significant
decline in coal revenue and earnings beginning in 2001 as delivery requirements
under long-term contracts decline as additional long-term contracts begin to
expire.
Other revenue is primarily attributable to CPTC, a privately owned tollroad in
southern California.
Cost of Revenue increased 113% in 1999 to $100 million from $47 million in 1998.
This increase was primarily due to the continued expansion of the communications
and information services businesses. Cost of revenue for the communications
business is expected to increase substantially in the future as the Company
continues to increase the number of markets in which it offers services and the
products available in each of those markets. The cost of revenue for the
information services business was consistent with the corresponding increase in
revenue. The cost of revenue for the coal business, as a percentage of revenue,
increased approximately 2% due to the expiration of the higher margin long-term
contract in 1998.
Depreciation and Amortization expense increased to $63 million in 1999 from $15
million in 1998. The commencement of operations in 26 U.S. and 4 European
markets and the completion of the initial installation of 17 local networks in
the second half of 1998 and 1999 resulted in the higher depreciation expense in
1999. In addition, the amortization of goodwill attributable to the acquisitions
of GeoNet, BusinessNet and others contributed to the higher depreciation and
amortization expense in 1999.
Selling, General and Administrative expenses increased significantly in 1999 to
$178 million from $96 million in 1998 primarily due to the cost of activities
associated with the expanding communications business. The Company incurred
incremental compensation and travel costs for the substantial number of new
employees that have been hired to implement the Business Plan. The total number
of employees of the Company increased to approximately 3,600 at September 30,
1999. Professional fees and other development costs associated with the
Company's plans to expand services offered in the U.S., Europe and Asia,
consulting fees to develop and implement the Company's business support systems,
and advertising, marketing and other selling costs for the Company's new
Internet Protocol products and services also increased selling, general and
administrative expenses. In addition to the costs to expand the communications
and information services businesses, the Company recorded $39 million of
non-cash compensation expense in the third quarter of 1999 under SFAS No. 123
related to grants of stock options and warrants. General and administrative
costs are expected to increase significantly in future periods as the Company
continues to implement the Business Plan.
EBITDA, as defined by the Company, consists of earnings (losses) before
interest, income taxes, depreciation, amortization, non-cash operating expenses
(including stock-based compensation and in-process research and development
charges) and other non-operating income or expenses. EBITDA was $(25) million in
1998 and $(105) million in 1999. The primary reason for the decrease between
periods is the significant increase in cost of revenue and selling, general and
administrative expenses, described above, incurred in connection with the
implementation of the Company's Business Plan. EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance. EBITDA, however, should not be considered an alternative to
operating or net income as an indicator of the performance of the Company's
businesses, or as an alternative to cash flows from operating activities as a
measure of liquidity, in each case determined in accordance with generally
accepted accounting principles. See "Consolidated Condensed Statements of Cash
Flows".
Interest Income decreased 4% in 1999 to $51 million from $53 million in 1998.
The Company's average cash, cash equivalents and marketable securities balance
increased slightly from approximately $3.7 billion during the third quarter of
1998 to approximately $3.9 billion during the third quarter of 1999. However,
the weighted average yield for the Company's portfolio decreased by
approximately 50 basis points in 1999 primarily due to the funds being invested
in shorter term treasury securities. Pending utilization of the cash equivalents
and marketable securities in implementing the Business Plan, the Company intends
to invest the funds primarily in government and governmental agency securities.
This investment strategy will provide lower yields on the funds, but is expected
to reduce the risk to principal in the short term prior to using the funds in
implementing the Business Plan.
Interest Expense, net decreased from $46 million in 1998 to $34 million in 1999.
This decrease is a direct result of capitalized interest for network
construction and business support systems increasing from $5 million for the
three months ended September 30, 1998 to $35 million for the corresponding
period in 1999. Interest costs on the Company's outstanding debt increased due
to the issuance in December 1998 of $834 million aggregate principal amount at
maturity of 10.5% Senior Discount Notes due 2008 and the $823 million of 6%
Subordinated Convertible Notes due 2009 issued in September of this year. The
amortization of debt issuance costs associated with the Senior Discount Notes
and Convertible Subordinated Notes also increased interest expense in 1999.
Interest costs will continue to increase due to the Senior Secured Credit
Facilities entered into by the Company on September 30, 1999.
Gain on Equity Investee Stock Transactions was $5 million in 1999. In the third
quarters of 1998 and 1999 RCN issued stock for certain acquisitions which
diluted the Company's ownership of RCN but increased its proportionate share of
RCN's net assets. The increase in the Company's proportionate share of RCN's net
assets resulted in a pre-tax gain of $5 million for the Company in the third
quarter of 1999. In 1998, the Company recognized a $4 million gain in the third
quarter related to RCN stock activity.
Other Expense, net increased in 1999 to $35 million from $31 million. Other
expense consists primarily of the Company's share of losses incurred by the
Company's equity method investees, principally RCN. RCN is incurring significant
costs in developing its business plan including the acquisitions of several
Internet service providers. The Company recorded $37 million of equity losses
attributable to RCN in the third quarter of 1999, as compared to $22 million in
the third quarter of 1998. In 1998, the Company elected to discontinue its
funding of Gateway Opportunity Fund, LP, ("Gateway"), which provided venture
capital to developing businesses. The Company recorded losses of $11 million in
the third quarter of 1998 to reflect Level 3's equity in losses of the
underlying businesses of Gateway. Also included in other expense are equity
earnings in Commonwealth Telephone Enterprises, Inc., and realized gains and
losses on the sale of other assets each not individually significant to the
Company's results of operations.
Income Tax Benefit in 1998 and 1999 differs from the statutory rate of 35%
primarily due to losses incurred by the Company's international subsidiaries
which cannot be included in the consolidated U.S. federal return, nondeductible
goodwill amortization expense and state income taxes.
Nine Months 1999 vs. Nine Months 1998
Revenue for the nine months ended September 30, is summarized as follows (in
millions):
<TABLE>
<S> <C> <C>
1999 1998
Communications and Information Services $ 168 $ 102
Coal Mining 158 178
Other 16 16
------ -----
$ 342 $ 296
====== =====
</TABLE>
Communications and information services revenue increased from $102 million for
the nine months ended September 30, 1998 to $168 million for the nine months
ended September 30, 1999. In May 1999 the Massachusetts Department of Public
Utilities ruled that Bell Atlantic was no longer required to pay the established
reciprocal compensation rates for certain services. As a result, Level 3 elected
not to recognize additional revenue, beginning in the second quarter, from these
agreements until the uncertainties are resolved. The Company reached a tentative
agreement with Bell Atlantic in October 1999. The agreement establishes new
intercarrier or reciprocal compensation rates between the two carriers and
assures that the Company will be paid for the traffic it terminates from Bell
Atlantic. As part of the agreement, the Company and Bell Atlantic have also
settled past disputes over reciprocal compensation billing issues. The
implementation of the new rate structure and reciprocal compensation billing
settlement are contingent upon certain conditions including approval by relevant
regulatory authorities. Revenue attributable to the Bell Atlantic settlement
agreement will not be recognized until the uncertainties related to the
regulatory approvals have been resolved.
Systems integration revenue increased 14% to $48 million in 1999. Revenue for
the computer outsourcing business increased 11% to $51 million in 1999. Revenue
attributable to new customers and additional services for existing customers led
to the increase in computer outsourcing and systems integration revenue.
Mining revenue in 1999 decreased to $158 million from $178 million in 1998 due
to timing of shipments taken by Commonwealth. The purchase agreement with
Commonwealth requires that minimum amounts of coal must be purchased; however,
it does not stipulate when the coal must be purchased. In addition, the
expiration of a long-term contract in late 1998 will result in an approximate
10% decline in 1999 coal sales from 1998 levels.
Other revenue, was consistent with 1998, and is primarily attributable to CPTC.
Cost of Revenue increased $105 million or 76% to $243 million in 1999 as a
result of the expanding communications business. In 1999 network expenses were
$107 million as compared to $4 million in the prior year. The increase in costs
is primarily attributable to the XCOM and GeoNet acquisitions, the costs
associated with the Frontier and IXC Communications leases and costs
attributable to the products the Company began offering in late 1998 and 1999.
The cost of revenue, as a percentage of revenue, for the information services
business increased slightly for the nine months ended September 30, 1999
compared to the same period in 1998. The increase is primarily due to the costs
incurred by the systems integration segment to transition from Year 2000
services to systems and software reengineering for Internet Protocol related
applications. The cost of revenue for the coal business as a percentage of
revenue, increased due to the expiration of the high margin long-term contract
in 1998.
Depreciation Expense increased from $31 million in 1998 to $155 million in 1999.
The significant increase in the amount of assets placed in service during the
last half of 1998 and first nine months of 1999 for the communications business
resulted in the increase in depreciation expense. The acquisitions of XCOM,
GeoNet and BusinessNet in 1998 and 1999 resulted in goodwill amortization
increasing to $26 million in 1999.
Selling, General and Administrative expenses increased significantly to $460
million in 1999 from $199 million in 1998 primarily due to the cost of
activities associated with the expanding communications business. Compensation,
travel and facilities costs increased substantially due to the additional
employees that have been hired to implement the Business Plan. The total number
of employees of the Company increased to approximately 3,600 at September 30,
1999. Professional fees, including legal costs associated with obtaining
licenses, agreements and technical facilities and other development costs
associated with the Company's plans to expand services offered in U.S., European
and Asian markets, consulting fees incurred to develop and implement the
Company's business support systems, and advertising, marketing and other selling
costs contributed to higher selling, general and administrative expenses. In
addition, the Company recorded $86 million of non-cash compensation in the first
nine months of 1999 for expenses recognized under SFAS No. 123 related to grants
of stock options and warrants, up from $23 million in 1998. As the Company
continues to implement the Business Plan, general and administrative costs are
expected to continue to increase significantly.
Write-off of In-Process Research and Development of $30 million in 1998 was the
portion of the purchase price allocated to the telephone network-to-Internet
Protocol network bridge technology acquired by the Company in the XCOM
transaction and was estimated through formal valuation. In accordance with
generally accepted accounting principles, the $30 million was taken as a
nondeductible charge against earnings in the second quarter of 1998.
EBITDA decreased from $(18) million in 1998 to $(275) million in 1999. The
primary reason for the decrease between periods is the significant increase in
cost of revenue and selling, general and administrative expenses, described
above, incurred in connection with the implementation of the Business Plan.
Interest Income increased substantially from $124 million in 1998 to $158
million in 1999 primarily as a function of the Company's increasing average
cash, cash equivalents and marketable securities balances. The average cash
balance increased from approximately $2.9 billion during the first nine months
of 1998 to approximately $4 billion during the first nine months of 1999. Yields
on the portfolio, however, have declined slightly from 1998. The accelerating
Business Plan has required the Company to shorten the average term of treasury
securities in which it invests in 1999. Pending utilization of the cash
equivalents and marketable securities in implementing the Business Plan, the
Company intends to invest the funds primarily in government and governmental
agency securities. This investment strategy will provide lower yields on the
funds, but is expected to reduce the risk to principal in the short term prior
to using the funds in implementing the Business Plan.
Interest Expense, net increased $46 million to $132 million in 1999 due to the
completion of the offering of $2 billion aggregate principal amount of 9.125%
Senior Notes Due 2008 in April 1998, $834 million aggregate principal amount at
maturity of 10.5% Senior Discount Notes Due 2008 offered in the fourth quarter
of 1998 and the 6% Convertible Subordinated Notes issued in September 1999. The
amortization of the related debt issuance costs also contributed to the
increased interest expense in 1999. The Company capitalized $65 million and $6
million of interest expense on network construction and business support systems
in the first nine months of 1999 and 1998, respectively.
Gain on Equity Investee Stock Transactions increased to $116 million during the
first nine months of 1999. RCN issued stock in a public offering and for certain
transactions which diluted the Company's ownership of RCN from 41% at December
31, 1998 to 35% at September 30, 1999. The increase in the Company's
proportionate share of RCN's net assets as a result of these transactions
resulted in a pre-tax gain of $116 million from subsidiary stock sales for the
Company in the first nine months of 1999. The Company recognized $25 million of
gains for similar stock transactions of RCN in 1998.
Other Expense, net decreased to $65 million in 1999 from $78 million in 1998.
Other expense consists of the Company's share of losses incurred by the
Company's equity method investees, primarily RCN. RCN is incurring significant
costs in developing its business plan including the acquisitions of several
Internet service providers. The Company recorded $90 million of equity losses
attributable to RCN in the first nine months of 1999, as compared to $75 million
in the first nine months of 1998. The Company also sold 1.2 million shares of
Burlington Resources common stock, resulting in a pre-tax gain of $17 million
for the Company in 1999. In 1998, the Company elected to discontinue its funding
of Gateway Opportunity Fund, L.P., which provided venture capital to developing
businesses. The Company recorded losses of $18 million in 1998 to reflect Level
3's equity in losses of the underlying businesses of Gateway. Equity earnings of
Commonwealth Telephone Enterprises, Inc. and gains on the disposition of other
assets were not individually significant in the first nine months of 1999 or
1998.
Income Tax Benefit in 1998 and 1999 differs from the statutory rate of 35%
primarily due to losses incurred by the Company's international subsidiaries
which cannot be included in the consolidated U.S. federal return, nondeductible
goodwill amortization expense and state income taxes. The income tax benefit in
1998 also differs from the statutory rate due to the $30 million nondeductible
write-off of the research and development costs acquired in the XCOM
acquisition.
Discontinued Operations includes the one-time gain of $608 million recognized
upon the distribution of the Construction Group to former Class C stockholders
on March 31, 1998. Also included in discontinued operations is the gain, net of
tax, of $324 million from the Company's sale of its energy assets to MidAmerican
on January 2, 1998.
Financial Condition - September 30, 1999
The Company's working capital increased $624 million during 1999 from $3.5
billion at December 31, 1998 to $4.1 billion at September 30, 1999. The increase
was primarily due to the $1.5 billion equity offering completed in March 1999,
the $823 million offering of Convertible Subordinated Notes and the $475 million
proceeds from the $1.375 billion of Senior Secured Credit Facilities, both
completed in September 1999. The proceeds from these offerings were partially
offset by the capital expenditures and operating expenses incurred to implement
the Business Plan.
Cash provided by continuing operations increased from $128 million in 1998 to
$360 million in 1999 primarily due to the changes in components of working
capital and an increase in interest income. Interest income increased in 1999 as
a result of the proceeds received from the Senior Notes, Senior Discount Notes,
Convertible Subordinated Notes and the March 1999 equity offering. The increase
in cash provided by interest income was partially offset by the semi-annual
payment of interest on the Senior Notes. Interest payments on the Senior
Discount Notes are deferred until 2004. An increase in the costs paid to
implement the Business Plan also reduced cash provided by continuing operations.
Investing activities include the purchase and sale of approximately $4.3 billion
and $4.4 billion, respectively, of marketable securities. The Company also
incurred costs of $2.1 billion for capital expenditures, primarily for the
expanding communications business. In addition, the Company realized $11 million
of proceeds from the sale of property, plant and equipment.
Financing sources in the first nine months of 1999 consisted primarily of the
net proceeds of $475 million from the Senior Secured Credit Facilities, net
proceeds of $798 million from the offering of $823 million aggregate principal
amount of 6% Convertible Subordinated Notes Due 2009, net proceeds of $1.5
billion from the issuance of 28.75 million shares of Common Stock and the
exercise of the Company's stock options for $18 million. The proceeds from the
Senior Secured Credit Facilities and prepaid interest have been placed in an
escrow account until the necessary regulatory approvals have been received. The
Company also repaid long-term debt of $5 million during the first nine months of
1999.
Liquidity and Capital Resources
Since late 1997, the Company has substantially increased the emphasis it places
on and the resources devoted to its communications and information services
business. The Company has commenced the implementation of a plan to become a
facilities-based provider (that is, a provider that owns or leases a substantial
portion of the property, plant and equipment necessary to provide its services)
of a broad range of integrated communications services. To reach this goal, the
Company is expanding substantially the business of its subsidiary, PKS
Information Services, Inc. to create, through a combination of construction,
purchase and leasing of facilities and other assets, an advanced, international,
facilities based communications network. The Company is designing its network
based on Internet Protocol technology in order to leverage the efficiencies of
this technology to provide lower cost communications services.
The development of the Business Plan will require significant capital
expenditures, a substantial portion of which will be incurred before any
significant related revenues from the Business Plan are expected to be realized.
These expenditures, together with the associated early operating expenses, may
result in substantial negative operating cash flow and substantial net operating
losses for the Company for the foreseeable future. Although the Company believes
that its cost estimates and build-out schedule are reasonable, the actual
construction costs or the timing of the expenditures may deviate from current
estimates. The Company estimates that its capital expenditures in connection
with the Business Plan will approximate $3 billion in 1999. The Company's
current liquidity and the agreement with INTERNEXT should be sufficient to fund
the currently committed portions of the Business Plan.
The Company currently estimates that the implementation of the Business Plan, as
currently contemplated, will require between $9 and $11 billion over the 10 year
period of the Business Plan. The Company's ability to implement the Business
Plan and meet its projected growth is dependent upon its ability to secure
substantial additional financing in the future. The Company expects to meet its
additional capital needs with the proceeds from credit facilities and other
borrowings, including the $1.375 billion secured credit facility entered into on
September 30, 1999, and sales or issuance of additional equity securities or
additional debt securities. The 9 1/8% senior notes and the 10 1/2% senior
discount notes were issued under indentures which permit the Company and its
subsidiaries to incur substantial amounts of debt. After the 6% Convertible
Subordinated Notes offering, the Company has approximately $1.1 billion of
securities available for future issuances under the "universal" shelf
registration statement that was declared effective by the Securities and
Exchange Commission in February 1999.
In addition, the Company may sell or dispose of existing businesses or
investments to fund portions of the Business Plan. The Company may sell or lease
fiber optic capacity, or access to its conduits. The Company may not be
successful in producing sufficient cash flow, raising sufficient debt or equity
capital on terms that it will consider acceptable, or selling or leasing fiber
optic capacity or access to its conduits. In addition, proceeds from
dispositions of the Company's assets may not reflect the assets' intrinsic
value. Further, expenses may exceed the Company's estimates and the financing
needed may be higher than estimated. Failure to generate sufficient funds may
require the Company to delay or abandon some of its future expansion or
expenditures, which could have a material adverse effect on the implementation
of the Business Plan.
The Company may not be able to obtain such financing if and when it is needed
and, if available, such financing may not be on terms acceptable to the Company.
If the Company is unable to obtain additional financing when needed, it may be
required to scale back significantly its Business Plan and, depending upon cash
flow from its existing businesses, reduce the scope of its plans and operations.
In connection with implementing the Business Plan, management will continue
reviewing the existing businesses of the Company to determine how those
businesses will complement the Company's focus on communications and information
services. If it is decided that an existing business is not compatible with the
communications and information services business and if a suitable buyer can be
found, the Company may dispose of that business.
Year 2000
General
The Company's wholly owned subsidiary, Level 3 Communications, LLC is a new
Company that is implementing new technologies to provide Internet Protocol (IP)
technology-based communications services to its customers. The Company has
adopted a strategy to select technology vendors and suppliers that provide
products that are represented by such vendors and suppliers to be Year 2000
compliant. In negotiating its vendor and supplier contracts, the Company secures
Year 2000 warranties that address the Year 2000 compliance of the applicable
product(s). As part of the Company's Year 2000 compliance program, these
products are being tested to confirm they are Year 2000 ready.
PKS Systems Integration LLC ("PKSSI"), a subsidiary of PKS Information Services,
Inc. ("PKSIS") provides a wide variety of information technology services to its
customers. In fiscal year 1998, approximately 57% of the revenue generated by
PKSSI related to projects involving Year 2000 assessment and renovation services
performed by PKSSI for its customers. These contracts generally require PKSSI to
identify date affected fields in certain application software of its customers
and, in many cases, PKSSI undertakes efforts to remediate those date-affected
fields so that Year 2000 data may be processed. Thus, Year 2000 issues affect
many of the services PKSSI provides to its customers. This exposes PKSSI to
potential risks that may include problems with services provided by PKSSI to its
customers and the potential for claims arising under PKSSI's customer contracts.
PKSSI attempts to contractually limit its exposure to liability for Year 2000
compliance issues. However, there can be no assurance as to the effectiveness of
these contractual limitations.
Outlined below is additional information with respect to the Year 2000
compliance programs that are being pursued by Level 3 Communications, LLC and
PKSIS.
Level 3 Communications, LLC
Level 3 Communications, LLC ("Level 3"), uses software and related technologies
throughout its business that may be affected by the date change in the Year
2000. The inability of systems to appropriately recognize the Year 2000 could
result in a disruption of Level 3's operations. Level 3 has one main line of
business: delivery of communications services to commercial clients over
fiber optic cable. The delivery of service will be over Level 3 owned cable
when the network construction is complete. In the interim, services will be
delivered over both owned and leased lines.
Level 3 faces two primary Year 2000 issues with respect to its business. First,
Level 3 must assess the readiness of its systems that are required to provide
its customer's communications services ("Service Delivery Systems"). Second,
Level 3 must evaluate the Year 2000 readiness of its internal business support
systems ("Internal Business Support Systems"). Level 3 must also verify the
readiness of the providers of the leased lines currently in use.
Level 3 has designated a full-time Year 2000 director in addition to
establishing a program office staffed in part by experienced Year 2000
consultants. Level 3 is progressing through a comprehensive program to evaluate
and address the effect of the Year 2000 on its Internal Business Support
Systems, and the Service Delivery Systems. The plans' focus upon Year 2000
issues consists of the following phases:
Phase
(I) Assessment - Awareness, commitment, and evaluation which includes a
detailed inventory of systems and services that the Year 2000 may
impact.
(II) Detailed Plan - Establishment of priorities, development of specific
action steps and allocation of resources to address the issues as
outlined in Phase I.
(III) Implementation - Completion of the necessary changes as delineated
in Phase II.
(IV) Verification - Determining whether the conversions implemented in Phase
III have resolved the Year 2000 problem so that date related
calculations will function properly, both as individual units and on an
integrated basis. This will culminate in an end-to-end system test to
ensure that the customer services being delivered by Level 3 will
function properly and that all support services necessary to business
operations will be Year 2000 compliant.
(V) Contingency Plans - Establishment of alternative plans should any of
the services or suppliers that Level 3 requires to do business fail to
be Year 2000 ready.
With respect to its Year 2000 plans, Level 3 currently has activities underway
primarily in phases IV and V. The current stage of activities varies based upon
the type of component, system, and/or customer service at issue.
<TABLE>
<S> <C> <C>
Business Functions Operational Effect Current Status
- --------------------------------------------------------------------------------
Customer Delivery Systems Inability to deliver Phases IV to Phase V*
Customer Services
Internal Business
Support Systems Failures of Internal Phases IV to Phase V*
Support Services and
Customer Billing
</TABLE>
* Level 3 anticipates this range of activity to continue through 1999 as it
adds new equipment and services while building its infrastructure.
Additionally, the upgrading of service delivery through its proprietary
systems will require that the delivery systems go through verification
with each new innovation.
The expenses associated with this project by Level 3, as well as the related
potential effect on Level 3's earnings, are not expected to have a material
effect on the future operating results or financial condition of Level 3. There
can be no assurance, however, that the Year 2000 problem, and any loss incurred
by any customers of Level 3 as a result of the Year 2000 problem, will not have
a material adverse effect on Level 3's financial condition and results of
operations.
Level 3 has significant relationships and dependencies with regard to systems
and technology provided and supported by third party vendors and service
providers. In particular, the customer delivery systems for the communications
business of Level 3 are dependent upon third parties who provide
telecommunication services while the infrastructure continues to be built. As
part of its Year 2000 program, Level 3 has sought to obtain formal Year 2000
compliance representation from vendors who provide products and services to
Level 3. The vendor compliance process is being performed concurrently with the
Company's ongoing Year 2000 validation activities. This compliance process
consists of obtaining information from disclosures made publicly available on
company websites, reviewing test plans and results made available from
suppliers, and following up with letters and phone calls to any vendors who have
not made such information available to Level 3 as yet.
Because of the aforementioned reliance placed on third party vendors, Level 3's
estimate of costs to be incurred could change substantially should one or more
of the vendors be unable to timely deliver Year 2000 compliant products. Level 3
does not own the proprietary hardware technology or third party software source
code utilized in its business and therefore, Level 3 cannot actually renovate
the hardware or third party software identified as having Year 2000 support
issues. The standard components supplied by vendors for the customer delivery
systems have been tested in laboratory settings and certified as to their
compliance.
With respect to the contingency plans for Level 3, such plans generally fall
into two categories. Concerning the customer delivery systems of Level 3, Level
3 has certain redundant and backup facilities, such as on-site generators. With
respect to systems obtained from third party vendors, contingency plans are
developed by Level 3 on a case by case basis where deemed appropriate.
PKSIS
PKSIS and its subsidiaries use software and related technologies throughout its
business that may be affected by the date change in the Year 2000. The inability
of systems to appropriately recognize the Year 2000 could result in a disruption
of PKSIS operations. PKSIS has two main lines of business: computer outsourcing
and systems integration. The computer outsourcing business is managed by PKS
Computer Services LLC ("PKSCS"). The systems integration is managed by PKSSI.
PKSCS generally faces two primary Year 2000 issues with respect to its business.
First, PKSCS must evaluate the Year 2000 readiness of its internal support
systems. Second, PKSCS must assess and, if necessary, upgrade the operating
environments which PKSCS provides for its outsourcing customers. PKSCS
outsourcing customers are responsible for their own application code
remediation.
PKSCS established a corporate-wide Year 2000 program in 1997, which in relation
to other business projects and objectives has been assigned a high priority,
including the designation of a full-time year 2000 director. PKSCS is
progressing through a comprehensive program to evaluate and address the effect
of the Year 2000 on its internal operations and support systems, and the
operating systems which PKSCS is responsible for providing to its outsourcing
customers. Due to the nature of its business, PKSCS has developed and is
administering approximately twenty separate Year 2000 project plans.
Approximately eighteen of these plans are devoted to the specific operating
systems software upgrades to be undertaken by PKSCS for its outsourcing
customers according to software vendor specifications. The remaining plans
focus upon Year 2000 issues relating to PKSCS internal support systems.
PKSCS is utilizing both internal and external resources in implementing
these plans. These PKSCS plans generally consist of the following phases:
Phase
(I) Assessment - Awareness, commitment, and evaluation, which includes a
detailed inventory of systems and services that the Year 2000 may
impact.
(II) Detailed Plan - Establishment of priorities, development of specific
action steps and allocation of resources to address the issues as
outlined in Phase I.
(III) Implementation - Completion of the necessary changes per vendor
specifications, (that is, replacement or retirement) as outlined in
Phase II.
(IV) Verification - With respect to PKSCS' internal support systems,
determining whether the conversions implemented in Phase III have
resolved the Year 2000 problem so that date related calculations will
function properly, both as individual units and on an integrated basis.
(V) Completion - The final rollout of components into an operational unit.
(VI) Tracking - Monitor vendor specifications to assess ongoing replacement
of components as dictated by the vendors.
With respect to its Year 2000 plans, PKSCS currently has activities underway in
phases V and VI. The current stage of activities varies based upon the type of
component, system, and/or customer service at issue. Some PKSCS customers had
delayed or postponed operating system upgrades to be performed by PKSCS as a
result of the customer's delay in its application code remediation schedule. To
date, PKSCS, as directed and approved by its customer base, has completed
required IBM System 390 operating system upgrades to Year 2000 readiness
software versions. PKSCS continues to monitor vendor Year 2000 version
acceptance specifications to assess ongoing replacement of components as
dictated by the vendors.
PKSSI generally faces two primary Year 2000 issues with respect to its business.
First, PKSSI provides a wide variety of information technology services to its
customers which could potentially expose PKSIS to contractual liability for Year
2000 related risks if services are not performed in a timely or satisfactory
manner. Second, PKSSI must evaluate and, if necessary, upgrade or replace its
internal business support systems which may have date dependencies. PKSSI
believes the primary internal systems affected by the Year 2000 issue which
could have an impact on its business are desktop and network hardware and
software. PKSSI previously completed its Year 2000 assessment of desktop and
network hardware and software, and, based on vendor representations, determined
that some upgrades and replacements are required. PKSIS is in the process of
upgrading and replacing certain desktop and network hardware and software
previously identified as non-Year 2000 ready, which such upgrade and
replacement activities are targeted for completion in November 1999. PKSIS
continues to validate these findings and currently plans to do so throughout
the remainder of 1999. PKSSI is also in the process of communicating with
its vendors to assess its servers and communications hardware for Year 2000
readiness.
In fiscal year 1998, approximately 57% of the revenue generated by PKSSI related
to projects involving Year 2000 assessment and renovation services performed by
PKSSI for its customers. This is a reduction from 80% in 1997. Some of these
contracts require PKSSI to identify date affected fields in certain application
software of its customers and, in many cases, PKSSI undertakes efforts to
remediate those date-affected fields so that Year 2000 data may be processed.
Thus, Year 2000 issues affect certain services PKSSI provides to its customers.
This exposes PKSSI to potential risks that may include problems with services
provided by PKSSI to its customers and the potential for claims arising under
PKSSI's customer contracts. In some cases PKSSI has contractual warranties which
could require PKSSI to perform Year 2000 related services after the year 2000.
PKSSI attempts to contractually limit its exposure to liability for Year 2000
compliance issues. However, there can be no assurance as to the effectiveness of
such contractual limitations.
The following chart describes the status of PKSIS' Year 2000 program with
respect to Computer Outsourcing Services and Systems Integration Services.
<TABLE>
<S><C> <C> <C> <C>
Business Current Areas of
Functions Focus Operational Impact Current Status
- -------------------------- ----------------------------- ------------------------- -------------------------
Computer Outsourcing Large & Mid-Range CPU Inability to continue Phase V to Phase VI
Service OEM Software critical processing of
OS Systems customer's systems
Network Equipment
Support Facilities
Internal Support Systems & Failures of critical Phase V to Phase VI
Business Processes Internal Support
Services
Systems Integration Internal Support Systems & Failures of critical Assessment of desktop hardware
Services Business Processes Internal Support and software has been completed
Services and is being validated.
Assessment of services
and communications hardware
is expected to be completed
by November 1999.
</TABLE>
PKSIS has significant relationships and dependencies with regard to systems and
technology provided and supported by third party vendors and service providers.
In particular, the computer outsourcing business of PKSCS is dependent upon
third parties who provide telecommunication service, electrical utilities and
mainframe and midrange hardware and software providers. As part of its Year 2000
program, PKSIS has sought to obtain formal Year 2000 compliance representation
from vendors who provide products and services to PKSIS. The vendor compliance
process is being performed concurrently with the Company's ongoing Year 2000
remediation activities. PKSCS is also working with its outsourcing customers to
inform them of certain dependencies which exist which may affect PKSIS' Year
2000 efforts and certain critical actions which PKSIS believes must be
undertaken by the customer in order to allow PKSIS to implement its Year 2000
efforts concerning the operating software system provided by PKSCS for its
customers.
To date, PKSCS has received written responses from approximately 40% of the
vendors from whom it has sought Year 2000 compliance statements. With respect to
those key third party vendors and suppliers who have failed to respond in
writing, PKSIS is following up directly with such vendors and suppliers and
obtaining information from other sources, such as disclosures made publicly
available on company websites. Additionally, PKSCS has contracted with an
independent Year 2000 vendor compliance advisory service to assist with PKSCS'
verification of its understanding of each appropriate vendor's product year 2000
readiness and compliance version statements.
Because of this reliance on third party vendors, PKSIS' estimate of costs to be
incurred could change substantially should one or more of the vendors be unable
to timely deliver Year 2000 compliant products. PKSCS does not own the
proprietary hardware technology or third party software source code utilized in
its business and therefore, PKSCS cannot actually renovate the hardware or
software identified as having Year 2000 support issues.
The expenses associated with PKSIS' Year 2000 efforts, as well as the related
potential effect on PKSIS' earnings, are not expected to have a material effect
on the future operating results or financial condition of Level 3. There can be
no assurance, however, that the Year 2000 problem, and any loss incurred by any
customers of PKS as a result of the Year 2000 problem, will not have a material
adverse effect on Level 3's financial condition and results of operations.
With respect to the contingency plans for PKSCS, such plans generally fall into
two categories. Concerning the internal support systems of PKSCS, PKSCS has
certain redundant and backup facilities, such as on-site generators, water
supply and pumps. PKSCS has undertaken contingency plans with respect to these
internal systems by performing due diligence with the vendors of these systems
in order to investigate the Year 2000 compliance status of these systems, and
such systems are tested on a monthly basis. With respect to the operating
systems obtained from third party vendors and maintained by PKSCS for its
outsourcing customers, contingency plans are developed by PKSCS and its
customers on a case by case basis as requested, contracted and paid for by
PKSCS' customers. However, there is no contingency plan for the failure of
operating system software to properly handle Year 2000 date processing. If the
operating system software provided to PKSIS by third party vendors fails at the
PKSCS Data Center, such vendor supplied software is expected to fail everywhere
and no immediate work around could be supplied by PKSCS. In the event computer
hardware supplied by PKSCS for its outsourcing customer fails, some customers
have contracted for contingency plans through disaster recovery arrangements
with a third party which supplies disaster recovery services.
Costs of Year 2000 Issues
Level 3 currently expects to incur approximately $12.5 million of costs in
aggregate, through the end of 1999. These costs primarily arise from direct
costs of Level 3 employees verifying equipment and software as Year 2000 ready.
However, Level 3 does not separately track the internal employee costs incurred
for its Year 2000 projects. Level 3 does track all material costs incurred for
its Year 2000 projects as well as all costs incurred by the Year 2000 program
office. Level 3 has estimated the time and effort expended by its employees on
Year 2000 projects based on an analysis of Year 2000 project plans.
PKSIS incurred approximately $4.2 million of costs to implement its Year 2000
program through 1998, and currently expects to incur an additional approximately
$6.0 million of costs in aggregate, in 1999. Of these costs, PKSIS expects
to incur $24 million to upgrade its internal network infrastructure, including
servers, desktops and phone systems. The remaining costs primarily arise from
direct costs of PKSCS employees working on upgrades per vendor specifications
of operating system software for PKSCS outsourcing customers and the cost of
vendor supplied operating systems software upgrades and the cost of
additional hardware. However, PKSIS does not separately track the internal
costs incurred for its Year 2000 projects and does not track the cost and time
its employees spend on Year 2000 projects. PKSCS has estimated the time and
effort expended by its employees on Year 2000 projects based on an analysis
of Year 2000 project plans. Labor costs for PKSCS' Year 2000 projects were
estimated to be $2.1 million for 1998 and are estimated to be approximately
one million dollars for 1999, when such projects are currently scheduled for
completion. These labor costs will necessarily increase if such projects take
longer to complete. Costs for software upgrades, additional equipment costs and
a test system for PKSCS' Year 2000 projects were estimated to be $2.1 million
for 1998 and are estimated to be $2.5 million for 1999. Such costs are not
available for PKSSI but are not believed to be material. Year 2000 costs for
PKSSI are believed to be substantially less than PKSCS and focus primarily on
the cost of evaluating and, if necessary, upgrading network and desktop hardware
and software. The costs incurred by PKSSI for performing Year 2000 services for
its customers are included within PKSSI's pricing for such services.
Risks Associated with Year 2000 Issues
Due to the complexity of the issues presented by the Year 2000 date change and
the proposed solutions, and the interdependence of external vendor support
services, it is difficult to assess with any degree of accuracy the future
effect of a failure in any one aspect or combination of aspects of the Company's
Year 2000 activities. The Company cannot provide assurance that actual results
will not differ from management's estimates due to the complexity of upgrading
the systems and related technologies surrounding the Year 2000 issue.
Failure by the Company to complete its Year 2000 activities in a timely or
complete manner, within its estimate of projected costs, or failure by third
parties, such as financial institutions and related networks, software
providers, local telephone companies, long distance providers and electricity
providers among others, to correct their systems, with which the Company's
systems interconnect, could have a material effect on the Company's future
results of operations and financial position. Other factors which might cause a
material difference from management's estimate would include, but not be limited
to, the availability and cost of personnel with appropriate skills and abilities
to locate and upgrade relevant computer systems and similar uncertainties, as
well as the related effects on the Company of the Year 2000 problem on the
economy in general, or on the Company's business partners and customers in
particular.
Market Risk
Level 3 is subject to market risks arising from changes in interest rates,
equity prices and foreign exchange rates. The Company's exposure to interest
rate risk increased due to the $1.375 billion Senior Secured Credit Facilities
entered into by the Company in September 1999. As of September 30, 1999, the
Company had borrowed $475 million under Senior Secured Credit Facilities.
Amounts drawn on the term loan and revolving credit facilities bear interest at
the alternate base rate or reserve-adjusted LIBOR rate plus applicable
margins. As the alternate base rate and reserve-adjusted LIBOR rate fluctuate,
so to will the interest expense on amounts borrowed under the facilities. The
Company continues to evaluate alternatives to limit interest rate risk.
Level 3 continues to hold positions in certain publicly traded entities,
primarily Commonwealth Telephone and RCN. The Company accounts for these two
investments using the equity method. The market value of these investments is
approximately $1.560 billion as of September 30, 1999, which is significantly
higher than their carrying value of $332 million. The Company does not currently
have plans to dispose of these investments, however, if any such transaction
occurred, the value received for the investments would be affected by the market
value of the underlying stock at the time of any such transaction. A 20%
decrease in the price of Commonwealth Telephone and RCN stock would result in
approximately a $312 million decrease in fair value of these investments. The
Company does not currently utilize financial instruments to minimize its
exposure to price fluctuations in equity securities.
The Company's Business Plan includes developing and constructing networks in
Europe and Asia. As of September 30, 1999, the Company has invested significant
amounts of capital in Europe and will continue to expand its presence in Europe
and Asia in 1999 and 2000. To date, the Company has not utilized financial
instruments to minimize its exposure to foreign currency fluctuations. The
Company will continue to analyze risk management strategies to reduce foreign
currency exchange risk in the future.
The change in equity security prices is based on hypothetical movements and is
not necessarily indicative of the actual results that may occur. Future earnings
and losses will be affected by actual fluctuations in interest rates, equity
prices and foreign currency rates.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In August 1999 the Company was named as a defendant in Schweizer vs. Level 3
Communications, Inc. et. al., a purported national class action, filed in the
District Court, County of Boulder, State of Colorado which involves the
Company's right to install its fiber optic cable network in easements and
right-of-ways crossing the plaintiffs' land. In general, the Company obtained
the rights to construct its network from railroads, utilities, and others, and
is installing its network along the rights-of-way so granted. Plaintiffs in the
purported class action assert that they are the owners of lands over which the
Company's fiber optic cable network passes, and that the railroads, utilities,
and others who granted the Company the right to construct and maintain its
network did not have the legal ability to do so. The action purports to be on
behalf of a national class of owners of land over which the Company's network
passes or will pass. The complaint seeks damages on theories of trespass, unjust
enrichment and slander of title and property, as well as punitive damages.
Although the Company is not aware of any additional similar claims, the Company
may in the future receive claims and demands related to rights-of-way issues
similar to the issues in the Schweizer litigation that may be based on similar
or different legal theories. Although it is too early for the Company to reach a
conclusion as to the ultimate outcome of this litigation, management believes
that the Company has substantial defenses to the claims asserted in the
Schweizer action (and any similar claims which may be named in the future), and
intends to defend them vigorously.
Item 6. Exhibits and Reports on 8-K
(a) Exhibits filed as part of this report are listed below:
Exhibit
Number
10.1 Credit Agreement, dated as of September 30, 1999 among Level 3
Communications, Inc., Level 3 Communications, LLC, Level 3
International, Inc., Level 3 International Services, Inc., BTE
Equipment, LLC, Eldorado Funding, LLC, the Lenders party
thereto and The Chase Manhattan Bank as Administrative Agent
and Collateral Agent.
27 Financial Data Schedule
(b) On September 20, 1999, the Company filed a Current Report on Form 8-K
relating to the offering and the completion of the offering of $823
million of the Company's 6% Convertible Subordinated Notes due 2009, of
which $73 million was related to an over-allotment option granted to the
underwriters.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEVEL 3 COMMUNICATIONS, INC.
Dated: November 8, 1999 /s/ Eric J. Mortensen
Eric J. Mortensen
Vice President, Controller
and Principal Accounting Officer
<PAGE>
LEVEL 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No.
10.1 Credit Agreement, dated as of September 30, 1999 among Level 3
Communications, Inc., Level 3 Communications, LLC, Level 3
International, Inc., Level 3 International Services, Inc., BTE
Equipment, LLC, Eldorado Funding, LLC, the Lenders party thereto and
The Chase Manhattan Bank as Administrative Agent and Collateral Agent.
27 Financial Data Schedule.
1
CONFORMED COPY
CREDIT AGREEMENT
dated as of
September 30, 1999
among
LEVEL 3 COMMUNICATIONS, INC.
The Borrowers named herein
The Lenders Party hereto
and
THE CHASE MANHATTAN BANK,
as Agent
---------------------------
CHASE SECURITIES INC.,
as Sole Book Manager and Lead Arranger
---------------------------
CHASE SECURITIES INC., GOLDMAN SACHS
CREDIT PARTNERS L.P., J.P. MORGAN SECURITIES INC.
AND SALOMON SMITH BARNEY INC.,
as Syndication Agents
================================================================================
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<PAGE>
i
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
SECTION 1.01. Defined Terms................................................. 1
SECTION 1.02. Classification of Loans and
Borrowings....................................41
SECTION 1.03. Terms Generally...............................................41
SECTION 1.04. Accounting Terms; GAAP........................................42
ARTICLE II
The Credits
SECTION 2.01. Commitments...................................................43
SECTION 2.02. Loans and Borrowings..........................................43
SECTION 2.03. Requests for Borrowings.......................................44
SECTION 2.04. Swingline Loans...............................................45
SECTION 2.05. Letters of Credit.............................................47
SECTION 2.06. Funding of Borrowings.........................................53
SECTION 2.07. Interest Elections............................................54
SECTION 2.08. Termination and Reduction of
Commitments...................................55
SECTION 2.09. Repayment of Loans; Evidence of Debt..........................56
SECTION 2.10. Automatic Revolving Commitment
Reductions; Amortization of
Term Loans....................................57
SECTION 2.11. Prepayment of Loans...........................................60
SECTION 2.12. Tranche B Facility Prepayment Fee.............................63
SECTION 2.13. Fees..........................................................63
SECTION 2.14. Interest......................................................65
SECTION 2.15. Alternate Rate of Interest....................................66
SECTION 2.16. Increased Costs...............................................66
SECTION 2.17. Break Funding Payments........................................68
SECTION 2.18. Taxes.........................................................69
SECTION 2.19. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs...............................70
SECTION 2.20. Mitigation Obligations; Replacement
of Lenders....................................73
SECTION 2.21. Incremental Facility..........................................74
SECTION 2.22. Interim Loans.................................................76
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<PAGE>
ii
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers..........................................81
SECTION 3.02. Authorization; Enforceability.................................81
SECTION 3.03. Governmental Approvals; No Conflicts..........................81
SECTION 3.04. Financial Condition; No Material
Adverse Change................................82
SECTION 3.05. Properties....................................................82
SECTION 3.06. Litigation and Environmental Matters..........................83
SECTION 3.07. Compliance with Laws and Agreements...........................84
SECTION 3.08. Investment and Holding Company Status.........................84
SECTION 3.09. Taxes.........................................................84
SECTION 3.10. ERISA.........................................................84
SECTION 3.11. Disclosure....................................................85
SECTION 3.12. Subsidiaries..................................................85
SECTION 3.13. Insurance.....................................................85
SECTION 3.14. Labor Matters.................................................85
SECTION 3.15. Intellectual Property.........................................86
SECTION 3.16. Year 2000.....................................................86
SECTION 3.17. Security Interests............................................87
SECTION 3.18. Absence of Non-Permitted Obligations..........................87
SECTION 3.19. FCC Compliance................................................88
ARTICLE IV
Conditions
SECTION 4.01. Effective Date................................................89
SECTION 4.02. First Credit Event for an RC Borrower
or an Equipment Borrower......................91
SECTION 4.03. Each Credit Event.............................................94
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other
Information...................................96
SECTION 5.02. Notices of Material Events....................................97
SECTION 5.03. Information Regarding Collateral..............................98
SECTION 5.04. Existence; Conduct of Business................................99
SECTION 5.05. Payment of Taxes..............................................99
SECTION 5.06. Maintenance of Properties.....................................99
SECTION 5.07. Insurance.....................................................99
SECTION 5.08. Casualty and Condemnation....................................100
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<PAGE>
iii
SECTION 5.09. Books and Records; Inspection and
Audit Rights.................................100
SECTION 5.10. Compliance with Laws.........................................100
SECTION 5.11. Use of Proceeds and Letters of Credit........................100
SECTION 5.12. Additional Subsidiaries......................................101
SECTION 5.13. Further Assurances...........................................101
SECTION 5.14. Interest Rate Protection.....................................102
SECTION 5.15. Support of Equipment Borrowers...............................103
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness; Certain Equity Securities......................103
SECTION 6.02. Liens........................................................106
SECTION 6.03. Fundamental Changes..........................................108
SECTION 6.04. Sale and Lease-Back Transactions.............................109
SECTION 6.05. Investments, Loans, Advances
Guarantees and Acquisitions..................109
SECTION 6.06. Asset Sales..................................................112
SECTION 6.07. Hedging Agreements...........................................112
SECTION 6.08. Restricted Payments; Certain Payments
of Indebtedness..............................113
SECTION 6.09. Transactions with Affiliates.................................114
SECTION 6.10. Restrictive Agreements.......................................115
SECTION 6.11. Amendment of Material Documents..............................116
SECTION 6.12. Liabilities of Equipment Borrowers;
Business and Liabilities of Interim
Borrower.....................................116
SECTION 6.13. Designation of Unrestricted
Subsidiaries.................................117
SECTION 6.14. Financial Covenants..........................................119
ARTICLE VII
Events of Default
ARTICLE VIII
The Agent
ARTICLE IX
Miscellaneous
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<PAGE>
iv
SECTION 9.01. Notices......................................................128
SECTION 9.02. Waivers; Amendments..........................................127
SECTION 9.03. Expenses; Indemnity; Damage Waiver...........................131
SECTION 9.04. Successors and Assigns.......................................133
SECTION 9.05. Survival.....................................................137
SECTION 9.06. Counterparts; Integration;
Effectiveness....................................137
SECTION 9.07. Severability.................................................138
SECTION 9.08. Right of Setoff..............................................138
SECTION 9.09. Governing Law; Jurisdiction; Consent to
Service of Process.................................................138
SECTION 9.10. WAIVER OF JURY TRIAL.........................................139
SECTION 9.11. Headings.....................................................139
SECTION 9.12. Confidentiality..............................................139
SECTION 9.13. Interest Rate Limitation.....................................140
SECTION 9.14. Liability of Borrowers.......................................141
SECTION 9.15. Release of Subsidiaries and Borrowers........................141
SECTION 9.16 Special Funding Option....................................142
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 3.03 -- LLC Approvals
Schedule 3.06 -- Disclosed Matters
Schedule 3.17 -- Mortgages
Schedule 4.02 -- Immaterial Subsidiaries
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.05 -- Existing Investments
Schedule 6.10 -- Existing Restrictions
Schedule 6.13 -- Existing Unrestricted Subsidiaries
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Perfection Certificate
Exhibit C-1 -- Form of Effective Date Opinion of Willkie
Farr & Gallagher
Exhibit C-2 -- Form of Effective Date Opinion of
Regulatory Counsel
Exhibit C-3 -- Form of Full Effective Date Opinion of
Willkie Farr & Gallagher
Exhibit C-4 -- Form of Full Effective Date Opinion of
Level 3's and Borrowers' Counsel
Exhibit C-5 -- Form of Opinion of Regulatory Counsel
Exhibit C-6 -- Form of Opinion of Local Counsel
Exhibit D -- Form of RC Guarantee Agreement
Exhibit E -- Form of Term Loan Guarantee Agreement
Exhibit F -- Form of Shared Collateral Pledge Agreement
Exhibit G -- Form of Shared Collateral Security
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
v
Agreement
Exhibit H -- Form of Term Loan Security Agreement
Exhibit I -- Form of RC Indemnity, Subrogation and
Contribution Agreement
Exhibit J -- Form of Term Loan Indemnity,
Subrogation and Contribution Agreement
Exhibit K -- Form of Mortgage
Exhibit L -- Form of Revolving Note
Exhibit M -- Form of Term Note
Exhibit N -- Form of Loan Allocation Agreement
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
1
CREDIT AGREEMENT dated as of September 30,
1999 among LEVEL 3 COMMUNICATIONS, INC., LEVEL 3
COMMUNICATIONS, LLC, LEVEL 3 INTERNATIONAL SERVICES,
INC., LEVEL 3 INTERNATIONAL, INC., BTE EQUIPMENT,
LLC, ELDORADO FUNDING, LLC, the LENDERS party hereto,
and THE CHASE MANHATTAN BANK, as Administrative Agent
and Collateral Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this
Agreement, the following terms have the meanings specified
below:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Additional Lender" shall have the meaning
assigned thereto in Section 2.21(a).
"Administrative Agent" means The Chase Manhattan Bank, in its
capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an
Administrative Questionnaire in a form supplied by the
Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Agent" means The Chase Manhattan Bank, in its
capacities as Administrative Agent and Collateral Agent.
"Alternate Base Rate" means, for any day, a rate per annum
equal to the greater of (a) the Prime Rate in effect on such day and (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in
the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and
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<PAGE>
2
including the effective date of such change in the Prime Rate or the Federal
Funds Effective Rate, respectively.
"Applicable Commitment Fee Rate" means, with respect to the
commitment fee payable pursuant to Section 2.13.(a), a rate per annum equal to
(x) 1.00% for each day on which Usage is less than 33%, (y) 0.75% for each day
on which Usage is equal to or greater than 33% but less than or equal to 66% and
(z) 0.50% for each day on which Usage is greater than 66%. For purposes of the
foregoing, "Usage" means, on any date, the percentage obtained by dividing (i)
the sum of the aggregate outstanding Tranche A Term Loans and the aggregate
Revolving Exposure on such date by (ii) the sum of the aggregate outstanding
Tranche A Term Loans, unutilized Tranche A Commitments and Revolving Commitments
on such date.
"Applicable Percentage" means, with respect to any Revolving
Lender, the percentage of the total Revolving Commitments represented by such
Lender's Revolving Commitment. If the Revolving Commitments have terminated or
expired, the Applicable Percentages shall be determined based upon the Revolving
Commitments most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day (a) with respect to any
Tranche B Term Loan, (i) 2.50% per annum, in the case of an ABR Loan and (ii)
3.50% per annum, in the case of a Eurodollar Loan, and (b) with respect to any
ABR Loan or Eurodollar Loan that is a Revolving Loan or a Tranche A Term Loan,
as the case may be, the applicable rate per annum set forth below under the
caption "ABR Spread" or "Eurodollar Spread", as the case may be, based upon the
ratings established by Moody's and S&P for the Index Debt; provided that until
the date that is one year from the Effective Date the "Applicable Rate" for
purposes of clause (b) shall be the applicable rate per annum set forth below in
Level I:
Eurodollar
Level Ratings ABR Spread Spread
IV >=BBB-/Baa3 0.50% 1.50%
III BB+/Ba1 1.00% 2.00%
II BB/Ba2 1.25% 2.25%
I <BB/Ba2 1.75% 2.75%
================ ============= =============== ===================
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<PAGE>
3
For purposes of the foregoing, (a) each change in the
Applicable Rate resulting from a publicly announced change in the ratings shall
be effective, in the case of an upgrade, during the period commencing on and
including the date of delivery to the Administrative Agent of written
notification thereof from Level 3 and ending on the date immediately preceding
the effective date of the next such change and, in the case of a downgrade,
during the period commencing on and including the date of public announcement
thereof and ending on the date immediately preceding the effective date of the
next such change, (b) in the event the ratings established by Moody's and S&P
fall within different Levels, interest rate spreads shall be based on the lower
of the two ratings unless the different ratings are two or more Levels apart, in
which case interest rate spreads will be based on a rating one Level above the
lower of the two ratings and (c) if neither Moody's nor S&P maintains a rating
for the Index Debt, the ratings shall be deemed to be in Level I. If the rating
system of Moody's or S&P shall change, or if either of them shall cease rating
the Index Debt (other than by reason of any action or nonaction by Level 3
following or in anticipation of a ratings downgrade), Level 3 and the
Administrative Agent shall negotiate in good faith to amend (with the consent of
the Required Lenders) the references to specific ratings in this definition
(including by way of substituting another rating agency mutually acceptable to
Level 3 and the Administrative Agent for the rating agency with respect to which
the rating system has changed or for which no rating is then in effect) to
reflect such changed rating system or the nonavailability of ratings from such
rating agency, and pending agreement on such amendment, the rating in effect
immediately prior to such change or cessation will apply. If any rating agency
shall not have a rating in effect by reason of any action or nonaction by Level
3 following or in anticipation of a ratings downgrade, then such rating agency
shall be deemed to have established a rating in Level I.
"Assessment Rate" means, for any day, the annual assessment
rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well- capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative Agent to
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
4
be representative of the cost of such insurance to the
Lenders.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"Attributable Debt" means, on any date, in respect of any
lease of Level 3 or any Restricted Subsidiary entered into as part of a sale and
leaseback transaction subject to Section 6.04, (i) if such lease is a Capital
Lease Obligation, the capitalized amount thereof that would appear on a balance
sheet of such Person prepared as of such date in accordance with GAAP, and (ii)
if such lease is not a Capital Lease Obligation, the capitalized amount of the
remaining lease payments under such lease that would appear on a balance sheet
of such Person prepared as of such date in accordance with GAAP if such lease
were accounted for as a Capital Lease Obligation.
"Board" means the Board of Governors of the
Federal Reserve System of the United States of America.
"Borrowers" means the RC Borrowers and the
Equipment Borrowers.
"Borrowing" means (a) Loans of the same Class and Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect, or (b) a Swingline Loan.
"Borrowing Request" means a request by a Borrower
for a Borrowing in accordance with Section 2.03.
"BTE" means BTE Equipment, LLC, a Wholly Owned special purpose
subsidiary of Level 3.
"BTE Total Debt" means, at any date, all Indebtedness of BTE
on such date that would be reflected as a liability on a consolidated balance
sheet of BTE prepared as of such date in accordance with GAAP.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
5
any day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"Capital Expenditures" means, for any period, without
duplication, (a) the additions to property, plant and equipment and other
capital expenditures of Level 3 and the Restricted Subsidiaries that are (or
would be) set forth in a combined statement of cash flows of Level 3 and the
Restricted Subsidiaries for such period prepared in accordance with GAAP and (b)
Capital Lease Obligations incurred by Level 3 and the Restricted Subsidiaries
during such period.
"Capital Lease Obligations" of any Person means the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Capital Stock" means any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation) and any and all warrants, rights or options to purchase or
subscribe for any of the foregoing, or any warrants, rights or options to
purchase or subscribe for any such warrants, rights or options.
"Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person other than
Level 3 and Wholly Owned Subsidiaries of Level 3 of any shares of capital stock
of any Borrower or (b) the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") or any successor provisions to either of the
foregoing), including any group acting for the purpose of acquiring,
holding, voting or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act, other than any one or more of the
Permitted Holders, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, except that a person will be deemed to
have "beneficial ownership" of all shares that any such person has the
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<PAGE>
6
right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of 35% or more of
the total voting power of the voting stock of Level 3; provided,
however, that the Permitted Holders are the "beneficial owners" (as
defined in Rule 13d-3 under the Exchange Act, except that a person will
be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
in the aggregate of a lesser percentage of the total voting power of
the voting stock of Level 3 than such other person or group (for
purposes of this clause (b)(i), such person or group shall be deemed to
beneficially own any voting stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation")
so long as such person or group beneficially owns, directly or
indirectly, in the aggregate a majority of the total voting power of
the voting stock of such parent corporation; or
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the board of directors
of Level 3 (together with any new directors whose election or
appointment by such board or whose nomination for election by the
shareholders of Level 3 was approved by a vote of a majority of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the board of directors of Level 3 then in office; or
(iii) the shareholders of Level 3 shall have
approved any plan of liquidation or dissolution of
Level 3; or
(iv) any "change of control" as defined in any agreement or
instrument governing Material Indebtedness of Level 3 or a Restricted
Subsidiary shall occur.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender or
the Issuing Bank (or, for purposes of Section 2.16(c), by any lending office of
such Lender or by such Lender's or the Issuing Bank's holding company, if any)
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<PAGE>
7
with any request, guideline or directive (whether or not having the force of
law) of any Governmental Authority made or issued after the date of this
Agreement.
"Class", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
Revolving Loans, Tranche A Term Loans, Tranche B Term Loans or Swingline Loans
and, when used in reference to any Commitment, refers to whether such Commitment
is a Revolving Commitment, Tranche A Commitment or Tranche B Commitment.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" means any and all "Collateral", as
defined in any applicable Security Document.
"Collateral Agent" means The Chase Manhattan Bank in its
capacity as collateral agent for the Secured Parties hereunder.
"Collateral and Guarantee Requirement" means the
requirement that:
(a) the Agent shall have received from each Loan Party either
(i) counterparts of the RC Guarantee Agreement and the Term Loan
Guarantee Agreement duly executed and delivered on behalf of such Loan
Party or (ii) in the case of any person that becomes a Loan Party after
the Effective Date, supplements to the RC Guarantee Agreement and the
Term Loan Guarantee Agreement, in the forms specified therein, duly
executed and delivered on behalf of such Loan Party, together with, in
the case of each Subsidiary Loan Party, counterparts of the RC
Indemnity, Subrogation and Contribution Agreement and the Term Loan
Indemnity, Subrogation and Contribution Agreement or supplements
thereto, in the form specified therein, duly executed and delivered on
behalf of such Subsidiary Loan Party;
(b) the Agent shall have received from each Loan Party either
(i) counterparts of the Shared Collateral Pledge Agreement and Shared
Collateral Security Agreement duly executed and delivered on behalf of
such Loan Party or (ii) in the case of any Person that becomes a Loan
Party after the Effective Date, supplements to the Shared Collateral
Pledge Agreement and Shared Collateral Security Agreement, in the forms
specified therein, duly executed and delivered on behalf of such Loan
Party;
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<PAGE>
8
(c) all outstanding Equity Interests owned by or on behalf of
Level 3 or any Subsidiary Loan Party shall have been pledged pursuant
to the Shared Collateral Pledge Agreement and, if such Equity Interests
are in certificated form, the Agent shall have received certificates or
other instruments representing all such Equity Interests, together with
stock powers or other instruments of transfer with respect thereto
endorsed in blank (provided that the Loan Parties shall not be required
to pledge more than 65% of the outstanding voting Equity Interests of
any Foreign Subsidiary);
(d) all Indebtedness of Level 3, the Borrowers and each
Subsidiary that is owing to any Loan Party shall be evidenced by a
promissory note and shall have been pledged pursuant to the Shared
Collateral Pledge Agreement, and the Agent shall have received such
promissory notes, together with instruments of transfer with respect
thereto endorsed in blank;
(e) all documents and instruments, including Uniform
Commercial Code financing statements, required by law or reasonably
requested by the Agent to be filed, registered or recorded to create
the Liens intended to be created by the Security Documents and perfect
such Liens to the extent required by, and with the priority required
by, the Security Documents, shall have been filed, registered or
recorded or delivered to the Agent for filing, registration or
recording;
(f) the Agent shall have received a Mortgagee Intercreditor
Agreement with respect to any real property of a Loan Party mortgaged
to a third party mortgagee and containing Telecom Equipment Assets
(including fixtures), duly executed and delivered by such mortgagee,
and shall have received such mortgages or other instruments, duly
executed by such Loan Party and in form suitable for recordation or
filing in real estate records, as may be required or desirable in the
Agent's opinion to grant a Lien in favor of the Agent on such fixtures
constituting Telecom Equipment Assets;
(g) the Agent shall have received (i) counterparts of a
Mortgage with respect to each Mortgaged Property duly executed and
delivered by the record owner of such Mortgaged Property, (ii) a policy
or policies of title insurance issued by a nationally recognized title
insurance company insuring the Lien of each such Mortgage as a valid
first Lien, free of any other Liens except Permitted Encumbrances, and
(iii) such surveys, abstracts, appraisals, legal opinions and other
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
9
documents as the Agent may reasonably request with
respect to such Mortgage or Mortgaged Property;
(h) each Loan Party shall have obtained all consents and
approvals required to be obtained by it in connection with the
execution and delivery of all Security Documents to which it is a
party, the performance of its obligations thereunder and the granting
by it of the Liens thereunder.
Notwithstanding the foregoing, (i) the Equipment Borrowers shall not
enter into any Guarantee Agreement, the Shared Collateral Pledge
Agreement, the Shared Collateral Security Agreement or the RC
Indemnity, Subrogation and Contribution Agreement and (ii) in the event
the consent of any landlord or any other third party (other than a
Governmental Authority and any mortgagee with respect to Specified Real
Estate) is required to permit the grant or perfection of any Lien under
the Shared Collateral Security Agreement, including with respect to any
assignment of railroad or similar rights of way, Level 3 and the RC
Borrowers will use their commercially reasonable efforts (which will
not include the payment of any consideration) to obtain such required
consent and effect the grant and perfection of such Lien as soon as
practicable, provided that if such consent cannot be obtained following
the use of such commercially reasonable efforts such Lien need not be
granted or perfected, as the case may be, and the Collateral and
Guarantee Requirement shall not be deemed to be unsatisfied during any
period during which Level 3 and the Borrowers are complying with the
foregoing or in the event such consent cannot be so obtained.
"Colocation Subsidiary" means a Subsidiary not engaged in any
business or activity other than the provision of colocation and related and
incidental services which does not own any material assets integral to the
operations of Level 3's domestic network. It is understood that a Subsidiary's
gateway facility is not integral to such operations unless it is the sole
gateway facility in the relevant market.
"Combined EBITDA" means for any period, Combined Income (Loss)
from Operations of Level 3 and its Restricted Subsidiaries for such period plus,
without duplication and to the extent deducted from revenues in determining such
Combined Income (Loss) from Operations, the sum of (a) all amounts attributable
to depreciation and amortization for such period, (b) all non-cash compensation
charges during
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<PAGE>
10
such period (it being understood that charges shall be deemed non-cash charges
until the period that cash disbursements attributable to such charges are made,
at which point such charges shall be deemed cash charges) and (c) all non-cash
non-recurring charges during such period other than non-cash charges relating to
sales of dark fiber, all as determined on a combined basis with respect to Level
3 and the Restricted Subsidiaries in accordance with GAAP. For purposes of
Section 6.14, if Level 3 or any of its Restricted Subsidiaries makes any
Permitted Business Acquisition during any period in respect of which Combined
EBITDA is to be determined hereunder, such Combined EBITDA will be determined on
a pro forma basis as if such acquisition were consummated on the first day of
the relevant period.
"Combined Gross Property Plant and Equipment" means, at any
date, the gross amount (without giving effect to depreciation, obsolescence or
similar reserves) that would be reflected as property, plant and equipment on a
combined balance sheet of Level 3 and the Restricted Subsidiaries prepared as of
such date in accordance with GAAP.
"Combined Income (Loss) from Operations" means, for any
period, the income or loss from operations of Level 3 and the Restricted
Subsidiaries for such period determined on a combined basis in accordance with
GAAP.
"Combined Net Income" means, for any period, the net income or
loss of Level 3 and the Restricted Subsidiaries for such period determined on a
combined basis in accordance with GAAP; provided that there shall be excluded
the income of any Person (other than Level 3) in which any other Person (other
than Level 3 and the Restricted Subsidiaries and other than directors holding
qualifying shares in compliance with applicable law) owns an Equity Interest,
except to the extent of dividends or other distributions actually paid to Level
3 or any of the Restricted Subsidiaries during such period.
"Combined Senior Secured Debt" means, on any date, the Loans
and all other Indebtedness that would be reflected as a liability on a combined
balance sheet of Level 3 and the Restricted Subsidiaries prepared as of such
date in accordance with GAAP which is secured by any assets of Level 3 or any
Restricted Subsidiary.
"Combined Total Assets" means, on any date, the aggregate
amount of assets (after giving effect to amortization, depreciation and all
applicable reserves) that
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
11
would be reflected as assets on a combined balance sheet of Level 3 and the
Restricted Subsidiaries prepared as of such date in accordance with GAAP.
"Combined Total Debt" means, at any date, all Indebtedness of
Level 3 and its Restricted Subsidiaries that would be reflected as a liability
on a combined balance sheet of Level 3 and its Restricted Subsidiaries prepared
as of such date in accordance with GAAP.
"Combined Telecom Revenue" means, for any period, the revenues
of Level 3 and the Restricted Subsidiaries for such period derived from their
telecommunications businesses, excluding any revenues (i) representing interest
or investment income, (ii) representing dividends or distributions from
Unrestricted Subsidiaries and (iii) from the sale or disposition of businesses,
assets or investments or from any Prepayment Event.
"Commitment" means a Revolving Commitment, Tranche A
Commitment or Tranche B Commitment, or any combination thereof (as the context
requires).
"Communications Act" means the Communications Act of 1934 and
any similar or successor Federal statute and the rules, regulations and
published policies of the Federal Communications Commission thereunder, all as
amended and as the same may be in effect from time to time.
"Contributed Capital" means, at any date, the sum (without
duplication) of (a) the combined stockholders equity of Level 3 and the
Restricted Subsidiaries at June 30, 1999, determined in accordance with GAAP,
plus (b) Equity Proceeds received by Level 3 subsequent to June 30, 1999, plus
(c) the amount of Equity Purchase Consideration received by Level 3 or any
Restricted Subsidiary after June 30, 1999, plus (d) the amount of Special Asset
Gains realized by Level 3 and its Restricted Subsidiaries after June 30, 1999.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Conversion Proceeds" means an amount deemed for purposes
hereof to have been received by Level 3 at the time of conversion of any
convertible debt securities of Level 3 into common stock or Non-Cash Pay
Preferred Stock of Level 3
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
12
equal to the principal amount of such debt securities so converted and any
accrued and unpaid interest thereon which is forfeited in connection with such
conversion.
"Corresponding Loan" has the meaning assigned to
such term in Section 2.22(d).
"Default" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.
"Derivatives Counterparty" means any financial institution,
commodities or stock exchange or clearinghouse with which Level 3 or any
Restricted Subsidiary enters into a derivatives transaction.
"Designated Equity Proceeds Use" means the application of
Equity Proceeds or Conversion Proceeds to any of the following: (i) Restricted
Payments pursuant to stock option plans or other benefit plans for management or
employees of Level 3 and the Restricted Subsidiaries in excess of $3,000,000 in
any twelve month period, (ii) cash dividend payments on preferred stock, (iii)
payments of cash consideration in connection with Permitted Business
Acquisitions pursuant to Section 6.05(e)(A)(ii) and (iv) payments of cash
consideration in connection with acquisitions permitted by Section 6.05(f).
"Disclosed Matters" means the actions, suits and proceedings
and the environmental matters disclosed in Schedule 3.06.
"dollars" or "$" refers to lawful money of the
United States of America.
"Effective Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
9.02).
"Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability,
contingent or otherwise (including any liability for
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
13
damages, costs of environmental remediation, fines, penalties or indemnities),
of Level 3 or any Subsidiary directly or indirectly resulting from or based upon
(a) violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials, (c)
exposure to any Hazardous Materials, (d) the release or threatened release of
any Hazardous Materials into the environment or (e) any contract, agreement or
other consensual arrangement pursuant to which liability is assumed or imposed
with respect to any of the foregoing.
"Equipment Borrower" means each of (i) BTE and
(ii) with respect to Incremental Loans borrowed by any
Person other than BTE pursuant to Section 2.21(b), Equipment
Co. II.
"Equipment Co. II" shall have the meaning assigned
thereto in Section 2.21(b).
"Equity Interests" means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person.
"Equity Proceeds" means the cash Net Proceeds received by
Level 3 from the issuance and sale of common stock of Level 3 or Non-Cash Pay
Preferred Stock of Level 3.
"Equity Purchase Consideration" means the net fair market
value of any assets or properties other than cash transferred to or acquired by
Level 3 or any Restricted Subsidiary in consideration of or exchange for the
issuance of shares of common stock of Level 3 or Non-Cash Pay Preferred Stock of
Level 3, including in connection with mergers and stock acquisitions (such net
fair market value being the fair market value of such common stock or Non-Cash
Pay Preferred Stock (as reasonably determined in good faith by the Chief
Financial Officer of Level 3, which determination shall, if applicable, be based
on the trading value of such common stock or Non-Cash Pay Preferred Stock on the
closing date of the transaction).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that together with Level 3 is treated as a single employer under
Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of
ERISA and
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
14
Section 412 of the Code, is treated as a single employer under Section 414 of
the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by Level 3 or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by Level 3 or any ERISA Affiliate from
the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by Level 3 or any of its ERISA Affiliates of any Withdrawal
Liability; or (g) the receipt by Level 3 or any ERISA Affiliate of any notice,
or the receipt by any Multiemployer Plan from Level 3 or any ERISA Affiliate of
any notice, concerning the imposition of Withdrawal Liability or a determination
that a Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA.
"Eurocurrency Reserve Requirements" means the aggregate of the
maximum reserve percentages (including any marginal, special, emergency or
supplemental reserves) expressed as a decimal established by the Board and any
other banking authority to which the Agent is subject and applicable to
"Eurocurrency Liabilities", as such term is defined in Regulation D of the
Board, or any similar category of assets or liabilities relating to eurocurrency
fundings. Eurocurrency Reserve Requirements shall be adjusted automatically on
and as of the effective date of any change in any reserve percentage.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the LIBO Rate.
"Event of Default" has the meaning assigned to
such term in Article VII.
"Excess Cash Flow" means, for any fiscal year, the
sum (without duplication) of:
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<PAGE>
15
(a) the Combined Net Income of Level 3 and the Restricted
Subsidiaries for such fiscal year, adjusted to exclude any gains or
losses attributable to Prepayment Events; plus
(b) depreciation, amortization and other non-cash charges or
losses deducted in determining such Combined Net Income for such fiscal
year; plus
(c) the sum of (i) the amount, if any, by which Net Working
Capital decreased during such fiscal year plus (ii) the net amount, if
any, by which the combined deferred revenues of Level 3 and the
Restricted Subsidiaries increased during such fiscal year; minus
(d) the sum of (i) any non-cash gains included in determining
such Combined Net Income for such fiscal year plus (ii) the amount, if
any, by which Net Working Capital increased during such fiscal year
plus (iii) the amount, if any, by which the combined deferred revenues
of Level 3 and its Restricted Subsidiaries decreased during such fiscal
year; minus
(e) the sum of (i) Capital Expenditures paid in cash during
such fiscal year (except to the extent attributable to the incurrence
of Capital Lease Obligations or otherwise financed by incurring Long-
Term Indebtedness and except to the extent paid with Net Proceeds in
respect of Prepayment Events or from the issuance of Capital Stock)
plus (ii) cash consideration paid during such fiscal year to make
Permitted Business Acquisitions or other investments permitted
hereunder (other than Permitted Investments and except to the extent
financed by incurring Long- Term Indebtedness or issuing capital stock
or other Equity Interests); minus
(f) cash payments made during such fiscal year which were not
deducted in determining such Combined Net Income for such fiscal year
that will in a subsequent fiscal year become a non-cash charge deducted
in determining Combined Net Income for such subsequent fiscal year;
minus
(g) the aggregate principal amount of Long-Term Indebtedness
repaid or prepaid by Level 3 and the Restricted Subsidiaries during
such fiscal year, excluding (i) Indebtedness in respect of Revolving
Loans and Letters of Credit (unless accompanied by a corresponding
permanent reduction in the Revolving Commitments), (ii) Term Loans
prepaid pursuant to
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<PAGE>
16
Section 2.11(b) or (c), (iii) repayments or prepayments of Long-Term
Indebtedness financed by incurring other Long-Term Indebtedness.
"Excluded Taxes" means, with respect to the Agent, any Lender,
the Issuing Bank or any other recipient of any payment to be made by or on
account of any obligation of the Borrowers or the Interim Borrower hereunder,
(a) income or franchise taxes imposed on (or measured by) its net income by the
United States of America, or by the jurisdiction under the laws of which such
recipient is organized or in which its principal office is located or, in the
case of any Lender, in which its applicable lending office is located, (b) any
branch profits taxes imposed by the United States of America or any similar tax
imposed by any other jurisdiction described in clause (a) above and (c) in the
case of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 2.20(b)), any withholding tax that (i) is in effect and
would apply to amounts payable to such Foreign Lender at the time such Foreign
Lender becomes a party to this Agreement (or designates a new lending office),
except to the extent that such Foreign Lender (or its assignor, if any) was
entitled, at the time of designation of a new lending office (or assignment), to
receive additional amounts from the Borrowers or the Interim Borrower with
respect to such withholding tax pursuant to Section 2.18(a) or (ii) is
attributable to such Foreign Lender's failure to comply with Section 2.18(e).
"Executive Officer" means the chief executive officer, the
president, the chief financial officer, the secretary or the treasurer of Level
3.
"FCC" means the United States Federal
Communications Commission.
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer,
principal accounting officer, vice president-
<PAGE>
17
finance, assistant treasurer, treasurer or controller of Level 3.
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than the United States of America. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is organized
under the laws of a jurisdiction other than the United States of America or any
State thereof or the District of Columbia.
"Full Effective Date" means the date on which the conditions
specified in Section 4.02 are satisfied (or waived in accordance with Section
9.02).
"GAAP" means generally accepted accounting
principles in the United States of America.
"Government Securities" means direct obligations of, or
obligations fully and unconditionally guaranteed or insured by, the United
States of America or any agency or instrumentality thereof.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, and including
any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
other obligation or to purchase (or to advance or supply funds for the purchase
of) any security for the payment thereof, (b) to purchase or lease property,
securities or services for the purpose of assuring the owner of such
Indebtedness or other obligation of the payment thereof, (c) to maintain working
capital, equity capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay
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<PAGE>
18
such Indebtedness or other obligation or (d) as an account party in respect of
any letter of credit or letter of guaranty issued to support such Indebtedness
or obligation; provided, that the term Guarantee shall not include endorsements
for collection or deposit in the ordinary course of business.
"Guarantee Agreements" means the RC Guarantee
Agreement and the Term Loan Guarantee Agreement.
"Guarantors" means the RC Guarantors and the Term
Loan Guarantors.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Hedging Agreement" means any interest rate protection
agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price hedging
arrangement.
"Immaterial Subsidiary" means any Subsidiary having neither
(i) a book value of total assets in excess of $500,000 or (ii) total revenue in
excess of $1,000,000 in the fiscal year most recently ended.
"Incremental Loans" shall have the meaning
ascribed thereto in Section 2.21(a).
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to property
acquired by such Person, (d) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding current accounts
payable incurred in the ordinary course of business), (e) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, (f) all Guarantees by such Person of Indebtedness
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
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19
of others, (g) all Capital Lease Obligations of such Person, (h) all
obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (i) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than
Excluded Taxes.
"Index Debt" means the highest rated senior, unsecured,
Long-Term Indebtedness for borrowed money of Level 3 that is not guaranteed
(including by any Subsidiary) or otherwise credit enhanced.
"Information Memorandum" means the Confidential Information
Memorandum dated September 1999 relating to Level 3, the Restricted Subsidiaries
and the Transactions, including the risk factors reported in Level 3's Form
8-K/A filed with the Securities and Exchange Commission on February 17, 1999 and
mentioned in the notice to recipients whether or not actually included in the
text of the Confidential Information Memorandum.
"Intercity Route Miles Completed" means the number of
intercity route miles with completed conduits installed.
"Intercity Route Miles with Fiber Completed" means the number
of intercity route miles with completed conduits, including fiber, installed.
"Interest Election Request" means a request by a Borrower to
convert or continue a Revolving Borrowing or Term Borrowing in accordance with
Section 2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan
(other than a Swingline Loan), the last day of each March, June, September and
December, (b) with respect to any Eurodollar Loan, the last day of the Interest
Period applicable to the Borrowing of which such Loan is a part and, in the case
of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day prior to the last day of such Interest Period that occurs at
intervals of three months' duration after the first day of
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
20
such Interest Period, and (c) with respect to any Swingline Loan, the day that
such Loan is required to be repaid.
"Interest Period" means with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter (or nine or twelve months thereafter if, at the time of
the relevant Borrowing, all Lenders participating therein agree to make an
interest period of such duration available), as the Borrower may elect;
provided, that (a) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (b) any Interest Period that commences on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest Period. For
purposes hereof, the date of a Borrowing initially shall be the date on which
such Borrowing is made and thereafter shall be the effective date of the most
recent conversion or continuation of such Borrowing.
"Interim Borrower" means Eldorado Funding, LLC, a Delaware
corporation or limited liability company and a Wholly Owned Subsidiary of Level
3. The Interim Borrower has been designated as an "Unrestricted Subsidiary"
under
the Level 3 Indentures.
"Interim Loan Collateral Account" has the meaning
assigned to such term in Section 2.22.
"Interim Loans" has the meaning assigned to such
term in Section 2.22(a).
"Investment" means purchasing, holding or acquiring (including
pursuant to any merger with any Person that was not a Wholly Owned Restricted
Subsidiary prior to such merger) any Capital Stock, evidences of indebtedness or
other securities (including any option, warrant or other right to acquire any of
the foregoing) of, or making or permitting to exist any loans or advances (other
than commercially reasonable extensions of trade credit) to, guaranteeing any
obligations of, or making or permitting to exist any investment or any other
interest in, any other Person, or purchasing or otherwise acquiring (in one
transaction or a series of transactions) any assets of any
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
21
Person constituting a business unit. The amount, as of any date of
determination, of any Investment shall be the original cost of such Investment
(including any Indebtedness of a Person existing at the time such Person becomes
a Restricted Subsidiary in connection with any Investment and any Indebtedness
assumed in connection with any acquisition of assets), plus the cost of all
additions, as of such date, thereto and minus the amount, as of such date, of
any portion of such Investment repaid to the investor in cash as a repayment of
principal or a return of capital, as the case may be (except to the extent such
repaid amount has been included in Combined Net Income), but without any other
adjustments for increases or decreases in value, or write- ups, write-downs or
write-offs with respect to such Investment. In determining the amount of any
Investment involving a transfer of any property other than cash, such property
shall be valued at its fair market value at the time of such transfer.
"Issuing Bank" means The Chase Manhattan Bank, in its capacity
as the issuer of Letters of Credit hereunder, and its successors in such
capacity as provided in Section 2.05(i). The Issuing Bank may, in its
discretion, arrange for one or more Letters of Credit to be issued by Affiliates
of the Issuing Bank, in which case the term "Issuing Bank" shall include any
such Affiliate with respect to Letters of Credit issued by such Affiliate.
"knowledge" means to the knowledge of any
Executive Officer or any Financial Officer of Level 3.
"LC Disbursement" means a payment made by the Issuing Bank
pursuant to a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by or
on behalf of the RC Borrowers at such time. The LC Exposure of any Revolving
Lender at any time shall be its Applicable Percentage of the total LC Exposure
at such time.
"Lenders" means the Persons listed on Schedule 2.01 and any
other Person that shall have become a party hereto pursuant to an Assignment and
Acceptance or an Incremental Facility Amendment, other than any such Person that
ceases to be a party hereto pursuant to an Assignment and Acceptance. Unless the
context otherwise requires, the term "Lenders" includes the Swingline Lender.
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
22
"Letter of Credit" means any letter of credit
issued pursuant to this Agreement.
"Level 3" means Level 3 Communications, Inc., a
Delaware corporation.
"Level 3 Indentures" means the indentures in effect on the
date hereof relating to various series of senior unsecured notes of Level 3
outstanding on the date hereof and issued in offerings pursuant to Rule 144A
under the Securities Act of 1933 or in offerings registered under the Securities
Act, as the same may be amended and in effect from time to time.
"Leverage Ratio" means, on any date, the ratio of Combined
Total Debt on such date to Combined EBITDA for the period of four consecutive
fiscal quarters of Level 3 most recently ended on or prior to such date.
"LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Market
Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "LIBO Rate"
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $10,000,000 and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"License" means any license granted by the FCC or
any foreign telecommunications regulatory body.
"Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor under
any conditional sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
23
same economic effect as any of the foregoing) relating to such asset and (c) in
the case of securities, any purchase option, call or similar right of a third
party with respect to such securities.
"Loan Allocation Agreement" means the loan allocation
agreement, substantially in the form of Exhibit N hereto, to be entered into by
the Administrative Agent and each of the Lenders.
"Loan Documents" means this Agreement, the Commitment Letter
and Fee Letters dated July 22, 1999 among Level 3, Level 3 Communications, LLC
and certain of the
Lenders and the Security Documents.
"Loan Parties" means Level 3, the Borrowers and
the other Subsidiary Loan Parties.
"Loans" means the loans made by the Lenders to the Borrowers
and the Interim Borrower pursuant to this Agreement.
"Local Markets" means the markets referred to in the letter
from Level 3 dated the date hereof delivered to the Administrative Agent.
"London Properties" means the properties located at 6 Braham
Street and 260 Goswell Road in London, England.
"Long-Term Indebtedness" means any Indebtedness that, in
accordance with GAAP, constitutes (or when incurred constituted) a long-term
liability.
"Markets with Fiber Networks" means the number of Local
Markets where Level 3 is able to offer services over owned networks.
"Master Lease Agreement" means, collectively, each of (i) the
Master Lease Agreement dated the date hereof between BTE, as lessor, and Level 3
Communications, LLC, as lessee, and (ii) the leases between BTE, as lessor, and
other entities, as lessees, in each case relating to the lease by BTE to such
lessees of assets owned by BTE and financed, in whole or in part, with the
proceeds of Term Loans.
"Material Adverse Effect" means a material adverse effect on
(a) the business, assets, operations or condition, financial or otherwise of
Level 3 and the Restricted Subsidiaries taken as a whole, (b) the ability of any
Loan Party or of the Interim Borrower to perform any of its
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
24
obligations under any Loan Document or (c) the rights of or benefits available
to the Lenders under any Loan Document.
"Material Indebtedness" means Indebtedness (other than the
Loans and Letters of Credit), or obligations in respect of one or more Hedging
Agreements, of any one or more of Level 3, any Borrower or any other Restricted
Subsidiary in an aggregate principal amount exceeding $25,000,000. For purposes
of determining Material Indebtedness, the "principal amount" of the obligations
of Level 3, any Borrower or any Restricted Subsidiary in respect of any Hedging
Agreement at any time shall be the maximum aggregate amount (giving effect to
any netting agreements) that Level 3, such Borrower or such Restricted
Subsidiary would be required to pay if such Hedging Agreement were terminated at
such time (or is required to pay if such Hedging Agreement has been terminated).
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means a mortgage, deed of trust, assignment of
leases and rents, leasehold mortgage or other security document granting a Lien
on any Mortgaged Property to secure the RC Obligations or the Term Loan
Obligations, as the case may be. Each Mortgage shall be satisfactory in form and
substance to the Collateral Agent.
"Mortgaged Property" means, initially, each parcel of real
property and the improvements thereto owned by a Loan Party and identified on
Schedule 3.18, and includes each other parcel of real property and improvements
thereto with respect to which a Mortgage is granted pursuant to Section 5.12 or
5.13.
"Mortgagee Intercreditor Agreement" means an intercreditor
agreement reasonably satisfactory to the Collateral Agent between the Collateral
Agent and the mortgagee or lessor of Specified Real Estate or other significant
real estate permitted by Sections 6.02 and 6.03 to be mortgaged or sold and
leased back by Level 3 or a Restricted Subsidiary pursuant to which such
mortgagee or lessor recognizes and consents to the first priority Lien of the
Collateral Agent on Telecom Equipment Assets, including fixtures, located at,
incorporated in or attached to such real estate (other than any such assets
integral to the customary operation of any building as such for its intended
purpose) and the Collateral Agent and such mortgagee or lessor agree with
respect to the exercise of remedies by the Collateral Agent with respect to such
Telecom Equipment Assets.
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
25
"Multiemployer Plan" means a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event (a) the cash
proceeds received in respect of such event including (i) any cash received in
respect of any non-cash proceeds, but only as and when received, (ii) in the
case of a casualty, insurance proceeds, and (iii) in the case of a condemnation
or similar event, condemnation awards and similar payments, net of (b) the sum
of (i) all reasonable fees and out-of-pocket expenses paid by Level 3 and the
Restricted Subsidiaries to third parties in connection with such event, (ii) in
the case of a sale or other disposition of an asset (including pursuant to a
casualty or condemnation), the amount of all payments required to be made by
Level 3 and the Restricted Subsidiaries as a result of such event to repay
Indebtedness (other than Loans) secured by such asset or otherwise subject to
mandatory prepayment as a result of such event, and (iii) the amount of all
taxes paid (or reasonably estimated to be payable) by Level 3 and the Restricted
Subsidiaries, and the amount of any reserves established by Level 3 and the
Restricted Subsidiaries to fund contingent liabilities reasonably estimated to
be payable and that are attributable to such event (as determined reasonably and
in good faith by the chief financial officer of Level 3).
"Net Working Capital" means, at any date, (a) the combined
current assets of Level 3 and the Restricted Subsidiaries as of such date
(excluding cash and Permitted Investments) minus (b) the combined current
liabilities of Level 3 and the Restricted Subsidiaries as of such date
(excluding current liabilities in respect of Indebtedness). Net Working Capital
at any date may be a positive or negative number. Net Working Capital increases
when it becomes more positive or less negative and decreases when it becomes
less positive or more negative.
"Non-Cash Pay Preferred Stock" means preferred stock of Level
3 which (i) is not mandatorily redeemable, in whole or part, or required to be
repurchased or reacquired, in whole or in part, by Level 3 or any Restricted
Subsidiary, and which does not require any payment of cash dividends, in each
case, prior to the date that is six months after the Tranche B Maturity Date;
provided, however, that any preferred stock which would constitute Non-Cash Pay
Preferred Stock but for provisions thereof giving holders thereof the right to
require Level 3 to repurchase or redeem such preferred stock upon the occurrence
of a change of control occurring prior to the Tranche B Maturity Date shall
constitute Non-Cash Pay Preferred Stock if the change of
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
26
control provisions applicable to such preferred stock are no more favorable to
the holders of such preferred stock than the provisions applicable to the Loans
contained in this Agreement and such preferred stock specifically provides that
Level 3 will not repurchase or redeem any such preferred stock pursuant to such
provisions prior to the Borrowers' or Level 3's repayment of the Loans and the
termination of all Commitments hereunder, (ii) is not secured by any assets of
Level 3 or any Restricted Subsidiary, (iii) is not Guaranteed by any Restricted
Subsidiary and (iv) is not exchangeable or convertible into Indebtedness of
Level 3 or any Restricted Subsidiary or any preferred stock (other than Non-Cash
Pay Preferred Stock) of Level 3 or any Subsidiary.
"Obligations" means the RC Obligations and the
Term Loan Obligations.
"OECD" means the Organization for Economic
Cooperation and Development.
"Other Taxes" means any and all present or future recording,
stamp, documentary, excise, transfer, sales, property or similar taxes, charges
or levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.
"Perfection Certificate" means a certificate in the form of
Exhibit B or any other form approved by the Administrative Agent.
"Permitted Business Acquisition" means (a) any acquisition by
Level 3 or a Subsidiary Loan Party (other than an Equipment Borrower) of all or
substantially all the assets of, or all the Equity Interests in, a Person or
division or line of business of a Person, if immediately after giving effect
thereto, no Default has occurred and is continuing or would result therefrom,
(b) such acquired Person or business is predominately engaged in one or more
Telecommunications Businesses in the United States of America, (c) each
Subsidiary formed for the purpose of or resulting from such acquisition shall be
a Subsidiary Loan Party and all the Equity Interests of each such Subsidiary
shall be owned directly by Level 3 and/or Subsidiary Loan Parties and shall have
been pledged pursuant to the Shared Collateral Pledge Agreement, (d) the
Collateral and
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
27
Guarantee Requirement shall have been satisfied with respect to each such
Subsidiary and all consents of Governmental Authorities or third parties
necessary to permit each such Subsidiary to enter into each applicable RC
Security Document and pledge the Collateral owned by it pursuant to the RC
Security Documents shall have been obtained, (e) Level 3 and the Restricted
Subsidiaries are in compliance, on a pro forma basis after giving effect to such
acquisition (without giving effect to operating expense reductions), with the
financial covenants contained in Section 6.14, to the extent then applicable, as
if such acquisition had occurred on the first day of the relevant period for
testing compliance, and (f) Level 3 has delivered to the Agent an officer's
certificate to the effect set forth in clauses (a), (b), (c), (d) and (e) above,
together with all relevant financial information for the Person or assets
acquired and reasonably detailed calculations demonstrating satisfaction of the
requirement set forth in clause (e) above.
"Permitted Debt" means unsecured senior or subordinated
Indebtedness of Level 3 that is not (i) Guaranteed by any Restricted Subsidiary
or (ii) convertible into or exchangeable for any Indebtedness (other than
Permitted Debt) of Level 3 or any Restricted Subsidiary or any Equity Interests
of any Restricted Subsidiary.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not
yet due or are being contested in compliance with
Section 5.05;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not
overdue by more than 30 days or are being contested in compliance with
Section 5.05;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case
in the ordinary course of business;
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
28
(e) judgment liens in respect of judgments that do not
constitute an Event of Default under clause (k) of Article VII;
(f) other liens incidental to the conduct of business or the
ownership of property which do not in the aggregate materially detract
from the value of Level 3's and its Restricted Subsidiaries' property
when taken as a whole, or materially impair the use thereof in the
operation of its business; and
(g) any interest or title of a lessor in the property subject
to any lease other than a Capital Lease or a lease entered into as part
of a sale and leaseback transaction subject to Section 6.04;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Holders" means the members of Level 3's board of
directors on the date hereof and their respective estates, spouses, ancestors,
and lineal descendants, the legal representatives of any of the foregoing and
the trustees of any bona fide trusts of which the foregoing are the sole
beneficiaries or the grantors, or any Person of which the foregoing
"beneficially owns" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) at least 662/3% of the total voting power of the voting stock of such
Person.
"Permitted Investments" means:
(a) Government Securities maturing, or subject to tender at
the option of the holder thereof, within two years after the date of
acquisition thereof;
(b) time deposits and certificates of deposit of any
commercial bank organized in the United States having capital and
surplus in excess of $500 million or a commercial bank organized under
the law of any other country that is a member of the OECD having total
assets in excess of $500 million (or its foreign currency equivalent at
the time) with a maturity date not more than one year from the date of
acquisition;
(c) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (a)
above entered into with (x) any bank meeting the qualifications
specified in clause (b) above or (y) any primary government
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
29
securities dealer reporting to the Market Reports
Division of the Federal Reserve Bank of New York;
(d) direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing, or subject to tender at the
option of the holder thereof, within 90 days after the date of
acquisition thereof, provided that, at the time of acquisition, the
long-term debt of such state, political subdivision or public
instrumentality has a rating of A (or higher) from S&P or A-2 (or
higher) from Moody's (or, if at any time neither S&P nor Moody's shall
be rating such obligations, then an equivalent rating from such other
nationally recognized rating service acceptable to the Administrative
Agent);
(e) commercial paper issued by the parent corporation of any
commercial bank organized in the Untied States having capital and
surplus in excess of $500 million or a commercial bank organized under
the laws of any other country that is a member of the OECD having total
assets in excess of $500 million (or its foreign currency equivalent at
the time), and commercial paper issued by others having a rating of A-
2 or higher from S&P or a rating of P-2 or higher from Moody's (or, if
at any time neither S&P nor Moody's shall be rating such obligations,
then equivalent ratings from such other nationally recognized rating
services acceptable to the Administrative Agent) and in each case
maturing within one year after the date of acquisition;
(f) overnight bank deposits and bankers' acceptances at any
commercial bank organized in the United States having capital and
surplus in excess of $500 million or a commercial bank organized under
the laws of any other country that is a member of the OECD having total
assets in excess of $500 million (or its foreign currency equivalent at
the time);
(g) deposits available for withdrawal on demand with a
commercial bank organized in the United States having capital and
surplus in excess of $500 million or a commercial bank organized under
the laws of any other country that is a member of the OECD having total
assets in excess of $500 million) or its foreign currency equivalent at
the time); and
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<PAGE>
30
(h) investments in money market funds substantially all of
whose assets comprise securities of the types described in clauses (a)
through (g).
"Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"PKSI" means PKS Information Services, Inc., a Delaware
corporation, and a Wholly Owned Subsidiary of Level 3.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which Level 3 or any
ERISA Affiliate is (or, if such plan were terminated, would under Section 4069
of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Prepayment Event" means:
(a) any sale, transfer or other disposition (including
pursuant to a sale and leaseback transaction) of any property or asset
(including, without limitation, sales of Capital Stock of Unrestricted
Subsidiaries) of Level 3 or any Restricted Subsidiary, other than
dispositions described in clauses (a) and (b) of Section 6.06, but only
to the extent the Net Proceeds therefrom have not been reinvested by
Level 3 or a Restricted Subsidiary in Telecommunications Assets within
one year (or 540 days in the case of Net Proceeds from sales of Special
Assets) after the date on which such Net Proceeds were received; or
(b) any casualty or other insured damage to, or any taking
under power of eminent domain or by condemnation or similar proceeding
of, any property or asset of Level 3 or any Restricted Subsidiary, but
only to the extent that the Net Proceeds therefrom have not been
applied to (i) repair, restore or replace such property or asset or
(ii) purchase Telecommunications Assets within one year after the date
on which such Net Proceeds were received.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
31
effective from and including the date such change is publicly announced as being
effective.
"Projected Interest Shortfall" has the meaning
assigned to such term in Section 2.22(c).
"RC Borrower" means each of Level 3 Communications, LLC, Level
3 International Services, Inc. and Level 3 International, Inc., each of which is
a Wholly Owned Subsidiary of Level 3.
"RC Guarantee Agreement" means the RC Guarantee Agreement
among Level 3, each Subsidiary Loan Party (other than the Equipment Borrowers
and the RC Borrowers) and the Administrative Agent, substantially in the form of
Exhibit D.
"RC Guarantors" means the parties to the RC Guarantee
Agreement other than the Administrative Agent.
"RC Indemnity, Subrogation and Contribution Agreement" means
the RC Indemnity, Subrogation and Contribution Agreement, substantially in the
form of Exhibit I, among the RC Borrowers and the RC Guarantors.
"RC Obligations" has the meaning assigned to such term in the
Shared Collateral Security Agreement.
"RC Secured Parties" has the meaning assigned to such term in
the Shared Collateral Security Agreement.
"Register" has the meaning assigned to such term
in Section 9.04.
"Related Fund" means with respect to any Lender that is a fund
that invests in bank loans in the ordinary course of business, any other fund
that invests in bank loans in the ordinary course of business and is advised or
managed by the same investment advisor as such Lender or by an Affiliate of such
investment advisor.
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the directors, officers, employees, agents,
trustees, partners, members and advisors of such Person and such Person's
Affiliates.
"Required Lenders" means, at any time (a) Lenders (including
any Additional Lenders that are vendors of telecommunications equipment or
Affiliates thereof (collectively, "Vendor Lenders") having Revolving Exposures,
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
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32
Term Loans, Incremental Loans and unused Commitments representing more than
50.0% of the sum of the total Revolving Exposures, outstanding Term Loans,
outstanding Incremental Loans and unused Commitments at such time, and (b) if
any Additional Lenders are Vendor Lenders and the amount of outstanding Term
Loans, outstanding Incremental Loans and unused commitments of such Vendor
Lenders exceeds $500,000,000 in the aggregate, Lenders other than Vendor Lenders
having Revolving Exposures, outstanding Term Loans, outstanding Incremental
Loans and unused commitments representing more than 50.0% of the sum of the
total Revolving Exposures, outstanding Term Loans, Incremental Loans and unused
commitments held by all Lenders other than Vendor Lenders.
"Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock or other Equity Interests of Level 3, the
Borrowers or any Restricted Subsidiary, or any payment (whether in cash,
securities or other property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancelation or
termination of any such shares of capital stock or other Equity Interests of
Level 3 or any Restricted Subsidiary or any option, warrant or other right to
acquire any such shares of capital stock or other Equity Interests of Level 3 or
any Restricted Subsidiary, or (b) any payment to any Derivatives Counterparty as
a result of any change in the market value of any class of capital stock or
other Equity Interests of Level 3, the Borrowers or any Restricted Subsidiary
that is publicly traded (provided, that (i) payments shall be deemed to have
been made to Derivatives Counterparties only to the extent the cumulative amount
of such payments exceeds the cumulative amount of any payments received by Level
3 and the Restricted Subsidiaries from Derivatives Counterparties as a result of
changes in the market value of such publicly traded capital stock or other
Equity Interests and (ii) it is understood that the intent of the above language
relating to payments to and from Derivatives Counterparties is to treat
transactions entered into with Derivatives Counterparties as Restricted Payments
only if Level 3 intends such transactions to have substantially the same
economic effect as the dividends, distributions and payments referred to in
clause (a) above).
"Restricted Subsidiary" means (i) each Borrower and each other
Subsidiary of Level 3 on the date hereof that is not listed on Schedule 6.13 and
(ii) each Subsidiary of Level 3 organized or acquired after the date hereof (x)
that is engaged to any significant extent in a Telecommunications
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Business in the United States (other than a Colocation Subsidiary designated as
an Unrestricted Subsidiary pursuant to Section 6.13) or owns Capital Stock of
any Person so engaged or (y) that has not been designated an Unrestricted
Subsidiary in accordance with the provisions of Section 6.13.
"Revolving Availability Period" means the period from and
including the later of (x) the Effective Date and (y) the Full Effective Date to
but excluding the earlier of the Revolving Maturity Date and the date of
termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make Revolving Loans and to acquire
participations in Letters of Credit and Swingline Loans hereunder, expressed as
an amount representing the maximum aggregate amount of such Lender's Revolving
Exposure hereunder, as such commitment may be (a) reduced from time to time
pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04. The initial amount
of each Lender's Revolving Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Revolving Commitment, as applicable. The initial aggregate amount of the
Lenders' Revolving Commitments is $650,000,000.
"Revolving Exposure" means, with respect to any Lender at any
time, the sum of the outstanding principal amount of such Lender's Revolving
Loans and its LC Exposure and Swingline Exposure at such time.
"Revolving Lender" means a Lender with a Revolving Commitment
or, if the Revolving Commitments have terminated or expired, a Lender with
Revolving Exposure.
"Revolving Loan" means a Loan made pursuant to
clause (c) of Section 2.01.
"Revolving Maturity Date" means the date that is eight years
after the date hereof.
"Security Agreements" means the Shared Collateral
Security Agreement and the Term Loan Security Agreement.
"Security Documents" means the Shared Collateral
Security Documents, the RC Guarantee Agreements and the Term
Loan Security Documents.
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"Shared Collateral" means any and all
"Collateral", as defined in any applicable Shared Collateral
Security Document.
"Shared Collateral Pledge Agreement" means the Pledge
Agreement, substantially in the form of Exhibit F, among Level 3, the Subsidiary
Loan Parties (other than the Equipment Borrowers) and the Collateral Agent for
the benefit of the Shared Collateral Secured Parties.
"Shared Collateral Secured Obligations" shall mean, at any
date, (a) the RC Obligations, (b) an aggregate principal amount of Term Loan
Obligations equal to (i) $750,000,000 minus (ii) the greatest amount of
Revolving Exposure outstanding at any time on or prior to such date (regardless
of whether subsequently paid),(c) all obligations of BTE and the Term Loan
Guarantors in respect of interest, fees, indemnities, cost reimbursements and
similar amounts directly attributable to the principal amount of Term Loan
Obligations referred to in clause (b) above and (d) all obligations of the Loan
Parties under the Shared Collateral Security Documents, including obligations in
respect of, and all rights of the Collateral Agent and the Administrative Agent
to receive payment or reimbursement of costs, expenses or other amounts incurred
or expended by the Collateral Agent or the Administrative Agent (in its capacity
as such) under any Shared Collateral Security Document. The principal amount of
Term Loan Obligations referred to in clause (b) above shall, on any date,
consist of pro rata amounts of Tranche A Term Loans and Tranche B Term Loans
made to BTE determined on the basis of the relative aggregate outstanding
principal amounts thereof on such date. Notwithstanding the foregoing, after the
occurrence of an Event of Default and the exercise of remedies in respect of the
Shared Collateral in accordance with the Shared Collateral Security Documents,
the principal amount of Term Loan Obligations included in the Shared Collateral
Secured Obligations pursuant to the foregoing shall be reduced by the principal
amount of Term Loans indefeasibly paid in full with the proceeds of Shared
Collateral and, upon payment of the principal amount of Term Loans with the
proceeds of Shared Collateral, no principal amounts of Term Loans not
theretofore included in Shared Collateral Secured Obligations shall as a result
thereof be included in the Shared Collateral Secured Obligations.
"Shared Collateral Secured Parties" has the meaning assigned
to such term in the Shared Collateral Security Agreement.
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35
"Shared Collateral Security Agreement" means the Security
Agreement, substantially in the form of Exhibit G, among Level 3, the Subsidiary
Loan Parties (other than the Equipment Borrowers) and the Collateral Agent for
the benefit of the Shared Collateral Secured Parties.
"Shared Collateral Security Documents" means the Shared
Collateral Security Agreement, the Shared Collateral Pledge Agreement, and any
Mortgages, other security agreements or other instruments or documents executed
and delivered pursuant to Section 5.12 or 5.13 to secure any of
the Shared Collateral Secured Obligations.
"Significant Subsidiary" means a Restricted Subsidiary, or any
group of Restricted Subsidiaries, collectively, that would constitute a
"Significant Subsidiary" of Level 3 within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Securities and Exchange Commission as in
effect on the date hereof.
"Special Assets" means (a) the Capital Stock or assets of RCN
Corporation, Commonwealth Telephone Enterprises, Inc., KCP, Inc. and California
Private Transportation Company, L.P. (and any intermediate holding companies or
other entities formed solely for the purpose of owning, and having no operations
or assets other than, such Capital Stock or assets) owned, directly or
indirectly, by Level 3 or any Restricted Subsidiary on the date hereof, and (b)
any property, other than cash, cash equivalents and Telecommunications Assets,
received as consideration for the disposition after the date hereof of Special
Assets.
"Special Asset Gains" means the amount of after-tax gains
realized by Level 3 and the Restricted Subsidiaries from (i) the sale or
disposition of Special Assets or (ii) the issuance of equity-linked securities
relating solely to Special Assets in transactions equivalent in all material
respects to sales of such Special Assets (including the absence of significant
ongoing liabilities, other than regularly scheduled interest or dividend payment
obligations, not payable in full by transfer of the Special Assets subject to
such transactions). For purposes of the foregoing, a qualifying issuance of
equity-linked securities referred to in clause (ii) above will be treated as a
sale (including for purposes of calculating taxes) of the underlying Special
Assets on the date of issuance of such securities for consideration equal to the
consideration paid for such securities by the purchasers thereof.
"Specified Real Estate" means the real estate
located at 85 Tenth Avenue, New York, New York, and at
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36
1025 Eldorado Boulevard, Broomfield, Colorado (the "Eldorado Property") and the
real estate in Broomfield, Colorado located adjacent to the Eldorado Property
that Level 3 intends to use as an expansion of the headquarters facilities of
the Borrowers.
"subsidiary" means, with respect to any Person (the "parent")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held.
"Subsidiary" means any direct or indirect
subsidiary of Level 3.
"Subsidiary Loan Party" means any Wholly Owned
Subsidiary that is not a Foreign Subsidiary or an
Unrestricted Subsidiary.
"Swingline Exposure" means, at any time, the aggregate
principal amount of all Swingline Loans outstanding at such time. The Swingline
Exposure of any Lender at any time shall be its Applicable Percentage of the
total Swingline Exposure at such time.
"Swingline Lender" means The Chase Manhattan Bank, in its
capacity as lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to
Section 2.04.
"Syndication Agent" means each of Chase Securities
Inc., Goldman Sachs Credit Partners L.P., J.P. Morgan
Securities Inc. and Salomon Smith Barney Inc., each in its
capacity as syndication agent hereunder.
"Synergy Site" means real estate (other than Specified Real
Estate or the London Properties) now or hereafter owned by Level 3 or a
Restricted Subsidiary and located in a city identified in the letter from Level
3 dated the date hereof delivered to the Administrative Agent or any update of
such letter (such letter shall be promptly updated by Level 3 to include any
real estate designated as
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37
a Synergy Site by Level 3 in the future and redelivered to the Administrative
Agent), including any Telecom Equipment Assets located at, incorporated in, or
attached to such real estate (including fixtures), with a fair market value in
excess of $500,000.
"S&P" means Standard & Poor's Ratings Services, a division of
the McGraw Hill Companies.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Telecom Building Fixtures" means telecommuni cations
equipment consisting of fixtures located in a building which are integral to the
customary operation of the building as such for its intended use.
"Telecom Equipment Assets" means telecommunications equipment,
including fixtures, that is utilized in and integral to the communications
networks owned or operated by Level 3 and the Restricted Subsidiaries in
connection with their conduct of a Telecommunications Business but shall not
include Telecom Building Fixtures.
"Telecommunications Assets" means (a) any property (other than
cash, cash equivalents and securities) to be owned by Level 3 or any Restricted
Subsidiary and used in a Telecommunications Business and (b) Capital Stock of a
Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by Level 3 or another Restricted Subsidiary from any person
other than an Affiliate of Level 3; provided, however, that, in the case of
clause (b), such Person is primarily engaged in the Telecommunications Business.
"Telecommunications Business" means the business of (i)
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii)
constructing, creating, developing or marketing communications networks, related
network transmission equipment, software and other devices for use in a
communications business, (iii) computer outsourcing, data center management,
computer systems integration, reengineering of computer software for any purpose
(including, without limitation, for the purposes of porting computer software
from one operating environment or computer platform to another or to address
issues commonly referred to as "Year 2000 issues") or (iv) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in (i), (ii)
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38
or (iii) above; provided, that the determination of what constitutes a
Telecommunications Business shall be made in good faith by the board of
directors of Level 3.
"Term Loan Guarantee Agreement" means the Term Loan Guarantee
Agreement among Level 3, each Subsidiary Loan Party (other than the Equipment
Borrowers) and the Administrative Agent, substantially in the form of
Exhibit E.
"Term Loan Guarantors" means the parties to the
Term Loan Guarantee Agreement other than the Administrative
Agent.
"Term Loan Indemnity, Subrogation and Contribution Agreement"
means the Term Loan Indemnity, Subrogation and Contribution Agreement,
substantially in the form of Exhibit J, among BTE and the Term Loan Guarantors.
"Term Loan Obligations" has the meaning assigned to such term
in the Term Loan Security Agreement.
"Term Loan Secured Parties" has the meaning assigned to such
term in the Term Loan Security Agreement.
"Term Loan Security Agreement" means the Security Agreement,
substantially in the form of Exhibit H, among BTE and the Administrative Agent
for the benefit of the Term Loan Secured Parties.
"Term Loan Security Documents" means the Term Loan Security
Agreement, the Term Loan Guarantee Agreement, the Term Loan Indemnity,
Subrogation and Contribution Agreement and any Mortgage or other instrument or
document executed and delivered pursuant to Section 5.12 or 5.13 to secure any
of the Term Loan Obligations (but not any of the RC Obligations).
"Term Loans" means Tranche A Term Loans and
Tranche B Term Loans.
"Total Gross Assets" means, with respect to an Equipment
Borrower at any date, the gross amount of assets (without giving effect to
depreciation, obsolescence or similar reserves) that would be reflected on a
combined balance sheet of such Equipment Borrower prepared as of such date in
accordance with GAAP.
"Tranche A Availability Period" means the period
from and including the Effective Date to but excluding the
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39
earlier of the Tranche A Commitment Termination Date and the
date of termination of the Tranche A Commitments.
"Tranche A Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make a Tranche A Term Loan hereunder from
time to time during the Tranche A Availability Period, expressed as an amount
representing the maximum principal amount of the Tranche A Term Loan to be made
by such Lender hereunder, as such commitment may be (a) reduced from time to
time pursuant to Section 2.08 or Section 2.10(a) and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.04. The initial amount of each Lender's Tranche A Commitment is set
forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which
such Lender shall have assumed its Tranche A Commitment, as applicable. The
initial aggregate amount of the Lenders' Tranche A Commitments is $450,000,000.
"Tranche A Commitment Termination Date" means the date that is
two years after the Effective Date.
"Tranche A Interim Loan" has the meaning assigned
to such term in Section 2.22.
"Tranche A Interim Loan Maturity Date" means the date that is
two months after the date of the most recent Borrowing of Tranche A Interim
Loans made at a time when no other Tranche A Interim Loans are outstanding, as
such date may be extended by the Interim Borrower pursuant to the provisions of
Section 2.22(e); provided that the Tranche A Interim Loan Maturity Date shall
not be later than the date that is 30 months after the Effective Date. In
accordance with the foregoing, if at any time all outstanding Tranche A Interim
Loans have been repaid and additional Borrowings of Tranche A Interim Loans are
thereafter made, the Tranche A Loan Maturity Date with respect to such
additional Loans will be the date that is two months after the date of the
initial additional Borrowing.
"Tranche A Lender" means a Lender with a Tranche A Commitment
or an outstanding Tranche A Term Loan.
"Tranche A Maturity Date" means the date that is eight years
from the date hereof.
"Tranche A Term Loan" means a Loan made pursuant to clause (a)
of Section 2.01.
"Tranche B Commitment" means, with respect to each
Lender, the commitment, if any, of such Lender to make a
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Tranche B Term Loan hereunder on the Effective Date, expressed as an amount
representing the maximum principal amount of the Tranche B Term Loan to be made
by such Lender hereunder, as such commitment may be (a) reduced from time to
time pursuant to Section 2.08 and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 9.04. The
initial amount of each Lender's Tranche B Commitment is set forth on Schedule
2.01, or in the Assignment and Acceptance pursuant to which such Lender shall
have assumed its Tranche A Commitment, as applicable. The initial aggregate
amount of the Lenders' Tranche B Commitments is $275,000,000.
"Tranche B Interim Loan" has the meaning assigned
to such term in Section 2.22.
"Tranche B Interim Loan Maturity Date" means the date that is
two months after the Effective Date, as such date may be extended by the Interim
Borrower pursuant to the provisions of Section 2.22(e); provided that the
Tranche B Interim Loan Maturity Date shall not be later than the first
anniversary of the Effective Date.
"Tranche B Lender" means a Lender with a Tranche B Commitment
or an outstanding Tranche B Term Loan.
"Tranche B Maturity Date" means January 15, 2008.
"Tranche B Term Loan" means a Loan made pursuant to clause (b)
of Section 2.01.
"Transactions" means the execution, delivery and performance
by each Loan Party of the Loan Documents to which it is to be a party, the
borrowing of Loans and the use of the proceeds thereof.
"Unrestricted Subsidiary" means any Subsidiary of Level 3 that
is not engaged in the United States in, and does not own Capital Stock in any
Person (other than RCN Corporation, Commonwealth Telephone Enterprises, Inc. or
any Colocation Subsidiary designated as an Unrestricted Subsidiary) engaged in
the United States in any Telecommunications Business and (i) is listed on
Schedule 6.13 or (ii) has been designated as an Unrestricted Subsidiary by Level
3 pursuant to and in compliance with Section 6.13; provided, however, that (i) a
Colocation Subsidiary may be designated as an Unrestricted Subsidiary and (ii)
none of the following shall be an Unrestricted Subsidiary: any Borrower, PKS
Information Services, Inc. ("PKS"), Level 3 Communications LLC, Equipment Co.
II, XCOM Technologies, Inc., GeoNet Communications, Inc., Level 3
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41
International Services, Inc., Level 3 Communications Canada Co., Level 3
International, Inc., the subsidiaries of all the foregoing (except PKS) and any
subsequently acquired or organized subsidiary of Level 3 (other than a
Colocation Subsidiary) engaged in any Telecommunications Businesses in the
United States. No Unrestricted Subsidiary may own any Capital Stock of a
Restricted Subsidiary.
"Whitney" shall have the meaning assigned thereto
in Section 6.05(g).
"Wholly Owned subsidiary" of any Person shall mean a
subsidiary of such Person of which securities or other ownership interests
(except for directors' qualifying shares and other de minimis amounts of
outstanding securities or ownership interests) representing 100% of the ordinary
voting power and 100% of equity or 100% of the general partnership interests
are, at the time any determination is being made, owned, controlled or held by
such Person or one or more Wholly Owned subsidiaries of such Person or by such
Person and one or more Wholly Owned subsidiaries of such Person.
"Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class
and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be
classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type
(e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar
Revolving Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
mascu line, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to
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any restrictions on such amendments, supplements or modifications set forth
herein), (b) any reference herein to any Person shall be construed to include
such Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP. (a) Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that (i) if Level 3 notifies the Administrative Agent that Level 3 requests an
amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on the
operation of such provision (or if the Administrative Agent notifies Level 3
that the Required Lenders request an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith and (ii) no effect
shall be given to any changes in GAAP from the accounting principles employed by
Level 3 in the financial statements referred to in Section 3.04(a) regarding
accounting for dark fiber sales.
(b) Notwithstanding any other provision hereof, the assets,
liabilities, revenues, costs, expenses, charges and gains directly attributable
to any businesses described in clause (iii) of the definition of
Telecommunications Business being conducted directly by PKSI on the date hereof
(the "PKSI Non-Telecom Business") shall be excluded in the preparation of
combined financial statements for Level 3 and the Restricted Subsidiaries to the
same extent as if the PKSI Non-Telecom Business were owned and conducted by a
directly owned Unrestricted Subsidiary of PKSI; provided, however, that no
Long-Term Indebtedness of PKSI shall be attributed to the PKSI Non-Telecom
Business or excluded from such combined financial statements. Any reference
herein to GAAP shall be deemed to refer to GAAP as modified by the
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43
foregoing procedures. Accordingly, compliance or noncompliance with the
financial covenants in Article VI applicable to Level 3 and the Restricted
Subsidiaries will be based on combined financial statements prepared to exclude
the PKSI Non-Telecom Business in accordance with the foregoing. For purposes of
this Agreement, any investment in or loan or advance to the PKSI Non-Telecom
Business funded other than out of the cash flows attributable to such business
will be treated as and deemed to be an investment in an Unrestricted Subsidiary.
Notwithstanding the foregoing, PKSI will be and so long as it remains a
Subsidiary shall at all times remain a Restricted Subsidiary and a Subsidiary
Loan Party hereunder, and it (and all its assets and operations) will be subject
to the covenants and other terms and conditions of the Loan Documents applicable
to Restricted Subsidiaries and Subsidiary Loan Parties.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions
set forth herein (including, without limitation, those set forth in Sections
4.01, 4.02 and 4.03 hereof), each Lender agrees (a) to make Tranche A Term Loans
to BTE and the Interim Borrower from time to time during the Tranche A
Availability Period in an aggregate principal amount not exceeding its Tranche A
Commitment, (b) to make Tranche B Term Loans to BTE and the Interim Borrower on
the Effective Date in a principal amount not exceeding its Tranche B Commitment
and (c) to make Revolving Loans to the RC Borrowers from time to time during the
Revolving Availability Period in an aggregate principal amount that will not
result in such Lender's Revolving Exposure exceeding such Lender's Revolving
Commitment; provided, that, on the Effective Date, the Borrowers must borrow a
minimum aggregate principal amount of (i) $200,000,000 of Tranche A Term Loans
and (ii) $275,000,000 of Tranche B Term Loans. The obligations of the RC
Borrowers under the Revolving Facility will be on a joint and several basis.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the RC Borrowers may borrow, prepay and reborrow Revolving Loans. Except
as provided in Section 2.22 with respect to Corresponding Loans, amounts repaid
in respect of Term Loans may not be reborrowed.
SECTION 2.02. Loans and Borrowings. (a) Each
Loan (other than a Swingline Loan) shall be made as part of
a Borrowing consisting of Loans of the same Class and Type
made by the Lenders ratably in accordance with their
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respective Commitments of the applicable Class. The failure of any Lender to
make any Loan required to be made by it shall not relieve any other Lender of
its obligations hereunder; provided that the Commitments of the Lenders are
several and no Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Subject to Section 2.14, each Revolving Borrowing and Term
Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the
Borrowers or the Interim Borrower may request in accordance herewith. Each
Swingline Loan shall be an ABR Loan. Each Lender at its option may make any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided that any exercise of such option shall not
affect the obligation of the Borrowers or the Interim Borrower to repay such
Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $10,000,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than $10,000,000;
provided that an ABR Revolving Borrowing may be in an aggregate amount that is
equal to the entire unused balance of the total Revolving Commitments or that is
required to finance the reimbursement of an LC Disbursement as contemplated by
Section 2.05(e). Each Swingline Loan shall be in an amount that is an integral
multiple of $1,000,000. Borrowings of more than one Type and Class may be
outstanding at the same time; provided that there shall not at any time be more
than a total of 20 Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrowers shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Revolving Maturity Date, Tranche A Maturity Date
or Tranche B Maturity Date, as applicable.
SECTION 2.03. Requests for Borrowings. To request a Revolving
Borrowing or Term Borrowing, a Borrower (or Level 3 on behalf of a Borrower)
shall notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 1:00 p.m., New York City time,
three Business Days before the date of the proposed Borrowing or (b) in the case
of an ABR Borrowing, not later than 1:00 p.m., New York City time, one
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Business Day before the date of the proposed Borrowing; provided that any such
notice of an ABR Revolving Borrowing to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.05(e) may be given not later than
10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and signed by
the applicable Borrower (or by Level 3 on its behalf). Each such telephonic and
written Borrowing Request shall specify the following information in compliance
with Section 2.02:
(i) whether the requested Borrowing is to be a
Revolving Borrowing, Tranche A Term Borrowing or
Tranche B Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business
Day;
(iv) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(vi) the relevant Borrower and the location and number of the
Borrower's account to which funds are to be disbursed, which shall
comply with the requirements of Section 2.06.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Revolving Borrowing, then the applicable
Borrower shall be deemed to have selected an Interest Period of one month's
duration. Promptly following receipt of a Borrowing Request in accordance with
this Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION 2.04. Swingline Loans. (a) Subject to
the terms and conditions set forth herein, the Swingline
Lender agrees to make Swingline Loans to the RC Borrowers
from time to time during the Revolving Availability Period,
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46
in an aggregate principal amount at any time outstanding that will not result in
(i) the aggregate principal amount of outstanding Swingline Loans exceeding
$50,000,000 or (ii) the sum of the total Revolving Exposures exceeding the total
Revolving Commitments; provided that the Swingline Lender shall not be required
to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, an RC Borrower (or Level 3 on
its behalf) shall notify the Administrative Agent of such request by telephone
(confirmed by telecopy), not later than 12:00 noon, New York City time, on the
day of a proposed Swingline Loan. Each such notice shall be irrevocable and
shall specify the requested date (which shall be a Business Day) and amount of
the requested Swingline Loan. The Administrative Agent will promptly advise the
Swingline Lender of any such notice received from an RC Borrower. The Swingline
Lender shall make each Swingline Loan available to the requesting Borrower by
means of a credit to the general deposit account of such Borrower with the
Swingline Lender (or, in the case of a Swingline Loan made to finance the
reimbursement of an LC Disbursement as provided in Section 2.06(e), by
remittance to the Issuing Bank) by 3:00 p.m., New York City time, on the
requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Revolving Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans outstanding. Such notice
shall specify the aggregate amount of Swingline Loans in which Revolving Lenders
will participate. Promptly upon receipt of such notice, the Administrative Agent
will give notice thereof to each Revolving Lender, specifying in such notice
such Lender's Applicable Percentage of such Swingline Loan or Loans. Each
Revolving Lender hereby absolutely and unconditionally agrees, upon receipt of
notice as provided above, to pay to the Administrative Agent, for the account of
the Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan
or Loans. Each Revolving Lender acknowledges and agrees that its obligation to
acquire participations in Swingline Loans pursuant to this paragraph is absolute
and unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement,
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47
withholding or reduction whatsoever. Each Revolving Lender shall comply with its
obligation under this paragraph by wire transfer of immediately available funds,
in the same manner as provided in Section 2.06 with respect to Loans made by
such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment
obligations of the Revolving Lenders), and the Administrative Agent shall
promptly pay to the Swingline Lender the amounts so received by it from the
Revolving Lenders. The Administrative Agent shall notify the relevant Borrower
of any participations in any Swingline Loan acquired pursuant to this paragraph,
and thereafter payments in respect of such Swingline Loan shall be made to the
Administrative Agent and not to the Swingline Lender. Any amounts received by
the Swingline Lender from an RC Borrower (or other party on behalf of such
Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender
of the proceeds of a sale of participations therein shall be promptly remitted
to the Administrative Agent; any such amounts received by the Administrative
Agent shall be promptly remitted by the Administrative Agent to the Revolving
Lenders that shall have made their payments pursuant to this paragraph and to
the Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not relieve
any RC Borrower of any default in the payment thereof.
SECTION 2.05. Letters of Credit. (a) General. Subject to the
terms and conditions set forth herein, each of the RC Borrowers may request the
issuance of Letters of Credit for its own account, in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, at any time and
from time to time during the Revolving Availability Period. In the event of any
inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or other agreement
submitted by an RC Borrower to, or entered into by an RC Borrower with, the
Issuing Bank relating to any Letter of Credit, the terms and conditions of this
Agreement shall control. Such terms and conditions of any such application or
other agreement shall not, in any event, contain any operating covenants or
restrictions, provide for any collateral not provided under the Loan Documents
or provide for the imposition of any fees (other than customary charges).
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), an RC Borrower (or
Level 3 on its behalf) shall hand deliver or telecopy (or transmit
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48
by electronic communication, if arrangements for doing so have been approved by
the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably
in advance of the requested date of issuance, amendment, renewal or extension) a
notice requesting the issuance of a Letter of Credit, or identifying the Letter
of Credit to be amended, renewed or extended, and specifying the date of
issuance, amendment, renewal or extension (which shall be a Business Day), the
date on which such Letter of Credit is to expire (which shall comply with
paragraph (c) of this Section), the amount of such Letter of Credit, the name
and address of the beneficiary thereof and such other information as shall be
necessary to prepare, amend, renew or extend such Letter of Credit. If requested
by the Issuing Bank, the applicable Borrower also shall submit a letter of
credit application on the Issuing Bank's standard form in connection with any
request for a Letter of Credit. A Letter of Credit shall be issued, amended,
renewed or extended only if (and upon issuance, amendment, renewal or extension
of each Letter of Credit the RC Borrowers shall be deemed to represent and
warrant that), after giving effect to such issuance, amendment, renewal or
extension (i) the LC Exposure shall not exceed $50,000,000 and (ii) the total
Revolving Exposures shall not exceed the total Revolving Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or
prior to the close of business on the earlier of (i) the date one year after the
date of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Revolving Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or
an amendment to a Letter of Credit increasing the amount thereof) and without
any further action on the part of the Issuing Bank or the Lenders, the Issuing
Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby
acquires from the Issuing Bank, a participation in such Letter of Credit equal
to such Lender's Applicable Percentage of the aggregate amount available to be
drawn under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to
pay to the Administrative Agent, for the account of the Issuing Bank, such
Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank
and not reimbursed by the RC Borrowers on the date due as provided in paragraph
(e) of this Section, or of any reimbursement payment required to be refunded to
the Borrowers for any reason. Each Lender acknowledges and agrees that its
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49
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the RC Borrowers shall reimburse
such LC Disbursement by paying to the Administrative Agent an amount equal to
such LC Disbursement not later than 12:00 noon, New York City time, on the date
that such LC Disbursement is made, if the relevant Borrower shall have received
notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such
date, or, if such notice has not been received by the relevant Borrower prior to
such time on such date, then not later than 12:00 noon, New York City time, on
(i) the Business Day that such Borrower receives such notice, if such notice is
received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii)
the Business Day immediately following the day that such Borrower receives such
notice, if such notice is not received prior to such time on the day of receipt;
provided that, if such LC Disbursement is not less than $10,000,000, the
Borrower may, subject to the conditions to borrowing set forth herein, request
in accordance with Section 2.03 or 2.04 that such payment be financed with an
ABR Revolving Borrowing or Swingline Loan in an equivalent amount and, to the
extent so financed, such Borrower's obligation to make such payment shall be
discharged and replaced by the resulting ABR Revolving Borrowing or Swingline
Loan. If such Borrower fails to make such payment when due, the Administrative
Agent shall notify each Revolving Lender of the applicable LC Disbursement, the
amount of the unreimbursed LC Disbursement and such Lender's Applicable
Percentage thereof. Promptly following receipt of such notice, each Revolving
Lender shall pay to the Administrative Agent its Applicable Percentage of the
unreimbursed LC Disbursement, in the same manner as provided in Section 2.06
with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis
mutandis, to the payment obligations of the Revolving Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Revolving Lenders. Promptly following receipt by the
Administrative Agent of any payment from a Borrower pursuant to this paragraph,
the Administrative Agent shall distribute such payment to the Issuing Bank or,
to the extent that Revolving Lenders have made payments pursuant to
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50
this paragraph to reimburse the Issuing Bank, then to such Lenders and the
Issuing Bank as their interests may appear. Any payment made by a Revolving
Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan
as contemplated above) shall not constitute a Loan and shall not relieve the RC
Borrowers of their obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The RC Borrowers' obligation to
reimburse LC Disbursements as provided in paragraph (e) of this Section shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the RC Borrowers' obligations hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of
their Related Parties, shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank; provided that the foregoing shall not be construed to excuse the
Issuing Bank from liability to the RC Borrowers to the extent of any direct
damages (as opposed to consequential damages, claims in respect of which are
hereby waived by the RC Borrowers to the extent permitted by applicable law)
suffered by the RC Borrowers that are caused by the Issuing Bank's failure to
exercise care when determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof. The parties hereto
expressly agree that, in the absence of gross negligence or
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51
wilful misconduct on the part of the Issuing Bank (as finally determined by a
court of competent jurisdiction), the Issuing Bank shall be deemed to have
exercised care in each such determination. In furtherance of the foregoing and
without limiting the generality thereof, the parties agree that, with respect to
documents presented which appear on their face to be in substantial compliance
with the terms of a Letter of Credit, the Issuing Bank may, in its sole
discretion, either accept and make payment upon such documents without
responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the relevant Borrower by telephone
(confirmed by telecopy) of such demand for payment and whether the Issuing Bank
has made or will make an LC Disbursement thereunder; provided that any failure
to give or delay in giving such notice shall not relieve such Borrower of its
obligation to reimburse the Issuing Bank and the Revolving Lenders with respect
to any such LC Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the RC Borrowers shall reimburse such LC Disbursement
in full on the date such LC Disbursement is made, the unpaid amount thereof
shall bear interest, for each day from and including the date such LC
Disbursement is made to but excluding the date that the RC Borrowers reimburse
such LC Disbursement, at the rate per annum then applicable to ABR Revolving
Loans; provided that, if the RC Borrowers fail to reimburse such LC Disbursement
when due pursuant to paragraph (e) of this Section, then Section 2.14(c) shall
apply. Interest accrued pursuant to this paragraph shall be for the account of
the Issuing Bank, except that interest accrued on and after the date of payment
by any Revolving Lender pursuant to paragraph (e) of this Section to reimburse
the Issuing Bank shall be for the account of such Lender to the extent of such
payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be
replaced at any time by written agreement among Level 3, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
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52
Issuing Bank. At the time any such replacement shall become effective, the RC
Borrowers shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.14(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall
occur and be continuing, on the Business Day that Level 3 receives notice from
the Administrative Agent upon the instructions of the Required Lenders (or, if
the maturity of the Loans has been accelerated, Revolving Lenders with LC
Exposure representing greater than 50% of the total LC Exposure) demanding the
deposit of cash collateral pursuant to this paragraph, the RC Borrowers shall
deposit in an account with the Administrative Agent, in the name of the
Administrative Agent and for the benefit of the Lenders, an amount in cash equal
to the LC Exposure as of such date plus any accrued and unpaid interest thereon;
provided that the obligation to deposit such cash collateral shall become
effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to Level 3 or any RC Borrower described in clause
(h) or (i) of Article VII. Each such deposit shall be held by the Administrative
Agent as collateral for the payment and performance of the obligations of the RC
Borrowers under this Agreement. The Administrative Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over such
account. Other than any interest earned on the investment of such deposits in
readily marketable Permitted Investments maturing in not more than 60 days,
which Permitted Investments shall be made at the direction of Level 3 and at the
RC Borrowers' risk and expense, such deposits shall not bear interest. Interest
or profits, if any, on such investments shall accumulate in such account. Moneys
in such account shall be applied by the Administrative Agent to reimburse the
Issuing Bank for LC
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Disbursements for which it has not been reimbursed and, to the extent not so
applied, shall be held for the satisfaction of the reimbursement obligations of
the RC Borrowers for the LC Exposure at such time or, if the maturity of the
Loans has been accelerated (but subject to the consent of Revolving Lenders with
LC Exposure representing greater than 50% of the total LC Exposure), be applied
to satisfy other obligations of the Borrowers (including BTE) under this
Agreement. If an RC Borrower is required to provide an amount of cash collateral
hereunder as a result of the occurrence of an Event of Default, such amount (to
the extent not applied as aforesaid) shall be returned to the RC Borrower within
three Business Days after all Events of Default have been cured or waived.
SECTION 2.06. Funding of Borrowings. (a) Each
----------------------
Lender shall make each Loan to be made by it hereunder on
the proposed date thereof by wire transfer of immediately
available funds by 12:00 noon, New York City time, to the
account of the Administrative Agent most recently designated
by it for such purpose by notice to the Lenders; provided
--------
that Swingline Loans shall be made as provided in
Section 2.04. The Administrative Agent will make such Loans
available to the appropriate Borrower by promptly (but in no
event later than 2:00 p.m., New York City time) crediting
the amounts so received, in like funds, to an account of
such Borrower maintained with the Administrative Agent in
New York City and designated in the applicable Borrowing
Request; provided that ABR Revolving Loans made to finance
--------
the reimbursement of an LC Disbursement as provided in
Section 2.05(e) shall be remitted by the Administrative
Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the appropriate
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
then the applicable Lender and the relevant Borrower severally agree to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to such Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate
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54
determined by the Administrative Agent in accordance with banking industry rules
on interbank compensation or (ii) in the case of such Borrower, the interest
rate applicable to ABR Loans. If such Lender pays such amount to the
Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing
and Term Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an
initial Interest Period as specified in such Borrowing Request. Thereafter, a
Borrower may elect to convert such Borrowing to a different Type or to continue
such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest
Periods therefor, all as provided in this Section. The Borrowers may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing. This Section shall not apply
to Swingline Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the
applicable Borrower (or Level 3 on its behalf) shall notify the Administrative
Agent of such election by telephone by the time that a Borrowing Request would
be required under Section 2.03 if the Borrower were requesting a Revolving
Borrowing of the Type resulting from such election to be made on the effective
date of such election. Each such telephonic Interest Election Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Interest Election Request in a form approved
by the Administrative Agent and signed by the applicable Borrower (or Level 3 on
its behalf).
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be specified
pursuant to clauses (iii) and (iv) below shall be specified for each
resulting Borrowing);
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(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the requesting Borrower shall be deemed to
have selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
(e) If a Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrowers, then, so long as an
Event of Default is continuing (i) no outstanding Borrowing may be converted to
or continued as a Eurodollar Borrowing (except for a Eurodollar Borrowing with
an Interest Period of one month) and (ii) unless repaid, each Eurodollar
Borrowing shall be either (x) converted to an ABR Borrowing or (y) continued as
a Eurodollar Borrowing with an Interest Period of one month at the end of the
Interest Period applicable thereto.
SECTION 2.08. Termination and Reduction of Commitments. (a)
Unless previously terminated, (i) the Tranche A Commitments will terminate at
5:00 p.m., New York City time, on the Tranche A Commitment Termination Date,
(ii) the Tranche B Commitments shall terminate at 5:00 p.m., New York City time,
on the Effective Date and (iii) the Revolving Commitments shall terminate on the
Revolving Maturity Date.
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(b) Level 3 may at any time terminate, or from time to time
reduce, the Commitments of any Class; provided that (i) each reduction of the
Commitments of any Class shall be in an amount that is an integral multiple of
$1,000,000 and not less than $10,000,000, (ii) the Revolving Commitments may not
be terminated or reduced unless all Term Loans have been paid in full and all
commitments to make Term Loans have expired or been terminated and (iii) Level 3
shall not terminate or reduce the Revolving Commitments if, after giving effect
to any concurrent prepayment of the Revolving Loans in accordance with Section
2.11, the sum of the Revolving Exposures would exceed the total Revolving
Commitments.
(c) Level 3 shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by Level
3 pursuant to this Section shall be irrevocable; provided that a notice of
termination of the Revolving Commitments delivered by Level 3 may state that
such notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by Level 3 (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments of
any Class shall be permanent. Each reduction of the Commitments of any Class
shall be made ratably among the Lenders in accordance with their respective
Commitments of such Class.
SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The RC
Borrowers hereby jointly and severally unconditionally promise to pay (i) to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Revolving Loan of such Lender on the Revolving Maturity Date,
(ii) to the Administrative Agent for the account of each Lender the then unpaid
principal amount of each Term Loan of such Lender as provided in Section 2.10
and (iii) to the Swingline Lender the then unpaid principal amount of each
Swingline Loan on the earlier of the Revolving Maturity Date and the first date
after such Swingline Loan is made that is the 15th or last day of a calendar
month and is at least five Business Days after such Swingline Loan is made;
provided that on each date that a Revolving Borrowing is made, the Borrower
shall repay all Swingline Loans that were outstanding on the date such Borrowing
was requested.
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57
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of each Borrower and
the Interim Borrower to such Lender resulting from each Loan made by such
Lender, including the amounts of principal and interest payable and paid to such
Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrowers or the Interim Borrower to each Lender hereunder and (iii) the amount
of any sum received by the Administrative Agent hereunder for the account of the
Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of any Borrower
or the Interim Borrower to repay the Loans in accordance with the terms of this
Agreement.
(e) Any Lender may request that Loans of any Class made by it
be evidenced by a promissory note. In such event, the relevant Borrower shall
prepare, execute and deliver to such Lender a promissory note payable to the
order of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) and in a form approved by the Administrative Agent.
Thereafter, the Loans evidenced by such promissory note and interest thereon
shall at all times (including after assignment pursuant to Section 9.04) be
represented by one or more promissory notes in such form payable to the order of
the payee named therein (or, if such promissory note is a registered note, to
such payee and its registered assigns).
SECTION 2.10. Automatic Revolving Commitment Reductions;
Amortization of Term Loans. (a) The aggregate amount of the Lenders' Revolving
Commitments shall automatically and permanently reduce in 14 consecutive
quarterly reductions commencing on March 31, 2004 and a fifteenth and final
reduction on the Revolving Maturity Date, in each case in the amount set forth
opposite such reduction below:
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Reduction Amount
--------- ------
March 31, 2004 $17,250,000
June 30, 2004 $17,250,000
September 30, 2004 $17,250,000
December 31, 2004 $43,000,000
March 31, 2005 $43,000,000
June 30, 2005 $43,000,000
September 30, 2005 $43,000,000
December 31, 2005 $45,500,000
March 31, 2006 $45,500,000
June 30, 2006 $45,500,000
September 30, 2006 $45,500,000
December 31, 2006 $61,062,500
March 31, 2007 $61,062,500
June 30, 2007 $61,062,500
Revolving Maturity Date $61,062,500
(b) Any reduction of the Revolving Commitments shall be
applied to reduce the subsequent scheduled reductions of the Revolving
Commitments to be made pursuant to this Section ratably.
(c) Subject to adjustment pursuant to paragraph (f) of this
Section, BTE shall repay Tranche A Term Borrowings (other than Tranche A Interim
Loans) in 14 consecutive payments commencing on March 31, 2004 and a fifteenth
and final payment in the Tranche A Maturity Date in the aggregate principal
amount set forth opposite such payment below:
Payment Amount
------- ------
March 31, 2004 $9,000,000
June 30, 2004 $9,000,000
September 30, 2004 $ 9,000,000
December 31, 2004 $ 9,000,000
March 31, 2005 $28,125,000
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59
June 30, 2005 $28,125,000
September 30, 2005 $28,125,000
December 31, 2005 $28,125,000
March 31, 2006 $33,750,000
June 30, 2006 $33,750,000
September 30, 2006 $33,750,000
December 31, 2006 $33,750,000
March 31, 2007 $54,000,000
June 30, 2007 $54,000,000
Tranche A Maturity Date $58,500,000
(d) Subject to adjustment pursuant to paragraph (f) of this
Section, BTE shall repay Tranche B Term Borrowings (other than Tranche B Interim
Loans) in 15 consecutive quarterly payments commencing on March 31, 2004 and a
sixteenth and final payment on the Tranche B Maturity Date in the aggregate
principal amount set forth opposite such date:
Payment Amount
------- ------
March 31, 2004 $687,500
June 30, 2004 $687,500
September 30, 2004 $687,500
December 31, 2004 $687,500
March 31, 2005 $687,500
June 30, 2005 $687,500
September 30, 2005 $687,500
December 31, 2005 $687,500
March 31, 2006 $687,500
June 30, 2006 $687,500
September 30, 2006 $687,500
December 31, 2006 $687,500
March 31, 2007 $66,687,500
June 30, 2007 $66,687,500
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September 30, 2007 $66,687,500
January 15, 2008 $66,687,500
(e) To the extent not previously paid, (i) all Tranche A Term
Loans (other than Interim Loans) shall be due and payable on the Tranche A
Maturity Date, (ii) all Tranche B Term Loans shall be due and payable on the
Tranche B Maturity Date, (iii) all Tranche A Interim Loans shall be due and
payable on the Tranche A Interim Loan Maturity Date and (iv) all Tranche B
Interim Loans shall be due and payable on the Tranche B Interim Loan Maturity
Date.
(f) If the initial aggregate amount of the Lenders' Term
Commitments of either Class exceeds the aggregate principal amount of Term Loans
of such Class that are made during the Tranche A Availability Period, with
respect to Tranche A Loans, or on the Effective Date with respect to Tranche B
Loans or if the aggregate amount of Tranche A Interim Loans or Tranche B Interim
Loans exceeds the amount of such Interim Loans that are repaid on or prior to
the Tranche A Interim Loan Maturity Date or the Tranche B Interim Loan Maturity
Date in connection with the making of simultaneous Corresponding Loans, then the
scheduled repayments of Term Borrowings of Tranche A Term Loans or Tranche B
Term Loans (in each case, other than Interim Loans) to be made pursuant to this
Section shall be reduced ratably by an aggregate amount equal to such excess.
Any prepayment of a Term Borrowing of either Class (other than any prepayment of
Interim Loans) shall be applied to reduce the subsequent scheduled repayments of
the Term Borrowings of such Class (other than Interim Loans) to be made pursuant
to this Section ratably.
(g) Prior to any repayment of any Term Borrowings of either
Class hereunder, the relevant Borrowers shall select the Borrowing or Borrowings
of the applicable Class to be repaid and shall notify the Administrative Agent
by telephone (confirmed by telecopy) of such selection not later than 1:00 p.m.,
New York City time, three Business Days before the scheduled date of such
repayment; provided that each repayment of Term Borrowings of either Class shall
be applied to repay any outstanding ABR Term Borrowings of such Class before any
other Borrowings of such Class. Each repayment of a Borrowing shall be applied
ratably to the Loans included in the repaid Borrowing. Repayments of Term
Borrowings shall be accompanied by accrued interest on the amount repaid.
SECTION 2.11. Prepayment of Loans. (a) The
Borrowers shall have the right at any time and from time to
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61
time to prepay any Borrowing in whole or in part, subject to
the requirements of this Section.
(b) In the event and on each occasion that any Net Proceeds
are received by or on behalf of Level 3, any Borrower or any Restricted
Subsidiary in respect of any Prepayment Event, the Equipment Borrowers (or Level
3 on behalf of the Equipment Borrowers) and Level 3 shall, immediately after
such Net Proceeds are received, prepay Term Borrowings (other than Interim
Borrowings) and Incremental Borrowings, if any, in an aggregate amount equal to
such Net Proceeds.
(c) Following the end of each fiscal year of the Borrower,
commencing with the fiscal year ending December 31, 2003, the Borrower shall
prepay Term Borrowings and Incremental Borrowings, if any, in an aggregate
amount equal to 50% of Excess Cash Flow for such fiscal year; provided, however,
that no prepayment pursuant to this paragraph (c) shall be required on and after
the first date that the Leverage Ratio is less than 5.0 to 1.0 at the end of two
consecutive fiscal quarters. Each prepayment pursuant to this paragraph shall be
made on or before the date on which financial statements are delivered pursuant
to Section 5.01 with respect to the fiscal year for which Excess Cash Flow is
being calculated (and in any event within 120 days after the end of such fiscal
year).
(d) Prior to any optional or mandatory prepayment of
Borrowings hereunder, the relevant Borrower (or Level 3 on its behalf) shall
select the Borrowing or Borrowings to be prepaid and shall specify such
selection in the notice of such prepayment pursuant to paragraph (e) of this
Section; provided that each prepayment of Borrowings of any Class shall be
applied to prepay ABR Borrowings of such Class before any other Borrowings of
such Class. In the event of any optional or mandatory prepayment of Term
Borrowings (other than Interim Loans) or Incremental Borrowings made at a time
when Term Borrowings (other than Interim Loans) and Incremental Borrowings of
more than one Class remain outstanding, the relevant Borrowers shall select Term
Borrowings and Incremental Borrowings to be prepaid so that the aggregate amount
of such prepayment is allocated between the Tranche A Term Borrowings (other
than Interim Loans), Tranche B Term Borrowings (other than Interim Loans) and
Incremental Borrowings pro rata based on the aggregate principal amount of
outstanding Borrowings of each such Class; provided that (i) in the case of
mandatory prepayments, only Tranche A Term Borrowings and Tranche B Term
Borrowings that are not Interim Loans will be subject to prepayment, and (ii)
any Tranche B Lender may elect, by
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notice to the Administrative Agent by telephone (confirmed by telecopy) at least
one Business Day prior to the prepayment date, to decline all or any portion of
any prepayment of its Tranche B Term Loans pursuant to this Section (other than
an optional prepayment pursuant to paragraph (a) of this Section, which may not
be declined), in which case the aggregate amount of the prepayment that would
have been applied to prepay Tranche B Term Loans but was so declined shall be
applied to prepay Tranche A Term Borrowings. In the event of any optional
prepayment of Interim Loans (other than in connection with the simultaneous
borrowing by BTE of Corresponding Loans) made at a time when Interim Loans of
more than one Class remain outstanding, the Interim Borrower shall select
Borrowings of Interim Loans to be prepaid so that the aggregate amount of such
prepayment is allocated between the Tranche A Interim Loans and Tranche B
Interim Loans pro rata based on the aggregate principal amounts thereof. No
optional prepayments of Revolving Loans may be made (other than optional
prepayments of Revolving Loans without a corresponding reduction in Revolving
Commitments) unless all Term Loans have been paid in full and all commitments to
make Term Loans have expired or been terminated.
(e) The relevant Borrower (or Level 3 on its behalf) shall notify the
Administrative Agent (and, in the case of prepayment of a Swingline Loan, the
Swingline Lender) by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not
later than 1:00 p.m., New York City time, three Business Days before the date of
prepayment, (ii) in the case of prepayment of an ABR Revolving Borrowing, not
later than 1:00 p.m., New York City time, one Business Day before the date of
prepayment or (iii) in the case of prepayment of a Swingline Loan, not later
than 12:00 noon, New York City time, on the date of prepayment. Each such notice
shall be irrevocable and shall specify the prepayment date, the principal amount
of each Borrowing or portion thereof to be prepaid and, in the case of a
mandatory prepayment, a reasonably detailed calculation of the amount of such
prepayment; provided that, if a notice of optional prepayment is given in
connection with a conditional notice of termination of the Revolving Commitments
as contemplated by Section 2.08, then such notice of prepayment may be revoked
if such notice of termination is revoked in accordance with Section 2.08.
Promptly following receipt of any such notice (other than a notice relating
solely to Swingline Loans), the Administrative Agent shall advise the Lenders of
the contents thereof. Each partial prepayment of any Borrowing shall be in an
amount that would be permitted in the case of
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an advance of a Borrowing of the same Type as provided in Section 2.02, except
as necessary to apply fully the required amount of a mandatory prepayment. Each
prepayment of a Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the
extent required by Section 2.14.
SECTION 2.12. Tranche B Facility Prepayment Fee. Voluntary and
mandatory payments or prepayments of Tranche B Term Loans (including payments or
prepayments of Tranche B Interim Loans, other than in connection with the making
of simultaneous Corresponding Loans, as contemplated by Section 2.22) and
repayments of Tranche B Term Loans as a result of acceleration upon an Event of
Default consisting of the occurrence of a Change in Control, in each case made
prior to the third anniversary of the Effective Date, shall be accompanied by
payment of a prepayment fee as follows:
(A) if such prepayment or repayment is made on or before
the first anniversary of the Effective Date, a fee
equal to 3% of the amount or such prepayment or
repayment;
(B) if such prepayment or repayment is made thereafter
but on or before the second anniversary of the
Effective Date, a fee equal to 2% of the amount of
such prepayment or repayment; and
(C) if such prepayment or repayment is made after the
second anniversary of the Effective Date but on or
before the third anniversary of the Effective Date, a
fee equal to 1% of the amount of such prepayment or
repayment.
SECTION 2.13. Fees. (a) BTE, in the case of the Tranche A
Commitments and the Tranche B Commitments, and the RC Borrowers, jointly and
severally, in the case of the Revolving Commitments, agree to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Commitment Fee Rate on the daily unused amount of
each Commitment of such Lender during the period from and including the date
hereof to but excluding the date on which such Commitment terminates. Accrued
commitment fees shall be payable in arrears on the last day of March, June,
September and December of each year and on the date on which the relevant
Commitment terminates, commencing on the first such date to occur after the date
hereof. All commitment fees shall be computed on the basis of a year of 360 days
and shall be payable for the actual
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64
number of days elapsed (including the first day but excluding the last day). For
purposes of computing commitment fees with respect to Revolving Commitments, a
Revolving Commitment of a Lender shall be deemed to be used to the extent of the
outstanding Revolving Loans and LC Exposure of such Lender (and the Swingline
Exposure of such Lender shall be disregarded for such purpose).
(b) The RC Borrowers, jointly and severally, agree to pay (i)
to the Administrative Agent for the account of each Revolving Lender a
participation fee with respect to its participations in Letters of Credit, which
shall accrue at the same Applicable Rate as interest on Eurodollar Revolving
Loans on the daily amount of such Lender's LC Exposure (excluding any portion
thereof attributable to unreimbursed LC Disbursements) during the period from
and including the Effective Date to but excluding the later of the date on which
such Lender's Revolving Commitment terminates and the date on which such Lender
ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee,
which shall accrue at the rate or rates per annum separately agreed upon between
Level 3 and the Issuing Bank on the average daily amount of the LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Effective Date to but excluding the
later of the date of termination of the Revolving Commitments and the date on
which there ceases to be any LC Exposure, as well as the Issuing Bank's standard
fees with respect to the issuance, amendment, renewal or extension of any Letter
of Credit or processing of drawings thereunder. Participation fees and fronting
fees accrued through and including the last day of March, June, September and
December of each year shall be payable on the third Business Day following such
last day, commencing on the first such date to occur after the Effective Date;
provided that all such fees shall be payable on the date on which the Revolving
Commitments terminate and any such fees accruing after the date on which the
Revolving Commitments terminate shall be payable on demand. Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand. All participation fees and fronting fees shall be computed
on the basis of a year of 360 days and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day).
(c) Level 3 and the Borrowers agree to pay to the
Administrative Agent, for its own account, fees payable in the amounts and at
the times separately agreed upon with the Administrative Agent.
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(d) All fees payable hereunder shall be paid on the dates due,
in immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
SECTION 2.14. Interest. (a) The Loans
comprising each ABR Borrowing (including each Swingline
Loan) shall bear interest at the Alternate Base Rate plus
the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at the LIBO Rate for the Interest Period in effect for such Borrowing
plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by any Borrower or the
Interim Borrower hereunder is not paid when due, whether at stated maturity,
upon acceleration or otherwise, such overdue amount shall bear interest, after
as well as before judgment, at a rate per annum equal to (i) in the case of
overdue principal of any Loan, 2% plus the rate otherwise applicable to such
Loan as provided in the preceding paragraphs of this Section or (ii) in the case
of any other amount, 2% plus the rate applicable to ABR Revolving Loans as
provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan and, in the case of Revolving Loans,
upon termination of the Revolving Commitments; provided that (i) interest
accrued pursuant to paragraph (c) of this Section shall be payable on demand,
(ii) in the event of any repayment or prepayment of any Loan (other than a
prepayment of an ABR Revolving Loan prior to the end of the Revolving
Availability Period), accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment and (iii) in the
event of any conversion of any Eurodollar Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate
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shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and in each case shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). The applicable Alternate
Base Rate or LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.15. Alternate Rate of Interest. If
prior to the commencement of any Interest Period for a
Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist for ascertaining the LIBO Rate for such Interest
Period; or
(b) the Administrative Agent is advised by the Required
Lenders that the LIBO Rate for such Interest Period will not adequately
and fairly reflect the cost to such Lenders of making or maintaining
their Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to Level 3 and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies Level 3 and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.16. Increased Costs. (a) If any
Lender shall give notice to the Administrative Agent and
Level 3 at any time to the effect that Eurocurrency Reserve
Requirements are, or are scheduled to become, effective and
that such Lender is or will be generally subject to such
Eurocurrency Reserve Requirements as a result of which such
Lender will incur additional costs, then such Lender shall,
for each day from the later of the date of such notice and
the date on which such Eurocurrency Reserve Requirements
become effective, be entitled to additional interest on each
Eurodollar Loan made by it at a rate per annum determined
for such day (rounded upward to the nearest 100th of 1%)
equal to the remainder obtained by subtracting (i) the LIBO
Rate for such Eurodollar Loan from (ii) the rate obtained by
dividing such LIBO Rate by a percentage equal to 100% minus
the then-applicable Eurocurrency Reserve Requirements. Such
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additional interest will be payable in arrears to the Administrative Agent, for
the account of such Lender, on each Interest Payment Date relating to such
Eurodollar Loan and on any other date when interest is required to be paid
hereunder with respect to such Loan. Any Lender which gives a notice under this
paragraph (a) shall promptly withdraw such notice (by written notice of
withdrawal given to the Administrative Agent and Level 3) in the event
Eurocurrency Reserve Requirements cease to apply to it or the circumstances
giving rise to such notice otherwise cease to exist.
(b) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender (except any
Eurocurrency Reserve Requirement) or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then Level
3 and the Borrowers or the Incremental Borrower, as the case may be, will pay to
such Lender or the Issuing Bank, as the case may be, such additional amount or
amounts as will compensate such Lender or the Issuing Bank, as the case may be,
for such additional costs incurred or reduction suffered. This Section 2.16(b)
shall not apply to any additional costs or reductions relating to Taxes, which
are governed by Section 2.18.
(c) If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender's or the Issuing Bank's capital or on
the capital of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made by, or participations in Letters
of Credit held by, such Lender, or the Letters of Credit issued by the Issuing
Bank, to a level
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below that which such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company could have achieved but for such Change in Law (taking
into consideration such Lender's or the Issuing Bank's policies and the policies
of such Lender's or the Issuing Bank's holding company with respect to capital
adequacy), then from time to time Level 3 and the Borrowers or the Incremental
Borrower, as the case may be, will pay to such Lender such additional amount or
amounts as will compensate such Lender or the Issuing Bank or such Lender's or
the Issuing Bank's holding company for any such reduction suffered.
(d) A certificate of a Lender or the Issuing Bank setting
forth the amount or amounts necessary to compensate such Lender or the Issuing
Bank or its holding company, as the case may be, as specified in paragraph (a)
or (b) of this Section shall be delivered to Level 3 and shall be conclusive
absent manifest error. Level 3 and the Borrowers or the Interim Borrower, as the
case may be shall pay such Lender or the Issuing Bank, as the case may be, the
amount shown as due on any such certificate within 10 days after receipt
thereof.
(e) Failure or delay on the part of any Lender or the Issuing
Bank to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender's or the Issuing Bank's right to demand such compensation;
provided that Level 3 and the Borrowers or the Interim Borrower shall not be
required to compensate a Lender or the Issuing Bank pursuant to this Section for
any increased costs or reductions incurred more than 180 days prior to the date
that such Lender or the Issuing Bank, as the case may be, notifies Level 3 of
the Change in Law giving rise to such increased costs or reductions and of such
Lender's or the Issuing Bank's intention to claim compensation therefor;
provided further that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the 180-day period referred to above shall be
extended to include the period of retroactive effect thereof.
SECTION 2.17. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of Default
but excluding any payment of an Interim Loan in connection with the making of a
simultaneous Corresponding Loan as contemplated by Section 2.22), (b) the
conversion of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto, (c) the failure to borrow, convert, continue or
prepay any Revolving Loan or Term Loan on the date specified in any notice
delivered
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pursuant hereto (regardless of whether such notice may be revoked under Section
2.11(g) and is revoked in accordance therewith), or (d) the assignment of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by Level 3 pursuant to Section 2.19, then, in
any such event, Level 3 and the relevant Borrower or the Interim Borrower, as
applicable, shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurodollar Loan, such loss, cost or
expense to any Lender shall be deemed not to include any lost profit (including
loss of Applicable Margin) and shall be deemed to include an amount determined
by such Lender to be the excess, if any, of (i) the amount of interest which
would have accrued on the principal amount of such Loan had such event not
occurred, at the LIBO Rate that is or would have been applicable to such Loan,
for the period from the date of such event to the last day of the then current
Interest Period therefor (or, in the case of a failure to borrow, convert or
continue, for the period that would have been the Interest Period for such
Loan), over (ii) the amount of interest which would accrue on such principal
amount for such period at the interest rate which such Lender would bid were it
to bid, at the commencement of such period, for dollar deposits of a comparable
amount and period from other banks in the eurodollar market. A certificate of
any Lender setting forth any amount or amounts that such Lender is entitled to
receive pursuant to this Section shall be delivered to Level 3 and shall be
conclusive absent manifest error. Level 3 or the relevant Borrower or the
Interim Borrower, as applicable, shall pay such Lender the amount shown as due
on any such certificate within 10 days after receipt thereof.
SECTION 2.18. Taxes. (a) Any and all payments by or on account
of any obligation of any Borrower hereunder or under any other Loan Document
shall be made free and clear of and without deduction for any Indemnified Taxes
or Other Taxes; provided that if a Borrower or the Interim Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent, Lender or Issuing Bank (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) such Borrower or the Interim Borrower shall make
such deductions and (iii) such Borrower or the Interim Borrower shall pay the
full amount deducted to the relevant Governmental Authority in accordance with
applicable law.
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(b) In addition, each Borrower and the Interim Borrower shall
pay any Other Taxes to the relevant Governmental Authority in accordance with
applicable law.
(c) Level 3 and the relevant Borrowers or the Interim
Borrower, as applicable, shall indemnify the Administrative Agent, each Lender
and the Issuing Bank, within 10 days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent,
such Lender or the Issuing Bank, as the case may be, on or with respect to any
payment by or on account of any obligation of such Borrower or the Interim
Borrower hereunder or under any other Loan Document (including Indemnified Taxes
or Other Taxes imposed or asserted on or attributable to amounts payable under
this Section) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or
liability delivered to Level 3 or the relevant Borrower or the Interim Borrower
by a Lender or the Issuing Bank, or by the Administrative Agent on its own
behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent
manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by a Borrower or the Interim Borrower to a Governmental
Authority, such Borrower or the Interim Borrower shall deliver to the
Administrative Agent reasonably satisfactory evidence of such payment or the
original or a certified copy of a receipt issued by such Governmental Authority
evidencing such payment; provided however in no case shall such Borrower be
required to deliver documentation not normally issued by such Governmental
Authority.
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrowers or the Interim Borrower are located, or any treaty to which such
jurisdiction is a party, with respect to payments under this Agreement shall
deliver to Level 3 (with a copy to the Administrative Agent), at the time or
times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by Level 3 as
will permit such payments to be made without withholding or at a reduced rate.
SECTION 2.19. Payments Generally; Pro Rata
Treatment; Sharing of Set-offs. (a) Each Borrower and the
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Interim Borrower shall make each payment required to be made by it hereunder or
under any other Loan Document (whether of principal, interest, fees or
reimbursement of LC Disbursements, or of amounts payable under Section 2.16,
2.17 or 2.18, or otherwise) prior to 1:00 p.m., New York City time, on the date
when due, in immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except payments to be made directly to the Issuing Bank or
Swingline Lender as expressly provided herein and except that payments pursuant
to Sections 2.16, 2.17, 2.18 and 9.03 shall be made directly to the Persons
entitled thereto and payments pursuant to other Loan Documents shall be made to
the Persons specified therein. The Administrative Agent shall distribute any
such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment under
any Loan Document shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments under each Loan Document shall be made in
dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds
shall be applied (to the extent determinable, to the Obligations of the Loan
Party or Loan Parties providing such funds) (i) first, towards payment of
interest and fees then due hereunder, ratably among the parties entitled thereto
in accordance with the amounts of interest and fees then due to such parties,
and (ii) second, towards payment of principal and unreimbursed LC Disbursements
then due hereunder, ratably among the parties entitled thereto in accordance
with the amounts of principal and unreimbursed LC Disbursements then due to such
parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans, Term Loans (other than Interim Loans),
Interim Loans or participations in LC Disbursements or Swingline Loans resulting
in such Lender receiving payment of a greater proportion of the aggregate amount
of its
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Revolving Loans, Term Loans (other than Interim Loans), Interim Loans and
participations in LC Disbursements and Swingline Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Revolving Loans, Term Loans (other than Interim Loans),
Interim Loans and participations in LC Disbursements and Swingline Loans of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Revolving Loans, Term
Loans (other than Interim Loans), Interim Loans and participations in LC
Disbursements and Swingline Loans; provided that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by Level 3, any Borrower or the Interim Borrower pursuant to and in accordance
with the express terms of this Agreement or any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Loans or participations in LC Disbursements to any assignee or participant,
other than to Level 3 or any Subsidiary or Affiliate thereof (as to which the
provisions of this paragraph shall apply). Each Borrower and the Interim
Borrower consents to the foregoing and agrees, to the extent it may effectively
do so under applicable law, that any Lender acquiring a participation in an
obligation owed by it pursuant to the foregoing arrangements may exercise
against such Borrower or the Interim Borrower rights of set-off and counterclaim
with respect to such participation as fully as if such Lender were a direct
creditor of such Borrower or the Interim Borrower in the amount of such
participation.
(d) Unless the Administrative Agent shall have received notice
from a Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Bank
hereunder that such Borrower will not make such payment, the Administrative
Agent may assume that such Borrower has made such payment on such date in
accordance herewith and may, in reliance upon such assumption, distribute to the
Lenders or the Issuing Bank, as the case may be, the amount due. In such event,
if such Borrower has not in fact made such payment, then each of the Lenders or
the Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and
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including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to
be made by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.19(d) or
9.03(c), then the Administrative Agent may, in its discretion (notwithstanding
any contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are fully
paid.
SECTION 2.20. Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.16, or if any Borrower
or the Interim Borrower is required to pay any additional amount to any Lender
or any Governmental Authority for the account of any Lender pursuant to Section
2.18, then such Lender shall use reasonable efforts to designate a different
lending office for funding or booking its Loans hereunder or to assign its
rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation or assignment
(i) would eliminate or reduce amounts payable pursuant to Section 2.16 or 2.18,
as the case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender. Level 3 and the Borrowers or the Interim Borrower, as applicable, hereby
agree to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.16
(other than paragraph (a) of such Section), or if any Borrower or the Interim
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.18,
if any Lender defaults in its obligation to fund Loans hereunder or under the
circumstances contemplated by Section 9.02(c), then Level 3 may, at its sole
expense and effort, upon notice to such Lender and the Administrative Agent,
require such Lender to assign and delegate, without recourse (in accordance with
and subject to the restrictions contained in Section 9.04), all its interests,
rights and obligations under this Agreement to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts such
assignment);
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provided that (i) Level 3 shall have received the prior written consent of the
Administrative Agent (and, if a Revolving Commitment is being assigned, the
Issuing Bank and Swingline Lender), which consent shall not unreasonably be
withheld, (ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans and participations in LC Disbursements and
Swingline Loans, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or Level 3, a Borrower or the Interim
Borrower, as applicable (in the case of all other amounts) and (iii) in the case
of any such assignment resulting from a claim for compensation under Section
2.16 or payments required to be made pursuant to Section 2.18, such assignment
will result in a reduction in such compensation or payments. A Lender shall not
be required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling
Level 3 to require such assignment and delegation cease to apply.
SECTION 2.21. Incremental Facility. (a) At any time prior to
the Tranche B Maturity Date, Level 3 may, by notice to the Administrative Agent
(which shall promptly deliver a copy to each of the Lenders), request the
addition of a new tranche of Term Loans (all such Term Loans, collectively, the
"Incremental Loans") provided, however, that both at the time of any such
request and after giving effect to any such Incremental Loans (i) no Default
shall exist, (ii) Level 3 and the Borrowers shall be in pro forma compliance
with each financial covenant and (iii) if BTE is the Borrower of the Incremental
Loans, the ratio of BTE Total Debt to BTE's Total Gross Assets, on a pro forma
stand-alone basis (after giving effect to the Incremental Loans and the use of
Proceeds thereof) shall not exceed .65 to 1.0. The Incremental Loans (i) shall
be in an aggregate principal amount not in excess of $1,375,000,000, (ii) shall,
if BTE is the Borrower of the Incremental Loans, rank pari passu in right of
payment and of security with the Term Loans, (iii) shall mature no sooner than,
and have a longer average weighted life than, the Tranche B Term Loans, (iv)
will not amortize (other than nominal amortization customary in the
institutional loan market) and will not mature earlier than ten years from the
date hereof, (v) shall not be available unless the Tranche A Commitments and
Tranche B Commitments have been fully utilized and (vi) shall otherwise be
treated no more favorably than the Tranche B Term Loans (including with respect
to mandatory and voluntary prepayments); provided that (i) an amount not in
excess of $150,000,000 in principal amount of the Incremental Loans may mature
on the Tranche A Maturity Date
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(and amortize on a pro rata basis with the then remaining Tranche A Loans prior
to such date), (ii) an amount equal to not more than the excess of $625,000,000
over the amount of Incremental Loans, if any, maturing as set forth in clause
(i) may mature on the Tranche B Maturity Date (and amortize on a pro rata basis
with the then remaining Tranche B Loans prior to such date), and (iii) the terms
and conditions applicable to the Incremental Loans may provide for additional or
different financial or other covenants applicable only during periods after the
Tranche B Maturity Date. Such notice shall set forth the requested amount of
Incremental Loans (which amount shall not exceed $1,375,000,000). Level 3
currently intends to offer each existing Lender the opportunity to offer a
commitment to provide Incremental Loans; provided, however, no existing Lender
will be obligated to subscribe for any portion of such commitments. In the event
that existing Lenders provide commitments in an aggregate amount less than the
total amount of the Incremental Loans requested by Level 3, Level 3 shall
arrange for one or more banks, other financial institutions or vendors of
telecommunications equipment (any such bank, other financial institution or
vendor being called an "Additional Lender") to extend commitments to provide
Incremental Loans in an aggregate amount equal to the unsubscribed amount,
provided that each Additional Lender that is not a vendor of telecommunication
equipment shall be subject to the approval of the Administrative Agent (which
approval shall not be unreasonably withheld). Commitments in respect of
Incremental Loans shall become Commitments under this Agreement pursuant to an
Incremental Facility Amendment to this Agreement and, as appropriate, the other
Loan Documents, executed by each of the Borrowers, each Lender agreeing to
provide such Commitment, if any, each Additional Lender, if any, and the
Administrative Agent. The Incremental Facility Amendment may, without the
consent of any other Lenders, effect such amendments to this Agreement and the
other Loan Documents (including, if the Incremental Loans are borrowed by
Equipment Co. II as contemplated by clause (b) below, execution of additional
ancillary documents) as may be necessary or appropriate, in the opinion of the
Administrative Agent, to effect the provisions of this Section. The
effectiveness of any Incremental Facility Amendment shall be subject to the
satisfaction on the date thereof of each of the conditions set forth in Section
4.02.
(b) All or any portion of the Incremental Facilities may be
borrowed, at Level 3's option, by BTE or by a Wholly Owned newly formed special
purpose equipment Subsidiary ("Equipment Co. II"). In the latter case, the
Incremental Facilities lenders to Equipment Co. II will be
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secured only by the Telecommunications Assets financed in
whole or part with the proceeds of the Incremental Loans
made to Equipment Co. II.
SECTION 2.22. Interim Loans. (a) Subject to the terms and
conditions set forth herein (including without limitation the cash
collateralization requirements set forth in paragraph (b) of this Section), the
Interim Borrower may (i) effect Borrowings of Tranche B Term Loans on the
Effective Date (such Loans, when outstanding as Borrowings by the Interim
Borrower, being also referred to herein as "Tranche B Interim Loans") from
Lenders having Tranche B Commitments in an amount not in excess of (x) the
amount of the Tranche B Commitments minus (y) the aggregate principal amount of
Tranche B Term Loans to be made to BTE on the Effective Date and (ii) effect
Borrowings on the Effective Date and from time to time during the Tranche A
Availability Period and prior to the Tranche A Interim Loan Maturity Date of
Tranche A Term Loans (such Loans, when outstanding as Borrowings by the Interim
Borrower, being also referred to herein as "Tranche A Interim Loans" and,
together with the Tranche B Interim Loans, as "Interim Loans") from Lenders
having Tranche A Commitments in an aggregate principal amount that will not
result in the aggregate principal amount of the Tranche A Term Loans then or
theretofore made (regardless of whether repaid) exceeding the Tranche A
Commitments then in effect. Except to the extent otherwise provided in this
Section 2.22 or elsewhere in Article II, the provisions of Article II (including
without limitation Sections 2.16, 2.17 and 2.18) shall apply to the Interim
Loans and the Interim Borrower with the same effect as if each reference therein
to a Borrower were a reference to the Interim Borrower.
(b) On the Effective Date, the Interim Borrower will deposit
in an account with the Administrative Agent, in the name of the Administrative
Agent and for the benefit of the Tranche A Lenders and the Tranche B Lenders
(the "Interim Loan Collateral Account"), (i) all the proceeds of the Tranche B
Interim Loans plus (ii) an amount in cash equal to 4% of the principal amount of
the Tranche B Interim Loans plus (iii) an amount in cash equal to the amount of
interest that would accrue on the full principal amount of such Tranche B
Interim Loans from the Effective Date to the Tranche B Interim Loan Maturity
Date, assuming no prepayments thereof and calculated on the basis of a constant
interest rate equal to the LIBO Rate for a Eurodollar Borrowing with an Interest
Period of two months commencing on such borrowing date plus the Applicable Rate
for Tranche B Term Loans on such date. On each date on which a Borrowing of
Tranche A Interim Loans occurs, the
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Borrowers and the Interim Borrower will deposit in the Interim Loan Collateral
Account (i) all the proceeds of such Tranche A Interim Loans plus (ii) an amount
in cash equal to 1% of the principal amount of such Tranche A Interim Loans plus
(iii) an amount in cash equal to the amount of interest that would accrue on the
full principal amount of such Tranche A Interim Loans from the date of such
Borrowing to the Tranche A Interim Loan Maturity Date, assuming no prepayments
thereof and calculated on the basis of a constant interest rate equal to the
LIBO Rate for a Eurodollar Borrowing with an Interest Period of two months
commencing on such borrowing date plus the Applicable Rate for Tranche A Term
Loans on such date. Such deposits shall be held by the Administrative Agent as
collateral for the payment of principal of and interest on the Interim Loans,
any prepayment fees payable under Section 2.11 in respect of Interim Loans paid
or prepaid other than in connection with a simultaneous Corresponding Loan to
BTE, as set forth below, and any amounts payable under Sections 2.12, 2.16, 2.17
or 2.18 attributable to Interim Loans. The Interim Borrower hereby grants a
security interest in the Interim Loan Collateral Account for the benefit of the
Term Loan Secured Parties. The Administrative Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over the
Interim Loan Collateral Account. The Administrative Agent shall use reasonable
efforts, consistent with its standard administration procedures for similar cash
collateral accounts, to invest deposits in the Interim Loan Collateral Account
in readily marketable Permitted Investments maturing in not more than 60 days
selected by the Interim Borrower; provided that (i) all such investments shall
be at the Interim Borrower's risk and expense (and the Interim Borrower and the
Borrowers agree that they will promptly make additional cash deposits in the
Interim Loan Collateral Account in the amount of any losses realized on such
investments) and (ii) the Administrative Agent shall be entitled to sell or
dispose of such investments at such times and in such amounts as may be
necessary in the judgment of the Administrative Agent to provide funds for the
payment when due of obligations secured by the Interim Loan Collateral Account.
Other than any interest earned on the investment of such deposits, amounts in
the Interim Loan Collateral Account shall not bear interest. Interest and
profits, if any, on such investments shall accumulate in the Interim Loan
Collateral Account. Moneys in the Interim Loan Collateral Account shall be
applied (and the Administrative Agent may from time to time sell or liquidate
investments in the Interim Loan Collateral Account to raise funds to apply) to
the payment when due of the principal of and interest on the Interim Loans and
the fees, indemnities and other amounts payable in
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respect of the Interim Loans referred to above. Upon the payment in full of all
principal of and interest on the Interim Loans and all such fees, indemnities
and other amounts, any amounts remaining in the Interim Loan Collateral Account
shall be promptly returned to the Interim Borrower.
(c) Notwithstanding any other provision hereof, each Interim
Loan will at all times be maintained as a Eurodollar Loan with an Interest
Period of two-months; provided, however, that on the Effective Date the Interim
Borrower may effect Interim Loans which are ABR Loans so long as they are
converted to Eurodollar Loans with an Interest Period of two-months within two
Business Days of the Effective Date. If and on each occasion subsequent to two
Business Days after the Effective Date that a Projected Interest Shortfall
exists (whether due to increases in interest rates applicable to Interim Loans,
payments from or losses in the Interim Loan Collateral Account or any other
reason), the Borrowers and the Interim Borrower will within two Business Days
deposit in the Interim Loan Collateral Account such amounts as may be necessary
so that, after giving effect to such deposit, no Projected Interest Shortfall
exists. For purposes hereof, a "Projected Interest Shortfall" will be deemed to
exist on any date in the amount by which (i) the sum of (x) the accrued and
unpaid interest on all Interim Loans outstanding on such date plus (y) the
aggregate amounts of interest that would accrue on each outstanding Interim Loan
from such date until the Tranche A Interim Loan Maturity Date (in the case of
Tranche A Interim Loans) or the Tranche B Interim Loan Maturity Date (in the
case of Tranche B Interim Loans), assuming that the full principal amount of
each such Loan remained outstanding until such maturity date and continued at
all times to bear interest at the interest rate in effect for such Loan on such
date exceeds (ii) the aggregate amounts then on deposit in the Interim Loan
Collateral Account (with investments being valued at their fair market value on
such date, as reasonably determined by the Administrative Agent) minus the sum
of (x) 104% of the aggregate outstanding principal amount of Tranche B Interim
Loans on such date plus (y) 101% of the aggregate outstanding principal amount
of Tranche A Interim Loans on such date.
(d) At any time and from time to time on or prior to the
Tranche A Interim Loan Maturity Date or the Tranche B Interim Loan Maturity
Date, respectively, BTE may, in accordance with the provisions of this paragraph
and subject to satisfaction of all borrowing conditions in Article IV hereof
(but regardless of whether the Tranche A Commitments
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or the Tranche B Commitments have expired or been fully drawn), effect
borrowings of Tranche A Term Loans or Tranche B Term Loans, respectively, which
will be funded out of the proceeds from the simultaneous payment or prepayment
by the Interim Borrower of an equal principal amount of Tranche A Interim Loans
or Tranche B Interim Loans, as the case may be (any such Tranche A Term Loans or
Tranche B Term Loans to BTE so funded being referred to as "Corresponding
Loans"). In order to effect a Borrowing by BTE of Corresponding Loans, BTE and
the Interim Borrower shall, not later than 1:00 p.m., New York City time, two
Business Days prior to the date of the proposed Borrowing, give the
Administrative Agent a Borrowing Request complying (except as set forth below)
with the provisions of Section 2.03, specifying that the requested Borrowing is
a Borrowing of Corresponding Loans and identifying the Interim Loans to be
repaid by the Interim Borrower to permit the funding of such Corresponding Loans
(which Interim Loans shall be in an aggregate principal amount equal to such
Corresponding Loans). Each Corresponding Loan in respect of an Interim Loan that
is a Eurodollar Loan being repaid other than on the last day of its then-current
Interest Period shall have an initial Interest Period ending on the same date,
and shall bear interest during such initial Interest Period at the same rate, as
the Interest Period and interest rate applicable to such Interim Loan, and no
amounts shall be payable under Section 2.17 in respect of the payment by the
Interim Borrower of such Interim Loan prior to the last day of such Interest
Period. Each Borrowing request for a Corresponding Loan shall be deemed to be an
irrevocable notice by the Interim Borrower of prepayment, on the applicable date
of Borrowing, of the Interim Loans identified in such Borrowing Request. On the
date of the proposed Borrowing of Corresponding Loans, the Administrative Agent
shall (i) apply funds from the Interim Loan Collateral Account to the payment in
full of the principal amount of such Interim Loans and, on behalf of each
Tranche A Lender or Tranche B Lender, as the case may be, entitled to such
payment, utilize the proceeds thereof in accordance with Section 2.06(a) to fund
a Corresponding Loan to BTE in the same principal amount as the principal amount
of such Lender's Interim Loan that was repaid and (ii) apply funds from the
Interim Loan Collateral Account to the payment of all accrued and unpaid
interest, to the date of such repayment, on the Interim Loans being repaid and
to the payment of any other amounts payable under Section 2.16 or 2.18 in
respect of such Interim Loans in respect of periods prior to the date of such
repayment, and distribute such payments to the Tranche A Lenders or Tranche B
Lenders entitled thereto. The Tranche A Lenders and Tranche B Lenders
irrevocably authorize the Administrative Agent to
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fund Corresponding Loans with the proceeds of repayments of Interim Loans as set
forth above. From and after the date on which each Corresponding Loan is made,
such Loan shall for all purposes hereof be a Tranche A Term Loan or a Tranche B
Term Loan, as the case may be, of BTE and shall cease to be an Interim Loan.
(e) Subject to the provisions of this paragraph, the Interim
Borrower may from time to time, by giving written notice (an "Extension Notice")
to the Administrative Agent prior to the then-current maturity date, extend the
Tranche A Interim Loan Maturity Date or the Tranche B Interim Loan Maturity Date
to a Business Day specified in such Extension Notice that is not less than two
months after the then-current Tranche A Interim Loan Maturity Date or Tranche B
Interim Loan Maturity Date, as the case may be; provided that the Tranche A
Interim Loan Maturity Date may not be extended past the date that is 30 months
after the Effective Date and the Tranche B Interim Loan Maturity Date may not be
extended past the first anniversary of the Effective Date. On each date that an
Extension Notice is given to the Administrative Agent, the Interim Borrower
shall deposit or cause to be deposited in the Interim Loan Collateral Account
such amounts as may be necessary so that, after giving effect to such deposit
and to the extensions of one or both of the Tranche A Interim Loan Maturity Date
and the Tranche B Interim Loan Maturity Date specified in such Extension Notice,
no Projected Interest Shortfall exists on such date. An Extension Notice shall
be effective only if such deposit is made on the date on which such Extension
Notice is given. The Administrative Agent shall give the Tranche A Lenders or
the Tranche B Lenders, as the case may be, prompt notice of the effectiveness of
any Extension Notice hereunder, specifying the new Tranche A Interim Loan
Maturity Date or Tranche B Interim Loan Maturity Date.
(f) Notwithstanding any provision to the contrary in this
Agreement or any other Loan Document, (i) the monetary obligations of the
Interim Borrower hereunder shall be limited to the payment of the principal of
and interest on the Interim Loans and the payment of fees, costs, indemnities
and expense reimbursements (including without limitation pursuant to Sections
2.12, 2.16, 2.17 and 2.18) directly attributable to the Interim Loans and (ii)
the obligations of the Borrowers in respect of the monetary obligations referred
to in clause (i) shall be limited to their obligations to make deposits in the
Interim Loan Collateral Account in accordance with the provisions of this
Section 2.22.
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ARTICLE III
Representations and Warranties
Each of Level 3 and each of the Borrowers represents and
warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of Level 3, the
Restricted Subsidiaries and the Interim Borrower is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its business as
now conducted and, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.
SECTION 3.02. Authorization; Enforceability. The
------------------------------
Transactions to be entered into by each Loan Party and the Interim Borrower are
within such Loan Party's or the Interim Borrower's powers and have been duly
authorized by all necessary corporate or other action and, if required,
stockholder or member action. This Agreement has been duly executed and
delivered by Level 3, each of the Borrowers and the Interim Borrower and
constitutes, and each other Loan Document to which any Loan Party is to be a
party, when executed and delivered by such Loan Party, will constitute, a legal,
valid and binding obligation of Level 3, such Borrowers, the Interim Borrower or
such Loan Party (as the case may be), enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as
have been obtained or made and are in full force and effect, filings necessary
to perfect Liens created under the Loan Documents and, in the case of Borrowings
by any Person other than the Interim Borrower, the approvals listed on Schedule
3.03, (b) will not violate any applicable law or regulation of a type typically
applicable to transactions of the type contemplated by the Transactions or the
charter, by-laws or other organizational documents of Level 3 or any
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of the Subsidiaries or any material order of any Governmental Authority, (c)
will not violate or result in a default under any material indenture, agreement
or other instrument binding upon Level 3 or any of the Subsidiaries or its
assets, or give rise to a right thereunder to require any payment to be made by
Level 3 or any of the Subsidiaries, and (d) will not result in the creation or
imposition of any Lien on any asset of Level 3 or any of the Restricted
Subsidiaries (or the Interim Borrower), except Liens created under the Loan
Documents.
SECTION 3.04. Financial Condition; No Material Adverse Change.
(a) Level 3 has heretofore furnished to the Lenders (i) its consolidated balance
sheet and statements of income, stockholders equity and cash flows as of and for
the fiscal year ended December 31, 1998, reported on by Arthur Andersen LLP,
independent public accountants, and (ii) the combined balance sheet and
statements of income and cash flows of Level 3 and the Restricted Subsidiaries
as of and for the fiscal quarter and the portion of the fiscal year ended June
30, 1999, certified by its chief financial officer. Such financial statements
present fairly, in all material respects, the financial position and results of
operations and cash flows of Level 3 and its consolidated Subsidiaries or Level
3 and its combined Restricted Subsidiaries, as the case may be, as of such dates
and for such periods in accordance with GAAP, subject to year-end audit
adjustments and the absence of footnotes in the case of the statements referred
to in clause (ii) above.
(b) Except as disclosed in the financial statements referred
to above or the notes thereto or in the Information Memorandum and except for
the Disclosed Matters, after giving effect to the Transactions, none of Level 3,
the Restricted Subsidiaries or the Interim Borrower has, as of the Effective
Date, any material contingent liabilities, unusual long-term commitments or
unrealized losses.
(c) Since December 31, 1998, there has been no material
adverse change in the business, assets, operations or condition, financial or
otherwise, of Level 3 and the Restricted Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of Level 3 and the
Restricted Subsidiaries has good title to, or valid leasehold interests in, all
its real and personal property material to its business (including its Mortgaged
Properties), except for minor defects in title that do not interfere with its
ability to conduct its business as currently conducted or to utilize such
properties for their intended purposes.
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(b) Each of Level 3 and the Restricted Subsidiaries owns, or
is licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by Level 3
and the Restricted Subsidiaries to the knowledge of Level 3 does not infringe
upon the rights of any other Person, except for any such infringements that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
(c) Schedule 3.05 sets forth the address of each real property
that is owned or leased by Level 3 or any of the Restricted Subsidiaries as of
the Effective Date after giving effect to the Transactions.
(d) As of the Effective Date, neither Level 3 nor any of the
Restricted Subsidiaries has received notice of, or has knowledge of, any pending
or contemplated condemnation proceeding affecting any Mortgaged Property or any
sale or disposition thereof in lieu of condemnation. Neither any Mortgaged
Property nor any interest therein is subject to any right of first refusal,
option or other contractual right to purchase such Mortgaged Property or
interest therein.
SECTION 3.06. Litigation and Environmental Matters. (a) There
are no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of Level 3 or any Borrower,
threatened against or affecting Level 3 or any of the Restricted Subsidiaries
(i) as to which there is a reasonable possibility of an adverse determination
and that, if adversely determined, could reasonably be expected, individually or
in the aggregate, to result in a Material Adverse Effect (other than the
Disclosed Matters) or (ii) that involve any of the Loan Documents or the
Transactions.
(b) Except for the Disclosed Matters and except with respect
to any other matters that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, neither Level 3
nor any of the Subsidiaries (i) has failed to comply with any Environmental Law
or to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (ii) has become subject to any
Environmental Liability, (iii) has received notice of any claim with respect to
any Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
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(c) Since the date of this Agreement, there has been no change
in the status of the Disclosed Matters that, individually or in the aggregate,
has resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of
Level 3 and the Restricted Subsidiaries is in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property and all indentures, agreements and other instruments binding upon it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. No Default has occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. Neither
Level 3, any of the Loan Parties nor the Interim Borrower is (a) an "investment
company" or is controlled by an entity that is an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" or is controlled by an entity that is a "holding
company" as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of Level 3 and the Subsidiaries has
timely filed or caused to be filed all tax returns and reports required to have
been filed and has paid or caused to be paid all taxes required to have been
paid by it, except (a) taxes that are being contested in good faith by
appropriate proceedings and for which Level 3 or such Subsidiary, as applicable,
has set aside on its books adequate reserves or (b) to the extent that the
failure to do so could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed the fair market value of the assets of such Plan by an amount that could
reasonably be expected to result in a Material Adverse Effect, and the present
value of all accumulated benefit obligations of all underfunded Plans (based on
the assumptions used for purposes of
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Statement of Financial Accounting Standards No. 87) did not, as of the date of
the most recent financial statements reflecting such amounts, exceed the fair
market value of the assets of all such underfunded Plans by an amount that could
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.11. Disclosure. Level 3 has disclosed to the Lenders
all agreements, instruments and corporate or other restrictions to which Level 3
or any of the Restricted Subsidiaries is subject, and all other matters known to
any of them, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect. Neither the Information
Memorandum nor any of the other reports, financial statements, certificates or
other information furnished by or on behalf of any Loan Party or the Interim
Borrower to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement or any other Loan Document or delivered hereunder
or thereunder (as modified or supplemented by other information so furnished)
contains any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that, with respect to
projected financial information, Level 3 and the Borrowers represent only that
such information was prepared in good faith based upon assumptions believed to
be reasonable at the time.
SECTION 3.12. Subsidiaries. Schedule 3.12 sets forth the name
of, and the ownership interest of Level 3 in, each Subsidiary and identifies
each Subsidiary that is a Subsidiary Loan Party, in each case as of the
Effective Date. Level 3 believes that the insurance maintained by or on behalf
of Level 3 and the Restricted Subsidiaries is adequate.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a
description of all insurance maintained by or on behalf of Level 3 and the
Restricted Subsidiaries as of the Effective Date. As of the Effective Date, all
premiums in respect of such insurance have been paid to the extent due.
SECTION 3.14. Labor Matters. As of the Effective Date, there
are no material strikes, lockouts or slowdowns against Level 3 or any Restricted
Subsidiary pending or, to the knowledge of Level 3 or the Borrowers, threatened.
The hours worked by and payments made to employees of Level 3 and the
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable Federal, state, local or foreign law dealing with such matters
except where
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the failure to do so could not reasonably be expected to result in a Material
Adverse Effect. All payments due from Level 3 or any Restricted Subsidiary, or
for which any claim may be made against Level 3 or any Restricted Subsidiary, on
account of wages and employee health and welfare insurance and other benefits,
have been paid or accrued as a liability on the books of Level 3 or such
Restricted Subsidiary except where the failure to do so could not reasonably be
expected to result in a Material Adverse Effect. The consummation of the
Transactions will not give rise to any right of termination or right of
renegotiation on the part of any union under any collective bargaining agreement
to which Level 3 or any Restricted Subsidiary is bound.
SECTION 3.15. Intellectual Property. Each of Level 3 and its
Restricted Subsidiaries owns, or is licensed to use, all intellectual property
that is necessary for the conduct of its business as currently conducted except
for any failure to so own or license intellectual property which, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect. No claim has been asserted to the knowledge of Level 3 and is pending
against Level 3 or any Restricted Subsidiary challenging or questioning the use
of any intellectual property by it or the validity or effectiveness of any
intellectual property used by it, except for any claims, which, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect. The use of intellectual property by Level 3 or any Restricted Subsidiary
does not to the knowledge of Level 3 infringe on the rights of any person in any
material respect and in any manner which could reasonably be expected to have a
Material Adverse Effect.
SECTION 3.16. Year 2000. Any reprogramming required to permit
the proper functioning, in and following the year 2000, of (a) the computer
systems of Level 3 and the Restricted Subsidiaries and (b) equipment containing
embedded microchips (including systems and equipment supplied by others or with
which Level 3's systems interface) and the testing of all such systems and
equipment, as so reprogrammed, will be completed by December 31, 1999 except
where the failure to do so could not reasonably be expected to result in a
Material Adverse Effect. The cost to Level 3 and the Restricted Subsidiaries of
such reprogramming and testing and of the reasonably foreseeable consequences of
year 2000 to Level 3 and the Restricted Subsidiaries (including reprogramming
errors and the failure of others' systems or equipment) will not result in a
Default or a Material Adverse Effect. Except for such of the reprogramming
referred to in the preceding sentence
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as may be necessary, the computer and management information systems of Level 3
and the Restricted Subsidiaries are and, with ordinary course upgrading and
maintenance, will continue to be, sufficient to permit Level 3 to conduct its
businesses without a Material Adverse Effect.
SECTION 3.17. Security Interests. (a) When executed and
delivered, the Shared Collateral Pledge Agreement will be effective to create in
favor of the Agent for the ratable benefit of the Shared Collateral Secured
Parties a valid and enforceable security interest in the Collateral (as defined
in the Shared Collateral Pledge Agreement) and, when the portion of the Shared
Collateral constituting certificated securities (as defined in the Uniform
Commercial Code) is delivered to the Administrative Agent thereunder together
with instruments of transfer duly endorsed in blank, the Shared Collateral
Pledge Agreement shall constitute a fully perfected first priority Lien on, and
security interest in, all right, title and interest of the pledgors thereunder
in such Shared Collateral, prior and superior in right to any other Person.
(b) The Shared Collateral Security Agreement and the Term Loan
Security Agreement are each effective to create in favor of the Agent for the
ratable benefit of the Shared Collateral Secured Parties and the Term Loan
Secured Parties, respectively, a valid and enforceable security interest in the
Collateral (as defined in each Security Agreement) and, when financing
statements in appropriate form are filed in the offices specified in the
Perfection Certificate, each Security Agreement shall constitute a fully
perfected Lien on, and security interest in, all right, title and interest of
the grantors thereunder in such Collateral, to the extent perfection can be
obtained by filing Uniform Commercial Code financing statements, other than the
Intellectual Property (as defined in the Security Agreements), in which a
security interest may be perfected by filing, recording or registering a
security agreement, financing statement or analogous document in the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, in each case prior and superior in right to any other Person to the
extent perfection can be obtained by filing Uniform Commercial Code financing
statements, other than with respect to the rights of Persons pursuant to Liens
expressly permitted by Section 6.02.
(c) When each Security Agreement is filed in the United States
Patent and Trademark Office and the United States Copyright Office, the security
interest created thereunder shall constitute a fully perfected Lien on, and
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security interest in, all right, title and interest of the Loan Parties in the
Intellectual Property (as defined in such Security Agreement) in which a
security interest may be perfected by filing, recording or registering a
security agreement, financing statement or analogous document in the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, in each case prior and superior in right to any other Person, other
than with respect to the rights of Persons pursuant to Liens expressly permitted
by Section 6.02 (it being understood that subsequent recordings in the United
States Patent and Trademark Office and the United States Copyright Office may be
necessary to perfect a lien on registered trademarks, trademark applications and
copyrights acquired by the Loan Parties after the date hereof).
(d) The Mortgages are effective to create, subject to the
exceptions listed in each title insurance policy covering such Mortgage, in
favor of the Agent for the ratable benefit of the Shared Collateral Secured
Parties or Term Loan Secured Parties, as the case may be, a legal, valid and
enforceable Lien on all of the Loan Parties' right, title and interest in and to
the Mortgaged Properties thereunder and the proceeds thereof, and when the
Mortgages are filed in the offices specified on Schedule 3.18, the Mortgages
shall constitute a Lien on, and security interest in, all right, title and
interest of the Loan Parties in such Mortgaged Properties and the proceeds
thereof, in each case prior and superior in right to any other Person, other
than with respect to Permitted Encumbrances.
SECTION 3.18. Absence of Non-Permitted
Obligations. None of the Equipment Borrowers or the Interim
Borrower has any obligations or liabilities other than as
permitted by Section 6.12.
SECTION 3.19. FCC Compliance. (a) Level 3 and each Restricted
Subsidiary are in compliance with the Communications Act except where the
failure to do so could not reasonably be expected to result in a Material
Adverse Effect.
(b) To the knowledge of Level 3, there is no investigation,
notice of apparent liability, violation, forfeiture or other order or complaint
issued by or before the FCC, or of any other proceedings of or before the FCC,
affecting it or any Restricted Subsidiary which could reasonably be expected to
have a Material Adverse Effect.
(c) No event has occurred which (i) results in,
or after notice or lapse of time or both would result in,
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revocation, suspension, adverse modifications, non-renewal, impairment,
restriction or termination of, or order of forfeiture with respect to, any
License in any respect which could reasonably be expected to have a Material
Adverse Effect or (ii) affects or could reasonably be expected in the future to
affect any of the rights of Level 3 or any Restricted Subsidiary under any
License held by Level 3 or such Subsidiary in any respect which could reasonably
be expected to have a Material Adverse Effect.
(d) Level 3 and each Restricted Subsidiary have duly filed in
a timely manner all material filings, reports, applications, documents,
instruments and information required to be filed by it under the Communications
Act, and all such filings were when made true, correct and complete in all
respects except where the failure to do so could not reasonably be expected to
result in a Material Adverse Effect.
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders
to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall
not become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have
received from each party hereto either (i) a counterpart of this
Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of this Agreement) that such
party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of each of (i) Willkie Farr & Gallagher,
counsel for Level 3, the Borrowers and the Interim Borrower,
substantially in the form of Exhibit C-1 and (ii) Swidler, Berlin
Schereff Friedman, LLP, special communications counsel substantially in
the form of Exhibit C-2. Level 3, the Borrowers and the Interim
Borrower hereby request such counsel to deliver such opinions.
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(c) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization, existence and good
standing of each of Level 3, the Borrowers and the Interim Borrower,
the authorization of the Transactions and any other legal matters
relating to Level 3, the Borrowers, the Interim Borrower, the Loan
Documents or the Transactions, all in form and substance satisfactory
to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the President, a
Vice President or a Financial Officer of Level 3, confirming compliance
with the conditions set forth in paragraphs (a) and (b) and, if
applicable, paragraphs (c) and (d) of Section 4.03.
(e) The Administrative Agent shall have received all fees and
other amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all
reasonable out-of-pocket expenses required to be reimbursed or paid by
any Loan Party hereunder or under any other Loan Document.
(f) The Lenders shall have received a pro forma combined
balance sheet of Level 3 and the Restricted Subsidiaries as of June 30,
1999, reflecting all pro forma adjustments as if the Transactions had
been consummated on such date, and such pro forma combined balance
sheet shall be consistent in all material respects with the forecasts
and other information previously provided to the Lenders.
(g) The Lenders shall have received a 10-year business plan of
Level 3 with quarterly projections through December 31, 2001.
(h) Level 3 and the Borrowers shall, on a pro forma basis, be
in compliance with the financial covenants in Section 6.14.
(i) The Interim Borrower shall have effected (i) Borrowings of
Tranche B Term Loans in an aggregate principal amount of $275,000,000,
and (ii) Borrowings of Tranche A Term Loans in an aggregate principal
amount of at least $200,000,000, and the proceeds thereof shall have
been deposited in the Interim Loan Collateral Account together with all
additional amounts
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of cash required to be deposited in the Interim Loan
Collateral Account by Section 2.22.
The Administrative Agent shall notify Level 3 and the Lenders of the Effective
Date, and such notice shall be conclusive and binding. Notwithstanding the
foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank
to issue Letters of Credit hereunder shall not become effective unless each of
the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or
prior to 3:00 p.m., New York City time, on November 15, 1999 (and, in the event
such conditions are not so satisfied or waived, the Commitments shall terminate
at such time).
SECTION 4.02. First Credit Event for an RC Borrower or an
Equipment Borrower. The obligations of the Lenders to make Loans to the RC
Borrowers and the Equipment Borrowers and of the Issuing Bank to issue Letters
of Credit hereunder for the account of the RC Borrowers and the Equipment
Borrowers shall not become effective until the date (the "Full Effective Date")
on which each of the following conditions is satisfied (or waived in accordance
with Section 9.02):
(a) The Effective Date shall have occurred.
(b) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Full Effective Date) of each of (i) Willkie Farr &
Gallagher, counsel for Level 3, the Borrowers and the Interim Borrower,
substantially in the form of Exhibit C-3, (ii) Neil Eckstein, Esq.,
internal legal counsel for Level 3, substantially in the form of
Exhibit C-4, (iii) Swidler, Berlin Schereff Friedman, LLP, special
communications counsel substantially in the form of Exhibit C-5, and
(iv) local counsel in each jurisdiction where a Mortgaged Property is
located, substantially in the form of Exhibit C-6, and, in the case of
each such opinion required by this paragraph, covering such other
matters relating to the Loan Parties, the Interim Borrower, the Loan
Documents or the Transactions as the Required Lenders shall reasonably
request. Level 3, the Borrowers and the Interim Borrower hereby request
such counsel to deliver such opinions.
(c) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization, existence and good
standing of each
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Loan Party and the Interim Borrower, the authorization of the
Transactions and any other legal matters relating to the Loan Parties,
the Interim Borrower, the Loan Documents or the Transactions, all in
form and substance satisfactory to the Administrative Agent and its
counsel.
(d) The Administrative Agent shall have received a
certificate, dated the Full Effective Date and signed by the President,
a Vice President or a Financial Officer of Level 3, confirming
compliance with the conditions set forth in paragraphs (a) and (b) and,
if applicable, (c) and (d) of Section 4.03.
(e) The Administrative Agent shall have received all fees and
other amounts due and payable on or prior to the Full Effective Date,
including, to the extent invoiced, reimbursement or payment of all
reasonable out-of-pocket expenses required to be reimbursed or paid by
any Loan Party hereunder or under any other Loan Document.
(f) The Administrative Agent shall have received counterparts
of (i) the Shared Collateral Pledge Agreement and the Shared Collateral
Security Agreement signed on behalf of Level 3 and each Subsidiary Loan
Party (other than the Equipment Borrowers) and (ii) the Term Loan
Security Agreement signed on behalf of BTE, together with the
following:
(i) stock certificates representing all the
outstanding shares of capital stock of the Borrowers and each
other Subsidiary (other than the Immaterial Subsidiaries set
forth on Schedule 4.02) owned by or on behalf of any Loan
Party as of the Full Effective Date after giving effect to the
Transactions (except that stock certificates representing
shares of common stock of a Foreign Subsidiary may be limited
to 65% of the outstanding shares of common stock of such
Foreign Subsidiary), promissory notes evidencing all
intercompany Indebtedness owed to any Loan Party by Level 3,
any Borrower or any Subsidiary as of the Full Effective Date
after giving effect to the Transactions and stock powers and
instruments of transfer, endorsed in blank, with respect to
such stock certificates and promissory notes;
(ii) all documents and instruments, including Uniform
Commercial Code financing statements, required by law or
reasonably requested by the
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Administrative Agent to be filed, registered or recorded to
create or perfect the Liens intended to be created under the
Security Agreements; and
(iii) a completed Perfection Certificate dated the
Full Effective Date and signed by an executive officer or
Financial Officer of Level 3, together with all attachments
contemplated thereby, including the results of a search of the
Uniform Commercial Code (or equivalent) filings made with
respect to the Loan Parties in the jurisdictions contemplated
by the Perfection Certificate and copies of the financing
statements (or similar documents) disclosed by such search and
evidence reasonably satisfactory to the Administrative Agent
that the Liens indicated by such financing statements (or
similar documents) are permitted by Section 6.02 or have been
released.
(g) The Administrative Agent shall have received (i)
counterparts of a Mortgage with respect to each Mortgaged Property
signed on behalf of the record owner of such Mortgaged Property, (ii) a
policy or policies of title insurance issued by a nationally recognized
title insurance company, insuring the Lien of each such Mortgage as a
valid first Lien on the Mortgaged Property described therein, free of
any other Liens except Permitted Encumbrances, together with such
endorsements, coinsurance and reinsurance as the Administrative Agent
or the Required Lenders may reasonably request, and (iii) such surveys,
abstracts and appraisals as may be required pursuant to such Mortgages
or as the Administrative Agent or the Required Lenders may reasonably
request.
(h) Whitney shall have granted a security interest to the
Collateral Agent for the benefit of the Shared Collateral Secured
Parties in all Telecom Equipment Assets located at, incorporated in, or
attached to, any Specified Real Estate held by Whitney
or any of its subsidiaries.
(i) The Guarantee Agreements signed by the parties thereto.
(j) The Indemnity, Contribution and Subrogation Agreements
signed by the parties thereto.
(k) The Administrative Agent shall have received evidence
satisfactory to it that the insurance required
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by Section 5.07 and the Security Documents is in
effect.
(l) The Lenders shall have received a pro forma combined
balance sheet of Level 3 and the Restricted Subsidiaries as of the end
of the most recent fiscal quarter for which financial statements are
available, reflecting all pro forma adjustments as if the Transactions
had been consummated on such date, and such pro forma combined balance
sheet shall be consistent in all material respects with the forecasts
and other information previously provided to the Lenders.
(m) BTE shall have entered into the Master Lease Agreement,
which shall be reasonably satisfactory to the Administrative Agent and
such agreement and the proceeds thereof shall have been assigned as
Collateral to the Term Loan Lenders pursuant to the Term Loan Security
Agreement.
(n) Level 3 and the Borrowers shall, on a pro forma basis, be
in compliance with the financial covenants in Section 6.14.
(o) The Interim Borrower shall have effected on the Effective
Date (i) Borrowings of Tranche B Term Loans in an aggregate principal
amount of $275,000,000, and (ii) Borrowings of Tranche A Term Loans in
an aggregate principal amount of at least $200,000,000, and the
proceeds thereof shall have been deposited in the Interim Loan
Collateral Account together with all additional amounts of cash
required to be deposited in the Interim Loan Collateral Account by
Section 2.22.
(p) The Collateral and Guarantee Requirement
shall be satisfied.
(q) The approvals listed on Schedule 3.03 shall have been
obtained and shall be in full force and effect or, if any such
approvals have not been obtained or are not in full force and effect,
the absence or ineffectiveness of such approvals would not, in the
judgment of the Administrative Agent, have a Material Adverse Effect
(it being understood that the Administrative Agent may request and rely
upon an opinion or opinions of regulatory counsel in forming such
judgment).
The Administrative Agent shall notify Level 3 and the Lenders of the Full
Effective Date, and such notice shall be
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conclusive and binding. Notwithstanding the foregoing, the obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of Credit
hereunder shall not become effective unless each of the foregoing conditions is
satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New
York City time, on September 30, 2000 (and, in the event such conditions are not
so satisfied or waived, the Commitments shall terminate at such time).
SECTION 4.03. Each Credit Event. The obligation of each Lender
to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to
issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:
(a) The representations and warranties of each Loan Party set
forth in the Loan Documents shall be true and correct on and as of the
date of such Borrowing or the date of issuance, amendment, renewal or
extension of such Letter of Credit, as applicable except to the extent
that any representation or warranty relates to any earlier date (in
which case such representation or warranty shall be correct as of such
earlier date).
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, no Default shall have occurred and be
continuing.
(c) In the case of each Borrowing by BTE, the ratio of BTE
Total Debt to BTE Total Gross Assets shall not exceed .65 to 1.00 on
the borrowing date, after giving effect to all Borrowings made by BTE
on such date.
(d) In the case of each Borrowing by the Interim Borrower,
there shall be deposited in the Interim Loan Collateral Account, at or
prior to the time of such Borrowing, the full proceeds of such
Borrowing plus such other amounts in cash as are required to be
deposited in the Interim Loan Collateral Account by Section 2.22.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by Level 3
and the Borrowers on the date thereof as to the matters specified in paragraphs
(a) and (b) (and in the case of a Borrowing by
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BTE or the Interim Borrower, (c) and (d), respectively) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, each of Level 3 and the
Borrowers covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other
Information. Level 3 will furnish to the Administrative
Agent on behalf of the Lenders:
(a) within 120 days after the end of each fiscal year of Level
3, an audited combined balance sheet of Level 3 and the Restricted
Subsidiaries and related statements of operations, and cash flows of
Level 3 and the Restricted Subsidiaries as of the end of and for such
year, setting forth in each case commencing December 31, 2000 in
comparative form the figures for the previous fiscal year, all reported
on by Arthur Andersen LLP or other independent public accountants of
recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception
as to the scope of such audit) to the effect that such combined
financial statements present fairly in all material respects the
financial condition and results of operations of Level 3 and its
Restricted Subsidiaries on a combined basis in accordance with GAAP
consistently applied;
(b) within 60 days after the end of each of the first three
fiscal quarters of each fiscal year of Level 3, a combined balance
sheet of Level 3 and the Restricted Subsidiaries and related statements
of operations and cash flows of Level 3 and the Restricted Subsidiaries
as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative
form the figures for the corresponding period or periods of (or, in the
case of the balance sheet, as of the end of) the previous fiscal year,
all certified by one of its Financial Officers as presenting fairly in
all material respects the financial condition and results
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of operations of Level 3 and its Restricted Subsidiaries on a combined
basis in accordance with GAAP consistently applied, subject to normal
year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements
under clause (a) or (b) above, a certificate of a Financial Officer of
Level 3 (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action
taken or proposed to be taken with respect thereto, (ii) setting forth
reasonably detailed calculations demonstrating compliance with Section
6.14 and (iii) stating whether any change in GAAP or in the application
thereof has occurred since the date of Level 3's audited financial
statements referred to in Section 3.04 and, if any such change has
occurred, specifying the effect of such change on the financial
statements accompanying such certificate;
(d) concurrently with any delivery of financial statements
under clause (a) above, a certificate of the accounting firm that
reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial
statements of any Default (which certificate may be limited to the
extent required by accounting rules or guidelines);
(e) within 10 Business Days after approval thereof by the
board of directors of Level 3, a budget of Level 3 and the Restricted
Subsidiaries for such fiscal year and, to the extent all relevant
internal approvals have been obtained, any significant revisions of
such budget;
(f) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by Level 3 or any Restricted Subsidiary with the Securities and
Exchange Commission, or any Governmental Authority succeeding to any or
all of the functions of said Commission, or with any national
securities exchange, or distributed by Level 3 to its shareholders
generally, as the case may be;
(g) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of Level 3, any Restricted Subsidiary or the Interim
Borrower, or compliance with the terms of any Loan Document, as the
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Administrative Agent or any Lender may reasonably request.
SECTION 5.02. Notices of Material Events.
Level 3 and the Borrowers will furnish to the Administrative
Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority
against or affecting Level 3, the Borrowers or any Affiliate thereof
that, if adversely determined, could reasonably be expected to result
in a Material Adverse Effect; and
(c) any other development, including any ERISA Event, that
results in, or could reasonably be expected to result in, a Material
Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of Level 3 setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Information Regarding Collateral. (a) Level 3
and the Borrowers will furnish to the Administrative Agent prompt written notice
of any change (i) in any Loan Party's corporate name or in any trade name used
to identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of any Loan Party's chief executive office, its
principal place of business, any office in which it maintains books or records
relating to Collateral owned by it or any office or facility at which Collateral
owned by it is located (including the establishment of any such new office or
facility), (iii) in any Loan Party's identity or corporate structure or (iv) in
any Loan Party's Federal Taxpayer Identification Number. Each of Level 3 and the
Borrowers agrees not to effect or permit any change referred to in the preceding
sentence unless all filings have been made under the Uniform Commercial Code or
otherwise that are required in order for the Agent to continue at all times
following such change to have a valid, legal and perfected security interest in
all the Collateral. Each of Level 3 and the Borrowers also agrees promptly to
notify the Administrative Agent if any material portion of the Collateral is
damaged or destroyed.
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(b) Each year, at the time of delivery of annual financial
statements with respect to the preceding fiscal year pursuant to clause (a) of
Section 5.01, Level 3 shall deliver to the Agent a certificate of a Financial
Officer and the general counsel or assistant general counsel of Level 3 (i)
setting forth the information required pursuant to Section 2 of the Perfection
Certificate or confirming that there has been no change in such information
since the date of the Perfection Certificate delivered on the Effective Date or
the date of the most recent certificate delivered pursuant to this Section and
(ii) certifying that all Uniform Commercial Code financing statements (including
fixture filings, as applicable) or other appropriate filings, recordings or
registrations, including all refilings, rerecordings and reregistrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in each jurisdiction
identified pursuant to clause (i) above to the extent necessary to protect and
perfect the security interests under the applicable Security Documents for a
period of not less than 18 months after the date of such certificate (except as
noted therein with respect to any continuation statements to be filed within
such period).
SECTION 5.04. Existence; Conduct of Business. Each of Level 3
and the Borrowers will, and will cause each of the Restricted Subsidiaries to,
do or cause to be done all things necessary to preserve, renew and keep in full
force and effect its legal existence and the rights, licenses, permits,
privileges, franchises, patents, copyrights, trademarks and trade names except
where the failure to do so could not reasonably be expected to result in a
Material Adverse Effect; provided that the foregoing shall not prohibit any
merger, consolidation, liquidation or dissolution permitted under Section 6.03.
SECTION 5.05. Payment of Taxes. Level 3 will, and will cause
each of the Restricted Subsidiaries to, pay its material Tax obligations, before
the same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropri ate proceedings, (b)
Level 3 or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP, (c) such contest effectively suspends
collection of the contested obligation and the enforcement of any Lien securing
such obligation and (d) the failure to make payment pending such contest could
not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.06. Maintenance of Properties. Level 3
will, and will cause each of the Restricted Subsidiaries to,
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keep and maintain all property material to the conduct of its business in good
working order and condition, ordinary wear and tear excepted.
SECTION 5.07. Insurance. (a) Level 3 will, and will cause each
of the Restricted Subsidiaries to, maintain, with financially sound and
reputable insurance companies (a) insurance in such amounts and against such
risks as are customarily maintained by companies engaged in the same or similar
businesses and (b) all insurance required to be maintained pursuant to the
Security Documents. Level 3 will furnish to the Lenders, upon request of the
Administrative Agent, information in reasonable detail as to the insurance so
maintained.
SECTION 5.08. Casualty and Condemnation. Level 3 (a) will
furnish to the Administrative Agent and the Lenders prompt written notice of any
casualty or other insured damage to any portion of any Collateral or the
commencement of any action or proceeding for the taking of any Collateral or any
part thereof or interest therein under power of eminent domain or by
condemnation or similar proceeding and (b) will ensure that the Net Proceeds of
any such event (whether in the form of insurance proceeds, condemnation awards
or otherwise) are collected and applied in accordance with the applicable
provisions of this Agreement and the Security Documents.
SECTION 5.09. Books and Records; Inspection and Audit Rights.
Each of Level 3 and the Borrowers will, and will cause each of the Restricted
Subsidiaries to, keep proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its
business and activities. Each of Level 3 and the Borrowers will, and will cause
each of the Restricted Subsidiaries to, permit any representatives designated by
the Administrative Agent or any Lender, upon reasonable prior notice, to visit
and inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times and as often as
reasonably requested.
SECTION 5.10. Compliance with Laws. Each of Level 3 and the
Borrowers will, and will cause each of the Restricted Subsidiaries to, comply
with all laws (including the Communication Act), rules, regulations and orders
of any Governmental Authority applicable to it or its property (including
obligations under Licenses), except where the failure to do so, individually or
in the aggregate, could
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not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit. The
proceeds of the Term Loans, together with the proceeds of the Incremental Loans
(if borrowed by BTE), will be used by BTE solely to finance the purchase by BTE
of Telecommunications Assets (including Telecommunications Assets owned on the
date of this Agreement) which will be held and owned by BTE, pledged to the
Collateral Agent for the benefit of the Shared Collateral Secured Parties
pursuant to the Shared Collateral Security Agreement or appropriate Mortgages
and made available for use by operating Subsidiaries pursuant to the Master
Lease Agreement. The proceeds of the Incremental Loans, if borrowed by a
Subsidiary of Level 3 other than BTE, shall be used by such Subsidiary solely to
finance the purchase of Telecommunications Assets which will be held and owned
by such Subsidiary, pledged to the Collateral Agent for the benefit of the
Lenders making Incremental Loans, and made available for use by operating
Subsidiaries pursuant to a lease agreement substantially similar to the Master
Lease Agreement. Term Loans and Incremental Loans may not exceed 100% of the
purchase price of the assets being financed with the proceeds thereof. The
proceeds of the Revolving Loans and Swingline Loans and the issuance of Letters
of Credit will be used by the RC Borrowers only for working capital and general
corporate purposes, including the construction, expansion, development or
acquisition of Telecommunications Assets and Telecommunications Related
Businesses. The proceeds of the Interim Loans shall be used solely to make
deposits in the Interim Loan Collateral Account and to pay amounts payable from
the Interim Loan Collateral Account. No part of the proceeds of any Loan will be
used, whether directly or indirectly, for any purpose that entails a violation
of any of the Regulations of the Board, including Regulations U and X.
SECTION 5.12. Additional Subsidiaries. If any additional
Subsidiary is formed or acquired after the Effective Date, Level 3 will, within
five Business Days after such Subsidiary is formed or acquired notify the
Administrative Agent thereof and will, within such five Business Days (or such
longer period, not to exceed 30 days, as the Administrative Agent may agree to),
cause the Collateral and Guarantee Requirement to be satisfied with respect to
such Subsidiary (if it is a Subsidiary Loan Party) and with respect to any
Equity Interest in or Indebtedness of such Subsidiary owned by or on behalf of
any Loan Party.
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SECTION 5.13. Further Assurances. (a) Level 3 will, and will
cause each Subsidiary Loan Party and the Interim Borrower to, execute any and
all further documents, financing statements, agreements and instruments, and
take all such further actions (including the filing and recording of financing
statements, fixture filings, mortgages, deeds of trust and other documents),
which may be required under any applicable law, or which the Administrative
Agent or the Required Lenders may reasonably request, to effectuate the
transactions contemplated by the Loan Documents or to grant, preserve, protect
or perfect the Liens created or intended to be created by the Loan Documents or
the validity or priority of any such Lien, all at the expense of the Loan
Parties or the Interim Borrower, as the case may be. Level 3, the Borrowers and
the Interim Borrower also agree to provide to the Administrative Agent, from
time to time upon request, evidence reasonably satisfactory to the
Administrative Agent as to the perfection and priority of the Liens created or
intended to be created by the Loan Documents.
(b) If any material assets (including any real property or
improvements thereto or any interest therein) are acquired by Level 3 or any
Subsidiary Loan Party after the Effective Date (other than (i) assets
constituting Collateral under the Security Agreements that become subject to the
Lien of the applicable Security Agreements upon acquisition thereof, (ii)
Specified Real Estate or any parcel of real estate which, together with any
structures thereon and existing improvements thereto, has a fair market value at
the time of acquisition thereof not in excess of $7,000,000 or (iii) assets
subject to Liens securing Indebtedness permitted by Sections 6.01 and 6.02),
Level 3 will notify the Administrative Agent and the Lenders thereof, and Level
3 will cause such assets to be subjected to a Lien securing the Shared
Collateral Secured Obligations and will take, and cause the Subsidiary Loan
Parties to take, such actions as shall be necessary or reasonably requested by
the Administrative Agent to grant and perfect such Liens, including actions
described in paragraph (a) of this Section, all at the expense of the Loan
Parties.
(c) If any Telecom Equipment Assets are acquired by Whitney or
any of its subsidiaries after the Effective Date (other than assets constituting
Collateral under the Security Agreements that become subject to the Lien of the
applicable Security Agreement upon acquisition thereof) Level 3 will notify the
Administrative Agent and the Lenders thereof and cause such assets to be subject
to a Lien securing the Shared Collateral Secured Obligations and will take, and
cause Whitney and its subsidiaries to take, such
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actions as shall be necessary or reasonably requested by the Administrative
Agent to grant and perfect such Liens, including actions described in paragraph
(a) of this Section, all at the expense of Whitney or the Loan Parties.
SECTION 5.14. Interest Rate Protection. Within 180 days after
the Effective Date, Level 3 will enter into, and thereafter will maintain in
effect, one or more interest rate protection agreements with Lenders (or
Affiliates thereof) or such other parties as shall be reasonably satisfactory to
the Administrative Agent, the effect of which (when taken together with other
fixed rate indebtedness) shall be to fix or limit the interest cost to Level 3
with respect to at least 30% of the outstanding Combined Total Debt of Level 3
and the Restricted Subsidiaries (including fixed rate indebtedness).
SECTION 5.15. Support of Equipment Borrowers. Level 3 will
indemnify each Equipment Borrower for, and provide each Equipment Borrower with
the funds to pay, all costs, expenses, liabilities and losses incurred by such
Equipment Borrower under vendor contracts or otherwise to the extent the amount
required to be paid in respect thereof exceeds such Equipment Borrower's then
available cash.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, each of Level 3 and the Borrowers
covenants and agrees with the Lenders that:
SECTION 6.01. Indebtedness; Certain Equity
Securities. (a) Level 3 and the Borrowers will not, and
will not permit any Restricted Subsidiary to, create, incur,
assume or permit to exist any Indebtedness or Attributable
Debt in respect of sale lease-back transactions, except:
(i) Indebtedness created under the Loan Documents;
(ii) Permitted Debt of Level 3, provided that after giving
effect to the incurrence thereof, Level 3 is in pro forma compliance
with the financial covenants in Sections 6.14(d)-(g);
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(iii) Indebtedness of Restricted Subsidiaries
existing on the date hereof and set forth in
Schedule 6.01;
(iv) Indebtedness of Level 3 to any Restricted Subsidiary and
of any Restricted Subsidiary (other than an Equipment Borrower) to
Level 3 or any other Restricted Subsidiary; provided that Indebtedness
of any Restricted Subsidiary that is not a Loan Party to Level 3 or any
Subsidiary Loan Party shall be subject to Section 6.05;
(v) Guarantees by Level 3 or any Restricted Subsidiary (other
than any Equipment Borrower) of Indebtedness of any Restricted
Subsidiary; provided that Guarantees by Level 3 or any Subsidiary Loan
Party of Indebtedness of any Restricted Subsidiary that is not a Loan
Party shall be subject to Section 6.05;
(vi) Indebtedness of Level 3 or any Restricted Subsidiary
(other than a Foreign Subsidiary) incurred to finance the acquisition,
construction, installation, development or improvement of any fixed or
capital assets, including Capital Lease Obligations and any
Indebtedness assumed in connection with the acquisition of any such
assets or secured by a Lien on any such assets prior to the acquisition
thereof; provided that (A) such Indebtedness is incurred prior to or
within 270 days after such acquisition or the completion of such
construction, installation, development or improvement and (B) the
aggregate principal amount of Indebtedness permitted by this clause
(vi), together with the aggregate principal amount of outstanding
Incremental Loans, shall not exceed (x) $2,625,000,000 at any time
outstanding until Level 3 has received, after the date hereof, an
aggregate of $500,000,000 in Equity Proceeds, Conversion Proceeds,
Equity Purchase Consideration and Special Asset Gains or any
combination thereof, (y) $3,125,000,000 at any time outstanding until
Level 3 has received, after the date hereof, an aggregate of
$1,000,000,000 in Equity Proceeds, Conversion Proceeds, Equity Purchase
Consideration and Special Asset Gains or any combination thereof and
(z) $3,625,000,000 at any time outstanding thereafter;
(vii) Secured Indebtedness of Level 3 or any Restricted
Subsidiary other than an Equipment Borrower (including Attributable
Debt in respect of sale lease-back transactions) incurred in connection
with the financing of the Specified Real Estate and the London
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Properties; provided the respective amounts thereof do not exceed the
fair market value of the relevant property (exclusive of any
Telecommunications Assets that are fixtures thereto) at the time of
incurrence of such Indebtedness (as reasonably determined by the chief
financial officer of Level 3);
(viii) pre-existing Indebtedness of any Person that becomes a
Restricted Subsidiary; provided that (A) such Indebtedness exists at
the time such Person becomes a Restricted Subsidiary and is not created
in contemplation of or in connection with such Person becoming a
Restricted Subsidiary and (B) the Collateral and Guarantee Requirement
is satisfied with respect to such Restricted Subsidiary and any Equity
Interests or Indebtedness of such Restricted Subsidiary held by any
Loan Party;
(ix) other Indebtedness of Level 3 or any Restricted
Subsidiary (other than of Equipment Borrowers and Foreign
Subsidiaries), including Attributable Debt in respect of sale
lease-back transactions, in an aggregate principal amount for all such
Indebtedness outstanding (including any refinancings of such
Indebtedness) not to exceed at the time of incurrence of any such
Indebtedness 5% of Combined Total Assets at the end of the fiscal
quarter most recently ended;
(x) Indebtedness of Level 3 and the Restricted Subsidiaries
pursuant to Hedging Agreements entered into to fix the effective rate
of interest on the Loans or other Indebtedness, provided such
transactions are entered into to hedge actual interest rate exposures
and not for the purpose of speculation;
(xi) Indebtedness incurred to refinance any Indebtedness
permitted under clauses (iii), (vi), (vii), (viii) and (ix) of this
Section 6.01; provided that (a) such refinancing Indebtedness (i) shall
not have a greater outstanding principal amount (except to the extent
necessary to pay fees, expenses, underwriting discounts and prepayment
premiums in connection therewith), an earlier maturity date or a
decreased weighted average life than the Indebtedness refinanced and
(ii) shall be subordinated to the Indebtedness created under the Loan
Documents to at least the extent of, and shall otherwise be issued on
terms no less favorable in any material respect to the Lenders than,
the Indebtedness refinanced, (b) the proceeds of such Indebtedness
shall be used solely to
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repay the Indebtedness refinanced thereby and fees, expenses,
underwriting discounts and prepayment premiums in connection therewith
and (c) such refinancing Indebtedness, if incurred by Level 3, is not
Guaranteed by any Restricted Subsidiary; and
(xii) surety and performance bonds incurred in the ordinary
course of business not securing Indebtedness for borrowed money.
For purposes of determining any particular amount of Indebtedness under this
Section 6.01, in the event an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described in the above clauses, Level 3,
in its sole discretion, may classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses.
(b) The Borrowers will not, nor will they permit any
Restricted Subsidiary to, issue any preferred stock or be or become liable in
respect of any obligation (contingent or otherwise) to purchase, redeem, retire,
acquire or make any other payment in respect of any shares of Capital Stock of
Level 3, any Borrower or any Restricted Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock.
(c) No Equipment Borrower will incur, assume or permit to
exist any Indebtedness except Indebtedness under the Loan Documents.
SECTION 6.02. Liens. (a) Level 3 and the Borrowers will not,
and will not permit any Restricted Subsidiary to, create, incur, assume or
permit to exist any Lien on any property or asset now owned or hereafter
acquired by it, or assign or sell any income or revenues (including accounts
receivable) or rights in respect of any thereof, except:
(i) Liens created under the Loan Documents;
(ii) Permitted Encumbrances;
(iii) any Lien on any property or asset of Level 3 or any
Restricted Subsidiary existing on the date hereof and set forth in
Schedule 6.02; provided that (i) such Lien shall not apply to any other
property or asset of Level 3 or any Restricted Subsidiary and (ii) such
Lien shall secure only those obligations which it secures on the date
hereof and extensions, renewals and replacements thereof that do not
increase (except as
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permitted under Section 6.01(a)(xi)) the outstanding
principal amount thereof;
(iv) any Lien existing on any property or asset prior to the
acquisition thereof by Level 3 or any Restricted Subsidiary or on any
property or asset of any Person that becomes a Restricted Subsidiary in
connection with an acquisition permitted by Section 6.05 hereof after
the date hereof which Lien exists prior to the time such Person becomes
a Restricted Subsidiary; provided that (A) such Lien is not created in
contemplation of or in connection with such acquisition or such Person
becoming a Restricted Subsidiary, as the case may be, (B) such Lien
shall not apply to any other property or assets of Level 3 or any
Restricted Subsidiary and (C) such Lien shall secure only those
obligations which it secures on the date of such acquisition or the
date such Person becomes a Restricted Subsidiary, as the case may be
and extensions, renewals and replacements thereof that do not increase
the outstanding principal amount thereof;
(v) Liens, including pursuant to any Capital Lease Obligation,
on fixed or capital assets (other than Synergy Sites) acquired,
constructed, installed developed or improved by Level 3 or any
Restricted Subsidiary; provided that (A) such security interests secure
Indebtedness permitted by clause (vi) of Section 6.01(a), (B) such
security interests and the Indebtedness secured thereby are incurred
prior to or within 270 days after such acquisition or the completion of
such construction or improvement, installation or development, (C) the
Indebtedness secured thereby does not exceed 100% of the cost of
acquiring, constructing, installing developing or improving such fixed
or capital assets and (D) such security interests shall not apply to
any other property or assets of Level 3 or any Restricted Subsidiary
(it being understood that all indebtedness to any single lender or
group of related lenders or outstanding under any single credit
facility, and in any case relating to the same group or collection of
Telecommunications Assets financed thereby, shall be considered a
single purchase money indebtedness, whether drawn at one time or from
time to time);
(vi) Liens on the Specified Real Estate and the London
Properties securing indebtedness permitted under clause (vii) of
Section 6.01(a) and any refinancings thereof permitted by clause (xi)
of Section 6.01(a); provided that such Liens do not extend to other
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properties or assets (other than Telecom Building
Fixtures);
(vii) Liens securing Indebtedness of Level 3 to any
Restricted Subsidiary and of any Restricted Subsidiary
(other than an Equipment Borrower) to any Subsidiary
Loan Party;
(viii) other Liens, including in respect of sale leaseback
transactions; provided that neither the aggregate book value of the
assets subject to such Liens does not nor the aggregate Indebtedness
secured thereby at any time exceeds 2% of Combined Total Assets;
provided, that, notwithstanding the foregoing, Level 3 and the Borrowers will
not and will not permit any Restricted Subsidiary to create, incur, assume or
permit to exist any Lien (other than Liens permitted by clauses (ii) and (iv)
above or, with respect to real estate and Telecom Equipment Assets acquired
after the date hereof (other than Synergy Sites with a fair market value not in
excess of $7,000,000), clause (v) above) on any real estate (other than
Specified Real Estate or the London Properties) or on any Telecom Equipment
Assets located at, incorporated in, or attached to, such real estate (including
fixtures), that has an aggregate fair market value in excess of $500,000.
(b) No Equipment Borrower will create, incur, assume or permit
to exist any Lien on any property or asset now or hereafter acquired by it, or
assign or sell any income or revenues (including accounts receivable) or rights
in respect thereof, except Liens created under the Loan Documents and Permitted
Encumbrances.
SECTION 6.03. Fundamental Changes. (a) Neither Level 3 nor any
Borrower will, nor will they permit any Restricted Subsidiary to, merge into or
consolidate with any other Person, or permit any other Person to merge into or
consolidate with it, or liquidate or dissolve, except that, if at the time
thereof and immediately after giving effect thereto no Default shall have
occurred and be continuing (i) any Person (other than a Borrower and the Interim
Borrower) may merge into Level 3 in a transaction in which Level 3 is the
surviving corporation, (ii) any Person may merge into any Restricted Subsidiary
(other than an Equipment Borrower) in a transaction in which the surviving
entity is a Wholly Owned Restricted Subsidiary and, in the case of any such
transaction involving a Loan Party, a Loan Party and (iii) any Restricted
Subsidiary (other than an Equipment Borrower) may liquidate or dissolve if Level
3
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determines in good faith that such liquidation or dissolution is in the best
interests of Level 3 and is not materially disadvantageous to the Lenders;
provided that any such merger involving a Person that is not a Wholly Owned
Restricted Subsidiary immediately prior to such merger shall not be permitted
unless also permitted by Section 6.05.
(b) Level 3 will not, and will not permit any of the
Restricted Subsidiaries to, engage to any material extent in any business other
than a Telecommunications Business or any businesses of the type conducted by
Level 3 and the Restricted Subsidiaries on the date of execution of this
Agreement and businesses reasonably related thereto.
(c) Level 3 will not permit any Restricted Subsidiary to merge
or consolidate with any other Person, issue or sell shares of its Capital Stock
or take any other action if as a result thereof such Restricted Subsidiary would
cease to be a Wholly Owned Restricted Subsidiary of Level 3.
SECTION 6.04. Sale and Lease-Back Transactions. Level 3 and
the Borrowers will not, nor will they permit any Restricted Subsidiary to, enter
into any arrangement, directly or indirectly, with any Person whereby it shall
sell or transfer any property, real or personal, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or lease such
property or other property which it intends to use for substantially the same
purpose as the property being sold or transferred, except to the extent all
Capital Lease Obligations, Attributable Debt and Liens associated with such sale
and lease-back transaction are permitted by Sections 6.01 and 6.02 (treating the
property subject thereto as being subject to a Lien securing the related
Attributable Debt, in the case of a sale and lease-back not accounted for as a
Capital Lease Obligation).
SECTION 6.05. Investments, Loans, Advances, Guarantees and
Acquisitions. Level 3 and the Borrowers will not, and will not permit any of the
Restricted Subsidiaries to make or permit to exist any Investment in any other
Person, or purchase or otherwise acquire (in one transaction or a series of
transactions) any assets of any other Person constituting a business unit,
except:
(a) Permitted Investments;
(b) Investments existing on the date hereof and set forth on
Schedule 6.05;
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(c) Investments by Level 3 and the Restricted Subsidiaries in
the Capital Stock or capital of Restricted Subsidiaries that are Loan
Parties (other than the Equipment Borrowers); provided that such shares
of Capital Stock shall be pledged pursuant to the Shared Collateral
Pledge Agreement;
(d) loans or advances made by Level 3 to any Restricted
Subsidiary (other than any Equipment Borrower or any Foreign
Subsidiary) and made by any Restricted Subsidiary to Level 3 or any
other Restricted Subsidiary (other than any Equipment Borrower or any
Foreign Subsidiary); provided that such loans and advances shall be
evidenced by a promissory note pledged pursuant to the Shared
Collateral Pledge Agreement;
(e) Permitted Business Acquisitions; provided that such
acquisitions (A) are effected (i) as a stock acquisition for
consideration consisting of common stock of Level 3 or Non-Cash Pay
Preferred Stock of Level 3, (ii) with Equity Proceeds or Conversion
Proceeds received by Level 3 after the date hereof, to the extent not
applied to any other Designated Equity Proceeds Use, (iii) with Net
Proceeds from the March 1999 issuance of common stock by Level 3, to
the extent not used for any other purpose (other than making Permitted
Investments) or (iv) with Net Proceeds from Prepayment Events, to the
extent not required to be applied to the repayment of Term Loans
pursuant to Sections 2.10 and 2.11 or (B) to the extent not effected
pursuant to clause (A), are in an aggregate cumulative amount not at
any time in excess of 5% of Combined Total Assets as of the fiscal
quarter most recently ended;
(f) Investments by Level 3 or any Restricted Subsidiary in
joint ventures, Foreign Subsidiaries, Unrestricted Subsidiaries and
other Persons that are not Loan Parties which are acquired for
consideration consisting of (i) common stock of Level 3 or Non-Cash Pay
Preferred Stock of Level 3, (ii) Equity Proceeds or Conversion Proceeds
received after the date hereof not applied to any other Designated
Equity Proceeds Use, (iii) telecommunications or broadband services
(including colocation services) and (iv) in the case of a joint
venture, Foreign Subsidiary, Unrestricted Subsidiary or other Person
created to comply with foreign ownership requirements of a jurisdiction
located outside the United States, telecommunication assets located in
such foreign jurisdiction; provided,
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however, that any loans or advances by Level 3 or any Restricted
Subsidiary to Foreign Subsidiaries to finance the acquisition of any
such telecommunications assets shall be evidenced by demand notes
pledged to the Agent in accordance with paragraph (j) of this
Section 6.05.;
(g) Investments by Level 3 or any Restricted Subsidiary in
Unrestricted Subsidiaries, including Whitney Holding Corp. ("Whitney")
in an aggregate amount not to exceed $475,000,000 less the amount of
Net Proceeds received from any mortgage or sale leaseback financings of
the Specified Real Estate owned by Whitney;
(h) Investments by Level 3 or any Restricted Subsidiary in
joint ventures, Foreign Subsidiaries and other Persons that are not
Loan Parties (other than Unrestricted Subsidiaries), in an aggregate
cumulative amount not at any time in excess of 6% of Combined Total
Assets as of the fiscal quarter most recently ended;
(i) In the event Level 3's undersea cable and related backhaul
capacity operations are refinanced as a joint venture or in an
Unrestricted Subsidiary, investments by Level 3 or any Restricted
Subsidiary in such joint venture or Unrestricted Subsidiary in an
aggregate amount not in excess of $600,000,000;
(j) Loans by Level 3 or any Restricted Subsidiary to Foreign
Subsidiaries that are Restricted Subsidiaries, provided that such loans
are evidenced by demand notes pledged to the Agent under the Shared
Collateral Pledge Agreement for the benefit of the Shared Collateral
Secured Parties;
(k) Investments by Level 3 or any Restricted Subsidiary in an
Equipment Borrower to the extent consistent with maintaining the
capitalization of such Equipment Borrower required under Section
6.14(h) (taking into account anticipated Term Loan Borrowings and the
Incremental Borrowings and the use of proceeds thereof);
(l) Guarantees constituting Indebtedness permitted
by Section 6.01;
(m) Investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes
with, customers and
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suppliers, in each case in the ordinary course of
business;
(n) loans, advances or extensions of credit to employees and
directors made in the ordinary course of business and consistent with
past practice;
(o) Investments in prepaid expenses;
(p) negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar
deposits in the ordinary course of business; and
(q) Investments received as a result of asset sales permitted
under this Agreement.
Notwithstanding the foregoing, no Equipment Borrower will make any investment
other than investments in (a) Telecommunications Assets not consisting of
Capital Stock and (b) Permitted Investments. The Interim Borrower will not make
any investments, loans or advances whatsoever, other than cash deposited in the
Interim Loan Collateral Account and Permitted Investments maintained in the
Interim Loan Collateral Account in accordance with Section 2.22.
SECTION 6.06. Asset Sales. Level 3 and the Borrowers will not,
and will not permit any of the Restricted Subsidiaries to, sell, transfer, lease
or otherwise dispose of any asset, including any Capital Stock, nor will Level 3
permit any of the Restricted Subsidiaries to issue any additional shares of its
Capital Stock or other ownership interest in such Restricted Subsidiary, except:
(a) sales of inventory (including dark fiber and conduits),
used or surplus equipment and Permitted Investments in the ordinary
course of business;
(b) sales, transfers and dispositions to Level 3 or a
Restricted Subsidiary; provided that any such sales, transfers or
dispositions involving a Restricted Subsidiary that is not a Loan Party
shall be made in compliance with Section 6.09; and
(c) sales, transfers and dispositions of assets (including
Capital Stock of Unrestricted Subsidiaries and, if after giving effect
to such disposition PKSI does not own Capital Stock of any Restricted
Subsidiary, PKSI but excluding Capital Stock of a Restricted
Subsidiary) that are not permitted by any other clause of this Section;
provided that the Net
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Proceeds therefrom are utilized by Level 3 or a Restricted Subsidiary
in accordance with the provisions of Sections 2.11 and 6.05 to acquire
Telecommunications Assets, effect Permitted Business Acquisitions or
repay
Term Loans;
provided that all sales, transfers, leases and other dispositions permitted
hereby shall be made for fair market value and solely for consideration at least
75% of which consists of cash or Telecommunications Assets or of Capital Stock
of Persons engaged in the Telecommunications Business; provided the aggregate
amount of all such Capital Stock of Persons engaged in the Telecommunications
Business (other than Persons that become Restricted Subsidiaries as a result of
the receipt of such Capital Stock) received as part of such 75% consideration
for all such sales, transfers, leases and other dispositions during the term of
this Agreement does not exceed $50,000,000.
SECTION 6.07. Hedging Agreements. Level 3 and the Borrowers
will not, and will not permit any of the Restricted Subsidiaries to, enter into
any Hedging Agreement, other than (a) Hedging Agreements required by Section
5.14 and (b) Hedging Agreements entered into in the ordinary course of business
to hedge or mitigate risks to which Level 3 or any Restricted Subsidiary is
exposed in the conduct of its business or the management of its liabilities.
SECTION 6.08. Restricted Payments; Certain Payments of
Indebtedness. (a) Neither Level 3 nor the Borrowers will, nor will they permit
any Restricted Subsidiary to, declare or make, or agree to pay or make, directly
or indirectly, any Restricted Payment, except (i) Level 3 may declare and pay
dividends with respect to its Capital Stock payable solely in additional shares
of its common stock or its Non-Cash Pay Preferred Stock and Level 3 may issue
shares of common stock or Non-Cash Pay Preferred Stock upon conversion or
repurchase of any convertible Indebtedness (including the 6.0% Convertible
Subordinated Notes Due 2009) of Level 3, (ii) Restricted Subsidiaries may
declare and pay dividends ratably to holders of their Capital Stock (other than
Level 3), (iii) Level 3 may make Restricted Payments, pursuant to and in
accordance with stock option plans or other benefit plans for management or
employees of Level 3 and the Restricted Subsidiaries from Equity Proceeds and
Conversion Proceeds received after the date hereof and not applied to any other
Designated Equity Proceeds Use and, to the extent not made with such Equity
Proceeds and Conversion Proceeds, in an aggregate amount not in excess of
$3,000,000 during any 12-month period,
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(iv) Restricted Subsidiaries may pay dividends to Level 3 at such times and in
such amounts as shall be necessary to permit Level 3 to pay administrative
expenses attributable to the operations of the Restricted Subsidiaries, (v)
Restricted Subsidiaries may pay dividends to Level 3 at such times and in such
amounts as are sufficient for Level 3 (A) to make the timely payment of
interest, premium (if any) and principal (whether at stated maturity, by way of
a sinking fund applicable thereto, by way of any mandatory redemption,
defeasance, retirement or repurchase thereof, including upon the occurrence of
designated events or circumstances or by virtue of acceleration upon an event of
default, or by way of redemption or retirement at the option of the holder of
the Indebtedness under the Level 3 Indentures or senior, unsubordinated
Permitted Debt permitted by Section 6.01(a)(ii), as applicable, including
pursuant to offers to purchase) according to the terms of the Level 3 Indentures
or such senior unsubordinated Permitted Debt permitted by Section 6.01(a)(ii),
as applicable, and (B) so long as no Default exists or would result therefrom,
to make timely payment of interest on subordinated Permitted Debt permitted by
Section 6.01(a)(ii), provided that the payment of such interest is not, at the
time such dividend is paid, prohibited by the subordination provisions
applicable to such Permitted Debt, (vi) Level 3 may pay cash dividends on its
preferred stock in a cumulative amount not in excess of the Equity Proceeds and
Conversion Proceeds received after the date hereof which have not been applied
to any other Designated Equity Proceeds Use and (vii) so long as (A) no Default
exists and (B) Level 3's Leverage Ratio did not exceed 4.0 to 1.0 as of the most
recent date for which financial statements have been delivered pursuant to
Section 5.01(a) or (b), Level 3 may make Restricted Payments in any year in an
aggregate amount not to exceed 50% of Combined Net Income for the prior fiscal
year.
(b) Neither Level 3 nor the Borrowers will, nor will they
permit any Restricted Subsidiary to (a) make or agree to pay or make, directly
or indirectly, any payment or other distribution (whether in cash, securities or
other property) of or in respect of principal of or interest on any unsecured
Indebtedness or any subordinated Indebtedness, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancelation or termination of any such Indebtedness or
(b) any payment to any Derivatives Counterparty as a result of any change in the
market value of any such Indebtedness that is publicly traded (provided, that
(i) no payment shall be deemed to have been made to any
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Derivatives Counterparty to the extent Derivatives Counterparties have made
cumulative payments to Level 3 or any Restricted Subsidiary as a result of
changes in the market value of such publicly traded Indebtedness in a cumulative
amount in excess of the payments made to Derivatives Counterparties by Level 3
and the Restricted Subsidiaries as a result of such changes and (ii) it is
understood that the intent of the above language relating to payments to and
from Derivatives Counterparties is to prohibit payments and distributions
pursuant to transactions entered into with Derivatives Counterparties only if
Level 3 intends such transactions to have substantially the same economic effect
as the payments and distributions referred to in clause (a) above), except:
(i) payment of regularly scheduled interest and principal
payments as and when due in respect of any Indebtedness, other than
payments in respect of the subordinated debt prohibited by the
subordination provisions thereof; and
(ii) refinancings of Indebtedness to the extent permitted by
Section 6.01(xi).
SECTION 6.09. Transactions with Affiliates. Neither Level 3
nor the Borrowers will, nor will they permit any Restricted Subsidiary to, sell,
lease or otherwise transfer any property or assets to, or purchase, lease or
otherwise acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) transactions in the
ordinary course of business that and are at prices and on terms and conditions
not less favorable to Level 3, such Borrower or such Restricted Subsidiary than
could be obtained on an arm's-length basis from unrelated third parties (or, in
the event that there are no comparable transactions involving Persons who are
not Affiliates of Level 3 or the relevant Restricted Subsidiary to apply for
comparative purposes, is otherwise on terms that, taken as a whole, are fair to
Level 3 or the relevant Restricted Subsidiary as determined by (i) with respect
to a transaction or group of related transactions of $5,000,000 or more, the
board of directors or executive committee of the board of directors of Level 3
including the affirmative vote of at least one independent director and (ii)
with respect to a transaction or group of transactions of less than $5,000,000,
an Executive Officer of Level 3), (b) transactions between or among Level 3 and
the Subsidiary Loan Parties not involving any other Affiliate and (c) any
Restricted Payment permitted by Section 6.08 and (d) any agreement or
arrangement with respect to the compensation of a director or officer of
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Level 3 or any Restricted Subsidiary approved by a majority of the disinterested
members of the board of directors and consistent with industry practice.
SECTION 6.10. Restrictive Agreements. Neither Level 3 nor any
of the Borrowers will, nor will they permit any Restricted Subsidiary to,
directly or indirectly, enter into, incur or permit to exist any agreement or
other arrangement that prohibits, restricts or imposes any condition upon (a)
the ability of Level 3 or any Restricted Subsidiary to create, incur or permit
to exist any Lien upon any of its property or assets, or (b) the ability of any
Restricted Subsidiary to pay dividends or other distributions with respect to
any shares of its Capital Stock or to make or repay loans or advances to Level 3
or any other Restricted Subsidiary or to Guarantee Indebtedness of Level 3 or
any other Restricted Subsidiary; provided that (i) the foregoing shall not apply
to restrictions and conditions imposed by law or by any Loan Document or by the
Level 3 Indentures, (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Schedule 6.10 (but shall
apply to any extension or renewal of, or any amendment or modification expanding
the scope of, any such restriction or condition), (iii) the foregoing shall not
apply to customary restrictions and conditions contained in agreements relating
to the sale of a Restricted Subsidiary pending such sale, provided such
restrictions and conditions apply only to the Restricted Subsidiary that is to
be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing
shall not apply to restrictions or conditions imposed by any agreement relating
to secured Indebtedness permitted by this Agreement if such restrictions or
conditions apply only to the property or assets securing such Indebtedness and
(v) clause (a) of the foregoing shall not apply to customary provisions in
leases, rights of way and franchises restricting the assignment thereof.
SECTION 6.11. Amendment of Material Documents. Neither Level 3
nor any of the Borrowers will, nor will they permit any Restricted Subsidiary
to, amend, modify or waive any of its rights under (a) the Level 3 Indentures or
(b) its certificate of incorporation, by-laws or other organizational documents,
in each case in a manner adverse to the Lenders.
SECTION 6.12. Liabilities of Equipment Borrowers;
Business and Liabilities of Interim Borrower. (a) Level 3
and the Borrowers will not permit any Equipment Borrower
(i) to incur, assume or permit to exist any liabilities or
obligations other than (x) liabilities and obligations under
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(A) the Loan Documents, (B) the Master Lease Agreement and (C) contracts with
vendors for the purchase of Telecommunications Assets and (y) ordinary course
non-debt liabilities incidental to being a corporate entity, such as taxes and
administrative expenses, or (ii) to engage in any activity other than purchasing
Telecommunications Assets financed with cash on hand or the proceeds of capital
contributions or of the Term Loans and the Incremental Loans and holding and
leasing such Telecommunication Assets to operating subsidiaries of Level 3
pursuant to the Master Lease Agreement.
(b) Level 3 and the Borrowers will not (i) permit any
Equipment Borrower to have any subsidiaries or hold any Equity Interests in any
Person or (ii) permit any Equipment Borrower to lease or make available for use
by any other Person any Telecommunications Assets financed in whole or part with
the proceeds of Borrowings of Term Loans or Incremental Loans hereunder except
pursuant to the Master Lease Agreement, in the case of BTE, or a similar master
lease agreement of any other Equipment Borrower, in each case pledged to the
Collateral Agent for the benefit of the Lenders to such Equipment Borrower.
(c) Level 3 will not permit the Interim Borrower (i) to incur,
assume or permit to exist any liabilities or obligations other than (x)
liabilities and obligations under this Agreement and (y) ordinary course
non-debt liabilities incidental to being a corporate entity, such as taxes and
administrative expenses or (ii) to engage in any activity other than borrowing
Interim Loans, making payments required to be made by it under this Agreement
and depositing cash in the Interim Loan Collateral Account.
SECTION 6.13. Designation of Unrestricted Subsidiaries. (a)
Level 3 may not designate any Restricted Subsidiary (other than a Colocation
Subsidiary) as an Unrestricted Subsidiary and may hereafter designate any other
Subsidiary (including a Colocation Subsidiary) as an Unrestricted Subsidiary
under this Agreement (a "Designation") only if:
(i) such Subsidiary is a Colocation Subsidiary or (x) is not
engaged in any Telecommunications Business in the United States, (y)
does not own any Capital Stock of any Restricted Subsidiary or any
other entity engaged in any Telecommunications Business in the United
States and (z) does not own or lease a material amount of
Telecommunications Assets used in the United States;
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(ii) no Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(iii) after giving effect to such Designation and any related
Investment to be made in such designated Subsidiary by Level 3 or any
Restricted Subsidiary (which shall in any event include the existing
Investment in such Subsidiary at the time it is designated as an
Unrestricted Subsidiary and comply with the provisions of Section
6.05), Level 3 would be in compliance with each of the covenants set
forth in Section 6.14 calculated on a pro forma basis as if such
Designation and investment had occurred immediately prior to the first
day of the period of four consecutive fiscal quarters most recently
ended in respect of which financial statements have been delivered by
Level 3 pursuant to Section 5.01(a) or (b);
(iv) Level 3 has delivered to the Administrative Agent (x)
written notice of such Designation and (y) a certificate, dated the
effective date of such Designation, of an Executive Officer stating
that no Event of Default has occurred and is continuing and setting
forth reasonably detailed calculations demonstrating pro forma
compliance with Section 6.14 in accordance with paragraph (iii) above;
and
(v) in respect of the Designation of a Colocation Subsidiary,
such Colocation Subsidiary has entered into an agreement with a
Borrower or a Restricted Subsidiary providing that such Borrower or
Restricted Subsidiary is the sole source provider of broadband services
to such Colocation Subsidiary (it being understood that such Colocation
Subsidiary is not obligated to offer broadband services to its
customers).
(b) Level 3 may designate any Unrestricted Subsidiary as a
Restricted Subsidiary under this Agreement (an "RS Designation") only if:
(i) such Subsidiary is predominantly engaged in
one or more Telecommunications Businesses;
(ii) no Event of Default shall have occurred and be continuing
at the time of or after giving effect to such RS Designation, and after
giving effect thereto, Level 3 would be in compliance with each of the
covenants set forth in Section 6.14 calculated on a pro forma basis as
if such RS Designation had occurred
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immediately prior to the first day of the period of four consecutive
fiscal quarters most recently ended in respect of which financial
statements have been delivered by Level 3 pursuant to Section 5.01(a)
or (b); and
(iii) all Liens on assets of such Unrestricted Subsidiary and
all Indebtedness of such Unrestricted Subsidiary outstanding
immediately following the RS Designation would, if initially incurred
at such time, have been permitted to be incurred pursuant to Sections
6.01 and 6.02 without reliance on Section 6.01(a)(viii) or Section
6.02(a)(iv).
Upon any such RS Designation with respect to an Unrestricted
Subsidiary (i) Level 3 and the Restricted Subsidiaries shall be deemed to have
received a return of their Investment in such Unrestricted Subsidiary equal to
the lesser of (x) the amount of such Investment immediately prior to such RS
Designation and (y) the fair market value (as reasonably determined by Level 3)
of the net assets of such Subsidiary at the time of such RS Designation and (ii)
Level 3 and the Restricted Subsidiaries shall be deemed to have a permanent
Investment in an Unrestricted Subsidiary equal to the excess, if positive, of
the amount referred to in clause (i)(x) above over the amount referred to in
clause (i)(y) above.
(c) Neither Level 3 nor any Restricted Subsidiary shall at any
time (x) provide a Guarantee of any Indebtedness of any Unrestricted Subsidiary,
(y) be directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any other Indebtedness
which provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon (or cause such Indebtedness or the payment thereof to
be accelerated, payable or subject to repurchase prior to its final scheduled
maturity) upon the occurrence of a default with respect to any other
Indebtedness that is Indebtedness of an Unrestricted Subsidiary, except in the
case of clause (x) or (y) to the extent permitted under Section 6.01 and Section
6.05 hereof. Each Designation shall be irrevocable, and no Unrestricted
Subsidiary may become a Restricted Subsidiary, be merged with or into Level 3 or
a Restricted Subsidiary or liquidate into or transfer substantially all its
assets to Level 3 or a Restricted Subsidiary.
SECTION 6.14. Financial Covenants. Level 3 and
the Borrowers will not:
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(a) Minimum Intercity Route Miles Completed. (i) Permit the
aggregate number of Intercity Route Miles Completed on and after any date set
forth below to be less than the amount set forth opposite such date:
December 31, 1999 6,000
March 31, 2000 7,750
June 30, 2000 10,000
September 30, 2000 11,000
December 31, 2000 12,000
(ii) Permit the aggregate number of Intercity Route Miles with Fiber Completed
on and after June 30, 2001 to be less than 12,000.
(b) Minimum Markets with Fiber Networks. Permit the number of
Markets With Fiber Networks owned by Level 3 and the Restricted Subsidiaries on
and after the dates set forth below to be less than the number set forth
opposite such date:
December 31, 1999 15
March 31, 2000 15
June 30, 2000 20
September 30, 2000 20
December 31, 2000 20
(c) Minimum Telecom Revenue. Permit Combined Telecom Revenue
of Level 3 for each period of four consecutive fiscal quarters ending on any
date set forth or referred to below, to be less than the amount set forth
opposite such date:
March 31, 2000 $ 150,000,000
June 30, 2000 $ 275,000,000
September 30, 2000 $ 600,000,000
December 31, 2000 $ 775,000,000
March 31, 2001 $1,000,000,000
June 30, 2001 $1,000,000,000
September 30, 2001 $1,250,000,000
December 31, 2001 $1,500,000,000
March 31, 2002 $1,500,000,000
June 30, 2002 $1,650,000,000
September 30, 2002 $2,000,000,000
December 31, 2002 $2,300,000,000
March 31, 2003 $2,500,000,000
June 30, 2003 $2,500,000,000
September 30, 2003 $3,000,000,000
December 31, 2003 $3,375,000,000
March 31, 2004 $3,750,000,000
June 30, 2004 $3,750,000,000
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September 30, 2004 $4,250,000,000
December 31, 2004
and thereafter $4,750,000,000
(d) Combined Total Debt to Contributed Capital. Permit the
ratio of Combined Total Debt to Contributed Capital on any date during any
period set forth below to exceed the ratio set forth opposite such period:
Effective Date through - March 31, 2000 60.0%
April 1, 2000 - December 31, 2000 70.0%
January 1, 2001 - December 31, 2001 75.0%
January 1, 2002 - December 31, 2002 75.0%
January 1, 2003 - December 31, 2003 75.0%
January 1, 2004 - December 31, 2004 75.0%
January 1, 2005 - and thereafter 70.0%
(e) Combined Total Debt to Combined Telecom Revenue. Permit
the ratio of Combined Total Debt on any date during any period set forth below
to Combined Telecom Revenue for the most recently completed period of four
consecutive fiscal quarters ending on or prior to such date to exceed the ratio
set forth opposite such period:
January 1, 2000 - March 31, 2000 22.0 to 1.00
April 1, 2000 - June 30, 2000 16.0 to 1.00
July 1, 2000 - September 30, 2000 10.25 to 1.00
October 1, 2000 - December 31, 2000 7.5 to 1.00
January 1, 2001 - December 31, 2001 5.5 to 1.00
January 1, 2002 - December 31, 2002 4.5 to 1.00
January 1, 2003 - and thereafter 3.0 to 1.00
(f) Combined Senior Secured Debt to Combined Gross PPE. Permit
the ratio of Combined Senior Secured Debt to Combined Gross Property, Plant and
Equipment on any date to exceed 50%.
(g) Total Leverage. Permit the Leverage Ratio, on any date, to
exceed the ratio opposite the period below in which such date occurs:
As at December 31, 2004 6.0 to 1.00
January 1, 2005 - December 31, 2005 5.0 to 1.00
January 1, 2006 and thereafter 4.0 to 1.00
(h) BTE's Debt to BTE's Total Gross Assets. Permit the ratio
of BTE Total Debt to BTE's Total Gross Assets on any date to exceed .65 to 1.00.
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ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall
occur:
(a) any Borrower or the Interim Borrower shall fail to pay any
principal of any Loan or any reimbursement obligation in respect of any
LC Disbursement when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed for prepayment
thereof or otherwise;
(b) any Borrower or the Interim Borrower shall fail to pay any
interest on any Loan or any fee or any other amount (other than an
amount referred to in clause (a) of this Article) payable by it under
this Agreement or any other Loan Document, when and as the same shall
become due and payable, and such failure shall continue unremedied for
a period of five days;
(c) any representation or warranty made or deemed made by or
on behalf of Level 3, any Borrower, the Interim Borrower or any
Restricted Subsidiary in or in connection with any Loan Document or any
amendment or modification thereof or waiver thereunder, or in any
report, certificate, financial statement or other document furnished
pursuant to or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, shall prove to have been
incorrect in any material respect when made or deemed made;
(d) Level 3, the Interim Borrower or any Borrower shall fail
to observe or perform any covenant, condition or agreement contained in
Section 5.02, 5.04 (with respect to the existence of Level 3 or any
Borrower) or 5.11 or in Article VI;
(e) any Loan Party shall fail to observe or perform any
covenant, condition or agreement contained in any Loan Document (other
than those specified in clause (a), (b) or (d) of this Article), and
such failure shall continue unremedied for a period of 30 days after
notice thereof from the Administrative Agent to Level 3 (which notice
will be given at the request of any Lender);
(f) Level 3 or any Restricted Subsidiary shall fail to make
any payment (whether of principal or
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interest and regardless of amount) in respect of any
Material Indebtedness, when and as the same shall
become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
provided that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of Level 3, the Interim
Borrower, any Borrower or any Significant Subsidiary or its debts, or
of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, seques trator, conservator or similar official for Level 3
or any Restricted Subsidiary or for a substantial part of its assets,
and, in any such case, such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any
of the foregoing shall be entered;
(i) Level 3, the Interim Borrower, any Borrower or any
Significant Subsidiary shall (i) voluntarily commence any proceeding or
file any petition seeking liquidation, reorganization or other relief
under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii) consent to
the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or petition described in clause (h) of this
Article, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for
Level 3, the Interim Borrower or any Restricted Subsidiary or for a
substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for
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the benefit of creditors or (vi) take any action for
the purpose of effecting any of the foregoing;
(j) Level 3, the Interim Borrower, any Borrower or any
Significant Subsidiary shall become unable, admit in writing its
inability or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $25,000,000 shall be rendered against
Level 3, any Restricted Subsidiary or any combination thereof and the
same shall remain undischarged for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any action
shall be legally taken by a judgment creditor to attach or levy upon
any assets of Level 3, or any Restricted Subsidiary to enforce any such
judgment;
(l) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in liability
of Level 3 and the Subsidiaries in an aggregate amount exceeding
$25,000,000 for all periods;
(m) any Lien purported to be created under this Agreement or
any Security Document shall cease to be, or shall be asserted by any
Loan Party not to be, a valid and perfected Lien on any Collateral
(other than immaterial portions of Collateral) or on the investments
and cash in the Interim Loan Collateral Account, with the priority
required by this Agreement or the applicable Security Document, except
(i) as a result of the sale or other disposition of the applicable
Collateral in a transaction permitted under the Loan Documents or (ii)
as a result of the Agent's failure to maintain possession of any stock
certificates, promissory notes or other instruments delivered to it
under this Agreement or the applicable Security Document; or
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to a Borrower,
the Interim Borrower or Level 3 described in clause (h) or (i) of this Article),
and at any time thereafter during the continuance of such event, the
Administrative Agent may, and at the request of the Required Lenders shall, by
notice to the Borrowers and the Interim Borrower, as applicable, take either or
both of the following actions, at the same or different
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times: (i) terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (ii) declare the Loans then outstanding to be due and
payable in whole (or in part, in which case any principal not so declared to be
due and payable may thereafter be declared to be due and payable), and thereupon
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Borrowers and
the Interim Borrower accrued hereunder, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers and the Interim Borrower; and in
case of any event with respect to Level 3, the Interim Borrower or a Borrower
described in clause (h) or (i) of this Article, the Commitments shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of the
Borrowers and the Interim Borrower accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrowers and the Interim Borrower;
provided, however, that notwithstanding the foregoing, in the case of any Event
of Default that relates solely to the Interim Borrower, payment or performance
of the obligations of the Interim Borrower hereunder, the Interim Loans or the
security interests in and Liens on the deposits and investments in the Interim
Loan Collateral Account, the remedies of the Administrative Agent and the
Required Lenders under this Article shall be limited to (i) terminating the
Commitments to make Interim Loans and (ii) declaring the Interim Loans then
outstanding to be due and payable, in each case as and with the effect set forth
above (provided that, in the event of any event with respect to the Interim
Borrower described in clause (h) or (i) of this Article, the Commitments to make
Interim Loans shall automatically terminate and the principal of the Interim
Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Interim Borrower accrued hereunder shall automatically
become due and payable as and with the effect set forth above).
ARTICLE VIII
The Agent
Each of the Lenders and the Issuing Bank hereby irrevocably
appoints the Agent as its agent and authorizes the Agent to take such actions on
its behalf and to exercise such powers as are delegated to the Agent by the
terms of
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the Loan Documents, together with such actions and powers as are reasonably
incidental thereto.
The bank serving as the Agent hereunder shall have the same
rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Agent, and such bank and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with Level 3, the Borrower or any Subsidiary or other Affiliate
thereof as if it were not the Agent hereunder.
It is understood that no Syndication Agent shall have any
duties or obligations under this Agreement (other than in its capacity as a
Lender). The Agent shall not have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of
the foregoing, (a) the Agent shall not be subject to any fiduciary or other
implied duties, regardless of whether a Default has occurred and is continuing,
(b) the Agent shall not have any duty to take any discretionary action or
exercise any discretionary powers, except discretionary rights and powers
expressly contemplated by the Loan Documents that the Agent is required to
exercise in writing by the Required Lenders (or such other number or percentage
of the Lenders as shall be necessary under the circumstances as provided in
Section 9.02), and (c) except as expressly set forth in the Loan Documents, the
Agent shall not have any duty to disclose, and shall not be liable for the
failure to disclose, any information relating to Level 3, the Borrowers or any
of the Subsidiaries that is communicated to or obtained by the bank serving as
Agent or any of its Affiliates in any capacity. The Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Required Lenders (or such other number or percentage of the Lenders as shall
be necessary under the circumstances as provided in Section 9.02) or in the
absence of its own gross negligence or wilful misconduct. The Agent shall not be
deemed not to have knowledge of any Default unless and until written notice
thereof is given to the Agent by Level 3, a Borrower or a Lender, and the Agent
shall not be responsible for or have any duty to ascertain or inquire into (i)
any statement, warranty or representation made in or in connection with any Loan
Document, (ii) the contents of any certificate, report or other document
delivered thereunder or in connection therewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth in any Loan Document, (iv) the validity, enforceability, effectiveness or
genuineness of any Loan Document or any other agreement, instrument or
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document, or (v) the satisfaction of any condition set forth in Article IV or
elsewhere in any Loan Document, other than to confirm receipt of items expressly
required to be delivered to the Agent.
The Agent shall be entitled to rely upon, and shall not incur
any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. The Agent may consult with legal counsel (who may be counsel for Level
3 or the Borrowers), independent accountants and other experts selected by it,
and shall not be liable for any action taken or not taken by it in accordance
with the advice of any such counsel, accountants or experts.
The Agent may perform any and all its duties and exercise its
rights and powers by or through any one or more sub-agents appointed by the
Agent. The Agent and any such sub-agent may perform any and all its duties and
exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding paragraphs shall apply to any such
sub-agent and to the Related Parties of each Agent and any such sub-agent, and
shall apply to their respective activities in connection with the syndication of
the credit facilities provided for herein as well as activities as Agent.
Subject to the appointment and acceptance of a successor the
Agent as provided in this paragraph, the Agent may resign at any time by
notifying the Lenders, the Issuing Bank and Level 3. Upon any such resignation,
the Required Lenders shall have the right, with, so long as no Default or Event
of Default shall have occurred and be continuing, the consent of Level 3 (which
consent shall not be unreasonably withheld or delayed) to appoint a successor.
If no successor shall have been so appointed by the Required Lenders and shall
have accepted such appointment within 30 days after the retiring Agent gives
notice of its resignation, then the retiring Agent may, on behalf of the Lenders
and the Issuing Bank, appoint a successor Agent which shall be a bank with an
office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties
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and obligations hereunder. The fees payable by Level 3 and the Borrowers to a
successor Agent shall be the same as those payable to its predecessor unless
otherwise agreed with such successor. After the Agent's resignation hereunder,
the provisions of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring Agent, its sub-agents and their respective Related
Parties in respect of any actions taken or omitted to be taken by any of them
while it was acting as Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Loan Document or related agreement
or any document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to Level 3 or a Borrower, to it at Level 3
Communications, Inc., 1025 Eldorado Boulevard, Broomfield, Colorado
80021, Attention of Chief Financial Officer and General Counsel;
(b) if to the Administrative Agent, to The Chase Manhattan
Bank, Loan and Agency Services Group, One Chase Manhattan, 8th Floor,
New York, New York 10081, Attention of Christopher Riggio (Telecopy No.
(212) 552-5700), with a copy to The Chase Manhattan Bank, 270 Park
Avenue, New York 10017, Attention of John Huber (Telecopy No. (212)
270-4584);
(c) if to the Issuing Bank, to it at The Chase
Manhattan Bank, Loan and Agency Services Group, One
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Chase Manhattan, 8th Floor, New York, New York 10081,
Attention of Gloria Javier (Telecopy No. (212)
552-7440), with a copy to The Chase Manhattan Bank,
270 Park Avenue, New York 10017, Attention of John
Huber (Telecopy No. (212) 270-4584);
(d) if to the Swingline Lender, to it at The Chase Manhattan
Bank, Loan and Agency Services Group, One Chase Manhattan, 8th Floor,
New York, New York 10081, Attention of Gloria Javier (Telecopy No.
(212) 552-7440), with a copy to The Chase Manhattan Bank, 270 Park
Avenue, New York 10017, Attention of John Huber (Telecopy No. (212)
270-4584); and
(e) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by
the Administrative Agent, the Issuing Bank or any Lender in exercising any right
or power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the Issuing
Bank and the Lenders hereunder and under the other Loan Documents are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provision of any Loan Document or consent to any departure by
any Loan Party therefrom shall in any event be effective unless the same shall
be permitted by paragraph (b) of this Section, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent, any Lender or the
Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived,
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amended or modified except, in the case of this Agreement, pursuant to an
agreement or agreements in writing entered into by Level 3, the Borrowers and
the Required Lenders or, in the case of any other Loan Document, pursuant to an
agreement or agreements in writing entered into by the Administrative Agent and
the Loan Party or Loan Parties that are parties thereto, in each case with the
consent of the Required Lenders; provided that no such agreement shall (i)
increase the Commitment of any Lender without the written consent of such
Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or
reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan or LC
Disbursement, or any interest thereon, or any fees payable hereunder, or reduce
the amount of, waive or excuse any such payment, or postpone the scheduled date
of expiration of any Commitment, without the written consent of each Lender
affected thereby, (iv) change Section 2.19(b) or (c) in a manner that would
alter the pro rata sharing of payments required thereby, without the written
consent of each Lender, (v) change any of the provisions of this Section or the
definition of "Required Lenders" or any other provision of any Loan Document
specifying the number or percentage of Lenders (or Lenders of any Class)
required to waive, amend or modify any rights thereunder or make any
determination or grant any consent thereunder, without the written consent of
each Lender (or each Lender of such Class, as the case may be), (vi) release
Level 3 or any other Guarantor from its Guarantee under either Guarantee
Agreement (except as expressly provided in such Guarantee Agreement), or limit
its liability in respect of any such Guarantee, without the written consent of
each Lender, (vii) release all or any substantial part of the Collateral from
the Liens of the Security Documents other than in connection with any sale of
Collateral permitted by this Agreement, without the written consent of each
Lender, (viii) change any provisions of any Loan Document in a manner that by
its terms adversely affects the rights in respect of payments due to Lenders
holding Loans of any Class differently than those holding Loans of any other
Class, without the written consent of Lenders holding a majority in interest of
the outstanding Loans and unused Commitments of each affected Class or (ix)
change the rights of the Tranche B Lenders to decline mandatory prepayments as
provided in Section 2.11, without the written consent of Tranche B Lenders
holding a majority of the outstanding Tranche B Loans; provided further that (A)
no such agreement shall amend, modify or otherwise affect the rights or duties
of the Administrative Agent, the Issuing Bank or the Swingline Lender without
the prior written consent of the
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Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may
be, (B) any waiver, amendment or modification of this Agreement that by its
terms affects the rights or duties under this Agreement of the Revolving Lenders
(but not the Tranche A Lenders and Tranche B Lenders), the Tranche A Lenders
(but not the Revolving Lenders and Tranche B Lenders) or the Tranche B Lenders
(but not the Revolving Lenders and Tranche A Lenders) may be effected by an
agreement or agreements in writing entered into by Level 3, the Borrowers and
requisite percentage in interest of the affected Class of Lenders and (C) for
the avoidance of doubt, the Loan Allocation Agreement may be waived or amended
only in accordance with the terms thereof.
(c) If, in connection with any proposed change, waiver,
discharge or termination of any of the provisions of this Agreement as
contemplated by clauses (i) through (vii), inclusive, of the first proviso to
Section 9.02(b), the consent of the Required Lenders is obtained but the consent
of one or more of such other Lenders whose consent is sought is not obtained,
then the Borrowers shall have the right, so long as all non-consenting Lenders
whose individual consent is sought are treated as described in either clauses
(A) or (B) below, to either (A) replace each such non-consenting Lender or
Lenders with one or more replacement Lenders in accordance with the provisions
of Section 2.20(b) so long as at the time of such replacement, each such
replacement Lender consents to the proposed change, waiver, discharge or
termination or (B) terminate each such non-consenting Lender's Commitments and
repay the outstanding Loans of each such non-consenting Lender in accordance
with Sections 2.08 and 2.11, provided that, unless the Commitments that are
terminated and the Loans that are repaid pursuant to preceding clause (B) are
immediately replaced in full at such time through the addition of new Lenders or
the increase of the Commitments and/or outstanding Loans of existing Lenders
(who in each case must specifically consent thereto), then in the case of any
action pursuant to preceding clause (B) each Lender (determined after giving
effect to the proposed action) shall specifically consent thereto, provided
further, that in any event the Borrower shall not have the right to replace a
Lender, terminate its Commitments or repay its Loans solely as a result of the
exercise of such Lender's rights (and the withholding of any required consent by
such Lender) pursuant to clauses (viii) or (ix) of the first proviso of Section
9.02(b) or any clause of the second proviso to Section 9.02(b).
SECTION 9.03. Expenses; Indemnity; Damage Waiver.
(a) Level 3 and the Borrowers shall pay, on a joint and
several basis, (i) all reasonable out-of-pocket expenses
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incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of the Loan Documents or any
amendments, modifications or waivers of the provisions thereof (whether or not
the transactions contemplated hereby or thereby shall be consummated), (ii) all
reasonable out-of-pocket expenses incurred by the Issuing Bank in connection
with the issuance, amendment, renewal or extension of any Letter of Credit or
any demand for payment thereunder and (iii) all out-of-pocket expenses incurred
by the Administrative Agent, the Issuing Bank or any Lender, including the fees,
charges and disbursements of not more than three separate outside counsel (as
well as separate local and regulatory counsel) for the Administrative Agent, the
Issuing Bank and the Lenders, in connection with the enforcement or protection
of its rights in connection with the Loan Documents, including its rights under
this Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
(b) Level 3 and the Borrowers shall indemnify, on a joint and
several basis, the Administrative Agent, the Issuing Bank and each Lender, and
each Related Party of any of the foregoing Persons (each such Person being
called an "Indemnitee") against, and hold each Indemnitee harmless from, any and
all losses, claims, damages, liabilities and related expenses, including the
fees, charges and disbursements of any counsel for any Indemnitee, incurred by
or asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of any Loan Document or any other
agreement or instrument contemplated hereby, the performance by the parties to
the Loan Documents of their respective obligations thereunder or the
consummation of the Transactions or any other transactions contemplated hereby,
(ii) any Loan or Letter of Credit or the use of the proceeds therefrom
(including any refusal by the Issuing Bank to honor a demand for payment under a
Letter of Credit if the documents presented in connection with such demand do
not strictly comply with the terms of such Letter of Credit), (iii) any actual
or alleged presence or release of Hazardous Materials on or from any Mortgaged
Property or any other property owned or operated by the Borrower or any of the
Subsidiaries, or any Environmental Liability related in any way to the Borrower
or any of the Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based
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on contract, tort or any other theory and regardless of whether any Indemnitee
is a party thereto; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of such Indemnitee.
(c) To the extent that Level 3 and the Borrowers fail to pay
any amount required to be paid by them to the Administrative Agent, the Issuing
Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each
Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or
the Swingline Lender, as the case may be, such Lender's pro rata share
(determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount; provided that the unreimbursed expense
or indemnified loss, claim, damage, liability or related expense, as the case
may be, was incurred by or asserted against the Administrative Agent, the
Issuing Bank or the Swingline Lender in its capacity as such. For purposes
hereof, a Lender's "pro rata share" shall be determined based upon its share of
the sum of the total Revolving Exposures, outstanding Term Loans and unused
Commitments at the time.
(d) To the extent permitted by applicable law, neither Level 3
nor any Borrower shall assert, and each hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or
instrument contemplated hereby, the Transactions, any Loan or Letter of Credit
or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable
promptly after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The
-----------------------
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns permitted hereby
(including any Affiliate of the Issuing Bank that issues any Letter of Credit),
except that the Borrower may not assign or otherwise transfer any of its rights
or obligations hereunder without the prior written consent of each Lender (and
any attempted assignment or transfer by the Borrower without such consent shall
be null and void). Nothing in this Agreement, expressed or implied, shall be
construed to
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confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent, the Issuing
Bank and the Lenders) any legal or equitable right, remedy or claim under or by
reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender
or a Related Fund of a Lender, each of the applicable Borrowers and the
Administrative Agent (and, in the case of an assignment of all or a portion of a
Revolving Commitment or any Lender's obligations in respect of its LC Exposure
or Swingline Exposure, the Issuing Bank and the Swingline Lender) must give
their prior written consent to such assignment (which consent shall not be
unreasonably withheld or delayed), (ii) except in the case of an assignment to a
Lender or an Affiliate of a Lender or a Related Fund of a Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment
or Loans, the amount of the Commitment or Loans of the assigning Lender subject
to each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Administrative Agent) shall
not be less than $5,000,000 unless each of the applicable Borrower and the
Administrative Agent otherwise consent, (iii) each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Lender's
rights and obligations under this Agreement, except that this clause (iii) shall
not be construed to prohibit the assignment of a proportionate part of all the
assigning Lender's rights and obligations in respect of one Class of Commitments
or Loans, (iv) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, together with a processing
and recordation fee of $3,500, and (v) the assignee, if it shall not be a
Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire; and provided further that any consent of the Borrowers otherwise
required under this paragraph shall not be required if an Event of Default under
clauses (a), (b), (h) or (i) of Article VII has occurred and is continuing and
any assignment made pursuant to the Loan Allocation Agreement shall not require
any consent of any party hereunder, shall not require the payment of any
processing and recordation fee, and shall be effected in accordance with the
provisions of the Loan Allocation
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Agreement, notwithstanding any inconsistency between the terms thereof and of
any Loan Document. Subject to acceptance and recording thereof pursuant to
paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance the assignee thereunder shall be a party hereto
and to the Loan Allocation Agreement and, to the extent of the interest assigned
by such Assignment and Acceptance, have the rights and obligations of a Lender
under this Agreement and the Loan Allocation Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement and the Loan
Allocation Agreement (and, in the case of an Assignment and Acceptance covering
all of the assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto and thereto but shall continue to be
entitled to the benefits of Sections 2.16, 2.17, 2.18 and 9.03 hereof). Except
for assignments pursuant to the Loan Allocation Agreement, any assignment or
transfer by a Lender of rights or obligations under this Agreement that does not
comply with this paragraph shall be treated for purposes of this Agreement as a
sale by such Lender of a participation in such rights and obligations in
accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive, and Level 3, the Borrower, the Administrative
Agent, the Issuing Bank and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower, the Issuing Bank and
any Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section,
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the Administrative Agent shall accept such Assignment and Acceptance and record
the information contained therein in the Register. No assignment shall be
effective for purposes of this Agreement unless it has been recorded in the
Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Issuing Bank or the Swingline Lender, sell
participations to one or more banks or other entities (a "Participant") in all
or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (iii) Level 3, the Borrower,
the Administrative Agent, the Issuing Bank and the other Lenders shall continue
to deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement. Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such
Lender shall retain the sole right to enforce the Loan Documents and to approve
any amendment, modification or waiver of any provision of the Loan Documents;
provided that such agreement or instrument may provide that such Lender will
not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the first proviso to Section 9.02(b) that
affects such Participant. Subject to paragraph (f) of this Section, the Borrower
agrees that each Participant shall be entitled to the benefits of Sections 2.16,
2.17 and 2.18 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section. To the extent
permitted by law, each Participant also shall be entitled to the benefits of
Section 9.08 as though it were a Lender, provided such Participant agrees to be
subject to Section 2.19(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.16, 2.17, or 2.18 than the applicable participating
Lender would have been entitled to receive with respect to the participation
sold to such Participant, unless the sale of the participation to such
Participant is made with the Borrower's prior written consent. A Participant
that would be a Foreign Lender if it were a Lender shall not be entitled to the
benefits of Section 2.16 unless the Borrower is notified of the participation
sold to such Participant and such Participant agrees, for the benefit of the
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Borrower, to comply with Section 2.16(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
(h) Level 3 and the Borrowers hereby consent to the terms of
the Loan Allocation Agreement, the performance thereof by the Lenders and any
assignments effected in accordance therewith, and each Borrower agrees to take
such actions (including the execution and delivery of replacement promissory
notes) as may be reasonably necessary to effectuate the transactions
contemplated thereby. However, neither the consent thereto by Level 3 and the
Borrowers, nor the compliance thereof by any Borrower shall be construed to
alter, change or amend the obligations secured under the applicable Security
Document.
SECTION 9.05. Survival. All covenants, agreements,
representations and warranties made by the Loan Parties in the Loan Documents
and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the other parties hereto and shall survive the
execution and delivery of the Loan Documents and the making of any Loans and
issuance of any Letters of Credit, regardless of any investigation made by any
such other party or on its behalf and notwithstanding that the Administrative
Agent, the Issuing Bank or any Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Agreement is outstanding and unpaid or any Letter of Credit
is outstanding and so long as the Commitments have not expired or terminated.
The provisions of Sections 2.16, 2.17, 2.18 and 9.03 and Article VIII shall
survive and remain in full force and effect regardless of the consummation of
the transactions contemplated hereby, the repayment of the Loans, the expiration
or termination of the Letters of Credit and the Commitments or the termination
of this Agreement or any provision hereof.
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SECTION 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Document and any separate letter agreements with respect to fees
payable to the Administrative Agent constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each RC Lender and each of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other obligations at
any time owing by such Lender or Affiliate to or for the credit or the account
of the Borrower against any of and all the obligations of the Borrower now or
hereafter existing under this Agreement held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.
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SECTION 9.09. Governing Law; Jurisdiction;
Consent to Service of Process. (a) This Agreement shall be
construed in accordance with and governed by the law of the
State of New York.
(b) Each of Level 3 and the Borrower hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to any Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement or any other Loan Document shall
affect any right that the Administrative Agent, the Issuing Bank or any Lender
may otherwise have to bring any action or proceeding relating to this Agreement
or any other Loan Document against Level 3, the Borrower or its properties in
the courts of any jurisdiction.
(c) Each of Level 3 and the Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any other Loan Document in any court referred to in paragraph (b) of this
Section. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement or any other Loan Document will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY
HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
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ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
SECTION 9.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative
Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality
of the Information (as defined below), except that Information may be disclosed
(a) to its and its Affiliates' directors, officers, employees and agents,
including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or any other Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to any
assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement, (g) with the consent of
the Borrower or (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section (ii) becomes
available to the Administrative Agent, the Issuing Bank or any Lender on a
nonconfidential basis from a source other than Level 3 or the Borrower ,(i) to
any direct or indirect contractual counterparty in swap agreements or such
contractual counterparty's professional advisor (so long as such contractual
counterparty or professional advisor to such contractual counterparty agrees to
be bound by the provisions of this Section 9.12 or (j) to the National
Association of Insurance Commissioners or any similar
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organization or any nationally recognized rating agency that requires access to
information about a Lender's investment portfolio in connection with ratings
issued with respect to such Lender. For the purposes of this Section,
"Information" means all information received from Level 3 or the Borrower
relating to Level 3 or the Borrower or its business (including information
obtained through the exercise of a Lender's rights under Sections 5.01 and 5.09)
other than any such information that is available to the Administrative Agent,
the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by
Level 3 or the Borrower. Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such
Loan hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon at the Federal Funds Effective Rate to the date
of repayment, shall have been received by such Lender.
SECTION 9.14. Liability of Borrowers. The Borrowers are
engaged as an integrated group in the telecommunications businesses conducted by
them, and each Borrower expects to derive benefit, directly or indirectly, from
the credit extended by the Lenders hereunder, both in its individual capacity
and as a member of such integrated group. Each Borrower will be jointly and
severally liable for the payment of all Obligations incurred under this
Agreement and the other Loan Documents, including all obligations in respect of
principal, interest, reimbursement of LC Disbursements, the posting of cash
Collateral, fees, expense reimbursements and indemnities. If, in any action
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or proceeding before any court of competent jurisdiction under any state or
Federal bankruptcy, insolvency, reorganization or similar law affecting the
rights of creditors generally, the joint and several obligations of any Borrower
in respect of the Obligations would otherwise, taking into account the
provisions of the Indemnity, Subrogation and Contribution Agreement and other
rights of such Borrower under applicable law, be held or determined to be void,
invalid or unenforceable, or subordinated to the claims of other senior
creditors of such Borrower, on account of the amount of such Borrower's
liability in respect of the Obligations, then, notwithstanding any provision
hereof to the contrary, the amount of such liability shall be automatically
limited and reduced to the highest amount that is valid and enforceable and not
subordinated to the claims of other senior creditors, as determined by such
court in such action or proceeding.
SECTION 9.15. Release of Subsidiaries and Borrowers. (a) If
(i) the Agent receives a certificate from the chief executive officer, the chief
financial officer or treasurer of the Company certifying as of the date of that
certificate that, after the consummation of the transaction or series of
transactions described in reasonable detail satisfactory to the Agent in such
certificate on such date, the Subsidiary Loan Party or Borrower, as the case may
be, identified in such certificate will no longer be a Subsidiary of the
Company, (ii) such transactions are consummated on such date in accordance with
and without violating the provisions of this Agreement or any other Loan
Document, and (iii) in the case of a Borrower, any outstanding Letters of Credit
issued for the account of such Borrower have been, or arrangements are in place
for them to be, terminated, then (x) such Subsidiary's Guarantee shall
automatically terminate and such Subsidiary shall cease to be a party to any
Loan Document (and collateral provided by such Subsidiary for the Obligations
shall be released and the Collateral Agent shall execute such documents to
evidence such release) or (y) such Borrower shall automatically cease to be a
party to this Agreement and the other Loan Documents.
(b) No such termination or cessation shall release, reduce, or
otherwise adversely affect the obligations of any other Loan Party under this
Agreement, any other Guarantee, or any other Loan Document, all of which
obligations continue to remain in full force and effect.
(c) The Lenders shall, at the Company's expense execute such
documents as the Company may reasonably request
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to evidence such termination or cessation, as the case may
be.
SECTION 9.16. Special Funding Option. (a) Notwithstanding
anything to the contrary contained herein, any Lender (for the purposes of this
Section 9.16, a "Granting Lender") may grant to a special purpose funding
vehicle (for the purposes of this Section 9.16, an "SPC") the option to make, on
behalf of such Granting Lender, all or a portion of the Loans which such
Granting Lender is obligated to make (a "Funding Obligation") under the
Revolving Credit Facility, such option to be exercisable in the sole discretion
of the SPC, provided, however, that
(i) such Granting Lender's obligations under this Agreement and the
Loan Documents shall remain unchanged, including without limitation the
indemnification obligations of the Granting Lender pursuant to Section
9.03 hereof;
(ii) such Granting Lender shall remain solely responsible to
the other parties hereto for the performance of all Funding
Obligations;
(iii) the Borrower and the Lenders shall continue to deal
solely and directly with such Granting Lender in connection
with such Granting Lender's rights and obligations under this
Agreement; the Agent shall continue to deal directly with the
Granting Lender as agent for the SPC with respect to
distribution of payment of principal; interest and fees,
notices of Conversion and Continuation and all other matters;
(iv) such Granting Lender shall retain the sole right to
enforce the obligations of the Borrower relating to its Loans
and its Notes and to approve any amendment, modification, or
waiver of any provisions of this Agreement, each of which may,
if so agreed in writing between the Granting Lender and the
SPC, require the prior consent of any such SPC which has
exercised the option to undertake the Funding Obligation in
connection with such Granting Lender's Commitments and
Obligations owing thereto before the Granting Lender approves
any such amendment, modification or waiver;
(v) the granting of such option shall not constitute an assignment to
or participation of such SPC of or in the Granting Lender's Commitments
and Obligations owing thereto;
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(vi)such SPC shall not become a Lender hereunder as a
result of the granting of such option;
(vii) such SPC shall not become obligated or committed to make Loans as
a result of the granting of such option;
(viii) if such SPC elects not to exercise such option or
otherwise fails to make all or any part of a Loan, the
Granting Lender shall retain its Funding Obligation and be
obligated to make the entire Loan or any portion of such Loan
not made by such SPC; and
(ix) any SPC may, with notice to, but without the prior written consent
of, the Borrowers and the Administrative Agent and without paying any
processing fee therefor, assign all or a portion of its interests as a
participant or subparticipant in any Loans to the Granting Bank or to
any financial institutions (consented to by the Borrowers and
Administrative Agent) providing liquidity and/or credit support to or
for the account of such SPC to support the funding or maintenance of
Loans.
(b) Loans made by an SPC hereunder shall be deemed to satisfy the
Funding Obligation and utilize the Revolving Credit Commitment of the Granting
Lender as if, and to the same extent, such Loans were made by such Granting
Lender.
(c) Each party hereto agrees that no SPC shall be liable for any
indemnity or payment under this Agreement for which a Granting Lender would
otherwise be liable so long as, and to the extent that, the Granting Lender
provides such indemnity or makes such payment. In furtherance of the foregoing,
each party hereto hereby agrees (which agreement shall survive the termination
of this Agreement) that, prior to the date that is one year and one day after
the payment in full of all outstanding commercial paper or other senior
Indebtedness of any SPC, it will not institute against, or join any other person
in instituting against, such SPC any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings under the laws of the United States or any
State thereof arising out of or relating to transactions under this Agreement or
the other Loan Documents.
(d) Notwithstanding anything to the contrary contained in this
Agreement, an SPC may disclose on a confidential basis any nonpublic information
relating to Loans made by such SPC hereunder to any rating agency, commercial
paper dealer or provider of any surety or guarantee to such SPC.
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(e) This Section 9.16 may not be amended without the prior written
consent of the Granting Lender on behalf of which such SPC has made all or any
part of its Loans which remain outstanding at the time of such amendment.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
LEVEL 3 COMMUNICATIONS, INC.,
by
/s/ R. Douglas Bradbury
Name: R. Douglas Bradbury
Title: Executive Vice
President, CFO
LEVEL 3 INTERNATIONAL SERVICES, INC.,
by
/s/ R. Douglas Bradbury
Name: R. Douglas Bradbury
Title: Executive Vice
President, CFO
LEVEL 3 INTERNATIONAL, INC.,
by
/s/ R. Douglas Bradbury
Name: R. Douglas Bradbury
Title: Executive Vice
President, CFO
LEVEL 3 COMMUNICATIONS, LLC,
by
/s/ R. Douglas Bradbury
Name: R. Douglas Bradbury
Title: Executive Vice
President, CFO
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
147
BTE EQUIPMENT, LLC,
by
/s/ R. Douglas Bradbury
Name: R. Douglas Bradbury
Title: Executive Vice
President, CFO
ELDORADO FUNDING, LLC,
by
/s/ R. Douglas Bradbury
Name: R. Douglas Bradbury
Title: Executive Vice
President, CFO
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent,
by
/s/ B. Joseph Lillis
Name: B. Joseph Lillis
Title: Managing Director
GOLDMAN SACHS CREDIT PARTNERS L.P.,
by
/s/ Mark Denatale
Name: Mark Denatale
Title: Authorized Signatory
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
by
/s/ Gery Sampere
Name: Gery Sampere
Title: Vice President
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
148
CITICORP USA, INC.,
by
/s/ Timothy L. Freeman
Name: Timothy L. Freeman
Title: Managing Director/SCO
CREDIT SUISSE FIRST BOSTON,
by
/s/ Todd C. Morgan
Name: Todd C. Morgan
Title: Director
by
/s/ Kristinn R. Kristinsson
Name: Kristinn R. Kristinsson
Title: Assistant Vice President
FIRST UNION NATIONAL BANK,
by
/s/ Mark M. Harden
Name: Mark M. Harden
Title: Senior Vice President
MORGAN STANLEY DEAN WITTER PRIME
INCOME TRUST,
by
/s/ Peter Gewirtz
Name: Peter Gewirtz
Title: Authorized Signatory
THE BANK OF NEW YORK,
by
/s/ Gerry Granovsky
Name: Gerry Granovsky
Title: Vice President
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
149
CREDIT LYONNAIS, New York Branch,
by
/s/ John P. Judge
Name: John P. Judge
Title: Vice President
DRESDNER BANK A.G., New York and
Grand Cayman Branches,
by
/s/ William E. Lambert
Name: William E. Lambert
Title: Vice President
by
/s/ Brian E. Haughney
Name: Brian E. Haughney
Title: Assistant Vice President
BARCLAYS BANK PLC,
by
/s/ Douglas Butler
Name: Douglas Butler
Title: Director
SOCIETE GENERALE, New York Branch,
by
/s/ C. J. Cona
Name: C. J. Cona
Title: Vice President
BANKBOSTON, N.A.,
by
/s/ Daniel P. Gilbert
Name: Daniel P. Gilbert
Title: Vice President
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
150
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.,
by
/s/ Richard W. Varalla
Name: Richard W. Varalla
Title: Associate
by
/s/ John G. Taylor
Name: John G. Taylor
Title: Vice President
US BANK, NATIONAL ASSOCIATION,
by
/s/ Melissa S. Forbes
Name: Melissa S. Forbes
Title: Vice President
NORWEST BANK COLORADO, N.A.
by
/s/ Catherine M. Jones
Name: Catherine M. Jones
Title: Vice President
FOOTHILL INCOME TRUST, L.P.,
By: FIT GP, LLC, its general
partner
by
/s/ Dennis R. Ascher
Name: Dennis R. Ascher
Title: Managing Member
KZH III LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
151
TORONTO DOMINION (NEW YORK), INC.,
by
/s/ Jorge A. Garcia
Name: Jorge A. Garcia
Title: Vice President
KZH RIVERSIDE LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
OLYMPIC FUNDING TRUST, SERIES
1999-1,
by
/s/ Kelly C. Walker
Name: Kelly C. Walker
Title: Authorized Agent
KEMPER FLOATING RATE FUND,
by
/s/ Mark E. Wittnebel
Name: Mark E. Wittnebel
Title: Senior Vice President
KZH CYPRESSTREE-1 LLC,
by
/s/ Peter Chin
Name: Peter Chin
Title: Authorized Agent
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<PAGE>
152
SRF TRADING, INC.,
by
/s/ Kelly C. Walker
Name: Kelly C. Walker
Title: Vice President
OCTAGON LOAN TRUST,
By: Octagon Credit Investors,
as Manager
by
/s/ Andrew D. Gordon
Name: Andrew D. Gordon
Title: Portfolio Manager
WINGED FOOT FUNDING TRUST,
by
/s/ Kelly C. Walker
Name: Kelly C. Walker
Title: Authorized Agent
[NYCorp;929085.1:4459B:10/13/1999--4:01p]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-Q for the period ending September 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 1,486
<SECURITIES> 3,260
<RECEIVABLES> 130
<ALLOWANCES> 12
<INVENTORY> 4
<CURRENT-ASSETS> 5,070
<PP&E> 3,445
<DEPRECIATION> 373
<TOTAL-ASSETS> 8,835
<CURRENT-LIABILITIES> 939
<BONDS> 3,977
0
0
<COMMON> 3
<OTHER-SE> 3,528
<TOTAL-LIABILITY-AND-EQUITY> 8,835
<SALES> 158
<TOTAL-REVENUES> 342
<CGS> 71
<TOTAL-COSTS> 243
<OTHER-EXPENSES> 615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132
<INCOME-PRETAX> (439)
<INCOME-TAX> (143)
<INCOME-CONTINUING> (296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296)
<EPS-BASIC> (.89)
<EPS-DILUTED> (.89)
</TABLE>
