<PAGE>
As filed with the Securities and Exchange Commission on April 14, 1999
Registration No. 333-71687
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 2
to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LEVEL 3 COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 1221, 4813, 7374 47-0210602
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
---------------
3555 Farnam Street,
Omaha, Nebraska 68131,
(402) 536-3677
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Thomas C. Stortz, Esq.
Senior Vice President, General
Counsel and Secretary
3555 Farnam Street
Omaha, Nebraska 68131
(402) 536-3677
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
with a copy to:
John S. D'Alimonte, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
(212) 728-8000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the SEC +
+is effective. This prospectus is not an offer to sell these securities and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated April 14, 1999
Prospectus
Level 3 Communications, Inc.
Offer to Exchange all Outstanding
10 1/2% Senior Discount Notes Due 2008
for
10 1/2% Senior Discount Notes Due 2008
Terms of Exchange Offer
. The exchange offer expires 5:00 p.m., New York City time, , 1999,
unless we extend it.
. The terms of the notes to be issued in the exchange offer are
substantially identical to the terms of the outstanding notes, except for
transfer restrictions and registration rights relating to the outstanding
notes.
. We will not receive any proceeds from the exchange offer.
. The notes to be issued in the exchange offer will not trade on any
established exchange.
See "Risk Factors" beginning on page 9 for a discussion of matters that
participants in the exchange offer should consider.
-----------
Neither the SEC nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 1999.
<PAGE>
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. We will
provide this information to you at no charge upon written or oral request
directed to: Vice President, Investor Relations, Level 3 Communications, Inc.,
1450 Infinite Drive, Louisville, CO 80027, 303-926-3000. In order to ensure
timely delivery of the information, any request should be made by , 1999.
----------------
Each broker-dealer that receives registered notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those notes. The letter of transmittal accompanying this
prospectus states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. A participating broker-dealer may use this
prospectus in connection with resales of notes received in exchange for the
outstanding notes where those notes were acquired by the broker-dealer as a
result of market-making activities or other trading activities. We have agreed
that, starting on the date of this prospectus and ending on the close of
business on the day that is 180 days following the date of this prospectus, we
will make this prospectus available to any broker-dealer for use in connection
with any of those resales. See "Plan of Distribution."
----------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary..................................................................... 1
Risk Factors................................................................ 9
Information Regarding Forward-Looking Statements............................ 12
Where You Can Find More Information......................................... 13
Use of Proceeds............................................................. 13
Capitalization.............................................................. 14
Ratio of Earnings to Fixed Charges.......................................... 14
The Exchange Offer.......................................................... 14
Description of the Notes.................................................... 26
Material U.S. Federal Income Tax Considerations............................. 81
Plan of Distribution........................................................ 87
Legal Matters............................................................... 87
Experts..................................................................... 88
Incorporation of Material Documents by Reference............................ 88
</TABLE>
i
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Summary
This summary highlights information contained elsewhere in this prospectus
and does not contain all of the information you should consider before
tendering original notes in the exchange offer. You should carefully read the
entire prospectus, including the documents incorporated in it by reference.
Level 3 Communications, Inc. was known as Peter Kiewit Sons', Inc. prior to the
March 31, 1998 split-off of its construction and mining management businesses
from its other business. This prospectus and the letter of transmittal that
accompanies it together constitute the exchange offer.
Level 3
Level 3 engages in the information services, communications and coal mining
businesses through ownership of operating subsidiaries and substantial equity
positions in public companies. In late 1997, we announced a business plan to
increase substantially our information services business and to expand the
range of services we offer. We are implementing the business plan by building
an advanced, international, facilities-based communications network based on
internet protocol technology.
Since late 1997, we have substantially increased the emphasis we place on
and the resources devoted to our communications and information services
business. We intend to become a facilities-based provider of a broad range of
integrated communications services. A facilities-based provider is one that
owns or leases a substantial portion of the plant, property and equipment
necessary to provide its services. To reach this goal, we plan to expand
substantially the business of our subsidiary PKS Information Services, Inc. and
to create our communications network. We will create this network through a
combination of construction, purchase and leasing of facilities and other
assets. We are designing our network based on internet protocol technology in
order to leverage the efficiencies of this technology to provide lower cost
communications services.
Our network will combine both local and long distance networks and will
connect customers end-to-end across the U.S. and in Europe and Asia. We expect
to complete the U.S. intercity portion of the network during the first quarter
of 2001. In the meantime, we have leased a national network over which we began
to offer services in the third quarter of 1998. We intend to provide a full
range of communications services--including local, long distance, international
and internet services.
Our principal executive offices are located at 3555 Farnam Street, Omaha,
Nebraska 68131 and our telephone number is (402) 536-3677. We are constructing
a new headquarters outside of Denver, Colorado, which we expect to begin
occupying during the summer of 1999.
1
<PAGE>
The Exchange Offer
On December 2, 1998, we privately placed $833,815,000 aggregate principal
amount at maturity of our 10 1/2% senior discount notes due 2008 in a
transaction exempt from registration under the Securities Act. In connection
with the private placement, we entered into a registration agreement, dated
November 24, 1998, with the initial purchasers of the original notes. In the
registration agreement, we agreed to register under the Securities Act an offer
of our new 10 1/2% senior discount notes due 2008 in exchange for the original
notes. We also agreed to deliver this prospectus to holders of the original
notes and complete the exchange offer within 180 days of the issuance of the
original notes. In this prospectus, we refer to the original notes and the new
notes together as notes. You should read the discussion under the heading
"Description of the Notes" for information regarding the notes.
2
<PAGE>
The Exchange Offer
The Exchange Offer........ We are offering to exchange $1,000 in principal
amount at maturity of new notes for each $1,000 in
principal amount at maturity of original notes. The
new notes are substantially identical to the
original notes, except that:
(1) the new notes will be freely transferable,
other than as described in this prospectus;
(2) will not contain any legend restricting their
transfer;
(3) holders of the new notes will not be entitled
to certain rights of the holders of the
original notes under the registration
agreement; and
(4) the new notes will not contain any provisions
regarding the payment of special interest.
We believe that you can transfer the new notes
without complying with the registration and
prospectus delivery provisions of the Securities
Act if you:
(1) acquire the new notes in the ordinary course
of your business;
(2) are not and do not intend to become engaged in
a distribution of the new notes;
(3) are not an affiliate of Level 3;
(4) are not a broker-dealer that acquired original
notes directly from Level 3; and
(5) are not a broker-dealer that acquired original
notes as a result of market-making or other
trading activities.
If any of these conditions is not satisfied and you
transfer any new note without delivering a proper
prospectus or without qualifying for a registration
exemption, you may incur liability under the
Securities Act.
Each broker-dealer that receives new notes for its
own account in exchange for original notes, which
it acquired
3
<PAGE>
as a result of market-making activities or other
trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale
of those new notes. See "Plan of Distribution."
Registration Rights....... Under the registration agreement, we have agreed to
use our best efforts to commence the exchange offer
or to use our best efforts to cause the original
notes to be registered under the Securities Act so
as to permit resales. If we are not in compliance
with our obligations under the registration
agreement, special interest will accrue on the
accreted value of the notes under certain
circumstances in addition to the interest that is
otherwise due on the notes. If the exchange offer
is completed on the terms and within the period
contemplated by this prospectus, no special
interest will be payable on the accreted value of
the notes. The new notes will not contain any
provisions regarding the payment of special
interest. See "The Exchange Offer--Shelf
Registration Statement" and "--Special Interest."
Minimum Condition......... The exchange offer is not conditioned on any
minimum aggregate principal amount at maturity of
original notes being tendered for exchange.
Expiration Date........... The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, unless we extend it.
Exchange Date............. Original notes will be accepted for exchange
beginning on the first business day following the
expiration date, upon surrender of the original
notes.
Conditions to the
Exchange Offer........... Our obligation to complete the exchange offer is
subject to various conditions. See "The Exchange
Offer--Conditions to the Exchange Offer." We
reserve the right to terminate or amend the
exchange offer at any time before the expiration
date if various specified events occur.
Withdrawal Rights......... You may withdraw the tender of your original notes
at any time before the expiration date. Any
original notes not accepted for any reason will be
returned to you
4
<PAGE>
without expense as promptly as practicable after
the expiration or termination of the exchange
offer.
Procedures for Tendering
Original Notes........... See "The Exchange Offer--How to Tender."
Federal Income
Tax Consequences......... The exchange of original notes for new notes by
U.S. holders will not be a taxable exchange for
U.S. federal income tax purposes, and U.S. holders
should not recognize any taxable gain or loss as a
result of the exchange.
Effect on Holders of
Original Notes........... If the exchange offer is completed on the terms and
within the period contemplated by this prospectus,
holders of the original notes will have no further
registration or other rights under the registration
agreement, except under limited circumstances. See
"The Exchange Offer--Shelf Registration Statement"
and "--Special Interest."
Holders of the original notes who do not tender
their original notes will continue to hold those
original notes. All untendered, and tendered but
unaccepted, original notes will continue to be
subject to the restrictions on transfer provided
for in the original notes and the indenture under
which the original notes have been and the new
notes are being issued. To the extent that original
notes are tendered and accepted in the exchange
offer, the trading market, if any, for the original
notes could be adversely affected. See "The
Exchange Offer--Other."
Use of Proceeds........... Level 3 will not receive any proceeds from the
issuance of new notes in the exchange offer.
Exchange Agent............ IBJ Whitehall Bank & Trust Company is serving as
exchange agent in connection with the exchange
offer.
5
<PAGE>
The Notes
The exchange offer applies to $833,815,000 aggregate principal amount at
maturity of original notes. The new notes are substantially identical to the
original notes, except for transfer restrictions and registration rights
relating to the original notes. The new notes will evidence the same debt as
the original notes and will be entitled to the benefits of the indenture. See
"Description of the Notes."
Issuer.................... Level 3 Communications, Inc.
Securities Offered........ $833,815,000 aggregate principal amount at maturity
of 10 1/2% senior discount notes due 2008.
Maturity.................. December 1, 2008.
Accreted Value and
Interest................. The issue price of the original notes was $599.66
per $1,000 principal amount at maturity. The notes
will accrete at a rate of 10 1/2% per year,
compounded semiannually, to a principal amount of
$1,000 by December 1, 2003 for each $1,000
principal amount at maturity. Cash interest will
not begin to accrue on the notes until December 1,
2003 unless we elect to commence the accrual on or
after December 1, 2001 of cash interest. After
December 1, 2003, interest will accrue on the notes
at a rate of 10 1/2% per year and will be payable
semiannually on June 1 and December 1, beginning
June 1, 2004.
Ranking................... The notes are:
(1) senior unsecured obligations of Level 3,
ranking equally in right of payment with all
existing and future senior unsecured
indebtedness of Level 3, including, without
limitation, the $2.0 billion in principal
amount of our 9 1/8% senior notes due 2008;
(2) senior in right of payment to all existing and
future subordinated indebtedness of Level 3;
and
(3) effectively subordinated to all secured
indebtedness of Level 3 to the extent of the
value of the assets securing that
indebtedness.
6
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Substantially all of the operating assets of Level
3 are owned by our subsidiaries, effectively
subordinating the notes to all existing and future
obligations of our subsidiaries. See "Description
of the Notes."
Optional Redemption....... We may redeem some or all of the notes at any time
on or after December 1, 2003 at the redemption
prices appearing in this prospectus, plus any
accrued and unpaid interest on the redeemed notes
to the redemption date.
In addition, at any time prior to December 1, 2001,
we may redeem up to 35% of the original aggregate
principal amount at maturity of the notes with the
net cash proceeds of specified public or private
offerings of our common stock. The redemption price
will equal 110.50% of the accreted value of the
notes so redeemed, plus any accrued and unpaid
interest on the redeemed notes to the redemption
date. See "Description of the Notes--Optional
Redemption."
Change of Control
Triggering Event......... If an event treated as a change of control of Level
3 occurs, Level 3 must within 30 days make an offer
to purchase all outstanding notes at a price in cash
equal to 101% of the accreted value of the notes,
plus accrued and unpaid interest, if any, to the
purchase date. See "Description of the Notes--
Covenants--Change of Control Triggering Event.
Covenants................. The indenture contains various covenants that
limit, among other things, the ability of Level 3
and some of our subsidiaries to:
(1) incur debt;
(2) make various payments;
(3) pay dividends and make other restricted
payments and transfers;
(4) create liens;
(5) enter into transactions, including
transactions with affiliates;
(6) sell assets;
(7) issue or sell capital stock of some of our
subsidiaries; and
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(8) in the case of Level 3, consolidate, merge or
sell substantially all of Level 3's assets.
All of the covenants are subject to a number of
important qualifications and exceptions. See
"Description of the Notes."
Absence of a Public
Market for the Notes..... The new notes are a new issue of securities for
which there is currently no established trading
market. There can be no assurance as to the
development or liquidity of any market for any of
the notes. Level 3 does not intend to apply for
listing of any of the notes on any securities
exchange. See "Risk Factors--There is no public
market for the new notes, so you may be unable to
sell the new notes."
8
<PAGE>
Risk Factors
Before tendering original notes, prospective participants in the exchange
offer should carefully consider the following risk factors and those risk
factors contained in our current report on Form 8-K/A filed with the SEC on
February 17, 1999, which is incorporated by reference in this prospectus. See
"Incorporation of Material Documents by Reference." The new notes, like the
original notes, entail the following risks:
Our subsidiaries must make payments to us in order for us to make payments on
the notes that you hold
We are a holding company with no material assets other than the stock of
our subsidiaries. Accordingly, we depend upon cash payments from our
subsidiaries to meet our payment obligations, including our obligation to pay
you as a holder of notes. We cannot assure you that our subsidiaries will
generate earnings sufficient to enable us to meet our payment obligations.
Future debt agreements of our subsidiaries likely will impose significant
restrictions on the ability of our subsidiaries to make distributions or other
payments to us.
Because the notes are structurally subordinated to the obligations of our
subsidiaries, you may not be fully repaid if we become insolvent
Substantially all of our operating assets are held directly by our
subsidiaries. As a result, the notes and all of our other senior debt are
structurally subordinated to the debts, preferred stock and other obligations
of our subsidiaries. Holders of any preferred stock of any of our subsidiaries
and creditors of any of our subsidiaries, including trade creditors, have and
will have claims relating to the assets of that subsidiary that are senior to
the notes and the 9 1/8% senior notes.
Because the notes that you hold are unsecured, you may not be fully repaid if
we become insolvent
The new notes will not be secured by any of the assets of Level 3 or its
subsidiaries. Therefore, you may not be fully repaid if we become insolvent. In
addition, the indentures relating to the notes and the 9 1/8% senior notes
permit us to incur secured debt. If we were to incur secured debt and we become
insolvent, the holders of the secured debt would receive payments from the
assets used as security before you receive payments.
We have substantial existing debt and will incur substantial additional debt,
so we may be unable to make payments on the notes that you hold
As of December 31, 1998, we had approximately $2.646 billion of
indebtedness. Our indentures permit us to incur substantial additional debt,
and we fully expect to borrow substantial additional funds, which may include
secured borrowings, in connection with implementing the business plan. A
substantial level of debt may make it more difficult for us to repay you.
9
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We may be unable to generate cash flow from which to make payments on the
notes that you hold
For the year ended December 31, 1998, we had a deficiency in our ratio of
earnings to fixed charges of approximately $36 million. We expect to incur
substantial net operating losses for the foreseeable future. We cannot assure
you that we will become profitable or sustain profitability in the future.
Accordingly, we may not have sufficient funds to make payments on the notes
that you hold.
Future additional debt that we incur in implementing our business plan may
have a negative impact on our financial flexibility and stability
Our business plan will require us and our subsidiaries to incur
substantial amounts of additional indebtedness in the future. The extent to
which we incur additional debt, and the restrictive and financial covenants
that we will be subject to, will have important consequences to the holders of
the notes. These include the following:
(1) a potential impairment of our ability to obtain additional financing
for the business plan, including financing necessary to fund the
substantial net losses incurred in connection with the business plan;
(2) the requirement that a substantial portion of our cash flow from
operations must be dedicated to the payment of debt service, thus
reducing the funds available for the business plan; and
(3) potential limits on our ability to adjust rapidly to changing market
conditions and vulnerability in the event of a downturn in general
economic conditions or in our business.
The indenture covenants permit us to engage in activities and make investments
that may result in significant cash expenditures or losses
The covenants in the indenture allow us, subject to certain limitations,
to use our funds in a broad range of activities and investments, including
entering into joint ventures we do not control. These activities or
investments may result in significant cash expenditures by us or in
significant losses.
If an event constituting a change in control of Level 3 occurs, we may be
unable to purchase the notes you hold, even if they are validly tendered
Upon the occurrence of certain change of control events, we must make an
offer to purchase all outstanding notes at a purchase price equal to 101% of
the accreted value of the notes, plus accrued and unpaid interest, if any, to
the purchase date. We can make no
10
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assurance that we would have sufficient funds to pay the purchase price for all
notes tendered by holders seeking to accept the offer to purchase. In addition,
our other debt agreements may require us to repurchase the other debt upon a
change in control or may prohibit us from purchasing any notes before their
stated maturity, including upon a change of control. Our failure to purchase
all validly tendered notes would result in an event of default under the
indenture. See "Description of the Notes--Covenants--Change of Control
Triggering Event."
There is no public market for the new notes, so you may be unable to sell the
new notes
The new notes are new securities for which there is currently no market.
Consequently, the new notes may be relatively illiquid, and you may be unable
to sell your new notes. We do not intend to apply for listing of the new notes
on any securities exchange or for the inclusion of the new notes in any
automated quotation system. Accordingly, we cannot assure you that a liquid
market for the new notes will develop.
Original issue discount will be included in your gross income for U.S. federal
tax purposes before you receive any cash payments on the notes
Cash interest on the notes generally will not be payable prior to June 1,
2004. However, because the original notes were issued at a substantial discount
from their stated principal amount at maturity, original issue discount will be
includible in the gross income of a holder of the notes for U.S. federal income
tax purposes in advance of the receipt of cash payments on the notes. See
"Material U.S. Federal Income Tax Considerations" for a more detailed
discussion of the material U.S. federal income tax consequences applicable to
holders of the notes.
If a bankruptcy petition were filed by or against us, you may receive a lesser
amount for your claim than you would be entitled to under the indenture, and
you may realize taxable gain or loss upon payment of your claim
If a bankruptcy petition were filed by or against Level 3 under the U.S.
Bankruptcy Code after the issuance of the notes, the claim of a holder of notes
with respect to the accreted value of the notes may be limited to an amount
equal to the sum of:
(1) the initial offering price for the notes; and
(2) that portion of the original issue discount that is not deemed to
constitute "unmatured interest" within the meaning of the U.S.
Bankruptcy Code.
Any original issue discount that was not amortized as of the date of the
bankruptcy filing would constitute unmatured interest. Accordingly, holders of
the notes under these circumstances may receive a lesser amount than they would
be entitled to under the terms of the indenture, even if sufficient funds are
available. In addition, to the extent that the U.S. Bankruptcy Code differs
from the Internal Revenue Code in determining the method of amortization of
original issue discount, a holder of notes may realize taxable gain or loss
upon payment of that holder's claim in bankruptcy.
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Original issue discount relating to the notes is not deductible by us until
paid
Original issue discount relating to the notes will not be deductible by us
until paid. This is because the original notes provided initial holders with a
yield to maturity in excess of a specified amount, and thus, the notes will
constitute applicable high yield discount obligations. See "Material U.S.
Federal Income Tax Considerations."
Information Regarding Forward-Looking Statements
This prospectus contains or incorporates by reference forward-looking
statements. These forward-looking statements include, among others, statements
concerning:
(1) Our business plan, its advantages and our strategy for implementing
the business plan;
(2) anticipated growth of the communications and information services
industry;
(3) plans to devote significant management time and capital resources to
our business;
(4) expectations as to funding our capital requirements;
(5) anticipated dates on which we will begin providing certain services or
reach specific milestones in our business plan; and
(6) other statements of expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not
historical facts.
You should be aware that these forward-looking statements are subject to
risks and uncertainties, including financial, regulatory environment, industry
growth and trend projections, that could cause actual events or results to
differ materially from those expressed or implied by the statements. The most
important factors that could prevent us from achieving our stated goals
include, but are not limited to, our failure to:
(1) achieve and sustain profitability based on the creation and
implementation of our end-to-end, internet protocol based
communications network;
(2) overcome significant early operating losses;
(3) produce sufficient capital to fund our business plan;
(4) develop financial and management controls, as well as additional
controls of operating expenses and other costs;
(5) attract and retain qualified management and other personnel;
(6) install on a timely basis the switches/routers, fiber optic cable and
associated electronics required for successful implementation of our
business plan;
(7) negotiate peering agreements;
(8) develop and implement effective business support systems for
processing customer orders and provisioning; and
(9) make acquisitions necessary for the expansion of our networks and
services and the implementation of our business plan.
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For a discussion of some of these factors, see "Risk Factors" beginning on
page 9 and Level 3's current report on Form 8-K/A filed with the SEC on
February 17, 1999, which is incorporated by reference in this prospectus.
Where You Can Find More Information
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. We have also filed with the SEC a registration
statement on Form S-4 to register the new notes being offered in this
prospectus. This prospectus, which forms part of the registration statement,
does not contain all of the information included in the registration
statement. For further information about Level 3 and the new notes offered in
this prospectus, you should refer to the registration statement and its
exhibits.
Our SEC filings are available to the public over the internet at the SEC's
web site at http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. These documents are also available at the public reference rooms
at the SEC's regional offices in New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available at the offices of the
Nasdaq National Market, in Washington, D.C.
Use of Proceeds
Level 3 will not receive any proceeds from the issuance of new notes in
the exchange offer. The new notes will evidence the same debt as the original
notes surrendered in exchange for the new notes. Accordingly, the issuance of
the new notes will not result in any change in the indebtedness of Level 3.
The net proceeds to Level 3 of the placement of the original notes were
approximately $486 million, after deducting expenses. The net proceeds are
being used in connection with the implementation of our business plan,
including funding for:
(1)route miles 9,000 through 16,000 of Level 3's U.S. intercity network;
(2) an expansion of the fiber loops, number of buildings connected and
colocation space, or space reserved for equipment that facilitates the
interconnection of switching or routing equipment, in Level 3's U.S.
cities;
(3) an expansion of the fiber loops, number of buildings connected and
colocation space in Level 3's European cities;
(4) purchases of undersea cable capacity; and
(5) general corporate purposes, including acquisitions.
Pending this utilization, we intend to invest these net proceeds in
government securities.
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Capitalization
The following table sets forth the consolidated capitalization of Level 3
as of December 31, 1998 and that capitalization as adjusted to give effect to
the net proceeds from Level 3's public offering of 28,750,000 shares of our
common stock in March 1999.
<TABLE>
<CAPTION>
December 31, 1998
------------------------
Actual As Adjusted
---------- -------------
(dollars in millions)
<S> <C> <C>
Cash and marketable securities......................... $ 3,711 $ 5,207
========== ==========
Total long-term debt, less current portion............. 2,641 2,641
Total stockholders' equity............................. 2,165 3,661
---------- ----------
Total capitalization................................... $ 4,806 $ 6,302
========== ==========
</TABLE>
Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges for each of the periods indicated
is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................. -- 5.73 3.87 -- --
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of earnings (loss) before income taxes, minority interest and
discontinued operations plus fixed charges excluding capitalized interest.
Fixed charges consist of interest expensed and capitalized, plus the portion
of rent expense under operating leases deemed by Level 3 to be representative
of the interest factor, plus, prior to September 30, 1995, preferred stock
dividends on preferred stock of our former subsidiary, MFS Communications
Company, Inc. Level 3 had deficiencies of earnings to fixed charges of $36
million for 1998, $32 million for 1995 and $42 million for 1994.
The Exchange Offer
Purpose of the Exchange Offer
On December 2, 1998, Level 3 privately placed the original notes in a
transaction exempt from registration under the Securities Act. Accordingly,
the original notes may not be reoffered, resold or otherwise transferred in
the U.S. unless so registered or unless an exemption from the Securities Act
registration requirements is available. In the registration agreement, Level 3
has agreed with the initial purchasers of the original notes to, at our own
cost:
(1) file a registration statement with the SEC relating to the exchange
offer within 90 days after December 2, 1998;
(2) use our best effort to cause the exchange offer registration statement
to be declared effective under the Securities Act within 150 days
after December 2, 1998; and
(3) upon effectiveness of the exchange offer registration statement, offer
new notes in exchange for surrender of original notes.
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<PAGE>
In addition, Level 3 has agreed to keep the exchange offer open for at least 30
days, or longer if required by applicable law, after the date notice of the
exchange offer is mailed to the holders of the original notes. The new notes
are being offered under this prospectus to satisfy these obligations of Level 3
under the registration agreement.
Terms of the Exchange
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal that accompanies this prospectus, Level 3 is
offering to exchange $1,000 in principal amount at maturity of new notes for
each $1,000 in principal amount at maturity of outstanding original notes. The
terms of the new notes are substantially identical to the terms of the original
notes for which they may be exchanged in the exchange offer, except that:
(1) the new notes will be freely transferable, other than as described in
this prospectus;
(2) will not contain any legend restricting their transfer;
(3) holders of the new notes will not be entitled to certain rights of the
holders of the original notes under the registration agreement, which
rights will terminate on completion of the exchange offer; and
(4) the new notes will not contain any provisions regarding the payment of
special interest.
The new notes will evidence the same debt as the original notes and will be
entitled to the benefits of the indenture. See "Description of the Notes."
The exchange offer is not conditioned on any minimum aggregate principal
amount at maturity of original notes being tendered for exchange.
Based on interpretations by the SEC's staff in no-action letters issued to
other parties, Level 3 believes that holders of new notes issued in the
exchange offer may transfer the new notes without complying with the
registration and prospectus delivery requirements of the Securities Act if the
holders:
(1) acquired the new notes in the ordinary course of the holders'
business;
(2) are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the new notes;
(3) are not affiliates of Level 3 within the meaning of Rule 405 under the
Securities Act;
(4) are not broker-dealers who acquired original notes directly from
Level 3; and
(5) are not broker-dealers who acquired original notes as a result of
market-making or other trading activities.
See "Plan of Distribution."
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<PAGE>
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those new notes. The letter of transmittal that accompanies
this prospectus states that by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an underwriter within
the meaning of the Securities Act. A participating broker-dealer may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with resales of new notes received in exchange for original notes
where those new notes were acquired by the broker-dealer as a result of market-
making activities or other trading activities. Level 3 has agreed that,
starting on the date of this prospectus and ending on the close of business on
the day that is 180 days following the date of this prospectus, it will make
this prospectus available to any broker-dealer for use in connection with any
resale of this kind.
Tendering holders of original notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes relating to the exchange of original notes for new
notes in the exchange offer.
Shelf Registration Statement
If:
(1) applicable interpretations of the staff of the SEC do not permit Level
3 to effect an exchange offer,
(2) for any other reason the exchange offer registration statement is not
declared effective within 150 days after December 2, 1998 or the
exchange offer is not completed within 180 days after December 2,
1998,
(3) the initial purchasers so request for original notes not eligible to
be exchanged for new notes in the exchange offer, or
(4) any holder of original notes, other than an initial purchaser, is not
eligible to participate in the exchange offer or does not receive
freely tradable new notes in the exchange offer other than by reason
of the holder being an affiliate of Level 3,
Level 3 will, at our cost:
(1) as promptly as practicable, file a shelf registration statement
covering resales of the original notes or the new notes, as the case
may be,
(2) use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act, and
(3) use our best efforts to keep the shelf registration statement
effective until two years after its effective date.
For purposes of determining whether Level 3 is obligated to file a shelf
registration statement, the requirement that a participating broker-dealer
deliver this prospectus in connection with sales of new notes will not result
in those new notes being deemed not freely tradable.
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<PAGE>
If Level 3 files a shelf registration statement, it will, among other
things:
(1) provide to each holder for whom the shelf registration statement was
filed copies of the prospectus which is a part of the shelf
registration statement;
(2) notify each of those holders when the shelf registration statement has
become effective; and
(3) take other actions as are required to permit unrestricted resales of
the original notes or the new notes, as the case may be.
A holder selling original notes or new notes under the shelf registration
statement generally must be named as a selling security holder in the related
prospectus and must deliver a prospectus to purchasers. Consequently, the
holder will be subject to the civil liability provisions under the Securities
Act in connection with those sales and will be bound by any applicable
provisions of the registration agreement, including specified indemnification
obligations.
Special Interest
Special interest will accrue on the accreted value of the original notes
and the new notes, in addition to the stated interest on the original notes and
the new notes, from and including the date on which a registration default
occurs to but excluding the date on which all registration defaults have been
cured.
The occurrence of any of the following is a registration default:
(1) neither the exchange offer registration statement nor the shelf
registration statement has been filed with the SEC on or before the
90th day following December 2, 1998,
(2) neither the exchange offer registration statement nor the shelf
registration statement has been declared effective on or before the
150th day following December 2, 1998,
(3) neither the exchange offer has been completed nor the shelf
registration statement has been declared effective on or before the
180th day following December 2, 1998, or
(4) after either the exchange offer registration statement or the shelf
registration statement has been declared effective, that registration
statement ceases to be effective or usable, subject to certain
exceptions, in connection with resales of original notes or new notes
in accordance with and during the periods specified in the
registration agreement.
Special interest will accrue at a rate of 0.50% per annum on the accreted
value during the 90-day period after the occurrence of the registration default
and will increase by 0.25% per annum at the end of each subsequent 90-day
period. In no event will the rate exceed 1.00% per annum on the accreted value.
If the exchange offer is completed on the terms and within the period
contemplated by this prospectus, no special interest will be payable.
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<PAGE>
The summary of the provisions of the registration agreement contained in
this prospectus does not purport to be complete. This summary is subject to and
is qualified in its entirety by reference to all the provisions of the
registration agreement, a copy of which is an exhibit to the registration
statement of which this prospectus is a part.
Expiration Date; Extensions; Termination; Amendments
The expiration date of the exchange offer is 5:00 p.m., New York City time,
on , 1999, unless Level 3 in its sole discretion extends the period during
which the exchange offer is open. In that case, the expiration date will be the
latest time and date to which the exchange offer is extended. Level 3 reserves
the right to extend the exchange offer at any time and from time to time before
the expiration date by giving written notice to the exchange agent, IBJ
Whitehall Bank & Trust Company and by timely public announcement. Unless
otherwise required by applicable law or regulation, the public announcement
will be made by a release to the Dow Jones News Service. During any extension
of the exchange offer, all original notes previously tendered in the exchange
offer will remain subject to the exchange offer.
The initial exchange date will be the first business day following the
expiration date. Level 3 expressly reserves the right to:
(1) terminate the exchange offer and not accept for exchange any original
notes for any reason, including if any of the events described below
under "--Conditions to the Exchange Offer" shall have occurred and
shall not have been waived by Level 3; and
(2) amend the terms of the exchange offer in any manner.
If any termination or amendment occurs, Level 3 will notify the exchange
agent in writing and will either issue a press release or give written notice
to the holders of the original notes as promptly as practicable. Unless Level 3
terminates the exchange offer prior to 5:00 p.m., New York City time, on the
expiration date, Level 3 will exchange the new notes for the original notes on
the exchange date.
If:
(1) Level 3 waives any material condition to the exchange offer or amends
the exchange offer in any other material respect; and,
(2) at the time that notice of this waiver or amendment is first
published, sent or given to holders of original notes in the manner
specified above, the exchange offer is scheduled to expire at any
time earlier than the fifth business day from, and including, the
date that the notice is first so published, sent or given,
then the exchange offer will be extended until that fifth business day.
This prospectus and the letter of transmittal and other relevant materials
will be mailed by Level 3 to record holders of original notes. In addition,
these materials will be furnished to brokers, banks and similar persons whose
names, or the names of whose nominees, appear on the lists of holders for
subsequent transmittal to beneficial owners of original notes.
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<PAGE>
How to Tender
The tender to Level 3 of original notes according to one of the procedures
described below will constitute an agreement between that holder of original
notes and Level 3 in accordance with the terms and subject to the conditions
set forth in this prospectus and in the letter of transmittal.
General Procedures. A holder of an original note may tender them by:
(1) properly completing and signing the letter of transmittal or a
facsimile of the letter of transmittal and delivering them, together
with the certificate or certificates representing the original notes
being tendered and any required signature guarantees, or a timely
confirmation of a book-entry transfer according to the procedure
described below, to the exchange agent at its address set forth below
under "-- Exchange Agent" on or before the expiration date; or
(2) complying with the guaranteed delivery procedures described below.
All references in this prospectus to the letter of transmittal include a
facsimile of the letter of transmittal.
If tendered original notes are registered in the name of the signer of the
letter of transmittal and the new notes to be issued in exchange for accepted
original notes are to be issued, and any untendered original notes are to be
reissued, in the name of the registered holder, the signature of the signer
need not be guaranteed. In any other case, the tendered original notes must be
endorsed or accompanied by written instruments of transfer in form satisfactory
to Level 3. They must also be duly executed by the registered holder. In
addition, the signature on the endorsement or instrument of transfer must be
guaranteed by an eligible guarantor institution that is a member of a
recognized signature guarantee medallion program within the meaning of Rule
17Ad-15 under the Exchange Act. If the new notes and/or original notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the original notes, an eligible
guarantor institution must guarantee the signature on the letter of
transmittal.
Any beneficial owner whose original notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender original notes should contact the holder promptly and instruct it to
tender on the beneficial owner's behalf. If the beneficial owner wishes to
tender the original notes itself, the beneficial owner must either make
appropriate arrangements to register ownership of the original notes in its
name or follow the procedures described in the immediately preceding paragraph.
The beneficial owner must make these arrangements or follow these procedures
before completing and executing the letter of transmittal and delivering the
original notes. The transfer of record ownership may take considerable time.
Book-Entry Transfer. The exchange agent will make a request to establish an
account for the original notes at the book-entry transfer facility, The
Depository Trust Company, or DTC, for purposes of the exchange offer within two
business days after receipt of this prospectus. Subject to the establishment of
the account, any financial institution that is a
19
<PAGE>
participant in the book-entry transfer facility's systems may make book-entry
delivery of original notes by causing the book-entry transfer facility to
transfer the original notes into the exchange agent's account at the book-entry
transfer facility in accordance with the facility's procedures. However,
although delivery of original notes may be effected through book-entry
transfer, the letter of transmittal, with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
by the exchange agent at the address set forth below under "--Exchange Agent"
on or before the expiration date or the guaranteed delivery procedures
described below must be complied with.
The method of delivery of original notes and all other documents is at the
election and risk of the holder. If sent by mail, it is recommended that the
holder use registered mail, return receipt requested, obtain proper insurance,
and make the mailing sufficiently in advance of the expiration date to permit
delivery to the exchange agent on or before the expiration date.
Unless an exemption applies under the applicable law and regulations
concerning backup withholding of federal income tax, the exchange agent will be
required to withhold 31% of the gross proceeds otherwise payable to a holder in
the exchange offer if the holder does not provide the holder's taxpayer
identification number and certify that the number is correct. Each tendering
holder should complete and sign the main signature form and the Substitute Form
W-9 included as part of the letter of transmittal, so as to provide the
information and certification necessary to avoid backup withholding. This will
not be required, however, if an applicable exemption exists and is proved in a
manner satisfactory to Level 3 and the exchange agent.
Guaranteed Delivery Procedures. If a holder desires to accept the exchange
offer and time will not permit a letter of transmittal or original notes to
reach the exchange agent before the expiration date, a tender may be effected
if the exchange agent has received at its office listed under "--Exchange
Agent" below on or before the expiration date a letter, telegram or facsimile
transmission from an eligible guarantor institution that:
(1) sets forth the name and address of the tendering holder, the names in
which the original notes are registered and, if possible, the
certificate numbers of the original notes to be tendered; and
(2) states that the tender is being made thereby; and
(3) guarantees that within three New York Stock Exchange trading days after
the date of execution of the letter, telegram or facsimile transmission
by the eligible guarantor institution, the original notes, in proper
form for transfer, will be delivered by the eligible guarantor
institution together with a properly completed and duly executed letter
of transmittal and any other required documents.
Unless original notes being tendered by the above-described method or a timely
confirmation of a book-entry transfer are deposited with the exchange agent
within the time period described above, accompanied or preceded by a properly
completed letter of transmittal and any other required documents, Level 3 may
reject the tender. Copies of a notice of
20
<PAGE>
guaranteed delivery which may be used by eligible guarantor institutions for
the purposes described in this paragraph are being delivered with this
prospectus and the letter of transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed letter of transmittal
accompanied by the original notes or a timely confirmation of a book-entry
transfer is received by the exchange agent. Issuances of new notes in exchange
for original notes tendered by an eligible guarantor institution as described
above will be made only against deposit of the letter of transmittal and any
other required documents and the tendered original notes or a timely
confirmation of a book-entry transfer.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance for exchange of any tender of original notes will be
determined by Level 3. Level 3's determination will be final and binding.
Level 3 reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel
to Level 3, be unlawful. Level 3 also reserves the absolute right to waive any
of the conditions of the exchange offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. None of Level 3, the
exchange agent or any other person will incur any liability for failure to
give notification of any defects or irregularities in tenders. Level 3's
interpretation of the terms and conditions of the exchange offer, including
the letter of transmittal and the instructions to the letter of transmittal,
will be final and binding.
Terms and Conditions of the Letter of Transmittal
The letter of transmittal contains, among other things, the following
terms and conditions, which are part of the exchange offer.
The party tendering original notes for exchange, or the transferor,
exchanges, assigns and transfers the original notes to Level 3 and irrevocably
constitutes and appoints the exchange agent as its agent and attorney-in-fact
to cause the original notes to be assigned, transferred and exchanged. The
transferor represents and warrants that:
(1) it has full power and authority to tender, exchange, assign and
transfer the original notes and to acquire new notes issuable upon the
exchange of the tendered original notes; and
(2) when the same are accepted for exchange, Level 3 will acquire good and
unencumbered title to the tendered original notes, free and clear of
all liens, restrictions, charges and encumbrances and not subject to
any adverse claim.
The transferor also warrants that it will, upon request, execute and deliver
any additional documents Level 3 deems necessary or desirable to complete the
exchange, assignment and transfer of tendered original notes. The transferor
further agrees that acceptance of any tendered original notes by Level 3 and
the issuance of new notes in exchange shall constitute performance in full by
Level 3 of its obligations under the registration agreement and that
21
<PAGE>
Level 3 shall have no further obligations or liabilities under the registration
agreement, except in certain limited circumstances. All authority conferred by
the transferor will survive the death or incapacity of the transferor and every
obligation of the transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of the
transferor.
By tendering original notes, the transferor certifies that:
(1) it is not an affiliate of Level 3 within the meaning of Rule 405 under
the Securities Act, that it is not a broker-dealer that owns original
notes acquired directly from Level 3 or an affiliate of Level 3, that
it is acquiring the new notes offered hereby in the ordinary course of
its business and that it has no arrangement with any person to
participate in the distribution of the new notes; or
(2) it is an affiliate, as so defined, of Level 3 or of the initial
purchasers, and that it will comply with applicable registration and
prospectus delivery requirements of the Securities Act.
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those new notes. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an underwriter within the meaning of the Securities
Act.
Withdrawal Rights
Original notes tendered in the exchange offer may be withdrawn at any time
before the expiration date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the exchange agent at its
address set forth below under "-- Exchange Agent." Any notice of withdrawal
must:
(1) specify the person named in the letter of transmittal as having
tendered original notes to be withdrawn;
(2) specify the certificate numbers of original notes to be withdrawn;
(3) specify the principal amount of original notes to be withdrawn, which
must be an authorized denomination;
(4) state that the holder is withdrawing its election to have those
original notes exchanged;
(5) state the name of the registered holder of those original notes; and
(6) be signed by the holder in the same manner as the original signature
on the letter of transmittal, including any required signature
guarantees, or be accompanied by evidence satisfactory to Level 3 that
the person withdrawing the tender has succeeded to the beneficial
ownership of the original notes being withdrawn.
22
<PAGE>
The exchange agent will return the properly withdrawn original notes promptly
following receipt of notice of withdrawal. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by Level
3, and this determination will be final and binding on all parties.
Acceptance of Original Notes for Exchange; Delivery of New Notes
Upon the terms and subject to the conditions of the exchange offer, the
acceptance for exchange of original notes validly tendered and not withdrawn
and the issuance of the new notes will be made on the exchange date. For the
purposes of the exchange offer, Level 3 shall be deemed to have accepted for
exchange validly tendered original notes when, as and if Level 3 has given
written notice of acceptance to the exchange agent.
The exchange agent will act as agent for the tendering holders of original
notes for the purposes of receiving new notes from Level 3 and causing the
original notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the exchange offer, delivery of new notes to be
issued in exchange for accepted original notes will be made by the exchange
agent promptly after acceptance of the tendered original notes. Original notes
not accepted for exchange will be returned without expense to the tendering
holders. Or, in the case of original notes tendered by book-entry transfer, the
non-exchanged original notes will be credited to an account maintained with the
book-entry transfer facility promptly following the expiration date. If Level 3
terminates the exchange offer before the expiration date, these non-exchanged
original notes will be credited to the exchange agent's account promptly after
the exchange offer is terminated.
Conditions to the Exchange Offer
Despite any other provision of the exchange offer or any extension of the
exchange offer, Level 3 will not be required to issue new notes for any
properly tendered original notes not previously accepted. Level 3 may terminate
the exchange offer by oral or written notice to the exchange agent and by
timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News Service
or, at its option, modify or otherwise amend the exchange offer, if:
(1) any action or proceeding is threatened, instituted or pending before,
or any injunction, order or decree is issued by, any court or
governmental agency or other governmental regulatory or administrative
agency or commission:
(A) seeking to restrain or prohibit the making or completion of the
exchange offer or any other transaction contemplated by the
exchange offer,
(B) assessing or seeking any damages as a result of the making or
completion of the exchange offer or any other transaction
contemplated by the exchange offer, or
(C) resulting in a material delay in the ability of Level 3 to
accept for exchange or exchange some or all of the original
notes in the exchange offer;
(2) any statute, rule, regulation, order or injunction is sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
exchange offer or any of the
23
<PAGE>
transactions contemplated by the exchange offer by any government or
governmental authority, domestic or foreign, or any action is taken,
proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of
Level 3 might result in any of the consequences referred to in clauses
(1)(A) or (B) above or, in the sole judgment of Level 3, might result
in the holders of new notes having obligations relating to resales and
transfers of new notes which are greater than those described in the
interpretations of the SEC referred to in "--Terms of the Exchange"
above, or would otherwise make it inadvisable to proceed with the
exchange offer; or
(3) a material adverse change has occurred in the business, condition
(financial or otherwise), operations, or prospects of Level 3.
The conditions described above are for the sole benefit of Level 3. Level 3 may
assert these conditions regarding all or any portion of the exchange offer
regardless of the circumstances, including any action or inaction by Level 3,
giving rise to the condition. Level 3 may waive these conditions in whole or in
part at any time or from time to time in its sole discretion. The failure by
Level 3 at any time to exercise any of the rights described above will not be
deemed a waiver of any of those rights, and each right will be deemed an
ongoing right which may be asserted at any time or from time to time. In
addition, Level 3 has reserved the right, despite the satisfaction of each of
the conditions described above, to terminate or amend the exchange offer.
Any determination by Level 3 concerning the fulfillment or non-fulfillment
of any conditions will be final and binding upon all parties.
In addition, Level 3 will not accept for exchange any original notes
tendered and no new notes will be issued in exchange for any original notes, if
at that time any stop order is threatened or in effect relating to:
(1) the registration statement of which this prospectus constitutes a
part; or
(2) the qualification of the indenture under the Trust Indenture Act.
Exchange Agent
IBJ Whitehall Bank & Trust Company has been appointed as the exchange agent
for the exchange offer. Letters of transmittal must be addressed to the
exchange agent at its address set forth below.
By Registered or Certified Mail: By Overnight Courier or By Hand:
IBJ Whitehall Bank & Trust Company IBJ Whitehall Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, NY 10004
New York, NY 10274-0084 Attention: Securities Processing
Attention: Reorganization Operations Window Subcellar One (SC-1)
Department
By Facsimile:
(212) 858-2611
Confirm by Telephone: (212) 858-2103
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<PAGE>
Delivery to an address other than as set forth in this prospectus, or
transmissions of instructions via a facsimile or telex number other than the
ones set forth herein, will not constitute a valid delivery.
Solicitation of Tenders; Expenses
Level 3 has not retained any dealer-manager or similar agent in connection
with the exchange offer and will not make any payments to brokers, dealers or
others for soliciting acceptances of the exchange offer. However, Level 3 will
pay the exchange agent reasonable and customary fees for its services and will
reimburse it for reasonable out-of-pocket expenses in connection with its
services. Level 3 will also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding tenders for their customers. The expenses to be incurred in
connection with the exchange offer, including the fees and expenses of the
exchange agent and printing, accounting and legal fees, will be paid by Level 3
and are estimated at approximately $400,000.
Appraisal Rights
Holders of original notes will not have dissenters' rights or appraisal
rights in connection with the exchange offer.
Federal Income Tax Consequences
The exchange of original notes for new notes by U.S. holders will not be a
taxable exchange for U.S. federal income tax purposes, and U.S. holders should
not recognize any taxable gain or loss or any interest income as a result of
the exchange.
Other
Participation in the exchange offer is voluntary, and holders should
carefully consider whether to accept the terms and conditions of this offer.
Holders of the original notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take.
As a result of the making of this exchange offer, and upon acceptance for
exchange of all validly tendered original notes according to the terms of this
exchange offer, Level 3 will have fulfilled a covenant contained in the terms
of the original notes and the registration agreement. Holders of the original
notes who do not tender their certificates in the exchange offer will continue
to hold those certificates and will be entitled to all the rights, and
limitations applicable to the original notes under the indenture, except for
any rights under the registration agreement which by their terms terminate or
cease to have further effect as a result of the making of this exchange offer.
See "Description of the Notes."
All untendered original notes will continue to be subject to the
restrictions on transfer set forth in the indenture. In general, the original
notes may not be reoffered, resold or otherwise transferred in the U.S. unless
registered under the Securities Act or unless an
25
<PAGE>
exemption from the Securities Act registration requirements is available.
Except under certain limited circumstances, we do not intend to register the
original notes under the Securities Act.
In addition, any holder of original notes who tenders in the exchange offer
for the purpose of participating in a distribution of the new notes may be
deemed to have received restricted securities. If so, that holder will be
required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction. To the extent
that original notes are tendered and accepted in the exchange offer, the
trading market, if any, for the original notes could be adversely affected.
Level 3 may in the future seek to acquire untendered original notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. Level 3 has no present plan to acquire any original notes that
are not tendered in the exchange offer.
Description of the Notes
General
The new notes, like the original notes, will be issued under the indenture,
dated as of December 2, 1998, between Level 3 and IBJ Whitehall Bank & Trust
Company, formerly known as IBJ Schroder Bank & Trust Company, as trustee. The
indenture has been filed as an exhibit to the registration statement of which
this prospectus is a part. For purposes of this "Description of the Notes," the
term Level 3 refers to Level 3 Communications, Inc. and does not include its
subsidiaries except for purposes of financial data determined on a consolidated
basis.
Because this section is a summary, it does not describe every aspect of the
notes. This summary is subject to and qualified in its entirety by reference to
the Trust Indenture Act and to all the provisions of the indenture, including
definitions of some terms used in the indenture. For example, in this summary,
we use capitalized words to signify defined terms that have been given special
meaning in the indenture. We describe the meaning for only the more important
terms under "--Definitions." Whenever we refer to particular sections or
defined terms of the indenture in this prospectus, these sections or defined
terms are incorporated by reference in this prospectus. The original notes and
the new notes will be considered collectively to be a single class for all
purposes under the indenture, including waivers, amendments, redemptions and
Offers to Purchase. For purposes of this "Description of the Notes," all
references in this prospectus to the notes shall be deemed to refer
collectively to the original notes and the new notes.
The notes are senior unsecured obligations of Level 3, ranking equally in
right of payment with all existing and future senior unsecured indebtedness of
Level 3 including, without limitation, our 9 1/8% Senior Notes. The notes will
be senior in right of payment to all existing and future indebtedness of Level
3 expressly subordinated in right of payment to the notes. As of December 31,
1998, Level 3, excluding our subsidiaries, had, in addition to the notes, $2.0
billion of other indebtedness outstanding. None of that other indebtedness
constituted secured or subordinated indebtedness.
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Substantially all the operations of Level 3 are conducted through its
subsidiaries and, therefore, Level 3 is dependent upon cash flow from those
entities to meet its obligations. The payment of dividends and the making of
loans and advances to Level 3 by its subsidiaries are subject to various
restrictions. Future debt of some of the subsidiaries may prohibit the payment
of dividends or the making of loans or advances to Level 3. In addition, the
ability of subsidiaries of Level 3 to make these payments, loans or advances to
Level 3 is limited by the laws of the relevant states in which the subsidiaries
are organized or located. In some circumstances, the prior or subsequent
approval of these payments, loans or advances by the subsidiaries to Level 3 is
required from applicable regulatory bodies or other governmental entities.
Level 3's subsidiaries will have no direct obligation to pay amounts due on
the notes and will have no obligation to guarantee the notes. As a result, the
notes effectively will be subordinated to all existing and future indebtedness
and other liabilities of Level 3's subsidiaries, including trade payables. As
of December 31, 1998, the total balance sheet liabilities of Level 3's
subsidiaries were approximately $142 million in indebtedness, of which
approximately $141 million in indebtedness was secured by the assets of the
borrowing subsidiaries, and $550 million in other liabilities. The indenture
permits Level 3 and its subsidiaries to incur substantial amounts of additional
debt and other liabilities, including in connection with the implementation of
the business plan. Any rights of Level 3 and its creditors, including the
holders of notes, to participate in the assets of any of Level 3's subsidiaries
upon any liquidation or reorganization of any subsidiary will be subject to the
prior claims of that subsidiary's creditors, including trade creditors. See
"Risk Factors."
Principal, Maturity and Interest
The notes are limited in aggregate principal amount at maturity to
$833,815,000 and will mature on December 1, 2008. The original notes were
issued at a discount to their aggregate principal amount at maturity to
generate aggregate gross proceeds of approximately $500,005,503. The notes will
accrete at a rate of 10 1/2% per annum, compounded semiannually, to an
aggregate principal amount of $833,815,000 by December 1, 2003. Except as
described above under "The Exchange Offer--Special Interest" with respect to
the original notes, cash interest will not accrue on the notes prior to
December 1, 2003. However, Level 3 may elect, upon not less than 60 days' prior
notice, to commence the accrual of cash interest on all outstanding notes on or
after December 1, 2001. In that case, the outstanding principal amount at
maturity of each note will on the commencement date be reduced to the Accreted
Value of that note as of that date and cash interest shall be payable on that
note on each June 1 and December 1 after that date.
Except as otherwise described in the paragraph above, interest on the notes
will accrue at the rate of 10 1/2% per annum and will be payable in cash
semiannually in arrears on June 1 and December 1, commencing June 1, 2004. The
record date for payment of interest will be the close of business on the May 15
or November 15 preceding the applicable interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
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<PAGE>
Principal of, premium, if any, and interest on the notes will be payable,
and the notes may be exchanged or transferred, at the office or agency of Level
3, which, unless otherwise provided by Level 3, will be the offices of the
trustee. At the option of Level 3, interest may be paid by check mailed to the
registered holders at their registered addresses. The notes will be issued
without coupons and in fully registered form only, in minimum denominations of
$1,000 and integral multiples of $1,000. The notes will be issued only against
payment in immediately available funds. No service charge will be made for any
registration of transfer or exchange of the notes, but Level 3 may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection with the transfer or exchange.
The interest rate on the original notes is subject to increase in the
circumstances described under "The Exchange Offer--Special Interest." All
references in this prospectus to interest on the original notes shall include
this special interest, if appropriate. If the exchange offer is completed on
the terms and within the period contemplated by this prospectus, no special
interest will be payable. The new notes will not contain any provisions
regarding the payment of special interest.
Book-Entry System
The notes will initially be issued in the form of global securities held in
book-entry form. The notes will be deposited with the trustee as custodian for
DTC, and DTC or its nominee will initially be the sole registered holder of the
notes for all purposes under the indenture. Unless it is exchanged in whole or
in part for debt securities in definitive form as described below, a global
security may not be transferred. However, transfers of the whole security
between DTC and its nominee or their respective successors are permitted.
Upon the issuance of a global security, DTC or its nominee will credit on
its internal system the principal amount at maturity of the individual
beneficial interest represented by the global security acquired by the persons
in this offering. Ownership of beneficial interests in a global security will
be limited to persons that have accounts with DTC or persons that hold
interests through participants. Ownership of beneficial interests will be shown
on, and the transfer of that ownership interest will be effected only through,
records maintained by DTC or its nominee relating to interests of participants
and the records of participants relating to interests of persons other than
participants. The laws of some jurisdictions require that some purchasers of
securities take physical delivery of the securities in definitive form. These
limits and laws may impair the ability to transfer beneficial interests in a
global security.
Principal and interest payments on global securities registered in the name
of DTC's nominee will be made in immediately available funds to DTC's nominee
as the registered owner of the global securities. Level 3 and the trustee will
treat DTC's nominee as the owner of the global securities for all other
purposes as well. Accordingly, we, the trustee, any paying agent and the
initial purchasers will have no direct responsibility or liability for any
aspect of the records relating to payments made on account of beneficial
interests in the
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<PAGE>
global securities or for maintaining, supervising or reviewing any records
relating to these beneficial interests. It is DTC's current practice, upon
receipt of any payment of principal or interest, to credit direct participants'
accounts on the payment date according to their respective holdings of
beneficial interests in the global securities. These payments will be the
responsibility of the direct and indirect participants and not of DTC, the
trustee, the initial purchasers or us.
So long as DTC or its nominee is the registered owner or holder of the
global security, DTC or its nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by the global security for the
purposes of:
(1) receiving payment on the notes;
(2) receiving notices; and
(3) for all other purposes under the indenture and the notes.
Beneficial interests in the notes will be evidenced only by, and transfers of
the notes will be effected only through, records maintained by DTC and its
participants.
Except as described above, owners of beneficial interests in a global
security will not be entitled to receive physical delivery of certificated
notes in definitive form and will not be considered the holders of the global
security for any purposes under the indenture. Accordingly, each person owning
a beneficial interest in a global security must rely on the procedures of DTC.
And, if that person is not a participant, the person must rely on the
procedures of the participant through which that person owns its interest, to
exercise any rights of a holder under the indenture. Under existing industry
practices, if Level 3 requests any action of holders or an owner of a
beneficial interest in a global security desires to take any action under the
indenture, DTC would authorize the participants holding the relevant beneficial
interest to take that action. The participants then would authorize beneficial
owners owning through the participants to take the action or would otherwise
act upon the instructions of beneficial owners owning through them.
DTC has advised Level 3 that it will take any action permitted to be taken
by a holder of notes only at the direction of one or more participants to whose
account with DTC interests in the global security are credited. Further, DTC
will take action only as to the portion of the aggregate principal amount at
maturity of the notes as to which the participant or participants has or have
given the direction.
Although DTC has agreed to the procedures described above in order to
facilitate transfers of interests in global securities among participants of
DTC, it is under no obligation to perform these procedures, and the procedures
may be discontinued at any time. None of Level 3, the trustee, any agent of
Level 3 or the initial purchasers will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
DTC has provided the following information to us. DTC is a:
(1) limited-purpose trust company organized under the New York Banking Law;
(2) a banking organization within the meaning of the New York Banking Law;
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(3) a member of the U.S. Federal Reserve System;
(4) a clearing corporation within the meaning of the New York Uniform
Commercial Code; and
(5) a clearing agency registered under the provisions of Section 17A of the
Securities Exchange Act.
Certificated Notes
Notes represented by a global security are exchangeable for certificated
notes only if:
(1) DTC notifies Level 3 that it is unwilling or unable to continue as
depository or if DTC ceases to be a registered clearing agency, and a
successor depository is not appointed by Level 3 within 90 days;
(2) Level 3 determines not to require all of the notes to be represented by
a global security and notifies the trustee of its decision; or
(3) an Event of Default or an event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default relating
to the notes represented by the global security has occurred and is
continuing.
Any global security that is exchangeable for certificated notes in accordance
with the preceding sentence will be transferred to, and registered and
exchanged for, certificated notes in authorized denominations and registered
in the names as DTC or its nominee may direct. However, a global security is
only exchangeable for a global security of like denomination to be registered
in the name of DTC or its nominee. If a global security becomes exchangeable
for certificated notes:
(1) certificated notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples of $1,000;
(2) payment of principal, premium, if any, and interest on the
certificated notes will be payable, and the transfer of the
certificated notes will be registrable, at the office or agency of
Level 3 maintained for these purposes; and
(3) no service charge will be made for any issuance of the certificated
notes, although Level 3 may require payment of a sum sufficient to
cover any tax or governmental charge imposed in connection with the
issuance.
Optional Redemption
The notes will be redeemable at our option, in whole or in part, at any
time or from time to time on or after December 1, 2003, upon not less than 30
nor more than 60 days' prior notice. If the notes are redeemed during the
twelve month period beginning on December 1 of any of the years indicated
below, the redemption price will equal the percentage of Accreted Value of the
redeemed notes opposite that year, plus accrued and unpaid interest on the
Accreted Value of the redeemed notes, if any, to the redemption date.
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003.................................................... 105.25%
2004.................................................... 103.50%
2005.................................................... 101.75%
2006 and after.......................................... 100.00%
</TABLE>
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However, holders of record on the relevant record date have the right to
receive interest due on the relevant interest payment date.
In addition, at any time or from time to time before December 1, 2001,
Level 3 may redeem up to 35% of the original aggregate principal amount at
maturity of the notes at a redemption price equal to 110.50% of the Accreted
Value of the notes so redeemed, plus accrued and unpaid interest on the
Accreted Value of the redeemed notes, if any, to the redemption date. However,
holders of record on the relevant record date have the right to receive
interest due on the relevant interest payment date, with the net cash proceeds
of one or more private placements to Persons other than Affiliates of Level 3
or one or more underwritten public offerings of Common Stock of Level 3
resulting in gross proceeds of at least $100 million in the aggregate. However,
at least 65% of the original aggregate principal amount at maturity of the
notes must remain outstanding immediately after giving effect to the
redemption. Any redemption must be made within 90 days of the private placement
or public offering upon not less than 30 nor more than 60 days' prior notice.
Mandatory Redemption
Except as described under "--Covenants--Change of Control Triggering Event"
and "--Limitation on Asset Dispositions," Level 3 is not required to make
mandatory redemption payments or sinking fund payments relating to the notes.
Covenants
The indenture contains covenants that limit, among other things, the
ability of Level 3 and some of its subsidiaries to:
(1) incur debt;
(2) make various payments;
(3) pay dividends and make other restricted payments and transfers;
(4) create liens;
(5) enter into transactions, including transactions with affiliates;
(6) sell assets;
(7) issue or sell capital stock of some of its subsidiaries; and
(8) in the case of Level 3, consolidate, merge or sell substantially all
of Level 3's assets.
In addition, if a Change of Control occurs, Level 3 must within 30 days make an
offer to repurchase all outstanding notes at a price equal to 101% of the
Accreted Value of the notes, plus accrued and unpaid interest, if any, to the
purchase date. The above limitations are restrictive covenants. Restrictive
covenants are promises that we make to you about how we will run our business
or about business actions that we promise not to take. All of the covenants are
subject to a number of important qualifications and exceptions. A more detailed
description of the restrictive covenants follows below.
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<PAGE>
Limitation on Consolidated Debt. (a) Level 3 may not, and may not permit
any Restricted Subsidiary to, directly or indirectly, Incur any Debt, unless,
after giving pro forma effect to such Incurrence and the receipt and
application of the net proceeds thereof, no Default or Event of Default would
occur as a consequence of such Incurrence or be continuing following such
Incurrence and either:
(1) the ratio of
(A) the aggregate consolidated principal amount (or, in the case of
Debt issued at a discount, the then-Accreted Value) of Debt of
Level 3 outstanding as of the most recent available quarterly or
annual balance sheet, after giving pro forma effect to the
Incurrence of such Debt and any other Debt Incurred or repaid
since such balance sheet date and the receipt and application of
the net proceeds thereof, to
(B) Consolidated Cash Flow Available for Fixed Charges for the four
full fiscal quarters next preceding the Incurrence of such Debt
for which consolidated financial statements are available, would
be less than 5.0 to 1.0; or
(2) Level 3's Consolidated Capital Ratio as of the most recent available
quarterly or annual balance sheet, after giving pro forma effect to:
(X) the Incurrence of such Debt and any other Debt Incurred or repaid
since such balance sheet date,
(Y) the issuance of any Capital Stock (other than Disqualified Stock)
of Level 3 since such balance sheet date, including the issuance
of any Capital Stock to be issued concurrently with the Incurrence
of such Debt, and
(Z) the receipt and application of the net proceeds of such Debt or
Capital Stock, as the case may be, is less than 2.25 to 1.0.
(b) Notwithstanding the foregoing limitation, Level 3 or any Restricted
Subsidiary may Incur any and all of the following (each of which shall be given
independent effect):
(1) Debt under the notes, the indenture or any Restricted Subsidiary
Guarantee;
(2) Debt under Credit Facilities in an aggregate principal amount
outstanding or available (together with all refinancing Debt
outstanding or available pursuant to clause (8) below in respect of
Debt previously Incurred pursuant to this clause (2)) at any one time
not to exceed the greater of:
(X) $750 million, which amount shall be permanently reduced by the
amount of Net Available Proceeds used to repay Debt under the
Credit Facilities, and not reinvested in Telecommunications/IS
Assets or used to purchase notes or repay other Debt, pursuant to
and as permitted by the covenant described under "--Limitation on
Asset Dispositions," and
(Y) 85% of the Eligible Receivables;
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(3) Purchase Money Debt, provided that the amount of such Purchase Money
Debt does not exceed 100% of the cost of the construction,
installation, acquisition, lease, development or improvement of the
applicable Telecommunications/IS Assets;
(4) Subordinated Debt of Level 3; provided, however, that the aggregate
principal amount of such Debt, together with any other outstanding
Debt Incurred pursuant to this clause (4), shall not exceed $500
million at any one time (which amount shall be permanently reduced by
the amount of Net Available Proceeds used to repay Subordinated Debt
of Level 3, and not reinvested in Telecommunications/IS Assets or used
to purchase notes or repay other Debt, pursuant to and as permitted by
the covenant described under "--Limitation on Asset Dispositions"),
except to the extent such Debt in excess of $500 million:
(A) is subordinated to all other Debt of Level 3 other than Debt
Incurred pursuant to this clause (4) in excess of such $500
million limitation,
(B) does not provide for the payment of cash interest on such Debt
prior to the Stated Maturity of the notes, and
(C)(1) does not provide for payments of principal of such Debt at
stated maturity or by way of a sinking fund applicable thereto
or by way of any mandatory redemption, defeasance, retirement
or repurchase thereof by Level 3 (including any redemption,
retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue
of the acceleration of any payment with respect to such Debt
upon any event of default thereunder), in each case on or prior
to the Stated Maturity of the notes, and
(2) does not permit redemption or other retirement (including
pursuant to an offer to purchase made by Level 3) of such Debt
at the option of the holder thereof on or prior to the Stated
Maturity of the notes;
(5) Debt outstanding on the Measurement Date;
(6) Debt owed by Level 3 to any Restricted Subsidiary of Level 3 or Debt
owed by a Restricted Subsidiary of Level 3 to Level 3 or a Restricted
Subsidiary of Level 3; provided, however, that:
(X) upon the transfer, conveyance or other disposition by such
Restricted Subsidiary or Level 3 of any Debt so permitted to a
Person other than Level 3 or another Restricted Subsidiary of
Level 3, or
(Y) if for any reason such Restricted Subsidiary ceases to be a
Restricted Subsidiary, the provisions of this clause (6) shall no
longer be applicable to such Debt and such Debt shall be deemed to
have been Incurred by the issuer thereof at the time of such
transfer, conveyance or other disposition or when such Restricted
Subsidiary ceases to be a Restricted Subsidiary;
(7) Debt Incurred by a Person prior to the time:
(A) such Person became a Restricted Subsidiary,
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<PAGE>
(B) such Person merges into or consolidates with a Restricted
Subsidiary, or
(C) another Restricted Subsidiary merges into or consolidates with
such Person (in a transaction in which such Person becomes a
Restricted Subsidiary), which Debt was not Incurred in
anticipation of such transaction and was outstanding prior to such
transaction;
(8) Debt Incurred to renew, extend, refinance, defease, repay, prepay,
repurchase, redeem, retire, exchange or refund (each, a refinancing)
Debt Incurred pursuant to clause (1), (2), (3), (5), (7) or (12) of
this paragraph (b) or this clause (8), in an aggregate principal
amount (or if issued at a discount, the then-Accreted Value) not to
exceed the aggregate principal amount (or if issued at a discount, the
then-Accreted Value) of and accrued interest on the Debt so refinanced
plus the amount of any premium required to be paid in connection with
such refinancing pursuant to the terms of the Debt so refinanced or
the amount of any premium reasonably determined by the board of
directors of Level 3 as necessary to accomplish such refinancing by
means of a tender offer or privately negotiated repurchase, plus the
expenses of Level 3 Incurred in connection with such refinancing;
provided, however, that:
(A) the refinancing Debt shall not be senior in right of payment to
the Debt that is being refinanced, and
(B) in the case of any refinancing of Debt Incurred pursuant to clause
(1), (5), (7) or (12) or, if such Debt previously refinanced Debt
Incurred pursuant to any such clause, this clause (8), the
refinancing Debt by its terms, or by the terms of any agreement or
instrument pursuant to which such Debt is issued,
(x) does not provide for payments of principal of such Debt at
stated maturity or by way of a sinking fund applicable thereto
or by way of any mandatory redemption, defeasance, retirement
or repurchase thereof by Level 3 (including any redemption,
retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue
of the acceleration of any payment with respect to such Debt
upon any event of default thereunder), in each case prior to
the time the same are required by the terms of the Debt being
refinanced, and
(y) does not permit redemption or other retirement (including
pursuant to an offer to purchase made by Level 3) of such Debt
at the option of the holder thereof prior to the time the same
are required by the terms of the Debt being refinanced,
other than, in the case of clause (x) or (y), any such payment,
redemption or other retirement (including pursuant to an offer to
purchase made by Level 3) which is conditioned upon a change of
control pursuant to provisions substantially similar to those
described under "--Change of Control Triggering Event;"
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(9) Debt:
(A) in respect of performance, surety or appeal bonds, Guarantees,
letters of credit or reimbursement obligations Incurred or
provided in the ordinary course of business securing the
performance of contractual, franchise, lease, self-insurance or
license obligations and not in connection with the Incurrence of
Debt, or
(B) in respect of customary agreements providing for indemnification,
adjustment of purchase price after closing, or similar
obligations, or from Guarantees or letters of credit, surety bonds
or performance bonds securing any such obligations of Level 3 or
any of its Restricted Subsidiaries pursuant to such agreements,
Incurred in connection with the disposition of any business,
assets or Restricted Subsidiary of Level 3 (other than Guarantees
of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary of Level
3 for the purpose of financing such acquisition) and in an
aggregate principal amount not to exceed the gross proceeds
actually received by Level 3 or any Restricted Subsidiary in
connection with such disposition;
(10) Debt consisting of Permitted Interest Rate or Currency Protection
Agreements;
(11) Debt not otherwise permitted to be Incurred pursuant to clauses (1)
through (10) above or clause (12) below, which, together with any
other outstanding Debt Incurred pursuant to this clause (11), has an
aggregate principal amount not in excess of $50 million at any time
outstanding; and
(12) Debt under the 9 1/8% Senior Notes, the 9 1/8% Senior Notes Indenture
or restricted subsidiary guarantees issued in accordance with the 9
1/8% Senior Notes Indenture.
Notwithstanding any other provision of this "--Limitation on Consolidated
Debt" covenant, the maximum amount of Debt that Level 3 or a Restricted
Subsidiary may Incur pursuant to this "--Limitation on Consolidated Debt"
covenant shall not be deemed to be exceeded due solely to the result of
fluctuations in the exchange rates of currencies.
For purposes of determining any particular amount of Debt under this "--
Limitation on Consolidated Debt" covenant,
(1) Guarantees, Liens or obligations with respect to letters of credit
supporting Debt otherwise included in the determination of such
particular amount shall not be included, and
(2) any Liens granted for the benefit of the notes pursuant to the
provisions referred to in the "--Limitation on Liens" covenant
described below
shall not be treated as Debt. For purposes of determining compliance with this
"--Limitation on Consolidated Debt" covenant, in the event that an item of Debt
meets the criteria of more than one of the types of Debt described in the above
clauses, Level 3, in its sole discretion, shall classify such item of Debt and
only be required to include the amount and type of such Debt in one of such
clauses.
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<PAGE>
Limitation on Debt of Restricted Subsidiaries. Level 3 may not permit any
Restricted Subsidiary that is not a Guarantor to Incur any Debt except any and
all of the following (each of which shall be given independent effect):
(1) Restricted Subsidiary Guarantees;
(2) Debt outstanding on the Measurement Date;
(3) Debt of Restricted Subsidiaries under Credit Facilities permitted to
be Incurred pursuant to clause (2) of paragraph (b) of "--Limitation
on Consolidated Debt;"
(4) Purchase Money Debt of Restricted Subsidiaries permitted to be
Incurred pursuant to clause (3) of paragraph (b) of "--Limitation on
Consolidated Debt;"
(5) Debt owed by a Restricted Subsidiary to Level 3 or a Restricted
Subsidiary of Level 3 permitted to be Incurred pursuant to clause (6)
of paragraph (b) of "--Limitation on Consolidated Debt;"
(6) Debt of Restricted Subsidiaries consisting of Permitted Interest Rate
or Currency Protection Agreements permitted to be Incurred pursuant to
clause (10) of paragraph (b) of "--Limitation on Consolidated Debt;"
(7) Debt of Restricted Subsidiaries permitted to be Incurred under clause
(7) of paragraph (b) of "--Limitation on Consolidated Debt;"
(8) Debt of Restricted Subsidiaries permitted to be Incurred under clause
(9) or (11) of paragraph (b) of "--Limitation on Consolidated Debt;"
and
(9) Debt which is Incurred to refinance any Debt of a Restricted
Subsidiary permitted to be Incurred pursuant to clauses (1), (2), (3),
(4) and (7) of this paragraph or this clause (9), in an aggregate
principal amount (or if issued at a discount, the then-Accreted Value)
not to exceed the aggregate principal amount (or if issued at a
discount, the then-Accreted Value) of the Debt so refinanced, plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Debt so refinanced or the
amount of any premium reasonably determined by the board of directors
of Level 3 as necessary to accomplish such refinancing by means of a
tender offer or privately negotiated repurchase, plus the amount of
expenses of Level 3 and the applicable Restricted Subsidiary Incurred
in connection therewith;
provided, however, that, in the case of any refinancing of Debt
Incurred pursuant to clause (1), (2) or (7) or, if such Debt
previously refinanced Debt Incurred pursuant to any such clause, this
clause (9), the refinancing Debt by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt is Incurred,
(X) does not provide for payments of principal at the stated maturity
of such Debt or by way of a sinking fund applicable to such Debt
or by way of any mandatory redemption, defeasance, retirement or
repurchase of such Debt by Level 3 or any Restricted Subsidiary
(including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any
retirement required by virtue of acceleration of such Debt upon an
event
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<PAGE>
of default thereunder), in each case prior to the time the same are
required by the terms of the Debt being refinanced, and
(Y) does not permit redemption or other retirement (including pursuant
to an offer to purchase made by Level 3 or a Restricted Subsidiary)
of such Debt at the option of the holder thereof prior to the stated
maturity of the Debt being refinanced,
other than, in the case of clause (X) or (Y), any such payment,
redemption or other retirement (including pursuant to an offer to
purchase made by Level 3 or a Restricted Subsidiary) which is
conditioned upon the change of control of Level 3 pursuant to provisions
substantially similar to those contained in the indenture described
under "--Change of Control Triggering Event."
Notwithstanding any other provision of this "--Limitation on Debt of
Restricted Subsidiaries" covenant, the maximum amount of Debt that a
Restricted Subsidiary may Incur pursuant to this "--Limitation on Debt of
Restricted Subsidiaries" covenant shall not be deemed to be exceeded due
solely as the result of fluctuations in the exchange rates of currencies.
For purposes of determining any particular amount of Debt under this "--
Limitation on Debt of Restricted Subsidiaries" covenant, Guarantees, Liens or
obligations with respect to letters of credit supporting Debt otherwise
included in the determination of such particular amount shall not be included.
For purposes of determining compliance with this "--Limitation on Debt of
Restricted Subsidiaries" covenant, in the event that an item of Debt meets the
criteria of more than one of the types of Debt described in the above clauses,
Level 3, in its sole discretion, shall classify such item of Debt and only be
required to include the amount and type of such Debt in one of such clauses.
Limitation on Restricted Payments. (a) Level 3 may not, and may not permit
any Restricted Subsidiary to:
(1) directly or indirectly, declare or pay any dividend, or make any
distribution, in respect of its Capital Stock or to the holders
thereof, excluding any dividends or distributions which are made solely
to Level 3 or a Restricted Subsidiary (and, if such Restricted
Subsidiary is not a Wholly Owned Subsidiary, to the other stockholders
of such Restricted Subsidiary on a pro rata basis or on a basis that
results in the receipt by Level 3 or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a
pro rata basis) or any dividends or distributions payable solely in
shares of Capital Stock of Level 3 (other than Disqualified Stock) or
in options, warrants or other rights to acquire Capital Stock of Level
3 (other than Disqualified Stock);
(2) purchase, redeem, or otherwise retire or acquire for value:
(X) any Capital Stock of Level 3 or any Restricted Subsidiary of Level
3, or
(Y) any options, warrants or rights to purchase or acquire shares of
Capital Stock of Level 3 or any Restricted Subsidiary or any
securities convertible or
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exchangeable into shares of Capital Stock of Level 3 or any
Restricted Subsidiary,
except, in any such case, any such purchase, redemption or retirement
or acquisition for value:
(A) paid to Level 3 or a Restricted Subsidiary (or, in the case of any
such purchase, redemption or other retirement or acquisition for
value with respect to a Restricted Subsidiary that is not a Wholly
Owned Subsidiary, to the other stockholders of such Restricted
Subsidiary on a pro rata basis or on a basis that results in the
receipt by Level 3 or a Restricted Subsidiary of payments of
greater value than it would receive on a pro rata basis), or
(B) paid solely in shares of Capital Stock (other than Disqualified
Stock) of Level 3;
(3) make any Investment (other than an Investment in Level 3 or a
Restricted Subsidiary or a Permitted Investment) in any Person,
including the Designation of any Restricted Subsidiary as an
Unrestricted Subsidiary, or the Revocation of any such Designation,
according to the covenant described under "--Limitation on
Designations of Unrestricted Subsidiaries;"
(4) redeem, defease, repurchase, retire or otherwise acquire or retire for
value, prior to any scheduled maturity, repayment or sinking fund
payment, Debt of Level 3 which is subordinate in right of payment to
the notes (other than any redemption, defeasance, repurchase,
retirement or other acquisition or retirement for value made in
anticipation of satisfying a scheduled maturity, repayment or sinking
fund obligation due within one year thereof); and
(5) issue, transfer, convey, sell or otherwise dispose of Capital Stock of
any Restricted Subsidiary to a Person other than Level 3 or another
Restricted Subsidiary if the result thereof is that such Restricted
Subsidiary shall cease to be a Restricted Subsidiary, in which event
the amount of such Restricted Payment shall be the Fair Market Value
of the remaining interest, if any, in such former Restricted
Subsidiary held by Level 3 and the other Restricted Subsidiaries
(each of clauses (1) through (5) above being a Restricted Payment) if:
(A) an Event of Default, or an event that with the passing of time or the
giving of notice, or both, would constitute an Event of Default, shall
have occurred and be continuing, or
(B) upon giving effect to such Restricted Payment, Level 3 could not Incur
at least $1.00 of additional Debt pursuant to the terms of the
indenture described in paragraph (a) of "--Limitation on Consolidated
Debt" above, or
(C) upon giving effect to such Restricted Payment, the aggregate of all
Restricted Payments made on or after the Measurement Date, including
Restricted Payments made pursuant to clause (a) or (b) of the proviso
at the end of this sentence, and Permitted Investments made on or
after the Measurement Date pursuant to clause
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(9) or (10) of the definition thereof (the amount of any such
Restricted Payment or Permitted Investment, if made other than in
cash, to be based upon Fair Market Value) exceeds the sum of:
(X) 50% of cumulative Consolidated Net Income (or, in the case that
Consolidated Net Income shall be negative, 100% of such negative
amount) since the end of the last full fiscal quarter prior to the
Measurement Date through the last day of the last full fiscal
quarter ending at least 45 days prior to the date of such
Restricted Payment, plus
(Y) in the case of any Revocation made after the Measurement Date, an
amount equal to the lesser of the portion (proportionate to Level
3's equity interest in the Subsidiary to which such Revocation
relates) of the Fair Market Value of the net assets of such
Subsidiary at the time of Revocation and the amount of Investments
previously made (and treated as a Restricted Payment) by Level 3
or any Restricted Subsidiary in such Subsidiary;
provided, however, that Level 3 or a Restricted Subsidiary of Level 3
may, without regard to the limitations in clause (C) but subject to
clauses (A) and (B), make:
(a) Restricted Payments in an aggregate amount not to exceed the sum
of $50 million and the aggregate net cash proceeds received after
the Measurement Date
(i) as capital contributions to Level 3, from the issuance (other
than to a Subsidiary or an employee stock ownership plan or
trust established by Level 3 or any such Subsidiary for the
benefit of their employees) of Capital Stock (other than
Disqualified Stock) of Level 3, and
(ii) from the issuance or sale of Debt of Level 3 or any
Restricted Subsidiary (other than to a Subsidiary, Level 3 or
an employee stock ownership plan or trust established by
Level 3 or any such Subsidiary for the benefit of their
employees) that after the Measurement Date has been converted
into or exchanged for Capital Stock (other than Disqualified
Stock) of Level 3, and
(b) Investments in Persons engaged in the Telecommunications/IS
Business in an aggregate amount not to exceed the after-tax gain
on the sale, after the Measurement Date, of Special Assets to the
extent sold for cash, Cash Equivalents, Telecommunications/IS
Assets or the assumption of Debt of Level 3 or any Restricted
Subsidiary (other than Debt that is subordinated to the notes or
any applicable Restricted Subsidiary Guarantee) and release of
Level 3 and all Restricted Subsidiaries from all liability on the
Debt assumed.
The aggregate net cash proceeds referred to in the immediately
preceding clauses (a)(i) and (a)(ii) shall not be utilized to make
Restricted Payments pursuant to such clauses to the extent such
proceeds have been utilized to make Permitted Investments under clause
(9) of the definition of Permitted Investments.
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(b) Notwithstanding the foregoing limitation:
(1) Level 3 may pay any dividend on Capital Stock of any class of Level 3
within 60 days after the declaration thereof if, on the date when the
dividend was declared, Level 3 could have paid such dividend in
accordance with the foregoing provisions; provided, however, that at
the time of such payment of such dividend, no other Event of Default
shall have occurred and be continuing (or result therefrom);
(2) Level 3 may repurchase any shares of its Common Stock or options to
acquire its Common Stock from Persons who were formerly directors,
officers or employees of Level 3 or any of its Subsidiaries or other
Affiliates in an amount not to exceed $3 million in any 12-month
period;
(3) Level 3 and any Restricted Subsidiary may refinance any Debt otherwise
permitted by clause (8) of paragraph (b) under "--Limitation on
Consolidated Debt" above or clause (9) under "--Limitation on Debt of
Restricted Subsidiaries" above;
(4) Level 3 and any Restricted Subsidiary may retire or repurchase any
Capital Stock of Level 3 or of any Restricted Subsidiary or any
Subordinated Debt of Level 3 in exchange for, or out of the proceeds
of the substantially concurrent sale (other than to a Subsidiary of
Level 3 or an employee stock ownership plan or trust established by
Level 3 or any such Subsidiary for the benefit of their employees) of,
Capital Stock (other than Disqualified Stock) of Level 3, provided
that the proceeds from any such exchange or sale of Capital Stock
shall be excluded from any calculation pursuant to clause (a)(i) in
the proviso at the end of paragraph (a) above or pursuant to clause
(b) of the definition of Invested Capital; and
(5) Level 3 may pay cash dividends in any amount not in excess of $50
million in any 12-month period in respect of Preferred Stock of Level
3 (other than Disqualified Stock).
The Restricted Payments described in the foregoing clauses (1), (2) and (5)
shall be included in the calculation of Restricted Payments; the Restricted
Payments described in clauses (3) and (4) shall be excluded in the calculation
of Restricted Payments.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. (a) Level 3 may not, and may not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction (other than pursuant
to law or regulation) on the ability of any Restricted Subsidiary:
(1) to pay dividends (in cash or otherwise) or make any other
distributions in respect of its Capital Stock owned by Level 3 or any
other Restricted Subsidiary or pay any Debt or other obligation owed
to Level 3 or any other Restricted Subsidiary;
(2) to make loans or advances to Level 3 or any other Restricted
Subsidiary; or
(3) to transfer any of its Property to Level 3 or any other Restricted
Subsidiary;
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(b) Notwithstanding the foregoing limitation, Level 3 may, and may permit
any Restricted Subsidiary to, create or otherwise cause or suffer to exist:
(1) any encumbrance or restriction pursuant to any agreement in effect on
the Measurement Date;
(2) any customary (as conclusively determined in good faith by the Chief
Financial Officer of Level 3) encumbrance or restriction applicable to
a Restricted Subsidiary that is contained in an agreement or
instrument governing or relating to Debt contained in any Credit
Facilities or Purchase Money Debt,
(A) provided that such encumbrances and restrictions permit the
distribution of funds to Level 3 in an amount sufficient for Level
3 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 Debt, including
pursuant to offers to purchase) according to the terms of the
indenture and the notes and other Debt that is solely an
obligation of Level 3, but
(B) provided further that such agreement may nevertheless contain
customary (as so determined) net worth, leverage, invested capital
and other financial covenants, customary (as so determined)
covenants regarding the merger of or sale of all or any
substantial part of the assets of Level 3 or any Restricted
Subsidiary, customary (as so determined) restrictions on
transactions with affiliates and customary (as so determined)
subordination provisions governing Debt owed to Level 3 or any
Restricted Subsidiary;
(3) any encumbrance or restriction pursuant to an agreement relating to
any Acquired Debt, which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than
the Person so acquired;
(4) any encumbrance or restriction pursuant to an agreement effecting a
refinancing of Debt Incurred pursuant to an agreement referred to in
clause (1), (2) or (3) of this paragraph (b), provided, however, that
the provisions contained in such agreement relating to such
encumbrance or restriction are no more restrictive (as so determined)
in any material respect than the provisions contained in the agreement
the subject thereof;
(5) in the case of clause (3) of paragraph (a) above, any encumbrance or
restriction contained in any security agreement (including a Capital
Lease Obligation) securing Debt of Level 3 or a Restricted Subsidiary
otherwise permitted under the indenture, but only to the extent such
restrictions restrict the transfer of the Property subject to such
security agreement;
(6) in the case of clause (3) of paragraph (a) above, customary
provisions:
(A) that restrict the subletting, assignment or transfer of any
Property that is a lease, license, conveyance or similar contract,
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(B) contained in asset sale or other asset disposition agreements
limiting the transfer of the Property being sold or disposed of
pending the closing of such sale or disposition, or
(C) arising or agreed to in the ordinary course of business, not
relating to any Debt,
and that do not, individually or in the aggregate, detract from the
value of Property of Level 3 or any Restricted Subsidiary in any
manner material to Level 3 or any Restricted Subsidiary;
(7) any encumbrance or restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement which has been entered into for the
sale or disposition of all or substantially all of the Capital Stock
or Property of such Restricted Subsidiary, provided that the
consummation of such transaction would not result in a Default or an
Event of Default, that such restriction terminates if such transaction
is abandoned and that the consummation or abandonment of such
transaction occurs within one year of the date such agreement was
entered into; and
(8) any encumbrance or restriction pursuant to the indenture and the
notes.
Limitation on Liens. Level 3 may not, and may not permit any Restricted
Subsidiary to, directly or indirectly, Incur or suffer to exist any Lien on or
with respect to any Property now owned or acquired after the Measurement Date
to secure any Debt without making, or causing such Restricted Subsidiary to
make, effective provision for securing the notes equally and ratably with such
Debt as to such Property for so long as such Debt will be so secured or in the
event such Debt is Debt of Level 3 or a Guarantor which is subordinate in right
of payment to the notes or the applicable Restricted Subsidiary Guarantee,
prior to such Debt as to such Property for so long as such Debt will be so
secured.
The foregoing restrictions shall not apply to:
(1) Liens existing on the Measurement Date and securing Debt outstanding
on the Measurement Date or Incurred on or after the Measurement Date
pursuant to any Credit Facility to secure Debt permitted to be
Incurred pursuant to clause (2) of paragraph (b) under "--Limitation
on Consolidated Debt;"
(2) Liens securing Debt in an amount which, together with the aggregate
amount of Debt then outstanding or available under all Credit
Facilities (together with all refinancing Debt then outstanding or
available pursuant to clause (8) of paragraph (b) of "--Limitation on
Consolidated Debt" in respect of Debt previously Incurred under Credit
Facilities), does not exceed 1.5 times Level 3's Consolidated Cash
Flow Available for Fixed Charges for the four full fiscal quarters
preceding the Incurrence of such Lien for which Level 3's consolidated
financial statements are available, determined on a pro forma basis as
if such Debt had been Incurred and the proceeds thereof had been
applied at the beginning of such four fiscal quarters;
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(3) Liens in favor of Level 3 or any Restricted Subsidiary; provided,
however, that any subsequent issue or transfer of Capital Stock or
other event that results in any such Restricted Subsidiary ceasing to
be a Restricted Subsidiary or any subsequent transfer of the Debt
secured by any such Lien (except to Level 3 or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Lien by the issuer thereof;
(4) Liens to secure Purchase Money Debt permitted to be Incurred pursuant
to clause (3) of paragraph (b) under "--Limitation on Consolidated
Debt," provided that any such Lien may not extend to any Property
other than the Telecommunications/IS Assets installed, constructed,
acquired, leased, developed or improved with the proceeds of such
Purchase Money Debt and any improvements or accessions thereto (it
being understood that all Debt 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/IS Assets financed thereby, shall be considered a
single Purchase Money Debt, whether drawn at one time or from time to
time);
(5) Liens to secure Acquired Debt, provided that:
(A) such Lien attaches to the acquired Property prior to the time of
the acquisition of such Property, and
(B) such Lien does not extend to or cover any other Property;
(6) Liens to secure Debt Incurred to refinance, in whole or in part, Debt
secured by any Lien referred to in the foregoing clauses (1), (4) and
(5) or this clause (6) so long as such Lien does not extend to any
other Property (other than improvements and accessions to the original
Property) and the principal amount of Debt so secured is not increased
except as otherwise permitted under clause (8) of paragraph (b) of "--
Limitation on Consolidated Debt" or clause (9) of "--Limitation on
Debt of Restricted Subsidiaries;"
(7) Liens not otherwise permitted by the foregoing clauses (1) through (6)
securing Debt in an aggregate amount not to exceed 5% of Level 3's
Consolidated Tangible Assets;
(8) Liens granted after the Issue Date pursuant to "--Limitation on Liens"
to secure the notes; and
(9) Permitted Liens.
Limitation on Sale and Leaseback Transactions. Level 3 may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, enter into,
assume, Guarantee or otherwise become liable with respect to any Sale and
Leaseback Transaction, unless:
(1) Level 3 or such Restricted Subsidiary would be entitled to Incur Debt
in an amount equal to the Attributable Value of the Sale and Leaseback
Transaction pursuant to the covenant described under "--Limitation on
Consolidated Debt" above, and a Lien pursuant to the covenant
described under "--Limitation on Liens" above,
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equal in amount to the Attributable Value of the Sale and Leaseback
Transaction, without also securing the notes; and
(2) the Sale and Leaseback Transaction is treated as an Asset Disposition
and all of the conditions of the indenture described under "--
Limitation on Asset Dispositions" below (including the provisions
concerning the application of Net Available Proceeds) are satisfied
with respect to such Sale and Leaseback Transaction, treating all of
the consideration received in such Sale and Leaseback Transaction as
Net Available Proceeds for purposes of such covenant.
Limitation on Asset Dispositions. Level 3 may not, and may not permit any
Restricted Subsidiary to, make any Asset Disposition unless:
(1) Level 3 or the Restricted Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the Fair Market
Value for the Property sold or disposed of as determined by the board
of directors of Level 3 in good faith and evidenced by a resolution of
the board of directors of Level 3 filed with the trustee; and
(2) at least 75% of the consideration for such disposition consists of
cash or Cash Equivalents or the assumption of Debt of Level 3 or any
Restricted Subsidiary (other than Debt that is subordinated to the
notes or any applicable Restricted Subsidiary Guarantee) and release
of Level 3 and all Restricted Subsidiaries from all liability on the
Debt assumed (or if less than 75%, the remainder of such consideration
consists of Telecommunications/IS Assets); provided, however, that, to
the extent such disposition involves Special Assets, all or any
portion of the consideration may, at Level 3's election, consist of
Property other than cash, Cash Equivalents, the assumption of Debt or
Telecommunications/IS Assets.
The Net Available Proceeds (or any portion thereof) from Asset
Dispositions may be applied by Level 3 or a Restricted Subsidiary, to the
extent Level 3 or such Restricted Subsidiary elects (or is required by the
terms of any Debt):
(1) to the permanent repayment or reduction of Debt then outstanding under
any Credit Facility, to the extent such Credit Facility would require
such application or prohibit payments pursuant to the Offer to
Purchase described in the following paragraph (other than Debt owed to
Level 3 or any Affiliate of Level 3); or
(2) to reinvest in Telecommunications/IS Assets (including by means of an
Investment in Telecommunications/IS Assets by a Restricted Subsidiary
with Net Available Proceeds received by Level 3 or another Restricted
Subsidiary).
Any Net Available Proceeds from an Asset Disposition not applied in
accordance with the preceding paragraph within 360 days (or, in the case of a
disposition of Special Assets identified in clause (a) of the definition
thereof in which the Net Available Proceeds exceed $500 million, 540 days)
from the date of the receipt of such Net Available Proceeds shall constitute
Excess Proceeds. When the aggregate amount of Excess Proceeds exceeds $10
million, Level 3 will be required to make an Offer to Purchase with such
Excess Proceeds on
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a pro rata basis according to principal amount (or, in the case of Debt issued
at a discount, the then-Accreted Value) for:
(1) outstanding notes at a price in cash equal to 100% of the Accreted
Value of the notes on the purchase date plus accrued and unpaid
interest (if any) thereon (subject to the right of holders of record
on the relevant record date to receive interest due on the relevant
interest payment date); and
(2) any other Debt of Level 3 or any Guarantor that is pari passu with the
notes, or any Debt of a Restricted Subsidiary that is not a Guarantor,
at a price no greater than 100% of the principal amount thereof plus
accrued and unpaid interest (if any) to the purchase date (or 100% of
the then-Accreted Value plus accrued and unpaid interest (if any) to
the purchase date in the case of original issue discount Debt), to the
extent, in the case of this clause (2), required under the terms
thereof (other than Debt owed to Level 3 or any Affiliate of Level 3).
To the extent there are any remaining Excess Proceeds following the
completion of the Offer to Purchase, Level 3 shall apply such Excess Proceeds
to the repayment of other Debt of Level 3 or any Restricted Subsidiary, to the
extent permitted or required under the terms thereof. Any other remaining
Excess Proceeds may be applied to any use as determined by Level 3 which is not
otherwise prohibited by the indenture, and the amount of Excess Proceeds shall
be reset to zero.
Limitation on Issuance and Sales of Capital Stock of Restricted
Subsidiaries. Level 3 may not, and may not permit any Restricted Subsidiary to,
issue, transfer, convey, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary or securities convertible or exchangeable
into, or options, warrants, rights or any other interest with respect to,
Capital Stock of a Restricted Subsidiary to any Person other than Level 3 or a
Restricted Subsidiary except:
(1) a sale of all of the Capital Stock of such Restricted Subsidiary owned
by Level 3 and any Restricted Subsidiary that complies with the
provisions described under "--Limitation on Asset Dispositions" above
to the extent such provisions apply;
(2) in a transaction that results in such Restricted Subsidiary becoming a
Joint Venture, provided:
(A) such transaction complies with the provisions described under "--
Limitation on Asset Dispositions" above to the extent such
provisions apply, and
(B) the remaining interest of Level 3 or any other Restricted
Subsidiary in such Joint Venture would have been permitted as a
new Restricted Payment or Permitted Investment under the
provisions of "--Limitation on Restricted Payments" above;
(3) the issuance, transfer, conveyance, sale or other disposition of
shares of such Restricted Subsidiary so long as after giving effect to
such transaction such Restricted Subsidiary remains a Restricted
Subsidiary and such transaction
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complies with the provisions described under "--Limitation on Asset
Dispositions" to the extent such provisions apply;
(4) the transfer, conveyance, sale or other disposition of shares required
by applicable law or regulation;
(5) if required, the issuance, transfer, conveyance, sale or other
disposition of directors' qualifying shares;
(6) Disqualified Stock issued in exchange for, or upon conversion of, or
the proceeds of the issuance of which are used to refinance, shares of
Disqualified Stock of such Restricted Subsidiary, provided that the
amounts of the redemption obligations of such Disqualified Stock shall
not exceed the amounts of the redemption obligations of, and such
Disqualified Stock shall have redemption obligations no earlier than
those required by, the Disqualified Stock being exchanged, converted
or refinanced;
(7) in a transaction where Level 3 or a Restricted Subsidiary acquires at
the same time not less than its Proportionate Interest in such
issuance of Capital Stock;
(8) Capital Stock issued and outstanding on the Measurement Date;
(9) Capital Stock of a Restricted Subsidiary issued and outstanding prior
to the time that such Person becomes a Restricted Subsidiary so long
as such Capital Stock was not issued in contemplation of such Person's
becoming a Restricted Subsidiary or otherwise being acquired by Level
3; and
(10) an issuance of Preferred Stock of a Restricted Subsidiary (other
than Preferred Stock convertible or exchangeable into Common Stock
of any Restricted Subsidiary) otherwise permitted by the indenture.
Transactions with Affiliates. Level 3 will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, sell, lease, transfer,
or otherwise dispose of any of its Property to, or purchase any Property from,
or enter into any contract, agreement, understanding, loan, advance, Guarantee
or transaction (including the rendering of services) with or for the benefit
of, any Affiliate (each of the foregoing, an Affiliate Transaction), unless:
(a) such Affiliate Transaction or series of Affiliate Transactions is:
(1) in the best interest of Level 3 or such Restricted Subsidiary, and
(2) on terms that are no less favorable to Level 3 or such Restricted
Subsidiary than those that would have been obtained in a comparable
arm's-length transaction by Level 3 or such Restricted Subsidiary with
a Person that is not an Affiliate (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, Level 3 has
determined to be fair to Level 3 or the relevant Restricted
Subsidiary); and
(b) Level 3 delivers to the trustee:
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(1) with respect to any Affiliate Transaction or series of Affiliate
Transactions involving aggregate payments in excess of $10 million but
less than $15 million, a certificate of the chief executive, operating
or financial officer of Level 3 evidencing such officer's
determination that such Affiliate Transaction or series of Affiliate
Transactions complies with clause (a) above, and
(2) with respect to any Affiliate Transaction or series of Affiliate
Transactions involving aggregate payments equal to or in excess of $15
million, a board resolution certifying that such Affiliate Transaction
or series of Affiliate Transactions complies with clause (a) above and
that such Affiliate Transaction or series of Affiliate Transactions
has been approved by the board of directors, including a majority of
the disinterested members of the board of directors,
provided that, in the event that there shall not be at least two
disinterested members of the board of directors with respect to the
Affiliate Transaction, Level 3 shall, in addition to such board
resolution, file with the trustee a written opinion from an investment
banking firm of national standing in the U.S. which, in the good faith
judgment of the board of directors of Level 3, is independent with
respect to Level 3 and its Affiliates and qualified to perform such
task, which opinion shall be to the effect that the consideration to
be paid or received in connection with such Affiliate Transaction is
fair, from a financial point of view, to Level 3 or such Restricted
Subsidiary.
Notwithstanding the foregoing, the following shall not be deemed Affiliate
Transactions:
(1) any employment agreement entered into by Level 3 or any of its
Restricted Subsidiaries in the ordinary course of business and
consistent with industry practice;
(2) any agreement or arrangement with respect to the compensation of a
director or officer of Level 3 or any Restricted Subsidiary approved
by a majority of the disinterested members of the board of directors
and consistent with industry practice;
(3) transactions between or among Level 3 and its Restricted Subsidiaries,
provided that no more than 5% of the Voting Stock (on a fully diluted
basis) of any such Restricted Subsidiary is owned by an Affiliate of
Level 3 (other than a Restricted Subsidiary);
(4) Restricted Payments and Permitted Investments permitted by the
covenant described under "--Limitation on Restricted Payments" (other
than Investments in Affiliates that are not Level 3 or Restricted
Subsidiaries);
(5) transactions pursuant to the terms of any agreement or arrangement as
in effect on the Measurement Date; and
(6) transactions with respect to wireline or wireless transmission
capacity, the lease or sharing or other use of cable or fiber optic
lines, equipment, rights-of-way or other access rights, between Level
3 (or any Restricted Subsidiary) and any other Person,
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provided that, in the case of this clause (6), such transaction
complies with clause (a) in the immediately preceding paragraph.
Change of Control Triggering Event. Within 30 days of the occurrence of
both a Change of Control and a Rating Decline with respect to the notes (a
Change of Control Triggering Event), Level 3 will be required to make an Offer
to Purchase all outstanding notes at a price in cash equal to 101% of the
Accreted Value of the notes on the purchase date plus any accrued and unpaid
interest (if any) to such purchase date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date).
A Change of Control means the occurrence of any of the following events:
(1) if any person or group (as such terms are used in Sections 13(d) and
14(d) of 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
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 (1), 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
(2) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the
assets of Level 3 and the Restricted Subsidiaries, considered as a
whole (other than a disposition of such assets as an entirety or
virtually as an entirety to a Wholly Owned Restricted Subsidiary or
one or more Permitted Holders) shall have occurred; or
(3) 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
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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
(4) the shareholders of Level 3 shall have approved any plan of
liquidation or dissolution of Level 3.
In the event that Level 3 makes an Offer to Purchase the notes, Level 3
intends to comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1
under, the Exchange Act.
The existence of the holders' right to require, subject to certain
conditions, Level 3 to repurchase notes upon a Change of Control Triggering
Event may deter a third party from acquiring Level 3 in a transaction that
constitutes a Change of Control. If an Offer to Purchase is made, there can be
no assurance that Level 3 will have sufficient funds to pay the Purchase Price
for all notes tendered by holders seeking to accept the Offer to Purchase. In
addition, instruments governing other Debt of Level 3 may prohibit Level 3
from purchasing any notes prior to their Stated Maturity, including pursuant
to an Offer to Purchase, or require that such Debt be repurchased upon a
Change of Control. In the event that an Offer to Purchase occurs at a time
when Level 3 does not have sufficient available funds to pay the Purchase
Price for all notes tendered pursuant to such Offer to Purchase or a time when
Level 3 is prohibited from purchasing the notes (and Level 3 is unable either
to obtain the consent of the holders of the relevant Debt or to repay such
Debt), an Event of Default would occur under the indenture.
In addition, one of the events that constitutes a Change of Control under
the indenture is a sale, transfer, assignment, lease, conveyance or other
disposition of all or substantially all of the assets of Level 3. The
indenture will be governed by New York law, and there is no established
definition under New York law of substantially all of the assets of a
corporation. Accordingly, if Level 3 were to engage in a transaction in which
it disposed of less than all of its assets, a question of interpretation could
arise as to whether such disposition was of substantially all of its assets
and whether Level 3 was required to make an Offer to Purchase.
Except as described herein with respect to a Change of Control, the
indenture does not contain any other provisions that permit holders of notes
to require that Level 3 repurchase or redeem notes in the event of a takeover,
recapitalization or similar restructuring.
Reports. Whether or not Level 3 is subject to Section 13(a) or 15(d) of
the Exchange Act, or any successor provision thereto, Level 3 shall file with
the SEC the annual reports, quarterly reports and other documents which Level
3 would have been required to file with the SEC pursuant to such Section 13(a)
or 15(d) or any successor provision thereto if Level 3 were subject thereto,
such documents to be filed with the SEC on or prior to the respective dates
(the Required Filing Dates) by which Level 3 would have been required to file
them. Level 3 shall also in any event:
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(1) within 15 days of each Required Filing Date:
(A) transmit by mail to all holders, as their names and addresses
appear in the Security Register, without cost to such holders, and
(B) file with the trustee copies of the annual reports, quarterly
reports and other documents (without exhibits) which Level 3 would
have been required to file with the SEC pursuant to Section 13(a)
or 15(d) of the Exchange Act or any successor provisions thereto
if Level 3 were subject thereto; and
(2) if filing such documents by Level 3 with the SEC is not permitted
under the Exchange Act, promptly upon written request, supply copies
of such documents (without exhibits) to any prospective holder.
Limitation on Designations of Unrestricted Subsidiaries. The indenture
provides that Level 3 will not designate any Subsidiary of Level 3 (other than
a newly created Subsidiary in which no Investment has previously been made) as
an Unrestricted Subsidiary under the indenture (a Designation) unless:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(2) immediately after giving effect to such Designation, Level 3 would be
able to Incur $1.00 of Debt under paragraph (a) of "--Limitation on
Consolidated Debt;" and
(3) Level 3 would not be prohibited under the indenture from making an
Investment at the time of Designation (assuming the effectiveness of
such Designation) in an amount (the Designation Amount) equal to the
portion (proportionate to the Level 3's equity interest in such
Restricted Subsidiary) of the Fair Market Value of the net assets of
such Restricted Subsidiary on such date.
In the event of any such Designation, Level 3 shall be deemed to have made
an Investment constituting a Restricted Payment pursuant to the covenant "--
Limitation on Restricted Payments" for all purposes of the indenture in the
Designation Amount; provided, however, that, upon a Revocation of any such
Designation of a Subsidiary, Level 3 shall be deemed to continue to have a
permanent Investment in an Unrestricted Subsidiary of an amount (if positive)
equal to:
(1) Level 3's Investment in such Subsidiary at the time of such
Revocation; less
(2) the portion (proportionate to the Level 3's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time of such Revocation.
At the time of any Designation of any Subsidiary as an Unrestricted
Subsidiary, such Subsidiary shall not own any Capital Stock of Level 3 or any
Restricted Subsidiary. The indenture provides that neither Level 3 nor any
Restricted Subsidiary shall at any time:
(1) provide credit support for, or a Guarantee of, any Debt of any
Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Debt); provided that Level 3 or a
Restricted Subsidiary may pledge Capital Stock
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or Debt of any Unrestricted Subsidiary on a nonrecourse basis such
that the pledgee has no claim whatsoever against Level 3 other than to
obtain such pledged Capital Stock or Debt;
(2) be directly or indirectly liable for any Debt of any Unrestricted
Subsidiary; or
(3) be directly or indirectly liable for any Debt which provides that the
holder thereof may (upon notice, lapse of time or both) declare a
default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a
default with respect to any Debt, Lien or other obligation of any
Unrestricted Subsidiary (including any right to take enforcement
action against such Unrestricted Subsidiary),
except in the case of clause (1) or (2) to the extent permitted under "--
Limitation on Restricted Payments" and "--Transactions with Affiliates."
Unless Designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of Level 3 will be classified as a Restricted Subsidiary; provided,
however, that such Subsidiary shall not be designated as a Restricted
Subsidiary and shall be automatically classified as an Unrestricted Subsidiary
if either of the requirements set forth in clauses (1) and (2) of the
immediately following paragraph will not be satisfied immediately following
such classification. Except as provided in the first sentence of this "--
Limitation on Designations of Unrestricted Subsidiaries," no Restricted
Subsidiary may be redesignated as an Unrestricted Subsidiary.
The indenture provides that a Designation may be revoked (a Revocation) by
a resolution of the board of directors of Level 3 delivered to the trustee,
provided that Level 3 will not make any Revocation unless:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation; and
(2) all Liens and Debt of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if Incurred at such time,
have been permitted to be Incurred at such time for all purposes of
the indenture.
All Designations and Revocations must be evidenced by resolutions of the
board of directors of Level 3 delivered to the trustee:
(1) certifying compliance with the foregoing provisions; and
(2) giving the effective date of such Designation or Revocation, such
delivery to the trustee to occur within 45 days after the end of the
fiscal quarter of Level 3 in which such Designation or Revocation is
made (or, in the case of a Designation or Revocation made during the
last fiscal quarter of Level 3's fiscal year, within 90 days after
the end of such fiscal year).
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Mergers, Consolidations and Certain Sales of Assets
Level 3 may not, in a single transaction or a series of related
transactions, consolidate with or merge into any other Person or Persons or
permit any other Person to consolidate with or merge into Level 3 or transfer,
sell, lease, convey or otherwise dispose of all or substantially all its assets
to any other Person or Persons unless:
(1) in a transaction in which Level 3 is not the surviving Person or in
which Level 3 transfers, sells, leases, conveys or otherwise disposes
of all or substantially all of its assets to any other Person, the
resulting, surviving or transferee Person (the successor entity) is
organized under the laws of the U.S. or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental
indenture executed and delivered to the trustee in form satisfactory
to the trustee, all of Level 3's obligations under the indenture;
(2) immediately before and after giving effect to such transaction and
treating any Debt which becomes an obligation of Level 3 (or the
successor entity) or a Restricted Subsidiary as a result of such
transaction as having been Incurred by Level 3 or such Restricted
Subsidiary at the time of the transaction, no Default or Event of
Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Consolidated
Net Worth of Level 3 (or the successor entity) is equal to or greater
than that of Level 3 immediately prior to the transaction;
(4) immediately after giving effect to such transaction and treating any
Debt which becomes an obligation of Level 3 (or the successor entity)
or a Restricted Subsidiary as a result of such transaction as having
been Incurred by Level 3 or such Restricted Subsidiary at the time of
the transaction, Level 3 (or the successor entity) could Incur at
least $1.00 of additional Debt pursuant to the provisions of the
indenture described in paragraph (a) under "--Covenants--Limitation on
Consolidated Debt" above;
(5) if, as a result of any such transaction, Property of Level 3 (or the
successor entity) or any Restricted Subsidiary would become subject to
a Lien prohibited by the provisions of the indenture described under
"--Covenants--Limitation on Liens" above, Level 3 (or the successor
entity) shall have secured the notes as required by said covenant;
(6) in the case of a transfer, sale, lease, conveyance or other
disposition of all or substantially all of the assets of Level 3, such
assets shall have been transferred as an entirety or virtually as an
entirety to one Person and such Person shall have complied with all
the provisions of this paragraph; and
(7) certain other conditions are met.
The successor entity shall succeed to, and be substituted for, and may
exercise every right and power of Level 3 under the indenture, and the
predecessor Company, except in the case of a lease, shall be released from all
its obligations under the indenture.
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Definitions
Set forth below is a summary of some of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
Accreted Value of any note as of or to any date of determination prior to
December 1, 2003, or of any other Debt issued at a price less than the
principal amount at stated maturity, means, as of any date of determination, an
amount equal to the sum of:
(1) the issue price of such Debt as determined in accordance with Section
1273 of the Internal Revenue Code or any successor provisions (which,
in the case of the notes, will be $599.66 per $1,000 principal amount
at maturity of notes) plus
(2) the aggregate of the portions of the original issue discount (the
excess of the amounts considered as part of the stated redemption
price at maturity of such Debt within the meaning of Section
1273(a)(2) of the Internal Revenue Code or any successor provisions,
whether denominated as principal or interest, over the issue price of
such Debt) that shall theretofore have accrued pursuant to Section
1272 of the Internal Revenue Code (without regard to Section
1272(a)(7) of the Internal Revenue Code) from the date of issue of
such Debt to the date of determination (which amount, in the case of
the notes, shall be amortized on a daily basis and compounded
semiannually on each June 1 and December 1 at a rate of 10 1/2% per
annum from the Issue Date through the date of determination on the
basis of a 360- day year of twelve 30-day months), minus all amounts
theretofore paid in respect of such Debt, which amounts are considered
as part of the stated redemption price at maturity of such Debt within
the meaning of Section 1273(a)(2) of the Internal Revenue Code or any
successor provisions (whether such amounts paid were denominated
principal or interest).
The Accreted Value of any notes on or after December 1, 2003, will mean the
principal amount at maturity of such note. Notwithstanding the foregoing, if
Level 3 elects to commence the accrual of cash interest on the notes on or
after December 1, 2001 and prior to December 1, 2003, the notes shall cease to
accrete, and the Accreted Value and the principal amount at maturity of such
note shall be the Accreted Value on the date of commencement of such accrual as
calculated in accordance with the first sentence of this definition.
Acquired Debt means, with respect to any specified Person:
(1) Debt of any other Person existing at the time such Person merges with
or into or consolidates with or becomes a Subsidiary of such specified
Person; and
(2) Debt secured by a Lien encumbering any Property acquired by such
specified Person, which Debt was not incurred in anticipation of, and
was outstanding prior to, such merger, consolidation or acquisition.
Affiliate of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes
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of this definition, control when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms controlling and controlled have meanings correlative
to the foregoing. For purposes of the covenants described under "--Covenants--
Transactions with Affiliates" and "--Limitation on Asset Dispositions" and the
definition of Telecommunications/IS Assets only, Affiliate shall also mean any
beneficial owner of shares representing 10% or more of the total voting power
of the Voting Stock (on a fully diluted basis) of Level 3 or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
Asset Disposition means any transfer, conveyance, sale, lease, issuance or
other disposition by Level 3 or any Restricted Subsidiary in one or more
related transactions (including a consolidation or merger or other sale of any
such Restricted Subsidiary with, into or to another Person in a transaction in
which such Restricted Subsidiary ceases to be a Restricted Subsidiary of Level
3, but excluding a disposition by a Restricted Subsidiary to Level 3 or a
Restricted Subsidiary or by Level 3 to a Restricted Subsidiary) of:
(1) shares of Capital Stock or other ownership interests of a Restricted
Subsidiary (other than as permitted by clause (5), (6), (7) or (9) of
the covenant described under "--Covenants--Limitation on Issuance and
Sales of Capital Stock of Restricted Subsidiaries"),
(2) substantially all of the assets of Level 3 or any Restricted
Subsidiary representing a division or line of business or
(3) other Property of Level 3 or any Restricted Subsidiary outside of the
ordinary course of business (excluding any transfer, conveyance, sale,
lease or other disposition of equipment that is obsolete or no longer
used by or useful to Level 3, provided that Level 3 has delivered to
the trustee an Officers' Certificate stating that such criteria are
satisfied);
provided in each case that the aggregate consideration for such transfer,
conveyance, sale, lease or other disposition is equal to $5 million or more in
any 12-month period.
The following shall not be Asset Dispositions:
(1) Permitted Telecommunications Capital Asset Dispositions that comply
with clause (1) of the first paragraph under "--Covenants--Limitation
on Asset Dispositions;"
(2) when used with respect to Level 3, any Asset Disposition permitted
pursuant to "--Mergers, Consolidations and Certain Sales of Assets"
which constitutes a disposition of all or substantially all of the
assets of Level 3 and the Restricted Subsidiaries taken as a whole;
(3) Receivables sales constituting Debt under Qualified Receivable
Facilities permitted to be Incurred pursuant to "--Covenants--
Limitation on Consolidated Debt;" and
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(4) any disposition that constitutes a Permitted Investment or a
Restricted Payment permitted by the covenant described under "--
Covenants--Limitation on Restricted Payments."
Attributable Value means, as to any particular lease under which any Person
is at the time liable other than a Capital Lease Obligation, and at any date as
of which the amount thereof is to be determined, the total net amount of rent
required to be paid by such Person under such lease during the remaining term
thereof (including any period for which such lease has been extended) as
determined in accordance with generally accepted accounting principles,
discounted from the last date of such remaining term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which
is terminable by the lessee upon the payment of penalty, such net amount shall
also include the lesser of the amount of such penalty (in which case no rent
shall be considered as required to be paid under such lease subsequent to the
first date upon which it may be so terminated) or the rent which would
otherwise be required to be paid if such lease is not so terminated.
Attributable Value means, as to a Capital Lease Obligation, the principal
amount thereof.
Capital Lease Obligation of any Person means the obligation to pay rent or
other payment amount under a lease of (or other Debt arrangements conveying the
right to use) Property of such Person which is required to be classified and
accounted for as a capital lease or a liability on the face of a balance sheet
of such Person in accordance with generally accepted accounting principles (a
Capital Lease). The stated maturity of such obligation shall be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty. The principal amount of such obligation shall be the
capitalized amount thereof that would appear on the face of a balance sheet of
such Person in accordance with generally accepted accounting principles.
Capital Stock of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general
or limited, of such Person and any rights (other than debt securities
convertible or exchangeable into an equity interest), warrants or options to
acquire an equity interest in such Person.
Cash Equivalents means:
(1) Government Securities maturing, or subject to tender at the option of
the holder thereof, within two years after the date of acquisition
thereof;
(2) time deposits and certificates of deposit of any commercial bank
organized in the U.S. 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
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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;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above
entered into with:
(A) any bank meeting the qualifications specified in clause (2) above,
or
(B) any primary government securities dealer reporting to the Market
Reports Division of the Federal Reserve Bank of New York;
(4) direct obligations issued by any state of the U.S. 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 trustee);
(5) commercial paper issued by the parent corporation of any commercial
bank organized in the U.S. 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 one of the two
highest ratings obtainable from either S&P or Moody's (or, if at any
time neither S&P nor Moody's shall be rating such obligations, then
from such other nationally recognized rating service acceptable to
the trustee) and in each case maturing within one year after the date
of acquisition;
(6) overnight bank deposits and bankers' acceptances at any commercial
bank organized in the U.S. 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);
(7) deposits available for withdrawal on demand with a commercial bank
organized in the U.S. 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
(8) investments in money market funds substantially all of whose assets
comprise securities of the types described in clauses (1) through
(7).
Change of Control has the meaning set forth under "--Covenants--Change of
Control Triggering Event" above.
Change of Control Triggering Event has the meaning set forth under "--
Covenants--Change of Control Triggering Event" above.
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Common Stock of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of
such Person, to shares of Capital Stock of any other class of such Person.
Consolidated Capital Ratio means as of the date of determination the ratio
of the aggregate amount of Debt of Level 3 and its Restricted Subsidiaries on a
consolidated basis as at the date of determination to the sum of:
(1) $2.024 billion;
(2) the aggregate net proceeds to Level 3 from the issuance or sale of any
Capital Stock (including Preferred Stock) of Level 3 other than
Disqualified Stock subsequent to the Measurement Date;
(3) the aggregate net proceeds from the issuance or sale of Debt of Level 3
or any Restricted Subsidiary subsequent to the Measurement Date
convertible or exchangeable into Capital Stock of Level 3 other than
Disqualified Stock, in each case upon conversion or exchange thereof
into Capital Stock of Level 3 subsequent to the Measurement Date; and
(4) the after-tax gain on the sale, subsequent to the Measurement Date, of
Special Assets to the extent such Special Assets have been sold for
cash, Cash Equivalents, Telecommunications/IS Assets or the assumption
of Debt of Level 3 or any Restricted Subsidiary (other than Debt that
is subordinated to the notes or any applicable Restricted Subsidiary
Guarantee) and release of Level 3 and all Restricted Subsidiaries from
all liability on the Debt assumed.
However, for purposes of calculation of the Consolidated Capital Ratio, the
net proceeds from the issuance or sale of Capital Stock or Debt described in
clause (2) or (3) above shall not be included to the extent:
(X) such proceeds have been utilized to make a Permitted Investment under
clause (9) of the definition thereof or a Restricted Payment; or
(Y) such Capital Stock or Debt shall have been issued or sold to Level 3,
a Subsidiary of Level 3 or an employee stock ownership plan or trust
established by Level 3 or any such Subsidiary for the benefit of their
employees.
Consolidated Cash Flow Available for Fixed Charges for any period means the
Consolidated Net Income of Level 3 and its Restricted Subsidiaries for such
period increased by the sum of (to the extent reducing Consolidated Net Income
for such period):
(1) Consolidated Interest Expense of Level 3 and its Restricted
Subsidiaries for such period, plus
(2) Consolidated Income Tax Expense of Level 3 and its Restricted
Subsidiaries for such period, plus
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(3) consolidated depreciation and amortization expense and any other non-
cash items (other than any such non-cash item to the extent that it
represents an accrual of or reserve for cash expenditures in any
future period);
however, there shall be excluded therefrom the Consolidated Cash Flow Available
for Fixed Charges (if positive) of any Restricted Subsidiary (calculated
separately for such Restricted Subsidiary in the same manner as provided above
for Level 3) that is subject to a restriction which prevents the payment of
dividends or the making of distributions to Level 3 or another Restricted
Subsidiary to the extent of such restrictions.
Consolidated Income Tax Expense for any period means the aggregate amounts
of the provisions for income taxes of Level 3 and its Restricted Subsidiaries
for such period calculated on a consolidated basis in accordance with generally
accepted accounting principles.
Consolidated Interest Expense for any period means the interest expense
included in a consolidated income statement (excluding interest income) of
Level 3 and its Restricted Subsidiaries for such period in accordance with
generally accepted accounting principles, including without limitation or
duplication (or, to the extent not so included, with the addition of):
(1) the amortization of Debt discounts and issuance costs, including
commitment fees;
(2) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities;
(3) net costs with respect to interest rate swap or similar agreements or
foreign currency hedge, exchange or similar agreements (including
fees);
(4) Preferred Stock Dividends (other than dividends paid in shares of
Preferred Stock that is not Disqualified Stock) declared and paid or
payable;
(5) accrued Disqualified Stock Dividends, whether or not declared or
paid;
(6) interest on Debt guaranteed by Level 3 and its Restricted
Subsidiaries;
(7) the portion of any Capital Lease Obligation or Sale and Leaseback
Transaction paid during such period that is allocable to interest
expense;
(8) interest Incurred in connection with investments in discontinued
operations; and
(9) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan
or trust to pay interest or fees to any Person (other than Level 3 or
a Restricted Subsidiary) in connection with Debt Incurred by such
plan or trust.
Consolidated Net Income for any period means the net income (or loss) of
Level 3 and its Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles;
provided that there shall be excluded therefrom:
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(1) for purposes of the covenant described under "--Covenants--Limitation
on Restricted Payments" only, the net income (or loss) of any Person
acquired by Level 3 or a Restricted Subsidiary in a pooling-of-
interests transaction for any period prior to the date of such
transaction;
(2) the net income (or loss) of any Person that is not a Restricted
Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to Level 3 or a Restricted Subsidiary by
such Person during such period (except, for purposes of the covenant
described under "--Covenants--Limitation on Restricted Payments"
only, to the extent such dividends or distributions have been
subtracted from the calculation of the amount of Investments to
support the actual making of Investments);
(3) gains or losses realized upon the sale or other disposition of any
Property of Level 3 or its Restricted Subsidiaries that is not sold
or disposed of in the ordinary course of business (it being
understood that Permitted Telecommunications Capital Asset
Dispositions shall be considered to be in the ordinary course of
business);
(4) gains or losses realized upon the sale or other disposition of any
Special Assets;
(5) all extraordinary gains and extraordinary losses, determined in
accordance with generally accepted accounting principles;
(6) the cumulative effect of changes in accounting principles;
(7) non-cash gains or losses resulting from fluctuations in currency
exchange rates;
(8) any non-cash expense related to the issuance to employees or
directors of Level 3 or any Restricted Subsidiary of:
(A) options to purchase Capital Stock of Level 3 or such Restricted
Subsidiary; or
(B) other compensatory rights;
provided, in either case, that such options or rights, by their terms
can be redeemed at the option of the holder of such option or right
only for Capital Stock; and
(9) with respect to a Restricted Subsidiary that is not a Wholly Owned
Subsidiary any aggregate net income (or loss) in excess of Level 3's
or any Restricted Subsidiary's pro rata share of the net income (or
loss) of such Restricted Subsidiary that is not a Wholly Owned
Subsidiary; provided further that there shall further be excluded
therefrom the net income (but not net loss) of any Restricted
Subsidiary that is subject to a restriction which prevents the
payment of dividends or the making of distributions to Level 3 or
another Restricted Subsidiary to the extent of such restriction.
Consolidated Net Worth of any Person means the stockholders' equity of such
Person, determined on a consolidated basis in accordance with generally
accepted accounting principles, less amounts attributable to Disqualified Stock
of such Person.
Consolidated Tangible Assets of any Person means the total amount of assets
(less applicable reserves and other properly deductible items) which under
generally accepted
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accounting principles would be included on a consolidated balance sheet of such
Person and its Subsidiaries after deducting therefrom all goodwill, trade
names, trademarks, patents, unamortized debt discount and expense and other
like intangibles, which in each case under generally accepted accounting
principles would be included on such consolidated balance sheet.
Credit Facilities means one or more credit agreements, loan agreements or
similar facilities, secured or unsecured, providing for revolving credit loans,
term loans and/or letters of credit, including any Qualified Receivable
Facility, entered into from time to time by Level 3 and its Restricted
Subsidiaries, and including any related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, as the
same may be amended, supplemented, modified, restated or replaced from time to
time.
Debt means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent:
(1) every obligation of such Person for money borrowed;
(2) every obligation of such Person evidenced by bonds, debentures, notes
or other similar instruments, including obligations incurred in
connection with the acquisition of Property;
(3) every reimbursement obligation of such Person with respect to letters
of credit, bankers' acceptances or similar facilities issued for the
account of such Person;
(4) every obligation of such Person issued or assumed as the deferred
purchase price of Property or services (including securities
repurchase agreements but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business);
(5) every Capital Lease Obligation of such Person and all Attributable
Value in respect of Sale and Leaseback Transactions entered into by
such Person;
(6) all obligations to redeem or repurchase Disqualified Stock issued by
such Person;
(7) the liquidation preference of any Preferred Stock (other than
Disqualified Stock, which is covered by the preceding clause (6))
issued by any Restricted Subsidiary of such Person;
(8) every obligation under Interest Rate or Currency Protection
Agreements of such Person; and
(9) every obligation of the type referred to in clauses (1) through (8)
of another Person and all dividends of another Person the payment of
which, in either case, such Person has Guaranteed.
The amount or principal amount of Debt at any time of determination as used
herein represented by:
(A) any Debt issued at a price that is less than the principal amount at
maturity thereof, shall be, except as otherwise set forth herein, the
Accreted Value of such Debt at such time, or
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(B) in the case of any Receivables sale constituting Debt, the amount of
the unrecovered purchase price (that is, the amount paid for
Receivables that has not been actually recovered from the collection
of such Receivables) paid by the purchaser (other than Level 3 or a
Wholly Owned Restricted Subsidiary of Level 3) thereof.
The amount of Debt represented by an obligation under an Interest Rate or
Currency Protection Agreement shall be equal to:
(X) zero if such obligation has been Incurred pursuant to clause (10)
of paragraph (b) of the covenant described under "--Covenants--
Limitation on Consolidated Debt," or
(Y) the notional amount of such obligation if not Incurred pursuant to
such clause.
Default means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
Disqualified Stock of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final Stated Maturity of the notes;
provided, however, that any Preferred Stock which would not constitute
Disqualified 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 final Stated Maturity
of the notes shall not constitute Disqualified Stock if the change of control
provisions applicable to such Preferred Stock are no more favorable to the
holders of such Preferred Stock than the provisions applicable to the notes
contained in the covenant described under "--Covenants--Change of Control
Triggering Event" and such Preferred Stock specifically provides that Level 3
will not repurchase or redeem any such stock pursuant to such provisions prior
to Level 3's repurchase of such notes as are required to be repurchased
pursuant to the covenant described under "--Covenants--Change of Control
Triggering Event."
Disqualified Stock Dividends means all dividends with respect to
Disqualified Stock of Level 3 held by Persons other than a Wholly Owned
Restricted Subsidiary. The amount of any such dividend shall be equal to the
quotient of such dividend divided by the difference between one and the maximum
statutory federal income tax rate (expressed as a decimal number between 1 and
0) applicable to Level 3 for the period during which such dividends were paid.
Eligible Receivables means, at any time, Receivables of Level 3 and its
Restricted Subsidiaries, as evidenced on the most recent quarterly consolidated
balance sheet of Level 3 as at a date at least 45 days prior to such time,
arising in the ordinary course of business of Level 3 or any Restricted
Subsidiary.
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Event of Default has the meaning set forth under "--Events of Default"
below.
Exchange Act means the Securities Exchange Act of 1934, as amended (or any
successor act), and the rules and regulations thereunder (or respective
successors thereto).
Fair Market Value means, with respect to any Property, the price that could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under pressure or
compulsion to complete the transaction. Unless otherwise specified in the
indenture, Fair Market Value shall be determined by the board of directors of
Level 3 acting in good faith and shall be evidenced by a resolution of the
board of directors of Level 3 delivered to the trustee.
Government Securities means direct obligations of, or obligations fully and
unconditionally guaranteed or insured by, the U.S. or any agency or
instrumentality thereof for the payment of which obligations or guarantee the
full faith and credit of the U.S. is pledged and which are not callable or
redeemable at the issuer's option (unless, for purposes of the definition of
Cash Equivalents only, the obligations are redeemable or callable at a price
not less than the purchase price paid by Level 3 or the applicable Restricted
Subsidiary, together with all accrued and unpaid interest (if any) on such
Government Securities).
Guarantee by any Person means any obligation, direct or indirect,
contingent or otherwise, of such Person guaranteeing, or having the economic
effect of guaranteeing, any Debt of any other Person (the primary obligor) in
any manner, whether directly or indirectly, and any obligation, direct or
indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or to purchase (or to advance or supply funds
for the purchase of) any security for the payment of such Debt,
including any such obligations arising by virtue of partnership
arrangements or by agreements to keep-well;
(2) to purchase Property or services or to take-or-pay for the purpose of
assuring the holder of such Debt of the payment of such Debt;
(3) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Debt; or
(4) entered into for the purpose of assuring in any other manner the
obligee against loss in respect thereof, in whole or in part
(and Guaranteed, Guaranteeing and Guarantor shall have meanings correlative to
the foregoing); provided, however, that the Guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
Guarantor means a Restricted Subsidiary of Level 3 that has executed a
Restricted Subsidiary Guarantee.
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Incur means, with respect to any Debt or other obligation of any Person, to
create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee
or otherwise become liable in respect of such Debt or other obligation
including the recording, as required pursuant to generally accepted accounting
principles or otherwise, of any such Debt or other obligation on the balance
sheet of such Person (and Incurrence, Incurred, Incurrable and Incurring shall
have meanings correlative to the foregoing); provided, however, that a change
in generally accepted accounting principles that results in an obligation of
such Person that exists at such time becoming Debt shall not be deemed an
Incurrence of such Debt and that neither the accrual of interest nor the
accretion of original issue discount shall be deemed an Incurrence of Debt.
Debt otherwise incurred by a Person before it becomes a Subsidiary of Level 3
shall be deemed to have been Incurred at the time at which it becomes a
Subsidiary.
Interest Rate or Currency Protection Agreement of any Person means any
forward contract, futures contract, swap, option or other financial agreement
or arrangement (including caps, floors, collars and similar agreements)
relating to, or the value of which is dependent upon, interest rates or
currency exchange rates or indices.
Invested Capital means the sum of:
(1) $500 million;
(2) the aggregate net proceeds received by Level 3 from the issuance or
sale of any Capital Stock, including Preferred Stock, of Level 3 but
excluding Disqualified Stock, subsequent to the Measurement Date; and
(3) the aggregate net proceeds from the issuance or sale of Debt of Level
3 or any Restricted Subsidiary subsequent to the Measurement Date
convertible or exchangeable into Capital Stock of Level 3 other than
Disqualified Stock, in each case upon conversion or exchange thereof
into Capital Stock of Level 3 subsequent to the Measurement Date.
However, the net proceeds from the issuance or sale of Capital Stock or
Debt described in clause (2) or (3) shall be excluded from any computation of
Invested Capital to the extent:
(A) utilized to make a Restricted Payment; or
(B) such Capital Stock or Debt shall have been issued or sold to Level 3,
a Subsidiary of Level 3 or an employee stock ownership plan or trust
established by Level 3 or any such Subsidiary for the benefit of their
employees.
Investment by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of
cash or other Property to others or payments for Property or services for the
account or use of others, or otherwise) to, purchase, redemption, retirement or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Debt issued by, or Incurrence of, or payment on, a Guarantee of any
obligation of, any other Person; provided that Investments shall exclude
commercially reasonable extensions of trade credit.
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The amount, as of any date of determination, of any Investment shall be:
(1) the original cost of such Investment, plus
(2) the cost of all additions, as of such date, thereto, and minus
(3) the amount, as of such date, of any portion of such Investment repaid
to such Person 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 Consolidated Net Income to support the actual
making of Restricted Payments),
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.
Issue Date means the date on which the notes are initially issued.
Issue Date Rating means the respective ratings assigned to the notes by the
Rating Agencies on the Issue Date.
Joint Venture means a Person in which Level 3 or a Restricted Subsidiary
holds not more than 50% of the shares of Voting Stock.
Lien means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest,
lien, charge, easement (other than any easement not materially impairing
usefulness), encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including any Capital Lease Obligation, conditional sale or
other title retention agreement having substantially the same economic effect
as any of the foregoing and any Sale and Leaseback Transaction). For purposes
of this definition the sale, lease, conveyance or other transfer by Level 3 or
any of its Subsidiaries of, including the grant of indefeasible rights of use
or equivalent arrangements with respect to, dark or lit communications fiber
capacity or communications conduit shall not constitute a Lien.
Measurement Date means April 28, 1998, the date the 9 1/8% Senior Notes
were originally issued.
Moody's means Moody's Investors Service, Inc. or, if Moody's Investors
Service, Inc. shall cease rating debt securities having a maturity at original
issuance of at least one year and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
that if Moody's Investors Service, Inc. ceases rating debt securities having a
maturity at original issuance of at least one year and its ratings business
with respect thereto shall not have been transferred to any successor Person,
then Moody's shall mean any other national recognized rating agency (other than
S&P) that rates debt securities having a maturity at original issuance of at
least one year and that shall have been designated by the trustee by a written
notice given to Level 3.
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Net Available Proceeds from any Asset Disposition by any Person means cash
or cash equivalents received (including amounts received by way of sale or
discounting of any note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such Property) therefrom by
such Person, net of:
(1) all legal, title and recording taxes, expenses and commissions and
other fees and expenses (including appraisals, brokerage commissions
and investment banking fees) Incurred and all federal, state,
provincial, foreign and local taxes required to be accrued as a
liability as a consequence of such Asset Disposition;
(2) all payments made by such Person or its Subsidiaries on any Debt which
is secured by such Property in accordance with the terms of any Lien
upon or with respect to such Property or which must by the terms of
such Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from
such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or Joint Ventures of such Person as a
result of such Asset Disposition; and
(4) appropriate amounts to be provided by such Person or any Subsidiary
thereof, as the case may be, as a reserve in accordance with generally
accepted accounting principles against any liabilities associated with
such Property and retained by such Person or any Subsidiary thereof,
as the case may be, after such Asset Disposition, including
liabilities under any indemnification obligations and severance and
other employee termination costs associated with such Asset
Disposition, in each case as determined by the board of directors of
such Person, in its reasonable good faith judgment evidenced by a
resolution of the board of directors filed with the trustee;
(1) provided, however, that any reduction in such reserve within
twelve months following the consummation of such Asset Disposition
will be, for all purposes of the indenture and the notes, treated
as a new Asset Disposition at the time of such reduction with Net
Available Proceeds equal to the amount of such reduction; and
(2) provided further, however, that, in the event that any
consideration for a transaction (which would otherwise constitute
Net Available Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made,
at such time as such portion of the consideration is released to
such Person or its Restricted Subsidiary from escrow, such portion
shall be treated for all purposes of the indenture and the Notes
as a new Asset Disposition at the time of such release from escrow
with Net Available Proceeds equal to the amount of such portion of
consideration released from escrow.
9 1/8% Senior Notes means Level 3's 9 1/8% Senior Notes Due 2008 in an
aggregate principal amount not to exceed $2,000,000,000, originally issued on
April 28, 1998.
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9 1/8% Senior Notes Indenture means the Indenture dated as of April 28,
1998, as amended, supplemented or modified from time to time, between Level 3
and IBJ Schroder Bank & Trust Company, as trustee, relating to the 9 1/8%
Senior Notes.
Offer to Purchase means a written offer (the Offer) sent by Level 3 by
first-class mail, postage prepaid, to each holder of notes at its address
appearing in the Note Register on the date of the Offer offering to purchase up
to the principal amount at maturity of notes specified in such Offer at the
purchase price specified in such Offer (as determined pursuant to the
indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the Expiration Date) of the Offer to Purchase which
shall be, subject to any contrary requirements of applicable law, not less than
30 days or more than 60 days after the date of such Offer and a settlement date
(the Purchase Date) for purchase of notes within five Business Days after the
Expiration Date. Level 3 shall notify the trustee at least 15 Business Days (or
such shorter period as is acceptable to the trustee) prior to the mailing of
the Offer of Level 3's obligation to make an Offer to Purchase, and the Offer
shall be mailed by Level 3 or, at Level 3's request, by the trustee in the name
and at the expense of Level 3.
The Offer shall contain information concerning the business of Level 3 and
its Subsidiaries which Level 3 in good faith believes will enable such holders
to make an informed decision with respect to the Offer to Purchase, which at a
minimum will include:
(1) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the documents required to be filed
with the trustee pursuant to the indenture (which requirements may be
satisfied by delivery of such documents together with the Offer);
(2) a description of material developments in Level 3's business
subsequent to the date of the latest of such financial statements
referred to in clause (1) (including a description of the events
requiring Level 3 to make the Offer to Purchase);
(3) if applicable, appropriate pro forma financial information concerning
the Offer to Purchase and the events requiring Level 3 to make the
Offer to Purchase; and
(4) any other information required by applicable law to be included
therein.
The Offer shall contain all instructions and materials necessary to enable
such holders to tender notes pursuant to the Offer to Purchase. The Offer shall
also state:
(1) the section of the indenture pursuant to which the Offer to Purchase
is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount at maturity of the outstanding notes
offered to be purchased by Level 3 pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such has been
determined pursuant to the section of the indenture requiring the
Offer to Purchase) (the Purchase Amount);
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(4) the purchase price to be paid by Level 3 for $1,000 aggregate
principal amount at maturity of notes accepted for payment (as
specified pursuant to the indenture) (the Purchase Price);
(5) that the holder may tender all or any portion of the notes registered
in the name of such holder and that any portion of a note tendered
must be tendered in an integral multiple of $1,000 principal amount at
maturity;
(6) the place or places where notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that any notes not tendered or tendered but not purchased by Level 3
will continue to accrue or accrete interest, as the case may be;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each note being accepted for payment pursuant to the
Offer to Purchase and that interest thereon, if any, shall cease to
accrue or accrete, as the case may be, on and after the Purchase Date;
(9) that each holder electing to tender a note pursuant to the Offer to
Purchase will be required to surrender such note at the place or
places specified in the Offer prior to the close of business on the
Expiration Date (such note being, if Level 3 or the trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to Level 3 and the trustee duly executed
by, the holder thereof or his attorney duly authorized in writing);
(10) that holders will be entitled to withdraw all or any portion of notes
tendered if Level 3 (or the Paying Agent) receives, not later than
the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the
holder, the principal amount at maturity of the note the holder
tendered, the certificate number of the note the holder tendered and
a statement that such holder is withdrawing all or a portion of his
tender;
(11) that:
(A) if notes in an aggregate principal amount at maturity less than or
equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, Level 3 shall purchase all such
notes; and
(B) if notes in an aggregate principal amount at maturity in excess of
the Purchase Amount are tendered and not withdrawn pursuant to the
Offer to Purchase, Level 3 shall purchase notes having an
aggregate principal amount at maturity equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only notes in denominations of $1,000
principal amount at maturity or integral multiples thereof shall
be purchased); and
(12) that in the case of any holder whose note is purchased only in part,
Level 3 shall execute, and the trustee shall authenticate and deliver
to the holder of such note without service charge, a new note or
notes, of any authorized denomination as requested by such holder, in
an aggregate principal amount at maturity equal to and in exchange
for the unpurchased portion of the note so tendered.
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Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
Officers' Certificate means a certificate signed by the Chairman of the
board of directors of Level 3, a Vice Chairman of the board of directors of
Level 3, the President or a Vice President, and by the Chief Financial Officer,
the Chief Accounting Officer, the Treasurer, an Assistant Treasurer, the
Controller, the Secretary or an Assistant Secretary of Level 3 and delivered to
the trustee, which shall comply with the indenture.
Opinion of Counsel means an opinion of counsel acceptable to the trustee
(who may be counsel to Level 3, including an employee of Level 3).
OECD shall mean the Organization for Economic Cooperation and Development.
Permitted Holders means the members of Level 3's Board of Directors on the
Measurement Date 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 Exchange Act) at least 66 2/3% of the total
voting power of the Voting Stock of such Person.
Permitted Interest Rate or Currency Protection Agreement of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and not for purposes of
speculation and which, in the case of an interest rate agreement, shall have a
notional amount no greater than the principal amount at maturity due with
respect to the Debt being hedged thereby.
Permitted Investments means:
(1) Cash Equivalents;
(2) investments in prepaid expenses;
(3) negotiable instruments held for collection and lease, utility and
workers' compensation, performance and other similar deposits;
(4) loans, advances or extensions of credit to employees and directors
made in the ordinary course of business and consistent with past
practice;
(5) obligations under Permitted Interest Rate or Currency Protection
Agreements;
(6) bonds, notes, debentures and other securities received as a result of
Asset Dispositions pursuant to and in compliance with "--Covenants--
Limitation on Asset Dispositions;"
(7) Investments in any Person as a result of which such Person becomes a
Restricted Subsidiary;
(8) Investments made prior to the Measurement Date;
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(9) Investments made after the Measurement Date in Persons engaged in the
Telecommunications/IS Business in an aggregate amount not to exceed
Invested Capital; and
(10) additional Investments in an aggregate amount not to exceed $200
million.
Permitted Liens means:
(1) Liens for taxes, assessments, governmental charges, levies or claims
which are not yet delinquent or which are being contested in good
faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with generally
accepted accounting principles shall have been made therefor;
(2) other Liens incidental to the conduct of Level 3's and its Restricted
Subsidiaries' businesses or the ownership of its Property not securing
any Debt, and 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;
(3) Liens, pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of statutory obligations;
(4) Liens, pledges or deposits made to secure the performance of tenders,
bids, leases, public or statutory obligations, sureties, stays,
appeals, indemnities, performance or other similar bonds and other
obligations of like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money, the
obtaining of advances or credit or the payment of the deferred
purchase price of Property and which do not in the aggregate
materially impair the use of Property in the operation of the business
of Level 3 and the Restricted Subsidiaries taken as a whole);
(5) zoning restrictions, servitudes, easements, rights-of-way,
restrictions and other similar charges or encumbrances incurred in the
ordinary course of business which, in the aggregate, do not materially
detract from the value of the Property subject thereto or materially
interfere with the ordinary conduct of the business of Level 3 or its
Restricted Subsidiaries; and
(6) any interest or title of a lessor in the Property subject to any lease
other than a Capital Lease.
Permitted Telecommunications Capital Asset Disposition means the transfer,
conveyance, sale, lease or other disposition of optical fiber and/or conduit
and any related equipment used in a Segment (as defined) of Level 3's
communications network that:
(1) constitute capital assets in accordance with generally accepted
accounting principles; and
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(2) after giving effect to such disposition, would result in Level 3
retaining at least either:
(A) 24 optical fibers per route mile on such Segment as deployed at
the time of such disposition; or
(B) 12 optical fibers and one empty conduit per route mile on such
Segment as deployed as such time.
Segment means:
(X) with respect to Level 3's intercity network, the through-portion of
such network between two local networks (e.g., Omaha to Denver); and
(Y) with respect to a local network of Level 3 (e.g., Dallas), the entire
through-portion of such network, excluding the spurs which branch off
the through-portion.
Person means any individual, corporation, company, partnership, joint
venture, limited liability company, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
Preferred Stock of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding-up of such Person, to shares of Capital
Stock of any other class of such Person.
Preferred Stock Dividends means all dividends with respect to Preferred
Stock of Restricted Subsidiaries held by Persons other than Level 3 or a Wholly
Owned Restricted Subsidiary. The amount of any such dividend shall be equal to
the quotient of such dividend divided by the difference between one and the
maximum statutory federal income rate (expressed as a decimal number between 1
and 0) applicable to the issuer of such Preferred Stock for the period during
which such dividends were paid.
Property means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the indenture, the
value of any Property shall be its Fair Market Value.
Proportionate Interest in any issuance of Capital Stock of a Restricted
Subsidiary means a ratio:
(1) the numerator of which is the aggregate amount of Capital Stock of
such Restricted Subsidiary beneficially owned by Level 3 and the
Restricted Subsidiaries; and
(2) the denominator of which is the aggregate amount of Capital Stock of
such Restricted Subsidiary beneficially owned by all Persons
(excluding, in the case of this clause (2), any Investment made in
connection with such issuance).
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Purchase Money Debt means Debt (including Acquired Debt and Capital Lease
Obligations, mortgage financings and purchase money obligations) incurred for
the purpose of financing all or any part of the cost of construction,
installation, acquisition, lease, development or improvement by Level 3 or any
Restricted Subsidiary of any Telecommunications/IS Assets of Level 3 or any
Restricted Subsidiary and including any related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, as the
same may be amended, supplemented, modified or restated from time to time.
Qualified Receivable Facility means Debt of Level 3 or any Subsidiary
Incurred from time to time pursuant to either:
(1) credit facilities secured by Receivables; or
(2) Receivables purchase facilities, and including any related notes,
Guarantees, collateral documents, instruments and agreements executed
in connection therewith, as the same may be amended, supplemented,
modified or restated from time to time.
Rating Agencies mean Moody's and S&P.
Rating Date means the earlier of the date of public notice of the
occurrence of a Change of Control or of the intention of Level 3 to effect a
Change of Control.
Rating Decline shall be deemed to have occurred if, no later than 90 days
after the Rating Date (which period shall be extended so long as the rating of
the notes is under publicly announced consideration for possible downgrade by
any of the Rating Agencies), either of the Rating Agencies assigns or reaffirms
a rating to the notes that is lower than the applicable Issue Date Rating (or
the equivalent thereof). If, prior to the Rating Date, either of the ratings
assigned to the notes by the Rating Agencies is lower than the applicable Issue
Date Rating, then a Rating Decline will be deemed to have occurred if such
rating is not changed by the 90th day following the Rating Date. A downgrade
within rating categories, as well as between rating categories, will be
considered a Rating Decline.
Receivables means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money and
proceeds and products thereof in each case generated in the ordinary course of
business.
Restricted Subsidiary means:
(1) a Subsidiary of Level 3 or of a Restricted Subsidiary that has not
been designated or classified as an Unrestricted Subsidiary pursuant
to and in compliance with "--Covenants--Limitation on Designations of
Unrestricted Subsidiaries;" and
(2) an Unrestricted Subsidiary that is redesignated as a Restricted
Subsidiary pursuant to such covenant.
Restricted Subsidiary Guarantee means a supplemental indenture to the
indenture in form satisfactory to the trustee, providing for an unconditional
Guarantee of payment in full
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of the Accreted Value of, premium, if any, and interest on the notes. Any such
Restricted Subsidiary Guarantee shall not be subordinate to any Debt of the
Restricted Subsidiary providing the Restricted Subsidiary Guarantee.
S&P means Standard & Poor's Ratings Service or, if Standard & Poor's
Ratings Service shall cease rating debt securities having a maturity at
original issuance of at least one year and such ratings business shall have
been transferred to a successor Person, such successor Person; provided,
however, that if Standard & Poor's Rating Service ceases rating debt securities
having a maturity at original issuance of at least one year and its ratings
business with respect thereto shall not have been transferred to any successor
Person, then S&P shall mean any other national recognized rating agency (other
than Moody's) that rates debt securities having a maturity at original issuance
of at least one year and that shall have been designated by the trustee by a
written notice given to Level 3.
Sale and Leaseback Transaction of any Person means any direct or indirect
arrangement pursuant to which any Property is sold or transferred by such
Person or a Restricted Subsidiary of such person and is thereafter leased back
from the purchaser or transferee thereof by such Person or one of its
Restricted Subsidiaries. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
Significant Subsidiary means any Subsidiary that would be a Significant
Subsidiary of Level 3 within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
Special Assets means:
(1) the Capital Stock or assets of Cable Michigan, Inc., 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
such Capital Stock or assets) owned, directly or indirectly, by Level
3 or any Restricted Subsidiary on the Measurement Date; and
(2) any Property, other than cash, Cash Equivalents and
Telecommunications/IS Assets, received as consideration for the
disposition after the Measurement Date of Special Assets (as
contemplated by the first proviso under "--Covenants-- Limitation on
Asset Dispositions").
Stated Maturity when used with respect to a note or any installment of
interest thereon, means the date specified in such note as the fixed date on
which the Accreted Value of such note or such installment of interest is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such note at the option
of the holder thereof upon the happening of any contingency beyond the control
of Level 3 unless such contingency has occurred).
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Subordinated Debt means Debt of Level 3 that is not secured by any Lien on
or with respect to any Property now owned or acquired after the Measurement
Date and as to which the payment of principal of (and premium, if any) and
interest and other payment obligations in respect of such Debt shall be
subordinate to the prior payment in full in cash of the notes to at least the
following extent:
(1) no payments of principal of (or premium, if any) or interest on or
otherwise due (including by acceleration or for additional amounts) in
respect of, or repurchases, redemptions or other retirements of, such
Debt (collectively referred to as payments of such Debt) may be
permitted for so long as any default (after giving effect to any
applicable grace periods) in the payment of principal (or premium, if
any) or interest on the notes exists, including as a result of
acceleration;
(2) in the event that any other Default exists with respect to the notes,
upon notice by holders of 25% or more in aggregate principal amount of
the notes to the trustee, the trustee shall have the right to give
notice to Level 3 and the holders of such Debt (or trustees or agents
therefor) of a payment blockage, and thereafter no payments of such
Debt may be made for a period of 179 days from the date of such
notice, provided that not more than one such payment blockage notice
may be given in any consecutive 360-day period, irrespective of the
number of defaults with respect to the notes during such period;
(3) if payment of such Debt is accelerated when any notes are outstanding,
no payments of such Debt may be made until three Business Days after
the trustee receives notice of such acceleration and, thereafter, such
payments may only be made to the extent the terms of such Debt permit
payment at that time; and
(4) such Debt may not:
(A) provide for payments of principal of such Debt at the stated
maturity thereof or by way of a sinking fund applicable thereto or
by way of any mandatory redemption, defeasance, retirement or
repurchase thereof by Level 3 (including any redemption,
retirement or repurchase which is contingent upon events or
circumstances but excluding any retirement required by virtue of
acceleration of such Debt upon an event of default thereunder), in
each case prior to the final Stated Maturity of the notes, or
(B) permit redemption or other retirement (including pursuant to an
offer to purchase made by Level 3) of such other Debt at the
option of the holder thereof prior to the final Stated Maturity of
the notes,
other than, in the case of clause (A) or (B), any such payment,
redemption or other retirement (including pursuant to an offer to
purchase made by Level 3) which is conditioned upon:
(a) a change of control of Level 3 pursuant to provisions
substantially similar to those described under "--Covenants--
Change of Control Triggering Event" (and which shall provide that
such Debt will not be repurchased pursuant to such provisions
prior to Level 3's repurchase of the notes required to be
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repurchased by Level 3 pursuant to the provisions described under
"--Covenants--Change of Control Triggering Event"), or
(b) a sale or other disposition of assets pursuant to provisions
substantially similar to those described under "--Covenants--
Limitation on Asset Dispositions" (and which shall provide that
such Debt will not be repurchased pursuant to such provisions
prior to Level 3's repurchase of the notes required to be
repurchased by Level 3 pursuant to the provision described under
"--Covenants--Limitation on Asset Dispositions").
Subsidiary of any Person means:
(1) a corporation more than 50% of the combined voting power of the
outstanding Voting Stock of which is owned, directly or indirectly, by
such Person or by one or more other Subsidiaries of such Person or by
such Person and one or more Subsidiaries thereof; or
(2) any other Person (other than a corporation) in which such Person, or
one or more other Subsidiaries of such Person or such Person and one
or more other Subsidiaries thereof, directly or indirectly, has at
least a majority ownership and power to direct the policies,
management and affairs thereof.
Telecommunications/IS Assets means:
(1) any Property (other than cash, cash equivalents and securities) to be
owned by Level 3 or any Restricted Subsidiary and used in the
Telecommunications/IS Business;
(2) for purposes of the covenants described under "--Covenants--Limitation
on Consolidated Debt" and "--Limitation on Liens" only, Capital Stock
of any Person; or
(3) for all other purposes of the indenture, 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 (2) or (3), such Person is
primarily engaged in the Telecommunications/IS Business.
Telecommunications/IS Business means the business of:
(1) transmitting, or providing services relating to the transmission of,
voice, video or data through owned or leased transmission facilities;
(2) constructing, creating, developing or marketing communications
networks, related network transmission equipment, software and other
devices for use in a communications business;
(3) 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
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computer platform to another or to address issues commonly referred to
as Year 2000 issues); or
(4) evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in (1), (2)
or (3) above;
provided that the determination of what constitutes a Telecommunications/IS
Business shall be made in good faith by the board of directors of Level 3.
Unrestricted Subsidiary means:
(1) 91 Holding Corp. (the subsidiary that holds indirectly Level 3's
interests in the SR91 tollroad);
(2) any Subsidiary of an Unrestricted Subsidiary; and
(3) any Subsidiary of Level 3 designated as such pursuant to and in
compliance with "--Covenants--Limitation on Designations of
Unrestricted Subsidiaries" and not thereafter redesignated as a
Restricted Subsidiary as permitted pursuant thereto.
Voting Stock of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only for
so long as no senior class of securities has such voting power by reason of
any contingency.
Wholly Owned Subsidiary of any Person means a Subsidiary of such Person
all of the outstanding Voting Stock or other ownership interests (other than
directors' qualifying shares) of which shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
Events of Default
The following will be Events of Default under the indenture:
(1) failure to pay Accreted Value of, or premium, if any, on, any note
when due;
(2) failure to pay any interest on any note when due, continued for 30
days;
(3) default in the payment of principal and interest on notes required to
be purchased by an Offer to Purchase as described under "--Covenants--
Change of Control Triggering Event" when due and payable;
(4) failure to perform or comply with the provisions described under "--
Mergers, Consolidations and Certain Sales of Assets" and "--
Covenants--Limitation on Asset Dispositions;"
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(5) failure to perform any other covenant or agreement of Level 3 under
the indenture or the notes, continued for 60 days after written notice
to Level 3 by the trustee or holders of at least 25% in aggregate
principal amount at maturity of the outstanding notes;
(6) default under the terms of any instrument evidencing or securing Debt
of Level 3 or any Restricted Subsidiary having an outstanding
principal amount of not less than $25 million or its foreign currency
equivalent at the time individually or in the aggregate, which default
results in the acceleration of the payment of that indebtedness or
constitutes the failure to pay that indebtedness when due, after
expiration of any applicable grace period;
(7) the rendering of a judgment or judgments against Level 3 or any
Restricted Subsidiary in an aggregate amount in excess of $25 million
or its foreign currency equivalent at the time and shall not be
waived, satisfied or discharged for any period of 45 consecutive days
during which a stay of enforcement shall not be in effect;
(8) any Restricted Subsidiary Guarantee ceases to be in full force and
effect, other than in accordance with the terms of that Subsidiary
Guaranty, or any Guarantor denies or disaffirms its obligations under
its Restricted Subsidiary Guarantee; and
(9) certain events of bankruptcy, insolvency or reorganization affecting
Level 3 or any Significant Subsidiary.
Subject to the provisions of the indenture relating to the duties of the
trustee in case an Event of Default shall occur and be continuing, the trustee
will not be under any obligation to exercise any of its rights or powers under
the indenture at the request or direction of any of the holders of notes,
unless those holders shall have offered to the trustee reasonable indemnity.
Subject to provisions for the indemnification of the trustee, the holders of a
majority in aggregate principal amount at maturity of the outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee.
If any Event of Default, other than an Event of Default described in clause
(9) above regarding Level 3, shall occur and be continuing, either the trustee
or the holders of at least 25% in aggregate principal amount at maturity of the
outstanding notes may declare the Accreted Value, premium, if any, and accrued
and unpaid interest, if any, in respect of the notes to be immediately due and
payable. However, after an acceleration, but before a judgment or decree based
on acceleration, the holders of a majority in aggregate principal amount at
maturity of the outstanding notes may, under certain circumstances, rescind and
annul the acceleration if all Events of Default, other than the non-payment of
accelerated Accreted Value, have been cured or waived as provided in the
indenture. If an Event of Default specified in clause (9) above occurs
regarding Level 3, the Accreted Value, premium, if any, and accrued and unpaid
interest, if any, relating to the notes will automatically become immediately
due and payable without any declaration or other act on
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the part of the trustee or any holder. For information as to waiver of
defaults, see "--Amendment, Supplement and Waiver."
No holder of any note will have any right to institute any proceeding
relating to the indenture or for any remedy under the indenture, unless:
(1) the holder shall have previously given to the trustee written notice
of a continuing Event of Default;
(2) the holders of at least 25% in aggregate principal amount at maturity
of the outstanding notes have made written request and offered
reasonable indemnity to the trustee to institute the proceeding as
trustee; and
(3) the trustee has not have received from the holders of a majority in
aggregate principal amount at maturity of the outstanding notes a
direction inconsistent with this request and failed to institute the
proceeding within 60 days.
However, these limitations do not apply to a suit instituted by a holder of a
note for enforcement of payment of the Accreted Value of, and premium, if any,
or interest on the note on or after the respective due dates expressed in the
note.
Within 30 days after the occurrence of any event which with the giving of
notice and the lapse of time would become an Event of Default, Level 3 must
deliver to the Trustee written notice in the form of an Officers' Certificate
of the event, its status and what action Level 3 is taking or proposes to take
regarding the event. Level 3 also will be required to deliver to the trustee
annually a statement as to the performance by Level 3 of certain of its
obligations under the indenture and as to any default in its performance.
Amendment, Supplement and Waiver
Level 3 and the trustee may, at any time and from time to time, without
notice to or consent of any holders of notes, enter into one or more indentures
supplemental to the indenture to:
(1) evidence the succession of another Person to Level 3 and the
assumption by the successor of the covenants of Level 3 in the
indenture and the notes;
(2) add to the covenants of Level 3, for the benefit of the holders, or
surrender any right or power conferred on Level 3 by the indenture;
(3) add any additional Events of Defaults;
(4) provide for uncertificated notes in addition to or in place of
certificated notes;
(5) evidence and provide for the acceptance of appointment under the
indenture of a successor trustee;
(6) secure the notes;
(7) comply with the Trust Indenture Act or the Securities Act, including
Regulation S under the Securities Act;
(8) add additional Guarantees relating to the notes or release Guarantors
from Restricted Subsidiary Guarantees as provided by the terms of the
indenture; or
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(9) cure any ambiguity in the indenture, correct or supplement any
provision in the indenture which may be inconsistent with any other
provision in the indenture or add any other provision relating to
matters or questions arising under the indenture;
as long as these actions do not adversely affect the interests of the holders
in any material respect.
With the consent of the holders of at least a majority in principal amount
at maturity of the outstanding notes, Level 3 and the trustee may enter into
one or more supplemental indentures to add any provisions to or change in any
manner or eliminate any of the provisions of the indenture or modify in any
manner the rights of the holders. However, no supplemental indenture shall,
without the consent of the holder of each outstanding note:
(1) change the Stated Maturity of the Accreted Value of, or any
installment of interest on, any note, or reduce the Accreted Value
amount of any note or the interest on any note that would be due and
payable upon the Stated Maturity of the note, or change the place of
payment where, or the coin or currency in which, any note or any
premium or interest on the note is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity of the note;
(2) reduce the percentage in principal amount at maturity of the
outstanding notes, the consent of whose holders is necessary for any
related supplemental indenture or required for any waiver of
compliance with certain provisions of the indenture or certain
Defaults under the indenture;
(3) subordinate in right of payment, or otherwise subordinate, the notes
to any other Debt;
(4) except as otherwise required by the indenture, release any security
interest that may have been granted in favor of the holders of the
notes;
(5) reduce the premium payable upon the redemption of any note nor change
the time at which any note may be redeemed, as described under "--
Optional Redemption;"
(6) reduce the premium payable upon a Change of Control Triggering Event
or, at any time after a Change of Control Triggering Event has
occurred, change the time at which the Offer to Purchase relating to
the Change of Control Triggering Event must be made or at which the
notes must be repurchased according to the Offer to Purchase;
(7) at any time after Level 3 is obligated to make an Offer to Purchase
with the Net Available Proceeds from Asset Dispositions, change the
time at which the Offer to Purchase must be made or at which the notes
must be repurchased according to the Offer to Purchase;
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(8) make any change in any Restricted Subsidiary Guarantee that would
adversely affect the holders of the notes;
(9) modify any provision of the indenture regarding the calculation of
Accreted Value relating to the notes; or
(10) modify any provision of this paragraph, except to increase any
percentage described in this paragraph.
The holders of not less than a majority in principal amount at maturity of
the outstanding notes may, on behalf of the holders of all the notes, waive any
past Default under the indenture and its consequences, except a Default:
(1) in the payment of the Accreted Value of, or premium, if any, or
interest on any note; or
(2) relating to a covenant or provision of the indenture which under the
last sentence of the prior paragraph cannot be modified or amended
without the consent of the holder of each outstanding note affected.
Satisfaction and Discharge of the Indenture, Defeasance
Level 3 may terminate its obligations under the indenture when:
(1) either:
(A) all outstanding notes have been delivered to the trustee for
cancellation, or
(B) all notes not previously delivered to the trustee for cancellation
have become due and payable, will become due and payable within
one year or are to be called for redemption within one year under
irrevocable arrangements satisfactory to the trustee for the
giving of notice of redemption by the trustee in the name and at
the expense of Level 3, and Level 3 has irrevocably deposited or
caused to deposited with the trustee funds in an amount sufficient
to pay and discharge the entire indebtedness on the notes not
previously delivered to the trustee for cancellation, for Accreted
Value of, or premium, if any, on, and interest on, the notes;
(2) Level 3 has paid or caused to be paid all other sums payable by Level
3 under the indenture; and
(3) Level 3 has delivered an Officers' Certificate and an Opinion of
Counsel relating to compliance with the conditions set forth in the
indenture.
Level 3, at its election, shall:
(1) be deemed to have paid and discharged its debt on the notes and the
indenture shall cease to be of further effect as to all outstanding
notes, except as to:
(A) rights of registration of transfer, substitution and exchange of
notes and Level 3's right of optional redemption,
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(B) rights of holders to receive payment of Accreted Value of,
premium, if any, and interest on the notes, but not the Purchase
Price referred to under "--Covenants--Change of Control
Triggering Event" or under "--Limitation on Asset Dispositions,"
and any rights of the holders relating to that amount,
(C) the rights, obligations and immunities of the trustee under the
indenture, and
(D) certain other specified provisions in the indenture,
or
(2) cease to be under any obligation to comply with various restrictive
covenants, including those described under "--Covenants," and
terminate the operation of certain Events of Default, after the
irrevocable deposit by Level 3 with the trustee, in trust for the
benefit of the holders of notes, at any time prior to the maturity of
the notes, of:
(A) money in an amount,
(B) Government Securities which through the payment of interest and
principal will provide, not later than one day before the due
date of payment in respect of the notes, money in an amount, or
(C) a combination of money and Government Securities,
sufficient to pay and discharge the Accreted Value of, and premium, if
any, on, and interest on, the notes then outstanding on the dates on
which any of these payments are due in accordance with the terms of
the indenture and of the notes.
This defeasance or covenant defeasance shall be deemed to occur only if
specified conditions are satisfied, including among other things, delivery by
Level 3 to the trustee of an Opinion of Counsel acceptable to the trustee to
the effect that:
(1) the deposit, defeasance and discharge will not be deemed, or result
in, a taxable event relating to the holders for U.S. federal income
tax purposes, and
(2) Level 3's deposit will not result in the related trust or the trustee
being subject to regulation under the Investment Company Act of 1940.
Governing Law
The indenture and the notes will be governed by the laws of the State of
New York, without reference to principles of conflicts of law.
The Trustee
IBJ Whitehall Bank & Trust Company is the trustee under the indenture. The
address of the trustee is One State Street, New York, New York 10004.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Level 3, as
such, shall have any liability for any obligations of Level 3 under the notes
or the indenture or for any
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claim based on, in respect of, or by reason of, these obligations or their
creation, solely by reason of its status as director, officer, employee,
incorporator or stockholder of Level 3. By accepting a note each holder waives
and releases all liability of this kind. The waiver and release are part of the
consideration for issuance of the notes. Nevertheless, the waiver may not be
effective to waive liabilities under the federal securities laws, and the SEC
has taken the view that these types of waivers are against public policy.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture.
Level 3, the exchange agent and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and Level 3
may require a holder to pay any taxes and fees required by law or permitted by
the indenture.
Material U.S. Federal Income Tax Considerations
The following general discussion summarizes the material U.S. federal
income tax consequences of the exchange of the original notes and the holding
and disposition of the new notes. This discussion only deals with persons that
hold the notes as capital assets within the meaning of Section 1221 of the
Internal Revenue Code, and that purchased the original notes for cash at
original issue. This discussion does not address the U.S. federal income tax
consequences that may be relevant to a particular holder subject to special
treatment under certain U.S. federal income tax laws, such as dealers in
securities or foreign currency, banks, trusts, insurance companies, tax-exempt
organizations, persons that hold notes as part of a straddle, hedge against
currency risk or constructive sale or conversion transaction, persons that have
a functional currency other than the U.S. dollar and investors in pass-through
entities.
This discussion is based on the Internal Revenue Code, the final, temporary
and proposed Treasury regulations promulgated under the Internal Revenue Code,
administrative pronouncements and judicial decisions, all as in effect on the
date of this prospectus and all of which are subject to change, possibly with
retroactive effect. Level 3 has not requested, and will not request, a ruling
from the IRS regarding any of the U.S. federal income tax consequences
described below. As a result, there can be no assurance that the IRS will not
disagree with or challenge any of the conclusions set forth in this prospectus.
This discussion does not discuss all of the federal income tax
considerations that may be relevant to a holder of notes. Prospective
participants in the exchange offer are urged to consult their own tax advisors
regarding the application to their particular situations of U.S. federal income
tax laws, as well as the laws of any state, local or foreign taxing
jurisdiction.
U.S. Holders
The following discussion is limited to persons who or which are U.S.
holders. For these purposes, U.S. holder means:
(1) an individual who is a citizen or resident of the U.S.;
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(2) a corporation or other entity taxable as a corporation created or
organized under the laws of the U.S. or any political subdivision of or
in the U.S.;
(3) an estate or trust the income of which is subject to U.S. federal
income tax regardless of its source; or
(4) a person whose worldwide income or gain is otherwise subject to U.S.
federal income tax on a net income basis.
Original Issue Discount on the Notes. Because the original notes were
issued at a substantial discount from their stated principal amount, both the
original notes and the new notes will be treated as issued with original issue
discount for U.S. federal income tax purposes. Original issue discount is the
excess of:
(1) a note's stated redemption price at maturity over
(2) its issue price.
The stated redemption price at maturity of a note is the sum of the
principal amount payable at maturity and all stated interest payments to be
made on the note. The issue price of a note is the first price at which a
substantial amount of the notes is sold to the public for cash, excluding sales
to bond houses, brokers or similar persons or organizations acting in the
capacity as underwriters, placement agents or wholesalers.
A U.S. holder of a note is required to include original issue discount in
income as ordinary interest as it accrues under a constant yield method in
advance of receipt of cash payments attributable to that income, regardless of
the U.S. holder's regular method of tax accounting. A U.S. holder will not be
required to report separately as taxable income actual distributions of stated
interest relating to a note. In general, the amount of original issue discount
included in income by a U.S. holder of a note is the sum of the daily portions
of original issue discount for each day during the taxable year, or portion
thereof, on which the U.S. holder held the note. The daily portion is
determined by allocating the original issue discount for an accrual period
equally to each day in that accrual period. The accrual period for a note may
be of any length and may vary in length over the term of the note. However, no
accrual period may exceed one year, and each scheduled payment of principal or
interest must occur either on the first or final day of an accrual period.
The amount of original issue discount attributable to an accrual period is
generally equal to the product of the note's adjusted issue price at the
beginning of that accrual period and its yield to maturity, i.e., the discount
rate that, when applied to all payments under the note, results in a present
value equal to the issue price. The adjusted issue price of a note at the
beginning of any accrual period is the issue price of the note, plus the amount
of original issue discount allocable to all prior accrual periods, minus the
amount of any prior payments in respect of the note, including payments of
stated interest. Under these rules, a U.S. holder generally must include in
income an increasingly greater amount of original issue discount in each
successive accrual period.
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In determining the yield and maturity relating to the notes, Level 3 will
not be deemed to exercise any call option on the notes. If Level 3 elects to
commence the accrual of cash interest on the notes prior to December 1, 2003,
the notes may be treated solely for the purpose of applying the original issue
discount rules as if each note were retired and then reissued on the date of
this election for an amount equal to its adjusted issue price on that date.
Applicable High Yield Discount Obligation. The original issue discount on
any obligation that constitutes an applicable high yield discount obligation
generally is not deductible until paid, and deductions relating to certain
portions of original issue discount may be wholly disallowed. The new notes
will constitute applicable high yield discount obligations because the original
notes provided initial holders with a yield to maturity in excess of a
specified amount. As a result, Level 3 will not be allowed a deduction for the
accrual of original issue discount on the notes until this interest is actually
paid.
Sale, Exchange or Redemption of Notes. Upon the sale, exchange or
redemption of a note, a U.S. holder generally will recognize taxable gain or
loss equal to the difference between:
(1) the amount realized on that disposition and
(2) the U.S. holder's adjusted tax basis in the note.
A U.S. holder's adjusted tax basis in a note generally will equal the cost
of the note increased by any original issue discount included in income through
the date of disposition and decreased by any payments received on the note,
including payments of stated interest.
Any gain or loss recognized on the sale or exchange of a note generally
will constitute capital gain or loss and will constitute long-term capital gain
or loss if the underlying note has been held by a U.S. holder for more than 12
months as of the date of disposition. For noncorporate U.S. holders, long-term
capital gain generally will be subject to U.S. federal income tax at a maximum
rate of 20%.
Exchange Offer. The exchange of original notes for new notes in the
exchange offer will not constitute a taxable event for U.S. federal income tax
purposes. As a result:
(1) a U.S. holder of notes will not recognize taxable gain or loss as a
result of the exchange of original notes for new notes in the exchange
offer;
(2) the holding period of the new notes will include the holding period of
the original notes surrendered in exchange for the new notes; and
(3) a U.S. holder's adjusted tax basis in the new notes will be the same
as the U.S. holder's adjusted tax basis in the original notes
surrendered in exchange for the new notes.
Information Reporting and Backup Withholding. A noncorporate U.S. holder of
notes may be subject to backup withholding at a 31% rate relating to reportable
payments, which include interest, including original issue discount, or
principal paid on or the gross proceeds
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of a sale, exchange or redemption of the notes. The payor of any reportable
payments will be required to deduct and withhold 31% of these payments if:
(1) the payee fails to furnish a correct taxpayer identification number to
the payor in the prescribed manner;
(2) the IRS notifies the payor that the taxpayer identification number
furnished by the payee is incorrect;
(3) the payee has failed properly to report the receipt of reportable
payments and the IRS has notified the payor that backup withholding is
required; or
(4) the payee fails to certify under penalties of perjury that it is not
subject to backup withholding.
If any one of these events occurs with respect to a U.S. holder of notes, Level
3 or its paying or other withholding agent will be required to withhold 31% of
any payments of principal, premium, if any, and interest, including original
issue discount, on a note.
Any amount withheld from a payment to a U.S. holder under the backup
withholding rules will be allowed as a refund or credit against the holder's
U.S. federal income tax liability, so long as the required information is
provided to the IRS. Level 3, its paying agent or other withholding agent
generally will report to a U.S. holder of notes and to the IRS the amount of
any reportable payments made on the notes for each calendar year and the amount
of tax withheld, if any, relating to these payments. Level 3 will report
annually to the IRS and to each holder the amount of original issue discount
accrued on the note for the calendar year.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a note that is not a U.S. holder.
Stated Interest and Original Issue Discount. Subject to the discussion of
backup withholding below, payments of interest, including original issue
discount, on a note to a non-U.S. holder generally will not be subject to U.S.
federal income or withholding tax, as long as:
(1) the holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of Level 3 that
are entitled to vote;
(2) the holder is not:
(A) a controlled foreign corporation that is related to Level 3
through stock ownership, or
(B) a bank receiving interest on a loan entered into in the ordinary
course of business;
(3) the interest is not effectively connected with the conduct by the non-
U.S. holder of a trade or business within the U.S.; and
(4) Level 3 or its paying agent receives:
(A) from the non-U.S. holder a properly completed Form W-8 or
substitute Form W-8 signed under penalties of perjury, which
provides the non-U.S. holder's name and address and certifies
that the non-U.S. holder is not a U.S. person, or
84
<PAGE>
(B) from a security clearing organization, bank or other financial
institution that holds the notes in the ordinary course of its
trade or business on behalf of the non-U.S. holder certification
under penalties of perjury that a Form W-8 or substitute Form W-8
has been received by it or by another such financial institution
from the non-U.S. holder, and a copy of the Form W-8 or
substitute Form W-8 is furnished to the payor.
Recently adopted Treasury regulations regarding information reporting and
backup withholding unify current certification procedures and forms and clarify
reliance standards and certain rules relating to foreign partnerships. For
example, these Treasury regulations require, in the case of notes held by a
foreign partnership, that:
(1) the certification described in clause (4) above be provided by the
partners rather than by the foreign partnership; and
(2) the partnership provide certain information, including a taxpayer
identification number. A look-through rule applies in the case of
tiered partnerships. These regulations will become effective for
payments made after December 31, 1999, subject to certain transition
rules.
A non-U.S. holder that does not qualify for exemption from withholding
under the second preceding paragraph generally will be subject to withholding
of U.S. federal income tax at a 30% rate, or lower applicable treaty rate, on
payments of interest, including original issue discount, on the notes.
If interest, including original issue discount, on the notes is effectively
connected with the conduct by a non-U.S. holder of a trade or business within
the U.S., the interest will be subject to U.S. federal income tax on a net
income basis at the rate applicable to U.S. persons generally, and, for
corporate holders, may also be subject to a 30% branch profits tax. If
interest, including original issue discount, is subject to U.S. federal income
tax on a net income basis in accordance with these rules, the payments will not
be subject to U.S. withholding tax so long as the relevant non-U.S. holder
provides Level 3 or its paying agent with a properly executed Form 4224. See
the discussion above with regard to the certification rules under recently
enacted Treasury regulations.
Non-U.S. holders should consult their own tax advisors regarding any
applicable income tax treaties, which may provide for a lower rate of
withholding tax, exemption from or reduction of branch profits tax, or other
rules different from those described above.
Sale, Exchange or Redemption of Notes. Subject to the discussion of backup
withholding, any gain realized by a non-U.S. holder on the sale, exchange or
redemption of a note generally will not be subject to U.S. federal income tax,
unless:
(1) the gain is effectively connected with the conduct by the non-U.S.
holder of a trade or business within the U.S.;
(2) the non-U.S. holder is an individual who is present in the U.S. for
183 days or more in the taxable year of disposition and certain other
conditions are satisfied; or
85
<PAGE>
(3) the non-U.S. holder is subject to tax under the provisions of U.S.
federal income tax law applicable to certain expatriates.
Information Reporting and Backup Withholding. Level 3 must report annually
to the IRS and to each non-U.S. holder the amount of any interest paid and
original issue discount accrued on the notes in that year and the amount of tax
withheld, if any, relating to those payments. Copies of those information
returns also may be made available, under the provisions of a specific treaty
or agreement, to the taxing authorities of the country in which the non-U.S.
holder resides.
Backup withholding and information reporting generally will not apply to
interest, including original issue discount, payments made to a non-U.S. holder
in respect of the notes if the non-U.S. holder furnishes Level 3 or its paying
agent with a properly executed certification on Form W-8 or substitute Form W-8
signed under penalties of perjury stating that the beneficial owner is not a
U.S. person and setting forth the non-U.S. holder's name and address. However,
neither Level 3 nor its paying agent may have actual knowledge that the holder
is a U.S. person or that the conditions of an exemption are not in fact
satisfied. See the discussion above with regard to the certification rules
under recently enacted Treasury regulations.
The payment of proceeds from a non-U.S. holder's disposition of notes to or
through the U.S. office of any broker, domestic or foreign, will be subject to
information reporting and possible backup withholding unless the holder
certifies as to its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. However, the broker must not have actual knowledge
that the holder is a U.S. person or that the conditions of an exemption are not
in fact satisfied. The payment of the proceeds from a non-U.S. holder's
disposition of a note to or through a non-U.S. office of either a U.S. broker
or a non-U.S. broker that is a U.S.-related person will be subject to
information reporting, but not backup withholding. However, this payment of
proceeds will not be subject to information reporting if the broker has
documentary evidence in its files that the non-U.S. holder is not a U.S. person
and the broker has no knowledge to the contrary, or the non-U.S. holder
establishes an exemption. For this purpose, a U.S.-related person is:
(1) a controlled foreign corporation for U.S. federal income tax
purposes; or
(2) a foreign person 50% or more of whose gross income from all sources
for the three-year period ending with the close of its taxable year
preceding payment, or for the part of the period that the broker has
been in existence, is derived from activities that are effectively
connected with the conduct of a U.S. trade or business.
Neither information reporting nor backup withholding will apply to a payment of
the proceeds of a non-U.S. holder's disposition of notes by or through a non-
U.S. office of a non-U.S. broker that is not a U.S. related person. See the
discussion above with regard to the certification rules under recently enacted
Treasury regulations.
Any amounts withheld under the backup withholding rules from a payment to a
non- U.S. holder will be allowed as a refund or a credit against the non-U.S.
holder's U.S. federal income tax liability, as long as the required procedures
are followed.
86
<PAGE>
Plan of Distribution
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those new notes. The letter of transmittal that accompanies
this prospectus states that by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an underwriter within
the meaning of the Securities Act. A participating broker-dealer may use this
prospectus, in connection with resales of new notes received in exchange for
original notes where those new notes were acquired by the broker-dealer as a
result of market-making activities or other trading activities. Level 3 has
agreed that, starting on the date of this prospectus and ending on the close of
business on the day that is 180 days following the date of this prospectus, it
will make this prospectus available to any broker-dealer for use in connection
with any of those resales.
Level 3 will not receive any proceeds from any sale of new notes by broker-
dealers. New notes received by broker-dealers for their own account in the
exchange offer may be sold from time to time in one or more transactions. These
sales may be made in the over-the-counter market, in negotiated transactions,
through the writing of options on the new notes or a combination of these
methods of resale, and may be at market prices prevailing at the time of
resale, at prices related to the prevailing market prices or negotiated prices.
Any resale of this kind may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any of these broker-dealers and/or the purchasers of any of
these new notes. Any broker-dealer that resells new notes that were received by
it for its own account in the exchange offer and any broker or dealer that
participates in a distribution of these new notes may be deemed to be an
underwriter within the meaning of the Securities Act. If this is the case, any
profit of any of these resales of new notes and any commissions or concessions
received by any of these persons may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an underwriter within the meaning
of the Securities Act.
For a period of 180 days after the date of this prospectus, Level 3 will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests those
documents in the letter of transmittal. Level 3 has agreed to pay all expenses
incident to the exchange offer, other than the expenses of counsel for the
holders of the original notes and commissions or concessions of any brokers or
dealers. Level 3 also has agreed to indemnify the holders of the original
notes, including any broker-dealers, against various liabilities, including
liabilities under the Securities Act.
Legal Matters
Willkie Farr & Gallagher, New York, New York, will pass upon the validity
of the new notes offered in this prospectus for Level 3.
87
<PAGE>
Experts
The consolidated financial statements of Level 3 Communications, Inc. as of
December 31, 1998 and for the year then ended, incorporated by reference in
this registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated balance sheet of Level 3 Communications, Inc. as of
December 27, 1997, and the related statements of earnings, cash flows,
comprehensive income, and changes in stockholders' equity for each of the two
years in the period ended December 27, 1997, as well as the consolidated
balance sheets of RCN Corporation and Subsidiaries as of December 31, 1997 and
1998 and the related statements of operations, cash flows, comprehensive
income, and changes in stockholders' equity, for each of the three years in the
period ended December 31, 1998, incorporated by reference in this registration
statement, have been incorporated herein in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
Incorporation of Material Documents by Reference
The SEC allows us to incorporate by reference the information we file with
it. This means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. We are
incorporating by reference our documents listed below and any future filings we
make with the SEC under Section 13(a), 13(c), 14, or 15(d) of the Exchange Act
prior to the termination of this offering.
(1) Annual report on Form 10-K for the fiscal year ended December 31,
1998; and
(2) Current reports on Forms 8-K, filed February 24, 1999 and March 5,
1999 and on Forms 8-K/A, filed February 17, 1999.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Vice President, Investor Relations
Level 3 Communications, Inc.
1450 Infinite Drive
Louisville, CO 80027
303-926-3000
88
<PAGE>
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date
on the front of those documents.
89
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any person to give you any information or to make any
representations about the exchange offer other than those contained in this
prospectus. If you are given any information or representations that are not
discussed in this prospectus, you must not rely on that information or those
representations. This prospectus is not an offer to sell or a solicitation of
an offer to buy any securities other than the securities to which it relates.
In addition, this prospectus is not an offer to sell or the solicitation of an
offer to buy those securities in any jurisdiction in which the offer or
solicitation is not authorized, or in which the person making the offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make an offer or solicitation. The delivery of this prospectus and any
exchange made under this prospectus do not, under any circumstances, mean that
there has not been any change in the affairs of Level 3 since the date of this
prospectus or that information contained in this prospectus is correct as of
any time subsequent to its date.
[LOGO]
Level 3 Communications, Inc.
10 1/2% Senior Discount Notes
Due 2008
----------------
Prospectus
----------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final action of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or
agent in defending such action, provided that the director or officer
undertakes to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the corporation. A corporation may
indemnify such person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses (including attorneys' fees) which he
or she actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under any corporation's by-law,
agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, Article XI of the Company's
Restated Certificate of Incorporation (the "Certificate") and the Company's By-
laws (the "By- laws") provide that the Company shall indemnify each person who
is or was a director, officer or employee of the Company (including the heirs,
executors, administrators or estate of such person) or is or was serving at the
request of the Company as director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, to the fullest extent
permitted under subsections 145(a), (b), and (c) of the DGCL or any successor
statute. The indemnification provided by the Certificate and the By-laws shall
not be deemed exclusive of any other rights to which any of those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person. Expenses
(including attorneys' fees) incurred in defending a civil, criminal,
administrative or investigative action, suit or proceeding upon receipt of an
undertaking by or on behalf of the indemnified person to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Company. The Certificate further provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Company shall be eliminated
or limited to the fullest extent permitted by the DGCL as so amended.
The By-laws provide that the Company may purchase and maintain insurance on
behalf of its directors, officers, employees and agents against any liabilities
asserted against such persons arising out of such capacities.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
4.1 --Indenture dated as of December 2, 1998 between the Company and
IBJ Schroder Bank & Trust Company as trustee relating to the 10
1/2% Senior Discount Notes Due 2008.*
4.2 --Registration Agreement dated November 24, 1998 between the
Company and the Initial Purchasers.*
5 --Opinion of Willkie Farr & Gallagher.*
8 --Opinion of Willkie Farr & Gallagher with respect to certain tax
matters.*
12 --Statement Regarding Computation of Ratio of Earnings to Fixed
Charges.*
23.1 --Consent of PricewaterhouseCoopers LLP.
23.2 --Consent of PricewaterhouseCoopers LLP.
23.3 --Consent of Arthur Andersen LLP.
23.4 --Consent of Willkie Farr & Gallagher (included in their opinions
filed as Exhibits 5 and 8).*
24 --Power of Attorney (included on the signature pages hereto).*
25 --Statement on Form T-1 of Eligibility of Trustee.*
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
99.3 --Form of Letter to Clients.*
99.4 --Form of Letter to Nominees.*
</TABLE>
- --------
* Previously filed.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto, which are incorporated herein by reference.
Item 22. Undertakings.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of registrants
pursuant to the provisions described under Item 20 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Omaha, State of
Nebraska, on the 14th day of April, 1999.
Level 3 Communications, Inc.
/s/ Thomas C. Stortz
By: __________________________________
Name: Thomas C. Stortz
Title: Senior Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons, in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
* Chairman of the
- ------------------------------------ Board April 14, 1999
Walter Scott, Jr.
* President, Chief
- ------------------------------------ Executive Officer April 14, 1999
James Q. Crowe and Director
* Executive Vice
- ------------------------------------ President, Chief April 14, 1999
R. Douglas Bradbury Financial Officer
and Director
(principal
financial officer)
* Controller
- ------------------------------------ (principal April 14, 1999
Eric J. Mortensen accounting
officer)
Director , 1999
- ------------------------------------
Philip B. Fletcher
* Director
- ------------------------------------ April 14, 1999
William L. Grewcock
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
* Director
- ------------------------------------- April 14, 1999
Richard R. Jaros
* Director
- ------------------------------------- April 14, 1999
Robert E. Julian
* Director
- ------------------------------------- April 14, 1999
David C. McCourt
* Director
- ------------------------------------- April 14, 1999
Kenneth E. Stinson
* Director
- ------------------------------------- April 14, 1999
Michael B. Yanney
</TABLE>
Neil J. Eckstein, by signing his name below, signs this document on behalf
of each of the above-named persons specified by an asterisk (*), pursuant to a
power of attorney duly executed by such persons, filed with the Securities and
Exchange Commission in the Registrant's Registration Statement on February 3,
1999.
Attorney-in-fact
/s/ Neil J. Eckstein
- -------------------------------------
Neil J. Eckstein
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of Level 3 Communications, Inc. on Form S-4 of our report dated March 30, 1998,
on our audits of the consolidated financial statements of Level 3
Communications, Inc. (formerly Peter Kiewit Sons', Inc.) as of December 27,
1997 and for each of the two years in the period ended December 27, 1997 which
report is included in the 1998 Annual Report on Form 10-K of Level 3
Communications, Inc. We also consent to the reference to our Firm under the
caption "Experts."
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
Omaha, Nebraska
April 14, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of Level 3 Communications, Inc. on Form S-4 of our report dated March 8, 1999,
except for Note 20 as to which the date is March 18, 1999, on our audits of the
consolidated financial statements and financial statement schedules of RCN
Corporation and Subsidiaries as of December 31, 1998 and 1997, and for the
years ended December 31, 1998, 1997 and 1996, which report is incorporated by
reference in the 1998 Annual Report on Form 10-K of Level 3 Communications,
Inc. We also consent to the reference to our firm under the caption "Experts."
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
April 14, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-4 of our report dated March
29, 1999 on the consolidated financial statements of Level 3 Communications,
Inc. as of December 31, 1998 and for the year then ended included in Level 3
Communications, Inc.'s Form 10-K for the year ended December 31, 1998 and to
all references to our Firm included in this Registration Statement.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
Denver, Colorado
April 14, 1999
