SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant |X|
Filed by Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only(as permitted
by Rule 14-6(e)(2)
|_| Definitive Proxy Statement
|X| Definitive Additional Materials
|_| Soliciting Material Pursuant to Sec. 240.14a-11(c) or 240.14a-12
Level 3 Communications, Inc.
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing by registration for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Explanatory Note:
The following information is being used by employees and officers of Level 3
Communications, Inc. (the "Company") in connection with solicitation activities
for the Company's 2004 Annual Meeting of Stockholders.
1995 Stock Plan Proposal
Level 3's Compensation Philosophy
- - Level 3's success is dependent on ability to attract, retain and motivate
employees
- - Principles:
- Attract and retain the best in the industry
- Employee ownership that aligns interests of employees with those of
shareholders
- Employees share appropriately with investors in value created
- - Compensation plans targeted at annual and long term performance
Total Compensation Program
Salary: Executives - significantly below competitive levels
Other employees - consistent with competitive levels
Bonus: Up to 110% of competition for above target performance
Additional bonus opportunity tied to special initiatives and programs
Long Term: Ownership oriented
- 401(k) Plan - matching contribution in Level 3 shares
- Outperform Stock Options
Outperform Stock Option Overview
- - Grants equal in initial value to competitors' grants of standard options
- - Four year life
- - Granted on rolling quarterly basis
- - Value only when Level 3 outperforms S&P 500 Index
- - Success multiplier for greater outperformance
- - Value at exercise equal to market price minus strike price, times
multiplier
Few Companies Significantly Outperform the S&P 500
Graphic: Stacked bar graph showing percentage of companies that outperform S&P
500 at:
0% minimum annualized outperformance percentage
64% outperformed
36% underperformed
5% minimum annualized outperformance percentage
40% outperformed
60% underperformed
10% minimum annualized outperformance percentage
22% outperformed
78% underperformed
15% minimum annualized outperformance percentage
12% outperformed
88% underperformed
20% minimum annualized outperformance percentage
7% outperformed
93% underperformed
Notes:
1. Source: Citigroup and Level 3 analysis
2. January 1999 to December 2003
3. Percentages for companies remaining in S&P 500 during period
Outperform Stock Options
- - Outperform Stock Options
- Align employees' and stockholder interests
- Properly balance employee and stockholder returns
- Stockholders receive S&P 500 return before employees
participate
- At maximum outperformance, stockholders receive approx 75%
of extra value created
- - The program has accomplished stated objectives
- Average annual dilution has been approximately 0.60%
- Voluntary turnover below industry averages
Shares Available
- - Shares must be reserved assuming extreme share price appreciation
- Share utilization depends on LVLT and S&P 500 Index performance
- Under one scenario (1), shares reserved cover up to 250% LVLT
appreciation per year
- Quarterly awards managed to assure shares available to cover future
exercises
- - Approximately 84 million shares remain of the 120 million shares authorized
to date
- 15 million utilized to settle OSOs, balance for other programs
- Annualized OSO dilution of approximately 0.60% ('99 thru '03)
- - Approval of an incremental 80 million shares will enable company to make
competitive future grants
- Enable grants through April 2006 at extreme share appreciation
- Shares never utilized unless S&P return is exceeded
Assumes: - constant annual growth in LVLT stock
- average exercise period of 2.5 years
- OSO grants through April 2006
- Initial stock price as of Apr 28, 2004
Future Dilution from OSOs
For Illustrative Purposes Only
Assumptions
- - Constant annual S&P growth of 10%, S&P 500 initial price of 1,114
- - Includes shares issued for OSO grants from June 2000 through April 2006
- - Dilution is defined as annual number of shares issued for OSO exercises
divided by average number of shares outstanding (excludes shares issued for
non OSO stock plans)
- Shares outstanding includes shares delivered from OSO exercises
- - Assumes each OSO is exercised on average 2.5 years from grant date
Level 3 Annual Growth 0% 15% 25% 50% 100%
Level 3 Stock Price in Dec. '08 $3 $6 $9 $21 $81
Shares Issued for OSOs (in MM)(1) 2 14 65 110 135
Assumed Avg. Shares O/S (in MM) 681 686 705 724 742
Average Annual Dilution(2) 0.04% 0.4% 1.7% 2.8% 3.5%
(1) Includes C-OSOs
(2) April 2004 through June 2009
Ownership Guidelines
- - Number of shares initially determined based on target dollar value,
translated into shares based on stock price
- Targets reviewed at least annually, updated based on changes in the
composition of the executive officer group, market conditions and
other relevant circumstances
- - Ownership targets:
- ------------------------------------- ----------------------------------- -----------------------------------
Position Ownership Guidelines (In Shares) Value (@$5/share)
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
CEO 2,000,000 $10,000,000
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
COO/Vice Chairman 500,000 $2,500,000
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
EVPs/CFO 200,000 $1,000,000
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
Controller 100,000 $500,000
- ------------------------------------- ----------------------------------- -----------------------------------
- ------------------------------------- ----------------------------------- -----------------------------------
Directors 50,000 $250,000
- ------------------------------------- ----------------------------------- -----------------------------------
Definition of owned shares includes: Stock held outright by executive, spouse
and minor children, stock held in trust for benefit of executive, spouse and
minor children, shares in 401(k) or retirement plan. If executive's ownership
position does not meet guidelines, 25% of after-tax OSO exercises should be held
until compliance is achieved. Failure to comply with guidelines is significant
factor considered in future bonus and LTI awards.