SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Level 3 Communications, Inc.
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[Logo]
LEVEL 3 COMMUNICATIONS, INC.
1025 Eldorado Boulevard
Broomfield, CO 80021
April 23, 2001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Level 3 Communications, Inc. ("Level 3") to be held at 9:00 a.m. on Wednesday,
May 23, 2001, at The Orpheum Theater, 409 South 16th Street, Omaha, Nebraska
68102.
At the Annual Meeting you will be asked to consider and act upon the
following matters:
o the reelection to the Level 3 Board of Directors of five Class
I Directors for a three-year term until the 2004 Annual Meeting of
Stockholders; and
o the transaction of such other business as may properly come before
the Annual Meeting.
The Level 3 Board of Directors recommends that its stockholders reelect
five Class I directors for a three-year term until the 2004 Annual Meeting of
Stockholders. See "REELECTION OF CLASS I DIRECTORS PROPOSAL."
Information concerning the matters to be considered and voted upon at the
Annual Meeting is set forth in the attached Notice of Annual Meeting and Proxy
Statement. It is important that your shares be represented at the Annual
Meeting, regardless of the number you hold. To ensure your representation at the
annual meeting, you are urged to complete, date, sign and return the enclosed
proxy as promptly as possible. A postage-prepaid envelope is enclosed for that
purpose. In addition, to ensure your representation at the annual meeting, you
may vote your shares by (a) calling the toll free telephone number indicated on
the proxy card or (b) accessing the special web site indicated on the proxy
card, each as more fully explained in the telephone and internet voting
instructions. If you attend the annual meeting you may vote in person even if
you have previously returned a proxy card. Please note that if you hold your
shares of Level 3 through your broker, you will not be able to vote in person at
the meeting.
Sincerely,
/s/ Walter Scott, Jr.
Walter Scott, Jr.
Chairman of the Board
[Logo]
LEVEL 3 COMMUNICATIONS, INC.
1025 Eldorado Boulevard
Broomfield, CO 80021
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held May 23, 2001
To the Stockholders of Level 3 Communications, Inc.:
The Annual Meeting of Stockholders of Level 3 Communications, Inc., a
Delaware corporation ("Level 3"), will be held at The Orpheum Theater, 409 South
16th Street, Omaha, Nebraska 68102 at 9:00 a.m. on May 23, 2001 for the
following purposes:
1. To reelect the five Class I Directors to the Board of Directors of Level
3 for a three-year term until the 2004 Annual Meeting of Stockholders; and
2. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on April 13, 2001 as
the record date for the determination of the holders of the common stock, par
value $.01 per share of Level 3 (the "Level 3 Common Stock") entitled to notice
of, and to vote at, the meeting. Accordingly, only holders of record of Level 3
Common Stock at the close of business on that date will be entitled to notice of
and to vote at the Annual Meeting and any adjournment or postponement thereof.
The five Class I Directors will be elected by a plurality of the votes cast
by holders of Level 3 Common Stock present in person or by proxy and entitled to
vote at the Annual Meeting.
The matters to be considered at the Annual Meeting are more fully described
in the accompanying Proxy Statement, which forms a part of this Notice.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. IN ADDITION, TO ENSURE
YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU MAY VOTE YOUR SHARES BY A)
CALLING THE TOLL FREE TELEPHONE NUMBER OR B) ACCESSING THE INTERNET AS MORE
FULLY EXPLAINED IN THE TELEPHONE AND INTERNET VOTING INSTRUCTIONS. ANY
STOCKHOLDER ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THAT
STOCKHOLDER HAS RETURNED A PROXY.
PLEASE NOTE THAT IF YOU HOLD YOUR SHARES OF LEVEL 3 COMMON STOCK THROUGH
YOUR BROKER AND NOT DIRECTLY IN YOUR NAME, YOU WILL NOT BE ABLE TO VOTE IN
PERSON AT THE ANNUAL MEETING.
By Order of the Board of Directors
/s/ Walter Scott, Jr.
Walter Scott, Jr.
Dated: April 23, 2001 Chairman of the Board
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LEVEL 3 COMMUNICATIONS, INC.
1025 Eldorado Boulevard
Broomfield, CO 80021
Proxy Statement
April 23, 2001
ANNUAL MEETING OF STOCKHOLDERS
May 23, 2001
SOLICITATION AND VOTING
This Proxy Statement ("Proxy Statement") is furnished in connection with
the solicitation of proxies on behalf of the Board of Directors (the "Board") of
Level 3 Communications, Inc. ("Level 3" or the "Company") to be voted at the
Annual Meeting of Stockholders to be held on Wednesday, May 23, 2001, or any
adjournment thereof (the "Annual Meeting"). This Proxy Statement, the Notice of
Annual Meeting and the accompanying Proxy are being mailed to Stockholders on or
about April 24, 2001.
As of April 13, 2001, the record date for the determination of persons
entitled to vote at the Annual Meeting, there were 368,173,378 shares of the
Company's Common Stock, par value $.01 per share (the "Level 3 Common Stock"),
outstanding. Each share of Level 3 Common Stock is entitled to one vote on each
matter to be voted upon by the Stockholders at the Annual Meeting.
The five Class I Directors will be elected by a plurality of the votes cast
by holders of Level 3 Common Stock present in person or by proxy and entitled to
vote at the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the
issued and outstanding shares of Level 3 Common Stock entitled to vote as of the
Record Date is required to constitute a quorum at the Annual Meeting. Under
applicable Delaware law, abstentions and "broker non-votes" (that is, proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
as to a matter with respect to which the brokers or nominees do not have
discretionary power to vote) will be treated as present for purposes of
determining the presence of a quorum at the Annual Meeting. If such a quorum
should not be present, the Annual Meeting may be adjourned from time to time
until the necessary quorum is obtained.
All shares of Level 3 Common Stock represented by properly executed proxies
which are returned and not revoked will be voted in accordance with the
instructions, if any, given therein. If no instructions are provided in a proxy,
it will be voted FOR the Board's nominees for Director and in accordance with
the proxy-holders' best judgment as to any other business raised at the Annual
Meeting. If you elect to deliver your proxy by telephone or the Internet as
described in the enclosed telephone and Internet voting instructions, your
shares will be voted as you direct. Your telephone or Internet delivery
authorizes the named proxies to vote your shares in the same manner as if you
marked, signed and returned your proxy card.
Any Stockholder who delivers, whether by telephone, Internet or through the
mail, a proxy may revoke it at any time before it is voted by delivering to the
Secretary of the Company a written statement revoking the proxy, by executing
and delivering a later dated proxy, by using the telephone voting procedures,
the Internet voting procedures or by voting in person at the Annual Meeting.
Level 3 will bear its own cost of solicitation of proxies. In addition to
the use of the mail, proxies may be solicited by the directors and officers of
Level 3 by personal interview, telephone, telegram or e-mail. Such directors and
officers will not receive additional compensation for such solicitation but may
be reimbursed for out
- -of-pocket expenses incurred in connection therewith. Arrangements may also be
made with brokerage firms and other custodians, nominees and fiduciaries to
forward solicitation materials to the beneficial owners of shares of Level 3
Common Stock held of record by such persons, in which case Level 3 will
reimburse such brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in connection therewith.
REELECTION OF CLASS I DIRECTORS PROPOSAL
The Level 3 Board of Directors currently consists of 13 directors, divided
into three classes, designated Class I, Class II and Class III. Class I consists
of five directors and Class II and Class III consists of four directors. All
five of the current Class I directors are standing for reelection. At the Annual
Meeting, these Class I Directors will be reelected to hold office for a
three-year term until the 2004 annual meeting, or until their successors have
been elected and qualified. If any nominee shall, prior to the Annual Meeting,
become unavailable for election as a Director, the persons named in the
accompanying form of proxy will, in their discretion, vote for that nominee, if
any as may be recommended by the Level 3 Board of Directors, or the Level 3
Board of Directors may reduce the number of Directors to eliminate the vacancy.
Information as to Nominees for Election as Class I Directors
The respective ages, positions with Level 3, business experience,
directorships in other companies and Level 3 Board of Directors committee
memberships, of the nominees for election are set forth below.
Walter Scott, Jr., 69, has been the Chairman of the Board of the Company
since September 1979, and a director of the Company since April 1964. Mr. Scott
has been Chairman Emeritus of Peter Kiewit Sons', Inc. since the separation of
the Company's construction and diversified or non-construction related portion
of its business in March 1998. Mr. Scott is also a director of Peter Kiewit
Sons', Inc., Berkshire Hathaway Inc., Burlington Resources Inc., MidAmerican
Energy Holdings Company, ConAgra, Inc., Commonwealth Telephone Enterprises,
Inc., RCN Corporation, Kiewit Materials Company and Valmont Industries, Inc. Mr.
Scott is a member of the Executive Committee of the Level 3 Board of Directors.
James Q. Crowe, 51, has been the Chief Executive Officer of the Company
since August 1997, and a director of the Company since June 1993. Mr. Crowe was
also President of the Company until February 2000. Mr. Crowe was President and
Chief Executive Officer of MFS Communications Company, Inc. ("MFS") from June
1993 to June 1997. Mr. Crowe also served as Chairman of the Board of WorldCom
from January 1997 until July 1997, and as Chairman of the Board of MFS from 1992
through 1996. Mr. Crowe is presently a director of Peter Kiewit Sons', Inc.,
Commonwealth Telephone Enterprises, Inc. and RCN Corporation. Mr. Crowe is a
member of the Executive Committee of the Level 3 Board of Directors.
Charles C. Miller, III, 48, has been Vice Chairman of the Board and
Executive Vice President of the Company since February 15, 2001. Prior to that,
Mr. Miller was President of BellSouth International, a subsidiary of BellSouth
Corporation from 1995 until December 2000. Prior to that, Mr. Miller held
various senior level officer and management positions at BellSouth from 1990.
Mogens C. Bay, 52, has been a director of the Company since November 2000.
Since January 1997, Mr. Bay has been the Chairman and Chief Executive Officer of
Valmont Industries, Inc., a company engaged in the infrastructure and irrigation
businesses. Prior to that, Mr. Bay was President and Chief Executive Officer of
Valmont Industries from August 1993 to December 1996 as well as a director of
Valmont since October 1993. Mr. Bay is also a director of Peter Kiewit Sons',
Inc. and ConAgra, Inc. Mr. Bay is a member of the Compensation Committee of the
Level 3 Board of Directors.
Colin V.K. Williams, 61, has been a director of the Company since August
2000. From July 1998 until December 31, 2000, Mr. Williams was Executive Vice
President of the Company and President of Level 3 International, Inc. Prior to
joining the Company, Mr. Williams was Chairman of WorldCom International, Inc.,
where he was responsible for the international communications business and the
development and operation of WorldCom's fiber networks overseas. In 1993 Mr.
Williams initiated and built the international operations of MFS. Prior to
joining MFS, Mr. Williams was Corporate Director, Business Development at
British Telecom from 1988 until 1992.
The Board of Directors unanimously recommends a vote FOR the nominees named
above.
Explanatory Note
On March 31, 1998, the Company separated the operations of its construction
business from the diversified or non-construction related portion of its
business into a new corporation (the "Split-off"). In connection with the
Split-off, the Company was renamed "Level 3 Communications, Inc." and the
construction business was renamed "Peter Kiewit Sons', Inc."
Information presented in this Proxy Statement relating to periods prior to
March 31, 1998, relate to information for the members of the Company's Board of
Directors and executive officers at that time.
Board of Directors' Meetings
The Level 3 Board of Directors had 4 formal meetings in 2000 and acted by
written consent action on 4 occasions. In 2000, no director attended less than
75% of the meetings of the Board of Directors and the committees of which he was
a member.
Executive Committee
The Executive Committee exercises, to the maximum extent permitted by law,
all powers of the Board of Directors between board meetings, except those
functions assigned to specific committees.
Audit Committee
The Audit Committee reviews the services provided by Level 3's independent
auditors, consults with the independent auditors and reviews the need for
internal auditing procedures and the adequacy of internal controls. The members
of the audit committee are Robert E. Julian (Chairman), William L. Grewcock and
David C. McCourt. Level 3 believes that the members of the Audit Committee are
independent within the meaning of the listing standards of the National
Association of Securities Dealers, the operators of The Nasdaq Stock Market. The
Company has designated Arthur Andersen LLP as independent public accountants to
audit the Level 3 financial statements for the 2001 fiscal year. The written
charter of the Audit Committee is attached to this proxy statement as Annex I.
Audit Committee Report
The following report was delivered to the Board of Directors of the Company
by the Audit Committee on February 15, 2001. The following Report of the Audit
Committee shall not be deemed to be incorporated by reference in any previous or
future documents filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates the Report
by reference in any such document. As indicated above, Arthur Andersen LLP has
been selected as the principal independent public accountants for 2001.
To the Board of Directors
The Audit Committee reviews the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process. The Company's independent
auditors are responsible for expressing an opinion on the conformity of our
audited financial statements to generally accepted accounting principles. We
have reviewed and discussed with management the Company's audited financial
statements as of and for the year ended December 31, 2000.
We have discussed with Arthur Andersen LLP ("Arthur Andersen") the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit committees, as amended, by the Auditing
Standards Board of the American Institute of Certified Public Accountants. We
have received and reviewed the written disclosures and the letter from Arthur
Andersen required by Independence Standard No. 1, Independence Discussions with
Audit Committees, as amended, by the Independence Standards Board, and have
discussed with the auditors the auditors' independence.
Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2000.
We have also considered whether the provision of services by Arthur
Andersen not related to the audit of the financial statements referred to above
and to the reviews of the interim financial statements included in the Company's
Forms 10-Q for the quarters ended March 31, 2000, June 30, 2000 and September
30, 2000 is compatible with maintaining Arthur Andersen's independence.
The aggregate fees billed by the principal independent public accountants
(Arthur Andersen LLP) to the Company for the year ended December 31, 2000 are as
follows:
Annual Audit and Quarterly Reviews..........$ 591,000
All Other Fees
Non-Audit Related.......................$1,025,000(1)
Other...................................$ 427,377(2)
Total All Other Fees...............$1,452,377
Total Fees:.................................$2,043,377
(1) Consists primarily of fees related to tax compliance and
planning, employee benefit plan audits and registration statements.
(2) Includes fees paid to Accenture (f/k/a Andersen Consulting)
prior to its separation from Arthur Andersen LLP.
The Audit Committee:
William L. Grewcock
David C. McCourt
Robert E. Julian, Chairman
For the year ended December 31, 2000
Compensation Committee
The Compensation Committee determines the compensation of the Chief
Executive Officer and reviews the compensation and stock option awards of
certain other senior executives.
Compensation Committee Interlocks and Insider Participations
The Compensation Committee of the Company consists of Messrs. Michael B.
Yanney, David C. McCourt, Mogens C. Bay and Richard R. Jaros, none of whom is an
officer or employee of the Company.
Compensation Committee Report
The Compensation Committee (the "Committee") is responsible for determining
the cash and equity compensation of James Q. Crowe, President and Chief
Executive Officer. The Committee reviews and approves the cash compensation of
certain of Level 3's other senior executives based upon the recommendations of
Mr. Crowe.
Level 3 believes that the compensation levels of its executive officers,
who provide leadership and strategic direction, should consist of: (i) fair base
salaries, (ii) significant cash bonus opportunities based on achievement of
objectives established by Level 3 and (iii) ownership of Level 3 Common Stock
and stock options to align management's interests with stockholders' interests,
targeted to provide opportunities that are comparable to other similarly
situated telecommunications and high growth technology companies.
Level 3 considers the following factors (ranked in order of importance)
when determining compensation of executive officers: (i) Level 3's performance
measured by attainment of specific objectives, (ii) the individual performance
of each executive officer, (iii) Level 3's stock price performance, (iv)
comparative industry compensation levels and (v) historical cash and
compensation levels. The comparable industry compensation data is based in part
on public telecommunications companies that are included in the Nasdaq
Telecommunications Stock Index, which was chosen as the peer group for the
Performance Graph, and on the other publicly traded telecommunications and high
growth technology companies with comparable market capitalization.
Determination of the Chief Executive Officer's Compensation
For Fiscal 2000, Level 3's performance objectives included:
o continue to offer services in an increasing number of markets in
the United States, complete the construction of Gateway facilities in
an increasing number of major U.S. and European markets and continue
to expand the development of both local networks and Level 3's
proposed intercity networks;
o secure operating licenses and initiate development in Hong Kong
and Tokyo and commence the offering of services in Hong Kong and
Tokyo;
o complete construction of Level 3's U.S. and European intercity
networks;
o accelerate the development of networks internationally in Europe and
Asia;
o attract and retain experienced personnel to enable Level 3 to meet its
tactical and strategic goals;
o complete the launch of additional innovative services that take
advantage of the Level 3 Network; and
o continue the acquisition of sufficient capital at an acceptable
cost in order to fund the Level 3 business plan.
These goals were met in fiscal 2000. As of December 31, 2000, Level 3 had
operational gateway facilities in 52 U.S. markets, nine European markets and
Hong Kong and Tokyo. In addition Level 3 had operational facilities based
metropolitan networks in 26 U.S. markets and six major European markets. Level 3
has established its Asian headquarters in Hong Kong and secured required
government licenses in both Hong Kong and Tokyo and began offering services in
those markets during 2000. Also in 2000, Level 3 announced its intention to
offer services in Taipei, Taiwan and Seoul, South Korea. Peter Kiewit Sons',
Inc., the program manager for the construction of the Level 3 North American
intercity network, substantially completed the construction of Level 3's North
American intercity network. In addition, construction and installation of fiber
in the first empty conduit on Rings 1 and 2 of the Level 3 intercity network in
Europe, were completed during 2000. During 2000 Level 3 continued to "light"
portions of the North American intercity network and to carry customer traffic
on those portions. During 2000, Level 3 also completed the development of a 1.28
Tbps transatlantic submarine cable system and announced the development of a
2.56 Tbps North Asian Cable System, which is expected to be placed into service
during 2001. Each of these submarine cable systems will have an initial
transmission capacity of 320 Gbps.
Also during 2000, Level 3 launched (3)Crossroads, its high speed Internet
access product, which includes Destination Sensitive Billing - a billing feature
that charges customers based on the distance that the information is transported
rather than a flat fee. By the end of 2000, Level 3 had an aggregate of 5,537
employees in the communications portion of its business. Finally, during 2000,
the Company raised approximately $5.786 billion in gross proceeds from
successful common stock, convertible subordinated note and high yield debt
offerings and other real estate financing transactions.
Based on the achievement of these goals and for aggressively pursuing the
implementation of Level 3's business plan to expand its information services
business to provide a broad range of communications services over a new
end-to-end network based on Internet Protocol technology, Mr. Crowe was awarded
an aggregate of 240,922 Outperform Stock Options in 2000. Mr. Crowe was also
awarded an aggregate of 437,200 Special Recognition Outperform Stock Options in
2000. In addition, Mr. Crowe was awarded a $1.0 million performance bonus.
Equity Compensation
The Committee approves all awards made under the Level 3 1995 Stock Plan.
Periodically the Committee approves grants to existing employees and also
approves awards to new employees as an incentive to join Level 3. Awards made to
the Company's named executive officers and certain other key employees are
approved by a subcommittee of the Compensation Committee comprised of Messrs.
Bay and Yanney.
The Compensation Committee:
Mogens C. Bay
Richard R. Jaros
David C. McCourt
Michael B. Yanney, Chairman
For the year ended December 31, 2000
Executive Compensation
The table below shows the annual compensation of the chief executive
officer and the next four most highly compensated executive officers of the
Company for the 2000 fiscal year (the "Named Executive Officers").
Summary Compensation Table
Annual Compensation
All Other
Compensation
Name and Principal Position Year Long Term Compensation ($)(4)
Other Securities
Annual Restricted underlying
Compensa-tion Stock Options/SARs
Salary ($) Bonus ($) ($) award(s) (#) (#)(1)
James Q. Crowe 2000 350,000 1,000,000 - - - 136,925
CEO 1999 350,000 1,000,000(2) 1,500,000(3) - - 76,416
1998 350,012 300,000 - - - 32,740
Kevin J. O'Hara 2000 272,307 700,000 - - - 99,678
President and COO 1999 259,615 400,000 - - - 149,646
1998 237,109 250,000 115,579(3) - - 70,704
R. Douglas Bradbury 2000 260,000 400,000 - - - 65,574
Vice Chairman and Executive 1999 259,615 350,000 - - - 142,646
Vice President 1998 249,999 250,000 62,500(3) - - 70,704
Colin V.K. Williams 2000 279,170 350,000 - - - 60,848
Executive Vice President 1999 250,000 350,000 - - - 121,700
1998 76,669 120,000 - 75,082 - -
Sureel A. Choksi 2000 206,677 260,000 - - - 42,440
Group Vice President and CFO 1999 128,846 120,000 - - - 46,999
1998 100,000 40,625 25,000(3) - - 20,048
(1) See discussion below regarding Outperform Stock Option grants.
(2) Approximate value at December 17, 1999. This bonus was paid to Mr.
Crowe in the form of a grant of 13,594 fully vested Outperform Stock
Options, which will expire on the fourth anniversary of the grant.
(3) Other Annual Compensation means perquisites and other personal
benefits received by each of the Named Executive Officers, if over
$50,000. The only reportable amounts are amounts that represent
relocation allowances and the payment of closing costs relating to the
purchase of a new residence in the Broomfield, Colorado area.
(4) The amounts in this column represent (i) amounts of salary and bonus
forgone by the Named Executive Officers pursuant to the Level 3
Communications, Inc. 1998 Deferred Stock Purchase Plan (the
"ShareWorks Match Plan"), (ii) Level 3
matching contributions to the ShareWorks Match Plan on behalf of the
Named Executive Officers, and (iii) year-end contributions to the
accounts of the Named Executive Officers pursuant to the Level 3
Communications, Inc. Employee Stock Bonus Plan (the "ShareWorks Grant
Plan"). These amounts are held in accounts for the Named Executive
Officers as shares or units of Level 3 Common Stock. These amounts
represent the year-end value of such accounts based on the last
reported sale price of the Level 3 Common Stock on December 31, 2000,
1999 and 1998, respectively.
No Named Executive Officer received any stock options (see below for a
description of the grants of Outperform Stock Options to the Named Executive
Officers), stock appreciation rights ("SARs") or long-term incentive performance
("LTIP") payouts for the fiscal year ended December 31, 2000.
Aggregate Options/SAR Exercises and Fiscal Year End Option/SAR Value Table
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised In-the-money Options/SARs at
Name Exercise Realized ($) Options/SARs at FY-End (#) FY-End ($)(1)
Exercisable Unexercisable Exercisable Unexercisable
James Q. Crowe - - - - - -
Kevin J. O'Hara - - 325,000 175,000 - -
R. Douglas Bradbury 45,000(2) 1,232,460(2) 605,000 350,000 - -
Colin V.K. Williams - - - - - -
Sureel A. Choksi - - 55,000 45,000 1,804,715 1,476,585
(1) On December 29, 2000 (the last trading day of 2000), the last reported
sale price for the Level 3 Common Stock as reported by The Nasdaq
Stock Market was $32.813.
(2) Mr. Bradbury continues to hold the 45,000 shares of Level 3 Common
Stock acquired on the exercise options during 2000. The Value Realized
represents the aggregate difference between the market price of the
Level 3 Common Stock on the date of exercise and the option exercise
price.
Outperform Stock Option Grants
The Company's OSO program is the primary component of Level 3's long term
incentive, stock based compensation programs. The OSO program was designed by
the Company so that its stockholders receive a market related return on their
investment before OSO holders receive any return on their options. The Company
believes that the OSO program aligns directly employees' and stockholders'
interests by basing stock option value on the Company's ability to outperform
the market in general, as measured by the S&P 500 Index. The value received for
options under the OSO plan is based on a formula involving a multiplier related
to how much our common stock outperforms the S&P 500 Index. Participants in the
OSO program do not realize any value from options unless our common stock price
outperforms the S&P 500 Index. To the extent that the Level 3 common stock
outperforms the S&P 500, the value of OSOs to an option holder may exceed the
value of Non Qualified Stock Options or NQSOs.
In July 2000, the Company adopted a convertible outperform stock option
program, ("C-OSO") as an extension of the existing OSO plan. The program is a
component of the Company's ongoing employee retention efforts and offers similar
features to those of an OSO, but provides an employee with the greater of the
value of a single share of the Company's common stock at exercise, or the
calculated OSO value of a single OSO at the time of exercise. The following
table summarizes the grant of OSO Program awards to the Named Executive Officers
during 2000.
OSO Program Grants In Last Fiscal Year
Value of Total Unexercised
Total Number of Awards at In-the Money Awards at
Individual Grants FY-End (#)(1) FY-End ($)(2)
Number of Awards Expiration Date Exercisable Unexercisable Exercisable Unexercisable
Name Granted
James Q. Crowe
OSO Awards 49,168 03/01/04 320,000 998,122 - 3,753,265
63,918 06/01/04
63,918 09/01/04
63,918 12/01/04
SR-OSO Awards (1) 437,200 12/01/04 - - - -
Kevin J. O'Hara
OSO Awards 16,008 03/01/04 100,000 577,224 - 1,920,320
20,810 06/01/04
32,703 09/01/04
32,703 12/01/04
SR-OSO Awards(1) 165,000 12/01/04 - - - -
R. Douglas Bradbury
OSO Awards 16,008 03/01/04 100,000 713,438 - 1,221,963
20,810 06/01/04
20,810 09/01/04
20,810 12/01/04
SR-OSO Awards(1) 150,000 12/01/04 - - - -
Colin V.K. Williams
OSO Awards 16,008 03/01/04 75,000 221,951 - 1,221,963
20,810 06/01/04
20,810 09/01/04
20,810 12/01/04
SR-OSO Awards(1) 26,013 12/01/04 - - - -
Sureel A. Choksi(3)
OSO Awards 5,717 03/01/04 12,000 177,412 - 663,390
7,432 06/01/04
11,297 09/01/04
11,297 12/01/04
SR-OSO Awards(1) 75,000 12/01/04 - - - -
(1) An OSO award vests in equal quarterly installments over two years. No
OSO award, including a vested OSO award, granted prior to March 1,
2001 can be exercised until the second anniversary of the date of its
grant. OSO awards after March 1, 2001 awards can be exercised upon
vesting. The OSO awards provide for acceleration of vesting and the
lifting of the two year prohibition on exercise (with respect to OSO
awards granted prior to March 1, 2001) in the event of a change of
control, as defined in the Level 3 1995 Stock Plan (as amended on
April 1, 1998). SR-OSO awards or Special Recognition OSO Awards were
granted on December 1, 2000. SR-OSO awards have all of the same
features as an OSO award other than with respect to vesting and
exercising. SR-OSO awards vest 25% of the SR-OSO award on May 31, 2001
and the remaining 75% of the SR-OSO award on May 31, 2002. SR-OSO
awards are fully exercisable upon vesting.
(2) OSO and SR-OSO value at December 31, 2000 has been computed based upon
the OSO formula and multiplier as of that date. The value of an OSO
and a SR-OSO is subject to change based upon the performance of the
Level 3 Common Stock relative to the performance of the S&P 500 Index
from the time of the grant of the OSO or SR-OSO award, as the case may
be, until the award has been exercised.
(3) Mr. Choksi also received a grant of Convertible Outperform Stock
Options (C-OSOs). Mr. Choksi received a grant of 26,612 C-OSOs on
September 1, 2000 and a grant of 26,612 C-OSOs on December 1, 2000.
Mr. Choksi's C-OSOs will vest over a period of three years at the rate
of 1/6 of the total on the first anniversary of the date of grant, an
additional 1/3
of the total on second anniversary of the date of grant and the
remainder of the total on the third anniversary of the date of grant.
At December 31, 2000, no C-OSOs were exercisable and the value of all
C-OSOs granted to Mr. Choksi was $873,252.
Section 16(a) Beneficial Ownership Reporting Compliance
To Level 3's knowledge, no person that was a director, executive officer or
beneficial owner of more than 10% of the outstanding shares of Level 3 Common
Stock failed to timely file all reports required under Section 16(a) of the
Securities Exchange Act of 1934.
Director's Compensation
During 2000, each of the directors of the Company who were not employed by
the Company during 2000 received directors fees consisting of an annual retainer
of $200,000. Messers. Yanney and Julian each received an annual retainer of
$210,000, which includes additional fees for serving as chairman of the
Compensation Committee and Audit Committee, respectively. These fees have been
paid to these directors in the form of grants of Level 3's Outperform Stock
Options.
Certain Relationships and Related Transactions
All share information has been adjusted to reflect the Company's 2-for-1
stock split, effected as a stock dividend in August 1998.
During 1999, Mr. Crowe entered into an agreement for the period October
1999 to October 2000 to purchase personal use of the Company's aircraft. Mr.
Crowe has agreed that the Company will charge him the cost to operate the
aircraft as allowed by Part 91 of the U.S. Federal Aviation Administration
regulations for personal use of corporate aircraft. The Company received a total
payment in the amount of $89,419 from Mr. Crowe under this agreement for
calendar year 2000 and estimates that the amount to be paid by Mr. Crowe for
calendar year 2001 will be approximately $100,000.
Messers. Scott, Crowe, Bay, Grewcock and Stinson are members of the Board
of Directors of Peter Kiewit Sons', Inc. ("PKS") as well as members of the Board
of Directors of the Company. Mr. Stinson is also the chief executive officer of
PKS.
On June 18, 1998, Level 3 entered into a contract with PKS for the
construction of Level 3's nearly 16,000 mile North American intercity network.
Construction of the North America intercity network was substantially completed
at December 31, 2000. Level 3 has also entered into various other agreements
with PKS including agreements for construction activities relating to its local
networks, gateway facilities and headquarters facilities in Broomfield,
Colorado. For the year ended December 31, 2000, the Company incurred the
following costs under these agreements to PKS: $1.713 billion relating to
construction of intercity and local networks as well as gateway construction;
approximately $50 million for construction of the Company's headquarters
facilities; and approximately $1 million for miscellaneous construction
projects. PKS has the opportunity to earn a significant award fee with respect
to the construction of the intercity network, the amount of which will be based
on cost and speed of construction, quality, safety and program management. The
award fee will be determined by Level 3's assessment of PKS' performance in each
of these areas. In 2000, the Company accrued approximately $138 million toward
the award fee, which is included in the $1.713 billion indicated above.
Level 3 and PKS are parties to various aircraft operating agreements
pursuant to which PKS provides Level 3 with aircraft maintenance, operations and
related services. During 2000, Level 3 incurred costs to PKS of approximately
$1.9 million pursuant to these agreements.
In connection with the Split-off, Level 3 and PKS entered into various
agreements intended to implement the Split-off, including a separation agreement
and a tax-sharing agreement.
Separation Agreement. Level 3 and PKS entered into a separation agreement
(the "Separation Agreement") relating to the allocation of certain risks and
responsibilities between PKS and Level 3 after the Split-off and certain other
matters. The Separation Agreement provides that
each of PKS and Level 3 will indemnify the otherwith respect to the activities
of its subsidiary business groups, except as specifically provided under other
agreements between the companies. The cross-indemnities are intended to allocate
financial responsibility to PKS for liabilities arising out of the construction
businesses formerly conducted by Level 3, and to allocate to Level 3 financial
responsibility for liabilities arising out of the non-construction businesses
conducted by Level 3. The Separation Agreement also allocates between PKS and
Level 3 certain corporate-level risk exposures not readily allocable to either
the construction businesses or the non-construction businesses.
The Separation Agreement provides that each of Level 3 and PKS will be
granted access to certain records and information in the possession of the other
company, and requires that each of Level 3 and PKS retain all such information
in its possession for a period of ten years following the Split- off. Under the
Separation Agreement, each company is required to give the other company prior
notice of any intention to dispose of any such information.
The Separation Agreement provides that, except as otherwise set forth
therein or in any related agreement, costs and expenses in connection with the
Split-off will be paid 82.5% by Level 3 and 17.5% by PKS. On March 18, 1998,
Level 3 and PKS entered into an amendment to the Separation Agreement that
provides that PKS will bear substantially all of those expenses if the Level 3
Board determined to force conversion of all outstanding Class R Stock of Level 3
on or before July 15, 1998 (a "Forced Conversion Determination").
The Level 3 Board made such a determination and, accordingly, substantially
all of those expenses will be borne by PKS.
Tax Sharing Agreement. Level 3 and PKS have entered into a tax sharing
agreement (the "Tax Sharing Agreement") that defines each company's rights and
obligations with respect to deficiencies and refunds of federal, state and other
taxes relating to operations for tax years (or portions thereof) ending prior to
the Split-off and with respect to certain tax attributes of Level 3 and PKS
after the Split-off. Under the Tax Sharing Agreement, with respect to periods
(or portions thereof) ending on or before the Split-off, Level 3 and PKS
generally will be responsible for paying the taxes relating to such returns
(including any subsequent adjustments resulting from the redetermination of such
tax liabilities by the applicable taxing authorities) that are allocable to the
non-construction business and the construction business, respectively.
The Tax Sharing Agreement also provides that Level 3 and PKS will indemnify
the other from certain taxes and expenses that would be assessed on PKS and
Level 3, respectively, if the Split-off were determined to be taxable, but
solely to the extent that such determination arose out of the breach by Level 3
or PKS, respectively, of certain representations made to the Internal Revenue
Service in connection with the private letter ruling issued with respect to the
Split-off. Under the Tax Sharing Agreement, if the Split-off were determined to
be taxable for any other reason, those taxes and certain other taxes associated
with the Split-off (together, "Split-off Taxes") would be allocated 82.5% to
Level 3 and 17.5% to PKS. The Tax Sharing Agreement, however, provides that
Split-off Taxes will be allocated one-half to each of Level 3 and PKS if a
Forced Conversion Determination is made. As a result of the Forced Conversion
Determination, the Split-off Taxes would be so allocated. Finally, the Tax
Sharing Agreement provides, under certain circumstances, for certain liquidated
damage payments from Level 3 to PKS if the Split-off were determined to be
taxable, which are intended to compensate stockholders of PKS indirectly for
taxes assessed upon them in that event. Those liquidated damage payments,
however, are reduced because of the Forced Conversion Determination.
Mine Management Agreement. In 1992, PKS and Level 3 entered into a mine
management agreement (the "Mine Management Agreement") pursuant to which a
subsidiary of PKS, Kiewit Mining Group Inc. ("KMG"), provides mine management
and related services for Level 3's coal mining properties. In consideration of
the provision of such services, KMG receives a fee equal to 30% of the adjusted
operating income of the coal mining properties. Level 3 incurred expenses for
services provided by KMG under the Mine Management Agreement of $29 million for
the year ended December 31, 2000. The term of the Mine Management Agreement
expires on January 1, 2016.
In connection with the Split-off, the Mine Management Agreement was amended
to provide KMG with a right of offer in the event that Level 3 were to determine
to sell any or all of its coal mining properties. Under the right of offer,
Level 3 would be required to offer to sell those properties to KMG at the price
that Level 3 would seek to sell the properties to a third party. If KMG were to
decline to purchase the properties at that
price, Level 3 would be free to sell them to a third party for an amount greater
than or equal to that price. If Level 3 were to sell the properties to a third
party, thus terminating the Mine Management Agreement, it would be required to
pay KMG an amount equal to the discounted present value to KMG of the Mine
Management Agreement, determined, if necessary, by an appraisal process.
In September 2000, the Company sold its entire 50% ownership interest in
The Walnut Creek Mining Company to a subsidiary of Peter Kiewit Sons', Inc. for
a cash payment of approximately $37 million.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of Level 3 Common Stock, as of February 15, 2001, by Level
3's directors, the Named Executive Officers, and directors and executive
officers as a group, and each person known by the Company to beneficially own
more than 5% of the outstanding Level 3 Common Stock.
Number of Shares of Percent of Common Stock
Name Common Stock+ Beneficially Owned
Walter Scott, Jr.(1) .................................. 32,833,958 8.9%
James Q. Crowe(2) ..................................... 9,950,612 2.7
R. Douglas Bradbury(3) ................................ 3,015,190 *
Kevin J. O'Hara(4) .................................... 1,886,410 *
Colin V.K. Williams(5) ................................ 290,344 *
Sureel A. Choksi(6).................................... 117,000 *
Mogens C. Bay.......................................... 15,000 *
William L. Grewcock(7)................................. 11,525,428 3.1
Richard R. Jaros(8) ................................... 3,518,898 1.0
Robert E. Julian(9) ................................... 3,993,580 1.1
Charles C. Miller, III................................. 115,824 *
David C. McCourt....................................... 115,000 *
Kenneth E. Stinson..................................... 724,493 *
Michael B. Yanney ..................................... 86,460 *
Directors and Executive Officers
as a Group (18 persons)(10) ........................ 69,575,610 18.7
Janus Capital Corporation(11).......................... 23,480,896 6.3
* Less than 1%.
+ It is the Company's practice to included in this table the number of
shares of common stock issuable upon exercise of Outperform Stock
Options, if any, which are exercisable within 60 days. The value of
the Outperform Stock Options is dependent upon the extent to which the
Company's common stock has outperformed the results of the S&P 500.
The number of shares of common stock issuable upon exercise of an
Outperform Stock Option has been calculated based upon the closing
price of the Company's common stock on February 1, 2001. The number of
shares issuable upon exercise of an Outperform Stock Option is
therefore subject to changes in the extent to which the Company's
common stock has outperformed the results of the S&P 500 and the
Company's common stock closing price.
(1) Includes 99,700 shares of common stock held by the Suzanne Scott
Irrevocable Trust as to which Mr. Scott shares voting and investment
powers and 383,502 shares of common stock issuable upon conversion of
$25 million in principal amount of our 6% convertible subordinated
notes that Mr. Scott holds.
(2) In May 2000, Mr. Crowe announced that he had contributed 500,000
shares of common stock to a trust of which he is the sole beneficiary
and that the trust would sell 2,000 shares each trading day until all
the shares held by the trust were sold. The information in the above
table includes the remaining 124,000 shares of common stock held by
that trust as of February 1, 2001. In addition, on March 1, 2001, Mr.
Crowe announced that he had contributed 1,000,000 shares of common
stock to a second trust of which he is the sole beneficiary and that
the trust would sell forward purchase contracts with respect to the
shares held by the trust on a weekly basis. The information in the
above table includes the entire 1,000,000 shares held by that trust.
(3) Includes 655,000 shares of common stock subject to vested
non-qualified stock options.
(4) Includes 46,000 shares of common stock held by Kevin J. O'Hara Family
LTD Partnership. Includes 350,000 shares of common stock subject to
vested non-qualified stock options.
(5) Includes 7,000 shares held by The Lanhydrock Limited Partnership, of
which Mr. Williams is the sole general partner and 14,000 shares held
by Dreason (Bermuda) Limited of which Mr. Williams is the 70%
stockholder.
(6) Includes 65,000 shares of common stock subject to vested non-qualified
stock options.
(7) Includes 1,154,640 shares of common stock held by Grewcock Family
Limited Partnership. Includes 351,230 shares of common stock held by
the Bill & Berniece Grewcock Foundation as to which Mr. Grewcock
shares voting and investment powers. At February 1, 2001, includes
2,000,000 shares of common stock held by a grantor trust, of which Mr.
Grewcock is the residual beneficiary. Subsequent to February 1, 2001,
825,118 shares of common stock were transferred from this grantor
trust to Mr. Grewcock and as a result 1,174,882 shares of common stock
are now held directly by the grantor trust.
(8) Includes 370,000 shares of common stock held by the Jaros Family
Limited Partnership. At February 1, 2001, includes 1,200,000 shares of
common stock held by Mr. Jaros and 800,000 shares of common stock
subject to options held by a grantor trust of which Mr. Jaros is the
residual beneficiary and a total of 440,000 shares held by two
additional grantor trusts of which Mr. Jaros is the residual
beneficiary. Subsequent to February 1, 2001, Mr. Jaros deposited
substitute property in certain grantor trusts resulting in the return
to Mr. Jaros of 220,000 shares of common stock. In addition, it is
anticipated that substantially all of the options to purchase 800,000
shares of common stock held by another grantor trust will be return to
Mr. Jaros directly.
(9) Includes 1,000,000 shares held by a Julian Properties, LP, of which
Mr. Julian is the sole general partner.
(10) Includes 3,741,249 shares of common stock subject to
vested non-qualified stock options.
(11) Janus Capital Corporation's address is 100 Filmore Street, Denver,
Colorado 80206. The following information is based solely on Janus
Capital Corporation ("Janus Capital") Schedule 13D-G dated February
15, 2001.
Janus Capital owns 23,480,896 shares of common stock, which includes
380,626 shares of common stock issuable upon conversion of $51.325
million in principal amount of our 6% convertible subordinated notes
that held by Janus Capital. Janus Capital is a registered investment
adviser which furnishes investment advice to several investment
companies registered under Section 8 of the Investment Company Act of
1940 and individual and institutional clients (collectively referred
to herein as "Managed Portfolios"). As a result of its role as
investment adviser or sub-adviser to the Managed Portfolios, Janus
Capital may be deemed to be the beneficial owner of the shares of
Level 3 Common Stock held by such Managed Portfolios. However, Janus
Capital does not have the right to receive any dividends from, or the
proceeds from the sale of, the securities held in the Managed
Portfolios and disclaims any ownership associated with such rights.
Mr. Thomas Bailey owns approximately 12.2% of Janus Capital. In
addition to being a stockholder of Janus Capital, Mr. Bailey serves as
President and Chairman of the Board of Janus Capital and filed the
joint statement with Janus Capital as a result of such stock ownership
and positions which may be deemed to enable him to exercise control
over Janus Capital. Mr. Bailey does not own of record any shares of
Level 3 Common Stock. However, as a result of his position, Mr. Bailey
may be deemed to have the power to exercise or to direct the exercise
of such voting and/or dispositive power that Janus Capital may have
with respect to Level 3 Common Stock held by the Managed Portfolios.
All shares reported herein have been acquired by the Managed
Portfolios, and Mr. Bailey specifically disclaims beneficial ownership
over any shares of Level 3 Common Stock that he or Janus Capital may
be deemed to beneficially own. Furthermore, Mr. Bailey does not have
the right to receive any dividends from, or the proceeds from the sale
of, the securities held in the Managed Portfolios and disclaims any
ownership associated with such rights.
Performance Graph
The following performance graph shall not be deemed to be incorporated by
reference by means of any general statement incorporating by reference this
Proxy Statement into any filing under the Securities Act of 1933, as amended or
the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates such information by reference, and shall not otherwise
be deemed filed under such acts.
The graph below compares the cumulative total return (stock appreciation
plus reinvested dividends) of the Company's common stock with two indexes of
publicly traded stocks. Prior to the Split-off, the Company had two classes of
common stock, Class C Construction & Mining Group Restricted Convertible
Exchangeable Common Stock, par value $.0625 per share (the "Class C Stock") and
Class D Stock. For substantially all of the periods presented the Company's
stock was not publicly traded. Beginning in the fourth quarter 1997, the
Company's Class D Stock commenced trading on the over-the-counter market of the
National Association of Securities Dealers, Inc. During the fourth quarter, the
only quarter during which trading occurred, the range of the high and low bid
information for the Class D Stock was $20.41 to $29.00. The Level 3 Common Stock
now trades on The Nasdaq National Market under the symbol "LVLT." Because the
Split-off occurred during 1998, no performance graph information is presented
for the Class C Stock. For performance graph information regarding the Class C
Stock, please see the proxy materials of Peter Kiewit Sons', Inc.
Pursuant to the terms of the Company's Restated Certificate of
Incorporation for all periods presented, other than for the last three quarters
of 1998, the Company's stock was valued by a formula contained in the Restated
Certificate of Incorporation. Company stock was valued at the end of the
Company's fiscal year and the formula value was reduced as dividends are
declared during the following year. For purposes of the graphs, it has been
assumed that dividends were immediately reinvested in additional shares of Level
3 Common Stock, although such reinvestment was not permitted in actual practice.
Although for fiscal years prior to 1998, the Company's fiscal year ended on the
last Saturday in December, its stock is compared against indexes which assume a
fiscal year ending December 31. The formula value of the Class D Stock was
linked to the performance of the Company's Diversified Group (which are the
operations that remained in the Company after the Split-off), which is primarily
engaged in communications, information services and coal mining businesses.
The graph compares the cumulative total return of the Level 3 Common Stock
(formerly Class D Stock) for the five year period 1996 - 2000 with the S&P 500
Index and the Nasdaq Telecommunications Index. In prior years, the Company has
also compared the cumulative total return of the Level 3 Common Stock with the
Dow Jones Coal Index. The Dow Jones Coal Index is no longer published, and is
therefore not included in the performance graph. The graph assumes that the
value of the investment was $100 on December 31, 1995, and that all dividends
and other distributions were reinvested. In addition, all stock prices and
dividends reflect a dividend of four shares of Class D Stock for each
outstanding share of Class D Stock that was effective December 1997 and a
dividend of one share of Level 3 Common Stock (formerly Class D Stock) for each
outstanding share of Level 3 Common Stock effective August 1998.
Comparison of 5 Year Cumulative Total Return
Among the Level 3 Common Stock, the S&P 500 Index and
the Nasdaq Telecommunications Index
[Performance Graph]
1995 1996 1997 1998 1999 2000
Common Stock 100.00 110.61 118.76 879.23 1669.27 656.14
S&P 500 Index 100.00 122.96 163.98 210.84 255.22 231.98
Nasdaq Telecommunications Index 100.00 102.25 149.26 247.02 438.28 188.48
OTHER MATTERS
It is not anticipated that any matters other than those described in this
Proxy Statement will be brought before the Annual Meeting. If any other matters
are presented, however, it is the intention of the persons named in the proxy to
vote the proxy in accordance with the discretion of the persons named in the
proxy.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder intends to present at the 2002 Annual
Meeting must be received by Level 3 on or before March 24, 2002, but no earlier
than February 23, 2002 to be included in the proxy material of Level 3 relating
to such meeting. In addition, such proposal must also include a brief
description of the business to be brought before the annual meeting, the
stockholder's name and record address, the number of shares of Level 3 Common
Stock which are owned beneficially or of record by such stockholder, a
description of any arrangements or understandings between the stockholder and
any other person in connection with such proposal and any material ___ interest
of such stockholder in such proposal and a representation that the stockholder
intends to appear in person or by proxy at the Annual Meeting. If the
stockholder wishes to nominate one or more persons for election as a director,
such stockholder's notice must comply with additional provisions as set forth in
the Level 3 By-laws, including certain information with respect to the persons
nominated for election as directors and any information relating to the
stockholder that would be required to be disclosed in a Proxy Filing. Any such
proposals should be directed to the Secretary, Level 3 Communications, Inc.,
1025 Eldorado Boulevard, Broomfield, Colorado, 80021.
AUDIT COMMITTEE CHARTER
Organization
The Audit Committee of the Board of Directors shall be comprised of at
least three directors who are independent of management and Level 3
Communications, Inc. (the "Company"). Members of the Audit Committee shall be
considered "independent" as defined from time to time by the listing
requirements of the national securities exchange or over the counter market upon
which the Company's common stock is then listed. All Audit Committee members
will be financially literate, and at least one member will have past employment
experience in finance or accounting or related financial management expertise.
Statement of Policy
The Audit Committee shall provide assistance to the members of the board of
directors in fulfilling their responsibility to the stockholders, potential
stockholders and investment community relating to corporate accounting,
reporting practices of the Company and the quality and integrity of financial
reports of the Company. In so doing, it is the responsibility of the Audit
Committee to maintain free and open communications between the directors, the
independent auditors, the Company's internal audit department and the financial
management of the Company. It is the expectation of the Audit Committee that the
financial management will fulfill its responsibility of bringing any significant
items to the attention of the Audit Committee.
Responsibilities
In carrying out its responsibilities, the Audit Committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the directors and stockholders that the
corporate accounting and reporting practices of the Company are in accordance
with pertinent requirements.
In carrying out these responsibilities, the Audit Committee will:
o Obtain annually the full Board of Directors' approval of this
Charter and review and reassess this Charter as conditions dictate.
o Review and recommend to the directors the independent auditors to
be selected to audit the financial statements of the Company and its
divisions and subsidiaries.
o Have a clear understanding with the independent auditors that the
independent auditors are ultimately accountable to the Board of
Directors and the Audit Committee, as the stockholders'
representatives, and that it is the Board of Directors and the Audit
Committee, as the stockholders' representatives, that have the
ultimate authority in deciding to engage, evaluate and, if
appropriate, terminate their services.
o Meet with the independent auditors and financial management of
the Company to review the scope of the proposed audit and quarterly
reviews for the current year and the procedures to be utilized, the
adequacy of the independent auditors' compensation and at the
conclusion thereof review such audit or reviews, including any
comments or recommendations of the independent auditors.
o Review with the independent auditors, the Company's internal
auditor and financial and accounting personnel, the adequacy and
effectiveness of the accounting and financial controls of the Company,
and elicit any recommendations for the improvement of such internal
controls or particular areas where new or more detailed controls or
procedures are desirable.
o Review the financial statements contained in the annual report to
stockholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the
stockholders. Review with financial management and the independent
auditors the results of their timely analysis of significant financial
reporting issues and practices, including changes in, or adoptions of,
accounting principles and disclosure practices, and discuss any other
matters required to be communicated to the Committee by the auditors.
o Provide sufficient opportunity for the internal and independent
auditors to meet with the members of the Audit Committee without
members of the Company's management present.
o Report the results of the annual audit to the Board of Directors.
o On an annual basis, obtain from the independent auditors a
written communication delineating all their relationships and
professional services as required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees.
o Include a report of the Audit Committee in the proxy statement.
o Submit the minutes of all meetings of the Audit Committee to, or
alternatively, discuss the matters discussed at each Committee meeting
with, the Board of Directors.
o Investigate any matter brought to its attention within the scope
of its duties, with the power to retain outside counsel for this
purpose if, in its judgment, that is appropriate.