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Table of Contents
Table of Contents
As filed with the Securities and Exchange Commission on March 7, 2013
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LEVEL 3 FINANCING, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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4813
(Primary Standard Industrial
Classification Code Number)
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47-0735805
(I.R.S. Employer
Identification No.)
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LEVEL 3 COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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4813
(Primary Standard Industrial
Classification Code Number)
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47-0210602
(I.R.S. Employer
Identification No.)
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LEVEL 3 COMMUNICATIONS, LLC
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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4813
(Primary Standard Industrial
Classification Code Number)
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47-0807040
(I.R.S. Employer
Identification No.)
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1025 Eldorado Boulevard, Broomfield, Colorado 80021
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
John M. Ryan, Esq.
Executive Vice President and Chief Legal Officer
1025 Eldorado Boulevard
Broomfield, Colorado 80021
(720) 888-1000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
with a copy to:
David K. Boston
Laura L. Delanoy
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019
(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.
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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.
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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.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a
smaller reporting company)
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Smaller reporting company
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If
applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
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Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
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Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities
to be Registered
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Amount to be
Registered
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Proposed Maximum
Offering Price(1)
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Proposed Maximum
Aggregate Offering Price
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Amount of
Registration Fee
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7% Senior Notes due 2020
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$775,000,000
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100%
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$775,000,000
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$105,710
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Guarantees of the Notes listed above by Level 3 Communications, Inc. and Level 3 Communications, LLC
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(2)
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(2)
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(2)
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(2)
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Total
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$775,000,000
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100%
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$775,000,000
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$105,710
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(1)
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Estimated
solely for the purpose of calculating the registration fee.
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(2)
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Pursuant
to Rule 457(n), no registration fee is payable with respect to the guarantees by Level 3 Communications, Inc. and
Level 3 Communications, LLC
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 Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
Table of Contents
The information in this prospectus is not complete and may be changed. We may not exchange for these
securities until the registration statement filed with the Securities and Exchange Commission 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 March 7, 2013
Prospectus
Level 3 Financing, Inc.
Offer to Exchange
up to $775,000,000 principal amount of its 7% Senior Notes due 2020
which have been registered under the Securities Act of 1933
for
any and all of its outstanding unregistered 7% Senior Notes due 2020
Guaranteed by Level 3 Communications, Inc.
and Level 3 Communications, LLC
This
is an offer to exchange new 7% Senior Notes due 2020 (the "new notes") of Level 3 Financing, Inc. (the "Issuer") that have been registered under the Securities Act of
1933, as amended (the "Securities Act"), for the Issuer's currently outstanding, unregistered 7% Senior Notes due 2020 (the "original notes" and together with the new notes, the "notes").
Terms of the new notes offered in the exchange offer:
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The terms of the new notes are substantially identical to the terms of the original notes that were issued on
August 6, 2012, except that the new notes will be registered under the Securities Act, will not contain any legend restricting their transfer, registration rights or provisions for special
interest and will bear different CUSIP numbers.
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There is no established trading market for the new notes, and neither the Issuer nor Level 3
Communications, Inc. intends to apply for listing of the new notes on any securities exchange.
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The original notes are, and the new notes will be, fully and unconditionally and jointly and severally guaranteed on an
unsubordinated unsecured basis by Level 3 Communications, Inc. and Level 3 Communications, LLC.
Terms of exchange offer:
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The exchange offer expires at 5:00 p.m., New York City time, on , unless it is extended.
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Original notes that are validly tendered and not validly withdrawn before the exchange offer expires will be exchanged for
an equal principal amount of new notes.
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Tenders of original notes may be withdrawn at any time prior to the expiration of the exchange offer.
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None of the Issuer, Level 3 Communications, Inc. or Level 3 Communications, LLC will receive
any proceeds from issuance of the new notes in the exchange offer.
See "
Risk Factors
" beginning on page 12 for a discussion of matters that participants in the
exchange offer should consider.
Neither the Securities and Exchange Commission 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 , 2013
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This prospectus incorporates important business and financial information about the Issuer and Level 3 Communications, Inc.
that is not included in or delivered with this prospectus. Level 3 will provide this information to you at no charge upon written or oral request directed to: Vice President, Investor
Relations, Level 3 Communications, Inc., 1025 Eldorado Blvd., Broomfield, CO 80021, 720-888-2501. In order to ensure timely delivery of the information, any
request should be made by , 2013
.
Each
broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such 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. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for original notes
where such new notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Issuer and Level 3 Communications, Inc. have agreed
that, starting on the date hereof (the "Expiration Date") and ending on the close of business on the day that is 180 days following the Expiration Date, they will make this prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of Distribution."
Neither
the Issuer nor Level 3 Communications, Inc. has 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 Financing, Inc. or Level 3 Communications, Inc. since the date
of this prospectus or that information contained in this prospectus is correct as of any time subsequent to its date.
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Table of Contents
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Table of Contents
Cautionary Factors That May Affect Future Results
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
This prospectus contains or incorporates by reference forward looking statements and information that are based on the beliefs of
management as well as assumptions made by and information currently available to Level 3 Communications, Inc. and its subsidiaries (together, "Level 3" or the "Company" unless it
is clear from the context or expressly stated that the reference to "Level 3" or the "Company" is only to Level 3 Communications, Inc. or the Issuer). When used in this
prospectus, the words "anticipate", "believe", "plan", "estimate" and "expect" and similar expressions, as they relate to Level 3 or its management, are intended to identify forward looking
statements. These statements reflect the current views of Level 3 with respect to future events and are subject to certain risks, uncertainties and assumptions.
Should
one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this
document. These forward-looking statements include, among others, statements concerning:
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the communications business of Level 3, its advantages and Level 3's strategy for continuing to pursue its
business;
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Level 3's integration with the operations of Global Crossing Limited ("Global Crossing"), which Level 3
acquired in October 2011, and anticipated benefits and synergies in connection with such acquisition;
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anticipated development and launch of new services in Level 3's business;
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anticipated dates on which Level 3 will begin providing certain services or reach specific milestones;
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growth of the communications industry;
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expectations as to Level 3's future revenue, margins, expenses, cash flows and capital requirements; and
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other statements of expectations, beliefs, future plans and strategies, anticipated developments and other matters that
are not historical facts.
These
forward-looking statements are subject to risks and uncertainties, including financial, regulatory, environmental, 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 Level 3 from achieving its stated goals include, but are
not limited to, the effects on Level 3's business and its customers of general economic and financial market conditions as well as Level 3's failure
to:
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successfully integrate the operations of Global Crossing or otherwise realize any of the anticipated benefits of that
acquisition;
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increase and maintain the traffic on Level 3's network and the resulting revenue;
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successfully use new technology and information systems to support new and existing services;
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prevent process and system failures that significantly disrupt the availability and quality of the services that
Level 3 provides;
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prevent Level 3's security measures from being breached, or its services from being degraded as a result of
security breaches;
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provide services that do not infringe the intellectual property and proprietary rights of others;
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develop new services that meet customer demands and generate acceptable margins;
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attract and retain qualified management and other personnel; and
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meet all of the terms and conditions of Level 3's debt obligations.
Except
as required by applicable law and regulations, Level 3 undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information,
future events or otherwise. Further disclosures that Level 3 makes on related subjects in Level 3's additional filings with the Securities and Exchange Commission (the "SEC") should be
consulted. For further information regarding the risks and uncertainties that may affect Level 3's future results, please review the information set forth below under "Risk Factors" and in the
filings of Level 3 Communications, Inc. ("Parent") with the Securities and Exchange Commission that are incorporated by reference in this prospectus, including Parent's Annual Report on
Form 10-K for the year ended December 31, 2012.
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Table of Contents
SUMMARY
This summary highlights information contained elsewhere or incorporated by reference in this prospectus and
does not contain all 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. This prospectus and the letter of transmittal that accompanies it collectively constitute the exchange offer.
In this prospectus, (i) Level 3 Financing, Inc., the issuer of the notes and a direct, wholly owned subsidiary of Level 3
Communications, Inc., is referred to as the "Issuer," (ii) Level 3 Communications, Inc., the parent company, is referred to as "Parent," (iii) Level 3
Communications, LLC, a direct, wholly owned subsidiary of the Issuer, is referred to as "Level 3 LLC" and (iv) Parent and its subsidiaries are collectively referred to as
"Level 3," unless it is clear from the context or expressly stated that the reference to "Level 3" is only to Parent. In this prospectus any amounts shown on an "as adjusted" basis have
been adjusted to reflect the repayment at maturity of approximately $172 million of Parent's 15% Convertible Senior Notes due 2013 on January 15, 2013.
The Issuer
The new notes will be issued by Level 3 Financing, Inc., a direct, wholly owned subsidiary of Parent, in exchange for the
original notes. The Issuer was incorporated in Delaware in 1990. The Issuer is a holding company that holds, directly or indirectly, all of the outstanding capital stock of virtually all of Parent's
other subsidiaries.
Level 3
Level 3 is a facilities based provider (that is, a provider that owns or leases a substantial portion of the plant, property and
equipment necessary to provide its services) of a broad range of integrated communications services. Level 3 has created its communications network by constructing its own assets and through a
combination of purchasing other companies and purchasing and leasing facilities from others. Level 3's network is an international, facilities based communications network. Level 3
designed its network to provide communications services that employ and take advantage of rapidly improving underlying optical, Internet Protocol, computing and storage technologies.
Recent Developments
On January 15, 2013, Parent repaid at maturity approximately $172 million of its 15% Convertible Senior Notes due 2013.
Current Organizational Structure of the Issuer and Parent
The following organizational chart shows a simplified structure of Level 3, on an as adjusted basis, and only depicts certain of
the Issuer's subsidiaries. For a discussion of the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note, the 8.625% Proceeds Note, the Offering
Proceeds Note, the Loan Proceeds Note and the Parent Intercompany Note (each as defined in "Summary—The Notes—Offering Proceeds Note; Relative Priority of Intercompany
Obligations"), see "Risk Factors—Risks Relating to the Notes—Although the notes will initially benefit from some structural seniority to Parent's indebtedness, existing and
future intercompany indebtedness and other actions could limit or eliminate this seniority."
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Table of Contents
Note:
The above corporate structure excludes $98 million in capital leases and other debt all held at subsidiaries of the Issuer. The above does not show the indebtedness of Level 3
Communications, Inc.
See "Description of Indebtedness of Level 3 Communications, Inc. and the Issuer—Indebtedness of Level 3 Communications, Inc."
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(1)
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The
Parent Intercompany Note is subordinated to the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds
Note, the 8.625% Proceeds Note and the Offering Proceeds Note. Each of the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note, the 8.625%
Proceeds Note and the 7% Proceeds Note is subordinated to the Loan Proceeds Note. See "Description of the Notes—Subordination of Existing Intercompany Obligations."
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The
Credit Agreement is guaranteed by Parent, Level 3 Communications, LLC ("Level 3 LLC") and certain other subsidiaries of the
Issuer.
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(3)
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The
Floating Rate Senior Notes due 2015, the 10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019, the 8.625%
Senior Notes due 2020 and the 7% Senior Notes due 2020 are guaranteed by Level 3 Communications, Inc. and Level 3 LLC. Level 3 LLC's guarantees of the
Floating Rate Senior Notes due 2015, the 10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019, the 8.625% Senior Notes due 2020 and the 7% Senior Notes due
2020 are subordinated to Level 3 LLC's guarantee of the Credit Agreement. See "Description of the Notes—Note Guarantees."
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Each
of the Parent Intercompany Note, the Loan Proceeds Note, the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the
8.125% Proceeds Note, the 8.625% Proceeds Note and the 7% Proceeds Note has been pledged as security for the Credit Agreement.
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These
other subsidiaries are owned at multiple levels.
The
Issuer's principal executive offices are located at 1025 Eldorado Boulevard, Broomfield, Colorado 80021 and its telephone number is (720) 888-1000.
Parent's
principal executive offices are located at 1025 Eldorado Boulevard, Broomfield, Colorado 80021 and its telephone number is (720) 888-1000.
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The Exchange Offer
On August 6, 2012, the Issuer privately placed $775,000,000 aggregate principal amount of its 7% Senior Notes due 2020 (the
"original notes") in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and Parent fully and unconditionally guaranteed the original notes on
an unsecured basis. On December 6, 2012, pursuant to a supplemental indenture, by and among Level 3 Communications, LLC ("Level 3 LLC"), the Issuer and The Bank of
New York Mellon Trust Company, N.A., as trustee, Level 3 LLC provided an unconditional, unsecured guaranty of the original notes; provided that Level 3 LLC's guarantee of
the original notes is subordinated to its guarantee of the Credit Agreement. In connection with the private placement, the Issuer and Parent entered into a registration agreement, dated as of
August 6, 2012, with the initial
purchasers of the original notes. In the registration agreement, the Issuer and Parent agreed to register under the Securities Act an offer of the Issuer's new 7% Senior Notes due 2020 which are
referred to herein as the "new notes," in exchange for the original notes. The original notes and the new notes are collectively referred to herein as the "notes." The Issuer and Parent also agreed to
deliver this prospectus to the holders of the original notes. You should read the discussion under the heading "Description of the Notes" for information regarding the notes.
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The Exchange Offer
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This is an offer to exchange $1,000 in principal amount of new notes for each $1,000 in principal amount of outstanding original notes. The new notes are substantially identical to the original notes,
except that:
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(1) the new notes will be freely transferable, other than as described in this
prospectus;
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(2) the new notes will not contain any legend restricting their transfer;
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(3) holders of the new notes will not be entitled to the rights of the holders of the original
notes under the registration agreement; and
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(4) the new notes will not contain any provisions regarding the payment of special
interest.
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The Issuer and Parent believe that you can transfer the new notes without complying with the registration and
prospectus delivery provisions of the Securities Act if you:
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(1) acquire the new notes in the ordinary course of your business;
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(2) are not and do not intend to become engaged in a distribution of the new notes;
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(3) are not an affiliate of the Issuer;
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(4) are not a broker-dealer that acquired the original notes directly from the Issuer;
and
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(5) are not a broker-dealer that acquired the original notes as a result of market-making or
other trading activities.
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If any of these conditions are not satisfied and you transfer any new notes without delivering a proper
prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act.
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Registration Rights
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The Issuer and Parent have agreed to use their commercially reasonable efforts to consummate the exchange offer or cause the
original notes to be registered under the Securities Act to permit resales. If the Issuer and Parent are not in compliance with their obligations under the registration agreement, then Special Interest (as defined) (in addition to the interest
otherwise due on the notes that are the subject of the registration agreement or the new notes) will accrue on the notes or new notes. If the exchange offer is completed on the terms and within the time period contemplated by this prospectus, no
Special Interest will be payable on the notes. See "The Exchange Offer—Special Interest."
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No Minimum Condition
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The exchange offer is not conditioned on any minimum aggregate principal amount of original notes being tendered
for exchange.
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Expiration Date
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The exchange offer will expire at 5:00 p.m., New York City time,
on , unless it is extended.
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Exchange Date
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Original notes will be accepted for exchange beginning on the first business day following the expiration date,
upon surrender of the original notes.
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Conditions to the Exchange Offer
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The Issuer's obligation to complete the exchange offer is subject to certain conditions. See "The Exchange
Offer—Conditions to the Exchange Offer." The Issuer reserves the right to terminate or amend the exchange offer at any time before the expiration date if various specified events occur.
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Withdrawal Rights
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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 without expense as promptly as practicable after the expiration or termination of the exchange offer.
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Procedures for Tendering Original Notes
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See "The Exchange Offer—How to Tender."
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Material United States Federal Income Tax Considerations
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The exchange of original notes for new notes by U.S. Holders, as defined below, should 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. See "Material United States Federal Income Tax Considerations."
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Effect on Holders of Original Notes
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If the exchange offer is completed on the terms and within the period contemplated by this prospectus, holders of
original notes will have no further registration or other rights under the registration agreement, except under limited circumstances.
Holders of 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
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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."
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Use of Proceeds
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None of the Issuer, Parent or Level 3 LLC will receive any proceeds from the issuance of the new notes
in the exchange offer.
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Exchange Agent
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The Bank of New York Mellon Trust Company, N.A. is serving as exchange agent in connection with the exchange
offer.
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The Notes
The new notes are substantially identical to the original notes, except for the transfer restrictions and registration rights relating
to the original notes. The new notes will evidence the same debt as the original notes, be guaranteed by Parent and Level 3 LLC, and be entitled to the benefits of the indenture. See
"Description of the Notes."
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Issuer
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Level 3 Financing, Inc.
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Securities Offered
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$775,000,000 aggregate principal of new notes in exchange for $775,000,000 aggregate principal amount of
outstanding original notes.
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Maturity
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June 1, 2020.
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Interest
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Interest on the new notes will accrue from the last interest payment date on which interest was paid on the
original notes surrendered in exchange therefor or, if no interest has been paid on such original notes, from August 6, 2012.
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Interest on the new notes will accrue at the rate of 7% per annum and will be payable in cash semiannually in
arrears on June 1 and December 1 of each year to the persons who are registered holders of the notes at the close of business on the preceding May 15 or November 15, as the case may be. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
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Note Guarantees
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The notes are fully and unconditionally and jointly and severally guaranteed on an unsubordinated, unsecured
basis by the Issuer's parent company, Level 3 Communications, Inc., which is referred to as "Parent," and by Level 3 Communications, LLC, a direct wholly owned subsidiary of Parent which is referred to as "Level 3 LLC";
provided that Level 3 LLC's guarantee of the notes is subordinated to its guarantee of the Credit Agreement. If the Issuer cannot make payments on the notes when they are due, Parent and/or Level 3 LLC must make them
instead.
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Offering Proceeds Note; Relative Priority of Intercompany Obligations
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The Issuer lent the net proceeds received by it from the offering of the notes, together with cash on hand, to
Level 3 LLC in return for an intercompany demand note issued by Level 3 LLC in a principal amount equal to the aggregate principal amount of the original notes. We refer to such intercompany demand note as the "7% Proceeds Note"
or the "Offering Proceeds Note."
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Level 3 LLC has previously issued an intercompany demand note to Parent in exchange for loans made by
Parent to Level 3 LLC, which note is referred to as the "Parent Intercompany Note" and has previously issued intercompany demand notes to the Issuer in exchange for loans made by the Issuer to Level 3 LLC: (1) in an aggregate
principal amount of $300 million, representing the gross proceeds to the Issuer from the issuance of its Floating Rate Senior Notes due 2015, which note is referred to as the "2015 Floating Rate Proceeds Note"; (2) in an aggregate principal
amount of $640 million, representing the gross proceeds to the Issuer from the issuance of its 10% Senior Notes due 2018, which note is referred to as the "10% Proceeds Note"; (3) in an aggregate principal amount of $500 million,
representing the gross proceeds to the Issuer from the issuance of its 9.375% Senior Notes due 2019, which note is referred to as the "9.375% Proceeds Note"; (4) in an aggregate principal amount of $1,200 million, representing the gross
proceeds to the Issuer from the issuance of its 8.125% Senior Notes due 2019, which note is referred to as the "8.125% Proceeds Note"; in an aggregate principal amount of $900 million, representing the gross proceeds to the Issuer from the
issuance of its 8.625% Senior Notes due 2020, which note is referred to as the "8.625% Proceeds Note."
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As of December 31, 2012, the principal amount outstanding under the Parent Intercompany Note was
approximately $24.9 billion, the principal amount outstanding under the 2015 Floating Rate Proceeds Note was $300 million, the principal amount outstanding under the 10% Proceeds Note was $640 million, the principal amount outstanding
under the 9.375% Proceeds Note was $500 million, the principal amount outstanding under the 8.125% Proceeds Note was $1,200 million, the principal amount outstanding under the 8.625% Proceeds Note was $900 million and the principal
amount outstanding under the 7% Proceeds Note was $775 million.
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Parent, as guarantor, the Issuer, as borrower, Merrill Lynch Capital Corporation, as administrative agent and
collateral agent, and certain lenders are party to a credit agreement, pursuant to which the lenders extended $2.614 billion in senior secured term loans to the Issuer that are outstanding as of
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December 31, 2012. Of the outstanding secured term loans under the Credit Facility, $599 million in aggregate principal
amount mature on February 1, 2016, and $2.015 billion in aggregate principal amount mature on August 1, 2019. The Issuer lent the proceeds of each of the senior secured term loans to Level 3 LLC in return for an intercompany
demand note issued by Level 3 LLC, which note is referred to as the "Loan Proceeds Note." See "Description of Indebtedness of Level 3 Communications, Inc. and the Issuer" The Issuer's obligations under the term loans are secured
by the Parent Intercompany Note, the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note, the 8.625% Proceeds Note, the Offering Proceeds Note and the Loan Proceeds Note. As of December 31,
2012, the principal amount outstanding under the Loan Proceeds Note was $2.614 billion.
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Parent and the Issuer entered into a Parent Intercompany Note subordination agreement that subordinates the right
of Parent to payment under the Parent Intercompany Note to the right of the Issuer to payment under the Offering Proceeds Note upon the liquidation, dissolution or winding up of Level 3 LLC or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Level 3 LLC or its property. The Parent Intercompany Note is subordinated on the same terms to the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125%
Proceeds Note and the 8.625% Proceeds Note.
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The benefit of the subordination of the Parent Intercompany Note to the Offering Proceeds Note can be limited or
eliminated by certain actions. See "Risk Factors—Risks Relating to the Notes—Although the notes will initially benefit from some structural seniority to Parent's indebtedness, existing and future intercompany indebtedness and other actions
could limit or eliminate this seniority."
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In addition, on August 6, 2012, the Issuer and Level 3 LLC entered into an Offering Proceeds Note
subordination agreement that subordinates the right of the Issuer to payment under the Offering Proceeds Note to the right of the Issuer (in its capacity as borrower under the Credit Agreement) to payment under the Loan Proceeds Note upon the
liquidation, dissolution or winding up of Level 3 LLC or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to Level 3 or its property. Each of the 2015 Floating Rate Proceeds Note, the 10%
Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note and the 8.625% Proceeds Note is subordinated on the same terms to the Loan Proceeds Note.
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Accordingly, the right of the Issuer to payment under the Offering Proceeds Note is
pari
passu
to the right of the Issuer
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to payment under each of the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125%
Proceeds Note and the 8.625% Proceeds Note.
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Guarantees of Notes and Offering Proceeds Note
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As a condition to incurring specified types of indebtedness described under "Description of the
Notes—Certain Covenants—Limitation on Consolidated Debt" and "Description of the Notes—Certain Covenants—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries," restricted subsidiaries of Parent that incur those
types of indebtedness will be required to guarantee the notes and Level 3 LLC's obligations under the Offering Proceeds Note and, in certain circumstances, subordinate such indebtedness to such guarantees. In addition, if any restricted
subsidiary of Parent guarantees the Issuer's Floating Rate Senior Notes due 2015, 10% Senior Notes due 2018, 9.375% Senior Notes due 2019, 8.125% Senior Notes due 2019 or 8.625% Senior Notes due 2020, such restricted subsidiary will be required to
guarantee the notes and the senior secured term loans under the Credit Agreement. Any such guarantee of the notes will be subordinated to the guarantee of the senior secured term loans under the Credit Agreement.
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Subordination of Guarantees and Offering Proceeds Note
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The Offering Proceeds Note and guarantees of the notes (other than Parent's guarantee) and of the Offering
Proceeds Note may, at the option of Level 3, be expressly subordinated in any bankruptcy, liquidation or winding up proceeding of Level 3 LLC and each guarantor to the prior payment in full in cash of all obligations of
Level 3 LLC and such guarantor in respect of a credit facility or other indebtedness incurred by Parent or any of its restricted subsidiaries in accordance with the covenants of the indenture relating to the notes. As described above, in
accordance with these provisions, the Offering Proceeds Note is subordinated to the Loan Proceeds Note issued in respect of the Issuer's $2.614 billion senior secured term loans under the Credit Agreement. Any guarantee by Level 3 LLC
of the notes is subordinated to Level 3 LLC's guarantee of the senior secured term loans under the Credit Agreement. See "Description of the Notes."
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Ranking
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The notes are unsecured, unsubordinated obligations of the Issuer, ranking equal in right of payment with all
existing and future unsecured indebtedness of the Issuer that is not expressly subordinated in right of payment to the notes, and are senior in right of payment to all existing and future indebtedness of the Issuer expressly subordinated in right of
payment to the notes. The notes are effectively subordinated to all existing and future secured obligations of the Issuer, including the senior secured term loans under the Credit Agreement, to the extent of the value of the collateral securing such
obligations. The Issuer conducts substantially all
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of its operations through subsidiaries, and the notes are effectively subordinated to all liabilities (including trade payables)
of the Issuer's subsidiaries that do not guarantee the notes. The indenture relating to the notes permits Parent, the Issuer and their subsidiaries to incur substantial amounts of additional debt and other liabilities, some of which may be secured
and some of which may be incurred by non-guarantor subsidiaries. As of December 31, 2012, the Issuer (excluding its subsidiaries) had $6.929 billion of indebtedness outstanding (excluding intercompany balances, discounts and fair value
adjustments), of which $2.614 billion was secured and all of which was guaranteed by Level 3 LLC. As of December 31, 2012, the Issuer and its subsidiaries in the aggregate had, approximately $7.027 billion of indebtedness
outstanding (excluding intercompany balances and discounts and fair value adjustments), $2.712 billion of which constituted secured indebtedness and none of which constituted subordinated indebtedness (excluding intercompany
balances).
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Each guarantee of the notes is a general unsecured obligation of each guarantor, will be effectively subordinated
to any existing or future secured indebtedness of such guarantor to the extent of the value of the assets securing such indebtedness, is senior in right of payment to any existing or future indebtedness of such guarantor that is expressly
subordinated in right of payment to such guarantor's guarantee of the notes and will rank equal in right of payment with any existing or future unsubordinated indebtedness of such guarantor. The Offering Proceeds Note and guarantees (other than
Parent's guarantee) of the notes and of the Offering Proceeds Note may, at the option of Level 3, be expressly subordinated in any bankruptcy, liquidation or winding up proceeding of Level 3 LLC and each guarantor to the prior payment
in full in cash of all obligations of Level 3 LLC and such guarantor in respect of a credit facility or other indebtedness incurred by Parent or any of its restricted subsidiaries in accordance with the covenants of the indenture relating
to the notes. See "Description of the Notes."
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As described above, in accordance with these provisions, the Offering Proceeds Note is subordinated to the Loan
Proceeds Note issued in respect of the Issuer's $2.614 billion senior secured term loans under the Credit Agreement. The guarantee by Level 3 LLC of the notes is subordinated to Level 3 LLC's guarantee of the senior secured
term loans under the Credit Agreement. The guarantee by Level 3 LLC of the notes is
pari passu
to Level 3 LLC's guarantee of the Floating Rate Senior Notes due 2015, the 10% Senior
Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019 and the 8.625% Senior Notes due 2020. As of December 31, 2012, Parent (excluding its
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subsidiaries) had, on an as adjusted basis, approximately $1.581 billion of indebtedness outstanding, excluding intercompany
balances and discount and fair value adjustments, none of which constituted secured indebtedness or subordinated indebtedness. See "Description of the Notes."
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Optional Redemption
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The notes are subject to redemption at the option of the Issuer, in whole or in part, at any time or from time to
time prior to June 1, 2016 upon not less than 30 nor more than 60 days' prior notice, at a price equal to 100% of the principal amount of the notes redeemed, plus accrued and unpaid interest thereon (if any) to the redemption date and a
"make-whole premium." See "Description of the Notes—Optional Redemption." The Issuer may redeem some or all of the notes at any time on or after June 1, 2016, at the redemption prices as set forth under the caption "Description of the
Notes—Optional Redemption."
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In addition, at any time or from time to time on or prior to June 1, 2015, the Issuer may redeem up to 35%
of the original aggregate principal amount of the notes (including any additional notes) at a redemption price equal to 107.00% of the principal amount of the notes so redeemed, plus, in each case, accrued and unpaid interest thereon (if any) to the
redemption date, with the net cash proceeds contributed to the Issuer of one or more private placements to persons other than affiliates of Parent or underwritten public offerings of common stock of Parent resulting, in each case, in gross proceeds
of at least $100 million in the aggregate; provided, however, that at least 65% of the original aggregate principal amount of the notes (including any additional notes) would remain outstanding immediately after giving effect to such redemption.
Any such redemption shall be made within 90 days of such private placement or public offering upon not less than 30 nor more than 60 days' prior notice. See "Description of the Notes—Optional Redemption."
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Change of Control Triggering Event
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Within 30 days of the occurrence of a Change of Control Triggering Event (as defined), the Issuer will be
required to make an offer to purchase all outstanding notes at a price in cash equal to 101% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the purchase date. In the event that Holders of not less than 90% of the
principal amount of the outstanding notes accept such an offer to purchase, the Issuer may redeem the remaining outstanding notes at a price in cash equal to 101% of the principal amount of the notes, plus accrued and unpaid interest, if any, to, but
not including, the redemption date. See "Description of the Notes—Certain Covenants—Change of Control Triggering Event."
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Certain Covenants
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The indenture relating to the notes contains certain covenants, including, among others, covenants with respect
to the
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following matters: (i) limitation on consolidated debt; (ii) limitation on debt of the Issuer and Issuer restricted
subsidiaries; (iii) limitation on restricted payments; (iv) limitation on dividend and other payment restrictions affecting restricted subsidiaries; (v) limitation on liens; (vi) limitation on sale and leaseback transactions;
(vii) limitation on asset dispositions; (viii) limitation on issuance and sales of capital stock of restricted subsidiaries; (ix) transactions with affiliates; (x) reports; (xi) limitation on designations of unrestricted
subsidiaries; and (xii) in the case of Parent, the Issuer, future guarantors of the notes and guarantors of the Offering Proceeds Note, limitations on mergers, consolidations and sales of all or substantially all of the assets of such entities.
All of the covenants are subject to a number of important baskets, qualifications and exceptions. See "Description of the Notes."
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Covenant Suspension
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During any period of time that (i) the ratings assigned to the notes by both of Moody's Investors Service,
Inc. and Standard & Poor's Ratings Service are equal to or higher than Baa3 (or the equivalent) and BBB- (or the equivalent), respectively, and (ii) no default or event of default has occurred and is continuing under the indenture
relating to the notes, the Issuer, Parent and their respective restricted subsidiaries will not be subject to most of the covenants discussed above. In the event that the Issuer, Parent and their respective restricted subsidiaries are not subject to
such covenants for any period of time as a result of the preceding sentence and, on any subsequent date, one or both of such rating agencies withdraws its ratings or downgrades the ratings assigned to the notes below the level set forth above or a
default or event of default occurs and is continuing under the indenture relating to the notes, then the Issuer, Parent and their respective restricted subsidiaries will thereafter again be subject to such covenants.
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Absence of a Public Market for the Notes
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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 new notes. The Issuer does not intend to apply for listing of any of the new notes on any securities exchange or for quotation through any annotated quotation system. See
"Risk Factors—Risks Relating to the Notes—There is no public market for the notes, which could limit their market price or your ability to sell them."
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Risk Factors
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Before tendering original notes, holders should carefully consider all of the information set forth and
incorporated by reference in this prospectus and, in particular, should evaluate the specific risk factors set forth under "Risk Factors," beginning on page 12.
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RATIO OF EARNINGS TO FIXED CHARGES
Level 3's ratio of earnings to fixed charges for each of the periods indicated was as follows:
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Fiscal Year Ended December 31,
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2012
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2011
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2010
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2009
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2008
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—
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—
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—
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—
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—
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For
this ratio, earnings consist of earnings (loss) before income taxes, noncontrolling interests and discontinued operations, plus fixed charges (excluding capitalized interest but
including amortization of 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. Level 3 had deficiencies of earnings to fixed charges of approximately $374 million for the fiscal year ended December 31, 2012,
approximately $786 million for the fiscal year ended December 31, 2011, approximately $712 million for the fiscal year ended December 31, 2010, approximately
$623 million for the fiscal year ended December 31, 2009 and approximately $264 million for the fiscal year ended December 31, 2008.
RISK FACTORS
Before tendering original notes, prospective participants in the exchange offer should consider carefully the
following risks. The risks relating to the notes can be found beginning on page 31. The new notes, like the original notes, entail the following risks:
Risks Related to Level 3's Business Operations
Although Level 3 expects that the acquisition of Global Crossing will result in benefits to it, Level 3 may not realize those benefits because of integration
difficulties and other challenges.
The success of Level 3's acquisition of Global Crossing depends in large part on the success of management in integrating the
operations, strategies, technologies and personnel of the two companies. Level 3 may fail to realize some or all of the anticipated benefits of Level 3's
acquisition of Global Crossing Limited (the "Global Crossing acquisition") if the integration process takes longer or is more costly than expected. Level 3's failure to meet the challenges
involved in successfully integrating the operations of Global Crossing or to otherwise realize any of the anticipated benefits of the Global Crossing acquisition could impair Level 3's
operations. In addition, the overall integration of Global Crossing is a time-consuming and expensive process that, without continued proper planning and effective and timely
implementation, could significantly disrupt Level 3's business.
Potential
difficulties the combined business may encounter in the integration process include the following:
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•
-
the integration of management teams, strategies, technologies, operations, accounting and data processing systems,
management controls, products and services;
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•
-
the disruption of ongoing businesses and distraction of the management team from ongoing business concerns;
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•
-
the retention of the existing customers and/or vendors of both companies;
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•
-
the creation of uniform standards, controls, procedures, policies and information systems;
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•
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the reduction of the costs associated with each company's operations;
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•
-
the consolidation and rationalization of information technology platforms and administrative infrastructures;
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•
-
the integration of corporate cultures and maintenance of employee morale;
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•
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the retention of key employees; and
-
•
-
potential unknown liabilities associated with the Global Crossing acquisition.
The
anticipated benefits and synergies include the combination of offices in various locations and the elimination of numerous technology systems, duplicative personnel and duplicative
market and other data sources. However, these anticipated benefits and synergies assume a successful integration and are based on projections, which are inherently uncertain, and other assumptions.
Even if integration is successful, anticipated benefits and synergies may not be achieved.
Continued uncertainty in the global financial markets and the global economy may negatively affect Level 3's financial results.
Continued uncertainty in the global financial markets and economy may negatively affect Level 3's financial results. A prolonged
period of economic decline could have a material adverse effect on Level 3's results of operations and financial condition and exacerbate some of the other risk factors described below.
Level 3's operating results and financial condition could be negatively affected if as a result of economic conditions:
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•
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customers cancel, defer or forgo purchases of Level 3's services;
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•
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customers are unable to make timely payments to Level 3;
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•
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the demand for, and prices of, Level 3's services are reduced as a result of actions by its competitors or
otherwise;
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•
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key suppliers upon which Level 3 relies are unwilling or unable to provide Level 3 with the materials it
needs for its network on a timely basis or on terms that it finds acceptable; or
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•
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Level 3's financial counterparties, insurance providers or other contractual counterparties are unable to, or do
not meet, their contractual commitments to it.
Level 3 needs to increase revenue from the services that it offers to realize its targets for financial and operating performance.
Level 3 must increase revenue from Level 3's data, voice, content and infrastructure services at acceptable margins in
order to realize its targets for financial and operating performance. If:
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•
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Level 3 does not avoid excessive customer churn or improve its current relationships with existing key customers;
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•
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Level 3 is not able to expand the available capacity on its network to meet its customers' demands in a timely
manner;
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•
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Level 3 does not develop new large volume and enterprise customers; or
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•
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Level 3's customers determine to obtain these services from either their own network or from one of its
competitors;
Level 3
may not be able to increase or maintain its revenue at acceptable margins, which would adversely affect Level 3's ability to become and/or remain profitable.
Level 3's business requires the continued development of effective business support systems to implement customer orders and to provide and bill for services.
Level 3's business depends on its ability to continue to develop effective business support systems. In certain cases, the
development of these business support systems is required to realize anticipated
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benefits
from any acquisitions. This is a complicated undertaking requiring significant resources and expertise and support from third-party vendors. Following the development of the business support
systems, the data migration regarding network and circuit inventory must be completed for the full benefit of the systems to be realized. Business support systems are needed
for:
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•
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quoting, accepting and inputting customer orders for services;
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•
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provisioning, installing and delivering services;
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•
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providing customers with direct access to Level 3's information systems so that they can manage the services that
they purchase from Level 3, generally through web-based customer portals; and
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•
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billing for services.
Because
Level 3's business provides for continued rapid growth in the number of customers that it serves, the volume of services offered as well as the integration of any acquired
companies' business support systems, there is a need to continue to develop Level 3's business support systems on a schedule sufficient to meet proposed milestone dates. The failure to continue
to develop effective unified business support systems or complete the data migration regarding network and circuit inventory into these systems could materially adversely affect Level 3's
ability to implement its business plans and realize anticipated benefits from its acquisitions.
Level 3 may lose customers if it experiences system failures that significantly disrupt the availability and quality of the services that Level 3 provides.
System failures may also cause interruptions to service delivery and the completion of other corporate functions.
Level 3's operations depend on its ability to limit and mitigate interruptions or degradation in service for customers.
Interruptions in service or performance problems, for whatever reason, could undermine confidence in its services and cause Level 3 to lose customers or make it more difficult to attract new
ones. In addition, because many of Level 3's services are critical to the businesses of many of its customers, any significant interruption or degradation in service could result in lost
profits or other losses to customers. Although Level 3 generally limits its liability for service failures in Level 3's service agreements to limited service credits (generally in the
form of free service for a short period of time) and generally exclude any liability for "consequential" damages such as lost profits, a court might not enforce these limitations on liability in the
matter contemplated, which could expose Level 3 to financial loss. In addition, Level 3 often provides its customers with committed service levels. If it is unable to meet these service
level commitments, Level 3 may be obligated to provide service credits or other compensation to its customers. Because Level 3 offers emergency notification services referred to as "911"
services, any significant interruption or degradation in those services could create legal and financial exposure.
The
failure of any equipment or facility on Level 3's network, including its network operations control centers and network data storage locations, could result in the
interruption of customer service and other corporate functions until necessary repairs are effected or replacement equipment is installed. In addition, Level 3's business continuity plans may
not be adequate to address a particular failure that Level 3 experiences. Delays, errors, network equipment or network facility failures, including with respect to Level 3's network
operations control centers and network data storage locations, could also result from natural disasters (including natural disasters that may increase in frequency as a result of the effects of
climate change), disease, accidents, terrorist acts, power losses, security breaches,
vandalism or other illegal acts, computer viruses, or other causes. Level 3's business could be significantly hurt from these delays, errors, failures or faults including as a result
of:
-
•
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service interruptions;
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•
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exposure to customer liability;
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•
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the inability to install new service;
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•
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the unavailability of employees necessary to provide services;
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•
-
the delay in the completion of other corporate functions such as issuing bills and the preparation of financial
statements; or
-
•
-
the need for expensive modifications to Level 3's systems and infrastructure.
If Level 3's security measures are breached, or if its services are subject to attacks that degrade or deny the ability of users to access its systems, products and
services, Level 3 may experience significant legal and financial exposure, its products and services may be perceived as not being secure, users and customers may curtail or stop using
Level 3's products and services, and its business may be disrupted.
Network and information systems and other technologies are critical to Level 3's business activities. Network and information
systems-related events such as computer hackings, cyber-attacks, computer viruses, worms or other destructive or disruptive software, process breakdowns, denial of service attacks or other malicious
activities, or any combination of the these items, could result in a degradation or disruption of Level 3's services, damage to its properties, equipment and data, or unauthorized disclosure of
confidential information. Level 3 experiences cyber-attacks against its network and information systems of varying degrees on a regular basis, and as a result, unauthorized parties could obtain
access to its data or its customers' data. Level 3's security measures may also be breached due to employee error, malfeasance, or otherwise. Additionally, outside parties may attempt to
fraudulently induce Level 3's employees or customers to disclose sensitive information in order to gain access to its data or its customers' data, including information subject to data
protection laws and regulations such as the national laws implementing the European Union Directive on Data Protection and various U.S. federal and state laws governing the protection of health or
other personally identifiable information. The risk of these systems-related events and security breaches occurring has intensified, in part because Level 3 maintains certain information
necessary to conduct its businesses in digital form stored on servers connected to the Internet.
While
Level 3 develops and maintains systems and processes designed to prevent systems-related events and security breaches from occurring, the development and maintenance of
these systems and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Despite its efforts,
there can be no assurance that unauthorized access and security breaches will not occur in the future. In addition, because the techniques used to obtain unauthorized access, disable or degrade
service, or sabotage systems change frequently and often are not recognized until launched against a target, Level 3 may be unable to anticipate these techniques or to implement adequate
preventative measures.
Any
security breach or unauthorized access could result in significant legal and financial exposure, including in respect of customer credits, lost revenues due to business interruption,
increased expenditures on security measures, monetary damages, regulatory enforcement actions, fines and/or criminal prosecution. In addition, damage to Level 3's reputation and the market
perception of the effectiveness of Level 3's security measures could cause it to lose customers. Moreover, the amount and scope of insurance Level 3 maintains against losses resulting
from unauthorized access or security breaches may not be sufficient to cover its losses or otherwise adequately compensate it for any disruptions to its businesses that may result.
Failure to develop and introduce new services could affect Level 3's ability to compete in the industry.
Level 3 continuously develops, tests and introduces new services that are delivered over Level 3's communications
network. These new services are intended to allow Level 3 to address new segments of
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the
communications marketplace, address the changing communications needs of its existing customers and compete for additional customers.
In
certain instances, the introduction of new services requires the successful development of new technology. To the extent that upgrades of existing technology are required for the
introduction of new services, the success of these upgrades may be dependent on reaching mutually acceptable terms with vendors and on vendors meeting their obligations in a timely manner.
In
addition, new service offerings may not be widely accepted by Level 3's customers. If Level 3's new service offerings are not widely accepted by its customers,
Level 3 may terminate those service offerings and Level 3 may be required to impair any assets or technology used to develop or offer those services.
If
Level 3 is not able to successfully complete the development and introduction of new services in a timely manner, Level 3's business could be materially adversely
affected.
Level 3's future results will suffer if Level 3 does not effectively manage expansions to its operations.
Level 3 may continue to expand its operations through new product and service offerings and through additional strategic
investments, acquisitions or joint ventures, some of which may involve complex technical and operational challenges. Level 3's future success depends, in part, upon its ability to manage its
expansion opportunities, which pose numerous risks and uncertainties, including the need to integrate new operations into Level 3's existing business in an efficient and timely manner, to
combine accounting and data processing systems and management controls and to integrate relationships with customers, vendors and business partners. In addition,
future acquisitions or joint ventures may involve the issuance of additional shares of Level 3's common stock, which may dilute Level 3's stockholders' ownership.
Any
future acquisitions of businesses or facilities could entail a number of risks, including:
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•
-
problems with the effective integration of operations;
-
•
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inability to maintain key pre-acquisition business relationships;
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•
-
increased operating costs;
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•
-
exposure to unanticipated liabilities; and
-
•
-
difficulties in realizing projected efficiencies, synergies and cost savings.
Level 3
continually evaluates potential investments and strategic opportunities to expand, enhance connectivity and add traffic to its network. In the future, Level 3 may
seek additional investments, strategic alliances or similar arrangements, which may expose it to risks such as:
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•
-
the difficulty of identifying appropriate investments, strategic allies or opportunities on terms acceptable to
Level 3;
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•
-
the possibility that senior management may be required to spend considerable time negotiating agreements and monitoring
these arrangements;
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•
-
potential regulatory issues applicable to the telecommunications industry;
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•
-
the loss or reduction in value of the capital investment;
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•
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Level 3's inability to capitalize on the opportunities presented by these arrangements; and
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•
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the possibility of insolvency of a strategic ally.
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Level 3
cannot assure you that its future expansion or acquisition opportunities will be successful, or that Level 3 will realize expected operating efficiencies, cost
savings, revenue enhancements, synergies or other benefits.
Level 3's future growth depends upon the continued development and expansion of the Internet as a communications medium and marketplace for the distribution and
consumption of data and video by businesses, consumers and governments.
Achieving the anticipated benefits of Level 3's business operations will depend in part upon the continued development and
expansion of the Internet as a communications medium and marketplace for the distribution and consumption of data and video by businesses,
consumers and governments. The use of the Internet for these purposes may not grow and expand at the rate that Level 3 anticipates or may be restricted by such things
as:
-
•
-
actions by ISPs or the owners of access networks that restrict Level 3 from delivering its customers' traffic to
the users of those networks;
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•
-
future regulation;
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•
-
a lack of anticipated technology innovation and adoption; or
-
•
-
a lack of continued broadband penetration both in the United States and elsewhere.
There is no guarantee that Level 3 will be successful in increasing sales of Level 3's content distribution service offering.
As Level 3 believes that one of the largest sources of future incremental demand for its services will be derived from customers
that are seeking to distribute their video, feature rich content or applications over the Internet, Level 3 offers a variety of content distribution network, or CDN, and related services. There
are many difficulties that Level 3 may encounter in selling these services, including customer support system development issues, intellectual property matters, technological issues, increasing
capacity on Level 3's network to meet its customers' demands in a timely manner, developmental constraints and other problems that Level 3 may not anticipate. There is no guarantee that
Level 3 will be successful in generating significant revenues from Level 3's CDN service offering.
Intellectual property and proprietary rights of others could prevent Level 3 from using necessary technology to provide its services or subject Level 3 to
expensive intellectual property litigation.
If technology that is necessary for Level 3 to provide its services was determined by a court to infringe a patent held by
another entity that is unwilling to grant Level 3 a license on terms acceptable to it, Level 3 could be precluded by a court order from using that technology and Level 3 would
likely be required to pay a significant monetary damages award to the patent holder. The successful enforcement of these patents, or Level 3's inability to negotiate a license for these patents
on acceptable terms, could force Level 3 to cease using the relevant technology and offering services incorporating the technology. In the event that a claim of infringement was brought against
Level 3 based on the use of its technology or against its customers based on their use of Level 3's services for which Level 3 is obligated to indemnify, Level 3 could be
subject to litigation to determine whether such use or sale is, in fact, infringing. This litigation could be expensive and distracting, regardless of the outcome of the suit.
While
Level 3's own patent portfolio may deter other operating companies from bringing such actions, patent infringement claims are increasingly being asserted by patent holding
companies, which do not use technology and whose sole business is to enforce patents against operators, such as Level 3, for monetary gain. Because such patent holding companies, do not provide
services or use technology, the assertion of Level 3's own patents by way of counter- claim would be largely ineffective. Level 3 has
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already
been the subject of time-consuming and expensive patent litigation brought by certain patent holding companies and Level 3 can reasonably expect that it will face further
claims in the future.
Level 3's consolidated revenue is concentrated in a limited number of customers.
A significant portion of Level 3's consolidated revenue is concentrated among a limited number of customers. For the year ended
December 31, 2012, its top ten customers represented approximately 17% of Level 3's total consolidated revenue. If Level 3 lost one or more of its major customers, or, if one or
more of them significantly decreased orders for its services, Level 3's business would be materially and adversely affected.
Level 3 has generated substantial net losses, and may continue to do so.
For the fiscal years ended December 31, 2012, 2011, and 2010, Level 3 incurred net losses of approximately
$422 million, $756 million and $622 million, respectively. Although Level 3 anticipates that its operating results will improve over time, there can be no assurance that
currently anticipated operating improvements will be realized on schedule or that it will be able to achieve or sustain profitability in the future. Continued net losses could limit Level 3's
ability to fund expansions of its network, investments in its products and services, interest and principal payments on its debt, or other business needs.
Future expansion or adaptation of Level 3's network will require substantial resources, which may not be available at the time.
Level 3 will need to continue to expand and adapt its network in order to remain competitive, which may require significant
additional funding. Additional expansion and adaptations of Level 3's communications network's electronic and software components will be necessary in order to respond
to:
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growing number of customers;
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the development and launching of new services;
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increased demands by customers to transmit larger amounts of data;
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changes in customers' service requirements;
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technological advances by competitors; and
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governmental regulations.
Future
expansion or adaptation of Level 3's network will require substantial additional financial, operational and managerial resources, which may not be available at the time.
Level 3 may be unable to expand or adapt its network to respond to these developments on a timely basis and at a commercially reasonable cost.
The market prices for many of its services have decreased in the past and may decrease in the future, resulting in lower revenue and margins than Level 3 anticipates.
Over the past few years, the market prices for many of Level 3's services have decreased. These decreases resulted from downward
market pressure and other factors including:
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technological changes and network expansions which have resulted in increased transmission capacity available for sale by
Level 3 and by its competitors;
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some of Level 3's customer agreements contain volume based pricing or other contractually agreed-upon
decreases in prices during the term of the respective agreements; and
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some of Level 3's competitors have been willing to accept smaller operating margins in the short term in an attempt
to increase long-term revenues.
In
order to retain customers and revenue, Level 3 often must reduce prices in response to market conditions and trends. As its prices for some of its services decrease, its
operating results may suffer unless Level 3 is able to either reduce its operating expenses or increase traffic volume from which Level 3 can derive additional revenue.
Level 3
also expects revenue from its managed modem services to continue to decline primarily as a result of end users migrating to broadband services.
The need to obtain additional capacity for its network from other providers increases Level 3's costs. In addition, the need to interconnect Level 3's network
to networks that are controlled by others could increase Level 3's costs.
Level 3 uses network resources owned by other companies for portions of Level 3's network. Level 3 obtains the
right to use such network portions, including both telecommunications capacity and rights to use dark fiber, through operating leases and IRU agreements. In several of those agreements, the counter
party is responsible for network maintenance and repair. If a counter party to a lease or IRU suffers financial distress or bankruptcy, Level 3 may not be able to enforce its rights to use
these network assets or, even if Level 3 could continue to use these network assets, Level 3 could incur material expenses related to maintenance and repair. Level 3 could also
incur material expenses if it was required to locate alternative network assets. Level 3 may not be successful in obtaining reasonable alternative network assets if needed. Failure to obtain
usage of alternative network assets, if necessary, could have a material adverse effect on Level 3's ability to carry on business operations. In addition, some of Level 3's agreements
with other providers require the payment of amounts for services whether or not those services are used.
In
the normal course of business, Level 3 needs to enter into interconnection agreements with many domestic and foreign local telephone companies as well as the owners of networks
that Level 3's customers desire to access in order to deliver their services. Level 3 is not always able to secure these interconnection agreements on favorable terms. For example, in
November 2010, in connection with Level 3's request to augment interconnection capacity with Comcast, Comcast demanded that Level 3 enter into an agreement and pay Comcast for
interconnection capacity Comcast required to deliver to Comcast's subscribers the content that such subscribers requested (and which such subscribers purchase the right to receive from Comcast).
Level 3 agreed to Comcast's demand under protest, and initiated steps to bring the issue to the attention of federal policy makers. As part of its acquisition of NBC Universal, Comcast and its
affiliates were subject to a Consent Decree by the Department of Justice, portions of which Level 3 believes their conduct has violated. Level 3's dispute with Comcast has not yet been
resolved. Other retail Internet service providers have and may continue to make similar demands for payment relating to interconnection capacity necessary to deliver the content requested by their
subscribers, and Level 3 intends to challenge their right to demand such tolls. Such tolls, if imposed, would affect Level 3's underlying costs. Level 3 cannot predict the outcome
of these IP interconnection disputes.
Costs
of obtaining service from other communications carriers comprise a significant proportion of the operating expenses of long distance carriers. Similarly, a large proportion of the
costs of providing international service consists of payments to other carriers. Changes in regulation, particularly the regulation of local and international telecommunication carriers and local
access network owners, could indirectly, but significantly, affect Level 3's competitive position. These changes could increase or decrease the costs of providing Level 3's services.
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Level 3 may be unable to hire and retain sufficient qualified personnel; the loss of any of Level 3's key executive officers could adversely affect its
business.
Level 3 believes that its future success will depend in large part on Level 3's ability to attract and retain highly
skilled, knowledgeable, sophisticated and qualified managerial, professional and technical personnel. Level 3 has experienced significant competition in attracting and retaining personnel who
possess the skills that Level 3 is seeking. As a result of this significant competition, Level 3 may experience a shortage of qualified personnel.
Critical
decisions regarding Level 3's businesses are managed by a small number of key executive officers. The loss of any of these key executive officers could have a material
adverse effect on Level 3's business.
Level 3's operations are subject to regulation in each of the countries in which Level 3 operates and requires Level 3 to obtain and maintain a number
of governmental licenses and permits. If Level 3 fails to comply with those regulatory requirements or to obtain and maintain those licenses and permits, including payment of related fees, if
any, Level 3 may not be able to conduct its business in that jurisdiction. Moreover, those regulatory requirements could change in a manner that significantly increases Level 3's costs
or otherwise adversely affect Level 3's operations.
In the ordinary course of constructing its networks and providing its services, Level 3 is required to obtain and maintain a
variety of telecommunications and other licenses
and authorizations in the countries in which Level 3 operates, as well as rights-of-way from utilities, railroads, incumbent carriers and other persons. Level 3
also must comply with a variety of regulatory obligations. Due to the political and economic risks associated with the countries in which Level 3 operates, there can be no assurance that it
will be able to maintain its licenses or that they will be renewed upon their expiration. Level 3's failure to obtain or maintain necessary licenses, authorizations and
rights-of-way, or to comply with the obligations imposed upon license holders including the payment of fees, in one or more countries, may result in sanctions or additional
costs, including the revocation of authority to provide services in one or more countries.
In
addition, Level 3's subsidiaries are defendants in several lawsuits that, among other things, challenge the subsidiaries' use of rights-of-way. The
plaintiffs have sought to have these lawsuits certified as class actions. It is possible that additional suits challenging use of Level 3's rights-of-way will be filed
and that those plaintiffs also may seek class certification. The outcome of such litigation may increase Level 3's costs and adversely affect its operating results.
Level 3's
operations around the world are subject to regulation at the regional level (for example, the European Union), the national level (for example, the FCC) and, in many
cases, at the state, provincial, and local levels. Level 3 also operates in some areas of the world without licenses, but only as permitted through relationships with locally licensed partners.
The regulation of telecommunications networks and services around the world varies widely. In some countries, the range of services that Level 3 is legally permitted to provide may be limited,
or may change. In other countries, existing telecommunications legislation is in the process of development, is unclear or inconsistent, or is applied in an unequal or discriminatory fashion, or
inadequate judicial, regulatory or other forums are available to address these inadequacies or disputes. Changes to existing regulations or rules, or the failure to regulate going forward in areas
which have historically been regulated on matters such as network neutrality, licensing fees, environmental, health and safety, privacy, intercarrier compensation, interconnection and other areas, in
general or particular to Level 3's industry, may increase costs, restrict operations or decrease revenues. Level 3's inability or failure to comply with the telecommunications and other
laws and regulations of one or more of the countries in which Level 3 operates could result in the temporary or permanent suspension of operations in one or more countries. Level 3 also
may be prohibited from entering certain countries at all or from providing all of
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Level 3's
services in one or more countries. In addition, many of the countries in which Level 3 operates are conducting regulatory or other proceedings that will affect the
implementation of their telecommunications legislation. Level 3 cannot be certain of the outcome of these proceedings. These proceedings may affect the manner in which Level 3 is
permitted to provide its services in these countries as well as the level of fees and taxes payable to the government.
Termination of relationships with key suppliers could cause delay and additional costs.
Level 3's business is dependent on third-party suppliers for fiber, computers, software, optronics, transmission electronics and
related components as well as providers of network colocation facilities and right of way rights that are integrated into Level 3's network, some of which are critical to the operation of
Level 3's business. If any of these critical relationships is terminated, a supplier either exits or curtails its business as a result of economic conditions, a supplier fails to provide
critical rights of use, services or equipment, or the supplier is forced to stop providing services due to legal constraints, such as patent infringement, and Level 3 is unable to reach
suitable alternative arrangements quickly, it may experience significant additional costs or it may not be able to provide certain services to customers.
ILECs may not provide Level 3 local access services at prices that allow Level 3 to effectively compete.
Level 3 acquires a significant portion of its local access services, the connection between its owned network and the customer
premises, from incumbent local exchange carriers or ILECs. The ILECs compete directly with Level 3's business and may have a tendency to favor themselves and their affiliates to
Level 3's detriment. Network access represents a very large portion of Level 3's total costs and if Level 3 faces less favorable pricing and provisioning timeframes, it may be at
a competitive disadvantage to the ILECs.
In some instances it is expensive and difficult to switch new customers to Level 3's network, and lack of cooperation of incumbent carriers can slow the new customer
connection process.
It is expensive, difficult and time-consuming for new customers to switch to Level 3's network if Level 3
requires cooperation from the incumbent carrier in instances where there is no direct connection between the customer and Level 3's network. Many of Level 3's principal competitors, the
domestic and international incumbent carriers, are already established providers of local telephone services to all or virtually all telephone subscribers within their respective service areas. Their
physical connections from their premises to those of their customers are expensive and difficult to duplicate. To complete the new customer provisioning process for a customer's location that is not
located on Level 3's network, Level 3 relies on the incumbent carrier to process certain information. The incumbent carriers have a financial interest in retaining their customers, which
could reduce their willingness to cooperate with Level 3's new customer provisioning requests, thereby adversely affecting Level 3's ability to compete and increase revenue. Further
consolidation of incumbent carriers with other telecommunications service providers may make these problems more acute.
Level 3 may be liable for the information that content owners or distributors distribute over Level 3's network.
The law relating to the liability of private network operators for information carried on or disseminated through their networks is
still unsettled. While Level 3 disclaims any liability for third party content in its services agreements, Level 3 may become subject to legal claims relating to the content disseminated
on its network, even though such content is owned or distributed by its customers or a customer of its customers. For example, lawsuits may be brought against Level 3 claiming that material
distributed using Level 3's network was inaccurate, offensive, or violated the law or the rights of others. Claims could also involve matters such as defamation, invasion of privacy and
copyright infringement. In addition, the law remains unclear over whether content may be distributed from one
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jurisdiction,
where the content is legal, into another jurisdiction, where it is not. Companies operating private networks have been sued in the past, sometimes successfully, based on the nature of
material distributed, even if the content is not owned by the network operator and the network operator has no knowledge of the content or its legality. It is not practical for Level 3 to
monitor all of the content that is distributed using its network. Level 3 may need to take costly measures to reduce its exposure to these risks or to defend Level 3 against such claims.
Level 3's financial condition and growth depends upon the successful integration of any business Level 3 may acquire in the future. Level 3 may not be
able to efficiently and effectively integrate such future acquired operations, and thus may not fully realize the anticipated benefits from them.
Achieving the anticipated benefits of any acquisitions depends in part upon whether Level 3 can integrate its businesses in an
efficient and effective manner. Level 3 may acquire businesses in accordance with Level 3's business strategy. The integration of any acquired businesses involves a number of risks,
including, but not limited to:
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demands on management related to any significant increase in size after the acquisition;
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the disruption of ongoing business and the diversion of management's attention from the management of daily operations to
management of integration activities;
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failure to fully achieve expected synergies and costs savings;
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unanticipated impediments in the integration of departments, systems, including accounting systems, technologies, books
and records, procedures and policies, as well as in maintaining uniform standards and controls, including internal control over financial reporting;
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loss of customers or the failure of customers to order incremental services that Level 3 expects them to order;
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failure to provision services that are ordered by customers during the integration period;
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higher integration costs than anticipated; and
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difficulties in the assimilation and retention of highly qualified, experienced employees, many of whom may be
geographically dispersed.
Successful
integration of acquired businesses or operations depends on Level 3's ability to manage these operations, realize opportunities for revenue growth presented by
strengthened service offerings and expanded geographic market coverage, obtain better terms from Level 3's vendors due to increased buying power, and eliminate redundant and excess costs to
fully realize the expected synergies. Because of difficulties in combining geographically distant operations and systems which may not be fully compatible, Level 3 may not be able to achieve
these objectives.
Level 3
cannot be certain that it will realize its anticipated benefits from its acquisitions, or that Level 3 will be able to efficiently and effectively integrate
acquired operations as planned.
Changes in regulations affecting commercial power providers may increase Level 3's costs.
In the normal course of business, Level 3 needs to enter into agreements with many providers of commercial power for its office,
network, Gateway facilities, and colocation and data center facilities. Costs of obtaining commercial power comprise a significant component of Level 3's operating expenses. Changes in
regulations that affect commercial power providers, particularly regulations related to the control of greenhouse gas emissions or other climate change related matters, could affect the costs of
commercial power, which may increase the costs of providing Level 3's services.
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Potential regulation of Internet service providers in the United States could adversely affect Level 3's operations.
In the United States, the FCC has, to date, treated Internet service providers as enhanced service providers. In addition, Congress
has, to date, not sought to heavily regulate the provision of IP-based services. Both Congress and the FCC are considering proposals that involve greater regulation of IP-based
service providers. Depending on the content and scope of any regulations, the imposition of such regulations could have a material adverse effect on Level 3's business and the profitability of
Level 3's services.
The communications industry is highly competitive with participants that have greater resources and a greater number of existing customers.
The communications industry is highly competitive. Many of Level 3's existing and potential competitors have financial,
personnel, marketing and other resources significantly greater than Level 3's. Many of these competitors have the added competitive advantage of a larger
existing customer base. In addition, significant new or increased competition could arise as a result of:
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the consolidation in the industry;
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allowing foreign carriers to more extensively compete in the U.S. market;
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further technological advances; and
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further deregulation and other regulatory initiatives.
If
Level 3 is unable to compete successfully, its business could be significantly affected.
Rapid technological changes can lead to further competition.
The communications industry is subject to rapid and significant changes in technology. In addition, the introduction of new services or
technologies, as well as the further development of existing services and technologies, may reduce the cost or increase the supply of certain services similar to those that Level 3 provides. As
a result, Level 3's most significant competitors in the future may be new entrants to the communications industry. These new entrants may not be burdened by an installed base of outdated
equipment or obsolete technology. Level 3's future success depends, in part, on its ability to anticipate and adapt in a timely manner to technological changes.
Level 3's international operations and investments expose it to risks that could materially adversely affect the business.
Level 3 has operations and investments outside of the United States, as well as rights to undersea cable capacity extending to
other countries, that expose Level 3 to risks inherent in international operations. These include:
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general economic, social and political conditions;
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the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems;
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tax rates in some foreign countries may exceed those in the U.S.;
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foreign currency exchange rates may fluctuate, which could adversely affect Level 3's results of operations and the
value of Level 3's international assets and investments;
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foreign earnings may be subject to withholding requirements or the imposition of tariffs, exchange controls or other
restrictions;
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difficulties and costs of compliance with foreign laws and regulations that impose restrictions on Level 3's
investments and operations, with penalties for noncompliance, including loss of licenses and monetary fines;
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difficulties in obtaining licenses or interconnection arrangements on acceptable terms, if at all; and
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changes in laws and regulations relating to foreign trade and investment.
Level 3 is exposed to significant currency exchange rate risks and currency transfer restrictions and Level 3's results may suffer due to currency translations
and remeasurements.
Certain of Level 3's current and prospective customers derive their revenue in currencies other than U.S. Dollars but are
invoiced by Level 3 in U.S. Dollars. The obligations of customers with substantial revenue in foreign currencies may be subject to unpredictable and indeterminate increases in the event that
such currencies depreciate in value relative to the U.S. Dollar. Furthermore, these customers may become subject to exchange control regulations restricting the conversion of their revenue currencies
into U.S. Dollars. In either event, the affected customers may not be able to pay Level 3 in U.S. Dollars. Similarly, declines in the value of foreign currencies (such as the devaluation of the
Venezuelan bolivar discussed below) relative to the U.S. Dollar could adversely affect Level 3's ability to market its services to customers whose revenue is denominated in those currencies. In
addition, where Level 3 issues invoices for its services in currencies other than U.S. Dollars, Level 3's net loss may suffer due to currency translations in the event that such
currencies depreciate relative to the U.S. Dollar and Level 3 cannot or does not elect to enter into currency hedging arrangements in respect of those payment obligations.
Level 3
conducts a significant portion of its business using the British Pound Sterling, the Euro and the Brazilian Real. Appreciation of the U.S. Dollar adversely affects
Level 3's consolidated revenue. Since Level 3 tends to incur costs in the same currency in which those operations realize revenue, the effect on operating income and operating cash flow
is largely mitigated. However, if the U.S. Dollar appreciates significantly, future revenues, operating income and operating cash flows could be materially affected. In addition, the appreciation of
the U.S. Dollar relative to foreign currencies reduces the U.S. Dollar value of cash balances held in those currencies.
Certain
Latin American economies have experienced shortages in foreign currency reserves and have adopted restrictions on the use of certain mechanisms to expatriate local earnings and
convert local currencies into U.S. Dollars. Any of these shortages or restrictions may limit or impede Level 3's ability
to transfer or to convert those currencies into U.S. Dollars and to expatriate those funds. In addition, currency devaluations in one country may have adverse effects in another country.
In
Venezuela, the official bolivares-U.S. Dollar exchange rate established by the Venezuelan Central Bank ("BCV") and the Venezuelan Ministry of Finance has historically
attributed to the bolivar a value significantly greater than the value that prevailed on the former unregulated parallel market. The official rate is the rate used by the Comisión de
Administración de Divisas ("CADIVI"), an agency of the Venezuelan government, to exchange bolivares pursuant to an official process that requires application and government approval.
Effective January 12, 2010, the Venezuelan government devalued the Venezuelan bolivar by increasing the official rate from 2.15 Venezuelan bolivares to the U.S. Dollar to 4.30 for goods and
services deemed "non-essential" and 2.60 for goods and services deemed "essential". Effective January 1, 2011, the Venezuelan government further increased the official rate for
goods deemed "essential" to 4.30 Venezuelan bolivares to the U.S. Dollar. Effective February 13, 2013, the Venezuelan government further devalued the Venezuelan bolivar by increasing the
official rate to 6.30 Venezuelan bolivares to the U.S. Dollar, except for a limited set of goods and services deemed "essential" that will temporarily continue to attract the 4.30 rate. Level 3
uses the
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official
rate for "non-essential" goods and services to record the assets, liabilities and transactions of Level 3's Venezuelan subsidiary.
In
an attempt to control inflation, on May 18, 2010, the Venezuelan government announced that the BCV would be given control over the previously unregulated portions of the
exchange market. In June 2010, a new regulated currency trading system controlled by the BCV, the Transaction System for Foreign Currency Denominated Securities ("SITME"), commenced operations and
established an initial weighted average implicit exchange rate of approximately 5.30 bolivares to the U.S. Dollar. Subject to the limitations and restrictions imposed by the BCV, entities domiciled in
Venezuela were permitted to access the SITME by buying U.S. Dollar denominated securities through banks authorized by the BCV. SITME was intended to supplement the CADIVI application and approval
process with an additional process that allowed for quicker and smaller exchanges, albeit at a less favorable exchange rate. However, in connection with the February 13, 2013 devaluation of the
bolivar, the Venezuelan government also announced that SITME will be eliminated.
The
acquisition of foreign currency by Venezuelan companies to honor foreign debt, pay dividends or otherwise expatriate capital is subject to the limitations and restrictions of the
CADIVI registration, application and approval process, and is also subject to the availability of foreign currency within the guidelines set forth by the National Executive Power for the allocation of
foreign currency. Approvals under the CADIVI process have been less forthcoming at times, resulting in a significant buildup of excess cash in Level 3's Venezuelan subsidiary and a significant
increase in its exchange rate and exchange control risks.
At
December 31, 2012, Level 3 had $13 million of obligations registered and subject to approval by CADIVI for the conversion of bolivares into foreign currencies.
Level 3 cannot predict the timing and extent of any CADIVI approvals to honor foreign debt, distribute dividends or otherwise expatriate capital using the official Venezuelan exchange rate.
Some approvals have been issued within a few months while others have taken more than one year. In 2012, Level 3 received $5 million of approvals from CADIVI to convert bolivares to U.S.
Dollars at both the essential and non-essential official rates.
As
of December 31, 2012, Level 3's Venezuelan subsidiary had $131 million of net assets including $72 million of cash and cash equivalents, of which
$3 million was held in U.S. Dollars and $69 million was held in Venezuelan bolivares. In light of the Venezuelan exchange control regime, none of these net assets (other than the
$3 million of cash denominated in U.S. Dollars and held outside of Venezuela) may be transferred to Level 3 or any other subsidiary of Level 3 in the form of loans, advances or
cash dividends without the consent of a third party (that is, CADIVI or SITME).
While
the February 13, 2013 bolivar devaluation had no effect on Level 3's 2012 financial position or results of operations, the devaluation will affect its financial
reporting starting with the first quarter of 2013. If enacted prior to December 31, 2012, this devaluation would have reduced Level 3's net monetary assets by $20 million,
including unrestricted cash and cash equivalents of $22 million, based on the bolivar balances as of December 31, 2012. The devaluation of Level 3's net monetary assets will
result in a charge which will be recognized in other expense, net in the consolidated statement of operations in the first quarter of 2013. Based on the bolivar balances as of December 31,
2012, the charge would be $20 million. The effects on revenue and operating income are not expected to be material in light of certain pricing adjustment mechanisms in many of Level 3's
contracts with Venezuelan customers and since most of its costs in Venezuela are incurred in bolivares.
Economic and political conditions in Latin America pose numerous risks to Level 3's operations.
Level 3's business operations in the Latin American region constitute a significant portion of its business. As events in the
Latin American region have demonstrated, negative economic or political developments in one country in the region can lead to or exacerbate economic or political instability elsewhere in the region.
Furthermore, events in recent years in other developing markets have placed
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pressures
on the stability of the currencies of a number of countries in Latin America in which Level 3 operates, including Argentina, Brazil, Colombia and Venezuela. While certain areas in the
Latin American region have experienced economic growth, this recovery remains fragile. Pressures on local currencies are likely to have an adverse effect on Level 3's customers in this region.
Volatility in regional currencies and capital markets could also have an adverse effect on Level 3's ability and that of its customers to gain access to international capital markets for
necessary financing, refinancing and repatriation of earnings.
In
addition, any changes to the political and economic conditions in certain Latin American countries could materially and adversely affect Level 3's business. For example, in
January 2007, the Venezuelan National Assembly issued an Enabling Law allowing the President of Venezuela to carry out the nationalization of certain businesses in the electricity and energy sectors,
as well as Venezuela's largest telecommunications company, Compañía Anónima Nacional Teléfonos de Venezuela ("CANTV"). CANTV was
nationalized in the same year. A statement from the Venezuelan minister of telecommunications and director of the Comisión Nacional de Telecomunicaciones, the country's
telecommunications regulatory authority, has indicated that the nationalization of CANTV does not imply the nationalization of the telecommunications sector as a whole. However, there can be no
assurance that such nationalization plans will not also extend to other businesses in the telecommunications sector, including Level 3's business. The government also announced plans to modify
the telecommunications law, and Level 3 cannot predict the effect of these amendments to Level 3's business. In addition, a referendum held on February 15, 2009, approved an
amendment to the nation's constitution removing presidential term limits.
Inflation and certain government measures to curb inflation in some Latin American countries may have adverse effects on their economies and Level 3's business and
operations in those locations.
Some Latin American countries, including Venezuela, Brazil and Argentina, have historically experienced high rates of inflation.
Inflation and some measures implemented to curb inflation have had significant negative effects on the economies of these countries. Governmental actions taken in an effort to curb inflation, coupled
with speculation about possible future actions, have contributed to economic uncertainty at times in most Latin American countries. These countries may experience high levels of inflation in the
future that could lead to further government intervention in the economy, including the introduction of government policies that could adversely affect Level 3's results of operations in those
locations. In addition, if any of these countries experience high rates of inflation, Level 3 may not be able to adjust the price of its services sufficiently to offset the effects of inflation
on Level 3's cost structures in those locations. A high inflation environment would also have negative effects on the level of economic activity and employment and adversely affect
Level 3's business.
Many of Level 3's most important U.K. government customers have the right to terminate their contracts with Level 3 if a change of control occurs or to reduce
the services they purchase from Level 3.
In 2012 various agencies of the U.K. Government together represented approximately $173 million, or approximately 20%, of the
Core Network Services revenue for Level 3's EMEA region and approximately 3% of Level 3's total Consolidated Core Network Services revenue. Many of these government contracts contain
broad change of control provisions that permit the customer to terminate the contract if the Level 3 subsidiary that is a party to the agreement undergoes a change of control. A termination in
many instances gives rise to other rights of the government customer, including, in some cases, the right to purchase some of Level 3's assets used in servicing those contracts on terms that
would be unfavorable to Level 3.
In
addition, most of these government contracts do not include significant minimum usage guarantees. Thus, the applicable customers could simply choose not to use Level 3's
services and move to another telecommunications provider.
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Level 3's agreements with certain agencies of the U.S. Government impose significant requirements on it. A violation of those agreements could have severe
consequences.
Level 3 is a party to an agreement with the U.S. Departments of Homeland Security, Justice and Defense addressing the U.S.
government's national security and law enforcement concerns. This agreement imposes significant requirements on Level 3 related to information storage and management; traffic management;
physical, logical, and network security arrangements; personnel screening and training; and other matters. Level 3 is also party to an agreement with the U.S. Department of Defense addressing
the U.S. government's national security concerns. This agreement imposes significant requirements on Level 3 related to the composition and qualifications of the Level 3
Communications, Inc. board of directors; the limitation of the influence or control over Level 3 of non-U.S. persons; physical, logical, and network security arrangements;
and other matters.
While
Level 3 expects to continue to comply fully with its obligations under both of the above-mentioned agreements, it is impossible to eliminate completely the risk of a
violation of either. The consequences of a violation of these agreements could be severe, potentially including the
revocation of Level 3's FCC licenses in the U.S., which would result in the cessation of Level 3's U.S. operations, and/or the loss of permissions required to do business with the U.S.
Government.
Level 3 is subject to the U.S. Foreign Corrupt Practices Act (the "FCPA") and other anticorruption laws, and its failure to comply therewith could result in penalties
which could harm its reputation and have a material adverse effect on its business.
Level 3 is subject to the FCPA, which generally prohibits companies and their intermediaries from making improper payments to
foreign officials for the purpose of obtaining or keeping business and/or other benefits. Although Level 3 have policies and procedures designed to ensure that Level 3, its employees and
agents comply with the FCPA and other anticorruption laws, there can be no assurance that such policies or procedures will work effectively all of the time or protect Level 3 against liability
for actions taken by its agents, employees and intermediaries with respect to its business or any businesses that Level 3 acquires. Level 3 currently operates and in the future may
operate in a number of jurisdictions that pose a high risk of potential anticorruption violations. If Level 3 is not in compliance with the FCPA and other laws governing the conduct of business
with government entities (including local laws), Level 3 may be subject to criminal and civil penalties and other remedial measures. Any investigation of any potential violations of the FCPA or
other anticorruption laws by U.S. or foreign authorities could have an adverse effect on its business.
The
U.K. Bribery Act 2010 (the "Bribery Act") reformed the United Kingdom ("U.K.") law in relation to bribery and corruption. As well as containing provisions concerning bribery of
public officials, the Bribery Act includes a criminal offense of failing to prevent bribery by relevant commercial organizations. This offense applies when any person associated with the organization
offers or accepts bribery anywhere in the world intending to obtain or retain a business advantage for the organization or in the conduct of business. The Bribery Act has wide ranging implications in
particular for business in the U.K., including Level 3's subsidiaries. However, it should be noted that it also has a wide-ranging extra-territorial effect. The Bribery Act is
broader in scope than the FCPA in that it directly addresses commercial bribery in addition to bribery of government officials and it does not recognize certain exceptions, notably facilitation
payments that are permitted by the FCPA. Under the Bribery Act, it is a defense to the accusation of failure to prevent bribery for a commercial organization to show that it had in place "adequate
procedures" designed to prevent such acts. As with the FCPA, if Level 3 is not in compliance with the Bribery Act as well as similar laws in the U.K. or elsewhere that are applicable to its
business, Level 3 may be subject to criminal and civil penalties and other remedial measures.
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Risks Related to Level 3's Liquidity and Financial Resources
Disruptions in the financial markets could affect Level 3's ability to obtain debt or equity financing or to refinance its existing indebtedness on reasonable terms
(or at all), and have other adverse effects on Level 3.
Disruptions in the commercial credit markets could result in a tightening of credit markets. The effects of recent credit market
disruptions were widespread, and it is impossible to predict whether the improvement in the global credit markets will continue. As a result of credit market turmoil, Level 3 may not be able to
obtain debt or equity financing or to refinance its existing indebtedness on favorable terms (or at all), which could affect its strategic operations and Level 3's financial performance and
force modifications to its operations.
If Level 3 is unable to comply with the restrictions and covenants in Level 3's debt agreements, there would be a default under the terms of these agreements,
and this could result in an acceleration of payment of funds that have been borrowed.
If Level 3 is unable to comply with the restrictions and covenants in any of its debt agreements, there would be a default under
the terms of those agreements. As a result, borrowings under other debt instruments that contain cross-acceleration or cross default provisions may also be accelerated and become due and payable. If
any of these events occur, there can be no assurance that Level 3 would be able to make necessary payments to the lenders or that Level 3 would be able to find alternative financing.
Even if Level 3 is able to obtain alternative financing, there can be no assurance that it would be on terms that are acceptable.
If Level 3 experiences a change in control or certain other events, Level 3 may be unable to satisfy its obligations to repurchase its outstanding notes as
required under its outstanding debt agreements.
Upon the occurrence of certain events defined in the various debt agreements relating to its outstanding debt, Level 3 is
required to make an offer to purchase all of Level 3's outstanding notes at a purchase price generally equal to 101% of the principal amount of the notes, plus accrued and unpaid interest
thereon (if any). In addition, to the extent that Level 3 is required to make an offer to purchase one of the outstanding issues of its notes, the debt agreements
relating to its other issues of notes may require Level 3 to repurchase that other debt upon a change in control or termination of trading. Level 3 may not have or be able to borrow
sufficient funds to pay the purchase price for all the notes tendered by holders seeking to accept the offer to purchase.
Level 3 has substantial debt, which may hinder its growth and put Level 3 at a competitive disadvantage.
Level 3's substantial debt may have important consequences, including the
following:
-
•
-
the ability to obtain additional financing for acquisitions, working capital, investments and capital or other
expenditures could be impaired or financing may not be available on acceptable terms;
-
•
-
a substantial portion of Level 3's cash flows will be used to make principal and interest payments on outstanding
debt, reducing the funds otherwise available for operations and future business opportunities;
-
•
-
a substantial decrease in cash flows from operating activities or an increase in expenses could make it difficult to meet
debt service requirements and force modifications to operations;
-
•
-
having more debt than certain of its competitors, may place Level 3 at a competitive disadvantage; and
-
•
-
substantial debt may make Level 3 more vulnerable to a downturn in business or the economy generally.
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Level 3
had substantial deficiencies of earnings to cover fixed charges of approximately $374 million, $786 million and $712 million for the fiscal year ended
December 31, 2012, 2011 and 2010, respectively.
Level 3 may not be able to repay its existing debt; failure to do so or refinance the debt could prevent Level 3 from implementing its strategy and realizing
anticipated profits.
If Level 3 were unable to refinance its debt or to raise additional capital on acceptable terms, Level 3's ability to
operate its business would be impaired. As of December 31, 2012, Level 3 had an aggregate of approximately $8.608 billion of long-term debt on a consolidated basis (on
an as adjusted basis, as well as excluding debt discounts and fair value adjustments), and approximately $1.171 billion of stockholders' equity. Of the long-term debt, approximately
$44 million is due to mature in 2013, $23 million is due to mature in 2014 and $788 million is due in 2015, in each case excluding debt discounts and fair value adjustments.
Level 3's
ability to make interest and principal payments on its debt and borrow additional funds on favorable terms depends on the future performance of the business. If
Level 3 does not have enough cash flow in the future to make interest or principal payments on its debt, Level 3 may be required to refinance all or a part of its debt or to raise
additional capital. Level 3 cannot be sure that it will be able to refinance its debt or raise additional capital on acceptable terms.
Restrictions and covenants in Level 3's debt agreements limit its ability to conduct its business and could prevent Level 3 from obtaining needed funds in the
future.
Level 3's debt and financing arrangements contain a number of significant limitations that restrict Level 3's ability to,
among other things:
-
•
-
borrow additional money or issue guarantees;
-
•
-
pay dividends or other distributions to stockholders;
-
•
-
make investments;
-
•
-
create liens on assets;
-
•
-
sell assets;
-
•
-
enter into sale-leaseback transactions;
-
•
-
enter into transactions with affiliates; and
-
•
-
engage in mergers or consolidations.
Other Risks
If certain transactions occur with respect to its capital stock, Level 3 may be unable to fully utilize its net operating loss carry forwards, or NOLs, to reduce
Level 3's U.S. federal income taxes.
As of December 31, 2012, Level 3 had NOLs of approximately $8.5 billion for U.S. federal income tax purposes
(after taking into account the effects of Section 382 of the Internal Revenue Code). If certain transactions occur with respect to Level 3's capital stock that result in a cumulative
ownership change of more than 50 percentage points by 5% stockholders over a three-year period as determined under rules prescribed by the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), and applicable regulations, annual limitations would be imposed with respect to Level 3's ability to utilize Level 3's NOLs and certain current deductions against
any taxable income Level 3 achieves in future periods.
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Level 3
has entered into transactions over the applicable three year period that, when combined with other changes in ownership that are outside of Level 3's control, have
resulted in cumulative changes in the ownership of Level 3's capital stock. Additional transactions that Level 3 enters into, as well as transactions by existing 5% stockholders and
transactions by holders that become new 5% stockholders that Level 3 does not participate in, could cause Level 3 to incur a 50 percentage point ownership change by 5%
stockholders and, if Level 3 triggers the above-noted Code imposed limitations, such transactions would prevent Level 3 from fully utilizing NOLs and certain current deductions to reduce
Level 3's U.S. federal income taxes. In addition, these limitations could cause Level 3 not to pursue otherwise favorable acquisitions and other transactions involving Level 3's
capital stock, or could reduce the net benefits to be realized from any such transactions.
STT Crossing's significant ownership interest in Level 3 increases the risk that Level 3 could be unable to use its accumulated NOLs for U.S. federal income
tax purposes, and the rights agreement entered into by Level 3 designed to protect its ability to use its accumulated NOLs could discourage third parties from seeking strategic transactions
with Level 3 that could be beneficial to Level 3's stockholders.
Completion of the Global Crossing acquisition—in particular STT Crossing's acquisition of a significant ownership interest
in Level 3—moved Level 3 significantly closer to the 50% ownership change described above and increases the likelihood of a loss of its NOLs.
In
April 2011, Level 3 entered into the rights agreement in an effort to deter acquisitions of its common stock that might reduce its ability to use its NOLs. Under the rights
agreement, from and after the record date of April 21, 2011, each share of Level 3's common stock carries with it one preferred share purchase right that could discourage a third party
from proposing a change of control or other strategic transaction concerning Level 3 or otherwise have the effect of delaying or preventing a change of control of Level 3 that other
stockholders may view as beneficial.
Environmental liabilities from Level 3's historical operations could be material.
There could be environmental liabilities arising from historical operations of Level 3's predecessors, for which Level 3
may be liable. Level 3's operations and properties are subject to a wide variety of laws and regulations relating to environmental protection, human health and safety. These laws and
regulations include those concerning the use and management of hazardous and non-hazardous substances and wastes. Level 3 has made and will continue to make significant expenditures
relating to its environmental compliance obligations. Despite its best efforts, Level 3 may not at all times be in compliance with all of these requirements.
In
connection with certain historical operations, Level 3 has responded to or been notified of potential environmental liability at approximately 158 properties as of
January 24, 2013. Level 3 is engaged in addressing or has liquidated environmental liabilities at 75 of those properties. Of these: (a) Level 3 has formal commitments or
other potential future costs at 14 sites; (b) there are 6 sites with unknown future costs; (c) there are 55 sites with no likely future costs. The remaining properties have been dormant
for several years. Level 3 could potentially be held liable, jointly or severally, and without regard to fault, for the costs of investigation and remediation of these sites. The discovery of
additional environmental liabilities related to historical operations or changes in existing environmental requirements could have a material adverse effect on Level 3's business.
Level 3 is now exposed to legal proceedings and contingent liabilities that could result in material losses that Level 3 has not reserved against.
Level 3 is a party to various legal proceedings and is subject to certain important contingent liabilities described more fully
in Note 16, "Commitments, Contingencies and Other Items," to Level 3's consolidated financial statements included in Level 3's annual report on Form 10-K filed
on
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February 26,
2013, many of which involve Global Crossing. If one or more of these legal proceedings or contingent liabilities were to be resolved in a manner adverse to Level 3,
Level 3 could suffer material losses. Global Crossing did not establish reserves for many of these contingent liabilities and those for which reserves were established could be adversely
resolved at levels exceeding the reserved amounts. Certain of these contingent liabilities could have a material adverse effect on Level 3's business in addition to the effect of any potential
monetary judgment or sanction against Level 3. Furthermore, any legal proceedings, regardless of the outcome, could result in substantial costs and diversion of resources. Assets and entities
that Global Crossing acquired in its most recent acquisitions, may be subject to unknown or contingent liabilities for which Level 3 may have no recourse, or only limited recourse to the entity
from which the business was acquired (or its stakeholders).
Terrorist attacks and other acts of violence or war may adversely affect the financial markets and Level 3's business.
There can be no assurance that there will not be future terrorist attacks. These attacks or armed conflicts may directly affect
Level 3's physical facilities or those of Level 3's customers. These events could cause consumer confidence and spending to decrease or result in increased volatility in the U.S. and
world financial markets and economy. Any of these occurrences could materially adversely affect Level 3's business.
The pension plans previously maintained by Global Crossing and with respect to Level 3's operations before 1997 may require additional funding and negatively affects
cash flows.
Certain North American and European hourly and salaried employees of Global Crossing are covered by defined benefit pension plans. On
December 31, 1996, the North American plan was frozen and all employees hired thereafter are not eligible to participate in the plan. The U.K. plans were closed to new employees on
December 31, 1999. The pension expense and required contributions to these pension plans are directly affected by the value of plan assets, the projected rate of return on plan assets, the
actual rate of return on plan assets and the actuarial assumptions used to measure the defined benefit pension plan obligations. As of December 31, 2012, the projected benefit obligation under
these pension plans and the pension plans with respect to non-Global Crossing operations prior to 1997 was approximately $166 million ($79 million for U.S. plans and
$87 million for U.K. plans) and the value of plan assets was approximately $146 million (approximately $75 million for U.S. plans and $71 million for U.K. plans), resulting
in these pension plans being underfunded by $20 million. If plan assets perform below expectations, future pension expense and funding obligations will increase, which would have a negative
effect on Level 3's cash flows from operations.
Risks Relating to the Notes
You may not be able to sell your original notes if you do not exchange them for new notes in the exchange offer.
If you do not exchange your original notes for new notes in the exchange offer, your original notes will continue to be subject to the
restrictions on transfer as stated in the legend on the original notes. In general, you may not reoffer, resell or otherwise transfer the original notes in the United States unless they
are:
-
•
-
registered under the Securities Act;
-
•
-
offered or sold under an exemption from the Securities Act and applicable state securities laws; or
-
•
-
offered or sold in a transaction not subject to the Securities Act and applicable state securities laws.
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The Issuer does not currently anticipate that it will register the original notes under the Securities Act.
Holders of the original notes who do not tender their original notes will have no further registration rights under the registration agreement.
Holders who do not tender their original notes, except for limited instances involving the initial purchaser or holders of original
notes who are not eligible to participate in the exchange offer or who do not receive freely transferable new notes in the exchange offer, will not have any further registration rights under the
registration agreement or otherwise and will not have rights to receive special interest.
The market for original notes may be significantly more limited after the exchange offer and you may not be able to sell your original notes after the exchange offer.
If original notes are tendered and accepted for exchange under the exchange offer, the trading market for original notes that remain
outstanding may be significantly more limited. As a result, the liquidity of the original notes not tendered for exchange could be adversely affected. The extent of the market for original notes and
the availability of price quotations would depend upon a number of factors, including the number of holders of original notes remaining outstanding and the interest of securities firms in maintaining
a market in the original notes. An issue of securities with a similar outstanding market value available for trading, which is called the "float," may command a lower price than would be comparable to
an issue of securities with a greater float. As a result, the market price for original notes that are not exchanged in the exchange offer may be affected adversely as original notes exchanged in the
exchange offer reduce the float. The reduced float also may make the trading price of the original notes that are not exchanged more volatile.
Your original notes will not be accepted for exchange if you fail to follow the exchange offer procedures and, as a result, your original notes will continue to be subject
to existing transfer restrictions and you may not be able to sell your original notes.
The Issuer will not accept your original notes for exchange if you do not follow the exchange offer procedures. The Issuer will issue
new notes as part of the exchange offer only after a timely receipt of your original notes, a properly completed and duly executed letter of transmittal and all other required documents. Therefore, if
you want to tender your original notes, please allow sufficient time to ensure timely delivery. If the Issuer does not receive your original notes, letter of transmittal and other required documents
by the expiration date of the exchange offer, we will not accept your original notes for exchange. The Issuer is under no duty to give notification of defects or irregularities with respect to the
tenders of original notes for exchange. If there are defects or irregularities with respect to your tender of original notes, the Issuer will not accept your original notes for exchange.
The Issuer's subsidiaries must make payments to the Issuer in order for the Issuer to make payments on the notes, and Parent's subsidiaries must make payments to Parent in
order for Parent to make payment on its obligations as a guarantor of the notes.
The Issuer is a holding company with no material assets other than the stock of its subsidiaries, the Loan Proceeds Note, the 2015
Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note, the 8.625% Proceeds Note and the Offering Proceeds Note. Accordingly, the Issuer will depend
upon dividends, loans or other distributions or payments from its subsidiaries, or capital contributions from Parent, to generate the funds necessary to meet its financial obligations, including its
obligations to pay you as a holder of notes. The Issuer's subsidiaries may not generate earnings sufficient to enable it to meet its payment
obligations. The Issuer's subsidiaries are legally distinct from it and, unless they guarantee the notes, have no obligation to pay amounts due on the Issuer's debt or to make funds available to it
for such payment. Similarly, Parent, the Issuer's
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parent
company and a guarantor of the notes, is a holding company with no material assets other than the stock of its subsidiaries and the Parent Intercompany Note. Accordingly, Parent depends upon
dividends, loans or other distributions or payments from its subsidiaries, including the Issuer, to generate the funds necessary to meet its financial obligations, including its obligations as a
guarantor of the notes. Future debt of certain of the Issuer's subsidiaries, including any debt outstanding under the Credit Agreement, may prohibit the payment of dividends or the making of loans or
advances to Parent or the Issuer. See "Description of Indebtedness of Level 3 Communications, Inc. and the Issuer" In addition, the ability of such subsidiaries to make such payments,
loans or advances is limited by the laws of the relevant states in which such subsidiaries are organized or located. In certain circumstances, the prior or subsequent approval of such payments, loans
or advances is required from applicable regulatory bodies or other governmental entities. To the extent the Issuer cannot access the cash flow of its subsidiaries, and Parent is unable to access the
cash flow of its subsidiaries, including the Issuer, the Issuer may not have access to sufficient cash to repay the notes, and Parent may not have sufficient cash to comply with its guarantee
obligations on the notes.
Because the notes are structurally subordinated to the obligations of the Issuer's subsidiaries, you may not be fully repaid if the Issuer becomes insolvent.
Substantially all of the Issuer's operating assets are held directly by its subsidiaries. None of the Issuer's subsidiaries, other than
Level 3 LLC, is required to be a guarantor of the notes. Holders of any preferred stock of any of the Issuer's subsidiaries and creditors, including trade creditors and other
subsidiaries of Parent that have made intercompany loans to the Issuer's subsidiaries, of any of those subsidiaries have and will have claims relating to the assets of that subsidiary that are
effectively senior to the notes. That is, the notes are structurally subordinated to the debt, preferred stock and other obligations of the Issuer's subsidiaries that are not guarantors. In addition
to the notes, the Issuer's Floating Rate Senior Notes due 2015, 10% Senior Notes due 2018, 9.375% Senior Notes due 2019, 8.125% Senior Notes due 2019, 8.625% Senior Notes due 2020 and the senior
secured term loans under the Credit Agreement are guaranteed by Level 3 LLC. The guarantee of the notes by Level 3 LLC is, and any guarantee of the notes issued by any
other subsidiary of Parent will be, subordinated to Level 3 LLC's or such other subsidiary's guarantee of the senior secured term loans under the Credit Agreement. As of
December 31, 2012, the Issuer's subsidiaries had approximately $2.093 billion in aggregate indebtedness and other balance sheet liabilities, excluding intercompany liabilities, deferred
revenue and discount and fair value adjustments, all of which is structurally senior to the notes.
Although the notes will initially benefit from some structural seniority to Parent's indebtedness, existing and future intercompany indebtedness and other actions could
limit or eliminate this seniority.
Level 3 LLC is the obligor on the Parent Intercompany Note, which evidences loans previously made from Parent to
Level 3 LLC, and the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note, the 8.625% Proceeds Note and the Offering Proceeds Note
and the Loan Proceeds Note, each of which evidences loans previously made from the Issuer to Level 3 LLC. As of December 31, 2012, the outstanding principal amount of the Parent
Intercompany Note was approximately $24.9 billion, the outstanding principal amount the 2015 Floating Rate Proceeds Note was $300 million, the outstanding principal amount of the 9.375%
Proceeds Note was $500 million, the outstanding principal amount of the 8.125% Proceeds Note was $1,200 million, the outstanding principal amount of the 8.625% Proceeds Note was
$900 million, the outstanding principal amount of the Offering Proceeds Note was $775 million and the outstanding principal amount of the Loan Proceeds Note was $2,614 million.
The Issuer lent the net proceeds received by it from the issuance of the original notes to Level 3 LLC, together with cash on hand, in return for the Offering Proceeds Note from
Level 3 LLC in an amount equal to the aggregate principal amount at maturity of the original notes. Parent, Level 3 LLC and the Issuer entered into a Parent Intercompany
Note
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subordination
agreement that subordinates, upon the liquidation, dissolution or winding up of Level 3 LLC or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Level 3 LLC or its property, Level 3 LLC's obligations with respect to the Parent Intercompany Note to Level 3 LLC's obligations with
respect to the Offering Proceeds Note. The Parent Intercompany Note is subordinated on the same terms to the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the
8.125% Proceeds Note, and the 8.625% Proceeds Note. There is no restriction, however, on Level 3 LLC's ability to repay a portion or all of the principal of the Parent Intercompany Note,
other than in a bankruptcy or similar proceeding, and in certain cases the Issuer may be able to transfer the Offering Proceeds Note, including to Parent. If Level 3 LLC prepays the
Parent Intercompany Note or the Issuer transfers the Offering Proceeds Note to Parent or a subsidiary of Parent, the subordination of Level 3 LLC's obligations on the Parent Intercompany
Note to its obligations on the Offering Proceeds Note will not provide any benefit to the holders of the notes. The Offering Proceeds Note will
not
be
pledged as security for the benefit of the holders of the notes, and Level 3 LLC's obligations on the Parent Intercompany Note will
not
be
subordinated in any way to obligations with respect to the notes themselves or with respect to any guarantees of the notes. Moreover, the Issuer has pledged the Loan Proceeds Note, the 2015 Floating
Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note, the 8.625% Proceeds Note and the Offering Proceeds Note to secure its obligations under the Credit
Agreement. Parent has pledged the Parent Intercompany Note to secure its obligations under the Credit Agreement. The 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note,
the 8.125% Proceeds Note, the 8.625% Proceeds Note and the Offering Proceeds Note are subordinated to the Loan Proceeds Note pursuant to subordination agreements by and among the Issuer, Parent and
Level 3 LLC. The right of the Issuer to payment under the Offering Proceeds Note is
pari passu
to the right of the
Issuer to payment under the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note, and the 8.625% Proceeds Note.
Although
Parent, the Issuer and Level 3 LLC are restricted under the terms of the indenture governing the notes from taking certain actions with respect to the Offering
Proceeds Note, the Parent Intercompany Note and the Parent Intercompany Note subordination agreement, neither the trustee for the notes nor the holders of the notes are or will be parties to, or third
party beneficiaries of, the subordination agreement or the Offering Proceeds Note. See "Description of the Notes—Certain Covenants—Limitation on Actions with Respect to
Existing Intercompany Obligations." Because the Parent Intercompany Note is subordinated to the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds
Note, the 8.625% Proceeds Note and the Offering Proceeds Note pursuant to separate subordination agreements, if one or more of these notes were transferred by the Issuer, conflicts could arise upon
the liquidation, dissolution or winding up of Level 3 LLC or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to Level 3 or its property.
The Issuer and its subsidiaries will transfer assets to Parent at least to the extent necessary to service Parent's existing debt obligations, and those assets will not be
available to repay the notes.
The indenture relating to the notes contains substantial flexibility for the Issuer and its subsidiaries to transfer assets (by
dividend, sale, loans or otherwise) to Parent. Transferred assets may not be directly or indirectly available to repay the notes. The Issuer and its subsidiaries will transfer assets to Parent at
least to the extent necessary to service Parent's existing debt obligations. Although Parent has guaranteed the repayment of the notes, the guarantee is not secured and ranks equal with other
unsecured debt of Parent and effectively junior to all secured debt of Parent. Parent has substantial debt outstanding. As of December 31, 2012, on an as adjusted basis, Parent had, on an
unconsolidated basis, approximately $1.581 billion of total indebtedness, none of which is secured or subordinated indebtedness. The indenture relating to the notes and each issue of
outstanding notes of Parent permit
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Parent
to incur substantial additional debt, including substantial amounts of additional secured debt. The substantial level of debt makes it more difficult for Parent to honor its obligations under
its guarantee of the notes. Substantial amounts of such existing debt of Parent will, and future debt of Parent may, mature prior to the notes. In addition, in certain instances proceeds from the
sale, transfer or other disposition of assets of the Issuer and its subsidiaries may be used to repay debt of Parent. See "Description of the Notes—Certain Covenants—Limitation
on Asset Dispositions."
Because the notes that you hold are unsecured, you may not be fully repaid if the Issuer becomes insolvent, and guarantees of the notes and guarantees of the Offering
Proceeds Note are subordinated to guarantees of the senior secured term loans under the Issuer's Credit Agreement, and creditors under the Credit Agreement have prior claims over the proceeds of
certain intercompany obligations.
The notes are not secured by any of the Issuer's assets or the Issuer's subsidiaries' assets. The notes are effectively junior to
obligations incurred under the Issuer's Credit Agreement which is guaranteed by Parent and by Level 3 LLC and secured by a substantial portion of Parent's assets and by substantially all
of the assets of its U.S. subsidiaries (including the Issuer), including the Parent Intercompany Note, the Loan Proceeds Note, the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375%
Proceeds Note, the 8.125% Proceeds Note, the 8.625% Proceeds Note and the Offering Proceeds Note, and will also be effectively junior to the senior secured term loans under the Credit Agreement and
any other secured obligations incurred under any future credit facilities, receivables and purchase money indebtedness, capitalized leases and certain other arrangements that are secured. If the
Issuer becomes insolvent, the holders of the senior secured term loans under the Credit Agreement and any other secured debt would receive payments from the assets pledged as security before you
receive payments and any remaining proceeds after repayment of the senior secured term loans under the Credit Agreement and any debt incurred under any future secured credit facilities may not be
sufficient to repay the notes. The indenture relating to the notes permits guarantees, if any, of the notes provided by subsidiaries of the Issuer to be subordinated to obligations of such
subsidiaries under specified debt. Level 3 LLC's guarantee of the notes is subordinated to Level 3 LLC's guarantee of the senior secured term loans under the Credit
Agreement. Additionally, guarantees of the notes (other than Parent's guarantee), the Offering Proceeds Note and guarantees of such intercompany note, will be subordinated to obligations in respect of
the Credit Agreement and any future senior secured debt. Accordingly, holders of the senior secured term loans and other debt of the Issuer that has a senior guarantee from the Issuer's restricted
subsidiaries, including Level 3 LLC, will have senior claims against the restricted subsidiaries providing such guarantees.
Parent has substantial existing debt and could incur substantial additional debt, so it may be unable to make payments on its guarantee of the notes.
As of December 31, 2012, on an as adjusted basis, Parent had, on a consolidated basis approximately $8.608 billion of
total indebtedness, excluding discount and fair value adjustments. The indenture relating to the notes and each issue of Parent's outstanding notes permit it to incur substantial additional debt. The
substantial level of debt makes it more difficult for Parent to honor its obligations under its guarantee of the notes. Substantial amounts of Parent's existing debt will, and its future debt may,
mature prior to the notes. In addition, Level 3 had, on a consolidated basis, deficiencies in its ratio of earnings to cover fixed charges of approximately $374 million for the fiscal
year ended December 31, 2012, approximately $786 million for the fiscal year ended December 31, 2011, approximately $712 million for the fiscal year ended
December 31, 2010, approximately $623 million for the fiscal year ended December 31, 2009 and approximately $264 million for the fiscal year ended December 31, 2008.
See "Ratio of Earnings to Fixed Charges." Level 3 may not become profitable or sustain profitability in the future. Accordingly, the Issuer may not have access to sufficient funds to make
payments on the notes.
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The Issuer's Credit Agreement may prohibit the Issuer from making payment on the notes.
As discussed in the section "Description of Indebtedness of Level 3 Communications, Inc. and the Issuer," the Credit
Agreement limits the Issuer's ability to make payments on any outstanding indebtedness other than regularly scheduled interest and principal payments as and when due. As a result, the Issuer's Credit
Agreement could prohibit the Issuer from making any payment on the notes in the event that the notes are accelerated or the holders thereof requires Level 3 to repurchase the notes upon the
occurrence of a change in control triggering event. Any such failure to make payments on the notes would cause the Issuer to default under the indenture, which in turn is likely to be a default under
the Credit Agreement and other outstanding and future indebtedness.
If Parent experiences a change of control, the Issuer may be unable to purchase the notes you hold as required under the indenture relating to the notes.
Upon the occurrence of certain designated events, the Issuer must make an offer to purchase all outstanding notes at a purchase price
equal to 101% of the principal amount of the notes, plus accrued and unpaid interest thereon (if any). The Issuer may not have sufficient funds to pay the purchase price for all the notes tendered by
holders seeking to accept the offer to purchase. In addition, the indenture relating to the notes and Level 3's other debt agreements, including the Issuer's Credit Agreement, may require the
Issuer and/or Parent to repurchase the other debt upon a change of control or may prohibit the Issuer and/or Parent from purchasing any notes before their stated maturity, including upon a change of
control. Subject to certain exceptions, the Credit Agreement requires the Issuer to prepay the senior secured term loans and any other loans under the Issuer's Credit Agreement within 60 days
after the occurrence of a change of control triggering event (as defined in the Issuer's Credit Agreement). See "Description of the Notes—Certain Covenants—Change of Control
Triggering Event."
There is no public market for the notes, which could limit their market price or your ability to sell them.
The new notes will be new securities for which there is currently no public trading market. The Issuer does not intend to apply for
listing of the notes on any securities exchange or for the inclusion of the notes in any automated quotation system. If any of the notes are traded after their initial issuance, they may trade at a
discount from their principal amount depending on many factors, including prevailing interest rates, the market for similar securities and other factors, including general economic conditions and
Level 3's financial condition, performance and prospects. Any decline in trading prices, regardless of the cause, may adversely affect the liquidity and trading markets for the new notes.
Federal and state statutes allow courts, under specific circumstances, to void guarantees and require note holders to return payments received from guarantors.
The notes are guaranteed by Parent and Level 3 LLC and may, under certain circumstances in the future, be guaranteed by
subsidiaries of the Issuer or other subsidiaries of Parent. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims in
respect of a guarantee could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its
guarantee:
-
•
-
received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee; and
-
•
-
was insolvent or rendered insolvent by reason of the incurrence of the guarantee; or
-
•
-
was engaged in a business or transaction for which the guarantor's remaining assets constituted unreasonably small
capital; or
36
Table of Contents
-
•
-
intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature.
In
addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor, or to a fund for the benefit of the creditors of the
guarantor.
The
measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered insolvent if:
-
•
-
the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;
-
•
-
the present fair saleable value of its assets was less than the amount that would be required to pay its probable
liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
-
•
-
it could not pay its debts as they become due.
In
certain circumstances, subsidiaries of Parent may provide guarantees of the Offering Proceeds Note. Any such guarantee could be subject to the same risks described above.
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USE OF PROCEEDS
None of the Issuer, Parent or Level 3 LLC will receive any proceeds from the issuance of the new notes pursuant to the
exchange offer.
SELECTED HISTORICAL FINANCIAL DATA OF LEVEL 3
The following table presents Level 3's selected historical consolidated financial data as of and for the years ended
December 31, 2012, 2011, 2010, 2009 and 2008. You should read this information in conjunction with Level 3's consolidated financial statements and related notes included in
Level 3's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which are incorporated by reference in this document. See "Where You Can Find More
Information; Incorporation by Reference."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,(1)(2)(3)
|
|
|
(dollars in millions)
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1)
|
|
$
|
6,376
|
|
$
|
4,333
|
|
$
|
3,591
|
|
$
|
3,695
|
|
$
|
4,226
|
|
|
Loss from continuing operations(2)
|
|
|
(422
|
)
|
|
(827
|
)
|
|
(621
|
)
|
|
(624
|
)
|
|
(321
|
)
|
|
Income (loss) from discontinued operations(1)
|
|
|
—
|
|
|
71
|
|
|
(1
|
)
|
|
6
|
|
|
3
|
|
|
Net loss
|
|
|
(422
|
)
|
|
(756
|
)
|
|
(622
|
)
|
|
(618
|
)
|
|
(318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,(1)(2)(3)
|
|
|
(dollars in millions except per share amounts)
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
|
Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(1.96
|
)
|
$
|
(6.03
|
)
|
$
|
(5.61
|
)
|
$
|
(5.73
|
)
|
$
|
(3.08
|
)
|
|
Income (loss) from discontinued operations, net
|
|
|
—
|
|
|
0.52
|
|
|
(0.01
|
)
|
|
0.05
|
|
|
0.03
|
|
|
Net loss
|
|
|
(1.96
|
)
|
|
(5.51
|
)
|
|
(5.62
|
)
|
|
(5.68
|
)
|
|
(3.05
|
)
|
|
Dividends(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,(1)(2)(3)
|
|
|
(dollars in millions)
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
13,307
|
|
$
|
13,188
|
|
$
|
8,355
|
|
$
|
9,062
|
|
$
|
9,634
|
|
|
Current portion of long-term debt(4)
|
|
|
216
|
|
|
65
|
|
|
180
|
|
|
705
|
|
|
186
|
|
|
Long-term debt, less current portion(4)
|
|
|
8,516
|
|
|
8,385
|
|
|
6,268
|
|
|
5,755
|
|
|
6,245
|
|
|
Stockholders' equity (deficit)(5)
|
|
|
1,171
|
|
|
1,193
|
|
|
(157
|
)
|
|
491
|
|
|
1,021
|
|
-
(1)
-
On
June 5, 2008, Level 3 completed the sale of its Vyvx advertising distribution business to DG FastChannel, Inc. and received
gross proceeds at closing of approximately $129 million in cash. Net proceeds from the sale approximated $121 million after deducting transaction-related costs. Revenue attributable to
the Vyvx advertising distribution business totaled $15 million in 2008 through the date of sale. The Vyvx businesses were acquired by Level 3 at the end of 2005 in the acquisition of
WilTel Communications Group, LLC ("WilTel").
On
October 4, 2011, Level 3 purchased Global Crossing Limited ("Global Crossing") (the "Amalgamation"). During 2011, Level 3 recorded revenue attributable to Global Crossing of
approximately $654 million.
On
November 14, 2011, Level 3 completed the sale of its coal mining business to Ambre Energy Limited as part of its long-term strategy to focus on core business operations.
Revenue attributable to the coal mining business totaled approximately $54 million in 2011 through the date of sale,
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Table of Contents
$60 million
in 2010, $67 million in 2009 and $75 million in 2008. As a result of the transaction, Level 3 recognized a gain on the transaction of approximately
$72 million, which is included its consolidated statements of operations within "Income (Loss) from Discontinued Operations, Net." The financial results of the coal mining business are included
in Level 3's consolidated results of operations through
the date of sale, and all periods have been revised to reflect the presentation within discontinued operations.
-
(2)
-
In
2008, Level 3 recognized approximately $25 million of impairment and restructuring charges, $36 million of induced debt conversion
expenses, net, attributable to the exchange of certain of Level 3's convertible debt securities, a gain on the early extinguishment of debt of $125 million as a result of certain debt
repurchases, and a $99 million gain on the sale of Level 3's Vyvx advertising distribution business and certain of its smaller long distance voice customer relationships. Level 3
also revised its estimates of the amounts and timing of its original estimate of undiscounted cash flows related to certain future asset retirement obligations in the fourth quarter of 2008. As a
result, Level 3 reduced its asset retirement obligations liability by $103 million with an offsetting reduction to property, plant and equipment of $21 million, selling, general
and administrative expenses of $86 million, depreciation and amortization of $11 million and an increase to goodwill of $15 million.
In
2009, Level 3 recognized a gain of approximately $14 million as a result of debt repurchases and exchanges of certain of Level 3's debt securities and $9 million of
restructuring charges.
In
2010, Level 3 recognized a loss of approximately $59 million associated with the tender offer to repurchase Level 3's 12.25% Senior Notes due 2013 and as a result of the
redemption of its 10% Convertible Senior Notes due 2011. Level 3 also recognized a $91 million benefit primarily related to the release of foreign deferred tax valuation allowances and
$2 million of restructuring charges.
In
2011, Level 3 recognized a loss of $100 million related to the redemption and repurchase of the 3.5% Convertible Senior Notes due in June 2012 and prepayment of the Tranche B
Term Loan that was outstanding under the existing Senior Secured Term Loan, the conversion of certain of the 15% Convertible Senior Notes due 2013, the retirement of a portion of the 9.25% Senior
Notes due 2014, the redemption of the 5.25% Convertible Senior Notes due 2011 and exchange of the 9% Convertible Senior Discount Notes due 2013. As a result of a change in the estimated useful lives
of certain of Level 3's property, plant and equipment, Level 3 recognized a reduction of approximately $74 million in depreciation expense during the fourth quarter of 2011. The
change in accounting estimate was accounted for on a prospective basis effective October 1, 2011. Level 3 also recognized $11 million of restructuring charges and
$20 million of charges associated with the impairment of certain wireless spectrum licenses.
In
2012, Level 3 recognized a $160 million loss on extinguishment of debt as a result of the refinancing of the $650 million Tranche B II Term Loan and $550 million
Tranche B III Term Loan in October 2012, the refinancing of the $1.4 billion Tranche A Term Loan in August 2012 and the repayment of existing vendor financing obligations, the
redemption of the 8.75% Senior Notes due 2017 in August 2012, the
redemption of the 9.25% Senior Notes due 2014 in February 2012 and the exchange of a portion of the 15% Convertible Senior Notes due 2013. Level 3 also recognized $34 million of
restructuring charges. Level 3 completed an updated analysis and revised its estimated future cash flows of its asset retirement obligations as a result of a strategic review of
Level 3's real estate portfolio in the fourth quarter of 2012. As a result, Level 3 reduced its asset retirement obligations liability by $73 million with an offsetting reduction
to property, plant and equipment of $24 million, selling, general and administrative expenses of $47 million and depreciation and amortization of $2 million. In addition, as a
result of the refinancing of the Tranche A Term Loan in 2012, two interest rate swap agreements maturing in early 2014 that had effectively hedged changes in the interest rate on a portion of
the Tranche A Term Loan were
39
Table of Contents
deemed
"ineffective" under GAAP. Level 3 recognized a non-cash loss on the agreements of approximately $60 million (excluding accrued interest), which represented the
cumulative loss recorded in Accumulated Other Comprehensive Income (Loss) ("AOCI") at the date the instruments ceased to qualify as hedges.
-
(3)
-
Level 3's
current dividend policy, in effect since April 1998, is to retain future earnings for use in Level 3's business. As a result,
management does not anticipate paying cash dividends on shares of common stock in the foreseeable future. In addition, Level 3 is restricted under certain debt-related covenants
from paying cash dividends on shares of its common stock.
-
(4)
-
In
2008, Level 3 received proceeds of $400 million from the issuance of its 15% Convertible Senior Notes due 2013. In connection with the
issuance of the 15% Convertible Senior Notes due 2013, Level 3 completed tender offers and repurchased $163 million of its 2.875% Convertible Senior Notes due 2010, $173 million
of its 6% Convertible Subordinated Notes due 2010 and $124 million of its 6% Convertible Subordinated Notes due 2009. In 2008, Level 3 completed exchanges with holders of various issues
of its convertible debt in which Level 3 issued approximately 3 million shares of common stock in exchange for $18 million of its 6% Convertible Subordinated Notes due 2009,
$47 million of its 10% Convertible Senior Notes due 2011, $19 million of its 2.875% Convertible Senior Notes due 2010, $15 million of its 5.25% Convertible Senior Notes due 2011
and $9 million of its 3.5% Convertible Senior Notes due 2012. Also in 2008, Level 3 repurchased $39 million aggregate principal amount of its 6% Convertible Subordinated Notes due
2009 and $32 million aggregate principal amount of its 6% Convertible Subordinated Notes due 2010. Level 3 also repaid at maturity the remaining $20 million of its outstanding 11%
Senior Notes due 2008 and approximately $6 million (€4 million) of its outstanding 10.75% Senior Euro Notes due 2008.
In
2009, Level 3 received net proceeds of $274 million as a result of amending and restating its existing senior secured credit facility to increase the borrowings through the creation
of a $280 million Tranche B Term Loan. Level 3 exchanged $142 million of its 6% Convertible Subordinated Notes due 2010 and $140 million of its 2.875% Convertible
Senior Notes due 2010 for $200 million of 7% Convertible Senior Notes due 2015 and $78 million of cash. In 2009, Level 3 received net proceeds of $274 million from the
issuance of its 7% Convertible Senior Notes due 2015, Series B. Also in 2009, Level 3 repurchased $126 million aggregate principal amount of its 6% Convertible Subordinated Notes
due 2009, $55 million aggregate principal amount of its 6% Convertible Subordinated Notes due 2010, $13 million aggregate principal amount of its 2.875% Convertible Senior Notes due
2010, $131 million aggregate principal amount of its 5.25% Convertible Senior Notes due 2011, $56 million aggregate principal amount of its 10% Convertible Senior Notes due 2011, and
$31 million aggregate principal amount of its 3.5% Convertible Senior Notes due 2012. Level 3 also redeemed the remaining $13 million of its 11.5% Senior Notes due 2010,
repurchased the remaining $6 million aggregate principal amount of its Floating Rate Notes due 2011 and repaid at maturity the remaining $55 million of its outstanding 6% Convertible
Subordinated Notes due 2009.
In
2010, Level 3 received net proceeds of $613 million from the issuance of its 10% Senior Notes due 2018 and net proceeds of $195 million from the issuance of its 6.5%
Convertible Senior Notes due 2016. In connection with the issuance of its 10% Senior Notes due 2018, Level 3 repurchased $550 million of the total outstanding 12.25% Senior Notes due
2013 primarily through a tender offer. In addition, Level 3 redeemed all of the outstanding $172 million aggregate principal amount of its 10% Convertible Senior Notes due 2011,
$3 million of its 5.25% Convertible Senior Notes due 2011, the remaining $3 million of its 10.75% Senior Notes due 2011, and $2 million of its 2.875% Convertible Senior Notes due
2010. Upon maturity, Level 3 repaid the remaining $111 million of its 6% Convertible Subordinated Notes due 2010 and the remaining $38 million of its 2.875% Convertible Senior
Notes due 2010.
40
Table of Contents
In
2011, Level 3 issued approximately $605 million of 11.875% Senior Notes due 2019 in two separate transactions, as well as $500 million of its 9.375% Senior Notes due 2019.
Proceeds from the first 11.875% Senior Note offering were used to redeem $196 million of 5.25% Convertible Senior Notes. In the second offering, Level 3 exchanged $295 million of
9% Convertible Senior Discount Notes for the 11.875% Senior Notes. Level 3 Escrow, Inc., a direct wholly owned subsidiary of the Issuer, issued $600 million in aggregate principal
amount of 8.125% Senior Notes due 2019. Level 3 Escrow, Inc. issued an additional $600 million in aggregate principal amount of its 8.125% Senior Notes due 2109 under the same
indenture as the 8.125% Senior Notes previously issued, which were treated as a single series of notes under the indenture. In connection with the Amalgamation, all of the 8.125% Senior Notes due 2019
were assumed by the Issuer, a direct wholly owned subsidiary of Parent, and the proceeds were used to refinance certain existing indebtedness of Global Crossing. Level 3 exchanged approximately
$128 million of its 15% Convertible Senior Notes due 2013 for approximately 5 million shares of its common stock. Level 3 also paid approximately $29 million in cash,
representing interest due from the conversion through the 2013 maturity date. Level 3 also repurchased approximately $20 million of its 3.5% Convertible Senior Notes due 2012.
Level 3 borrowed $550 million aggregate principal amount of its Tranche B III Term Loan. The net proceeds in addition to cash on hand were used to redeem the remaining
$274 million aggregate principal amount of 3.5% Convertible Senior Notes due 2012 and prepay the $280 million Tranche B Term Loan that was outstanding under the existing Senior
Secured Term Loan. Also in connection with the closing of the Amalgamation, Level 3 amended its existing credit agreement to incur an additional $650 million of borrowings through an
additional tranche. The net proceeds from the Tranche B II Term Loan were used to consummate the Amalgamation, to refinance certain existing indebtedness of Global Crossing in connection with
the consummation of the Amalgamation and for general corporate purposes.
In
2012, Level 3 refinanced its existing $650 million Tranche B II Term Loan and $550 million Tranche B III Term Loan under its existing senior secured credit
facility through the creation of a new term loan in the aggregate principal amount of $1.2 billion (the "Tranche B-II 2019 Term Loan") along with cash on hand. Level 3
also fully repaid the outstanding principal amount of its Commercial Mortgage due 2015 along with accrued interest which was approximately $63 million. Also in 2012, Level 3 completed
the offering of $300 million aggregate principal amount of its 8.875% Senior Notes due 2019 in a private offering. The net proceeds from that offering are being used for general corporate
purposes, including the potential repurchase, redemption, repayment or refinancing of Level 3's and its subsidiaries' existing indebtedness from time to time. Additionally in 2012,
Level 3 completed the offering of $775 million aggregate principal amount of its 7% Senior Notes due 2020 in a private offering. The net proceeds from the offering of the notes, along
with cash on hand, were used
to redeem all of Level 3's outstanding 8.75% Senior Notes due 2017, including the payment of accrued interest and applicable premiums. Level 3 refinanced its existing $1.4 billion
Tranche A Term Loan under its existing senior secured credit facility through the creation of new term loans in the aggregate principal amount of $1.415 billion along with cash on hand
and used the remaining net proceeds to repay $15 million in principal amount plus a premium for existing vendor financing obligations. Further in 2012, Level 3 exchanged approximately
$100 million aggregate principal amount of its outstanding 15% Convertible Senior Notes due 2013 for approximately 5.4 million shares of its common stock, including an inducement
premium. Also in 2012, Level 3 issued $900 million aggregate principal amount of its 8.625% Senior Notes due 2020. A portion of the net proceeds from the offering were used to redeem all
of Level 3's outstanding 9.25% Senior Notes due 2014 in aggregate principal amount of $807 million.
-
(5)
-
In
2008, Level 3 issued approximately 3 million shares of common stock in exchange for $108 million aggregate principal amount of
various issues of its convertible debt.
41
Table of Contents
In
2011, Level 3 issued approximately 5 million shares of common stock in exchange for $128 million of its 15% Convertible Senior Notes. Level 3 also issued approximately
89 million shares of common stock, valued at approximately $1.9 billion, as the stock portion of the purchase price to acquire Global Crossing.
In
2012, Level 3 issued approximately 5.4 million shares of common stock, including an inducement premium, in exchange for approximately $100 million aggregate principal amount of
its outstanding 15% Convertible Senior Notes due 2013.
42
Table of Contents
THE EXCHANGE OFFER
Purpose of the Exchange Offer
On August 6, 2012, the Issuer privately placed $775,000,000 aggregate principal amount of the original notes in a transaction
exempt from registration under the Securities Act and Parent fully and unconditionally guaranteed the original notes on an unsecured basis. Accordingly, the original notes may not be reoffered, resold
or otherwise transferred in the United States unless so registered or unless an exemption from the Securities Act registration requirements is available. On December 6, 2012, pursuant to a
supplemental indenture, by and among Level 3 Communications, LLC ("Level 3 LLC"), the Issuer and The Bank of New York Mellon Trust Company, N.A., as trustee,
Level 3 LLC provided an unconditional, unsecured guaranty of the Notes and such guarantee is subordinated to Level 3 LLC's guarantee of the Credit Agreement.
In
connection with the private placement, the Issuer and Parent entered into a registration agreement, dated as of August 6, 2012, with the initial purchasers of the original
notes. In the registration agreement relating to the original notes, the Issuer and Parent have agreed with the initial purchasers of the original notes
to:
-
•
-
file a registration statement with the SEC relating to the exchange offer not later than May 1, 2013;
-
•
-
use their commercially reasonable efforts to cause the exchange offer registration statement to become effective under the
Securities Act by August 1, 2013; and
-
•
-
upon effectiveness of the exchange offer registration statement, promptly commence the exchange offer.
In
addition, the Issuer and Parent have agreed to keep the exchange offer open for at least 20 business 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 the Issuer and Parent 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, the Issuer is offering to exchange (i) $1,000 in principal amount of new notes for each $1,000 in principal amount 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) the
new notes 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 of original notes being tendered for exchange.
43
Table of Contents
Based
on interpretations by the SEC's staff in no-action letters issued to other parties, the Issuer 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 the Issuer within the meaning of Rule 405 under the Securities Act;
(4) are
not broker-dealers who acquired original notes directly from the Issuer; and
(5) are
not broker-dealers who acquired original notes as a result of market-making or other trading activities.
See
"Plan of Distribution."
Each
broker-dealer that receives new notes for its own account in exchange for original notes, where such original notes were acquired by such broker-dealer 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 such new notes. See "Plan of Distribution."
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. The Issuer and Parent 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, they 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 applicable letter of transmittal, transfer taxes
relating to the exchange of original notes for new notes in the exchange offer.
Shelf Registration Statement
If:
(1) because
of any change in law or applicable interpretations of the staff of the SEC, the Issuer and Parent determine that they are not permitted to effect an exchange
offer,
(2) with
respect to the original notes, for any other reason the exchange offer registration statement is not declared effective by August 1, 2013 or the exchange
offer is not consummated within 30 business days after the exchange offer registration statement is declared effective,
(3) any
initial purchaser so requests for original notes not eligible to be exchanged for new notes in the exchange offer,
(4) any
holder of original notes, other than an initial purchaser, is not eligible to participate in the exchange offer, or
(5) any
holder of original notes, other than an initial purchaser, does not receive freely tradable new notes in the exchange offer other than by reason of the holder being
an affiliate of the Issuer and Parent,
44
Table of Contents
the
Issuer and Parent will:
(1) as
promptly as practicable (but in no event more than the later of (i) May 1, 2013 or (ii) 45 days after so required or requested),
file a shelf registration statement covering resales of the original notes or the new notes, as the case may be, and thereafter use their commercially reasonable efforts to cause the shelf
registration statement to be declared effective under the Securities Act, and
(2) use
their commercially reasonable efforts to keep the shelf registration statement continuously effective until one year after its effective date.
For
purposes of determining whether the Issuer and Parent are 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.
If
the Issuer and Parent file a shelf registration statement, they 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 may 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 principal amount 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.
With
respect to the original notes, 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 May 1, 2013,
(2) neither
the exchange offer registration statement nor the shelf registration statement has been declared effective on or before August 1, 2013,
(3) neither
the exchange offer has been completed nor the shelf registration statement has been declared effective on or before August 31, 2013, 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 applicable registration
agreement.
Special
interest will accrue at a rate of 0.50% per annum on the principal amount 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
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principal
amount. If the exchange offer is completed on the terms and within the period contemplated by this prospectus, no special interest will be payable.
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 , 2013, unless the Issuer 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. The Issuer
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 Bank of New York Mellon Trust Company, N.A., the exchange
agent, and by timely public announcement. Unless otherwise required by applicable law or regulation, the public announcement will be made by a release to the PR Newswire or other national newswire
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. The Issuer 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 the Issuer; and
(2) amend
the terms of the exchange offer in any manner.
If
any termination or amendment occurs, the Issuer 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 the Issuer terminates the exchange offer prior to 5:00 p.m., New York City time, on the expiration date, the Issuer will exchange the new notes for the
original notes on the exchange date.
If:
(1) the
Issuer 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 the Issuer 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.
How to Tender
The tender to the Issuer of original notes according to one of the procedures described below will constitute an agreement between that
holder of original notes and the Issuer in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal.
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General Procedures.
A holder of an original note may tender them by 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 the address set forth below under "—Exchange Agent" on or before the expiration
date. 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 applicable 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 the Issuer. 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 applicable 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 each book-entry
transfer facility for purposes of the exchange offer within two business days after receipt of this prospectus unless the exchange agent already has established an account with the
book-entry transfer facility suitable for the exchange offer. Subject to the establishment of the account, any financial institution that is a participant in the book-entry
transfer facility's systems may make book-entry delivery of original notes by causing a book-entry transfer facility to transfer the original notes into
one of the exchange agent's accounts 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 applicable 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.
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 28% 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.
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,
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accompanied
or preceded by a properly completed letter of transmittal and any other required documents, the Issuer may reject the tender.
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.
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 the Issuer. The Issuer's
determination will be final and binding. The Issuer 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 the Issuer, be unlawful. The Issuer 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 the Issuer, the exchange agent or any other person will incur any liability for failure to give notification
of any defects or irregularities in
tenders. The Issuer'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 the Issuer and irrevocably constitutes and appoints our
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, the Issuer 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 the Issuer 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 the Issuer and the issuance of new notes in exchange shall constitute performance
in full by the Issuer of its obligations under the registration agreement and that the Issuer shall have no further obligations or liabilities under the applicable 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 the Issuer within the meaning of Rule 405 under the Securities Act, that it is not a broker-dealer that owns original notes acquired
directly from the Issuer or an affiliate of the Issuer, 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 the Issuer or of the initial purchasers, and that it will comply with applicable registration and prospectus delivery requirements
of the Securities Act.
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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 the address set forth below under
"—Exchange Agent." Any notice of withdrawal must:
(1) specify
the person named in the applicable 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 applicable letter of transmittal, including any required signature guarantees, or be
accompanied by evidence satisfactory to the Issuer that the person withdrawing the tender has succeeded to the beneficial ownership of the original notes being withdrawn.
If
certificates for original notes have been delivered or otherwise identified to the exchange agent, then prior to the release of those certificates, the withdrawing holder must also
submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an eligible institution unless that holder is an eligible
institution.
If
original notes have been tendered pursuant to the procedure for book-entry transfer described above, the executed notice of withdrawal, guaranteed by an eligible
institution, unless that holder is an eligible institution, must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn original
notes and otherwise comply with the procedures of that facility. All questions as to the validity, form and eligibility, including time of receipt, of those notices will be determined by us, and our
determination shall be final and binding on all parties. Any original notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any original
notes which have been tendered for exchange but which are not exchanged for any reason will be either
(1) returned
to the holder without cost to that holder or
(2) in
the case of original notes tendered by book-entry transfer into the exchange agent's applicable account at the book-entry transfer facility
pursuant to the book-entry transfer procedures described above, those original notes will be credited to an account maintained with the book-entry transfer facility for the
original notes,
in
either case as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn original notes may be retendered by following one of the procedures
described under "—How to Tender" above at any time on or prior to the expiration date.
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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, the Issuer shall be deemed to have accepted for exchange validly tendered
original notes when, as and if the Issuer 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 the Issuer 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 the Issuer terminates the exchange offer before the expiration date, these non-exchanged original notes will be credited to the exchange agent's applicable account
promptly after the exchange offer is terminated.
Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer or any extension of the exchange offer, the Issuer will not be required to
issue new notes for any properly tendered original notes not previously accepted. The Issuer may terminate the exchange offer by 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 PR Newswire or other national newswire 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 the Issuer 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
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 the Issuer might result in any of the consequences referred to in clauses (1)(A) or (B) above or, in the
sole judgment of the Issuer, 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 the Issuer or Parent.
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The
conditions described above are for the sole benefit of the Issuer. The Issuer may assert these conditions regarding all or any portion of the exchange offer regardless of the
circumstances, including any action or inaction by the Issuer, giving rise to the condition. The Issuer may waive these conditions in whole or in part at any time or from time to time in its sole
discretion. The failure by the Issuer 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, the Issuer has reserved the right, despite the satisfaction of each of the conditions described above, to terminate or amend the exchange
offer.
Any
determination by the Issuer concerning the fulfillment or non-fulfillment of any conditions will be final and binding upon all parties.
In
addition, the Issuer 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 any of the indentures under the Trust Indenture Act.
Exchange Agent
The Bank of New York Mellon Trust Company, N.A. has been appointed as the exchange agent for the exchange offer. Letters of transmittal
must be addressed to the exchange agent at the address set forth below.
Deliver
to:
The Bank of New York Mellon Trust Company, N.A., as Exchange Agent
By Registered or Certified Mail:
c/o The Bank of New York Mellon Corporation
Corporate Trust Operations—Reorganization Unit
111 Sanders Creek Parkway
East Syracuse, NY 13057
Attn: Dacia Brown-Jones
By Telephone: 315-414-3349
By Facsimile: 732-667-9408
Delivery
to an address other than as set forth in this prospectus, or transmissions of instructions via a facsimile number other than the one set forth herein, will not constitute
a valid delivery.
Solicitation of Tenders; Expenses
The Issuer 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, the Issuer 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. The Issuer 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 the Issuer and are estimated at approximately $100,000.
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Appraisal Rights
Holders of original notes will not have dissenters' rights or appraisal rights in connection with the exchange offer.
Transfer Taxes
Holders who tender their original notes for exchange will not be obligated to pay any transfer taxes in connection with the exchange,
except that holders who instruct us to register new notes in the name of, or request that original notes not tendered or not accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any applicable transfer tax.
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, the Issuer and
Parent 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 exemption from the Securities Act registration requirements is available. Except under certain limited
circumstances, the Issuer does 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.
The
Issuer may in the future seek to acquire untendered original notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. The Issuer
has no present plan to acquire any original notes that are not tendered in the exchange offer.
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DESCRIPTION OF INDEBTEDNESS OF
LEVEL 3 COMMUNICATIONS, INC. AND THE ISSUER
The following is a description of the material outstanding indebtedness of Level 3 Communications, Inc. and the Issuer,
other than the original notes. For purposes of this section of the prospectus only, "Level 3" refers only to Level 3 Communications, Inc., the parent company of the Issuer. The
following summaries of Level 3's and the Issuer's senior secured term loans and outstanding notes (other than the original notes which are the subject of this exchange offer) are qualified in
their entirety by reference to the Credit Agreement governing the senior secured term loans and the indentures to which each issue of notes relates. Copies of the Credit Agreement and indentures are
available on request from Level 3.
Indebtedness of the Issuer
As of March 13, 2007, the Issuer, as borrower, and Level 3, as guarantor, Merrill Lynch Capital Corporation, as
administrative agent and collateral agent ("Merrill Lynch"), and certain other agents and certain lenders entered into a Credit Agreement (as amended, amended and restated or otherwise modified, the
"Credit Agreement"), pursuant to which the lenders extended, (a) on March 13, 2007, $1.4 billion (the "Tranche A Term Loan"), (b) on April 16, 2009, an
additional $220 million, (c) on May 15, 2009, an additional $60 million (such loans referred to in clauses (b) and (c), the "Tranche B Term Loans"),
(d) on October 4, 2011, an additional $650 million (the "Tranche B II Term Loans"), (e) on November 10, 2011, an additional $550 million (the
"Tranche B III Term Loans"), (f) on August 6, 2012, an additional $600 million (the "Tranche B 2016 Term Loan") and $815 million (the "Tranche B 2019
Term Loan"); and (g) on October 4, 2012, an additional $1.2 billion (the "Tranche B-II 2019") of senior secured term loans to the Issuer.
A
portion of the proceeds from the Tranche A Term Loan and the Tranche B Term Loans was used by the Issuer to refinance the Issuer's $730 million senior secured term
loan under that certain credit agreement, dated as of December 1, 2004, as amended and restated on June 27, 2006, by and among Level 3, the Issuer, Merrill Lynch and certain
lenders. The additional proceeds from the Tranche A Term Loan and the Tranche B Term Loans were used by the Issuer for general corporate purposes.
A
portion of the net proceeds of the Tranche B II Term Loans was used to refinance certain existing indebtedness of Global Crossing in connection with the consummation of the
Global Crossing acquisition. The remaining proceeds from the Tranche B II Term Loans were used by the Issuer for general corporate purposes.
A
portion of the net proceeds of the Tranche B III Term Loans was used to pre-pay in full the Tranche B Term Loans, and the remainder was used to redeem, on
December 10, 2011, all of the outstanding 3.5% Convertible Senior Notes due 2012 of Level 3, in aggregate principal amount of $274 million.
A
portion of the net proceeds from the Tranche B 2016 Term Loans and the Tranche B 2019 Term Loans were used, along with cash on hand, to repay the Tranche A Term
Loan, and the remainder was used to repay an existing lendor financing obligation.
A
portion of the net proceeds of the Tranche B-II 2019 were used, along with cash on hand, to pre-pay the Tranche B II Term Loan and the Tranche B III
Term Loan.
The
Issuer's obligations under the Credit Agreement are secured by certain of the assets of (i) Level 3, (ii) Level 3 LLC and
(iii) Level 3's material domestic subsidiaries which are engaged in the
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telecommunications
business. Level 3, Level 3 LLC and these subsidiaries also guarantee the obligations of the Issuer under the Credit Agreement.
The
principal amount of the Tranche B 2016 Term Loan will be payable in full on February 1, 2016. The principal amount of the Tranche B 2019 Term Loan and the
Tranche B-II 2019 will be payable in full on August 1, 2019. Additional secured term loans or revolving loans may in the future be extended to the Issuer under the Credit
Agreement.
Any
Tranche B 2016 Term Loan or Tranche B 2019 Term Loan that is an Alternate Base Rate Loan bears an interest rate equal (a) to the greater of (i) the Prime
Rate in effect on such day, (ii) the Federal Funds Effective Rate in effect on such day plus
1
/
2
of 1% and (iii) the sum of (A) the higher of (x) the LIBO
Rate (as defined in the Restated Credit Agreement) for a one month interest period on such day and (y) 1.50%, plus (B) 1.00%, plus (b) 2.25% per annum in respect of the
Tranche B 2016 Term Loans, or 2.75% per annum in respect of the Tranche B 2019 Term Loans. In the case of any Eurodollar Borrowing, any Tranche B 2016 Term Loan or
Tranche B 2019 Term Loan bears interest at the LIBO Rate for the interest period for such borrowing plus (a) 3.25% per annum in respect of the Tranche B 2016 Term Loans, or
(b) 3.75% per annum in respect of the Tranche B 2019 Term Loans.
Any
Tranche B-II 2019 Loans that are an Alternate Base Rate Loan bears an interest rate equal (a) to the greater of (i) the Prime Rate in effect on such
day, (ii) the Federal Funds Effective Rate in effect on such days plus
1
/
2
of 1% and (iii) the sum of (A) the higher of (x) the LIBO Rate for a one month
interest period on such day and (y) 1.50%, plus (B) 1.00%, plus (b) 2.25% per annum. In each case of any Eurodollar Borrowing, any Tranche B-II 2019 Loans bear
interest at the LIBO Rate for the interest period for such borrowing plus 3.25% per annum.
The
Credit Agreement provides that indebtedness outstanding under the senior secured term loans will be paid with all of the net available cash proceeds with respect to certain asset
sales, if these proceeds are not reinvested in Level 3's business. The Credit Agreement contains negative covenants restricting and limiting the ability of Level 3, the Issuer and any
restricted subsidiary to engage in certain activities, including:
-
•
-
limitations on indebtedness and the incurrence of liens;
-
•
-
restrictions on dividends and distributions on capital stock, and other similar distributions;
-
•
-
limitations on transactions restricting the ability of subsidiaries to pay dividends and other similar distributions;
-
•
-
restrictions on the issuance and sale of capital stock of subsidiaries;
-
•
-
restrictions on sale leaseback transactions, sales of assets and investments, including restrictions on asset transfers by
guarantors under the Credit Agreement to subsidiaries of Level 3 which are not guarantors;
-
•
-
limitations on transactions with affiliates;
-
•
-
limitations on designating subsidiaries as unrestricted subsidiaries;
-
•
-
limitations on actions with respect to existing intercompany obligations; and
-
•
-
in the case of Level 3, the Issuer and any guarantor, restrictions on mergers and sales of substantially all
assets.
The
Credit Agreement does not require Level 3 or the Issuer to maintain specific financial ratios. The Credit Agreement does contain certain events of default.
As
of December 31, 2012, approximately $2.614 billion aggregate principal amount of the senior secured term loans was outstanding.
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On February 14, 2007, the Issuer issued $300 million aggregate principal amount of Floating Rate Senior Notes due 2015
(the "2015 Floating Rate Notes") under an indenture between Level 3, as guarantor, the Issuer, and The Bank of New York as trustee. The 2015 Floating Rate Notes are senior unsecured,
unsubordinated obligations of the Issuer. They rank equally in right of payment with all other existing and future senior unsecured, unsubordinated indebtedness of the Issuer. The 2015 Floating Rate
Notes are unconditionally guaranteed on an unsubordinated, unsecured basis by Level 3 and Level 3 LLC. The 2015 Floating Rate Notes bear interest at a rate of LIBOR plus 3.75% per
annum, reset semiannually, and payable semiannually in arrears on February 15 and August 15 of each year.
The
Issuer may redeem the 2015 Floating Rate Notes, in whole or in part, at any time, without the payment of a premium.
If
an event treated as a change in control of Level 3 and/or the Issuer occurs, the Issuer will be obligated, subject to certain conditions, to offer to purchase all of the
outstanding 2015 Floating Rate Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any.
The
indenture relating to the 2015 Floating Rate Notes contains certain covenants, including, among others, covenants with respect to the following matters: (i) limitation on
consolidated debt; (ii) limitation on debt of the Issuer and the Issuer restricted subsidiaries; (iii) limitation on restricted payments; (iv) limitation on dividend and other
payment restrictions affecting restricted subsidiaries; (v) limitation on liens; (vi) limitation on sale and leaseback transactions; (vii) limitation on asset dispositions;
(viii) limitation on issuance and sales of capital stock of restricted subsidiaries; (ix) transactions with affiliates; (x) reports; (xi) limitation on designations of
unrestricted subsidiaries; and (xii) in the case of
Level 3, the Issuer, future guarantors of the 2015 Floating Rate Notes and guarantors of the 2015 Floating Rate Proceeds Note, limitations on mergers, consolidations and sales of all or
substantially all of the assets of such entities.
The
holders of the 2015 Floating Rate Notes may force the Issuer to immediately repay the principal on the 2015 Floating Rate Notes, including interest to the acceleration date, if
certain defaults exist under other indebtedness of Level 3 or any restricted subsidiary having an outstanding principal amount of at least $25 million, which defaults result in the
acceleration of such other indebtedness or constitute a failure to pay principal when due.
As
of December 31, 2012, approximately $300 million aggregate principal amount of the 2015 Floating Rate Notes was outstanding.
On January 20, 2010, the Issuer issued $640 million aggregate principal amount of 10% Senior Notes due 2018 under an
indenture between Level 3, as guarantor, the Issuer and The Bank of New York Mellon, as trustee (the "10% Senior Notes"). The 10% Senior Notes are senior unsecured, unsubordinated obligations
of the Issuer. They rank equally in right of payment with all other existing and future senior unsecured unsubordinated indebtedness of the Issuer. The 10% Senior Notes are unconditionally guaranteed
on an unsubordinated, unsecured basis by Level 3 and Level 3 LLC. The 10% Senior Notes bear interest at a rate of 10% per annum, payable semiannually in arrears on
February 1 and August 1 of each year.
The
Issuer may redeem the 10% Senior Notes, in whole or in part, at any time before February 1, 2014, at a redemption price equal to 100% of their principal amount, plus a
make-whole premium and accrued and unpaid interest. The Issuer also may redeem the 10% Senior Notes, in whole or in part, at any time on or after February 1, 2014. If a redemption
occurs before February 1, 2016, the Issuer will pay a premium on the principal amount of the 10% Senior Notes redeemed. This premium decreases
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annually
from approximately 5.000% for a redemption during the twelve month period beginning on February 1, 2014 to approximately 2.500% for a redemption during the twelve month period
beginning on February 1, 2015. In addition, on or prior to February 1, 2013, the Issuer may redeem up to 35% of
the 10% Senior Notes with the proceeds of certain equity offerings of Level 3 that are contributed to the Issuer at a redemption price equal to 110% of the principal amount of the 10% Senior
Notes so redeemed, plus accrued and unpaid interest thereon (if any) to the redemption date.
If
an event treated as a change in control of Level 3 and/or the Issuer occurs, the Issuer will be obligated, subject to certain conditions, to offer to purchase all of the
outstanding 10% Senior Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any.
The
indenture relating to the 10% Senior Notes contains certain covenants, including, among others, covenants with respect to the following matters: (i) limitation on consolidated
debt; (ii) limitation on debt of the Issuer and the Issuer restricted subsidiaries; (iii) limitation on restricted payments; (iv) limitation on dividend and other payment
restrictions affecting restricted subsidiaries; (v) limitation on liens; (vi) limitation on sale and leaseback transactions; (vii) limitation on asset dispositions;
(viii) limitation on issuance and sales of capital stock of restricted subsidiaries; (ix) transactions with affiliates; (x) reports; (xi) limitation on designations of
unrestricted subsidiaries; and (xii) in the case of Level 3, the Issuer and future guarantors of the 10% Senior Notes and guarantors of the 10% Proceeds Note, limitations on mergers,
consolidations and sales of all or substantially all of the assets of such entities.
The
holders of the 10% Senior Notes may force the Issuer to immediately repay the principal on the 10% Senior Notes, including interest to the acceleration date, if certain defaults
exist under other indebtedness of Level 3 or any restricted subsidiary having an outstanding principal amount of at least $25 million, which defaults result in the acceleration of such
other indebtedness or constitute a failure to pay principal when due.
As
of December 31, 2012, approximately $640 million aggregate principal amount of the 10% Senior Notes was outstanding.
On March 4, 2011, the Issuer issued $500 million aggregate principal amount of 9.375% Senior Notes due 2019 under an
indenture between Level 3, as guarantor, the Issuer and The Bank of New York Mellon Trust Company, N.A., as trustee (the "9.375% Senior Notes"). The 9.375% Senior Notes are senior unsecured,
unsubordinated obligations of the Issuer. They rank equally in right of payment with all other existing and future senior unsecured unsubordinated indebtedness of the Issuer. The 9.375% Senior Notes
are unconditionally guaranteed on an unsubordinated, unsecured basis by Level 3 and Level 3 LLC. The 9.375% Senior Notes bear interest at a rate of 9.375% per annum, payable
semiannually in arrears on April 1 and October 1 of each year.
The
Issuer may redeem the 9.375% Senior Notes, in whole or in part, at any time before April 1, 2015, at a redemption price equal to 100% of their principal amount, plus a
make-whole premium and accrued and unpaid interest. The Issuer also may redeem the 9.375% Senior Notes, in whole or in part, at any time on or after April 1, 2015. If a redemption
occurs before April 1, 2017, the Issuer will pay a premium on the principal amount of the 9.375% Senior Notes redeemed. This premium decreases annually from approximately 4.688% for a
redemption during the twelve month period beginning on April 1, 2015 to approximately 2.344% for a redemption during the twelve month period beginning on April 1, 2016. In addition, on
or prior to April 1, 2014, the Issuer may redeem up to 35% of the 9.375% Senior Notes with the proceeds of certain equity offerings of Level 3 that are contributed to the Issuer at a
redemption price equal to 109.375% of the principal amount of the 9.375% Senior Notes so redeemed, plus accrued and unpaid interest thereon (if any) to the redemption date.
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If
an event treated as a change in control of Level 3 and/or the Issuer occurs, the Issuer will be obligated, subject to certain conditions, to offer to purchase all of the
outstanding 9.375% Senior Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any.
The
indenture relating to the 9.375% Senior Notes contains certain covenants, including, among others, covenants with respect to the following matters: (i) limitation on
consolidated debt; (ii) limitation on debt of the Issuer and the Issuer restricted subsidiaries; (iii) limitation on restricted payments; (iv) limitation on dividend and other
payment restrictions affecting restricted subsidiaries; (v) limitation on liens; (vi) limitation on sale and leaseback transactions; (vii) limitation on asset dispositions;
(viii) limitation on issuance and sales of capital stock of restricted subsidiaries; (ix) transactions with affiliates; (x) reports; (xi) limitation on designations of
unrestricted subsidiaries; and (xii) in the case of Level 3, the Issuer and future guarantors of the 9.375% Senior Notes and guarantors of the 9.375% Proceeds Note, limitations on
mergers, consolidations and sales of all or substantially all of the assets of such entities.
The
holders of the 9.375% Senior Notes may force the Issuer to immediately repay the principal on the 9.375% Senior Notes, including interest to the acceleration date, if certain
defaults exist under other indebtedness of Level 3 or any restricted subsidiary having an outstanding principal amount of at least $25 million, which defaults result in the acceleration
of such other indebtedness or constitute a failure to pay principal when due.
As
of December 31, 2012, approximately $500 million aggregate principal amount of the 9.375% Senior Notes was outstanding.
On June 9, 2011, Level 3 Escrow, Inc. ("Level 3 Escrow") issued $600 million aggregate principal
amount of 8.125% Senior Notes due 2019 (the "8.125% Senior Notes") under an indenture between Level 3 Escrow and The Bank of New York Mellon Trust Company, N.A., as trustee. The 8.125% Senior
Notes were senior unsecured, unsubordinated obligations of Level 3 Escrow. The 8.125% Senior Notes are unconditionally guaranteed on an unsubordinated, unsecured basis by Level 3 and
Level 3 LLC. The 8.125% Senior Notes bear interest at a rate of 8.125% per annum, payable semiannually in arrears on January 1 and July 1 of each year. The 8.125% Senior
Notes were priced to investors at 99.264% of their principal amount.
On
July 28, 2011, Level 3 Escrow issued an additional $600 million in aggregate principal amount of its 8.125% Senior Notes due 2019 under the same indenture as the
8.125% Senior Notes issued in June, which are treated under that indenture as a single series of notes. The new 8.125% Senior Notes due 2019 were priced to investors at 98.545% of their principal
amount, plus accrued interest from June 9, 2011 when the original notes were issued, and will mature on July 1, 2019.
The
gross proceeds from each offering together with cash on hand were deposited into a segregated escrow account, and were to remain in escrow until the date on which certain escrow
conditions, including, but not limited to, the substantially concurrent consummation of the Global Crossing acquisition by Level 3 and the assumption of all obligations under the 8.125% Senior
Notes and the related indenture by the Issuer (the "Notes Assumption") were satisfied. Prior to the Notes Assumption, the sole obligor of the 8.125% Senior Notes was Level 3 Escrow. On
October 4, 2011, following the consummation of the Global Crossing acquisition by Level 3, the contribution of Level 3's shares in Level 3 GC Limited to the Issuer and the
satisfaction of certain escrow conditions, the Issuer entered into a supplemental indenture, dated as of October 4, 2011, to the indenture governing the 8.125% Senior Notes with Level 3
and The Bank of New York Mellon Trust Company, N.A., as trustee, providing for the consummation of the Notes Assumption and the unconditional guarantee by Level 3 of the Issuer's obligations
under the 8.125% Senior Notes and the related indenture. Upon and after
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the
Notes Assumption, the 8.125% Senior Notes are fully and unconditionally guaranteed on an unsubordinated and unsecured basis by Level 3, and since March 22, 2012, by
Level 3 LLC.
The
Issuer may redeem the 8.125% Senior Notes, in whole or in part, at any time before July 1, 2015, at a redemption price equal to 100% of their principal amount, plus a
make-whole
premium and accrued and unpaid interest. The Issuer also may redeem the 8.125% Senior Notes, in whole or in part, at any time or from time to time on or after July 1, 2015. If a redemption
occurs before July 1, 2017, the Issuer will pay a premium on the principal amount of the 8.125% Senior Notes redeemed. This premium decreases annually from approximately 4.063% for a redemption
during the twelve month period beginning on July 1, 2015 to approximately 2.031% for a redemption during the twelve month period beginning on July 1, 2016. In addition, on or prior to
July 1, 2014, the Issuer may redeem up to 35% of the 8.125% Senior Notes at a redemption price equal to 108.125% of the principal amount of the 8.125% Senior Notes so redeemed, plus in each
case, accrued and unpaid interest thereon (if any) to the redemption date.
If
an event treated as a change in control of Level 3 and/or the Issuer occurs, the Issuer will be obligated, subject to certain conditions, to offer to purchase all of the
outstanding 8.125% Senior Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any.
The
indenture relating to the 8.125% Senior Notes contains certain covenants, including, among others, covenants with respect to the following matters: (i) limitation on
consolidated debt; (ii) limitation on debt of the Issuer and the Issuer's restricted subsidiaries; (iii) limitation on restricted payments; (iv) limitation on dividend and other
payment restrictions affecting restricted subsidiaries; (v) limitation on liens; (vi) limitation on sale and leaseback transactions; (vii) limitation on asset dispositions;
(viii) limitation on issuance and sales of capital stock of restricted subsidiaries; (ix) transactions with affiliates; (x) reports; (xi) limitation on designations of
unrestricted subsidiaries; and (xii) in the case of Level 3, the Issuer and future guarantors of the 8.125% Senior Notes and guarantors of the 8.125% Proceeds Note, limitations on
mergers, consolidations and sales of all or substantially all of the assets of such entities.
The
holders of the 8.125% Senior Notes may force the Issuer to immediately repay the principal on the 8.125% Senior Notes, including interest to the acceleration date, if certain
defaults exist under other indebtedness of Level 3 or any restricted subsidiary having an outstanding principal amount of at least $25 million, which defaults result in the acceleration
of such other indebtedness or constitute a failure to pay principal when due.
As
of December 31, 2012, approximately $1.2 billion aggregate principal amount of the 8.125% Senior Notes was outstanding.
On January 13, 2012, the Issuer issued $900 million aggregate principal amount of 8.625% Senior Notes due 2020 under an
indenture between Level 3, as guarantor, the Issuer and The Bank of New York Mellon Trust Company, N.A., as trustee (the "8.625% Senior Notes"). The 8.625% Senior Notes are senior unsecured,
unsubordinated obligations of the Issuer. They rank equally
in right of payment with all other existing and future senior unsecured unsubordinated indebtedness of the Issuer. The 8.625% Senior Notes bear interest at a rate of 8.625% per annum, payable
semiannually in arrears on January 15 and July 15 of each year.
The
Issuer may redeem the 8.625% Senior Notes, in whole or in part, at any time before January 15, 2016, at a redemption price equal to 100% of their principal amount, plus a
make-whole premium and accrued and unpaid interest. The Issuer also may redeem the 8.625% Senior Notes, in whole or in part, at any time on or after January 15, 2016. If a
redemption occurs before January 15, 2018, the Issuer will pay a premium on the principal amount of the 8.625% Senior Notes redeemed.
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This
premium decreases annually from approximately 4.313% for a redemption during the twelve month period beginning on January 15, 2016 to approximately 2.156% for a redemption during the
twelve month period beginning on January 15, 2017. In addition, on or prior to January 15, 2015, the Issuer may redeem up to 35% of the 8.625% Senior Notes at a redemption price equal to
108.625% of the principal amount of the 8.625% Senior Notes so redeemed, plus in each case, accrued and unpaid interest thereon (if any) to the redemption date.
If
an event treated as a change in control of Level 3 and/or the Issuer occurs, the Issuer will be obligated, subject to certain conditions, to offer to purchase all of the
outstanding 8.625% Senior Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any.
The
indenture relating to the 8.625% Senior Notes contains certain covenants, including, among others, covenants with respect to the following matters: (i) limitation on
consolidated debt; (ii) limitation on debt of the Issuer and the Issuer restricted subsidiaries; (iii) limitation on restricted payments; (iv) limitation on dividend and other
payment restrictions affecting restricted subsidiaries; (v) limitation on liens; (vi) limitation on sale and leaseback transactions; (vii) limitation on asset dispositions;
(viii) limitation on issuance and sales of capital stock of restricted subsidiaries; (ix) transactions with affiliates; (x) reports; (xi) limitation on designations of
unrestricted subsidiaries; and (xii) in the case of Level 3, the Issuer and future guarantors of the 8.625% Senior Notes and guarantors of the 8.625% Proceeds Note, limitations on
mergers, consolidations and sales of all or substantially all of the assets of such entities.
The
holders of the 8.625% Senior Notes may force the Issuer to immediately repay the principal on the 8.625% Senior Notes, including interest to the acceleration date, if certain
defaults exist under other indebtedness of Level 3 or any restricted subsidiary having an outstanding principal amount of at least $25 million, which defaults result in the acceleration
of such other indebtedness or constitute a failure to pay principal when due.
As
of December 31, 2012, approximately $900 million aggregate principal amount of the 8.625% Senior Notes was outstanding.
Indebtedness of Level 3 Communications, Inc.
On June 26, 2009, Level 3 issued $200 million aggregate principal amount of 7% convertible senior notes due 2015
(the "2015 Convertible 7% Notes") under an indenture between Level 3 and The Bank of New York Mellon, as trustee. The 2015 Convertible 7% Notes are senior unsecured obligations of
Level 3. They rank equally in right of payment with all other existing and future senior unsecured indebtedness of Level 3. The 2015 Convertible 7% Notes bear interest at a rate of 7%
per annum, payable semiannually in arrears on March 15 and September 15.
The
2015 Convertible 7% Notes are convertible into shares of Level 3 common stock, at the option of the holder, at any time prior to maturity, unless previously repurchased or
redeemed, or unless Level 3 has caused the conversion rights to expire. The 2015 Convertible 7% Notes may be converted at the initial rate of 37.0370 (as adjusted for the 1 for 15 reverse stock
split) shares of common stock per each $1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to a conversion price of approximately $27.00 per share.
Upon
the occurrence of a designated event (a change of control or a termination of trading), holders of the 2015 Convertible 7% Notes will have the right, subject to certain exceptions
and conditions, to require Level 3 to repurchase all or any part of the 2015 Convertible 7% Notes at a repurchase price equal to 100% of the principal amount of the 2015 Convertible 7% Notes,
plus accrued and unpaid interest thereon (if any) to, but excluding, the designated event purchase date.
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If
an event treated as a change in control of Level 3 occurs, Level 3 will be obligated, subject to certain conditions, to offer to purchase all of the outstanding 2015
Convertible 7% Notes at a purchase price of 100% of the principal amount, plus a "make whole" premium, by increasing the conversion rate applicable to such 2015 Convertible 7% Notes.
As
of December 31, 2012, approximately $200 million aggregate principal amount of the 2015 Convertible 7% Notes was outstanding.
7% Convertible Senior Notes due 2015, Series B
On October 15, 2009, Level 3 issued $275 million aggregate principal amount of 7% convertible senior notes due
2015, Series B (the "Series B 2015 Convertible 7% Notes") under an indenture between Level 3 and The Bank of New York Mellon, as trustee. The Series B 2015 Convertible 7%
Notes are substantially similar in all respects to the 2015 Convertible 7% Notes discussed above.
As
of December 31, 2012, approximately $275 million aggregate principal amount of the 2015 Convertible 7% Notes, Series B was outstanding.
On September 20, 2010 and October 5, 2010, Level 3 issued $175 million and $26.25 million,
respectively, aggregate principal amount of 6.5% convertible senior notes due 2016 (the "2016 Convertible 6.5% Notes") under an indenture between Level 3 and The Bank of New York Mellon, as
trustee. The 2016 Convertible 6.5% Notes are senior unsecured obligations of Level 3. They rank equally in right of payment with all other existing and future senior unsecured indebtedness of
Level 3. The 2016 Convertible 6.5% Notes bear interest at a rate of 6.5% per annum, payable semiannually in arrears on April 1 and October 1.
The
2016 Convertible 6.5% Notes are convertible into shares of Level 3 common stock, at the option of the holder, at any time prior to maturity, unless previously repurchased or
redeemed, or unless Level 3 has caused the conversion rights to expire. The 2016 Convertible 6.5% Notes may be converted at the initial rate of 53.9811 (as adjusted for the 1 for 15 reverse
stock split) shares of common stock per each $1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to a conversion price of approximately $18.53 per
share.
Upon
the occurrence of a designated event (a change of control or a termination of trading), holders of the 2016 Convertible 6.5% Notes will have the right, subject to certain exceptions
and conditions, to require Level 3 to repurchase all or any part of the 2016 Convertible 6.5% Notes at a repurchase price equal to 100% of the principal amount of the 2016 Convertible 6.5%
Notes, plus accrued and unpaid interest thereon (if any) to, but excluding, the designated event purchase date.
If
an event treated as a change in control of Level 3 occurs, Level 3 will be obligated, subject to certain conditions, to offer to purchase all of the outstanding 2016
Convertible 6.5% Notes at a purchase price of 100% of the principal amount, plus a "make whole" premium, by increasing the conversion rate applicable to such 2016 Convertible 6.5% Notes.
As
of December 31, 2012, approximately $201 million aggregate principal amount of the 2016 Convertible 6.5% Notes was outstanding.
On January 19, 2011, Level 3 issued $305 million aggregate principal amount of its 11.875% Senior Notes due 2019
(the "11.875% Senior Notes") under an indenture between Level 3 and The Bank of New York Mellon Trust Company, N.A., as trustee. The 11.875% Senior Notes are unsecured and unsubordinated
obligations of Level 3. They rank equally in right of payment with all other existing and
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future
senior unsecured indebtedness of Level 3. The 11.875% Senior Notes bear interest at a rate of 11.875% per annum, payable semiannually on April 1 and October 1 of each year.
On
January 31, 2011, Level 3 issued an additional $300 million aggregate principal amount of the 11.875% Senior Notes in exchange for $295 million aggregate
principal amount of Level 3's 9% Convertible Senior Discount Notes due 2013.
Level 3
may redeem the 11.875% Senior Notes, in whole or in part, at any time before February 1, 2015, at a redemption price equal to 100% of their principal amount, plus a
make-whole
premium and accrued and unpaid interest. Level 3 also may redeem the 11.875% Senior Notes, in whole or in part, on or after February 1, 2015. If a redemption occurs before
February 1, 2017, Level 3 will pay a premium on principal amount of the 11.875% Senior Notes redeemed. The premium decreases annually from approximately 5.938% for a redemption during
the twelve month period beginning February 1, 2015 to approximately 2.969% for a redemption during the twelve month period beginning on February 1, 2016. In addition, on or prior to
February 1, 2014, Level 3 may redeem up to 35% of the 11.875% Senior Notes with the proceeds of certain equity offerings of Level 3 at a redemption price equal to 111.875% of the
principal amount of the 11.875% Senior Notes so redeemed, plus accrued and unpaid interest thereon (if any) to the redemption date.
If
an event treated as a change of control of occurs, Level 3 will be obligated, subject to certain conditions, to offer to purchase all outstanding 11.875% Senior Notes at a
purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any.
The
indenture relating to the 11.875% Senior Notes contains certain covenants, including, among others, covenants with respect to the following matters: (i) limitation on
consolidated debt; (ii) limitation on debt of the Issuer and its restricted subsidiaries; (iii) limitation on restricted payments; (iv) limitation on dividend and other payment
restrictions affecting restricted subsidiaries; (v) limitation on liens; (vi) limitation on sale and leaseback transactions; (vii) limitation on asset dispositions;
(viii) limitation on issuance and sales of capital stock of restricted subsidiaries; (ix) transactions with affiliates; (x) future subsidiary guarantors and subsidiary liens;
(xi) reports; (xii) limitation on designations of unrestricted subsidiaries; and (xiii) in the case of Level 3, limitations on mergers, consolidations and sales of certain
assets.
Either
the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding 11.875% Senior Notes may accelerate the maturity of the 11.875% Senior Notes, including
interest to the acceleration date, if certain defaults exist under the indebtedness of Level 3.
As
of December 31, 2012, approximately $605 million aggregate principal amount of the 11.875% Senior Notes was outstanding.
On August 1, 2012, Level 3 issued $300 million aggregate principal amount of its 8.875% Senior Notes due 2019 (the
"8.875% Senior Notes") under an indenture between Level 3 and The Bank of New York Mellon Trust Company, N.A., as trustee. The 8.875% Senior Notes are unsecured and unsubordinated obligations
of Level 3. They rank equally in right of payment with all other existing and future senior unsecured indebtedness of Level 3. The 8.875% Senior Notes bear interest at a rate of 8.875%
per annum, payable semiannually on June 1 and December 1 of each year.
Level 3
may redeem the 8.875% Senior Notes, in whole or in part, at any time before June 1, 2015, at a redemption price equal to 100% of their principal amount, plus a
make-whole premium and accrued and unpaid interest. Level 3 also may redeem the 8.875% Senior Notes, in whole or in part, on or after June 1, 2015. If a redemption occurs
before June 1, 2017, Level 3 will pay a premium on the principal amount of the 8.875% Senior Notes redeemed. The premium decreases annually from approximately 4.438% for a redemption
during the twelve month period beginning June 1, 2015 to
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approximately
2.219% for a redemption during the twelve month period beginning on June 1, 2016. In addition, on or prior to June 1, 2015, Level 3 may redeem up to 35% of the
8.875% Senior Notes with the proceeds of certain equity offerings of Level 3 at a redemption price equal to 108.875% of the principal amount of the 8.875% Senior Notes so redeemed, plus accrued
and unpaid interest thereon (if any) to the redemption date.
If
an event treated as a change of control of occurs, Level 3 will be obligated, subject to certain conditions, to offer to purchase all outstanding 8.875% Senior Notes at a
purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any. In the event that holders of not less than 90% of the principal amount of the outstanding notes accept such an
offer to purchase, Level 3 may redeem the remaining outstanding notes at a price in cash equal to 101% of the principal amount of the notes, plus accrued and unpaid interest, if any, to, but
not including, the redemption date.
The
indenture relating to the 8.875% Senior Notes contains certain covenants, including, among others, covenants with respect to the following matters: (i) limitation on
consolidated debt; (ii) limitation on debt of the Issuer and its restricted subsidiaries; (iii) limitation on restricted payments; (iv) limitation on dividend and other payment
restrictions affecting restricted subsidiaries; (v) limitation on liens; (vi) limitation on sale and leaseback transactions; (vii) limitation on asset dispositions;
(viii) limitation on issuance and sales of capital stock of restricted subsidiaries; (ix) transactions with affiliates; (x) future subsidiary guarantors and subsidiary liens;
(xi) reports; and (xii) limitation on designations of unrestricted subsidiaries.
Either
the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding 8.875% Senior Notes may accelerate the maturity of the 8.875% Senior Notes, including
interest to the acceleration date, if certain defaults exist under the indebtedness of Level 3.
As
of December 31, 2012, approximately $300 million aggregate principal amount of the 8.875% Senior Notes was outstanding.
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DESCRIPTION OF THE NOTES
General
The new notes, like the original notes, will be issued under an Indenture, dated as of August 6, 2012 (as supplemented, the
"Indenture"), among Level 3 Communications, Inc. ("Parent"), Level 3 Financing, Inc. (the "Issuer") and The Bank of New York Mellon Trust Company, N.A., as trustee under
the Indenture (the "Trustee"). Copies of the Indenture are available from the Issuer on request. For purposes of this Description of the Notes, the term "Issuer" refers only to Level 3
Financing, Inc. and not to any of its subsidiaries or its parent company, Level 3 Communications, Inc., and the term "Parent" refers only to Level 3
Communications, Inc. and not to any of its subsidiaries, in each case except for purposes of financial data determined on a consolidated basis. For purposes of this Description of the Notes,
all references to the "Notes" shall be deemed to refer collectively to the original notes and the new notes.
The
following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"), and to all of the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the Indenture. The definitions of certain capitalized terms used in the following summary are set forth below under
"—Certain Definitions." We urge you to read the Indenture because it, and not this description, defines your rights as a holder of the Notes.
The
Notes are unsubordinated, unsecured obligations of the Issuer, ranking equal in right of payment with all existing and future unsecured indebtedness of the Issuer that is not
expressly subordinated in right of payment to the Notes, and are senior in right of payment to all existing and future indebtedness of the Issuer that is expressly subordinated in right of payment to
the Notes. The Notes, however, are effectively subordinated to the Issuer's existing and future secured obligations, including secured obligations under existing and future credit facilities,
receivables, purchase money indebtedness, capitalized leases and certain other arrangements, to the extent of the value of the collateral securing such obligations. Additionally, the Notes are
effectively subordinated to all liabilities, including trade payables, of the Issuer's subsidiaries that are not Guarantors. As of December 31, 2012, the Issuer (excluding its subsidiaries) had
$6.929 billion of indebtedness outstanding (excluding discounts and fair value adjustments), of which $2.614 billion was secured indebtedness and all of which was guaranteed by Parent
and Level 3 LLC.
For
a summary of certain risks relating to the Notes, see "Risk Factors."
Note Guarantees
The Issuer's obligations under the Indenture, including the repurchase obligation resulting from a Change of Control Triggering Event,
are fully and unconditionally guaranteed, jointly and severally, on an unsubordinated and unsecured basis by Parent and Level 3 LLC and will be fully and unconditionally guaranteed,
jointly and severally, on an unsubordinated, unsecured basis by each Restricted Subsidiary that becomes a Guarantor pursuant to the terms of the Indenture. A Restricted Subsidiary will only be
required to become a Guarantor if it incurs specified types of Debt or provides a Guarantee of the 2015 Floating Rate Notes, the 10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125%
Senior Notes due 2019 or the 8.625% Senior Notes due 2020. Each Note Guarantee will be a general unsecured obligation of the Guarantor, will be effectively subordinated to any existing or future
secured Debt of the Guarantor, to the extent of the value of the assets securing such Debt, will be senior in right of payment to any existing or future Debt of the Guarantor that is expressly
subordinated in right of payment to the Note Guarantee, and will be equal in right of payment with any existing or future unsecured Debt of the Guarantor that is not expressly subordinated in right of
payment to the Note Guarantee, including any Guarantee of the 2015 Floating Rate Notes,
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the
10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019 or the 8.625% Senior Notes due 2020. As further described in the fourth succeeding paragraph, the Note
Guarantee of a Restricted Subsidiary may be subordinated in the future to any guarantee of any Qualified Credit Facility issued by such Restricted Subsidiary, including the Existing Credit Facility.
As of December 31, 2012, Parent (excluding its subsidiaries and guarantees) had, on an as adjusted basis, approximately $1.581 billion of indebtedness outstanding, none of which
constituted secured indebtedness or subordinated indebtedness.
As
of December 31, 2012, the Issuer and its subsidiaries in the aggregate had approximately $7.027 billion of indebtedness outstanding (excluding intercompany balances and
discounts and fair value adjustments), approximately $2.712 billion of which constituted secured indebtedness and none of which constituted subordinated indebtedness (excluding intercompany
balances). All such indebtedness of the Issuer is guaranteed by Level 3 LLC. Under the circumstances described below under "—Certain Covenants—Limitation on
Designations of Unrestricted Subsidiaries," Parent will be permitted to designate certain of its subsidiaries as "Unrestricted Subsidiaries." The Unrestricted Subsidiaries will not be subject to any
of the restrictive covenants in the Indenture. The Unrestricted Subsidiaries will not guarantee the Notes.
If
any Guarantor makes payments under its Note Guarantee, each of the Issuer and the other Guarantors must contribute their share of such payments. The Issuer's and the other Guarantors'
shares of such payments will be computed based on the proportion that the net worth of the Issuer or the relevant Guarantor represents relative to the aggregate net worth of the Issuer and all the
Guarantors combined.
The
Note Guarantee of a Guarantor (other than Parent) will be released (a) in connection with any sale or other disposition of all or substantially all of the assets of that
Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) Parent or a Restricted Subsidiary, if the sale or other
disposition of all or substantially all of the assets of that Guarantor complies with the covenant described under "—Certain Covenants—Limitation on Asset Dispositions" (or
Parent certifies in an Officers' Certificate to the Trustee that it will comply with the requirements of such covenant relating to application of the proceeds of such sale or disposition),
(b) in connection with any sale of all of the Capital Stock of a Guarantor (other than Parent) to a Person that is not (either before or after giving effect to such transaction) Parent or a
Restricted Subsidiary, if the sale of all such Capital Stock of that Guarantor complies with the covenant described under "—Certain Covenants—Limitation on Asset Dispositions"
(or Parent certifies in an Officers' Certificate to the Trustee that it will comply with the requirements of such covenant relating to application of the proceeds of such sale or disposition),
(c) if Parent properly designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary pursuant to the covenant described under "—Certain
Covenants—Limitation on Designations of Unrestricted
Subsidiaries" or (d) if the Issuer exercises the legal defeasance option or covenant defeasance option as described under "—Satisfaction and Discharge of the Indenture; Defeasance."
The
Issuer, the Guarantors and the Trustee may, without notice to or consent of any holders of Notes, enter into one or more indentures supplemental to the Indenture, or amend any
indenture supplemental to the Indenture entered into by the Issuer, such Guarantor and the Trustee for the purpose of adding an additional Note Guarantee pursuant to the covenants described under
"—Certain Covenants—Limitation on Consolidated Debt," "—Certain Covenants—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" or
"—Certain Covenants—Limitation on Actions with Respect to Existing Intercompany Obligations," or to provide that the payment obligation on a Note Guarantee of a Guarantor
(other than Parent or any Sister Restricted Subsidiary) be expressly subordinated in any bankruptcy, liquidation or winding up proceeding of such Guarantor to the prior payment in full in cash of all
obligations of such Guarantor under any Guarantee of, or obligation as borrower under, any Qualified Credit Facility (which term includes various types of Debt, including
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secured
notes) Incurred by Parent or a Restricted Subsidiary in accordance with clause (ii) of paragraph (b) of the covenant described under "—Certain
Covenants—Limitation on Consolidated Debt" or clause (ii) of paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Debt of
the Issuer and Issuer Restricted Subsidiaries;"
provided
,
however
, that (x) the terms of the
subordination of a Note Guarantee to any such Guarantee of, or obligation as borrower under, a Qualified Credit Facility may not eliminate or otherwise adversely affect the subordination of the
payment obligation on any other Debt of such Guarantor to the payment obligation of the Note Guarantee of such Guarantor and (y) any Guarantee (other than a Guarantee of such Qualified Credit
Facility) by such Guarantor of the 2015 Floating Rate Notes, the 10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019, the 8.625% Senior Notes due 2020 or any
Debt of Parent or any Sister Restricted Subsidiary also shall be expressly subordinated in any bankruptcy, liquidation or winding up proceeding of such Guarantor to the prior payment in full in cash
of all obligations of such Guarantor under its Guarantee of such Qualified Credit Facility to at least the same extent and on the same terms and conditions as the subordination provisions applicable
to such Guarantor's Note Guarantee. Level 3 LLC's Guarantee of the 2015 Floating Rate Notes, the 10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due
2019, the 8.625% Senior Notes due 2020 and the Notes is subordinated to Level 3 LLC's Guarantee of the Existing Credit Facility. Concurrently with the closing of the initial offering,
the Issuer entered into a subordination agreement in accordance with the foregoing provisions subordinating Level 3 LLC's payment obligations on the Offering Proceeds Note to
Level 3 LLC's payment obligations in respect of the Loan Proceeds Note in any bankruptcy, liquidation or winding up proceeding of Level 3 LLC.
The
Issuer is a holding company with no material assets other than the stock of its subsidiaries, a loan proceeds note related to the Existing Credit Facility, the 2015 Floating Rate
Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note, the 8.625% Proceeds Notes and
the Offering Proceeds Note. Accordingly, the Issuer will depend upon dividends, loans or other distributions from its subsidiaries, or capital contributions from Parent, to generate the funds
necessary to meet its financial obligations, including its obligations to pay you as a holder of the Notes. The Issuer's subsidiaries may not generate earnings sufficient to enable it to meet its
payment obligations. The Issuer's subsidiaries are legally distinct from it and, unless they guarantee the Notes, have no obligation to pay amounts due on the Issuer's debt or to make funds available
to it for such payment. Similarly, Parent is a holding company with no material assets other than the stock of its subsidiaries. Accordingly, Parent depends upon dividends, loans or other
distributions from its subsidiaries, including the Issuer, to generate the funds necessary to meet its financial obligations, including its obligations as a Guarantor. Future debt of certain of the
Issuer's subsidiaries may prohibit the payment of dividends or the making of loans or advances to Parent or the Issuer. In addition, the ability of such subsidiaries to make such payments, loans or
advances is limited by the laws of the relevant states in which such subsidiaries are organized or located. In certain circumstances, the prior or subsequent approval of such payments, loans or
advances is required from applicable regulatory bodies or other governmental entities. To the extent the Issuer cannot access the cash flow of its subsidiaries, and Parent is unable to access the cash
flow of its subsidiaries, including the Issuer, the Issuer may not have access to sufficient cash to repay the Notes, and Parent may not have sufficient cash to comply with its guarantee obligations
on the Notes. Holders of any preferred stock of any of the Issuer's subsidiaries that are not Guarantors and creditors, including trade creditors and other subsidiaries of Parent that have made
intercompany loans to the Issuer's subsidiaries, of any of those subsidiaries have and will have claims relating to the assets of that subsidiary that are senior to the Notes. That is, the Notes are
structurally subordinated to the debt, preferred stock and other obligations of the Issuer's subsidiaries that are not Guarantors. All of the Issuer's existing debt is guaranteed by
Level 3 LLC. See "Risk Factors—Risks Relating to the Notes—The Issuer's subsidiaries must make payments to the Issuer in order for the Issuer to make payments on
the notes, and Parent's subsidiaries must make payments to Parent in order for Parent to make payment on its obligations as a
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guarantor
of the notes" and "Risk Factors—Risks Relating to the Notes—Because the notes are structurally subordinated to the obligations of the Issuer's subsidiaries, you may
not be fully repaid if the Issuer becomes insolvent."
Principal, Maturity and Interest
In the Exchange Offer, the Issuer is issuing up to $775,000,000 aggregate principal amount of the 7% Senior Notes due 2020 (the "New
Notes") in exchange for the original notes issued under the Indenture. Subject to compliance with the covenant described under "—Certain Covenants—Limitation on Debt of the
Issuer and Issuer Restricted Subsidiaries," the Issuer can issue an unlimited amount of additional Notes at later dates under the Indenture. The Issuer can issue additional Notes as part of the same
series or as an additional series. Any additional Notes that the Issuer issues in the future will be identical in all
respects to the Notes that the Issuer is issuing now in the exchange offer, except that Notes issued in the future may have different issuance prices and issuance dates.
The
Notes will mature on June 1, 2020. Interest on the Notes will accrue at the rate of 7% per annum from the Issue Date, or from the most recent date to which interest has been
paid, and will be payable in cash semiannually in arrears on June 1 and December 1 to the persons who are registered holders of the Notes at the close of business on the preceding
May 15 or November 15, as the case may be. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Payment.
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 the Issuer, which, unless otherwise provided by the Issuer, will be the offices of the Trustee. At the option of the Issuer, 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 thereof. 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 the Issuer may require payment of a sum sufficient to
cover any transfer tax or other similar governmental charge payable in connection therewith.
The
applicable interest rate on the original notes is subject to increase in the circumstances (such additional interest being referred to as "Special Interest") described under "The
Exchange Offer." All references herein to interest on the original notes shall include such Special Interest, if appropriate.
Optional Redemption
At any time prior to June 1, 2016, the Issuer may redeem all or a part of the Notes, upon not less than 30 nor more than
60 days' prior notice, at a redemption price equal to 100% of the principal amount of the Notes so redeemed plus the Applicable Premium as of, and accrued and unpaid interest thereon (if any)
to, but not including, the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant Interest Payment Date).
"Applicable
Premium" means, with respect to any Note on any redemption date, the greater of (1) 1.0% of the principal amount of such Note and (2) the excess, if any, of
(a) the present value at such redemption date of (i) the redemption price of such Note at June 1, 2016 (such redemption price being set forth in the table appearing below), plus
(ii) all required interest payments due on such Note through June 1, 2016 (excluding accrued but unpaid interest to the redemption date), computed using a
discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points, over (b) the principal amount of such Note.
"Treasury
Rate" means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least
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two
business days prior to such redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the
redemption date to June 1, 2016;
provided
,
however
, that if the period from the redemption date
to June 1, 2016 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
On
and after June 1, 2016, the Issuer may redeem all or a part of the Notes, upon not less than 30 nor more than 60 days' prior notice, at the redemption prices set forth
below (expressed as a percentage of principal amount), plus accrued and unpaid interest thereon (if any) to, but not including, the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve months beginning June 1, of the years indicated below:
|
|
|
|
|
|
|
Year
|
|
Redemption Price
|
|
|
2016
|
|
|
103.50
|
%
|
|
2017
|
|
|
101.75
|
%
|
|
2018 and thereafter
|
|
|
100.00
|
%
|
In
addition, at any time or from time to time on or prior to June 1, 2015, the Issuer may redeem up to 35% of the original aggregate principal amount of the Notes (including any
additional Notes) at a redemption price equal to 107.00% of the principal amount of the Notes so redeemed, plus accrued and unpaid interest thereon (if any) to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), with the net cash proceeds contributed to the capital of the Issuer of one or
more private placements to Persons other than Affiliates of Parent or underwritten public offerings of Common Stock of Parent resulting, in each case, in gross proceeds of at least $100 million
in the aggregate;
provided
,
however
, that at least 65% of the original aggregate principal amount of the
Notes (including any additional Notes) would remain outstanding immediately after giving effect to such redemption. Any such redemption shall be made within 90 days of such private placement or
public offering upon not less than 30 nor more than 60 days' prior notice.
Mandatory Redemption
The Issuer is not required to make any mandatory redemption or sinking fund payments with respect to the Notes. However, under certain
circumstances, the Issuer may be required to Offer to Purchase Notes as described under "—Certain Covenants—Change of Control Triggering Event," "—Certain
Covenants—Limitation on Asset Dispositions" and "—Certain Covenants—Limitation on Actions with Respect to Existing Intercompany Obligations." The Issuer may from
time to time purchase Notes in the open market or otherwise.
Subordination of Existing Intercompany Obligations
The Issuer lent the net proceeds of the issuance of the original notes, together with cash on hand, to Level 3 LLC in
return for an intercompany demand note (the "Offering Proceeds Note") from Level 3 LLC in an equal principal amount. The Offering Proceeds Note was pledged by the Issuer to secure its
obligations under the Existing Credit Facility. Level 3 LLC is the obligor on (1) an existing intercompany demand note (the "Parent Intercompany Note") to Parent to evidence loans
from Parent to Level 3 LLC, (2) an existing intercompany demand note (the "2015 Floating Rate Proceeds Note") to the Issuer to evidence a loan made by the Issuer to
Level 3 LLC in an aggregate principal amount of $300 million, representing the gross proceeds to the Issuer from the issuance of the 2015 Floating Rate Notes, (3) an
existing intercompany demand note (the "10% Proceeds Note") to the Issuer to evidence a loan made by the Issuer to Level 3 LLC in an aggregate principal amount of $640 million,
representing the gross proceeds to the Issuer from the issuance of the 10% Senior Notes due 2018,
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(4) an
existing intercompany demand note (the "9.375% Proceeds Note") to the Issuer to evidence a loan made by the Issuer to Level 3 LLC in an aggregate principal amount of
$500 million, representing the gross proceeds to the Issuer from the issuance of the 9.375% Senior Notes due 2019, (5) an existing intercompany demand note (the "8.125% Proceeds Note")
to the Issuer to evidence a loan made by the Issuer to Level 3 LLC in an aggregate principal amount of $1.20 billion, representing the gross proceeds to the Issuer from the
issuance of the 8.125% Senior Notes due 2019 and (6) an existing intercompany demand note (the "8.625% Proceeds Note") to the Issuer to evidence a loan made by the Issuer to
Level 3 LLC in an aggregate principal amount of $900 million, representing the gross proceeds to the Issuer from the issuance of the 8.625% Senior Notes due 2020. As of
December 31, 2012, the outstanding principal amount of the Parent Intercompany Note was approximately $24.9 billion, the principal amount outstanding under the 2015 Floating Rate
Proceeds Note was $300 million, the principal amount outstanding under the 10% Proceeds Note was $640 million, the principal amount outstanding under the 9.375% Proceeds Note was
$500 million, the principal amount outstanding under the 8.125% Proceeds Note was $1.20 billion, the principal amount outstanding under the 8.625% Proceeds Note was $900 million
and the principal amount outstanding under the Offering Proceeds Note was $775 million. Parent, as guarantor, the Issuer, as borrower, Merrill Lynch Capital Corporation, as administrative agent
and collateral agent, and certain lenders are party to the Existing Credit Facility, pursuant to which the lenders extended $2.614 billion in senior secured term loans to the Issuer. Of the
outstanding secured terms loans under the Credit Facility, $599 million in aggregate principal amount mature on February 1, 2016, and $2.015 billion in aggregate principal amount
mature on August 1, 2019. The Issuer lent the proceeds of the term loans to Level 3 LLC in return for an intercompany demand note issued by Level 3 LLC (the "Loan
Proceeds Note"). The Issuer's obligations under the Existing Credit Facility are secured by the Parent Intercompany Note, the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375%
Proceeds Note, the 8.125% Proceeds Note, the 8.625% Proceeds Note and the Offering Proceeds Note. Each of the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the
8.125% Proceeds Note, the 8.625% Proceeds Note and the Offering Proceeds Note was subordinated to the Loan Proceeds Note pursuant to
separate subordination agreements by and among the Issuer, Parent and Level 3 LLC. As of December 31, 2012, the principal amount outstanding under the Loan Proceeds Note was
$2.614 billion. Parent and the Issuer have entered into a subordination agreement (the "Subordination Agreement") that provides that upon a total or partial liquidation, dissolution or winding
up of Level 3 LLC or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to Level 3 LLC or its Property, (a) the Issuer will be
entitled to receive payment in full in cash of the Offering Proceeds Note before Level 3 LLC may make any payment of principal of or interest on the Parent Intercompany Note to Parent,
and (b) until the Offering Proceeds Note is paid in full in cash, any distribution to which Parent would be entitled but for the Subordination Agreement will be made to the Issuer as its
interests may appear. If a distribution is made to Parent that because of the Subordination Agreement should not have been made to Parent, Parent shall hold such distribution in trust for the Issuer
and pay it over to the Issuer as the Issuer's interests may appear. No right of the Issuer to enforce the subordination of the Offering Proceeds Note shall be impaired by any act or failure to act by
the Issuer or by its failure to comply with the Subordination Agreement. Parent, the Issuer and Level 3 LLC will be restricted from taking certain actions with respect to the Offering
Proceeds Note, the Parent Intercompany Note and the Subordination Agreement as set forth in the covenant described below under "—Certain Covenants—Limitation on Actions with
respect to Existing Intercompany Obligations." The Parent Intercompany Note is subordinated on the same terms to the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note,
the 8.125% Proceeds Note and the 8.625% Proceeds Note as the Parent Intercompany Note is subordinated to the Offering Proceeds Note. In addition, the Issuer and Level 3 LLC have entered
into an offering proceeds note subordination agreement that subordinates the right of the Issuer to payment under the Offering Proceeds Note to the right of the Issuer (in its capacity as borrower
under the Existing Credit Facility) to payment under the Loan Proceeds Note upon the liquidation, dissolution or winding up of
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Level 3 LLC
or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to Level 3 LLC or its property. The 2015 Floating Rate Proceeds
Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note and the 8.625% Proceeds Note are subordinated on the same terms to the Loan Proceeds Note as the Offering Proceeds Note
is subordinated to the Loan Proceeds Note. Accordingly, the right of the Issuer to payment under the Offering Proceeds Note is
pari passu
to the right
of the Issuer to payment under the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note and the 8.625% Proceeds Note.
As
a condition to Incurring specified types of Debt pursuant to the covenants described below under "—Certain Covenants—Limitation on Consolidated Debt,"
"—Certain Covenants—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" and "—Certain Covenants—Limitation on Actions with respect to
Existing Intercompany Obligations," Restricted Subsidiaries will be required to guarantee (an "Offering Proceeds Note Guarantee") Level 3 LLC's obligations under the Offering Proceeds
Note and, in certain circumstances, subordinate the Debt that is Incurred to such Offering Proceeds Note Guarantee.
The
Offering Proceeds Note Guarantee of an Offering Proceeds Note Guarantor will be released (a) in connection with any sale or other disposition of all or substantially all of
the assets of that Offering Proceeds Note Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) Parent or a
Restricted Subsidiary, if the sale or other disposition of all or substantially all of the assets of that Offering Proceeds Note Guarantor complies with the covenant described under
"—Certain Covenants—Limitation on Asset Dispositions" (or Parent certifies in an Officers' Certificate to the Trustee that it will comply with the requirements of such covenant
relating to application of the proceeds of such sale or disposition), (b) in connection with any sale of all of the Capital Stock of an Offering Proceeds Note Guarantor to a Person that is not
(either before or after giving effect to such transaction) Parent or a Restricted Subsidiary, if the sale of all such Capital Stock of that Offering Proceeds Note Guarantor complies with the covenant
described under "—Certain Covenants—Limitation on Asset Dispositions" (or Parent certifies in an Officers' Certificate to the Trustee that it will comply with the requirements
of such covenant relating to application of the proceeds of such sale or disposition), (c) if Parent properly designates any Restricted Subsidiary that is an Offering Proceeds Note Guarantor as
an Unrestricted Subsidiary pursuant to the covenant described under "—Certain Covenants—Limitation on Designations of Unrestricted Subsidiaries" or (d) if the Issuer
exercises the legal defeasance option or covenant defeasance option as described under "—Satisfaction and Discharge of the Indenture; Defeasance."
An
Offering Proceeds Note Guarantor and Level 3 LLC may enter into an agreement or arrangement that provides that the payment obligation on an Offering Proceeds Note
Guarantee (and in the case of Level 3 LLC, on the Offering Proceeds Note) of an Offering Proceeds Note Guarantor (other than Parent or any Sister Restricted Subsidiary) be expressly
subordinated in any bankruptcy, liquidation or winding up proceeding of such Offering Proceeds Note Guarantor to the prior payment in full in cash of all obligations of such Offering Proceeds Note
Guarantor or Level 3 LLC, as applicable, under any Guarantee of, or obligation as borrower under, any Qualified Credit Facility Incurred by Parent or a Restricted Subsidiary in
accordance with clause (ii) of paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Consolidated Debt" or clause (ii) of
paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries;"
provided
,
however
, that (x) the terms of the subordination of an Offering Proceeds Note
Guarantee, or in the case of Level 3 LLC, the Offering Proceeds Note, to any such Guarantee of or obligation as borrower under a Qualified Credit Facility may not eliminate or otherwise
adversely affect the subordination of the payment obligation on any other Debt of such Offering Proceeds Note Guarantor or Level 3 LLC, as applicable, to the payment obligation of the
Offering Proceeds Note Guarantee of such Offering Proceeds Note Guarantor, or in the case of
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Level 3 LLC,
the Offering Proceeds Note, and (y) any Guarantee (other than a Guarantee of such Qualified Credit Facility) by such Offering Proceeds Note Guarantor or
Level 3 LLC, as applicable, of the 2015 Floating Rate Notes, the 10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019, the 8.625% Senior Notes
due 2020, or any Debt of Parent or any Sister Restricted Subsidiary also shall be expressly subordinated in any bankruptcy, liquidation or winding up proceeding of such Offering Proceeds Note
Guarantor or Level 3 LLC, as applicable, to the prior
payment in full in cash of all obligations of such Offering Proceeds Note Guarantor or Level 3 LLC, as applicable, under its Guarantee of such Qualified Credit Facility to at least the
same extent and on the same terms and conditions as the subordination provisions applicable to such Offering Proceeds Note Guarantor's Offering Proceeds Note Guarantee or Level 3 LLC's
obligation on the Offering Proceeds Note.
Certain Covenants
Covenant Suspension.
Set forth below are summaries of certain covenants contained in the Indenture. During any period of time (any such
period, a
"Suspension Period") that (i) the ratings assigned to the Notes by both of the Rating Agencies are Investment Grade Ratings and (ii) no Default or Event of Default has occurred and is
continuing under the Indenture, Parent and the Restricted Subsidiaries will not be subject to the following covenants of the Indenture described below under "—Limitation on Consolidated
Debt," "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries," "—Limitation on Restricted Payments," "—Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries," clause (i)(a) of "—Limitation on Sale and Leaseback Transactions," "—Limitation on Asset Dispositions,"
"—Limitation on Issuance and Sales of Capital Stock of Restricted Subsidiaries" (other than the first two sentences thereof), "—Transactions with Affiliates," clause (b)
of "—Limitation on Designations of Unrestricted Subsidiaries," and clause (c) of the first and second paragraphs of "—Mergers, Consolidations and Certain Sales of
Assets" (collectively, the "Suspended Covenants"). In the event that Parent and the Restricted Subsidiaries are not subject to the Suspended Covenants for any period of time as a result of the
preceding sentence and, on any subsequent date (the "Reversion Date"), one or both of the Rating Agencies withdraws its ratings or downgrades the ratings assigned to the Notes below the required
Investment Grade Ratings or a Default or Event of Default occurs and is continuing, then Parent and the Restricted Subsidiaries will thereafter again be subject to the Suspended Covenants and
calculations of the amount available to be made as Restricted Payments under the covenant described under "—Limitation on Restricted Payments" will be made as though the covenant described
under "—Limitation on Restricted Payments" had been in effect during the entire period of time from the Measurement Date. On the Reversion Date, all Debt Incurred during the Suspension
Period will be classified to have been Incurred pursuant to paragraph (a) or one of the clauses set forth in paragraph (b) of the covenant described under "—Limitation on
Consolidated Debt" or paragraph (a) or one of the clauses set forth in paragraph (b) of the covenant described under "—Limitation on Debt of the Issuer and Issuer Restricted
Subsidiaries" (in each case to the extent such Debt would be permitted to be Incurred thereunder as of the Reversion Date and after giving effect to Debt Incurred prior to the Suspension Period and
outstanding on the Reversion Date). To the extent such Debt would not be permitted to be Incurred pursuant to paragraph (a) or one of the clauses set forth in paragraph (b) of the
covenant described under "—Limitation on Consolidated Debt" or paragraph (a) or one of the clauses set forth in paragraph (b) of the covenant described under
"—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries," such Debt will be deemed to have been outstanding on the Measurement Date, so that it is classified as permitted
under clause (v) of paragraph (b) of the
covenant described under "—Limitation on Consolidated Debt" or clause (iii) of paragraph (b) of the covenant described under "—Limitation on Debt of the Issuer
and Issuer Restricted Subsidiaries." If the Incurrence of any Debt by a Restricted Subsidiary during the Suspension Period would have been prohibited or conditioned upon such Restricted Subsidiary
entering into a Note Guarantee and an Offering Proceeds
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Note
Guarantee had the covenants described under "—Limitation on Consolidated Debt" and "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" been in effect at
the time of such Incurrence, such Restricted Subsidiary shall enter into a Note Guarantee and an Offering Proceeds Note Guarantee that are senior to or rank equal with such Debt within ten days after
the Reversion Date. For purposes of determining compliance with the covenant described under "—Limitation on Asset Dispositions," on the Reversion Date, the Net Available Proceeds from all
Asset Sales not applied in accordance with the covenant will be deemed to be reset to zero. Notwithstanding the foregoing, neither (a) the continued existence, after the date of such withdrawal
or downgrade, of facts and circumstances or obligations that were Incurred or otherwise came into existence during a Suspension Period nor (b) the performance of any such obligations, shall
constitute a breach of any covenant set forth in the Indenture or cause a Default or Event of Default thereunder;
provided
,
however
, that (1) Parent
and its Restricted Subsidiaries did not Incur or otherwise cause such facts and circumstances or obligations to exist in
anticipation of a withdrawal or downgrade below investment grade, (2) Parent reasonably believed that such Incurrence or actions would not result in such a withdrawal or downgrade and
(3) if so required each Restricted Subsidiary shall have entered into a Note Guarantee and an Offering Proceeds Note Guarantee within the specified time period. For purposes of
clauses (1) and (2) in the preceding sentence, anticipation and reasonable belief may be determined by Parent and shall be conclusively evidenced by a board resolution to such effect
adopted in good faith by the board of directors of Parent. In reaching their determination, the board of directors may, but need not, consult with the Rating Agencies.
The
Indenture contains, among others, the following covenants:
Limitation on Consolidated Debt.
(a) Parent may not, and may not permit any Restricted Subsidiary (other than to the extent permitted
by
paragraph (b) of the covenant described under "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries") to, directly or indirectly, Incur any Debt;
provided
,
however
, that Parent or any Restricted Subsidiary (subject, in the case of the Issuer and any
Issuer Restricted Subsidiary, to the covenant described under "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries") may Incur any Debt if, 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 (i) 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
Parent and its Restricted Subsidiaries 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) Pro Forma Consolidated Cash Flow Available for Fixed Charges for Parent and its Restricted Subsidiaries 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 (ii) Parent'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 Parent 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, Parent or any Restricted Subsidiary (other than the Issuer or any Issuer Restricted Subsidiary, except to the
extent permitted by the covenant
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(C) in
the case of any refinancing of Debt Incurred pursuant to paragraph (a) above or clause (i), (v), (vii) or (xii)or, if such Debt previously refinanced Debt Incurred
pursuant to any such clause, this clause (viii), 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
Parent 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 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 Parent or any Restricted Subsidiary) 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 Parent) which is conditioned upon a change of control pursuant to provisions substantially similar to those described under "—Change of Control
Triggering Event" or upon an asset sale pursuant to provisions substantially similar to those described under "—Limitation on Asset Dispositions;"
-
(ix)
-
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 Parent or any of its Restricted Subsidiaries pursuant to such agreements, Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary of Parent (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary of Parent for the purpose
of financing such acquisition) and in an aggregate principal amount not to exceed the gross proceeds actually received by Parent or any Restricted Subsidiary in connection with such disposition;
-
(x)
-
Debt
consisting of Permitted Interest Rate or Currency Protection Agreements;
-
(xi)
-
Debt
not otherwise permitted to be Incurred pursuant to clauses (i) through (x) above or clause (xii) below, which, together with any
other outstanding Debt Incurred pursuant to this clause (xi), has an aggregate principal amount not in excess of $50 million at any time outstanding; and
-
(xii)
-
Issue
Date Purchase Money Debt and Debt under the Existing Notes and the related indentures and any restricted subsidiary guarantees issued prior to the
Issue Date in accordance with such related indentures.
Notwithstanding
any other provision of this "—Limitation on Consolidated Debt" covenant, the maximum amount of Debt that Parent or any 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.
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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, Parent, 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 Debt of the Issuer and Issuer Restricted Subsidiaries.
(a) The Issuer may not, and may not permit any Issuer Restricted
Subsidiary to,
directly or indirectly, Incur any Debt;
provided
,
however
, that (i) the Issuer or (ii) any
Issuer Restricted Subsidiary may incur any Debt if, 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 the Issuer Debt Ratio would be less than 4.25 to 1.0;
provided
,
however
, that any Issuer Restricted Subsidiary that Incurs Debt pursuant to this paragraph (a) is a Guarantor and an Offering Proceeds Note
Guarantor.
-
(b)
-
Notwithstanding
the foregoing limitation, the Issuer or any Issuer Restricted Subsidiary may Incur any and all of the following (each of which shall be
given independent effect):
-
(i)
-
Debt
of the Issuer or any Issuer Restricted Subsidiary under the Notes issued on the Issue Date (including any New Notes issued in exchange therefor), any
Note Guarantee in respect of the Notes issued on the Issue Date or any Offering Proceeds Note Guarantee in respect of the Offering Proceeds Note;
-
(ii)
-
Debt
of the Issuer or any Issuer Restricted Subsidiary under Credit Facilities in an aggregate principal amount outstanding or available (together with the
sum of (A) the amount of any outstanding Debt Incurred pursuant to clause (ii) of paragraph (b) of the covenant described under "—Limitation on Consolidated Debt,"
plus
(B) the
amount of all refinancing Debt outstanding or available pursuant to clause (viii) of paragraph (b) of the covenant
described under "—Limitation on Consolidated Debt" in respect of Debt previously Incurred pursuant to clause (ii) of paragraph (b) of the covenant described under
"—Limitation on Consolidated Debt,"
plus
(C) the amount of all refinancing Debt outstanding or available pursuant to
clause (vi) below in respect of Debt previously Incurred pursuant to this clause (ii)) at any one time not to exceed the greater of (x) $2.600 billion and (y) 2.00
times Pro Forma Consolidated Cash Flow Available for Fixed Charges of Parent and its Restricted Subsidiaries for the four full fiscal quarters next preceding the Incurrence of such Debt for which
consolidated financial statements are available, which amount shall be permanently reduced by the amount of Net Available Proceeds used to repay Debt under the Credit Facilities (or any refinancing
Debt in respect of the Credit Facilities Incurred pursuant to clause (viii) of paragraph (b) of the covenant described under "—Limitation on Consolidated Debt" or
clause (vi) below), 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;"
-
(iii)
-
Debt
of the Issuer or any Issuer Restricted Subsidiary outstanding on the Measurement Date;
-
(iv)
-
Debt
owed by the Issuer to a Restricted Subsidiary, Debt owed by an Issuer Restricted Subsidiary to Parent or a Restricted Subsidiary (including Debt owed
by an Issuer Restricted Subsidiary to another Issuer Restricted Subsidiary), and Debt with an
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aggregate
principal amount not in excess of $10 million at any time outstanding owed by the Issuer to Parent or any Sister Restricted Subsidiary;
provided
,
however
, that (A) any Issuer Restricted Subsidiary that Incurs Debt owed to Parent or a
Sister Restricted Subsidiary pursuant to this clause (iv) is a Guarantor and an Offering Proceeds Note Guarantor, (B) (x) upon the transfer, conveyance or other disposition by such
Issuer Restricted Subsidiary or the Issuer of any Debt so permitted to a Person other than the Issuer or another Issuer Restricted Subsidiary or (y) if for any reason such Issuer Restricted
Subsidiary ceases to be an Issuer Restricted Subsidiary, the provisions of this clause (iv) 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 Issuer Restricted Subsidiary ceases to be an Issuer Restricted Subsidiary and (C) the payment
obligation of such Debt (if clause (A) above applies) is expressly subordinated in any bankruptcy, liquidation or winding up proceeding of the obligor to the prior payment in full in cash of
all obligations with respect to the Notes or the Offering Proceeds Note Guarantee of such Offering Proceeds Note Guarantor, respectively; and
provided
further
,
however
, that a Foreign Restricted Subsidiary need not become a Guarantor or an Offering Proceeds Note Guarantor
pursuant to clause (A) above until such time and only so long as such Foreign Restricted Subsidiary Guarantees any other Debt of Parent or any Domestic Restricted Subsidiary;
-
(v)
-
Debt
Incurred by a Person (other than Parent or any Sister Restricted Subsidiary) prior to the time (A) such Person became an Issuer Restricted
Subsidiary, (B) such Person merges into or consolidates with an Issuer Restricted Subsidiary or (C) an Issuer Restricted Subsidiary merges into or consolidates with such Person (in a
transaction in which such Person becomes an Issuer Restricted Subsidiary), which Debt was not Incurred in anticipation of such transaction and was outstanding prior to such transaction;
provided
,
however
, that after giving effect to the Incurrence of any Debt pursuant to this
clause (v), (A) either (1) the Issuer could Incur at least $1.00 of additional Debt pursuant to paragraph (a) above computed using "5.0 to 1.0" rather than "4.25 to 1.0" as
it appears therein or (2) the ratio computed pursuant to paragraph (a) above would be no higher than before giving effect to the Incurrence of such Debt and (B) such Person or the
Issuer Restricted Subsidiary into which such Person merges or consolidates is a Guarantor and an Offering Proceeds Note Guarantor;
-
(vi)
-
Debt
of the Issuer or any Issuer Restricted Subsidiary Incurred to renew, extend, refinance, defease, repay, prepay, repurchase, redeem, retire, exchange
or refund (each, a "refinancing") Debt of the Issuer or any Issuer Restricted Subsidiary Incurred pursuant to paragraph (a) above or clause (i), (ii), (iii), (v), (x) or
(xi) of this paragraph (b) or this clause (vi), 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 Parent as necessary to accomplish such refinancing
by means of a tender offer or privately negotiated repurchase, plus the expenses of the Issuer Incurred in connection with such refinancing;
provided
,
however
, that (A) if the Person that originally Incurred the Debt to be refinanced became, or would have been required to become if not already,
a Guarantor or an Offering Proceeds Note Guarantor as a result of the Incurrence of the Debt being refinanced in accordance with this covenant, (1) the Person that Incurs the refinancing Debt
pursuant to this clause (vi) (if not the Issuer) shall be a Guarantor and an Offering Proceeds Note Guarantor and (2) if the Debt to be refinanced is subordinated to the Offering
Proceeds Note Guarantee of such Offering
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Proceeds
Note Guarantor, the refinancing Debt shall be subordinated to the same extent to the Offering Proceeds Note Guarantee of the Offering Proceeds Note Guarantor Incurring such refinancing Debt,
(B) the refinancing Debt shall not be senior in right of payment to the Debt that is being refinanced and (C) in the case of any refinancing of Debt Incurred pursuant to
paragraph (a) above or clause (i), (v), (x) or (xi) or, if such Debt previously refinanced Debt Incurred pursuant to any such clause, this clause (vi), 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 the Issuer or any Issuer Restricted Subsidiary (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 the Issuer or an Issuer Restricted Subsidiary) 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 the Issuer)
which is conditioned upon a change of control pursuant to provisions substantially similar to those described under "—Change of Control Triggering Event" or upon an asset sale pursuant to
provisions substantially similar to those described under "—Limitation on Asset Dispositions;"
-
(vii)
-
Debt
of the Issuer or any Issuer Restricted Subsidiary (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 the Issuer or any Issuer Restricted Subsidiary pursuant to such agreements, Incurred in connection
with the disposition of any business, assets or Issuer Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or
Issuer Restricted Subsidiary for the purpose of financing such acquisition) and in an aggregate principal amount not to exceed the gross proceeds actually received by the Issuer or any Issuer
Restricted Subsidiary in connection with such disposition;
-
(viii)
-
Debt
of the Issuer or any Issuer Restricted Subsidiary consisting of Permitted Interest Rate or Currency Protection Agreements;
-
(ix)
-
Debt
of any Foreign Restricted Subsidiary of the Issuer not otherwise permitted to be Incurred pursuant to clause (i) through (viii) above or
clause (x) below, which, together with any other outstanding Debt Incurred pursuant to this clause (ix) has an aggregate principal amount not in excess of $100 million at any time
outstanding;
-
(x)
-
Issue
Date Purchase Money Debt initially Incurred by the Issuer or any Issuer Restricted Subsidiary or another Person that became an Issuer Restricted
Subsidiary on or before the Issue Date; and
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-
(xi)
-
Debt
under the 2015 Floating Rate Notes, the 10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019 and the 8.625%
Senior Notes due 2020 issued on or prior to the Issue Date.
Notwithstanding
any other provision of this "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" covenant, the maximum amount of Debt the Issuer or any
Issuer Restricted Subsidiary may Incur pursuant to this "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" 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 Debt of the Issuer and Issuer Restricted Subsidiaries" covenant, (1) Guarantees
(other than Guarantees of Debt of Parent or any Sister Restricted Subsidiary that are not Guarantees of Debt Incurred by Parent or any Sister Restricted Subsidiary pursuant to clause (ii) of
paragraph (b) of the covenant described under "—Limitation on Consolidated Debt"), 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 Debt of the Issuer and Issuer Restricted Subsidiaries"
covenant, (1) any Debt outstanding under the Existing Credit Facility will be treated as Incurred on the Issue Date pursuant to clause (ii) of paragraph (b) of this covenant and
(2) 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, the Issuer, 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) Parent (i) may not, and may not permit any Restricted Subsidiary to, 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 Parent 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 Parent 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 Parent (other than Disqualified Stock) or in options, warrants or other rights to acquire Capital Stock of Parent (other than Disqualified Stock); (ii) may not, and may not permit any
Restricted Subsidiary to, purchase, redeem, or otherwise retire or acquire for value (x) any Capital Stock of Parent or any Restricted Subsidiary of Parent or (y) any options, warrants
or rights to purchase or acquire shares of Capital Stock of Parent or any Restricted Subsidiary or any securities convertible or exchangeable into shares of Capital Stock of Parent or any Restricted
Subsidiary, except, in any such case, any such purchase, redemption or retirement or acquisition for value (A) paid to Parent 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 Parent 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 Parent; (iii) may not make, or permit any Restricted Subsidiary to make, any Investment (other than an Investment in Parent 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;" (iv) may not, and may not permit any Restricted Subsidiary to, redeem, defease, repurchase,
retire or otherwise acquire or retire for value, prior to any scheduled maturity, repayment or sinking fund payment, Debt of Parent which is subordinate in right of payment to the
Parent Guarantee or Debt of any Restricted Subsidiary which is subordinate in right of payment to the Notes
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(in
the case of the Issuer) or the Note Guarantee (in the case of Restricted Subsidiaries other than the Issuer) of such Restricted Subsidiary (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 (v) may
not, and may not permit any Restricted Subsidiary to, issue, transfer, convey, sell or otherwise dispose of Capital Stock of any Restricted Subsidiary to a Person other than Parent 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 Parent and the other Restricted Subsidiaries (each of clauses (i) through (v) being a
"Restricted Payment") if: (1) 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 (2) upon giving effect to such Restricted Payment, Parent 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 (3) 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 (i) or (j) 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: (a) 50% of cumulative Consolidated Net Income of Parent and its Restricted Subsidiaries (or, in the case that Consolidated Net Income of Parent and its Restricted
Subsidiaries 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
prior to the date of such Restricted Payment for which consolidated financial statements are available and (b) plus, in the case of any Revocation made after the Measurement Date, an amount
equal to the lesser of the portion (proportionate to Parent'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 Parent or any Restricted Subsidiary in such Subsidiary;
provided
,
however
, that Parent or a Restricted Subsidiary of Parent may, without regard to the
limitations in clause (3) but subject to clauses (1) and (2), 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 Parent, from the issuance (other than to a Subsidiary or an employee stock ownership plan or trust established
by Parent or any such Subsidiary for the benefit of their employees) of Capital Stock (other than Disqualified Stock) of Parent, and (ii) from the issuance or sale of Debt of Parent or any
Restricted Subsidiary (other than to a Subsidiary, Parent or an employee stock ownership plan or trust established by Parent 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 Parent 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 Parent or any Restricted Subsidiary (other than Debt that is subordinated to the Notes, the Offering Proceeds Note or any applicable Note Guarantee or Offering Proceeds
Note Guarantee) and release of Parent 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 (i) of the definition of "Permitted Investments."
-
(b)
-
Notwithstanding
the foregoing limitation, (i) Parent may pay any dividend on Capital Stock of any class of Parent within 60 days after the
declaration thereof if, on the date when the dividend was declared, Parent could have paid such dividend in accordance with the foregoing
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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); (ii) Parent 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 Parent or any of its Subsidiaries or other Affiliates in an amount not to exceed $3 million in any 12-month period; (iii) Parent
and any Restricted Subsidiary may refinance any Debt otherwise permitted by clause (viii) of paragraph (b) under "—Limitation on Consolidated Debt" above or
clause (vi) of paragraph (b) under "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" above; (iv) Parent and any Restricted Subsidiary may retire
or repurchase any Capital Stock of Parent or of any Restricted Subsidiary or any Subordinated Debt of Parent in exchange for, or out of the proceeds of the substantially concurrent sale (other than to
a Subsidiary of Parent or an employee stock ownership plan or trust established by Parent or any such Subsidiary for the benefit of their employees) of, Capital Stock (other than Disqualified Stock)
of Parent;
provided
,
however
, 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
(v) Parent may pay cash dividends in any amount not in excess of $50 million in any 12-month period in respect of Preferred Stock of Parent (other than Disqualified Stock).
The Restricted Payments described in the foregoing clauses (i), (ii) and (v) shall be included in the calculation of Restricted Payments; the Restricted Payments described in
clauses (iii) and (iv) shall be excluded in the calculation of Restricted Payments.
-
(c)
-
The
Issuer may not, and may not permit any Issuer Restricted Subsidiary to, pay any dividend or make any distribution in respect of shares of its Capital
Stock held by Parent or a Sister Restricted Subsidiary (whether in cash, securities or other Property) or any payment (whether in cash, securities or other Property) on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any such shares of Capital Stock (all such dividends, distributions and payments being referred to herein as "Parent Transfers"),
other than (i) Parent Transfers at such times and in such amounts as shall be necessary to permit Parent to pay administrative expenses attributable to the operations of its Restricted
Subsidiaries, (ii) Parent Transfers at such times and in such amounts as are sufficient for Parent 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 of Parent, including pursuant to offers to purchase)
according to the terms of any Debt of Parent, (iii) Parent Transfers (A) to permit Parent to satisfy its obligations in respect of stock option plans or other benefit plans for
management or employees of Parent and its Subsidiaries, (B) to permit Parent to pay dividends on Preferred Stock of Parent in an amount not to exceed the aggregate net cash proceeds received by
Parent (1) after September 30, 1999, from the issuance of Capital Stock, and (2) from the issuance or sale of Debt of Parent or any Restricted Subsidiary that after
September 30, 1999, has been converted into or exchanged for Capital Stock of Parent, (C) in an annual amount not to exceed 50% of Parent's Consolidated Net Income for the prior fiscal
year and (D) Parent Transfers in amounts not to exceed the amount required by Parent to pay accrued and unpaid interest on any Debt of Parent due upon the conversion, exchange or purchase of
such Debt into, for or with Capital Stock of Parent and (iv) additional Parent Transfers after October 1, 2003 in a principal amount not to exceed $50 million in the aggregate.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.
(a) Parent may not, and may not permit any
Restricted
Subsidiary to, directly or indirectly, create or otherwise
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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 (i) to pay
dividends (in cash or otherwise) or make any other distributions in respect of its Capital Stock owned by Parent or any other Restricted Subsidiary or pay any Debt or other obligation owed to Parent
or any other Restricted Subsidiary, (ii) to make loans or advances to Parent or any other Restricted Subsidiary or (iii) to transfer any of its Property to Parent or any other Restricted
Subsidiary.
-
(b)
-
Notwithstanding
the foregoing limitation, Parent may, and may permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist
(i) any encumbrance or restriction pursuant to any agreement in effect on the Issue Date, including, without limitation, the Existing Credit Facility and the Existing Notes, (ii) any
customary (as conclusively determined in good faith by the Chief Financial Officer of Parent) encumbrance or restriction applicable to a Restricted Subsidiary that is contained in an agreement or
instrument governing or relating to Debt contained in any Qualified Credit Facility or Purchase Money Debt;
provided
,
however
, that such encumbrances and
restrictions permit the distribution of funds to the Issuer in an amount sufficient for the Issuer 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 the Issuer, but
provided further
,
however
, 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 Parent or any
Restricted Subsidiary, customary (as so determined) restrictions on transactions with affiliates and customary (as so determined) subordination provisions governing Debt owed to Parent or any
Restricted Subsidiary, (iii) 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, (iv) any encumbrance or restriction pursuant to an agreement relating to any Debt of an Issuer Restricted Subsidiary that
is a Foreign Restricted Subsidiary Incurred pursuant to clause (ix) of paragraph (b) of the covenant described under "—Limitation on Debt of the Issuer and Issuer Restricted
Subsidiaries" that is applicable only to such Issuer Restricted Subsidiary that is a Foreign Restricted Subsidiary and its Subsidiaries, (v) any encumbrance or restriction pursuant to an
agreement effecting a refinancing of Debt Incurred pursuant to an agreement referred to in clause (i), (ii) or (iii) 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, (vi) in the case of clause (iii) of
paragraph (a) above, any encumbrance or restriction contained in any security agreement (including a Capital Lease Obligation) securing Debt of Parent 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, (vii) in the case of clause (iii) 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,
(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 Parent or any
Restricted Subsidiary in any manner material to Parent or any Restricted Subsidiary, (viii) any encumbrance or restriction with respect to a
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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
,
however
, 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 (ix) any encumbrance or restriction pursuant to the Indenture and the Notes.
Limitation on Liens.
Parent 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 Issue Date to secure any Debt without making, or causing such Restricted Subsidiary to make, effective provision for securing the
Notes (x) equally and ratably with such Debt as to such Property for so long as such Debt will be so secured or (y) in the event such Debt is Debt of the Issuer, Parent or a Restricted
Subsidiary that is a Guarantor and such Debt is subordinate in right of payment to the Notes, the Parent Guarantee or the applicable Note Guarantee, prior to such Debt as to such Property for so long
as such Debt will be so secured. The holders of such other secured Debt may exclusively control the disposition of the property subject to the Lien.
The
foregoing restrictions shall not apply to: (i) Liens existing on the Issue Date and securing Debt outstanding on the Issue Date or Liens Incurred on or after the Issue Date
pursuant to any Credit Facility to secure Debt permitted to be Incurred pursuant to clause (ii) of paragraph (b) under "—Limitation on Consolidated Debt" or
clause (ii) of paragraph (b) under "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries"; (ii) Liens Incurred on or after the Measurement Date
securing Debt of Parent or any Restricted Subsidiary (other than the Issuer or any Issuer Restricted Subsidiary) 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 (viii) of paragraph (b) of "—Limitation on
Consolidated Debt" or clause (vi) of paragraph (b) of "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" in respect of Debt previously Incurred under
Credit Facilities), does not exceed 2.0 times Pro Forma Consolidated Cash Flow Available for Fixed Charges of Parent and its Restricted Subsidiaries for the four full fiscal quarters preceding the
Incurrence of such Lien for which Parent'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; (iii) Liens in favor of Parent 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 Parent or a Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Lien by the
Issuer thereof; (iv) Liens outstanding on the Issue Date securing Purchase Money Debt and Liens to secure Purchase Money Debt Incurred after the Issue Date pursuant to clause (iii) 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); (v) 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;
(vi) Liens to secure Debt Incurred to refinance, in whole or in part, Debt secured by any Lien referred to in the foregoing clauses (i), (iv) and (v) or this
clause (vi) 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 (viii) of paragraph (b) of "—Limitation on
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Consolidated
Debt" or clause (vi) of paragraph (b) of "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" above; (vii) Liens Incurred on or after
the Measurement Date not otherwise permitted by the foregoing clauses (i) through (vi) (but including in the computations of Liens permitted under this clause (vii) Liens existing
on the Issue Date which remain existing at the time of computation which are otherwise permitted under clause (i)) securing Debt of Parent or any Restricted Subsidiary (other than the Issuer or
any Issuer Restricted Subsidiary) in an aggregate amount not to exceed 5% of Parent's Consolidated Tangible Assets; (viii) Liens on Property of any Non-Telecommunications
Subsidiary;
provided
,
however
, that the Incurrence of such Lien does not require the Person Incurring
such Lien to secure any Debt of any Person other than a Non-Telecommunications Subsidiary; (ix) Liens granted after the Issue Date to secure the Notes, the 2015 Floating Rate Notes,
the 10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019, the 8.625% Senior Notes due 2020 or any additional notes issued by the Issuer on or after the Issue
Date permitted to be incurred pursuant to the terms of the Indenture;
provided
,
however
, that no Lien
may be granted to secure the 2015 Floating Rate Notes, the 10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019, the 8.625% Senior Notes due 2020 or such
additional notes unless a
pari passu
Lien on the Property subject to such Lien is concurrently granted to secure the Notes and remains in effect for so
long as such Lien securing the 2015 Floating Rate Notes, the 10% Senior Notes due 2018, the 9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019, the 8.625% Senior Notes due 2020 or such
additional notes; (x) Liens to secure Debt incurred pursuant to clause (viii) of paragraph (b) of "—Limitation on Debt of the Issuer and Issuer Restricted
Subsidiaries" above; (xi) Liens to secure amounts deposited into an escrow account for the benefit of the holders of the 2015 Floating Rate Notes, the 10% Senior Notes due 2018, the 9.375%
Senior Notes due 2019, the 8.125% Senior Notes due 2019, the 8.625% Senior Notes due 2020 or any additional notes issued by the Issuer on or after the Issue Date permitted to be incurred pursuant to
the terms of the Indenture, in connection with the prepayment of the 2015 Floating Rate Proceeds Note, the 10% Proceeds Note, the 9.375% Proceeds Note, the 8.125% Proceeds Note or the 8.625% Proceeds
Note by Level 3 LLC, or the prepayment by Level 3 LLC of any additional proceeds note issued in connection with the issuance of additional notes issued by the Issuer on or
after the Issue Date; (xii) Liens to secure amounts deposited into an escrow account for the benefit of the holders of the Notes in connection with the prepayment of the Offering Proceeds Note
by Level 3 LLC; (xiii) Liens on the Property of a Foreign Restricted
Subsidiary and its Subsidiaries Incurred on or after the Issue Date securing Debt of such Foreign Restricted Subsidiary Incurred pursuant to clause (ix) of paragraph (b) of the covenant
described under "—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries"; and (xiv) Permitted Liens.
Limitation on Sale and Leaseback Transactions.
Parent 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 (i) Parent or such Restricted Subsidiary would be entitled to Incur (a) Debt in an
amount equal to the Attributable Value of the Sale and Leaseback Transaction pursuant to the covenants described under "—Limitation on Consolidated Debt" above or "—Limitation
on Debt of the Issuer and Issuer Restricted Subsidiaries" above and (b) a Lien pursuant to the covenant described under "—Limitation on Liens" above, equal in amount to the
Attributable Value of the Sale and Leaseback Transaction, without also securing the Notes, and (ii) 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.
Parent may not, and may not permit any Restricted Subsidiary to, make any Asset Disposition unless:
(i) Parent 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
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or
disposed of as determined by the board of directors of Parent in good faith and evidenced by a resolution of the board of directors of Parent filed with the Trustee; and (ii) at least 75% of
the consideration for such disposition consists of cash or Cash Equivalents or the assumption of Debt of the Issuer or any Issuer Restricted Subsidiary (other than Debt of the Issuer that is
subordinated to the Notes or Debt of any Issuer Restricted Subsidiary that is subordinated to the Note Guarantee or Offering Proceeds Note Guarantee of such Issuer Restricted Subsidiary) and release
of the Issuer and all Issuer 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 Parent'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 Parent or a Restricted Subsidiary, to the extent Parent 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 Qualified Credit Facility, to the extent such Qualified 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 Parent or any Affiliate of Parent); 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 Parent 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, the Issuer (or, in the case of Debt of Parent required or permitted to be repurchased by
Parent, Parent) will be required to make an Offer to Purchase with such Excess Proceeds on a pro rata basis according to principal amount (or, in the case of Debt issued at a discount, the
then-Accreted Value) for (x) outstanding Notes at a price in cash equal to 100% of the principal amount 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 (y) any other Debt of the Issuer that is
pari passu
with the Notes, any Debt of a Guarantor that is
pari passu
with such Guarantor's Note
Guarantee or any Debt of a Restricted Subsidiary that is a subsidiary of the Issuer but 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 (y), required under the terms thereof (other than Debt owed to Parent or any Affiliate of Parent). To the extent there are any remaining Excess Proceeds
following the completion of the Offer to Purchase, the Issuer shall apply such Excess Proceeds to the repayment of other Debt of the Issuer or any Restricted Subsidiary that is a subsidiary of the
Issuer, to the extent permitted or required under the terms thereof. Any other remaining Excess Proceeds may be applied to any use as determined by Parent which is not otherwise prohibited by the
Indenture, and the amount of Excess Proceeds shall be reset to zero.
The
Issuer may not, and may not permit any Issuer Restricted Subsidiary to, sell, transfer, lease or otherwise dispose of any Property to Parent or any Sister Restricted Subsidiary
unless (i) the Issuer or such Issuer Restricted Subsidiary receives consideration for such sale, transfer, lease or other disposition at least equal to the Fair Market Value of such Property
(which, in the case of the Offering Proceeds Note or any other intercompany Debt, is the principal amount of the Offering Proceeds Note or such other Debt and any accrued and unpaid interest thereon)
and (ii) the consideration consists of
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either
(A) 100% in cash or Cash Equivalents or (B) Debt of Parent or the Restricted Subsidiary to which the Property was transferred that is secured by a Lien on such transferred
Property. Parent or the
Restricted Subsidiary to which Property was transferred for consideration consisting of Debt that is secured by a Lien on such Property in accordance with clause (ii)(B) of the prior sentence
may substitute the Lien on such Property with a Lien on other Property (including any Property owned by the Issuer or an Issuer Restricted Subsidiary) that, as determined by the board of directors of
Parent in good faith and evidenced by a resolution of the board of directors of Parent filed with the Trustee upon request of the Trustee, has a Fair Market Value of no less than the Fair Market Value
of the Property for which the substitution is made at the time of the substitution. Any such Lien may be second in priority to any Lien on such Property in favor of the lenders under a Qualified
Credit Facility. The provisions of this paragraph do not apply to (a) dividends and distributions (other than any dividend or distribution of the Offering Proceeds Note or any other
intercompany Debt), (b) loans or advances and (c) purchases of services or goods.
Limitation on Issuance and Sales of Capital Stock of Restricted Subsidiaries.
Parent shall at all times own all the issued and
outstanding Capital
Stock of the Issuer. The Issuer shall at all times own all the issued and outstanding Capital Stock of Level 3 LLC. Parent 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 Parent or a Restricted Subsidiary except (i) a sale of all of the Capital Stock of such Restricted
Subsidiary owned by Parent and any Restricted Subsidiary that complies with the provisions described under "—Limitation on Asset Dispositions" above to the extent such provisions apply,
(ii) in a transaction that results in such Restricted Subsidiary becoming a Joint Venture,
provided
(x) such transaction complies with the
provisions described under "—Limitation on Asset Dispositions" above to the extent such provisions apply and (y) the remaining interest of Parent 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, (iii) 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 complies with the provisions described under "—Limitation on Asset Dispositions" to the extent such provisions apply, (iv) the transfer, conveyance,
sale or other disposition of shares required by applicable law or regulation, (v) if required, the issuance, transfer, conveyance, sale or other disposition of directors' qualifying shares,
(vi) 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, (vii) in a
transaction where Parent or a Restricted Subsidiary acquires at the same time not less than its Proportionate Interest in such issuance of Capital Stock, (viii) Capital Stock issued and
outstanding on the Measurement Date, (ix) 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 Parent and (x) 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.
Parent 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
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Transactions
is on terms that are no less favorable to Parent or such Restricted Subsidiary than those that would have been obtained in a comparable arm's-length transaction by Parent 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 Parent or the relevant Restricted
Subsidiary to apply for comparative purposes, is otherwise on terms that, taken as a whole, Parent has determined to be fair to Parent or the relevant Restricted Subsidiary) and (b) Parent
obtains (i) 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 Parent evidencing such officer's determination that such Affiliate Transaction or series of Affiliate Transactions complies with
clause (a) above and (ii) 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 of Parent 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 of Parent, including a majority of the disinterested members of the board of directors;
provided
,
however
, that, in the event that there shall not be at least two disinterested members of the
board of directors of Parent with respect to the Affiliate Transaction, Parent shall, in addition to such board resolution, obtain a written opinion from an investment banking firm of national
standing in the United States which, in the good faith judgment of the board of directors of Parent, is independent with respect to Parent 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 Parent or such Restricted
Subsidiary.
Notwithstanding
the foregoing, the following shall not be deemed Affiliate Transactions: (i) any employment agreement entered into by Parent or any of its Restricted Subsidiaries
in the ordinary course of business and consistent with industry practice; (ii) any agreement or arrangement with respect to the compensation of a director or officer of Parent or any Restricted
Subsidiary approved by a majority of the disinterested members of the board of directors of Parent and consistent with industry practice; (iii) transactions between or among Parent and its
Restricted Subsidiaries;
provided
,
however
, 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 Parent (other than a Restricted Subsidiary); (iv) Restricted Payments and Permitted Investments permitted by the covenant
described under "—Limitation on Restricted Payments" (other than Investments in Affiliates that are not Parent or Restricted Subsidiaries); (v) transactions pursuant to the terms of
any agreement or arrangement as in effect on the Measurement Date; and (vi) 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 Parent (or any Restricted Subsidiary) and any other Person;
provided
,
however
, that in the case of this clause (vi), 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"), the Issuer will be required to make an Offer to Purchase all outstanding Notes at a price in cash equal to 101% of the principal amount 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:
-
(A)
-
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
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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 Parent;
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 Parent than such other person or group (for purposes of this clause (A), 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
-
(B)
-
the
sale, transfer, assignment, lease, conveyance or other disposition, directly or indirectly, of all or substantially all the assets of (i) Parent
and the Restricted Subsidiaries, or (ii) the Issuer and the Issuer Restricted Subsidiaries, in each case 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 of Parent or the Issuer, respectively, or one or more Permitted Holders) shall have occurred; or
-
(C)
-
during
any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of Parent (together with any
new directors whose election or appointment by such board or whose nomination for election by the shareholders of Parent was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors
of Parent then in office; or
-
(D)
-
the
shareholders of Parent or the Issuer shall have approved any plan of liquidation or dissolution of Parent or the Issuer, respectively.
In
the event that Holders of not less than 90% of the principal amount of the Notes accept an Offer to Purchase the Notes and the Issuer purchases all of the Notes held by such Holders,
the Issuer will have the right, on not less than 30 nor more than 60 days' prior notice, given not more than 30 days following the purchase pursuant to the Offer to Purchase, to redeem
all of the Notes that remain outstanding following such purchase at a price in cash equal to 101% of the principal amount of the Notes on the redemption date plus any accrued and unpaid interest (if
any) to (but not including) such redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
In
the event that the Issuer makes an Offer to Purchase the Notes, the Issuer 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, the Issuer to repurchase Notes upon a Change of Control Triggering Event may deter a third party from
acquiring Parent or the Issuer in a transaction that constitutes a Change of Control. If an Offer to Purchase is made, there can be no assurance that the Issuer 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 Parent or the Issuer may prohibit the Issuer 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. Subject to certain exceptions, the Existing
Credit Facility
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requires
the Issuer to prepay loans under the Existing Credit Facility within 60 days after the occurrence of a change of control triggering event (as defined in the Existing Credit Facility).
In the event that an Offer to Purchase occurs at a time when the Issuer 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 the Issuer is prohibited from purchasing the Notes (and the Issuer 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 Parent or the Issuer. The Indenture is 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 Parent or the Issuer 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 the Issuer 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 the Issuer repurchase or
redeem Notes in the event of a takeover, recapitalization or similar restructuring.
Reports.
Whether or not Parent is subject to Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
Parent shall file
with the Commission the annual reports, quarterly reports and other documents which Parent would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) or any
successor provision thereto if Parent were subject thereto, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which Parent would have
been required to file them. Parent or the Issuer shall also in any event (a) within 15 days of each Required Filing Date (i) transmit by mail to all holders, as their names and
addresses appear in the Security Register, without cost to such holders, and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents (without exhibits)
which Parent would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or any successor provisions thereto if Parent were subject thereto and
(b) if filing such documents by Parent with the Commission is not permitted under the Exchange Act, promptly upon written request, supply copies of such documents (without exhibits) to any
prospective holder. Notwithstanding the foregoing, Parent and the Issuer will be deemed to have furnished such reports referred to above to the Trustee and the holders if Parent has filed such reports
with the Commission via the EDGAR filing system (or any successor thereto) and such reports are publicly available.
Limitation on Designations of Unrestricted Subsidiaries.
The Indenture provides that Parent will not designate (1) the Issuer or
Level 3 LLC as an Unrestricted Subsidiary or (2) any other Subsidiary of
Parent (other than a newly created Subsidiary in which no Investment has previously been made) as an "Unrestricted Subsidiary" under the Indenture (a "Designation") unless:
-
(a)
-
no
Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Designation;
-
(b)
-
immediately
after giving effect to such Designation, Parent would be able to Incur $1.00 of Debt under paragraph (a) of "—Limitation on
Consolidated Debt;" and
-
(c)
-
Parent
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 Parent's equity interest in such Restricted Subsidiary) of the Fair Market Value of the net assets of such Restricted
Subsidiary on such date.
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In the event of any such Designation, Parent 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, Parent shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary of an amount (if positive) equal to (i) Parent's "Investment" in such Subsidiary at the time of such Revocation less (ii) the portion (proportionate to Parent'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 Parent or any Restricted Subsidiary. The Indenture further provides that neither Parent nor any Restricted Subsidiary shall at any time
(x) provide credit support for, or a Guarantee of, any Debt of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Debt);
provided
,
however
, that Parent or a Restricted Subsidiary may pledge Capital Stock or Debt of any
Unrestricted Subsidiary on a nonrecourse basis such that the pledgee has no claim whatsoever against Parent other than to obtain such pledged Capital Stock or Debt, (y) be directly or
indirectly liable for any Debt of any Unrestricted Subsidiary or (z) 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 (x) or (y) 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 Parent 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 (a) and (b) 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 further provides that a Designation may be revoked (a "Revocation") by a resolution of the board of directors of Parent delivered to the Trustee,
provided
that Parent will not make any
Revocation unless:
-
(a)
-
no
Default or Event of Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and
-
(b)
-
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 Parent (i) certifying compliance with the foregoing provisions and
(ii) giving the effective date of such Designation or Revocation.
Limitation on Actions with respect to Existing Intercompany Obligations.
Without the consent of the holders of at least two-thirds in
principal amount of the outstanding Notes:
-
(a)
-
the
Issuer may not forgive or waive or fail to enforce any of its rights under the Offering Proceeds Note, any Offering Proceeds Note Guarantee, the
Subordination Agreement or any other agreement with Parent or any Restricted Subsidiary to subordinate a payment obligation on any Debt to the prior payment in full in cash of all obligations with
respect to the Offering Proceeds Note or an Offering Proceeds Note Guarantee, and the Issuer and Level 3 LLC may
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not
amend the Offering Proceeds Note in a manner adverse to the holders of the Notes;
provided
,
however
,
that nothing in this covenant shall compel the Issuer to demand payment under the Offering Proceeds Note or any Offering Proceeds Note Guarantee except during a bankruptcy, insolvency or similar
proceeding;
-
(b)
-
in
the event Level 3 LLC (or any successor obligor under the Offering Proceeds Note) repays all or a portion of the Offering Proceeds Note,
the Issuer must (i) deposit an amount of cash equal to the principal amount of the Offering Proceeds Note then repaid in an escrow account with an unaffiliated financial institution for the
benefit of the holders of the Notes, and as security for the prompt and complete payment and performance when due of the Issuer's obligations in respect of the Notes, until such time as the Notes are
no longer outstanding or such cash is used pursuant to clause (ii) or (iii) of this paragraph, (ii) redeem Notes having a principal amount equal to the principal amount of the
Offering Proceeds Note then repaid in accordance with, and if at such time permitted by, the first paragraph of the section entitled "—Optional Redemption," or (iii) purchase Notes
in the open market having a principal amount equal to the principal amount of the Offering Proceeds Note then repaid;
provided
,
however
, that if at any
time the principal amount of the Offering Proceeds Note is greater than the principal amount of Notes that remain outstanding,
Level 3 LLC (or any successor obligor under the Offering Proceeds Note) may repay or the Issuer may forgive or waive an amount of the Offering Proceeds Note equal to such excess without
complying with clause (i), (ii) or (iii) above;
-
(c)
-
Parent
may not, and may not permit any Restricted Subsidiary to, provide any Lien on its Property for the benefit of, or any Guarantee (other than a
similarly subordinated Guarantee) or other form of credit enhancement in respect of, (i) the Parent Intercompany Note or (ii) any other intercompany note required by clause (vi)
of paragraph (b) of the covenant described under "—Limitation on Consolidated Debt" or clause (iv) of paragraph (b) of the covenant described under
"—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" to be subordinated to the prior payment in full in cash of all obligations with respect to the Offering Proceeds Note
or an Offering Proceeds Note Guarantee, or take any other action with the purpose or effect of making the Parent Intercompany Note senior to or equal in right of payment with the Offering Proceeds
Note;
-
(d)
-
Parent
and Level 3 LLC may not amend the terms of the Parent Intercompany Note in a manner adverse to the holders of the Notes, the
determination of which shall be made by the board of directors of Parent acting in good faith and shall be evidenced by a resolution of the board of directors of Parent except to permit subordination
of Level 3 LLC's obligations under the Parent Intercompany Note to its obligations under a Qualified Credit Facility as described, and to the extent set forth, under
"—Subordination of Existing Intercompany Obligations";
-
(e)
-
Parent,
the Issuer and Level 3 LLC may not amend the Subordination Agreement in a manner adverse to the holders of the Notes and Parent or any
Restricted Subsidiary and the Issuer may not amend any other agreement between Parent or any Restricted Subsidiary and the Issuer to subordinate a payment obligation on any Debt of Parent or any
Restricted Subsidiary to the prior payment in full in cash of all obligations with respect to the Offering Proceeds Note or any Offering Proceeds Note Guarantee, in each case, the determination of
which shall be made by the board of directors of Parent acting in good faith and shall be evidenced by a resolution of the board of directors of Parent except to permit subordination of their
respective obligations under the Offering Proceeds Note or any Offering Proceeds Note Guarantee to their respective obligations under a Qualified Credit Facility as described, and to the extent set
forth, under "—Subordination of Existing Intercompany Obligations"; and
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-
(f)
-
Parent
may not permit any Restricted Subsidiary to Guarantee the 2015 Floating Rate Notes, the 2015 Floating Rate Proceeds Note, the 10% Senior Notes due
2018, the 10% Proceeds Note, the 9.375% Senior Notes due 2019, the 9.375% Proceeds Note, the 8.125% Senior Notes due 2019, the 8.125% Proceeds Note, the 8.625% Senior Notes due 2020 or the 8.625%
Proceeds Note unless such Restricted Subsidiary concurrently Guarantees the Notes and such Guarantee of the Notes remains in effect for so long as the Guarantee of the 2015 Floating Rate Notes, the
2015 Floating Rate Proceeds Note, the 10% Senior Notes due 2018, the 10% Proceeds Note, the 9.375% Senior Notes due 2019, the 9.375% Proceeds Note, the 8.125% Senior Notes due 2019, the 8.125%
Proceeds Note, the 8.625% Senior Notes due 2020 or the 8.625% Proceeds Note remains in effect;
provided
,
however
, that this provision shall not be deemed
to be violated by the Guarantee of the 2015 Floating Rate Notes, the 10% Senior Notes due 2018, the
9.375% Senior Notes due 2019, the 8.125% Senior Notes due 2019 or the 8.625% Senior Notes due 2020 of Level 3 LLC outstanding on the Issue Date.
Mergers, Consolidations and Certain Sales of Assets
Parent may not, in a single transaction or a series of related transactions, (i) consolidate with or merge into any other Person
or Persons or permit any other Person to consolidate with or merge into Parent or (ii) directly or indirectly, transfer, sell, lease, convey or otherwise dispose of all or substantially all its
assets to any other Person or Persons unless: (a) in a transaction in which Parent is not the surviving Person or in which Parent transfers, sells, leases, conveys or otherwise disposes of all
or substantially all of its assets to any other Person, the successor entity is organized under the laws of the United States of America 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 Parent's obligations under the Indenture and the Parent Guarantee;
(b) immediately before and after giving effect to such transaction and treating any Debt which becomes an obligation of Parent (or the successor entity) or a Restricted Subsidiary as a result
of such transaction as having been Incurred by Parent or such Restricted Subsidiary at the time of the transaction, no Default or Event of Default shall have occurred and be continuing under the
Indenture; (c) immediately after giving effect to such transaction and treating any Debt which becomes an obligation of Parent (or the successor entity) or a Restricted Subsidiary as a result
of such transaction as having been Incurred by Parent or such Restricted Subsidiary at the time of the transaction, Parent (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 "—Certain Covenants—Limitation on Consolidated Debt" above; (d) if, as a result of
any such transaction, Property of Parent (or the successor entity) or any Restricted Subsidiary would become subject to a Lien prohibited by the provisions of the Indenture described under
"—Certain Covenants—Limitation on Liens" above, Parent or the successor entity to Parent shall have secured the Notes as required by said covenant; (e) in the case of a
transfer, sale, lease, conveyance or other disposition of all or substantially all of the assets of Parent, 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 (f) certain other conditions are met. The successor entity shall succeed to, and be substituted for,
and may exercise every right and power of Parent under the Indenture and the Parent Guarantee, and the predecessor "Parent," except in the case of a lease, shall be released from all its obligations
under the Indenture and the Parent Guarantee.
The
Issuer may not, in a single transaction or a series of related transactions, (i) consolidate or merge into Parent or permit Parent to consolidate with or merge into the Issuer
or (ii) except to the extent permitted under "—Certain Covenants—Limitation on Restricted Payments," directly or indirectly, transfer, sell, lease, convey or otherwise
dispose of all or substantially all its assets to Parent. Additionally, the Issuer may not, in a single transaction or a series of related transactions, (i) consolidate with or merge into any
other Person or Persons or permit any other Person to consolidate with or merge into the Issuer or (ii) (other than, to the extent permitted under "—Certain
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Covenants—Limitation
on Restricted Payments," to a Restricted Subsidiary that is or becomes a Guarantor and an Offering Proceeds Note Guarantor or to Parent so long as Parent is a
Guarantor) directly or indirectly, transfer, sell, lease, convey or otherwise dispose of all or substantially all its assets to any other Person or Persons unless: (a) in a transaction in which
the Issuer is not the surviving Person or in which the Issuer transfers, sells, leases, conveys or otherwise disposes of all or substantially all of its assets to any other Person, the successor
entity is organized under the laws of the United States of America 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 the Issuer's obligations under the Indenture; (b) immediately before and after giving effect to such transaction and treating any Debt
which becomes an obligation of the Issuer (or the successor entity) or an Issuer Restricted Subsidiary as a result of such transaction as having been Incurred by the Issuer or such Issuer Restricted
Subsidiary at the time of the transaction, no Default or Event of Default shall have occurred and be continuing under the Indenture; (c) immediately after giving effect to such transaction and
treating any Debt which becomes an obligation of the Issuer (or the successor entity) or an Issuer Restricted Subsidiary as a result of such transaction as having been Incurred by the Issuer or such
Issuer Restricted Subsidiary at the time of the transaction, the Issuer (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 "—Certain Covenants—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" above; (d) if, as a result of any such transaction,
Property of the Issuer (or the successor entity) or any Issuer Restricted Subsidiary would become subject to a Lien prohibited by the provisions of the Indenture described under "—Certain
Covenants—Limitation on Liens" above, the Issuer or the successor entity to the Issuer shall have secured the Notes as required by said covenant; (e) in the case of a transfer,
sale, lease, conveyance or other disposition of all or substantially all of the assets of the Issuer, 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 (f) certain other conditions are met. The successor entity shall succeed to, and be substituted for, and may
exercise every right and power of the Issuer under the Indenture, and the predecessor "Issuer," except in the case of a lease, shall be released from all its obligations under the Indenture.
A
Guarantor (other than Parent) may not, in a single transaction or a series of related transactions, (i) consolidate with or merge into any other Person or Persons (other than,
with respect to a Guarantor that is an Issuer Restricted Subsidiary, the Issuer or another Guarantor that is an Issuer Restricted Subsidiary, and with respect to a Guarantor that is a Sister
Restricted Subsidiary, another Guarantor that is a Sister Restricted Subsidiary or Parent) or permit any other Person (other than, with respect to a Guarantor that is an Issuer Restricted Subsidiary,
another Guarantor that is an Issuer Restricted Subsidiary, and with respect to a Guarantor that is a Sister Restricted Subsidiary, Parent or another Guarantor that is a Sister Restricted Subsidiary)
to consolidate with or merge into such Guarantor or (ii) except to another Guarantor to the extent permitted under "—Certain Covenants—Limitation on Restricted
Payments," directly or indirectly, transfer, sell, lease, convey or otherwise dispose of all or substantially all its assets to any other Person or Persons (other than, with respect to a Guarantor
that is an Issuer Restricted Subsidiary, the Issuer or another Guarantor that is an Issuer Restricted Subsidiary, and with respect to a Guarantor that is a Sister Restricted Subsidiary, another
Guarantor that is a Sister Restricted Subsidiary or Parent) unless (1) immediately before and after giving effect to such transaction and treating any Debt which becomes an obligation of such
Guarantor as a result of such transaction as having been Incurred by such Guarantor at the time of the transaction, no Default or Event of Default shall have occurred and be
continuing under the Indenture and (2) either (a) in a transaction in which such Guarantor is not the surviving Person or in which such Guarantor 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 is organized under the laws of the United States of America 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
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such
Guarantor's obligations under the Indenture and its Note Guarantee; or (b) such transaction complies with the covenant described under "—Certain
Covenants—Limitation on Asset Dispositions" (or Parent certifies in an Officers' Certificate to the Trustee that it will comply with the requirements of such covenant relating to
application of the proceeds of such transaction).
An
Offering Proceeds Note Guarantor may not, in a single transaction or a series of related transactions, (i) consolidate with or merge into any other Person or Persons (other
than, with respect to an Offering Proceeds Note Guarantor that is an Issuer Restricted Subsidiary, the Issuer or another Offering Proceeds Note Guarantor that is an Issuer Restricted Subsidiary, and
with respect to an Offering Proceeds Note Guarantor that is a Sister Restricted Subsidiary, another Offering Proceeds Note Guarantor that is a Sister Restricted Subsidiary or Parent) or permit any
other Person (other than, with respect to an Offering Proceeds Note Guarantor that is an Issuer Restricted Subsidiary, another Offering Proceeds Note Guarantor that is an Issuer Restricted Subsidiary,
and with respect to an Offering Proceeds Note Guarantor that is a Sister Restricted Subsidiary, Parent or another Offering Proceeds Note Guarantor that is a Sister Restricted Subsidiary) to
consolidate with or merge into such Offering Proceeds Note Guarantor or (ii) except to another Offering Proceeds Note Guarantors to the extent permitted under "—Certain
Covenants—Limitation on Restricted Payments," directly or indirectly, transfer, sell, lease, convey or otherwise dispose of all or substantially all its assets to any other Person or
Persons (other than, with respect to an Offering Proceeds Note Guarantor that is an Issuer Restricted Subsidiary, the Issuer or another Offering Proceeds Note Guarantor that is an Issuer Restricted
Subsidiary, and with respect to an Offering Proceeds Note Guarantor that is a Sister Restricted Subsidiary, another Offering Proceeds Note Guarantor that is a Sister Restricted Subsidiary or Parent)
unless (1) immediately before and after giving effect to such transaction and treating any Debt which becomes an obligation of such Offering Proceeds Note Guarantor as a result of such
transaction as having been Incurred by such Offering Proceeds Note Guarantor at the time of the transaction, no Default or Event of Default shall have occurred and be continuing under the Indenture
and (2) either (a) in a transaction in which such Offering Proceeds Note Guarantor is not the surviving Person or in which such Offering Proceeds Note Guarantor 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 is organized under the laws of the United States of America or
any State thereof or the District of Columbia and shall expressly assume all of such Offering Proceeds Note Guarantor's obligations under the Offering Proceeds Note Guarantee and any subordination
agreements between the Issuer and such Offering Proceeds Note Guarantor relating to the Offering Proceeds Note; or (b) such transaction complies with the covenant described under
"—Certain Covenants—Limitation on Asset Dispositions" (or Parent
certifies in an Officers' Certificate to the Trustee that it will comply with the requirements of such covenant relating to application of the proceeds of such transaction).
Certain Definitions
Set forth below is a summary of certain 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 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 (a) the
issue price of such Debt as determined in accordance with Section 1273 of the Code or any successor provisions plus (b) 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 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 Code (without regard to Section 1272(a)(7) of
the Code) from the date of issue of such Debt to the date of determination, minus all amounts theretofore paid in respect of such Debt, which amounts
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are
considered as part of the "stated redemption price at maturity" of such Debt within the meaning of Section 1273(a)(2) of the Code or any successor provisions (whether such amounts paid were
denominated principal or interest).
"Acquired
Debt" means, with respect to any specified Person, (i) 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 (ii) 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 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 "—Certain Covenants—Transactions with Affiliates" and "Certain Covenants—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 Parent 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 Parent 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
Parent, but excluding a disposition by a Restricted Subsidiary to Parent or a Restricted Subsidiary or by Parent to a Restricted Subsidiary) of (i) shares of Capital Stock or other ownership
interests of a Restricted Subsidiary (other than as permitted by clause (v), (vi), (vii) or (ix) of the covenant described under "—Certain
Covenants—Limitation on Issuance and Sales of Capital Stock of Restricted Subsidiaries"), (ii) substantially all of the assets of Parent or any Restricted Subsidiary representing a
division or line of business or (iii) other Property of Parent 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 Parent);
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: (i) Permitted
Telecommunications Capital Asset Dispositions that comply with clause (i) of the first paragraph under "—Certain Covenants—Limitation on Asset Dispositions,"
(ii) when used with respect to Parent, 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 Parent and the Restricted Subsidiaries taken as a whole, (iii) Receivables sales constituting Debt under Qualified Receivable Facilities permitted to be
Incurred pursuant to "—Certain Covenants—Limitation on Consolidated Debt" or "—Certain Covenants—Limitation on Debt of the Issuer and Issuer Restricted
Subsidiaries" and (iv) any disposition that constitutes a Permitted Investment or a Restricted Payment permitted by the covenant described under "—Certain
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
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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 (i) U.S. dollars or foreign currencies held from time to time in the ordinary course of business; (ii) Government Securities having maturities of
not more than one year from the date of acquisition; (iii) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of acquisition and, at the time of acquisition, having a long-term credit rating of "A" or better from S&P or "A2"
or better from Moody's or a short-term credit rating of "A-2" or better from S&P or "P-2" or better from Moody's; (iv) certificates of deposit, demand
deposits, time deposits, eurodollar time deposits, overnight bank deposits or bankers' acceptances having maturities of not more than one year from the date of acquisition thereof issued by any
commercial bank the long-term debt of which is rated at the time of acquisition thereof at least "A" or the equivalent thereof by S&P or "A2" or the equivalent thereof by Moody's or any
commercial bank ranking within the top ten of all commercial banks in such bank's country of operation on the basis of consolidated assets, and, in each case, having consolidated assets with value in
excess of $500 million; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii), (iii) and
(iv) entered into with any bank meeting the qualifications specified in clause (iv) above; (vi) commercial paper rated at the time of acquisition thereof at least "A"
(long-term) or "A-2" (short-term) or the respective equivalent thereof by S&P or "A2" (long-term) or "P-2" (short-term) or the
respective equivalent thereof by Moody's or, if both of the two named Rating Agencies cease publishing ratings of investments, carrying an equivalent rating by a nationally recognized rating agency
(other than Moody's and S&P) that rates debt securities having a maturity at original issuance of at least one year and in any case maturing within one year after the date of acquisition thereof; and
(vii) interests in any investment company or money market fund which invests 95% or more of its assets in instruments of the type specified in clauses (i) through (vi) above.
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"Change
of Control" has the meaning set forth under "—Certain Covenants—Change of Control Triggering Event" above.
"Change
of Control Triggering Event" has the meaning set forth under "—Certain Covenants—Change of Control Triggering Event" above.
"Code"
means the Internal Revenue Code of 1986, as amended.
"Commission"
means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such
Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
"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 (i) the aggregate amount of Debt of Parent and its Restricted Subsidiaries on a consolidated basis
as at the date of determination to (ii) the sum of (a) $2.024 billion, (b) the aggregate net proceeds to Parent from the issuance or sale of any Capital Stock (including
Preferred Stock) of Parent other than Disqualified Stock subsequent to the Measurement Date, (c) the aggregate net proceeds from the issuance or sale of Debt of Parent or any Restricted
Subsidiary subsequent to the Measurement Date convertible or exchangeable into Capital Stock of Parent other than Disqualified Stock, in each case upon conversion or exchange thereof into Capital
Stock of Parent subsequent to the Measurement Date and (d) 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 Parent or any Restricted Subsidiary (other than Debt that is
subordinated to the Notes or any applicable Note Guarantee or Offering Proceeds Note Guarantee) and release of Parent and all Restricted Subsidiaries from all liability on the Debt assumed;
provided
,
however
, that 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 (b) or (c) above shall not be included to the extent (x) such proceeds have been utilized to make a
Permitted Investment under clause (i) of the definition thereof or a Restricted Payment or (y) such Capital Stock or Debt shall have been issued or sold to Parent, a Subsidiary of Parent
or an employee stock ownership plan or trust established by Parent or any such Subsidiary for the benefit of their employees.
"Consolidated
Cash Flow Available for Fixed Charges" for Parent and its Restricted Subsidiaries or for the Issuer and the Issuer Restricted Subsidiaries for any period means the
Consolidated Net Income of Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable, for such period increased by the sum of, to the extent reducing
such Consolidated Net Income for such period (or, with respect to clause (v) below, reduced by such amount to the extent increasing such Consolidated Net Income for such period),
(i) Consolidated Interest Expense of Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable, for such period, plus (ii) Consolidated
Income Tax Expense of Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable, for such period, plus (iii) 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) for Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable, (iv) other non-recurring or unusual losses or expenses
of Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable (as determined by Parent in good faith and in accordance with Regulation G,
promulgated pursuant to the Securities Act and the Exchange Act), (v) non-recurring or unusual gains of Parent and its Restricted Subsidiaries or the
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Issuer
and the Issuer Restricted Subsidiaries, as applicable (as determined by Parent in good faith in accordance with Regulation G, promulgated pursuant to the Securities Act and Exchange
Act), (vi) acquisition-related costs and restructuring reserves incurred by Parent or any of its Restricted Subsidiaries or the Issuer or any of the Issuer Restricted Subsidiaries, as
applicable, in connection with the acquisition of, merger, amalgamation or consolidation with, any Person expensed in computing such Consolidated Net Income to the extent the same would have been
capitalized prior to the adoption of Statement of Financial Accounting Standards No. 141R, Business Combinations, (vii) the amount of (a) any restructuring charges or reserves of
Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable, and (b) any impairment charge or asset write-off or
write-down of Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable, in each case, pursuant to generally accepted accounting
principles, and (viii) any non-recurring expenses or charges (other than depreciation or amortization expense) related to any equity offering, Permitted Investment, acquisition,
disposition, recapitalization or the Incurrence of Debt permitted to be Incurred under the Indenture (including a refinancing thereof) (whether or not successful), including (a) such fees,
expenses or
charges related to the offering of the Notes (including breakages costs in connection with hedging obligations) and (b) any amendment or other modification of the Notes, and, in each case,
deducted (and not added back) in computing Consolidated Net Income;
provided
,
however
, that there shall
be excluded therefrom the Consolidated Cash Flow Available for Fixed Charges (if positive) of any Restricted Subsidiary or Issuer Restricted Subsidiary, as applicable (calculated separately for such
Restricted Subsidiary or Issuer Restricted Subsidiary in the same manner as provided above for Parent or the Issuer, as applicable) that is subject to a restriction which prevents the payment of
dividends or the making of distributions to Parent or another Restricted Subsidiary or to the Issuer or another Issuer Restricted Subsidiary, as applicable, to the extent of such restrictions.
"Consolidated
Income Tax Expense" for Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries for any period means the aggregate amounts of the
provisions for income taxes of Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable, for such period calculated on a consolidated basis in
accordance with generally accepted accounting principles.
"Consolidated
Interest Expense" for Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries for any period means the interest expense included in a
consolidated income statement (excluding interest income) of Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable, 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), (i) the amortization of Debt discounts and
issuance costs, including commitment fees; (ii) any payments or fees with respect to letters of credit, bankers' acceptances or similar facilities; (iii) net costs with respect to
interest rate swap or similar agreements or foreign currency hedge, exchange or similar agreements (including fees); (iv) Preferred Stock Dividends (other than dividends paid in shares of
Preferred Stock that is not Disqualified Stock) declared and paid or payable; (v) accrued Disqualified Stock Dividends, whether or not declared or paid; (vi) interest on Debt guaranteed
by Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable; (vii) the portion of any Capital Lease Obligation or Sale and Leaseback
Transaction paid during such period that is allocable to interest expense; (viii) interest Incurred in connection with investments in discontinued operations; and (ix) 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 Parent or a
Restricted Subsidiary or the Issuer or an Issuer Restricted Subsidiary, as applicable) in connection with Debt Incurred by such plan or trust.
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"Consolidated Net Income" for Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries for any period means the net income (or
loss) of Parent and its Restricted Subsidiaries or the Issuer and the Issuer Restricted Subsidiaries, as applicable, for such period determined on a consolidated basis in accordance with generally
accepted accounting principles;
provided
,
however
, that there shall be excluded therefrom (a) for
purposes of the covenant described under "—Certain Covenants—Limitation on Restricted Payments" only, the net income (or loss) of any Person acquired by Parent or a Restricted
Subsidiary or the Issuer or an Issuer Restricted Subsidiary, as applicable, in a pooling-of-interests transaction for any period prior to the date of such transaction,
(b) the net income (or loss) of any Person that is not a Restricted Subsidiary or an Issuer Restricted Subsidiary, as applicable, except to the extent of the amount of dividends or other
distributions actually paid to Parent or a Restricted Subsidiary or to the Issuer or an Issuer Restricted Subsidiary, as applicable, by such Person during such period (except, for purposes of the
covenant described under "—Certain 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), (c) gains or losses realized upon the sale or other disposition of any Property of Parent or its Restricted Subsidiaries
or the Issuer or the Issuer Restricted Subsidiaries, as applicable, 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), (d) gains or losses realized upon the sale or other disposition of any Special Assets, (e) all
extraordinary gains and extraordinary losses, determined in accordance with generally accepted accounting principles, (f) the cumulative effect of changes in accounting principles,
(g) non-cash gains or losses resulting from fluctuations in currency exchange rates, (h) any non-cash expense related to the issuance to employees or directors of
Parent or any Restricted Subsidiary or the Issuer or any Issuer Restricted Subsidiary, as applicable, of (1) options to
purchase Capital Stock of Parent or such Restricted Subsidiary or the Issuer or such Issuer Restricted Subsidiary, as applicable, or (2) 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, (i) with respect to a Restricted Subsidiary or an Issuer Restricted Subsidiary, as applicable, that is not a Wholly Owned Subsidiary any aggregate net income (or loss) in excess
of Parent's or any Restricted Subsidiary's or the Issuer's or any Issuer Restricted Subsidiary's, as applicable, pro rata share of the net income (or loss) of such Restricted Subsidiary or Issuer
Restricted Subsidiary, as applicable, that is not a Wholly Owned Subsidiary; (j) if the period is the second, third or fourth fiscal quarter of 2003 or the first fiscal quarter of 2004, an
aggregate of $293,686,650 for all such quarters; and (k) for purposes of calculating Pro Forma Consolidated Cash Flow Available for Fixed Charges in paragraph (a) and (b) of the
covenant described under "—Limitation on Consolidated Debt" and paragraph (a) and (b) of the covenant described under "—Limitation on Debt of the Issuer and
Issuer Restricted Subsidiaries" only, ordinary losses or gains (including related fees and expenses) on early extinguishment of Debt;
provided further
that there shall further be excluded therefrom the net income (but not net loss) of any Restricted Subsidiary or any Issuer Restricted Subsidiary, as applicable, that is subject to a restriction which
prevents the payment of dividends or the making of distributions to Parent or another Restricted Subsidiary or to the Issuer or another Issuer Restricted Subsidiary, as applicable, to the extent of
such restriction.
"Consolidated
Tangible Assets" of any Person means the total amount of assets (less applicable reserves and other properly deductible items) which under generally accepted 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, including the Existing Credit Facility, loan agreements or similar facilities, secured or unsecured, providing for revolving
credit loans, term
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loans
and/or letters of credit, including any Qualified Receivable Facility, entered into from time to time by Parent and its Restricted Subsidiaries, or Purchase Money Debt, or Debt Incurred pursuant
to Capital Lease Obligations, Sale and Leaseback Transactions, or senior secured note issuances, 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, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the acquisition of Property, (iii) every reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such Person, (iv) 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), (v) every Capital Lease Obligation of such
Person and all Attributable Value in respect of Sale and Leaseback Transactions entered into by such Person, (vi) all obligations to redeem or repurchase Disqualified Stock issued by such
Person, (vii) the liquidation preference of any Preferred Stock (other than Disqualified Stock, which is covered by the preceding clause (vi)) issued by any Restricted Subsidiary of such
Person, (viii) every obligation under Interest Rate or Currency Protection Agreements of such Person and (ix) every obligation of the type referred to in clauses (i) through
(viii) 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 (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 Parent or a Wholly Owned Restricted Subsidiary of Parent) 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 (x) of
paragraph (b) of the covenant described under "—Certain Covenants—Limitation on Consolidated Debt" or clause (viii) of paragraph (b) of the covenant
described under "—Certain Covenants—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" 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 Parent or the Issuer, respectively, to repurchase or redeem such
Preferred Stock upon the occurrence of (i) 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
"—Certain Covenants—Change of Control Triggering Event" or (ii) an asset sale occurring prior to the final Stated Maturity of the Notes shall not constitute Disqualified
Stock if the asset sale provisions applicable to such Preferred Stock are no more favorable to the
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holders
of such Preferred Stock than the provisions applicable to the Notes contained in the covenant described under "—Limitation on Asset Dispositions" and, in each case such Preferred
Stock specifically provides that Parent or the Issuer, respectively, will not repurchase or redeem any such stock pursuant to such provisions prior to the Issuer's repurchase of such Notes as are
required to be repurchased pursuant to the covenant described under "—Certain Covenants—Change of Control Triggering Event" or "—Limitation on Asset Dispositions."
"Disqualified
Stock Dividends" means all dividends with respect to Disqualified Stock of Parent 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 Parent for the period during which such dividends were paid.
"Domestic
Restricted Subsidiary" means any Restricted Subsidiary other than (a) a Foreign Restricted Subsidiary or (b) a Subsidiary of a Foreign Restricted Subsidiary.
"8.125%
Proceeds Note" has the meaning set forth under "—Subordination of Existing Intercompany Obligations" above.
"8.125%
Senior Notes due 2019" means the Issuer's 8.125% Senior Notes due 2019 issued pursuant to the Indenture dated as of June 9, 2011 between Level 3 Escrow, Inc.
and The Bank of New York Mellon Trust Company, N.A., as supplemented by the First Supplemental Indenture dated October 4, 2011, among Level 3 Escrow, Inc., the Issuer, Parent and
The Bank of New York Mellon Trust Company, N.A., as trustee, under which the Issuer assumed all obligations of Level 3 Escrow, Inc. under the indenture and securities issued thereunder
and Parent guaranteed the Issuer's obligations under such indenture and securities.
"8.625%
Proceeds Note" has the meaning set forth under "—Subordination of Existing Intercompany Obligations" above.
"8.625%
Senior Notes due 2020" means the Issuer's 8.625% Senior Notes due 2020 issued pursuant to the Indenture dated as of January 13, 2012, among the Issuer, Parent and The Bank
of New York Trust Company, N.A., as trustee.
"8.875%
Senior Notes due 2019" means Parent's 8.875% Senior Notes due 2020 issued pursuant to the Indenture dated as of August 1, 2012, between Parent and The Bank of New York
Mellon Trust Company, N.A., as trustee.
"11.875%
Senior Notes due 2019" means Parent's 11.875% Senior Notes due 2019 issued pursuant to the Indenture dated as of January 19, 2011, between Parent and The Bank of New York
Mellon Trust Company, N.A., as trustee.
"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).
"Existing
Credit Facility" means the Credit Agreement dated as of March 13, 2007, among the Issuer, Parent, the lenders party thereto and Merrill Lynch Capital Corporation, as
Administrative Agent, as amended and restated as of November 10, 2011, as amended on August 6, 2012, and as amended on October 4, 2012.
"Existing
Notes" means Parent's 7% Convertible Senior Notes due 2015 in an aggregate principal amount not to exceed $475 million (includes Series B), Parent's 6.5%
Convertible Senior Notes due 2016 in an aggregate principal amount not to exceed $201.25 million, Parent's 11.875% Senior Notes due 2019 in an aggregate principal amount not to exceed
$605.217 million, Parent's 8.875% Senior Notes due 2019 in an aggregate principal amount not to exceed $300 million, the Issuer's 2015 Floating
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Rate
Notes in an aggregate principal amount not to exceed $300 million, the Issuer's 10% Senior Notes due 2018 in an aggregate principal amount not to exceed $640 million, the Issuer's
9.375% Senior Notes due 2019 in an aggregate principal amount not to exceed $500 million, the Issuer's 8.125% Senior Notes due 2019 in an aggregate principal amount not to exceed
$1,200 million and the Issuer's 8.625% Senior Notes due 2020 in an aggregate principal amount not to exceed $900 million.
"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
Parent acting in good
faith and shall be evidenced by a resolution of the board of directors of Parent (except in the case of the last paragraph under "—Certain Covenants—Limitation on Asset
Dispositions").
"Foreign
Restricted Subsidiary" means any Restricted Subsidiary that is not organized under the laws of the United States of America or any State thereof or the District of Columbia.
"Governmental
Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Government
Securities" means direct obligations of, or obligations fully and unconditionally guaranteed or insured by, the United States of America or any agency or instrumentality
thereof 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 Parent 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 (i) 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, (ii) 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, (iii) 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 (iv) 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 (1) Parent and (2) any other Person that becomes a Guarantor pursuant to the covenants described under "—Certain
Covenants—Limitation on Consolidated Debt," "—Certain Covenants—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries," "—Certain
Covenants—Limitation on Actions with Respect to Existing Intercompany Obligations," "—Mergers, Consolidations and Certain Sales of Assets" or any other provision of the
Indenture.
"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" and "Incurring" shall have meanings correlative to the
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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 Parent 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 (a) $500 million, (b) the aggregate net proceeds received by Parent from the issuance or sale of any Capital Stock, including
Preferred Stock, of Parent but excluding Disqualified Stock, subsequent to the Measurement Date, and (c) the aggregate net proceeds from the issuance or sale of Debt of Parent or any Restricted
Subsidiary subsequent to the Measurement Date convertible or exchangeable into Capital Stock of Parent other than Disqualified Stock, in each case upon conversion or exchange thereof into Capital
Stock of Parent subsequent to the Measurement Date;
provided
,
however
, that the net proceeds from the
issuance or sale of Capital Stock or Debt described in clause (b) or (c) shall be excluded from any computation of Invested Capital to the extent (i) utilized to make a Restricted
Payment or (ii) such Capital Stock or Debt shall have been issued or sold to Parent, a Subsidiary of Parent or an employee stock ownership plan or trust established by Parent 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
,
however
, that Investments shall
exclude commercially reasonable extensions of trade credit. The amount, as of any date of determination, of any
Investment shall be the original cost of such Investment, plus the cost of all additions, as of such date, thereto and minus the amount, as of such date, of any portion of such Investment repaid to
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 of
Parent and its Restricted Subsidiaries 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.
"Investment
Grade Rating" means a rating equal to or higher than Baa3 (or the equivalent) by Moody's and BBB- (or the equivalent) by S&P.
"Issue
Date" means August 6, 2012.
"Issue
Date Purchase Money Debt" means Purchase Money Debt outstanding on the Issue Date;
provided
,
however
, that the amount of such Purchase Money Debt when
Incurred did not exceed 100% of the cost of the construction, installation, acquisition,
lease, development or improvement of the applicable Telecommunications/IS Assets.
"Issue
Date Rating" means the respective ratings assigned to the Notes issued in the initial offering by the Rating Agencies on the Issue Date.
"Issuer
Debt Ratio" means 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 the Issuer and the Issuer Restricted Subsidiaries (other than Debt owed to Parent or a Sister Restricted Subsidiary that is
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subordinated
to the Offering Proceeds Note (if Level 3 LLC is the obligor on such Debt) or to an Offering Proceeds Note Guarantee of the obligor on such Debt), on a consolidated basis,
outstanding as of the most recent available quarterly or annual balance sheet, after giving pro forma effect to the proposed Incurrence of Debt giving rise to such calculation and any other Debt
Incurred or repaid since such balance sheet date and the receipt and application of the net proceeds thereof, to (b) the sum of, without duplication, (x) Consolidated Cash Flow Available
for Fixed Charges of the Issuer and the Issuer Restricted Subsidiaries for the four full fiscal quarters next preceding such proposed Incurrence of Debt for which consolidated financial statements are
available and (y) Consolidated Cash Flow Available for Fixed Charges of Parent and the Sister Restricted Subsidiaries to the extent attributable to Sister Restricted Subsidiaries that are
Guarantors for such four full fiscal quarters;
provided
,
however
, that if (A) since the beginning
of such four full fiscal quarter period the Issuer, any Issuer Restricted Subsidiary, Parent or any Sister Restricted Subsidiary shall have made one or more Asset Dispositions or an Investment (by
merger or otherwise) in any Issuer Restricted Subsidiary or
Sister Restricted Subsidiary (or any Person which becomes an Issuer Restricted Subsidiary or a Sister Restricted Subsidiary) or an acquisition, merger or consolidation of Property, or (B) since
the beginning of such period any Person (that subsequently became an Issuer Restricted Subsidiary or a Sister Restricted Subsidiary or was merged with or into the Issuer, any Issuer Restricted
Subsidiary or any Sister Restricted Subsidiary since the beginning of such period) shall have made such an Asset Disposition, Investment, acquisition, merger or consolidation, then Consolidated Cash
Flow Available for Fixed Charges for such four full fiscal quarter period shall be calculated after giving pro forma effect to such Asset Dispositions, Investments, acquisitions, mergers or
consolidations as if such Asset Dispositions, Investments, acquisitions, mergers or consolidations occurred on the first day of such period. For purposes of this definition, whenever "pro forma"
effect is to be given to any Asset Disposition, Investment, acquisition, merger or consolidation, the calculations shall be performed in accordance with Article 11 of
Regulation S-X promulgated under the Securities Act, as interpreted in good faith by the chief financial officer of Parent, except that any such pro forma calculation may include
operating expense reductions for such period attributable to the transaction to which pro forma effect is being given (including, without limitation, operating expense reductions attributable to
execution or termination of any contract, reduction of costs related to administrative functions, the termination of any employees or the closing (or the approval by the board of directors of Parent
of the closing) of any facility) that have been realized or for which all steps necessary for the realization of which have been taken or are reasonably expected to be taken within twelve months
following such transaction,
provided
, that such adjustments are set forth in an Officers' Certificate which states (i) the amount of such
adjustment or adjustments and (ii) that such adjustment or adjustments are based on the reasonable good faith beliefs of the Officers executing such Officers' Certificate.
"Issuer
Restricted Subsidiaries" means the Subsidiaries of the Issuer that are Restricted Subsidiaries.
"Joint
Venture" means a Person in which Parent 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 Parent 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. For the sake of clarity, subordination and setoff rights do not
constitute Liens.
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"Measurement
Date" means April 28, 1998.
"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 the Issuer.
"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 acquirer of Debt or other obligations relating to such Property) therefrom
by such Person, net of (i) 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, (ii) 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, (iii) 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 (iv) 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;
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;
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.
"9.375%
Proceeds Note" has the meaning set forth under "—Subordination of Existing Intercompany Obligations" above.
"9.375%
Senior Notes due 2019" means the Issuer's 9.375% Senior Notes due 2019 issued pursuant to the Indenture dated as of March 4, 2011, among the Issuer, Parent and The Bank of
New York Mellon Trust Company, N.A., as trustee.
"Non-Telecommunications
Subsidiary" means any Issuer Restricted Subsidiary not engaged in any material respect in the Telecommunications/IS Business.
"Note
Guarantee" means an unconditional Guarantee of the due and punctual payment of the principal of and premium, if any, and interest on the Notes, when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and all other monetary
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obligations
of the Issuer under the Indenture and the Notes, and the due and punctual performance of all covenants, agreements, obligations and liabilities of the Issuer under or pursuant to the
Indenture and the Notes, including the Parent Guarantee.
"Offer
to Purchase" means a written offer (the "Offer") sent by the Issuer 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 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. The Issuer 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 the obligation to make an
Offer to Purchase, and the Offer shall be mailed by the Issuer or, at the Issuer's request, by the Trustee in the name and at the expense of the Issuer. The Offer shall contain information concerning
the business of Parent and its Subsidiaries which the Issuer in good faith believes will enable such holders to make an informed decision with respect to the Offer to Purchase. 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:
-
a.
-
the
Section of the Indenture pursuant to which the Offer to Purchase is being made;
-
b.
-
the
Expiration Date and the Purchase Date;
-
c.
-
the
aggregate principal amount of the outstanding Notes offered to be purchased by the Issuer 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");
-
d.
-
the
purchase price to be paid by the Issuer for $1,000 aggregate principal amount of Notes accepted for payment (as specified pursuant to the Indenture) (the
"Purchase Price");
-
e.
-
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;
-
f.
-
the
place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase;
-
g.
-
that
any Notes not tendered or tendered but not purchased by the Issuer will continue to accrue interest;
-
h.
-
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 on and after the Purchase Date;
-
i.
-
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 the Issuer or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Trustee duly executed by, the holder thereof or his attorney duly authorized in writing);
-
j.
-
that
holders will be entitled to withdraw all or any portion of Notes tendered if the Issuer (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
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Any
Offer to Purchase shall be governed by and effected in accordance with the Offer for such Offer to Purchase.
"Offering
Proceeds Note" has the meaning set forth under "—Subordination of Existing Intercompany Obligations" above.
"Offering
Proceeds Note Guarantee" means an unconditional Guarantee of the due and punctual payment of the principal of and premium, if any, and interest on the Offering Proceeds Note,
when and as due, whether on demand, at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and all other monetary obligations of Level 3 LLC under the
Offering Proceeds Note.
"Offering
Proceeds Note Guarantor" means any Restricted Subsidiary that provides an Offering Proceeds Note Guarantee pursuant to the covenant described under "—Certain
Covenants—Limitation on Consolidated Debt" and "—Certain Covenants—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" or any other provision of
the Indenture.
"Officers'
Certificate" of any Person means a certificate signed by the Chairman of the board of directors of such Person, a Vice Chairman of the board of directors of such Person, 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 such
Person and delivered to the Trustee, which shall comply with the Indenture.
"Opinion
of Counsel" means an opinion of counsel of Parent or the Issuer, including an employee of Parent or the Issuer.
"Parent
Guarantee" means the Note Guarantee of Parent.
"Permitted
Holders" means the members of Parent'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
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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 (a) Cash Equivalents; (b) investments in prepaid expenses; (c) negotiable instruments held for collection and lease, utility and
workers' compensation, performance and other similar deposits; (d) loans, advances or extensions of credit to employees and directors made in the ordinary course of business and consistent with
past practice; (e) obligations under Permitted Interest Rate or Currency Protection Agreements; (f) bonds, notes, debentures and other securities received as a result of Asset
Dispositions pursuant to and in compliance with "—Certain Covenants—Limitation on Asset Dispositions"; (g) Investments in any Person as a result of which such Person
becomes a Restricted Subsidiary; (h) Investments made prior to the Measurement Date; (i) Investments made after the Measurement Date in Persons engaged in the Telecommunications/IS
Business in an aggregate amount not to exceed Invested Capital; and (j) additional Investments in an aggregate amount not to exceed $200 million.
"Permitted
Liens" means (a) 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;
(b) other Liens incidental to the conduct of Parent'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 Parent's and its Restricted Subsidiaries' Property when taken as a whole, or materially impair the use thereof in the operation of its business; (c) Liens,
pledges and deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of statutory obligations; (d) 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 Parent and the Restricted Subsidiaries taken as a whole); (e) 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 Parent or its Restricted Subsidiaries; and (f) 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 Parent's communications network that (i) constitute capital assets in accordance with generally accepted accounting principles and (ii) after giving effect
to such disposition, would result in Parent 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 at such time "Segment" means (x) with respect to Parent's intercity network, the
through-portion of such network between two local networks (i.e., Omaha to Denver) and (y) with respect to a local network of Parent (i.e., 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
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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 Parent or the Issuer or a Wholly Owned Restricted
Subsidiary of Parent or the Issuer, respectively. 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.
"Pro
Forma Consolidated Cash Flow Available for Fixed Charges" for Parent and its Restricted Subsidiaries for any period means Consolidated Cash Flow Available for Fixed Charges of
Parent and its Restricted Subsidiaries for such period, calculated in accordance with the definition thereof;
provided
,
however
, that if (A) since the
beginning of the applicable period Parent or one of its Restricted Subsidiaries shall have made one or more Asset
Dispositions or an Investment (by merger or otherwise) in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition, merger or consolidation of Property which
constitutes all or substantially all of an operating unit of a business or a line of business, or (B) since the beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into Parent or any Restricted Subsidiary since the beginning of such period) shall have made such an Asset Disposition, Investment, acquisition, merger or
consolidation, then Consolidated Cash Flow Available for Fixed Charges for such four full fiscal quarter period shall be calculated after giving pro forma effect to such Asset Dispositions,
Investments, acquisitions, mergers or consolidations as if such Asset Dispositions, Investments, acquisitions, mergers or consolidations occurred on the first day of such period. For purposes of this
definition, whenever "pro forma" effect is to be given to any Asset Disposition, Investment, acquisition, merger or consolidation, the calculations shall be performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as interpreted in good
faith by the chief financial officer of Parent, except that any such pro forma calculation may include operating expense reductions for such period attributable to the transaction to which pro forma
effect is being given (including, without limitation, operating expense reductions attributable to execution or termination of any contract, reduction of costs related to administrative functions, the
termination of any employees or the closing (or the approval by the board of directors of Parent of the closing) of any facility) that have been realized or for which all steps necessary for the
realization of which have been taken or are reasonably expected to be taken within twelve months following such transaction,
provided
that such
adjustments are set forth in an Officers' Certificate which states (i) the amount of such adjustment or adjustments and (ii) that such adjustment or adjustments are based on the
reasonable good faith beliefs of the Officers executing such Officers' Certificate.
"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 (i) the numerator of which is the aggregate amount of all Capital Stock of such
Restricted Subsidiary beneficially owned by Parent and the Restricted Subsidiaries and (ii) 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 (ii), any Investment made in connection with such issuance).
"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 Parent or any Restricted Subsidiary of any Telecommunications/IS Assets of Parent or any
Restricted
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Subsidiary
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.
"Qualified
Credit Facility" 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 Parent and its Restricted Subsidiaries, or senior secured note issuances, 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,
including, without limitation, the Existing Credit Facility.
"Qualified
Receivable Facility" means Debt of Parent or any Subsidiary Incurred from time to time pursuant to either (x) credit facilities secured by Receivables or
(y) 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 Parent 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. A "Rating Decline" also shall be deemed to have occurred if a Rating Decline (as defined in any indenture governing any of the Existing Notes) shall have occurred in
respect of any of the Existing Notes.
"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 (a) a Subsidiary of Parent or of a Restricted Subsidiary, including the Issuer, that has not been designated or classified as an Unrestricted
Subsidiary pursuant to and in compliance with "—Certain Covenants—Limitation on Designations of Unrestricted Subsidiaries" and (b) an Unrestricted Subsidiary that is
redesignated as a Restricted Subsidiary pursuant to such covenant.
"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 Ratings 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 nationally 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 the
Issuer.
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"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 Parent within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"Sister
Restricted Subsidiary" means a Restricted Subsidiary that is not the Issuer or an Issuer Restricted Subsidiary.
"Special
Assets" means (a) the Capital Stock or assets of RCN Corporation and Commonwealth Telephone Enterprises, Inc. (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 Parent or any Restricted Subsidiary on the Measurement Date, and (b) 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 "—Certain 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 principal 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 the Issuer unless such contingency has occurred).
"Subordinated
Debt" means Debt of Parent (a) that is not secured by any Lien on or with respect to any Property now owned or acquired after the Measurement Date and (b) 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 Parent
Guarantee to at least the
following extent: (i) 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, "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; (ii) 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 Parent 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
,
however
, 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; (iii) 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 (iv) such Debt may not (x) 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 Parent (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 (y) permit
redemption or other retirement (including pursuant to an offer to purchase made by Parent) of such other Debt at the option of the
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holder
thereof prior to the final Stated Maturity of the Notes, 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 Parent) which is conditioned upon (A) a change of control of Parent pursuant to provisions substantially similar to those described under "—Certain
Covenants—Change of Control Triggering Event" (and which shall provide that such Debt will not be repurchased pursuant to such provisions prior to the Issuer's repurchase of the Notes
required to be repurchased by the Issuer pursuant to the provisions described under "—Certain Covenants—Change of Control Triggering Event") or (B) a sale or other
disposition of assets pursuant to provisions substantially similar to those described under "—Certain Covenants—Limitation on Asset Dispositions" (and which shall provide that
such Debt will not be repurchased pursuant to such provisions prior to the Issuer's repurchase of the Notes required to be repurchased by the Issuer pursuant to the provision described under
"—Certain Covenants—Limitation on Asset Dispositions").
"Subsidiary"
of any Person means (i) 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 (ii) 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 (a) any Property (other than cash, cash equivalents and securities) to be owned by Parent or any Restricted Subsidiary and used in the
Telecommunications/IS Business; (b) for purposes of the covenants described under "—Certain Covenants—Limitation on Consolidated Debt," "—Certain
Covenants—Limitation on Debt of the Issuer and Issuer Restricted Subsidiaries" and "—Certain Covenants—Limitation on Liens" only, Capital Stock of any Person; or
(c) 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 Parent or another Restricted
Subsidiary from any Person other than an Affiliate of Parent;
provided
,
however
, that, in the case of
clause (b) or (c), such Person is primarily engaged in the Telecommunications/IS Business.
"Telecommunications/IS
Business" means the business of (i) transmitting, or providing services relating to the transmission of, voice, video or data through owned or leased
transmission facilities, (ii) constructing, creating, developing or marketing communications networks, related network transmission equipment, software and other devices for use in a
communications business, (iii) computer outsourcing, data center management, computer systems integration, reengineering of computer software for any purpose (including, without limitation, for
the purposes of porting computer software from one operating environment or computer platform to another or to address issues commonly referred to as "Year 2000 issues") or (iv) evaluating,
participating or pursuing any other activity or opportunity that is primarily related to those identified in (i), (ii) or (iii) above;
provided
,
however
, that the determination of what constitutes a Telecommunications/IS Business shall be
made in good faith by the board of directors of Parent.
"10%
Proceeds Note" has the meaning set forth under "—Subordination of Existing Intercompany Obligations" above.
"10%
Senior Notes due 2018" means the Issuer's 10% Senior Notes due 2018 issued pursuant to the Indenture dated as of January 20, 2010, among the Issuer, Parent and The Bank of
New York Mellon, as trustee.
"2015
Floating Rate Notes" means the Issuer's Floating Rate Senior Notes due 2015 issued pursuant to the Indenture dated as of February 14, 2007, among the Issuer, Parent and The
Bank of New York, as trustee.
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"2015
Floating Rate Proceeds Note" has the meaning set forth under "—Subordination of Existing Intercompany Obligations" above.
"Unrestricted
Subsidiary" means (a) 91 Holding Corp. (the subsidiary that holds indirectly Parent's interests in the SR91 tollroad), SR 91 Holding LLC, SR91 Corp,
SR LP, Express Lanes, Inc., California Private Transportation Company LP, CPTC LLC and 85 Tenth Avenue LLC; (b) any Subsidiary of an Unrestricted Subsidiary;
and (c) any Subsidiary of Parent designated as such pursuant to and in compliance with "—Certain Covenants—Limitation on Designations of Unrestricted Subsidiaries" and
not thereafter redesignated as a Restricted Subsidiary as permitted pursuant thereto. For the sake of clarity, actions taken by an Unrestricted Subsidiary will not be deemed to have been taken,
directly or indirectly, by Parent or any Restricted Subsidiary.
"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 are Events of Default under the Indenture: (a) failure to pay principal of (or premium, if any, on) any Note when
due; (b) failure to pay any interest on any Note when due, continued for 30 days; (c) default in the payment of principal and interest on Notes required to be purchased pursuant
to an Offer to Purchase as described under "—Certain Covenants—Change of Control Triggering Event" when due and payable; (d) failure to perform or comply with the
provisions described under "—Mergers, Consolidations and Certain Sales of Assets" or "—Certain Covenants—Limitation on Asset Dispositions;" (e) failure to
perform any other covenant or agreement of Parent, the Issuer or any Restricted Subsidiary in the Notes or in the Indenture continued for 60 days after written notice to the Issuer by the
Trustee or holders of at least 25% in aggregate principal amount of the outstanding Notes; (f) default under the terms of any instrument evidencing or securing Debt of Parent 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 such indebtedness or constitutes the failure to pay such indebtedness when due (after expiration of any applicable grace period); (g) the rendering of a judgment
or judgments against Parent 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; (h) any Note Guarantee ceases to be in full force and effect (other than in
accordance with the terms of such Note Guarantee) or any Guarantor denies or disaffirms its obligations under its Note Guarantee; and (i) certain events of bankruptcy, insolvency or
reorganization affecting Parent, the Issuer 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 the Notes, unless such holders shall have offered to the Trustee indemnity reasonably satisfactory to
it. Subject to such provisions for the indemnification of the Trustee, the holders of a majority in aggregate principal amount 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.
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If
any Event of Default (other than an Event of Default described in clause (i) above with respect to Parent or the Issuer) shall occur and be continuing, either the Trustee or
the holders of at least 25% in aggregate principal amount of the outstanding Notes may accelerate the maturity of all Notes;
provided
,
however
, that after
such acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of
the outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured
or waived as provided in the Indenture. If an Event of Default specified in clause (i) above occurs with respect to Parent or the Issuer, all the outstanding Notes will
ipso facto
become
immediately due and payable without any declaration or other act on 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 with respect to the Indenture or for any remedy thereunder, unless such holder shall have previously given to the
Trustee written notice of a continuing Event of Default and unless also the holders of at least 25% in aggregate principal amount of the outstanding Notes shall have made written request and offered
indemnity reasonably satisfactory to the Trustee to institute such proceeding as trustee, and the Trustee shall not have received from the holders of a majority in aggregate principal amount of the
outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a Note for enforcement of payment of the principal of and premium, if any, or interest on such Note on or after the respective due dates expressed in such Note.
The
Issuer shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any event which with the giving of
notice and the lapse of time would become an Event of Default, its status and what action the Issuer is taking or proposes to take with respect thereto. Parent and the Issuer also will be required to
deliver to the Trustee annually a statement as to the performance by Parent and the Issuer of certain of their obligations under the Indenture and as to any default in such performance.
Amendment, Supplement and Waiver
The Issuer, the Guarantors 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 (1) to evidence the succession of another Person to the Issuer, Parent or any other Guarantor and the assumption by such
successor of the covenants of the Issuer, Parent or such other Guarantor, respectively, in the Indenture, the Notes and the applicable Note Guarantee; (2) to add to the covenants of Parent, the
Issuer or any of their respective Subsidiaries, for the benefit of the holders, or to surrender any right or power conferred upon Parent, the Issuer or any other Guarantor by the Indenture;
(3) to add any additional Events of Default; (4) to provide for uncertificated Notes in addition to or in place of certificated Notes; (5) to evidence and provide for the
acceptance of appointment under the Indenture of a successor Trustee; (6) to secure the Notes; (7) to comply with the Trust Indenture Act or the Securities Act (including
Regulation S promulgated thereunder); (8) to add additional Note Guarantees or to release any Guarantors from Note Guarantees as provided by the terms of the Indenture; or (9) to
cure any ambiguity in the Indenture, to correct or supplement any provision in the Indenture which may be inconsistent with any other provision therein or to add any other provision with respect to
matters or questions arising under the Indenture;
provided
such actions shall not adversely affect the interests of the holders in any material respect.
The Issuer, a Guarantor 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,
or amend one or more indentures supplemental to the Indenture, in each case as set forth in the fifth paragraph under the heading "—Note Guarantees."
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With the consent of the holders of not less than a majority in principal amount of the outstanding Notes, the Issuer, the Guarantors and the Trustee may enter
into one or more indentures supplemental to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or modifying in
any manner the rights of the holders;
provided
,
however
, that no such supplemental indenture shall,
without the consent of the holder of each outstanding Note (1) change the Stated Maturity of the principal of, or any installment of interest on, any Note, or reduce the principal amount
thereof or the interest thereon that would be due and payable upon the Stated Maturity thereof, or change the place of payment where, or the coin or currency in which, any Note or any premium or
interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof; (2) reduce the percentage in principal amount
of the outstanding Notes, the consent of whose holders is necessary for any such supplemental Indenture or required for any waiver of compliance with certain provisions of the Indenture or certain
Defaults thereunder; (3) subordinate in right of payment, or otherwise subordinate, the Notes or any Note Guarantee to any other Debt (other than as set forth in the fifth paragraph under the
heading "—Note Guarantees"); (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 thereto
must be made or at which the Notes must be repurchased pursuant to such Offer to Purchase; (7) at any time after the Issuer is obligated to make an Offer to Purchase with the Net Available
Proceeds from Asset Dispositions, change the time at which such Offer to Purchase must be made or at which the Notes must be repurchased pursuant thereto; (8) make any change in any Note
Guarantee that would adversely affect the holders of the Notes (other than as set forth in the fifth
paragraph under the heading "—Note Guarantees"); or (9) modify any provision of this paragraph (except to increase any percentage set forth herein); and
provided further
,
however
, that without the consent of at least two-thirds in principal
amount of the outstanding Notes, no such supplemental indenture shall amend the covenant described under "—Certain Covenants—Limitation on Actions with respect to Existing
Intercompany Obligations."
The
holders of not less than a majority in principal amount 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 Default (1) in the payment of the principal of (or premium, if any) or interest on any Note, (2) in respect of a covenant or provision hereof which under the first
proviso to the prior paragraph cannot be modified or amended without the consent of the holder of each outstanding Note affected, or (3) in respect of the covenant which under the second
proviso to the prior paragraph cannot be modified or amended without the consent of at least two-thirds in principal amount of the outstanding Notes.
Satisfaction and Discharge of the Indenture; Defeasance
The Issuer and the Guarantors may terminate their obligations under the Indenture when (i) either (A) all outstanding
Notes have been delivered to the Trustee for cancellation or (B) all such Notes not theretofore 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 the Issuer, and the Issuer 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 theretofore delivered to the Trustee for cancellation, for principal of (or premium, if any, on), and interest on, the Notes; (ii) the Issuer has paid or caused to be paid all other
sums payable by the Issuer under the Indenture; and (iii) the Issuer has delivered an Officers'
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Certificate
and an Opinion of Counsel relating to compliance with the conditions set forth in the Indenture.
The
Issuer, at its election, shall (a) in the case of legal defeasance, 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 (i) rights of registration of transfer, substitution and exchange of the Notes and the Issuer's right of optional redemption, (ii) rights
of holders to receive payment of principal of, premium, if any, and interest on such Notes (but not the Purchase Price referred to under
"—Certain Covenants—Change of Control Triggering Event" or under "—Certain Covenants—Limitation on Asset Dispositions") and any rights of the holders
with respect to such amount, (iii) the rights, obligations and immunities of the Trustee under the Indenture and (iv) certain other specified provisions in the Indenture), or (b)in the
case of covenant defeasance, cease to be under any obligation to comply with certain restrictive covenants, including those described under "—Certain Covenants," and terminate the
operation of certain Events of Default, after the irrevocable deposit by the Issuer 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 thereof, sufficient to pay and discharge the principal of (premium, if any, on), and interest on, the Notes then outstanding on the dates on
which any such payments are due in accordance with the terms of the Indenture and of the Notes. Such legal defeasance or covenant defeasance shall be deemed to occur only if certain conditions are
satisfied, including among other things, delivery by the Issuer to the Trustee of an Opinion of Counsel acceptable to the Trustee to the effect that (i) such deposit, defeasance and discharge
will not be deemed, or result in, a taxable event for U.S. federal income tax purposes with respect to the holders (and, in the case of legal defeasance only, such Opinion of Counsel must state that
the Issuer has received from, or there has been published by, the U.S. Internal Revenue Service (the "IRS") a ruling or there has been a change in the applicable U.S. federal income tax law to such
effect); and (ii) the Issuer's deposit will not result in the trust relating thereto or the Trustee being subject to regulation under the Investment Company Act of 1940.
Governing Law
The Indenture, the Notes and the Note Guarantees are governed by the laws of the State of New York, without reference to
principles of conflicts of law.
The Trustee
The Bank of New York Mellon Trust Company, N.A. is the Trustee under the Indenture and has been appointed by the Issuer as Paying Agent
with regard to the Notes. The Trustee may become the owner or pledgee of Notes and, subject to Sections 310(b) and 311 of the Trust Indenture Act of 1939, may otherwise deal with Parent or the
Issuer with the same rights it would have if it were not Trustee or Paying Agent; however, if it acquires any conflicting interest (as defined in Section 310(b) of the Trust Indenture Act of
1939), after written request by the Issuer or by any Holder who has been a bona fide Holder of a Note for at least six months, then (i) the Issuer, by a board resolution, may remove the Trustee
or (ii) subject to Section 3.15(e) of the Trust Indenture Act of 1939, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
The
Holders of a majority in aggregate principal amount of the then 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, subject to certain exceptions. The Indenture provides that, in case an Event of Default has occurred and is
continuing, the Trustee
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will
exercise its rights and powers under the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs. The Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the Holders pursuant to the Indenture, unless
such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by the Trustee in
compliance with such request or direction.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Issuer or the Guarantors, as such, shall have any liability for any
obligations of the Issuer or the Guarantors, respectively, under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by
reason of its status as director, officer, employee, incorporator or stockholder of such Person. By accepting a Note each holder waives and releases all such liability (but only such liability). The
waiver and release are part of the consideration for issuance of the Notes. Nevertheless, such waiver may not be effective to waive liabilities under the federal securities laws and it has been the
view of the Commission that such a waiver is against public policy.
Transfer and Exchange
A holder may transfer or exchange Notes in accordance with the Indenture. The Issuer, the Registrar and the Trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuer may require a holder to pay any taxes and fees required by law or permitted by the Indenture.
Book-Entry, Delivery and Form
The New Notes will initially be issued in the form of one or more global securities registered in the name of The Depository Trust
Company or its nominee.
The
New Notes initially will be represented by one or more notes in registered, global form without interest coupons (collectively, the "Global Notes"). The Global Notes will be
deposited upon issuance with the Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described below.
Except
as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in
the Global Notes may not be exchanged for Notes in certificated form except in the limited circumstances described below. See "—Exchange of Global Notes for Certificated Notes." Except in
the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of Notes in certificated form.
Depositary Procedures.
The following description of the operations and procedures of DTC, Euroclear and Clearstream are provided solely
as a matter
of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. The Issuer takes no responsibility for these
operations and procedures and urges investors to contact the systems or their participants directly to discuss these matters.
DTC
has advised the Issuer that DTC is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "banking organization"
within the meaning of the New York Banking Law, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered under the Exchange Act.
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DTC
was created to hold the securities of its participating organizations ("participants") and to facilitate the clearance and settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC's participants include securities brokers and dealers (which may include the initial purchasers of the original notes),
banks, trust companies, clearing corporations and certain other organizations, some of whom (or their representatives) have ownership interests in DTC. Access to DTC's book-entry system is
also available to others, such as banks, brokers, dealers and trust companies ("indirect participants"), that clear through or maintain a custodial relationship with a participant, either directly or
indirectly. Persons who are not participants may beneficially own Notes held by or on behalf of DTC only through the participants or the indirect participants. The ownership interests in, and
transfers of ownership interests in, each Note held by or on behalf of DTC are recorded on the records of the participants and indirect participants.
Upon
the issuance of a Global Note, DTC or its nominee will credit the accounts of participants with the respective principal amounts of the Notes represented by such Global Note
purchased by such participants in the exchange offer. Such accounts shall be designated by the initial purchasers. Investors in the Rule 144A Global Notes who are participants in DTC's system
may hold their interests therein directly through DTC. Investors in the Rule 144A Global Notes who are not participants may hold their interests therein indirectly through the organizations
(including Euroclear and Clearstream) which are participants in such system. Euroclear and Clearstream will hold interests in the Regulation S Global Notes on behalf of their participants
through customers' securities accounts in their respective names on the books of their respective depositories, which are Euroclear Bank S.A./N.V., as operator of Euroclear, and Citibank, N.A.,
as operator of Clearstream. All interests in a Global Note, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held
through Euroclear or Clearstream also may be subject to the procedures and requirements of such systems. Ownership of beneficial interests in a Global Note will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by DTC (with respect to participants' interests) or by the participants and the indirect participants (with respect to the owners
of beneficial interests in such Global Note other than participants).
The
laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the
ability to transfer beneficial interests in a Global Note. Because DTC, Euroclear and Clearstream can act only on behalf of their respective participants, which in turn act on behalf of indirect
participants and certain banks, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons or entities that do not participate in the DTC, Euroclear or
Clearstream system, as applicable, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.
Payment
of principal of and interest on Notes represented by a Global Note will be made in immediately available funds to DTC or its nominee, as the case may be, as the sole registered
owner and the sole holder of the Notes represented thereby for all purposes under the Indenture. Under the terms of the Indenture, the Issuer and the Trustee will treat the Persons in whose names the
Notes, including the Global Notes, are registered as the owners of the Notes for the purpose of receiving payments and for all other purposes. Consequently, neither the Issuer, the Trustee nor any
agent of the Issuer or the Trustee has or will have any responsibility or liability for:
-
(1)
-
any
aspect of DTC's records or any participant's or indirect participant's records relating to or payments made on account of beneficial ownership interest
in the Global Notes or for maintaining, supervising or reviewing any of DTC's records or any participant's or indirect participant's records relating to the beneficial ownership interests in the
Global Notes; or
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-
(2)
-
any
other matter relating to the actions and practices of DTC or any of its participants or indirect participants.
The
Issuer has been advised by DTC that upon receipt of any payment of principal of or interest on any Global Note, DTC will immediately credit, on its book-entry
registration and transfer system, the accounts of participants with payments in amounts proportionate to their respective beneficial interests in the principal or face amount of such Global Note as
shown on the records of DTC. The Issuer expects that payments by participants or indirect participants to owners of beneficial interests in a Global Note held through such participants or indirect
participants will be governed by standing instructions and customary practices as is now the case with securities held for customer accounts registered in "street name" and will be the sole
responsibility of such participants and indirect participants.
Neither
the Issuer nor the Trustee will be liable for any delay by DTC or any of its participants in identifying the beneficial owners of the Notes, and the Issuer and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.
Transfers
between participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds, and transfers between participants in
Euroclear and Clearstream will be effected in accordance with their respective rules and operating procedures.
Subject
to compliance with the transfer restrictions applicable to the Notes described herein, cross-market transfers between the participants in DTC, on the one hand, and Euroclear or
Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depositary
to take action to effect final settlement on its behalf of delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositories for Euroclear or Clearstream.
DTC
has advised the Issuer 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 DTC has credited the
interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the Notes as to which such participant or participants has or have given such direction. However,
if there is an Event of Default under the Notes, DTC reserves the right to exchange the Global Notes for legended Notes in certificated form, and to distribute such Notes to its participants.
So
long as DTC or any successor depositary for a Global Note, or any nominee, is the registered owner of such Global Note, DTC or such successor depositary or nominee, as the case may
be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture and the Notes. Except as set forth above, owners of beneficial
interests in a Global Note will not be entitled to have the Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of
certificated Notes in definitive form and will not be considered to be the owners or holders of any Notes under such Global Note. Accordingly, each Person owning a beneficial interest in a Global Note
must rely on the procedures of DTC or any successor depositary, and, if such Person is not a participant, on the procedures of the participant through which such Person owns its interest, to exercise
any rights of a holder under the Indenture. The Issuer understands that under existing industry practices, in the event that the Issuer requests any action of holders or that an owner of a beneficial
interest in a Global Note desires to give or take any action which a holder is entitled to give or take under the Indenture, DTC or any successor
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depositary
would authorize the participants holding the relevant beneficial interest to give or take such action, and such participants would authorize beneficial owners owning through such
participants to give or take such action or would otherwise act upon the instructions of beneficial owners owning through them.
Although
DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in Global Notes among participants of DTC, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued at any time. None of the Issuer, the Trustee or the initial purchasers of the original notes 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.
Exchange of Global Notes for Certificated Notes.
A Global Note is exchangeable for certificated Notes only if:
-
(a)
-
DTC
notifies the Issuer that it is unwilling or unable to continue as a depositary for such Global Note or if at any time DTC ceases to be a clearing agency
registered under the Exchange Act and, in either case, the Issuer fails to appoint a successor depositary within 90 days after the date of such notice,
-
(b)
-
the
Issuer in its discretion at any time determines not to have all the Notes represented by such Global Note, or
-
(c)
-
there
shall have occurred and be continuing a Default or an Event of Default with respect to the Notes represented by such Global Note.
Any
Global Note that is exchangeable for certificated Notes pursuant to the preceding sentence will be exchanged for certificated Notes in authorized denominations and registered in such
names as DTC or any successor depositary holding such Global Note may direct. Subject to the foregoing, a Global Note is not exchangeable, except for a Global Note of like denomination to be
registered in the name of DTC or any successor depositary or its nominee. In the event that a Global Note becomes exchangeable for certificated Notes:
-
(a)
-
certificated
Notes will be issued only in fully registered form in denominations of $1,000 or integral multiples thereof,
-
(b)
-
payment
of principal of, and premium, if any, and interest on, the certificated Notes will be payable, and the transfer of the certificated Notes will be
registerable, at the office or agency of the Issuer maintained for such purposes, and
-
(c)
-
no
service charge will be made for any registration of transfer or exchange of the certificated Notes, although the Issuer may require payment of a sum
sufficient to cover any tax or governmental charge imposed in connection therewith.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material U.S. federal income tax consequences relevant to the exchange offer and the
ownership and disposition of new notes. This discussion does not purport to be a complete analysis of all potential tax effects. This discussion only applies to holders of notes that are held as
capital assets who are exchanging original notes for new notes in the exchange offer.
This
discussion does not describe all of the tax consequences that may be relevant to holders in light of their particular circumstances or to holders subject to special rules, such
as:
-
•
-
certain financial institutions;
-
•
-
tax-exempt organizations;
-
•
-
insurance companies;
-
•
-
dealers in securities or foreign currencies;
-
•
-
persons holding notes as part of a hedge or other integrated transaction;
-
•
-
U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
-
•
-
partnerships or other entities classified as partnerships for U.S. federal income tax purposes; or
-
•
-
persons subject to the alternative minimum tax.
If
a partnership holds notes, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a
partnership holding notes, you should consult your tax advisor.
This
summary is based on the Internal Revenue Code of 1986, as amended, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, all as
of the date hereof and changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein. Holders of notes are urged to consult their tax advisors with
regard to the application of the U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
Neither
the Issuer nor Parent has sought, nor will either of them seek, any rulings from the Internal Revenue Service (the "IRS") with respect to the matters discussed below. There can
be no assurance that the IRS will not take a different position concerning the tax consequences of the purchase, ownership or disposition of the notes or that any such position would not be sustained.
Holders of original notes are urged to consult their own tax advisors with regard to the application of the tax consequences discussed below to their particular
situations as well as the application of any state, local, foreign or other tax laws, including gift and estate tax laws.
Exchange Offer
The exchange of original notes for new notes pursuant to the exchange offer should not constitute a taxable event for U.S. federal
income tax purposes. As a result:
-
•
-
a holder of original notes should not recognize taxable gain or loss as a result of the exchange of original notes for new
notes pursuant to the exchange offer;
-
•
-
the holding period of the new notes should include the holding period of the original notes surrendered in exchange
therefor; and
-
•
-
a holder's adjusted tax basis in the new notes should be the same as such holder's adjusted tax basis in the original
notes surrendered in exchange therefor.
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Tax Consequences of Holding New Notes: U.S. Holders
As used herein, "U.S. Holder" means a beneficial owner of a note who or that is for U.S. federal income tax
purposes:
-
•
-
an individual that is a citizen or resident of the United States;
-
•
-
a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or a
political subdivision thereof;
-
•
-
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
-
•
-
a trust, if a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S.
persons can control all substantial trust decisions, or, if the trust was in existence on August 20, 1996, and has elected to continue to be treated as a U.S. person.
The
term U.S. Holder also includes certain former citizens and residents of the United States.
Interest
A U.S. Holder will be required to include the stated interest payments on the notes in income in accordance with the Holder's method of
accounting for U.S. federal income tax purposes.
Market Discount
If a U.S. Holder purchases a new note (or purchased an original note which is exchanged for a new note) for an amount that is less than
its stated redemption price at maturity, the amount of the difference will be treated as market discount for U.S. federal income tax purposes, unless this difference is less than a specified
de minimis
amount.
A
U.S. Holder will be required to treat any payment other than stated interest on, or any gain on the sale, exchange, retirement or other disposition of, a note as ordinary income to the
extent of the market discount accrued on the note at the time of the payment or disposition unless this market discount has been previously included in income by the U.S. Holder pursuant to an
election by the U.S. Holder to include market discount in income as it accrues, or pursuant to a constant yield election by the U.S. Holder. If the note is disposed of in certain nontaxable
transactions, accrued market discount will be includible as ordinary income to the U.S. Holder as if such holder had sold the note in a taxable transaction at its then fair market value. In addition,
the holder may be required to defer, until the maturity of the note or its earlier disposition (including certain nontaxable transactions), the deduction of all or a portion of the interest expense on
any indebtedness incurred or maintained to purchase or carry such note, unless the U.S. Holder has elected to include market discount as it accrues or pursuant to a constant yield election.
Amortizable Bond Premium
If a U.S. Holder purchases a new note (or purchased an original note which is exchanged for a new note) for an amount that is greater
than the sum of all amounts payable on the note other than stated interest, such U.S. Holder will be considered to have purchased the note with amortizable bond premium. In general, amortizable bond
premium with respect to any note will be equal in amount to the excess of the purchase price over the sum of all amounts payable on the note other than stated interest and the holder may elect to
amortize this premium, using a constant yield method, over the remaining term of the note. A U.S. Holder may generally use the amortizable bond premium allocable to an accrual period to offset stated
interest required to be included in such holder's income with respect to the note in that accrual period. A U.S. Holder who elects to amortize bond premium must reduce his tax basis in the note by the
amount of the premium amortized in any year. An election to
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amortize
bond premium applies to all taxable debt obligations then owned and thereafter acquired by the U.S. Holder and may be revoked only with the consent of the IRS.
Sale or Other Taxable Disposition of the Notes
A U.S. Holder will generally recognize gain or loss on the sale, exchange, redemption, retirement or other taxable disposition of a
note equal to the difference between the amount realized upon the disposition and the U.S. Holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a note generally will be the
U.S. Holder's cost therefor, increased by any market discount previously included in income by such holder and reduced (but not below zero) by any amortized bond premium and payments, other than
stated interest payments, received with respect to the note. Such recognized gain or loss generally will be capital gain or loss, and if the U.S. Holder is an individual that has held the note for
more than one year, such capital gain will generally be subject to tax at long-term capital gain rates. For these purposes, the amount realized does not include any amount attributable to
accrued interest or accrued market discount. Amounts attributable to accrued interest or accrued market discount are taxed as ordinary income as described under "Interest" and "Market Discount" above.
A U.S. Holder's ability to deduct capital losses may be limited.
Contingent Payments
In certain circumstances, the Issuer may be obligated to pay you amounts in excess of the stated interest and principal payable on the
notes. The Issuer's obligation to make certain payments upon a Change of Control Triggering Event or certain redemptions, may implicate the provisions of Treasury regulations relating to "contingent
payment debt instruments." The Issuer intends to take the position that the notes should not be treated as contingent payment debt instruments because of these payments. Assuming such position is
respected, a U.S. Holder would be required to include in income the amount of any such payments at the time such payments are received or accrued in accordance with such U.S. Holder's method of
accounting for U.S. federal income tax purposes. If the IRS successfully challenged this position, and the notes were treated as contingent payment debt instruments because of such payments, U.S.
Holders might, among other things, be required to accrue interest income at higher rates than the stated interest rate on the notes and to treat any gain recognized on the sale or other disposition of
a note as ordinary income rather than as capital gain. The regulations applicable to contingent payment debt instruments have not been the subject of authoritative interpretation and therefore the
scope of the regulations is not certain. Purchasers of notes are urged to consult their tax advisors regarding the possible application of the contingent payment debt instrument rules to the notes.
Medicare Contribution Tax
In addition to the tax consequences described above, enacted legislation requires certain U.S. Holders that are individuals, estates or
trusts to pay up to an additional 3.8% tax on interest and capital gains for taxable years beginning after December 31, 2012.
Information Reporting and Backup Withholding
Information returns will be filed with the IRS in connection with payments on the notes and the proceeds from a sale or other
disposition of the notes. A U.S. Holder will be subject to backup withholding tax on these payments if the U.S. Holder fails to provide its taxpayer identification number to the paying agent and
comply with certain certification procedures or otherwise establish an exemption from backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a
credit against the U.S. Holder's U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is furnished to the IRS.
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Tax Consequences of Holding New Notes: Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax consequences relevant to a Non-U.S. Holder. For these
purposes, a "Non-U.S. Holder" is a beneficial owner of a note that is for U.S. federal income tax purposes:
-
•
-
an individual who is classified as a nonresident for U.S. federal income tax purposes;
-
•
-
a foreign corporation; or
-
•
-
a foreign estate or trust.
"Non-U.S.
Holder" does not include a Holder who is an individual present in the United States for 183 days or more in the taxable year of disposition and who is not
otherwise a resident of the United States for U.S. federal income tax purposes. Such a Holder is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the
sale, exchange or other disposition of a note.
Interest
Subject to the discussion of backup withholding below, interest paid to a Non-U.S. Holder will not be subject to U.S.
federal income or withholding tax, provided that:
-
•
-
such holder does not own directly or indirectly, actually or constructively, 10% or more of the total combined voting
power of all classes of the Issuer's stock entitled to vote;
-
•
-
such holder is not a controlled foreign corporation that is related to the Issuer directly or constructively through stock
ownership;
-
•
-
such holder is not a bank receiving interest on a loan entered into in the ordinary course of its trade or business;
-
•
-
such interest is not effectively connected with the conduct by the Non-U.S. Holder of a trade or business
within the United States; and
-
•
-
the Issuer, or its paying agent, receives appropriate documentation (generally an IRS Form W-8BEN or
W-8ECI) establishing that the Non-U.S. Holder is not a U.S. person.
A
Non-U.S. Holder that does not qualify for exemption from withholding under the 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 on the notes.
If
interest on the notes is effectively connected with the conduct by a Non-U.S. Holder of a trade or business within the United States, such 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, with respect to corporate holders, may also be subject to a 30% branch profits tax). If interest is
subject to U.S. federal income tax on a net income basis in accordance with these rules, such payments will not be subject to U.S. withholding tax so long as the Non-U.S. Holder provides
the Issuer or its paying agent with the appropriate documentation (generally an IRS Form W-8ECI).
Sale or Other Taxable Disposition of the Notes
Subject to the discussion of backup withholding below, 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:
-
•
-
such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the
United States; or
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-
•
-
the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. federal income tax law applicable to
certain expatriates.
Information Reporting and Backup Withholding
Information returns will be filed with the IRS in connection with payments on the notes. Unless the Non-U.S. Holder
complies with certification procedures to establish that it is not a United States person, information returns may be filed with the IRS in connection with the proceeds from a sale or other
disposition and the Non-U.S. Holder may be subject to backup withholding tax on payments on the notes or on the proceeds from a sale or other disposition of the notes. The certification
procedures required to claim the exemption from withholding tax on interest described above will satisfy the certification requirements necessary to avoid the backup withholding tax as well. The
amount of any backup withholding from a payment to a Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder's U.S. federal income tax liability and may entitle
the Non-U.S. Holder to a refund, provided that the required information is furnished to the IRS.
Foreign Account Tax Compliance Act
Pursuant to the Foreign Account Tax Compliance Act, if there is a "material modification" of the notes after December 31, 2013,
we may thereafter be required to withhold U.S. tax at the rate of 30% on payments of interest made after that date, or on the gross proceeds from the sale or other taxable disposition of the notes on
or after January 1, 2017, made to non-U.S. financial institutions and certain other non-U.S. non-financial entities (including, in some instances, where such
an entity is acting as an intermediary) that fail to comply with certain information reporting obligations. Non-U.S. Holders should consult their own tax advisors regarding this
legislation and whether it may be relevant to their purchase, ownership and disposition of the notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new
notes received in exchange for original notes where such original notes were acquired as a result of market-making activities or other trading activities. Each of the Issuer and Parent has agreed
that, starting on the expiration date and ending on the close of business on the day that is 180 days following the expiration date, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In addition, until , 2013 all
dealers effecting transactions in the new notes may be required to deliver a
prospectus.
Neither
the Issuer nor Parent will receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a
combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale 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 such broker-dealer and/or the purchasers of any such new notes. Any
broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any profit of any such resale of new notes and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it
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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 expiration date, the Issuer and Parent will promptly send additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the letter of transmittal. The Issuer and Parent have agreed to pay all expenses incident to the exchange offer (other than the expenses
of counsel for the holders of the original notes) other than commissions or concessions of any brokers or dealers and will indemnify the
holders of the original notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the legality of the new notes and related guarantees offered hereby will be passed upon for the
Issuer by Willkie Farr & Gallagher LLP, New York, New York.
EXPERTS
The consolidated financial statements of Level 3 Communications, Inc. and subsidiaries as of December 31, 2012 and
2011, and for each of the years in the three-year period ended December 31, 2012, and management's assessment of the effectiveness of internal control over financial reporting as of
December 31, 2012 have been incorporated by reference herein and in the registration statement in reliance upon the reports of KPMG LLP, independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE
Level 3 Communications, Inc., the Issuer's parent company, files annual, quarterly and current reports, proxy statements
and other information with the SEC. The Issuer and Parent have also filed 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 contained 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. Parent's SEC filings are also available at the SEC's Internet Web site at http://www.sec.gov. You may
also read and copy any documents that Level 3 files with the SEC at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these
documents by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the public
reference rooms. Level 3's SEC filings can also be read at NASDAQ Operations, 1735 K Street, N.W. Washington, D.C. 20006.
Information
filed with the SEC by Parent is "incorporated by reference" in the prospectus. This means that important information can be disclosed to you by referring you to those
documents. The information incorporated by reference is an important part of this prospectus, and information that Parent later files with the SEC will automatically update and supersede this
information. The documents listed below and any future filings made with the SEC by Parent under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), prior to the termination of this exchange offer are being incorporated herein by reference:
-
•
-
Annual Report on Form 10-K, for the fiscal year ended December 31, 2012 filed on
February 26, 2013;
-
•
-
Current Reports on Form 8-K or Form 8-K/A (in all cases other than information
furnished rather than filed pursuant to any Form 8-K), filed on February 28, 2013, February 28, 2013 and March 7, 2013; and
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-
•
-
Definitive Proxy Statement for the 2012 Annual Meeting filed on April 5, 2012.
You
may request a copy of these filings at no cost by writing or telephoning Parent at:
Level 3
Communications, Inc.
1025 Eldorado Boulevard
Broomfield, Colorado 80021
Telephone: (720) 888-1000
No
separate financial statements of the Issuer have been included herein. It is not expected that the Issuer will file reports, proxy statements or other information under the Exchange
Act with the SEC. You should rely only on the information incorporated by reference or provided in this prospectus. No one else has been authorized to provide you with different information. The
Issuer is 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.
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Level 3 Financing, Inc.
Offer to Exchange
7% Senior Notes due 2020 of Level 3 Financing, Inc.
for
Outstanding 7% Senior Notes due 2020 of Level 3 Financing, Inc.
Guaranteed by Level 3 Communications, Inc.
and Level 3 Communications, LLC
PROSPECTUS
, 2013
Table of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Level 3 Financing, Inc.
Section 145 of the General Corporation Law of the State of Delaware (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 Seventh of the Amended and Restated Certificate of Incorporation (the "Issuer Certificate") of Level 3
Financing, Inc. (the "Issuer") and the Issuer's By-Laws (the "Issuer By-Laws") provide that the Issuer shall indemnify each person who is or was a director, officer or
employee of the Issuer (including the heirs, executors, administrators or estate of such person) to the fullest extent permitted under subsections 145(a), (b), and (c) of the DGCL or any
successor statute. The indemnification provided by the Issuer Certificate 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 otherwise, as to action in his or her official capacity, and shall continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person. The Issuer Certificate further provides that a director of the Issuer shall not be
personally liable to the Issuer 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 Issuer 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 Issuer shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.
Officers
and directors of Level 3 Communications, LLC are covered under the same liability insurance policies described under "—Level 3
Communications, Inc." below.
II-1
Table of Contents
Level 3 Communications, Inc.
Section 145 of 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 Restated Certificate of Incorporation (the "Certificate") of Level 3 Communications, Inc.
("Parent") and Parent's By-Laws (the "By-Laws") provide that Parent shall indemnify each person who is or was a director, officer or employee of Parent (including the heirs,
executors, administrators or estate of such person) or is or was serving at the request of Parent 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 Parent. The Certificate further provides that a director of Parent shall not be personally liable to Parent 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 Parent 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 Parent shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.
The
By-Laws provide that Parent 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-2
Table of Contents
Item 21. Exhibits and Financial Statement Schedules.
-
(a)
-
Exhibits
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
3.1
|
|
Restated Certificate of Incorporation of Level 3 Communications, Inc., dated as of May 22, 2008 (incorporated by reference to Exhibit 3(i) of Level 3 Communications, Inc.'s Current Report on
Form 8-K dated May 23, 2008).
|
3.2
|
|
Certificate of Amendment of Restated Certificate of Incorporation of Level 3 Communications, Inc. (incorporated by reference to Exhibit 3.2 of Level 3 Communications, Inc.'s S-4 (File
No. 333-167110-02) filed with the Securities and Exchange Commission on May 26, 2010).
|
3.3
|
|
Certificate of Amendment of Restated Certificate of Incorporation of Level 3 Communications, Inc. (incorporated by reference to Exhibit 3.2 of Level 3 Communications, Inc.'s Current Report on
Form 8-K dated October 6, 2011).
|
3.4
|
|
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Level 3 Communications, Inc. (incorporated by reference to Exhibit 3.1.2 to Level 3 Communications, Inc.'s
Form 8-A filed on October 19, 2011).
|
3.5
|
|
Certificate of Amendment of Restated Certificate of Incorporation of Level 3 Communications, Inc. (incorporated by reference to Exhibit 3.1.1 to Level 3 Communications, Inc.'s Quarterly Report
on Form 10-Q for the three months ended June 30, 2012).
|
3.6
|
|
Conformed copy of the Restated Certificate of Incorporation of Level 3 Communications, Inc., as amended. (incorporated by reference to Exhibit 3.1.2 to Level 3 Communications, Inc.'s Quarterly
Report on Form 10-Q for the three months ended June 30, 2012).
|
3.7
|
|
Certificate of Designation of Series B Junior Participating Preferred Stock of Level 3 Communications, Inc. (incorporated by reference to Exhibit 3.1 of Level 3 Communications, Inc.'s
Form 8-A dated April 11, 2011).
|
3.8
|
|
Amended and Restated By-laws of Level 3 Communications, Inc. (incorporated by reference to Exhibit 3.1 of Level 3 Communications, Inc.'s Current Report on Form 8-K dated February 22,
2012).
|
3.9
|
|
Amended and Restated Certificate of Incorporation of Level 3 Financing, Inc., dated April 8, 1992 (incorporated by reference to Exhibit 3.1.1 of Level 3 Financings, Inc's Form S-4/A,
dated June 13, 2005).
|
3.10
|
|
Certificate of Amendment of Restated Certificate of Incorporation of Level 3 Financing, Inc., dated May 17, 2000 (incorporated by reference to Exhibit 3.1.2 of Level 3 Financing, Inc.'s
Form S-4/A, dated June 13, 2005).
|
3.11
|
|
Certificate of Amendment of Restated Certificate of Incorporation of Level 3 Financing, Inc., dated September 22, 2003 (incorporated by reference to Exhibit 3.1.3 of Level 3 Financing,
Inc.'s Form S-4/A, dated June 13, 2005).
|
3.12
|
|
Amended and Restated By-laws of Level 3 Financing, Inc., dated November 17, 1998 (incorporated by reference to Exhibit 3.2 of Level 3 Financing, Inc.'s Form S-4/A, dated June 13,
2005).
|
II-3
Table of Contents
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
3.13
|
|
Certificate of Formation of Level 3 Communications, LLC, dated November 26, 1997 (incorporated by reference to Exhibit 3.5.1 of Level 3 Financing, Inc.'s Form S-4/A, dated June 13,
2005).
|
3.14
|
|
Certificate of Amendment to the Certificate of Formation of Level 3 Communications, LLC, dated January 13, 1998 (incorporated by reference to Exhibit 3.5.2 of Level 3 Financing, Inc.'s
Form S-4/A, dated June 13, 2005).
|
3.15
|
|
Certificate of Amendment to the Certificate of Formation of Level 3 Communications, LLC, dated January 16, 1998 (incorporated by reference to Exhibit 3.5.3 of Level 3 Financing, Inc.'s
Form S-4/A, dated June 13, 2005).
|
3.16
|
|
Operating Agreement of Level 3 Communications, LLC, dated December 2, 1997 (incorporated by reference to Exhibit 3.6 of Level 3 Financing, Inc.'s Form S-4/A, dated June 13,
2005).
|
3.17
|
|
Amendment to the Operating Agreement of Level 3 Communications, LLC, dated February 27, 1998 (incorporated by reference to Exhibit 3.7 of Level 3 Financing, Inc.'s Form S-4/A, dated
June 13, 2005).
|
4.1
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|
Indenture, dated as of August 6, 2012, among Level 3 Communications, Inc., as Guarantor, Level 3 Financing, Inc., as Issuer, and The Bank of New York Mellon Trust Company, N.A. as trustee
(filed as Exhibit 4.1 to Level 3 Communications, Inc.'s Current Report on Form 8-K dated August 7, 2012).
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4.2
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Supplemental Indenture, dated as of December 6, 2012, among Level 3 Financing, Inc., Level 3 Communications, LLC, and The Bank of New York Mellon Trust Company, N.A., as trustee (filed as
Exhibit 4.1 to Level 3 Communications, Inc.'s Current Report on Form 8-K dated December 6, 2012).
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4.3
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Supplemental Indenture, dated as of December 6, 2012, among Level 3 Communications, Inc., Level 3 Communications, LLC and The Bank of New York Mellon Trust Company, N.A., as trustee (filed as
Exhibit 4.2 to Level 3 Communications, Inc.'s Current Report on Form 8-K dated December 6, 2012).
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4.4
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Registration Agreement, dated as of August 6, 2012, among Level 3 Communications, Inc., Level 3 Financing, Inc. and Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., and J.P. Morgan Securities LLC, relating to Level 3 Financing, Inc.'s 7% Senior Notes due
2020 (filed as Exhibit 4.2 to Level 3 Communications, Inc.'s Current Report on Form 8-K dated August 7, 2012).
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5
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|
Opinion of Willkie Farr & Gallagher LLP.*
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12
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|
Statement Regarding Computation of Ratio of Earnings to Fixed Charges (incorporated by reference to Exhibit 12 of Level 3 Communications, Inc.'s Annual Report on Form 10-K dated February 26,
2013).
|
23.1
|
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Consent of KPMG LLP.*
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23.2
|
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Consent of Willkie Farr & Gallagher LLP (included in their opinion filed as Exhibit 5).*
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24
|
|
Powers of Attorney (included on the signature pages hereto).
|
25
|
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Form T-1 Statement of Eligibility of the Trustee with respect to the Indenture dated as of August 6, 2012 and identified as Exhibit 4.1.*
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II-4
Table of Contents
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Exhibit No.
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Description
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99.1
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Form of Letter of Transmittal.*
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99.2
|
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Form of Letter to Clients.*
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99.3
|
|
Form of Letter to Nominees.*
|
-
(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.
Each of the undersigned registrants hereby undertakes that, for purposes of determining any liability under the Securities Act, each
filing of such 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, each 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, such 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.
Each
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 such 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.
Each
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
II-5
Table of Contents
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.
Each
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-6
Table of Contents
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 Broomfield, State of Colorado, on the 7th day of March, 2013.
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|
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LEVEL 3 FINANCING, INC.
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|
By:
|
|
/s/ JAMES Q. CROWE
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|
|
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|
Name:
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|
James Q. Crowe
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|
|
|
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Title:
|
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Chief Executive Officer
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitute and appoint John M. Ryan and Neil J.
Eckstein, as his true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned to
sign and file with the Securities and Exchange Commission under the Securities Act of 1933, as amended, (i) any and all pre-effective and post-effective amendments to
this registration statement, (ii) any registration statement relating to this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, (iii) any exhibits to any such registration statement or pre-effective or post-effective amendments, (iv) any and all applications and other documents in
connection with any such registration statement or pre-effective or post-effective amendments, and generally to do all things and perform any and all acts and things whatsoever
requisite and necessary or desirable to enable Level 3 Financing, Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated
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|
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Name
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Title
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Date
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/s/ JAMES Q. CROWE
James Q. Crowe
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|
Chief Executive Officer and Director (Principal Executive Officer)
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March 7, 2013
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/s/ SUNIT S. PATEL
Sunit S. Patel
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
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March 7, 2013
|
/s/ JEFF K. STOREY
Jeff K. Storey
|
|
President, Chief Operating Officer and Director
|
|
March 7, 2013
|
/s/ JOHN M. RYAN
John M. Ryan
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|
Executive Vice President, Chief Legal Officer, Secretary and Director
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|
March 7, 2013
|
/s/ ERIC J. MORTENSEN
Eric J. Mortensen
|
|
Senior Vice President and Controller (Principal Accounting Officer)
|
|
March 7, 2013
|
II-7
Table of Contents
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 Broomfield, State of Colorado, on the 7th day of March, 2013.
|
|
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|
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LEVEL 3 COMMUNICATIONS, INC.
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|
|
By:
|
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/s/ JAMES Q. CROWE
|
|
|
|
|
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Name:
|
|
James Q. Crowe
|
|
|
|
|
|
Title:
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitute and appoint John M. Ryan and Neil J.
Eckstein, as his true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned to
sign and file with the Securities and Exchange Commission under the Securities Act of 1933, as amended, (i) any and all pre-effective and post-effective
amendments to this registration statement, (ii) any registration statement relating to this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, (iii) any exhibits to any such registration statement or pre-effective or post-effective amendments, (iv) any and all applications and other
documents in connection with any such registration statement or pre-effective or post-effective amendments, and generally to do all things and perform any and all acts and
things whatsoever requisite and necessary or desirable to enable Level 3 Communications, Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
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|
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Name
|
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Title
|
|
Date
|
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|
|
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/s/ WALTER SCOTT, JR.
Walter Scott, Jr.
|
|
Chairman of the Board
|
|
March 7, 2013
|
/s/ JAMES Q. CROWE
James Q. Crowe
|
|
Chief Executive Officer and Director (Principal Executive Officer)
|
|
March 7, 2013
|
/s/ SUNIT S. PATEL
Sunit S. Patel
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
|
|
March 7, 2013
|
/s/ ERIC J. MORTENSEN
Eric J. Mortensen
|
|
Senior Vice President and Controller (Principal Accounting Officer)
|
|
March 7, 2013
|
/s/ KEVIN P. CHILTON
Kevin P. Chilton
|
|
Director
|
|
March 7, 2013
|
II-8
Table of Contents
|
|
|
|
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|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ ARCHIE R. CLEMINS
Archie R. Clemins
|
|
Director
|
|
March 7, 2013
|
/s/ STEPHEN T. CLONTZ
Stephen T. Clontz
|
|
Director
|
|
March 7, 2013
|
/s/ JAMES O. ELLIS, JR.
James O. Ellis, Jr.
|
|
Director
|
|
March 7, 2013
|
/s/ T. MICHAEL GLENN
T. Michael Glenn
|
|
Director
|
|
March 7, 2013
|
/s/ RICHARD R. JAROS
Richard R. Jaros
|
|
Director
|
|
March 7, 2013
|
/s/ MICHAEL J. MAHONEY
Michael J. Mahoney
|
|
Director
|
|
March 7, 2013
|
/s/ CHARLES C. MILLER III
Charles C. Miller III
|
|
Director
|
|
March 7, 2013
|
/s/ JOHN T. REED
John T. Reed
|
|
Director
|
|
March 7, 2013
|
/s/ PETER SEAH LIM HUAT
Peter Seah Lim Huat
|
|
Director
|
|
March 7, 2013
|
/s/ ALBERT C. YATES
Albert C. Yates
|
|
Director
|
|
March 7, 2013
|
/s/ PETER VAN OPPEN
Peter van Oppen
|
|
Director
|
|
March 7, 2013
|
II-9
Table of Contents
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 Broomfield, State of Colorado, on the 7th day of March, 2013.
|
|
|
|
|
|
|
|
|
|
|
LEVEL 3 COMMUNICATIONS, LLC
|
|
|
By:
|
|
/s/ JAMES Q. CROWE
|
|
|
|
|
|
Name:
|
|
James Q. Crowe
|
|
|
|
|
|
Title:
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitute and appoint John M. Ryan and Neil J.
Eckstein, as his true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned to
sign and file with the Securities and Exchange Commission under the Securities Act of 1933, as amended, (i) any and all pre-effective and post-effective amendments to
this registration statement, (ii) any registration statement relating to this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, (iii) any exhibits to any such registration statement or pre-effective or post-effective amendments, (iv) any and all applications and other documents in
connection with any such registration statement or pre-effective or post-effective amendments, and generally to do all things and perform any and all acts and things whatsoever
requisite and necessary or desirable to enable Level 3 Communications, LLC to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities
and Exchange Commission.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ JAMES Q. CROWE
James Q. Crowe
|
|
Chief Executive Officer and Manager
(Principal Executive Officer)
|
|
March 7, 2013
|
/s/ SUNIT S. PATEL
Sunit S. Patel
|
|
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
|
|
March 7, 2013
|
/s/ JEFF K. STOREY
Jeff K. Storey
|
|
President, Chief Operating Officer
and Manager
|
|
March 7, 2013
|
/s/ JOHN M. RYAN
John M. Ryan
|
|
Executive Vice President, Chief
Legal Officer, Secretary and Manager
|
|
March 7, 2013
|
/s/ ERIC J. MORTENSEN
Eric J. Mortensen
|
|
Senior Vice President and Controller
(Principal Accounting Officer)
|
|
March 7, 2013
|
II-10
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