<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-02593
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MAY 22, 1996
30,000,000 PREFERRED SECURITIES
MCI CAPITAL I
8.00% CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES, SERIES A (QUIPS SM )*
(LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT THE SERIES A ISSUER HAS FUNDS AS SET FORTH HEREIN BY
MCI COMMUNICATIONS CORPORATION
---------------
The 8.00% Cumulative Quarterly Income Preferred Securities, Series A (the
"Series A QUIPS"), offered hereby represent undivided beneficial interests in
the assets of MCI Capital I, a trust formed under the laws of the State of
Delaware (the "Series A Issuer"). MCI Communications Corporation, a Delaware
corporation ("MCI"), will be the owner of all of the beneficial interests
represented by common securities of the Series A Issuer ("Series A Common
Securities"). Wilmington Trust Company is the Property Trustee of the Series A
Issuer. The Series A Issuer exists for the sole purpose of issuing the
(Continued on next page)
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-4 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE SERIES A QUIPS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
<TABLE>
<CAPTION>
PROCEEDS TO
THE SERIES A
INITIAL PUBLIC UNDERWRITING ISSUER(2)
OFFERING PRICE COMMISSION(1) (3)
-------------- ------------- ------------
<S> <C> <C> <C>
Per Series A QUIPS.................... $25.00 (2) $25.00
Total................................. $750,000,000 (2) $750,000,000
</TABLE>
- -------
(1) The Series A Issuer and MCI have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) In view of the fact that the proceeds of the sale of the Series A QUIPS
will be used to purchase the Series A QUIDS, the Underwriting Agreement
provides that MCI will pay to the Underwriters, as compensation
("Underwriters' Compensation") for their arranging the investment therein
of such proceeds, $0.7875 per Series A QUIPS (or $23,625,000 in the
aggregate). See "Underwriting".
(3) Expenses of the offering, which are payable by MCI, are estimated to be
$1,000,000.
---------------
The Series A QUIPS offered hereby are offered severally by the Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
Series A QUIPS will be ready for delivery in book-entry form only through the
facilities of The Depository Trust Company in New York, New York, on or about
May 29, 1996, against payment therefor in immediately available funds.
- -------
* QUIPS and QUIDS are servicemarks of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
LEGG MASON WOOD WALKER
INCORPORATED
---------------
The date of this Prospectus Supplement is May 23, 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A
QUIPS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
(Continued from previous page)
Series A QUIPS and the Series A Common Securities and investing the proceeds
thereof in 8.00% Junior Subordinated Deferrable Interest Debentures, Series A
(the "Series A QUIDS" SM), to be issued by MCI. The Series A QUIDS will mature
on June 30, 2026, which date may be extended to a date not later than May 29,
2045 if certain conditions are met. The Series A QUIPS will have a preference
under certain circumstances with respect to cash distributions and amounts
payable on liquidation, redemption or otherwise over the Series A Common
Securities. See "Description of QUIPS--Subordination of Common Securities" in
the accompanying Prospectus.
Holders of the Series A QUIPS will be entitled to receive preferential
cumulative cash distributions accruing from the date of original issuance and
payable quarterly in arrears on the last day of March, June, September and
December of each year, commencing June 30, 1996, at the annual rate of 8.00%
of the liquidation preference of $25 per Series A QUIPS ("Distributions"). MCI
has the right to defer payment of interest on the Series A QUIDS at any time
or from time to time for a period not exceeding 20 consecutive quarters with
respect to each deferral period (each, an "Extension Period"), provided that
no Extension Period may extend beyond the Stated Maturity (as defined herein)
of the Series A QUIDS. Upon the termination of any such Extension Period and
the payment of all amounts then due on any Interest Payment Date (as defined
herein), MCI may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Series A QUIDS are
so deferred, Distributions on the Series A QUIPS will also be deferred and MCI
will not be permitted, subject to certain exceptions set forth herein, to
declare or pay any cash distributions with respect to MCI's capital stock or
debt securities that rank pari passu with or junior to the Series A QUIDS.
During an Extension Period, interest on the Series A QUIDS will continue to
accrue (and the amount of Distributions to which holders of the Series A QUIPS
are entitled will accumulate at the rate of 8.00% per annum, compounded
quarterly) and holders of Series A QUIPS will be required to accrue interest
income for United States federal income tax purposes. See "Certain Terms of
Series A QUIDS--Option to Extend Interest Payment Period" and "Certain Federal
Income Tax Consequences--Original Issue Discount".
MCI has, through the Series A Guarantee, the Trust Agreement, the Series A
QUIDS, the Indenture and the Expense Agreement (each, as defined herein),
taken together, fully, irrevocably and unconditionally guaranteed all of the
Series A Issuer's obligations under the Series A QUIPS. The Series A Guarantee
of MCI guarantees the payment of Distributions and payments on liquidation or
redemption of the Series A QUIPS, but only in each case to the extent of funds
held by the Series A Issuer, as described herein (the "Series A Guarantee").
See "Description of Guarantees" in the accompanying Prospectus. If MCI does
not make interest payments on the Series A QUIDS held by the Series A Issuer,
the Series A Issuer will have insufficient funds to pay Distributions on the
Series A QUIPS. The Series A Guarantee does not cover payment of Distributions
when the Series A Issuer does not have sufficient funds to pay such
Distributions. In such event, a holder of Series A QUIPS may institute a legal
proceeding directly against MCI to enforce payment of such Distributions to
such holder. The obligations of MCI under the Series A Guarantee and the
Series A QUIDS are subordinate and junior in right of payment to all Senior
Debt (as defined in "Description of QUIDS--Subordination" in the accompanying
Prospectus) of MCI.
S-2
<PAGE>
The Series A QUIPS are subject to mandatory redemption, in whole or in part,
upon repayment of the Series A QUIDS at maturity or their earlier redemption
in an amount equal to the amount of related Series A QUIDS maturing or being
redeemed at a redemption price equal to the aggregate liquidation preference
of such Series A QUIPS plus accumulated and unpaid Distributions thereon to
the date of redemption. The Series A QUIDS are redeemable prior to maturity at
the option of MCI (i) on or after May 29, 2001, in whole at any time or in
part from time to time, at a redemption price equal to the accrued and unpaid
interest on the Series A QUIDS so redeemed to the date fixed for redemption,
plus 100% of the principal amount thereof or (ii) at any time, in whole (but
not in part), upon the occurrence and continuation of a Special Event (as
defined herein), at a redemption price equal to the accrued and unpaid
interest on the Series A QUIDS so redeemed to the date fixed for redemption,
plus 100% of the principal amount thereof, in each case subject to the further
conditions described under "Description of QUIDS--Redemption" and "Description
of Corresponding QUIDS--Optional Redemption" in the accompanying Prospectus.
At any time, MCI will have the right to terminate the Series A Issuer and
cause the Series A QUIDS to be distributed to the holders of the Series A
QUIPS in liquidation of the Series A Issuer. If MCI elects to liquidate the
Series A Issuer and thereby causes the Series A QUIDS to be distributed to
holders of the Series A QUIPS in liquidation of the Series A Issuer, MCI shall
have the right to shorten or extend the maturity of such Series A QUIDS,
provided that it can extend the maturity only if certain conditions are met.
See "Certain Terms of Series A QUIPS--Special Event Redemption or Distribution
of Series A QUIDS".
The Series A QUIDS are subordinate and junior in right of payment to all
Senior Debt of MCI. As of March 31, 1996, MCI had approximately $4 billion
aggregate principal amount of Senior Debt outstanding. The terms of the Series
A QUIDS place no limitation on the amount of Senior Debt that may be incurred
by MCI. MCI is a non-operating holding company and almost all of the operating
assets of MCI and its consolidated subsidiaries are owned by such
subsidiaries. MCI relies primarily on interest and dividends from such
subsidiaries to meet its obligations for payment of principal and interest on
its outstanding debt obligations and corporate expenses. Accordingly, the
Series A QUIDS will be subordinated to all Senior Debt of MCI and effectively
subordinated to all existing and future liabilities of MCI's subsidiaries, and
holders of Series A QUIDS should look only to the assets of MCI for payments
on Series A QUIDS. See "Description of QUIDS--Subordination" in the
accompanying Prospectus.
In the event of the termination of the Series A Issuer, after satisfaction
of the creditors of the Series A Issuer as provided by applicable law, the
holders of the Series A QUIPS will be entitled to receive a liquidation
preference of $25 per Series A QUIPS plus accumulated and unpaid Distributions
thereon to the date of payment, which may be in the form of a distribution of
such amount in Series A QUIDS, subject to certain exceptions. See "Description
of QUIPS--Liquidation Distribution Upon Termination" in the accompanying
Prospectus.
The Series A QUIPS have been approved for quotation, subject to official
notice of issuance, on the Nasdaq National Market. If the Series A QUIDS are
distributed to the holders of Series A QUIPS upon the liquidation of the
Series A Issuer, MCI will use its best efforts to list the Series A QUIDS on
the Nasdaq National Market or the New York Stock Exchange or such other stock
exchanges, if any, on which the Series A QUIPS are then listed.
The Series A QUIPS will be represented by global certificates registered in
the name of The Depository Trust Company ("DTC") or its nominee. Beneficial
interests in the Series A QUIPS will be shown on, and transfers thereof will
be effected only through, records maintained by participants in DTC. Except as
described in the accompanying Prospectus, Series A QUIPS in certificated form
will not be issued in exchange for the global certificates. See "Description
of QUIPS--Book-Entry Issuance" in the accompanying Prospectus.
S-3
<PAGE>
The following information supplements and should be read in conjunction with
the information contained in the accompanying Prospectus. As used herein, (i)
the "Indenture" means the Junior Subordinated Indenture, as amended and
supplemented from time to time, including the First Supplemental Indenture
relating to the Series A QUIDS, between MCI and Wilmington Trust Company, as
trustee (the "Debenture Trustee"), and (ii) the "Trust Agreement" means the
Amended and Restated Trust Agreement among MCI, as Depositor, Wilmington Trust
Company, as Property Trustee (the "Property Trustee") and Delaware Trustee
(the "Delaware Trustee"), the Administrative Trustees named therein
(collectively, with the Property Trustee and Delaware Trustee, the "Issuer
Trustees") and the Holders as defined therein. Each of the other capitalized
terms used in this Prospectus Supplement and not otherwise defined in this
Prospectus Supplement has the meaning set forth in this Prospectus Supplement
or in the accompanying Prospectus.
RISK FACTORS
Prospective purchasers of the Series A QUIPS should carefully review the
information contained elsewhere in this Prospectus Supplement and in the
accompanying Prospectus and should particularly consider the following
matters.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE SERIES A GUARANTEE AND THE
SERIES A QUIDS
The obligations of MCI under the Series A Guarantee issued by MCI for the
benefit of the holders of Series A QUIPS are unsecured and rank subordinate
and junior in right of payment to all Senior Debt of MCI. The obligations of
MCI under the Series A QUIDS are subordinate and junior in right of payment to
all such Senior Debt. At March 31, 1996, the Senior Debt of MCI aggregated
approximately $4 billion. MCI is a non-operating holding company and almost
all of the operating assets of MCI and its consolidated subsidiaries are owned
by such subsidiaries. MCI relies primarily on interest and dividends from such
subsidiaries to meet its obligations for payment of principal and interest on
its outstanding debt obligations and corporate expenses. Accordingly, the
Series A QUIDS will be effectively subordinated to all existing and future
liabilities of MCI's subsidiaries, and holders of Series A QUIDS should look
only to the assets of MCI for payments on the Series A QUIDS. Neither the
Indenture, the Series A Guarantee nor the Trust Agreement places any
limitation on the amount of secured or unsecured debt, including Senior Debt,
that may be incurred by MCI. See "Description of Guarantees--Status of the
Guarantees" and "Description of QUIDS--Subordination" in the accompanying
Prospectus.
The ability of the Series A Issuer to pay amounts due on the Series A QUIPS
is solely dependent upon MCI making payments on the Series A QUIDS as and when
required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
MCI has the right under the Indenture to defer the payment of interest on
the Series A QUIDS at any time or from time to time for a period not exceeding
20 consecutive quarters with respect to each Extension Period, provided that
no Extension Period may extend beyond the Stated Maturity of the Series A
QUIDS. As a consequence of any such deferral, quarterly Distributions on the
Series A QUIPS by the Series A Issuer will be deferred (and the amount of
Distributions to which holders of the Series A QUIPS are entitled will
accumulate additional Distributions thereon at the rate of 8.00% per annum,
compounded quarterly from the relevant payment date for such Distributions)
during any such Extension Period. During any such Extension Period, MCI may
not, and may not permit any subsidiary of MCI to, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of MCI's capital stock or (ii) make
any payment of principal, interest or premium, if any, on or repay, repurchase
or redeem any debt securities of MCI (including
S-4
<PAGE>
other QUIDS) that rank pari passu with or junior in interest to the Series A
QUIDS or make any guarantee payments with respect to any guarantee by MCI of
the debt securities of any subsidiary of MCI if such guarantee ranks pari
passu or junior in interest to the Series A QUIDS (other than (a) dividends or
distributions in Common Stock of MCI, (b) redemptions or purchases of any
rights pursuant to MCI's Preferred Stock Rights Plan, or any successor to such
Preferred Stock Rights Plan, and the declaration of a dividend of such rights
or the issuance of Preferred Stock under such plans in the future, (c)
payments under any Guarantee, (d) purchases of Common Stock related to the
issuance of Common Stock under any of MCI's benefit plans for its directors,
officers or employees and (e) purchases of Common Stock required to prevent
the loss or secure the renewal or reinstatement of any government license or
franchise held by MCI or any of its subsidiaries). Prior to the termination of
any such Extension Period, MCI may further extend the interest payment period,
provided that no Extension Period may exceed 20 consecutive quarters or extend
beyond the Stated Maturity of the Series A QUIDS. Upon the termination of any
Extension Period and the payment of all amounts then due on any Interest
Payment Date, MCI may elect to begin a new Extension Period subject to the
above requirements. See "Certain Terms of Series A QUIPS--Distributions" and
"Certain Terms of Series A QUIDS--Option to Extend Interest Payment Period".
Should an Extension Period occur, a holder of Series A QUIPS will continue
to accrue income (in the form of original issue discount) in respect of its
pro rata share of the Series A QUIDS held by the Series A Issuer for United
States federal income tax purposes. As a result, a holder of Series A QUIPS
will include such income in gross income for United States federal income tax
purposes in advance of the receipt of cash, and will not receive the cash
related to such income from the Series A Issuer if the holder disposes of the
Series A QUIPS prior to the record date for the payment of Distributions. See
"Certain Federal Income Tax Consequences--Original Issue Discount" and "--Sale
or Redemption of Series A QUIPS".
MCI has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Series A QUIDS.
However, should MCI elect to exercise such right in the future, the market
price of the Series A QUIPS is likely to be affected. A holder that disposes
of its Series A QUIPS during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Series A QUIPS. In addition, as a result of the existence of MCI's right to
defer interest payments, the market price of the Series A QUIPS (which
represent preferred undivided beneficial interests in the Series A QUIDS) may
be more volatile than the market prices of other securities on which original
issue discount accrues that are not subject to such deferrals.
SPECIAL EVENT REDEMPTION
Upon the occurrence and continuation of a Special Event (as defined below),
MCI has the right to redeem the Series A QUIDS in whole (but not in part) at
the redemption price within 90 days following the occurrence of such Special
Event and thereby cause a mandatory redemption of the Series A QUIPS and
Series A Common Securities.
A "Special Event" means a Tax Event or an Investment Company Event. A "Tax
Event" means the receipt by the Series A Issuer of an opinion of counsel,
rendered by a law firm having a national tax and securities practice, to the
effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or such pronouncement or decision is
announced on or after the date of issuance of the Series A QUIPS under the
Trust Agreement, there is more than an insubstantial risk that (i) the Series
A Issuer is, or will be within 90 days of the date thereof, subject to United
States federal income tax with respect to income received or accrued on the
Series A QUIDS,
S-5
<PAGE>
(ii) interest payable by MCI on such Series A QUIDS is not, or within 90 days
of the date thereof, will not be, deductible by MCI, in whole or in part, for
United States federal income tax purposes, or (iii) the Series A Issuer is, or
will be within 90 days of the date thereof, subject to more than a de minimis
amount of other taxes, duties or other governmental charges. "Investment
Company Event" means the receipt by the Series A Issuer of an opinion of
counsel, rendered by a law firm having a recognized national tax and
securities practice, to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), the Series A Issuer is or
will be considered an "investment company" that is required to be registered
under the Investment Company Act of 1940, as amended, which Change in 1940 Act
Law becomes effective on or after the date of original issuance of the Series
A QUIPS.
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"), the
revenue portion of President Clinton's budget proposal, was released. The Bill
would, among other things, generally deny interest deductions for interest on
an instrument, issued by a corporation, that has a maximum weighted average
maturity of more than 40 years. The Bill would also generally deny interest
deductions for interest on an instrument, issued by a corporation, that has a
maximum term of more than 20 years and that is not shown as indebtedness on
the separate balance sheet of the issuer or, where the instrument is issued to
a related party (other than a corporation), where the holder or some other
related party issues a related instrument that is not shown as indebtedness on
the issuer's consolidated balance sheet. For purposes of determining the
weighted average maturity or the term of an instrument, any right to extend
would be treated as exercised. The above-described provisions of the Bill were
proposed to be effective generally for instruments issued on or after December
7, 1995. If either provision were to apply to the Series A QUIDS, MCI would be
unable to deduct interest on the Series A QUIDS. However, on March 29, 1996,
the Chairmen of the Senate Finance and House Ways and Means Committees issued
a joint statement to the effect that it was their intention that the effective
date of the President's legislative proposals, if adopted, will be no earlier
than the date of appropriate Congressional action. MCI believes that, under
current law, it will be able to deduct interest on the Series A QUIDS. There
can be no assurance, however, that current or future legislative proposals or
final legislation will not affect the ability of MCI to deduct interest on the
Series A QUIDS. Such a change could give rise to a Tax Event, which may permit
MCI to cause a redemption of the Series A QUIPS, as described more fully in
the accompanying Prospectus under "Description of QUIPS--Redemption or
Exchange--Special Event Redemption or Distribution of Corresponding QUIDS".
Such a tax law change would not alter the United States federal income tax
consequences of the purchase, ownership and disposition of the Series A QUIPS.
See "Certain Federal Income Tax Consequences."
There can be no assurance as to the market prices for Series A QUIPS or
Series A QUIDS that may be distributed in exchange for Series A QUIPS if a
liquidation of the Series A Issuer occurs. Accordingly, the Series A QUIPS
that an investor may purchase, whether pursuant to the offer made hereby or in
the secondary market, or the Series A QUIDS that a holder of Series A QUIPS
may receive on liquidation of the Series A Issuer, may trade at a discount to
the price that the investor paid to purchase the Series A QUIPS offered
hereby. In addition, because MCI has the right to shorten or extend the
maturity of the Series A QUIDS upon the termination of the Series A Issuer and
the distribution of Series A QUIDS to holders of Series A QUIPS, there can be
no assurance that MCI will not exercise its option to change the maturity of
the Series A QUIDS upon such an event. Because holders of Series A QUIPS may
receive Series A QUIDS on termination of the Series A Issuer prospective
purchasers of Series A QUIPS are also making an investment decision with
regard to the Series A QUIDS and should carefully review all the information
regarding the Series A QUIDS contained herein. See "Description of the QUIPS--
Redemption or Exchange--Special Event Redemption or Distribution of
Corresponding QUIDS" and "Description of the Corresponding QUIDS--General" in
the accompanying Prospectus.
S-6
<PAGE>
RIGHTS UNDER THE SERIES A GUARANTEE
The Series A Guarantee will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Wilmington
Trust Company will act as the indenture trustee under the Series A Guarantee
(the "Guarantee Trustee") for the purposes of compliance with the Trust
Indenture Act and will hold the Series A Guarantee for the benefit of the
holders of the Series A QUIPS. Wilmington Trust Company will also act as
Debenture Trustee for the Series A QUIDS and as Property Trustee and Delaware
Trustee under the Trust Agreement. The Series A Guarantee guarantees to the
holders of the Series A QUIPS the following payments, to the extent not paid
by the Series A Issuer: (i) any accumulated and unpaid Distributions required
to be paid on the Series A QUIPS, to the extent that the Series A Issuer has
funds on hand available therefor at such time, (ii) the redemption price with
respect to any Series A QUIPS called for redemption, to the extent that the
Series A Issuer has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding-up or liquidation of the
Series A Issuer (unless the Series A QUIDS are distributed to holders of the
Series A QUIPS), the lesser of (a) the aggregate of the liquidation preference
and all accrued and unpaid Distributions to the date of payment to the extent
that the Series A Issuer has funds on hand available therefor at such time and
(b) the amount of assets of the Series A Issuer remaining available for
distribution to holders of the Series A QUIPS. The holders of not less than a
majority in aggregate liquidation amount of the Series A QUIPS have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee in respect of the Series A Guarantee
or to direct the exercise of any trust power conferred upon the Guarantee
Trustee under the Series A Guarantee. Any holder of the Series A QUIPS may
institute a proceeding directly against MCI to enforce its rights under the
Series A Guarantee without first instituting a proceeding against the Series A
Issuer, the Guarantee Trustee or any other person or entity. If MCI were to
default on its obligation to pay amounts payable under the Series A QUIDS, the
Series A Issuer would lack funds for the payment of Distributions or amounts
payable on redemption of the Series A QUIPS or otherwise, and, in such event,
holders of the Series A QUIPS would not be able to rely upon the Series A
Guarantee for payment of such amounts. Instead, in the event a Debenture Event
of Default shall have occurred and be continuing and such event is
attributable to the failure of MCI to pay interest on or principal of the
Series A QUIDS on the payment date on which such payment is due and payable,
then a holder of Series A QUIPS may directly institute a proceeding against
MCI for enforcement of payment to such holder of the interest on or principal
of such Series A QUIDS having a principal amount equal to the aggregate
liquidation preference of the Series A QUIPS of such holder (a "Direct
Action"). In connection with such Direct Action, MCI will be subrogated to the
rights of such holder of Series A QUIPS under the Trust Agreement to the
extent of any payment made by MCI to such holder of Series A QUIPS in such
Direct Action. Except as set forth herein, holders of Series A QUIPS will not
be able to exercise directly any other remedy available to the holders of
Series A QUIDS or assert directly any other rights in respect of the Series A
QUIDS. See "Description of QUIPS--Enforcement of Certain Rights of Holders of
QUIPS", "Description of Guarantees" and "Description of QUIDS--Debenture
Events of Default" in the accompanying Prospectus. The Trust Agreement
provides that each holder of Series A QUIPS by acceptance thereof agrees to
the provisions of the Series A Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of Series A QUIPS will generally have limited voting rights relating
only to the modification of the Series A QUIPS and the dissolution, winding-up
or liquidation of the Series A Issuer. Holders of Series A QUIPS will not be
entitled to vote to appoint, remove or replace the Property Trustee or the
Delaware Trustee, which voting rights are vested exclusively in the holder of
the Series A Common Securities except upon the occurrence of certain events
described herein. The Issuer Trustees and MCI may amend the Trust Agreement
without the consent of holders of Series A QUIPS to ensure that the Series A
Issuer will be classified for United States federal income tax purposes as a
grantor trust even if such action adversely affects the interests of such
holders. See "Description of QUIPS--Voting Rights; Amendment of Each Trust
Agreement" and "--Removal of Issuer Trustees" in the accompanying Prospectus.
S-7
<PAGE>
TRADING CHARACTERISTICS OF SERIES A QUIPS
The Series A QUIPS have been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance. The Series A QUIPS may trade
at prices that do not fully reflect the value of accrued but unpaid interest
with respect to the underlying Series A QUIDS. A holder of Series A QUIPS that
disposes of its Series A QUIPS between record dates for payments of
Distributions will nevertheless be required to include in income as ordinary
income an amount equal to the accrued but unpaid interest on the Series A
QUIDS through the date of disposition and to add such amount to its adjusted
tax basis in the Series A QUIPS disposed of. Such holder will recognize a
capital loss to the extent the selling price (which may not fully reflect the
value of accrued but unpaid interest) is less than its adjusted tax basis
(which will include accrued but unpaid interest). Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes. See "Certain Federal Income Tax
Consequences--Sale or Redemption of Series A QUIPS".
CHANGES IN INDUSTRY; COMPETITION; CAPITAL EXPENDITURES
The communications services industry is in the process of substantial
change, providing significant risks to its participants. Evolving and newly
developed technology, emerging significant competition in the market for long-
distance and local telecommunications services, the increasing desire of
customers to have most or all of their various communications needs fulfilled
by one supplier, and the recent enactment of the Telecommunications Act of
1996 (the "Telecommunications Act") are causing companies, including MCI,
which offer services primarily in one part of the communication services
market, to offer, either directly or in alliance with others, new services to
complement their primary services offerings. There can be no assurance that
MCI will be able to compete successfully in offering these new services.
The communications services business is highly competitive and capital
intensive. The primary and most vigorous competitor in MCI's core business of
providing domestic and international long-distance telecommunication services
is the long-distance telecommunications unit of AT&T Corp., which is
substantially larger than MCI. MCI anticipates that, as a result of the
Telecommunications Act, the Regional Bell Operating Companies (the "RBOCs")
will eventually become substantial competitors of MCI for long-distance
telecommunication services, especially in their local regions where they have
long-standing relationships and substantial capital resources. In addition,
MCI competes with Sprint Corporation, other facilities based domestic
telecommunications common carriers and numerous resellers of long-distance
telecommunication services. As the Telecommunications Act is implemented,
companies that operate primarily in a communication services market other than
the long-distance telecommunication services market are likely to compete with
MCI in the long-distance telecommunication services market. Some of these
companies have substantial financial and other resources.
In April 1996, two separate mergers among four of the seven RBOCs were
proposed. While each of these mergers requires the approval of the U.S.
Federal Communications Commission, the U.S. Department of Justice and
regulatory commissions in a number of states, MCI believes that the
consummation of these mergers could adversely affect the development of
competition in local telephone markets, and may increase the ability of the
companies that result from the mergers, each of which will have substantial
financial and other resources, to compete in other telecommunication markets,
including MCI's core business of providing long-distance telecommunication
services.
MCI anticipates that it will continue to make substantial capital
expenditures in the future. It also may make acquisitions, some of which may
be significant, and the funding for which may be generated from internally
generated funds, the incurrence of indebtedness, the issuance of equity or a
combination thereof. The incurrence of indebtedness to fund capital
expenditures or acquisitions and/or the assumption of indebtedness in
connection with such acquisitions, which in each case would be senior to the
Series A QUIPS and the Series A QUIDS, could result in a downgrading of MCI's
credit rating, and, as a result, have an adverse effect upon the market value
of the Series A QUIPS and the Series A QUIDS.
S-8
<PAGE>
MCI CAPITAL I
MCI Capital I is a statutory business trust formed under Delaware law
pursuant to (i) the Trust Agreement executed by MCI, as Depositor, Wilmington
Trust Company, as Property Trustee and Delaware Trustee, and the
Administrative Trustees named therein, and (ii) the filing of a certificate of
trust with the Delaware Secretary of State on April 17, 1996. The Series A
Issuer's business and affairs are conducted by the Issuer Trustees: Wilmington
Trust Company, as Property Trustee and Delaware Trustee, and two individual
Administrative Trustees who are employees or officers of or affiliated with
MCI. The Series A Issuer exists for the exclusive purposes of (i) issuing and
selling the Series A QUIPS and Series A Common Securities, (ii) using the
proceeds from the sale of Series A QUIPS and Series A Common Securities to
acquire Series A QUIDS issued by MCI and (iii) engaging in only those other
activities necessary, convenient or incidental thereto. Accordingly, the
Series A QUIDS will be the sole assets of the Series A Issuer, and payments
under the Series A QUIDS will be the sole revenue of the Series A Issuer. All
of the Series A Common Securities will be owned by MCI. The Series A Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Series A QUIPS, except that upon the occurrence and continuance of an
event of default under the Trust Agreement resulting from an Event of Default
under the Indenture, the rights of MCI as holder of the Series A Common
Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Series A QUIPS. See "Description of QUIPS--Subordination of
Common Securities" in the accompanying Prospectus. MCI will acquire Series A
Common Securities in an aggregate liquidation amount equal to 3% of the total
capital of the Series A Issuer. The Series A Issuer has a term of 55 years,
but may terminate earlier as provided in the Trust Agreement. The principal
executive office of the Series A Issuer is 1801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20006, Attention: Secretary, and its telephone number is
(202) 872-1600. See "The Issuers" in the accompanying Prospectus.
MCI COMMUNICATIONS CORPORATION
MCI Communications Corporation ("MCI"), a Delaware corporation organized in
1968, has its principal executive offices at 1801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20006, and its telephone number is (202) 872-1600. MCI is a
registered service mark of MCI Communications Corporation.
MCI and its subsidiaries provide a broad range of communication services,
including long-distance telecommunication services, local and wireless
services and information technology services. The provision of long-distance
telecommunication services is the core business of MCI and its subsidiaries.
Long-distance telecommunication services comprise a wide spectrum of domestic
and international voice and data services, including long-distance telephone
services, data communication services, teleconferencing services and
electronic messaging services. During each of the last three years, more than
90% of the operating revenues and operating income of MCI and its subsidiaries
were derived from its core business. Through its subsidiaries, MCI is the
second largest carrier of long-distance telecommunication services in the
United States and the third largest carrier of international long-distance
telecommunication services in the world.
The communication services industry is in the process of substantial change,
providing significant opportunities and risks to its participants. Evolving
and newly developed technology, emerging significant competition in the market
for long-distance and local telecommunication services, as well as the
increasing desire of customers to have most or all of their various
communication needs fulfilled by one supplier, are causing companies,
including MCI, which offer services primarily in one part of the communication
services market, to offer, either directly or through alliances with others,
new services to complement their primary services offerings.
S-9
<PAGE>
MCI expects that this expansion into new services will continue and is
likely to accelerate as a result of the enactment of the Telecommunications
Act in February 1996. Among other things, the Telecommunications Act (i) opens
the local services market, currently dominated by the RBOCs, to competition by
requiring the RBOCs to sell separately their local services and network
elements, such as interconnection and local loops, to their new competitors;
(ii) allows the RBOCs to provide long-distance telecommunication services in
their respective regions once they comply with certain requirements that are
intended to promote competition for local services; and (iii) allows the RBOCs
to offer long-distance telecommunication services outside their respective
regions immediately.
MCI believes that it is positioning itself to capitalize on the
opportunities that should be available in the communication services markets.
MCI's investment in ventures and developing markets will enable it to offer a
variety of local, wireless, information technology and multimedia services.
These services, combined with the continued growth and strength of MCI's core
business, should enable MCI to compete effectively in these markets and
against the RBOCs and any others that seek to enter the long-distance
telecommunication services market.
MCI anticipates that continued substantial capital expenditures will be
required to compete effectively in these markets. Competition from AT&T Corp.,
the RBOCs and others significantly larger than MCI, in financial and other
resources, will be intense. Due to the rapidly changing nature of these
markets and the other factors summarized above, it is not possible to predict
the level of its future success, but MCI believes that it will compete
effectively in providing its services.
MCI's assets consist principally of the stock of and advances to its
subsidiaries. Almost all of the operating assets of MCI and its consolidated
subsidiaries are owned by such subsidiaries and MCI relies primarily on
interest and dividends from such subsidiaries to meet its obligations for
payment of principal and interest on its outstanding debt obligations and
corporate expenses. As of March 31, 1996, MCI had approximately $4 billion
aggregate principal amount of Senior Debt outstanding. The Series A QUIDS will
be effectively subordinated to all existing and future liabilities of MCI's
subsidiaries, and holders of the Series A QUIDS should look only to the assets
of MCI for payments on the Series A QUIDS. Neither the Indenture, the Series A
Guarantee nor the Trust Agreement will place any limitation on the amount of
secured or unsecured debt, including Senior Debt, that may be incurred by MCI.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
MCI and its subsidiaries for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges...... 5.46 5.53 3.34 4.82 4.12 3.63 3.37
</TABLE>
For purposes of this ratio, earnings are calculated by adding fixed charges
(excluding capitalized interest) to income before income taxes and
extraordinary item. Fixed charges consist of interest on indebtedness
(including amortization of debt discount and premium) and the portion of
rental expense representative of an interest factor.
USE OF PROCEEDS
All of the proceeds from the sale of Series A QUIPS will be invested by the
Series A Issuer in Series A QUIDS. MCI intends that the proceeds from the sale
of such Series A QUIDS will be added to its general corporate funds and will
be used for general corporate purposes. Until so utilized, the net proceeds
will be invested in income producing securities.
S-10
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of MCI and
its subsidiaries as of March 31, 1996 and as adjusted to give effect to the
consummation of the offering of the Series A QUIPS. The following data should
be read in conjunction with the consolidated financial statements and notes
thereto of MCI and its subsidiaries incorporated herein by reference.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------
AS
ACTUAL ADJUSTED
---------- -----------
(IN MILLIONS)
<S> <C> <C>
DEBT (1):
Secured debt:
Capital lease obligations............................ $ 552 $ 552
Other secured obligations............................ 38 38
---------- ----------
Total secured debt................................. 590 590
Unsecured debt:
Senior notes, net.................................... 1,486 1,486
Senior debentures, net............................... 884 884
Commercial paper and bank credit facility
borrowings.......................................... 919 919
Other unsecured debt................................. 172 172
---------- ----------
Total unsecured debt............................... 3,461 3,461
---------- ----------
Total debt....................................... $ 4,051 $ 4,051
========== ==========
Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the Company(2)............. -- 750
STOCKHOLDERS' EQUITY:
Class A common stock, $.10 par value, authorized 500
million shares, issued 136 million shares........... $ 14 $ 14
Common stock, $.10 par value, authorized 2 billion
shares, issued 593 million shares................... 60 60
Additional paid in capital........................... 6,421 6,421
Retained earnings.................................... 4,358 4,358
Treasury stock, at cost, 38 million shares........... (897) (897)
---------- ----------
Total stockholders' equity......................... 9,956 9,956
---------- ----------
Total capitalization............................. $14,007 $ 14,757
========== ==========
</TABLE>
- --------
(1) See Note 9 of Notes to Consolidated Financial Statements on pages 22
through 24 of MCI's 1995 Annual Report to Stockholders, which is included
in Exhibit 13 to MCI's Annual Report on Form 10-K for the year ended
December 31, 1995, for additional information concerning MCI's debt and
capital lease obligations, which are obligations of subsidiaries of MCI
that are guaranteed by MCI. Interest rates on capital lease obligations,
on a weighted average basis, approximated 8.8% per annum at March 31,
1996.
(2) As described herein, all of the assets of the Series A Issuer will be
$773,195,900 of 8.00% Junior Subordinated Deferrable Interest Debentures,
Series A, issued by MCI to the Series A Issuer. The Series A QUIDS will
mature on June 30, 2026, which date may be extended to a date not later
than May 29, 2045 if certain conditions are met. MCI owns all of the
Series A Common Securities of the Series A Issuer.
S-11
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Series A Issuer will be treated as a
subsidiary of MCI and, accordingly, the accounts of the Series A Issuer will
be included in the consolidated financial statements of MCI. The Series A
QUIPS will be presented as a separate line item in the consolidated balance
sheet of MCI and appropriate disclosures about the Series A QUIPS, the Series
A Guarantee and the Series A QUIDS will be included in the notes to the
consolidated financial statements. For financial reporting purposes, MCI will
record Distributions payable on the Series A QUIPS as an expense.
SELECTED FINANCIAL INFORMATION
The following selected financial data for the five years ended December 31,
1995 are derived from the consolidated audited financial statements of MCI and
its subsidiaries. The following selected financial data for the periods ended
and as of March 31, 1996 and 1995 have been derived from financial statements
of the Company that have not been audited, but that, in the opinion of the
management of the Company, reflect all adjustments necessary for the fair
presentation of such data for the interim periods. The results of operations
for the quarter ended March 31, 1996 are not necessarily indicative of the
results of operations for the full year. The following amounts should be read
in conjunction with the consolidated financial statements and notes thereto of
MCI incorporated herein by reference to MCI's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 and Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996.
SELECTED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................. $ 4,491 $ 3,561 $ 15,265 $ 13,338 $ 11,921 $10,562 $ 9,491
Total operating
expenses............... 3,910 3,131 (14,147) (11,882) (10,653) (9,351) (8,400)
Income from operations.. 581 430 1,118 1,456 1,268 1,211 1,091
Equity in income
(losses) of affiliated
companies.............. (55) (29) (187) (4) (2) (2) (1)
Income before
extraordinary item..... 295 244 548 795 627 609 551
------- ------- -------- -------- -------- ------- -------
Net income.............. $ 295 $ 244 $ 548 $ 795 $ 582 $ 609 $ 551
======= ======= ======== ======== ======== ======= =======
Earnings applicable to
common stockholders.... $ 295 $ 244 $ 548 $ 794 $ 581 $ 589 $ 522
======= ======= ======== ======== ======== ======= =======
Earnings per common and
common equivalent
share.................. $ .42 $ .36 $ .80 $ 1.32 $ 1.04 $ 1.11 $ 1.00
Cash dividends per
share.................. -- -- .05 .05 .05 .05 .05
BALANCE SHEET DATA (AT
PERIOD END):
Gross investment in
property and
equipment.............. $16,357 $14,099 $ 15,547 $ 13,408 $ 11,618 $10,316 $ 9,684
Total assets............ 19,983 16,839 19,301 16,366 11,276 9,678 8,834
Long-term debt.......... 3,579 2,936 3,444 2,997 2,366 3,432 3,104
Stockholders' equity.... 9,956 9,239 9,602 9,004 4,713 3,150 2,959
CASH FLOW DATA:
Cash from operating
activities............. $ 670 $ 535 $ 2,979 $ 2,355 $ 1,978 $ 1,726 $ 1,271
Capital expenditures for
property and
equipment.............. 782 713 2,866 2,897 1,733 1,272 1,377
Acquisition
(disposition) of
businesses and
investment in
affiliates and News
Corp................... 12 27 2,737 284 8 (22) --
</TABLE>
S-12
<PAGE>
CERTAIN TERMS OF SERIES A QUIPS
GENERAL
The following summary of certain terms and provisions of the Series A QUIPS
supplements the description of the terms and provisions of the QUIPS set forth
in the accompanying Prospectus under the heading "Description of QUIPS", to
which description reference is hereby made. This summary of certain terms and
provisions of the Series A QUIPS does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Trust
Agreement. The form of the Trust Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus Supplement and accompanying
Prospectus is a part.
DISTRIBUTIONS
The Series A QUIPS represent undivided beneficial interests in the assets of
the Series A Issuer, and Distributions on each Series A QUIPS will be payable
at the annual rate of 8.00% of the stated liquidation preference of $25,
payable quarterly in arrears on March 31, June 30, September 30 and December
31 of each year. Distributions will accumulate from May 29, 1996, the date of
original issuance. The first Distribution payment date for the Series A QUIPS
will be June 30, 1996. The amount of Distributions payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months. In the
event that any date on which Distributions are payable on the Series A QUIPS
is not a Business Day, then payment of the Distributions payable on such date
will be made on the next succeeding day that is a Business Day (and without
any additional Distributions or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on the date such payment was
originally payable. See "Description of QUIPS--Distributions" in the
accompanying Prospectus.
So long as no Event of Default under the Indenture has occurred and is
continuing, MCI has the right under the Indenture to defer the payment of
interest on the Series A QUIDS at any time or from time to time for a period
not exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the Stated Maturity of the
Series A QUIDS. As a consequence of any such election, quarterly Distributions
on the Series A QUIPS will be deferred by the Series A Issuer during any such
Extension Period. Distributions to which holders of the Series A QUIPS are
entitled will accumulate additional Distributions thereon at the rate per
annum of 8.00% thereof, compounded quarterly from the relevant payment date
for such Distributions. The term "Distributions" as used herein shall include
any such additional Distributions. During any such Extension Period, MCI may
not, and may not permit any subsidiary of MCI to, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of MCI's capital stock or (ii) make
any payment of principal, interest or premium, if any, on or repay, repurchase
or redeem any debt securities of MCI (including other QUIDS) that rank pari
passu with or junior in interest to the Series A QUIDS or make any guarantee
payments with respect to any guarantee by MCI of the debt securities of any
subsidiary of MCI if such guarantee ranks pari passu or junior in interest to
the Series A QUIDS (other than (a) dividends or distributions in Common Stock
of MCI, (b) redemptions or purchases of any rights pursuant to MCI's Preferred
Stock Rights Plan, or any successor to such Preferred Stock Rights Plan, and
the declaration of a dividend of such rights or the issuance of Preferred
Stock under such plans in the future, (c) payments under any Guarantee, (d)
purchases of Common Stock related to the issuance of Common Stock under any of
MCI's benefit plans for its directors, officers or employees and (e) purchases
of Common Stock required to prevent the loss or secure the renewal or
reinstatement of any government license or franchise held by MCI or any of its
subsidiaries). Prior to the termination of any such Extension Period, MCI may
further extend the interest payment period, provided that no Extension Period
may exceed 20 consecutive quarters or extend beyond the Stated Maturity of the
Series A QUIDS. Upon the termination of any such Extension Period and the
payment of all amounts then due on any Interest Payment Date, MCI may
S-13
<PAGE>
elect to begin a new Extension Period. See "Certain Terms of the Series A
QUIDS--Option to Extend Interest Payment Period" and "Certain Federal Income
Tax Consequences--Original Issue Discount".
MCI has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Series A QUIDS.
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Series A
QUIDS, whether at Stated Maturity or upon earlier redemption as provided in
the Indenture, the proceeds from such repayment or redemption shall be applied
by the Property Trustee to redeem a Like Amount (as defined in the
accompanying Prospectus) of the Series A QUIPS and Series A Common Securities,
upon not less than 30 nor more than 60 days notice prior to the date fixed for
repayment or redemption, at a redemption price (the "Redemption Price"), with
respect to the Series A QUIPS, equal to the aggregate liquidation preference
of such Series A QUIPS plus accumulated and unpaid Distributions thereon to
the date of redemption (the "Redemption Date"). See "Description of QUIPS--
Redemption or Exchange" in the accompanying Prospectus and "Certain Terms of
Series A QUIDS--Redemption".
MCI will have the right to redeem the Series A QUIDS (i) on or after May 29,
2001, in whole at any time or in part from time to time, at a redemption price
equal to the accrued and unpaid interest on the Series A QUIDS so redeemed to
the date fixed for redemption, plus 100% of the principal amount thereof or
(ii) at any time, in whole (but not in part), upon the occurrence and
continuation of a Tax Event or an Investment Company Event (each as defined in
the accompanying Prospectus, and as so collectively defined, a "Special
Event"), at a redemption price equal to the accrued and unpaid interest on the
Series A QUIDS so redeemed to the date fixed for redemption, plus 100% of the
principal amount thereof, in each case subject to conditions described under
"Description of QUIDS--Redemption" and "Description of Corresponding QUIDS--
Optional Redemption" in the accompanying Prospectus.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION OF SERIES A QUIDS
If a Special Event shall occur and be continuing, MCI will have the right to
redeem the Series A QUIDS in whole (but not in part) and thereby cause a
mandatory redemption of the Series A QUIPS in whole (but not in part) at the
Redemption Price within 90 days following the occurrence of such Special
Event. At any time, MCI will have the right to terminate the Series A Issuer
and, after satisfaction of the liabilities of creditors of the Series A Issuer
as provided by applicable law, cause the Series A QUIDS to be distributed to
the holders of the Series A QUIPS in liquidation of the Series A Issuer. Under
current United States federal income tax law and interpretations and assuming,
as expected, the Series A Issuer is treated as a grantor trust, a distribution
of the Series A QUIDS should not be a taxable event to holders of the Series A
QUIPS. Should there be a change in law, a change in legal interpretation, a
Special Event or other circumstances, however, the distribution could be a
taxable event to holders of the Series A QUIPS. See "Certain Federal Income
Tax Consequences--Distribution of Series A QUIDS to Holders of Series A
QUIPS". If MCI does not elect either option described above, the Series A
QUIPS will remain outstanding until the repayment of the Series A QUIDS.
If MCI elects to liquidate the Series A Issuer and thereby causes the Series
A QUIDS to be distributed to holders of the Series A QUIPS in liquidation of
the Series A Issuer, MCI shall have the right to shorten or extend the
maturity of such Series A QUIDS, provided that it can extend the maturity only
if certain conditions are met. See "Description of QUIPS--Redemption or
Exchange--Extension of Maturity of Corresponding QUIDS" in the accompanying
Prospectus and "Certain Terms of Series A QUIDS--General".
LIQUIDATION VALUE
The amount payable on the Series A QUIPS in the event of any liquidation of
the Series A Issuer is $25 per Series A QUIPS plus accumulated and unpaid
Distributions, which may be in the form of a distribution of such amount in
Series A QUIDS, subject to certain exceptions. See "Description of QUIPS--
Liquidation Distribution Upon Termination" in the accompanying Prospectus.
S-14
<PAGE>
CERTAIN TERMS OF SERIES A QUIDS
GENERAL
The following summary of certain terms and provisions of the Series A QUIDS
supplements the description of the terms and provisions of the Corresponding
QUIDS set forth in the accompanying Prospectus under the headings "Description
of QUIDS" and "Description of Corresponding QUIDS", to which description
reference is hereby made. The summary of certain terms and provisions of the
Series A QUIDS set forth below does not purport to be complete and is subject
to, and qualified in its entirety by reference to, the Indenture. The
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement and accompanying Prospectus is a part.
Concurrently with the issuance of the Series A QUIPS, the Series A Issuer
will invest the proceeds thereof and the consideration paid by MCI for the
Series A Common Securities in the Series A QUIDS issued by MCI. The Series A
QUIDS will bear interest at the annual rate of 8.00% of the principal amount
thereof, payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year (each, an "Interest Payment Date"), commencing June
30, 1996, to the person in whose name each Series A QUIDS is registered,
subject to certain exceptions, at the close of business on the Business Day
next preceding such Interest Payment Date. It is anticipated that, until the
liquidation, if any, of the Series A Issuer, each Series A QUIDS will be held
in the name of the Property Trustee in trust for the benefit of the holders of
the Series A QUIPS. The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which interest is payable on the Series A QUIDS is not a
Business Day, then payment of the interest payable on such date will be made
on the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on the date such payment was originally payable. Accrued
interest that is not paid on the applicable Interest Payment Date will bear
additional interest on the amount thereof (to the extent permitted by law) at
the rate per annum of 8.00% thereof, compounded quarterly. The term "interest"
as used herein shall include quarterly interest payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date
and Additional Sums (as defined below), as applicable.
The Series A QUIDS will be issued as a series of QUIDS under the Indenture.
The Series A QUIDS will mature on June 30, 2026, which date may be extended at
any time at the election of MCI for one or more periods, but in no event to a
date later than May 29, 2045 (such date, as it may be extended, the "Stated
Maturity"), provided that at the time such election is made and at the time of
extension (i) MCI is not in bankruptcy, otherwise insolvent or in liquidation,
(ii) MCI is not in default in the payment of any interest or principal on the
Series A QUIDS, (iii) the Series A Issuer is not in arrears on payments of
Distributions on the Series A QUIPS and no deferred Distributions are
accumulated, (iv) the Series A QUIDS are rated not less than BBB- by Standard
& Poor's Ratings Services or Baa3 by Moody's Investors Service, Inc. or the
equivalent by any other nationally recognized statistical rating organization
and (v) the extended Stated Maturity is no later than the 49th anniversary of
the initial issuance of the Series A QUIPS; provided, however, that, if MCI
exercises its right to liquidate the Series A Issuer and distribute the Series
A QUIDS, effective upon such exercise the Stated Maturity of the Series A
QUIDS may be changed to any date elected by MCI that is (i) no earlier than
the date five years after the initial issuance of the Series A QUIPS and (ii)
no later than the date 30 years (plus an extended term of up to an additional
19 years if the above-referenced conditions are satisfied) after the date of
the initial issuance of the Series A QUIPS.
The Series A QUIDS will be unsecured and will rank junior and be subordinate
in right of payment to all Senior Debt of MCI. See "Description of QUIDS--
Subordination" in the accompanying Prospectus. MCI is a non-operating holding
company and almost all of the operating assets of MCI
S-15
<PAGE>
and its consolidated subsidiaries are owned by such subsidiaries. MCI relies
primarily on interest and dividends from such subsidiaries to meet its
obligations for payment of principal and interest on its outstanding debt
obligations and corporate expenses. Accordingly, the Series A QUIDS will be
subordinated to all Senior Debt of MCI and effectively subordinated to all
existing and future liabilities of MCI's subsidiaries, and holders of Series A
QUIDS should look only to the assets of MCI for payments on the Series A
QUIDS. The Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of MCI, whether under the Indenture or any existing
or other indenture that MCI may enter into in the future or otherwise,
including MCI's Senior and Subordinated Indentures entered into with Citibank,
N.A. and Bankers Trust Company, respectively. See "Description of QUIDS--
Subordination" in the accompanying Prospectus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Event of Default under the Indenture has occurred and is
continuing, MCI has the right under the Indenture to defer the payment of
interest at any time or from time to time for a period not exceeding 20
consecutive quarters with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity of the Series A QUIDS.
At the end of such Extension Period, MCI must pay all interest then accrued
and unpaid (together with interest thereon at the annual rate of 8.00%,
compounded quarterly, to the extent permitted by applicable law). During an
Extension Period, interest will continue to accrue and holders of Series A
QUIDS (or holders of Series A QUIPS while such series is outstanding) will be
required to accrue interest income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences--Original Issue
Discount".
During any such Extension Period, MCI may not, and may not permit any
subsidiary of MCI to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
of MCI's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of MCI
(including other QUIDS) that rank pari passu with or junior in interest to the
Series A QUIDS or make any guarantee payments with respect to any guarantee by
MCI of the debt securities of any subsidiary of MCI if such guarantee ranks
pari passu or junior in interest to the Series A QUIDS (other than (a)
dividends or distributions in common stock of MCI, (b) redemptions or
purchases of any rights pursuant to MCI's Preferred Stock Rights Plan, or any
successor to such Preferred Stock Rights Plan, and the declaration of a
dividend of such rights or the issuance of Preferred Stock under such plans in
the future, (c) payments under any Guarantee, (d) purchases of Common Stock
related to the issuance of Common Stock under any of MCI's benefit plans for
its directors, officers or employees and (e) purchases of Common Stock
required to prevent the loss or secure the renewal or reinstatement of any
government license or franchise held by MCI or any of its subsidiaries). Prior
to the termination of any such Extension Period, MCI may further extend the
interest payment period, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Series A
QUIDS. Upon the termination of any such Extension Period and the payment of
all amounts then due on any Interest Payment Date, MCI may elect to begin a
new Extension Period subject to the above requirements. No interest shall be
due and payable during an Extension Period, except at the end thereof. MCI
must give the Property Trustee, the Administrative Trustees and the Debenture
Trustee notice of its election of such Extension Period at least one Business
Day prior to the earlier of (i) the date the Distributions on the Series A
QUIPS would have been payable except for the election to begin such Extension
Period or (ii) the date the Administrative Trustees are required to give
notice to the Nasdaq National Market or other applicable self-regulatory
organization or to holders of such Series A QUIPS of the record date or the
date such Distributions are payable, but in any event not less than one
Business Day prior to such record date. The Debenture Trustee shall give
notice of MCI's election to begin a new Extension Period to the holders of the
Series A QUIPS. See "Description of QUIDS--Option to Extend Interest Payment
Period" in the accompanying Prospectus.
S-16
<PAGE>
ADDITIONAL SUMS
If the Series A Issuer is required to pay any additional taxes, duties or
other governmental charges ("Additional Sums") as a result of a Tax Event, MCI
will pay as additional amounts on the Series A QUIDS such amounts as shall be
required so that the Distributions payable by the Series A Issuer shall not be
reduced as a result of any such additional taxes, duties or other governmental
charges, subject to the conditions described under "Description of QUIPS--
Redemption or Exchange--Special Event Redemption or Distribution of
Corresponding QUIDS" in the accompanying Prospectus.
REDEMPTION
The Series A QUIDS are redeemable prior to maturity at the option of MCI (i)
on or after May 29, 2001, in whole at any time or in part from time to time,
at a redemption price equal to the accrued and unpaid interest on the Series A
QUIDS so redeemed to the date fixed for redemption, plus 100% of the principal
amount thereof or (ii) at any time in whole (but not in part), upon the
occurrence and continuation of a Special Event, at a redemption price equal to
the accrued and unpaid interest on the Series A QUIDS so redeemed to the date
fixed for redemption, plus 100% of the principal amount thereof, in each case
subject to the further conditions described under "Description ofQUIDS--
Redemption" and "Description of Corresponding QUIDS--Optional Redemption" in
the accompanying Prospectus.
DISTRIBUTIONS OF SERIES A QUIDS
Under certain circumstances involving the termination of the Series A
Issuer, Series A QUIDS may be distributed to the holders of the Series A QUIPS
in liquidation of the Series A Issuer after satisfaction of liabilities to
creditors of the Series A Issuer as provided by applicable law. If distributed
to holders of Series A QUIPS in liquidation, the Series A QUIDS will initially
be issued in the form of one or more global securities and DTC, or any
successor depositary for the Series A QUIPS, will act as depositary for the
Series A QUIDS. It is anticipated that the depositary arrangements for the
Series A QUIDS would be substantially identical to those in effect for the
Series A QUIPS. If the Series A QUIDS are distributed to the holders of Series
A QUIPS upon the liquidation of the Series A Issuer, MCI will use its best
efforts to list the Series A QUIDS on the Nasdaq National Market or the New
York Stock Exchange or such other stock exchanges, if any, on which the Series
A QUIPS are then listed. There can be no assurance as to the market price of
any Series A QUIDS that may be distributed to the holders of Series A QUIPS.
For a description of DTC and the terms of the depositary matters, see
"Description of QUIPS--Book-Entry Issuance" in the accompanying Prospectus.
REGISTRATION OF SERIES A QUIDS
A global security shall be exchangeable for Series A QUIDS registered in the
names of persons other than DTC or its nominee only if (i) DTC notifies MCI
that it is unwilling or unable to continue as a depository for such global
security and no successor depository shall have been appointed, or if at any
time DTC ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, at a time when DTC is required to be so
registered to act as such depository, (ii) MCI in its sole discretion
determines that such global security shall be so exchangeable, or (iii) there
shall have occurred and be continuing an Event of Default with respect to such
global security. Any global security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive certificates
registered in such names as DTC shall direct. It is expected that such
instructions will be based upon directions received by DTC from its
Participants (as defined in the accompanying Prospectus) with respect to
ownership of beneficial interests in such global security. In the event that
Series A QUIDS are issued in definitive form, such Series A QUIDS will be in
denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below.
S-17
<PAGE>
Payments on Series A QUIDS represented by a global security will be made to
DTC, as the depositary for the Series A QUIDS. In the event Series A QUIDS are
issued in definitive form, principal and interest will be payable, the
transfer of the Series A QUIDS will be registrable, and Series A QUIDS will be
exchangeable for Series A QUIDS of other denominations of a like aggregate
principal amount, at the corporate office of the Debenture Trustee in
Wilmington, Delaware, or at the offices of any paying agent or transfer agent
appointed by MCI, provided that payment of interest may be made at the option
of MCI by check mailed to the address of the persons entitled thereto or by
wire transfer. In addition, if the Series A QUIDS are issued in certificated
form, the record dates for payment of interest will be the 15th day of the
last month of each calendar quarter. For a description of DTC and the terms of
the depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Description of QUIPS--
Book-Entry Issuance" in the accompanying Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income tax
consequences of the purchase, ownership and disposition of Series A QUIPS.
This summary only addresses the tax consequences to a person that acquires
Series A QUIPS on their original issue at their original offering price and
that is (i) an individual citizen or resident of the United States, (ii) a
corporation or partnership organized in or under the laws of the United States
or any state thereof or the District of Columbia or (iii) an estate or trust
the income of which is subject to United States federal income tax regardless
of source (a "United States Person"). This summary does not address all tax
consequences that may be applicable to a United States Person that is a
beneficial owner of Series A QUIPS, nor does it address the tax consequences
to (i) persons that are not United States Persons, (ii) persons that may be
subject to special treatment under United States federal income tax law, such
as banks, insurance companies, thrift institutions, regulated investment
companies, real estate investment trusts, tax-exempt organizations and dealers
in securities or currencies, (iii) persons that will hold Series A QUIPS as
part of a position in a "straddle" or as part of a "hedging," "conversion" or
other integrated investment transaction for federal income tax purposes, (iv)
persons whose functional currency is not the United States dollar or (v)
persons that do not hold Series A QUIPS as capital assets.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Kramer, Levin, Naftalis & Frankel, special counsel
to MCI and the Series A Issuer. This summary is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal
Revenue Service rulings and pronouncements and judicial decisions now in
effect, all of which are subject to change at any time. Such changes may be
applied retroactively in a manner that could cause the tax consequences to
vary substantially from the consequences described below, possibly adversely
affecting a beneficial owner of Series A QUIPS. In particular, legislation has
been proposed that could adversely affect MCI's ability to deduct interest on
the Series A QUIDS, which may in turn permit MCI to cause a redemption of the
Series A QUIPS. See "--Possible Tax Law Changes". The authorities on which
this summary is based are subject to various interpretations and it is
therefore possible that the federal income tax treatment of the purchase,
ownership and disposition of Series A QUIPS may differ from the treatment
described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SERIES A QUIPS, AS WELL AS THE
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE SERIES A ISSUER
Under current law and assuming compliance with the terms of the Trust
Agreement and certain other documents, the Series A Issuer will be classified
as a grantor trust and not as an association
S-18
<PAGE>
taxable as a corporation for United States federal income tax purposes. As a
result, each beneficial owner of Series A QUIPS (a "Securityholder") will be
treated as owning an undivided beneficial interest in the Series A QUIDS.
Accordingly, each Securityholder will be required to include in its gross
income its pro rata share of the original issue discount accrued with respect
to the Series A QUIDS whether or not cash is actually distributed to the
Securityholders. See "--Original Issue Discount." No amount included in income
with respect to the Series A QUIPS will be eligible for the dividends-received
deduction.
ORIGINAL ISSUE DISCOUNT
Under the Indenture, MCI has the right to defer the payment of interest on
the Series A QUIDS at any time or from time to time for a period not exceeding
20 consecutive quarters with respect to each Extension Period, provided that
no Extension Period may extend beyond the Stated Maturity of the Series A
QUIDS. Because of this option, all interest payable on the Series A QUIDS will
be treated as "original issue discount" ("OID") for federal income tax
purposes. Accordingly, a Securityholder will recognize income (in the form of
OID) on a daily basis under a constant yield method over the term of the
Series A QUIDS (including during any Extension Period), regardless of the
receipt of cash with respect to the period to which such income is
attributable. (Subsequent uses of the term "interest" in this summary shall
include income in the form of OID.)
As a result, Securityholders of record during an Extension Period will
include interest in gross income in advance of the receipt of cash, and any
Securityholders who dispose of Series A QUIPS prior to the record date for the
payment of Distributions following such Extension Period will include interest
in gross income but will not receive any cash related thereto from the Series
A Issuer. Any amount of OID included in a Securityholder's gross income
(whether or not during an Extension Period) will increase such
Securityholder's tax basis in its Series A QUIPS, and the amount of
Distributions received by a Securityholder will reduce such Securityholder's
tax basis in its Series A QUIPS.
DISTRIBUTION OF SERIES A QUIDS TO HOLDERS OF SERIES A QUIPS
Under current law, a distribution by the Series A Issuer of the Series A
QUIDS as described under the caption "Certain Terms of Series A QUIPS--
Redemption or Exchange--Special Event Redemption or Distribution of
Corresponding QUIDS" will be non-taxable and will result in the Securityholder
receiving directly his pro rata share of the Series A QUIDS previously held
indirectly through the Series A Issuer, with a holding period and aggregate
tax basis equal to the holding period and aggregate tax basis such
Securityholder had in its Series A QUIPS before such distribution. A
Securityholder will accrue interest in respect of Series A QUIDS received from
the Series A Issuer in the manner described above under "--Original Issue
Discount".
SALES OR REDEMPTION OF SERIES A QUIPS
Gain or loss will be recognized by a Securityholder on a sale of Series A
QUIPS (including a redemption for cash) in an amount equal to the difference
between the amount realized and the Securityholder's adjusted tax basis in the
Series A QUIPS sold or so redeemed. Gain or loss recognized by a
Securityholder on Series A QUIPS held for more than one year will generally be
taxable as long-term capital gain or loss.
The Series A QUIPS may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying Series A
QUIDS. A Securityholder that disposes of its Series A QUIPS between record
dates for payments of Distributions will nevertheless be required to include
in income as ordinary income accrued but unpaid interest on the Series A QUIDS
through the date of disposition and to add such amount to its adjusted tax
basis in its Series A QUIPS disposed
S-19
<PAGE>
of. Such Securityholder will recognize a capital loss on the disposition of
its Series A QUIPS to the extent the selling price (which may not fully
reflect the value of accrued but unpaid interest) is less than the
Securityholder's adjusted tax basis in the Series A QUIPS (which will include
accrued but unpaid interest). Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for federal income tax
purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of OID accrued on the Series A QUIPS held of record by United
States Persons (other than corporations and other exempt Securityholders) will
be reported to the Internal Revenue Service. "Backup" withholding at a rate of
31% will apply to payments of interest to non-exempt United States Persons
unless the Securityholder furnishes its taxpayer identification number in the
manner prescribed in applicable Treasury Regulations, certifies that such
number is correct, certifies as to no loss of exemption from backup
withholding and meets certain other conditions.
Payment of the proceeds from the disposition of Series A QUIPS to or through
the United States office of a broker is subject to information reporting and
backup withholding unless the holder or beneficial owner establishes an
exemption from information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information
is furnished to the Internal Revenue Service.
POSSIBLE TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"), the
revenue portion of President Clinton's budget proposal, was released. The Bill
would, among other things, generally deny interest deductions for interest on
an instrument, issued by a corporation, that has a maximum weighted average
maturity of more than 40 years. The Bill would also generally deny interest
deductions for interest on an instrument, issued by a corporation, that has a
maximum term of more than 20 years and that is not shown as indebtedness on
the separate balance sheet of the issuer or, where the instrument is issued to
a related party (other than a corporation), where the holder or some other
related party issues a related instrument that is not shown as indebtedness on
the issuer's consolidated balance sheet. For purposes of determining the
weighted average maturity or the term of an instrument, any right to extend
would be treated as exercised. The above-described provisions of the Bill were
proposed to be effective generally for instruments issued on or after December
7, 1995. If either provision were to apply to the Series A QUIDS, MCI would be
unable to deduct interest on the Series A QUIDS. However, on March 29, 1996,
the Chairmen of the Senate Finance and House Ways and Means Committees issued
a joint statement to the effect that it was their intention that the effective
date of the President's legislative proposals, if adopted, will be no earlier
than the date of appropriate Congressional action. MCI believes that, under
current law, it will be able to deduct interest on the Series A QUIDS. There
can be no assurance, however, that current or future legislative proposals or
final legislation will not affect the ability of MCI to deduct interest on the
Series A QUIDS. Such a change could give rise to a Tax Event, which may permit
MCI to cause a redemption of the Series A QUIPS, as described more fully in
the accompanying Prospectus under "Description of QUIPS--Redemption or
Exchange--Special Event Redemption or Distribution of Corresponding QUIDS".
Such a tax law change would not alter the United States federal income tax
consequences of the purchase, ownership and disposition of Series A QUIPS.
S-20
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
MCI and the Series A Issuer have agreed that the Series A Issuer will sell to
each of the Underwriters named below, and each of such Underwriters, for whom
Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Dean
Witter Reynolds Inc., A.G. Edwards & Sons, Inc., Lehman Brothers Inc.,
PaineWebber Incorporated, Prudential Securities Incorporated and Smith Barney
Inc. are acting as representatives, has severally agreed to purchase from the
Series A Issuer the respective number of Series A QUIPS set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER OF
SERIES A
UNDERWRITER QUIPS
----------- ---------
<S> <C>
Goldman, Sachs & Co. .............................................. 2,745,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................. 2,745,000
Dean Witter Reynolds Inc. ......................................... 2,710,000
A.G. Edwards & Sons, Inc. ......................................... 2,710,000
Lehman Brothers Inc. .............................................. 2,710,000
PaineWebber Incorporated........................................... 2,710,000
Prudential Securities Incorporated................................. 2,710,000
Smith Barney Inc. ................................................. 2,710,000
Legg Mason Wood Walker, Incorporated............................... 750,000
Advest, Inc. ...................................................... 150,000
Robert W. Baird & Co. Incorporated................................. 150,000
J.C. Bradford & Co. ............................................... 150,000
Alex. Brown & Sons Incorporated.................................... 375,000
JW Charles Securities, Inc. ....................................... 150,000
Commerzbank Capital Markets Corporation............................ 150,000
Cowen & Company.................................................... 150,000
Craigie Incorporated............................................... 150,000
Crowell, Weedon & Co. ............................................. 150,000
Dain Bosworth Incorporated......................................... 150,000
Davenport & Co. of Virginia, Inc. ................................. 150,000
Dillon, Read & Co. Inc. ........................................... 375,000
EVEREN Securities, Inc. ........................................... 375,000
Fahnestock & Co. Inc. ............................................. 150,000
Gruntal & Co., Incorporated........................................ 150,000
J.J.B. Hilliard, W.L. Lyons, Inc. ................................. 150,000
Interstate/Johnson Lane Corporation................................ 150,000
Janney Montgomery Scott Inc. ...................................... 150,000
Kennedy, Cabot & Co. .............................................. 150,000
McDonald & Company Securities, Inc. ............................... 150,000
McGinn, Smith & Co., Inc. ......................................... 150,000
Morgan Keegan & Company, Inc. ..................................... 150,000
Morgan Stanley & Co. Incorporated.................................. 375,000
The Ohio Company................................................... 150,000
Olde Discount Corporation.......................................... 150,000
Oppenheimer & Co., Inc. ........................................... 375,000
Piper Jaffray Inc. ................................................ 150,000
Principal Financial Securities, Inc. .............................. 150,000
Rauscher Pierce Refsnes, Inc. ..................................... 150,000
Raymond James & Associates, Inc. .................................. 150,000
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SERIES A
UNDERWRITER QUIPS
----------- ----------
<S> <C>
The Robinson-Humphrey Company, Inc. .............................. 150,000
Roney & Co., LLC.................................................. 150,000
Salomon Brothers Inc ............................................. 375,000
Muriel Siebert & Co., Inc. ....................................... 150,000
Stifel, Nicolaus & Company, Incorporated.......................... 150,000
Sutro & Co. Incorporated.......................................... 150,000
Trilon International Inc. ........................................ 150,000
Tucker Anthony Incorporated....................................... 150,000
U.S. Clearing Corp. .............................................. 150,000
Wedbush Morgan Securities......................................... 150,000
Wheat, First Securities, Inc. .................................... 150,000
----------
Total........................................................... 30,000,000
==========
</TABLE>
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Underwriters are committed to take and pay for all such Series A QUIPS
offered hereby, if any are taken.
The Underwriters propose to offer the Series A QUIPS in part directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus Supplement and in part to certain securities dealers at such
price less a concession of $0.50 per Series A QUIPS. The Underwriters may
allow, and such dealers may reallow, a concession not to exceed $0.30 per
Series A QUIPS to certain brokers and dealers. After the Series A QUIPS are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the representatives.
In view of the fact that the proceeds from the sale of the Series A QUIPS
will be used to purchase the Series A QUIDS issued by MCI, the Underwriting
Agreement provides that MCI will pay as Underwriters' Compensation for the
Underwriters' arranging the investment therein of such proceeds an amount of
$0.7875 per Series A QUIPS for the accounts of the several Underwriters.
MCI and the Series A Issuer have agreed that, during the period beginning
from the date of the Underwriting Agreement and continuing to and including
the earlier of (i) the termination of trading restrictions on the Series A
QUIPS, as determined by the Underwriters, and (ii) 30 days after the closing
date, they will not offer, sell, contract to sell or otherwise dispose of any
QUIPS, any other beneficial interests in the assets of the Series A Issuer, or
any preferred securities or any other securities of the Series A Issuer or MCI
which are substantially similar to the Series A QUIPS, including any guarantee
of such securities, or any securities convertible into or exchangeable for or
representing the right to receive securities, preferred securities or any such
substantially similar securities of either the Series A Issuer or MCI, without
the prior written consent of the representatives, except for the Series A
QUIPS offered in connection with the offering.
Prior to this offering, there has been no public market for the Series A
QUIPS. The Series A QUIPS have been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance. Trading of the Series
A QUIPS on the Nasdaq National Market is expected to commence within six weeks
after the initial delivery of the Series A QUIPS. The representatives of the
Underwriters have advised MCI that they intend to make a market in the Series
A QUIPS prior to commencement of trading on the Nasdaq National Market, but
are not obligated to do so and may discontinue market making at any time
without notice. No assurance can be given as to the liquidity of the trading
market for the Series A QUIPS.
MCI and the Series A Issuer have agreed to indemnify the several
Underwriters against and contribute toward certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to MCI and its affiliates, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
S-22
<PAGE>
LEGAL OPINIONS
Certain matters of Delaware law relating to the legality of the Series A
QUIPS, the validity of the Trust Agreement and the formation of the Series A
Issuer will be passed upon by Richards, Layton & Finger, special Delaware
Counsel to MCI and the Series A Issuer. The legality of the Series A Guarantee
and the Series A QUIDS will be passed upon for MCI by Kramer, Levin, Naftalis
& Frankel, and for the Underwriters by Sullivan & Cromwell, New York, New
York. Certain matters relating to United States federal income tax
considerations will be passed upon for MCI by Kramer, Levin, Naftalis &
Frankel.
S-23
<PAGE>
$750,000,000
MCI COMMUNICATIONSCORPORATION MCI CAPITAL I
JUNIOR SUBORDINATED DEFERRABLE MCI CAPITAL II
INTEREST DEBENTURES MCI CAPITAL III
MCI CAPITAL IV
PREFERRED SECURITIES GUARANTEED TO THE
EXTENT THE ISSUER HAS FUNDS AS SET FORTH
HEREIN BY
MCI COMMUNICATIONS CORPORATION
MCI Communications Corporation, a Delaware corporation ("MCI"), may from
time to time offer in one or more series or issuances its junior subordinated
deferrable interest debentures (the "QUIDS"). The QUIDS will be unsecured and
subordinate and junior in right of payment to Senior Debt (as defined in
"Description of QUIDS--Subordination") of MCI. If provided in an accompanying
Prospectus Supplement, MCI will have the right to defer payments of interest
on any series of QUIDS at any time or from time to time for such number of
consecutive interest payment periods (which shall not extend beyond the
maturity of the QUIDS) with respect to each deferral period as may be
specified in such Prospectus Supplement (each, an "Extension Period"). See
"Description of QUIDS--Option to Extend Interest Payments".
MCI Capital I, MCI Capital II, MCI Capital III and MCI Capital IV, each a
trust formed under the laws of the State of Delaware (each, an "Issuer", and
collectively, the "Issuers"), may severally offer, from time to time,
preferred securities (the "QUIPS") representing preferred undivided beneficial
interests in the assets of such Issuer. MCI will be the owner of the common
securities (the "Common Securities") of each Issuer. The payment of periodic
cash distributions ("Distributions") with respect to the QUIPS of each Issuer
and payments on liquidation or redemption with respect to such QUIPS, in each
case to the extent of funds held by such Issuer, are each irrevocably
guaranteed by MCI as described herein (each, a "Guarantee"). See "Description
of Guarantees". The obligations of MCI under each Guarantee will be
subordinate and junior in right of payment to all Senior Debt of MCI.
Concurrently with the issuance by an Issuer of its QUIPS, such Issuer will
invest the proceeds thereof and any contributions made by MCI in respect of
MCI's purchase of the Common Securities in a corresponding series of MCI's
QUIDS (the "Corresponding QUIDS") with terms corresponding to the terms of
that Issuer's QUIPS. The Corresponding QUIDS will be the sole assets of each
Issuer, and payments under the Corresponding QUIDS and the Expense Agreement
(as defined herein) will be the only revenue of each Issuer. MCI may redeem
the Corresponding QUIDS (and cause the redemption of the related QUIPS) or may
terminate each Issuer and cause the Corresponding QUIDS to be distributed to
the holders of QUIPS in liquidation of their interests in such Issuer. See
"Description of QUIPS--Liquidation Distribution Upon Termination".
Holders of the QUIPS will be entitled to receive preferential cumulative
cash Distributions accumulating from the date of original issuance and payable
periodically as specified in an accompanying Prospectus Supplement. If
provided in an accompanying Prospectus Supplement, MCI will have the right to
defer payments of interest on any series of Corresponding QUIDS at any time or
from time to time for one or more Extension Periods (which shall not extend
beyond the Stated Maturity of the Corresponding QUIDS). If interest payments
are so deferred, Distributions on the corresponding series of QUIPS will also
be deferred, and MCI will not be permitted, subject to certain exceptions set
forth herein, to declare or pay any cash distributions with respect to MCI's
capital stock or debt securities that rank pari passu with or junior to the
Corresponding QUIDS. During an Extension Period, interest on the Corresponding
QUIDS will continue to accrue (and the amount of Distributions to which
holders of the QUIPS are entitled will accumulate at the rate per annum set
forth in the related Prospectus Supplement). See "Description of QUIPS--
Distributions".
Taken together, MCI's obligations under each series of QUIDS, the Indenture,
the related Trust Agreement, the related Expense Agreement and the related
Guarantee (each, as defined herein), in
(Continued on next page)
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is May 22, 1996.
<PAGE>
(Continued from previous page)
the aggregate, provide a full, irrevocable and unconditional guarantee of
payments of distributions and other amounts due on the related series of
QUIPS. See "Relationship Among the QUIPS, the Corresponding QUIDS and the
Guarantees--Full and Unconditional Guarantee".
The QUIDS and QUIPS may be offered in amounts, at prices and on terms to be
determined at the time of offering, provided that the aggregate initial public
offering price of all QUIDS (other than Corresponding QUIDS) and QUIPS issued
pursuant to the Registration Statement of which this Prospectus forms a part
shall not exceed $750,000,000. Certain specific terms of the QUIDS or QUIPS in
respect of which this Prospectus is being delivered will be described in an
accompanying Prospectus Supplement, including without limitation and where
applicable and to the extent not set forth herein, (a) in the case of QUIDS,
the specific designation, aggregate principal amount, denominations, maturity
(including any extension thereof), interest payment dates, interest rate
(which may be fixed or variable) or method of calculating interest, if any,
applicable Extension Period or interest deferral terms, if any, place or
places where principal, premium, if any, and interest, if any, will be
payable, terms of redemption, if any, sinking fund provisions, if any, terms
for conversion or exchange, if any, into other securities, initial offering or
purchase price, methods of distribution and any other special terms, and (b)
in the case of QUIPS, the identity of the Issuer, specific title, aggregate
amount, stated liquidation preference, number of securities, Distribution rate
or method of calculating such rate, applicable Extension Period or
Distribution deferral terms, if any, place or places where Distributions will
be payable, any terms of redemption, exchange, initial offering or purchase
price, methods of distribution and any other special terms.
The Prospectus Supplement also will contain information, as applicable,
about certain United States federal income tax consequences relating to the
QUIDS or QUIPS.
The QUIDS and QUIPS may be sold to or through underwriters, through dealers,
remarketing firms or agents or directly to purchasers. See "Plan of
Distribution". The names of any underwriters, dealers, remarketing firms or
agents involved in the sale of QUIDS or QUIPS in respect of which this
Prospectus is being delivered and any applicable fee, commission or discount
arrangements with them will be set forth in a Prospectus Supplement. The
Prospectus Supplement will state whether the QUIDS or QUIPS will be listed on
any national securities exchange or the Nasdaq National Market. If the QUIDS
or QUIPS are not listed on any national securities exchange or the Nasdaq
National Market, there can be no assurance that there will be a liquid
secondary market for the QUIDS or QUIPS.
This Prospectus may not be used to consummate sales of QUIDS or QUIPS unless
accompanied by a Prospectus Supplement.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY MCI, ANY OF THE ISSUERS OR ANY UNDERWRITER, DEALER OR AGENT.
NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR
IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF OR THEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF MCI SINCE THE DATE HEREOF OR THEREOF. NEITHER THIS PROSPECTUS NOR ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
MCI International, Inc. provides telecommunication services between the
United States and Cuba pursuant to an operating agreement with Empressa de
Telecomunications de Cuba, S.A. pursuant to an authorization of the United
States Department of the Treasury under the Office of Foreign Assets Control
License C-16420. This information is accurate as of the date of this
Prospectus. Current information concerning MCI's business dealings with the
government of Cuba or with any person or affiliate located in Cuba may be
obtained from the Florida Department of Banking and Finance, The Capitol,
Tallahassee, Florida 32399-0350, telephone (904) 488-9805.
2
<PAGE>
AVAILABLE INFORMATION
MCI is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith
files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by MCI with the Commission pursuant to the informational requirements of
the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices
of the Commission: Chicago Regional Office, Suite 1400, Citicorp Center, 14th
Floor, 500 West Madison Street, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, 13th Floor, Suite 1300, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549.
MCI and the Issuers have filed with the Commission a Registration Statement
on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus and the accompanying Prospectus Supplement omit, in accordance with
the rules and regulations of the Commission, certain of the information
contained in the Registration Statement. Reference is hereby made to the
Registration Statement and the exhibits and the financial statements, notes
and schedules filed as a part thereof or incorporated by reference therein for
further information with respect to MCI, the Issuers and the securities
offered hereby. Statements contained herein concerning the provisions of any
document are not necessarily complete and, in each instance, where a copy of
such document has been filed as an exhibit to the Registration Statement or
otherwise has been filed with the Commission, reference is made to the copy so
filed. Each such statement is qualified in its entirety by such reference.
No separate financial statements of any Issuer have been included herein.
MCI and the Issuers do not consider that such financial statements would be
material to holders of the QUIPS because each Issuer is a newly formed special
purpose entity, has no operating history or independent operations and is not
engaged in and does not propose to engage in any activity other than holding
as trust assets the Corresponding QUIDS of MCI and issuing the QUIPS and
Common Securities. See "The Issuers", "Description of QUIPS", "Description of
Guarantees" and "Description of Corresponding QUIDS".
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
MCI's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
and Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
previously filed by MCI with the Commission, are incorporated by reference in
this Prospectus and shall be deemed to be a part hereof.
Each document filed by MCI with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of any offering of securities made by
this Prospectus shall be deemed to be incorporated herein by reference and to
be a part hereof from the date of filing such document. Any statement
contained herein, or in a document all or a portion of which is incorporated
or deemed to be incorporated by reference herein, shall be deemed to be
modified or superseded for purposes of the Registration Statement and this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of the Registration Statement or this
Prospectus.
MCI will provide without charge to any person to whom a copy of this
Prospectus is delivered, upon written or oral request of such person, a copy
of any and all of the documents that have been or
3
<PAGE>
may be incorporated by reference herein (other than exhibits to such documents
which are not specifically incorporated by reference into such documents).
Such requests should be directed to the Secretary, MCI Communications
Corporation, 1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006
(telephone: (202) 872-1600).
MCI COMMUNICATIONS CORPORATION
MCI Communications Corporation ("MCI"), a Delaware corporation organized in
1968, has its principal executive offices at 1801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20006 and its telephone number is (202) 872-1600. MCI is a
registered service mark of MCI Communications Corporation.
MCI and its subsidiaries provide a broad range of communication services,
including long-distance telecommunication services, local and wireless
services and information technology services. The provision of long-distance
telecommunication services is the core business of MCI and its subsidiaries.
Long-distance telecommunication services comprise a wide spectrum of domestic
and international voice and data services, including long-distance telephone
services, data communication services, teleconferencing services and
electronic messaging services. During each of the last three years, more than
90% of the operating revenues and operating income of MCI and its subsidiaries
were derived from this core business. Through its subsidiaries MCI is the
second largest carrier of long-distance telecommunication services in the
United States and the third largest carrier of international long-distance
telecommunication services in the world.
The communication services industry is in the process of substantial change,
providing significant opportunities and risks to its participants. Evolving
and newly developed technology, emerging significant competition in the market
for long-distance and local telecommunication services, as well as the
increasing desire of customers to have most or all of their various
communication needs fulfilled by one supplier, are causing companies,
including MCI, which offer services primarily in one part of the communication
services market, to offer, either directly or through alliances with others,
new services to complement their primary services offerings.
MCI expects that this expansion into new services will continue and is
likely to accelerate as a result of the enactment of the Telecommunications
Act of 1996 (the "Telecommunications Act") in February 1996. Among other
things, the Telecommunications Act (i) opens the local services market,
currently dominated by the Regional Bell Operating Companies (the "RBOCs"), to
competition by requiring the RBOCs to sell separately their local services and
network elements, such as interconnection and local loops, to their new
competitors; (ii) allows the RBOCs to provide long-distance telecommunication
services in their respective regions once they comply with certain
requirements that are intended to promote competition for local services; and
(iii) allows the RBOCs to offer long-distance telecommunication services
outside their respective regions immediately.
MCI believes that it is positioning itself to capitalize on the
opportunities that should be available in the communication services markets.
MCI's investment in ventures and developing markets will enable it to offer a
variety of local, wireless, information technology and multimedia services.
These services, combined with the continued growth and strength of MCI's core
business, should enable MCI to compete effectively in these markets and
against the RBOCs and any others that seek to enter the long-distance
telecommunication services market. There can be no assurance, however, that
MCI will be able to do so.
MCI anticipates that continued substantial capital expenditures will be
required to compete effectively in these markets. Competition from AT&T Corp.,
the RBOCs and others significantly larger than MCI, in financial and other
resources, will be intense. Due to the rapidly changing nature of these
markets and the other factors summarized above, it is not possible to predict
the level of its future success, but MCI believes that it will compete
effectively in providing its services.
4
<PAGE>
MCI's assets consist principally of the stock of and advances to its
subsidiaries. Almost all of the operating assets of MCI and its consolidated
subsidiaries are owned by such subsidiaries and MCI relies primarily on
interest and dividends from such subsidiaries to meet its obligations for
payment of principal and interest on its outstanding debt obligations and
corporate expenses. As of March 31, 1996, MCI had approximately $4 billion
aggregate principal amount of Senior Debt outstanding. The QUIDS will be
effectively subordinated to all existing and future liabilities of MCI's
subsidiaries, and holders of the QUIDS should look only to the assets of MCI
for payments on the QUIDS. Neither the Indenture, the Guarantees nor the Trust
Agreements will place any limitation on the amount of secured or unsecured
debt, including Senior Debt, that may be incurred by MCI.
THE ISSUERS
Each Issuer is a statutory business trust formed under Delaware law pursuant
to (i) a trust agreement executed by MCI, as sponsor of the Issuer, and the
Delaware Trustee (as defined herein) of such Issuer and (ii) the filing of a
certificate of trust with the Delaware Secretary of State. Each trust
agreement will be amended and restated in its entirety (each, as so amended
and restated, a "Trust Agreement") substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Each Trust Agreement will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Each Issuer
exists for the exclusive purposes of (i) issuing and selling its QUIPS and
Common Securities, (ii) using the proceeds from the sale of such QUIPS and
Common Securities to acquire a corresponding series of Corresponding QUIDS
issued by MCI and (iii) engaging in only those other activities necessary,
convenient or incidental thereto. Accordingly, the Corresponding QUIDS will be
the sole assets of each Issuer, and payments under the Corresponding QUIDS and
the Expense Agreement will be the sole revenue of each Issuer.
All of the Common Securities will be owned by MCI. The Common Securities of
an Issuer will rank pari passu, and payments will be made thereon pro rata,
with the QUIPS of such Issuer, except that upon the occurrence and continuance
of an event of default under a Trust Agreement resulting from a Debenture
Event of Default (as defined herein), the rights of MCI as holder of the
Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the QUIPS of such Issuer. See "Description of QUIPS--Subordination
of Common Securities". MCI will acquire Common Securities in an aggregate
liquidation amount equal to not less than 3% of the total capital of each
Issuer.
Unless otherwise specified in the applicable Prospectus Supplement, each
Issuer has a term of approximately 55 years, but may terminate earlier as
provided in the applicable Trust Agreement. Each Issuer's business and affairs
are conducted by its trustees, which will be appointed by MCI as holder of the
Common Securities.
Unless otherwise specified in the applicable Prospectus Supplement, the
trustees shall be Wilmington Trust Company, as the Property Trustee (the
"Property Trustee") and as the Delaware Trustee (the "Delaware Trustee"), and
two individual trustees (the "Administrative Trustees") who are employees or
officers of or affiliated with MCI (collectively, the "Issuer Trustees").
Wilmington Trust Company, as Property Trustee, will act as sole indenture
trustee under each Trust Agreement for purposes of compliance with the Trust
Indenture Act. Wilmington Trust Company will also act as trustee under the
Guarantees and the Indenture (each as defined herein). See "Description of
Guarantees" and "Description of QUIDS". The holder of the Common Securities,
or the holders of a majority in liquidation preference of the QUIPS if any
Debenture Event of Default has occurred and is continuing, will be entitled to
appoint, remove or replace the Property Trustee and/or the Delaware Trustee.
In no event will the holders of the QUIPS have the right to vote to appoint,
remove or replace the Administrative Trustees; such voting rights are vested
exclusively in the holder of the Common Securities. The duties and obligations
of each Issuer Trustee are governed by the applicable Trust Agreement. MCI
will pay all fees and expenses related to each Issuer and the offering of the
QUIPS and will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of each Issuer. The
5
<PAGE>
principal executive office of each Issuer is 1801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20006, Attention: Secretary, and its telephone number is
(202) 872-1600.
USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement, MCI
intends to use the proceeds from the sale of its QUIDS (including
Corresponding QUIDS issued to the Issuers in connection with the investment by
the Issuers of all of the proceeds from the sale of QUIPS) for general
corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
MCI and its subsidiaries for the years indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31
------------------- ------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges ........................ 5.46 5.53 3.34 4.82 4.12 3.63 3.37
</TABLE>
For purposes of this ratio, earnings are calculated by adding fixed charges
(excluding capitalized interest) to income before income taxes and
extraordinary item. Fixed charges consist of interest on indebtedness
(including amortization of debt discount and premium) and the portion of
rental expense representative of an interest factor.
DESCRIPTION OF QUIDS
The QUIDS are to be issued in one or more series under a Junior Subordinated
Indenture, as supplemented from time to time (as so supplemented, the
"Indenture"), between MCI and Wilmington Trust Company, as trustee (the
"Debenture Trustee"). This summary of certain terms and provisions of the
QUIDS and the Indenture does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the Indenture, the form of which
is filed as an exhibit to the Registration Statement of which this Prospectus
forms a part, and to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Whenever particular defined terms of the Indenture (as
supplemented or amended from time to time) are referred to herein or in a
Prospectus Supplement, such defined terms are incorporated herein or therein
by reference.
GENERAL
Each series of QUIDS will rank pari passu with all other series of QUIDS,
and will be unsecured and subordinate and junior in right of payment to the
extent and in the manner set forth in the Indenture to all Senior Debt (as
defined below) of MCI. See "--Subordination". MCI is a non-operating holding
company and almost all of the operating assets of MCI and its consolidated
subsidiaries are owned by such subsidiaries. MCI relies primarily on interest
and dividends from such subsidiaries to meet its obligations for payment of
principal and interest on its outstanding debt obligations and corporate
expenses. Accordingly, the QUIDS will be effectively subordinated to all
existing and future liabilities of MCI's subsidiaries, and holders of QUIDS
should look only to the assets of MCI for payments on the QUIDS. Except as
otherwise provided in the applicable Prospectus Supplement, the Indenture does
not limit the incurrence or issuance of other secured or unsecured debt of
MCI, whether under the Indenture or any existing or other indenture that MCI
may enter into in the future or otherwise, including MCI's Senior and
Subordinated Indentures entered into with Citibank, N.A. and Bankers Trust
Company, respectively. See "--Subordination" and the Prospectus Supplement
relating to any offering of Securities.
6
<PAGE>
The QUIDS will be issuable in one or more series pursuant to an indenture
supplemental to the Indenture or a resolution of MCI's board of directors or a
committee thereof.
The applicable Prospectus Supplement or Prospectus Supplements will describe
the following terms of the QUIDS: (1) the title of the QUIDS; (2) any limit
upon the aggregate principal amount of the QUIDS; (3) the date or dates on
which the principal of the QUIDS is payable or the method of determination
thereof; (4) the rate or rates, if any, at which the QUIDS shall bear
interest, the Interest Payment Dates on which any such interest shall be
payable, the right, if any, of MCI to defer or extend an Interest Payment
Date, and the Regular Record Date for any interest payable on any Interest
Payment Date or the method by which any of the foregoing shall be determined;
(5) the place or places where, subject to the terms of the Indenture as
described below under "Payment and Paying Agents", the principal of and
premium, if any, and interest on the QUIDS will be payable and where, subject
to the terms of the Indenture as described below under "Denominations,
Registration and Transfer", the QUIDS may be presented for registration of
transfer or exchange and the place or places where notices and demands to or
upon MCI in respect of the QUIDS and the Indentures may be made ("Place of
Payment"); (6) any period or periods within or date or dates on which, the
price or prices at which and the terms and conditions upon which QUIDS may be
redeemed, in whole or in part, at the option of MCI or a holder thereof; (7)
the obligation or the right, if any, of MCI or a holder thereof to redeem,
purchase or repay the QUIDS and the period or periods within which, the price
or prices at which, the currency or currencies (including currency unit or
units) in which and the other terms and conditions upon which the QUIDS shall
be redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation; (8) the denominations in which any QUIDS shall be issuable if
other than denominations of $25 and any integral multiple thereof; (9) if
other than in U.S. Dollars, the currency or currencies (including currency
unit or units) in which the principal of and premium, if any, and interest, if
any, on the QUIDS shall be payable, or in which the QUIDS shall be
denominated; (10) any additions, modifications or deletions in the Events of
Default or covenants of MCI specified in the Indenture with respect to the
QUIDS; (11) if other than the principal amount thereof, the portion of the
principal amount of QUIDS that shall be payable upon declaration of
acceleration of the maturity thereof; (12) any additions or changes to the
Indenture with respect to a series of QUIDS as shall be necessary to permit or
facilitate the issuance of such series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons; (13) any
index or indices used to determine the amount of payments of principal of and
premium, if any, on the QUIDS and the manner in which such amounts will be
determined; (14) the terms and conditions relating to the issuance of a
temporary Global Security representing all of the QUIDS of such series and the
exchange of such temporary Global Security for definitive QUIDS of such
series; (15) subject to the terms described under "Global QUIDS", whether the
QUIDS of the series shall be issued in whole or in part in the form of one or
more Global Securities and, in such case, the Depositary for such Global
Securities, which Depositary shall be a clearing agency registered under the
Exchange Act; (16) the appointment of any Paying Agent or Agents; (17) the
terms and conditions of any obligation or right of MCI or a holder to convert
or exchange the QUIDS into QUIPS or other securities; and (18) any other terms
of the QUIDS not inconsistent with the provisions of the Indenture.
QUIDS may be sold at a substantial discount below their stated principal
amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Certain United States federal income tax
consequences and special considerations applicable to any such QUIDS will be
described in the applicable Prospectus Supplement.
If the purchase price of any of the QUIDS is payable in one or more foreign
currencies or currency units or if any QUIDS are denominated in one or more
foreign currencies or currency units or if the principal of, premium, if any,
or interest, if any, on any QUIDS is payable in one or more foreign currencies
or currency units, the restrictions, elections, certain United States federal
income tax consequences, specific terms and other information with respect to
such issue of QUIDS and such foreign currency or currency units will be set
forth in the applicable Prospectus Supplement.
7
<PAGE>
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest on any series of QUIDS, special United States
federal income tax, accounting and other considerations applicable thereto
will be described in the applicable Prospectus Supplement.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the
QUIDS will be issuable only in registered form without coupons in
denominations of $25 and any integral multiple thereof. QUIDS of any series
will be exchangeable for other QUIDS of the same issue and series, of any
authorized denominations, of a like aggregate principal amount, of the same
Original Issue Date and Stated Maturity and bearing the same interest rate.
QUIDS may be presented for exchange as provided above, and may be presented
for registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed), at the office of
the appropriate Securities Registrar or at the office of any transfer agent
designated by MCI for such purpose with respect to any series of QUIDS and
referred to in the applicable Prospectus Supplement, without service charge
and upon payment of any taxes and other governmental charges as described in
the Indenture. MCI will appoint the Debenture Trustee as Securities Registrar
under the Indenture. If the applicable Prospectus Supplement refers to any
transfer agents (in addition to the Securities Registrar) initially designated
by MCI with respect to any series of QUIDS, MCI may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, provided that MCI maintains a
transfer agent in each Place of Payment for such series. MCI may at any time
designate additional transfer agents with respect to any series of QUIDS.
In the event of any redemption, neither MCI nor the Debenture Trustee shall
be required to (i) issue, register the transfer of or exchange QUIDS of any
series during a period beginning at the opening of business 15 days before the
day of selection for redemption of QUIDS of that series and ending at the
close of business on the day of mailing of the relevant notice of redemption
or (ii) transfer or exchange any QUIDS so selected for redemption, except, in
the case of any QUIDS being redeemed in part, any portion thereof not to be
redeemed.
GLOBAL QUIDS
The QUIDS of a series may be issued in whole or in part in the form of one
or more Global QUIDS that will be deposited with, or on behalf of, a
depositary (the "Depositary") identified in the Prospectus Supplement relating
to such series. Global QUIDS may be issued only in fully registered form and
in either temporary or permanent form. Unless and until it is exchanged in
whole or in part for the individual QUIDS represented thereby, a Global QUIDS
may not be transferred except as a whole by the Depositary for such Global
QUIDS to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by the Depositary or
any nominee to a successor Depositary or any nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
QUIDS will be described in the Prospectus Supplement relating to such series.
MCI anticipates that the following provisions will generally apply to
depositary arrangements.
Upon the issuance of a Global QUIDS and the deposit of such Global QUIDS
with or on behalf of the Depositary, the Depositary for such Global QUIDS or
its nominee will credit on its book-entry registration and transfer system the
respective principal amounts of the individual QUIDS represented by such
Global QUIDS to the accounts of persons that have accounts with such
Depositary ("Participants"). Such accounts shall be designated by the dealers,
underwriters or agents with respect to such QUIDS or by MCI if such QUIDS are
offered and sold directly by MCI. Ownership of beneficial
8
<PAGE>
interests in a Global QUIDS will be limited to Participants or persons that
may hold interests through Participants. Ownership of beneficial interests in
such Global QUIDS will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the applicable Depositary or its
nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states 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 QUIDS.
So long as the Depositary for a Global QUIDS, or its nominee, is the
registered owner of such Global QUIDS, such Depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the QUIDS
represented by such Global QUIDS for all purposes under the Indenture
governing such QUIDS. Except as provided below, owners of beneficial interests
in a Global QUIDS will not be entitled to have any of the individual QUIDS of
the series represented by such Global QUIDS registered in their names, will
not receive or be entitled to receive physical delivery of any such QUIDS of
such series in definitive form and will not be considered the owners or
holders thereof under the Indenture.
Payments of principal of and premium, if any, and interest on individual
QUIDS represented by a Global QUIDS registered in the name of a Depositary or
its nominee will be made to the Depositary or its nominee, as the case may be,
as the registered owner of the Global QUIDS representing such QUIDS. None of
MCI, the Debenture Trustee, any Paying Agent or the Securities Registrar for
such QUIDS will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Global QUIDS representing such QUIDS or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
MCI expects that the Depositary for a series of QUIDS or its nominee, upon
receipt of any payment of principal, premium, if any, or interest in respect
of a permanent Global QUIDS representing any of such QUIDS, immediately will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of such Global QUIDS
representing such QUIDS as shown on the records of such Depositary or its
nominee. MCI also expects that payments by Participants to owners of
beneficial interests in such Global QUIDS held through such Participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name". Such payments will be the responsibility of such
Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for a series of QUIDS is at any time unwilling, unable or
ineligible to continue as depositary and a successor depositary is not
appointed by MCI within 90 days, MCI will issue individual QUIDS of such
series in exchange for the Global QUIDS representing such series of QUIDS. In
addition, MCI may at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement relating to such QUIDS,
determine not to have any QUIDS of such series represented by one or more
Global QUIDS and, in such event, will issue individual QUIDS of such series in
exchange for the Global QUIDS representing such series of QUIDS. Further, if
MCI so specifies with respect to the QUIDS of a series, an owner of a
beneficial interest in a Global QUIDS representing QUIDS of such series may,
on terms acceptable to MCI, the Debenture Trustee and the Depositary for such
Global QUIDS, receive individual QUIDS of such series in exchange for such
beneficial interests, subject to any limitations described in the Prospectus
Supplement relating to such QUIDS. In any such instance, an owner of a
beneficial interest in a Global QUIDS will be entitled to physical delivery of
individual QUIDS of the series represented by such Global QUIDS equal in
principal amount to such beneficial interest and to have such QUIDS registered
in its name. Individual QUIDS of such series so issued will be issued in
denominations, unless otherwise specified by MCI, of $25 and integral
multiples thereof.
9
<PAGE>
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of and premium, if any, and any interest on QUIDS will be made at
the office of the Debenture Trustee in the City of New York or at the office
of such Paying Agent or Paying Agents as MCI may designate from time to time
in the applicable Prospectus Supplement, except that at the option of MCI
payment of any interest may be made (i) by check mailed to the address of the
Person entitled thereto as such address shall appear in the Securities
Register or (ii) by transfer to an account maintained by the Person entitled
thereto as specified in the Securities Register, provided that proper transfer
instructions have been received by the Regular Record Date. Unless otherwise
indicated in the applicable Prospectus Supplement, payment of any interest on
QUIDS will be made to the Person in whose name such QUIDS is registered at the
close of business on the Regular Record Date for such interest, except in the
case of Defaulted Interest. MCI may at any time designate additional Paying
Agents or rescind the designation of any Paying Agent; however MCI will at all
times be required to maintain a Paying Agent in each Place of Payment for each
series of QUIDS.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by MCI in trust, for the payment of the principal of and premium, if any,
or interest on any QUIDS and remaining unclaimed for two years after such
principal and premium, if any, or interest has become due and payable shall,
at the request of MCI, be repaid to MCI and the holder of such QUIDS shall
thereafter look, as a general unsecured creditor, only to MCI for payment
thereof.
REDEMPTION
Unless otherwise indicated in the applicable Prospectus Supplement, QUIDS
will not be subject to any sinking fund.
Unless otherwise indicated in the applicable Prospectus Supplement, MCI may,
at its option, redeem the QUIDS of any series in whole at any time or in part
from time to time. QUIDS in denominations larger than $25 may be redeemed in
part but only in integral multiples of $25. Except as otherwise specified in
the applicable Prospectus Supplement, the redemption price for any QUIDS so
redeemed shall equal any accrued and unpaid interest thereon to the redemption
date, plus the principal amount thereof.
Except as otherwise specified in the applicable Prospectus Supplement, if a
Debenture Tax Event (as defined below) in respect of a series of QUIDS shall
occur and be continuing, MCI may, at its option, redeem such series of QUIDS
in whole (but not in part) at any time within 90 days of the occurrence of
such Debenture Tax Event, at a redemption price equal to 100% of the principal
amount of such QUIDS then outstanding plus accrued and unpaid interest to the
date fixed for redemption.
"Debenture Tax Event" means the receipt by MCI of an opinion of counsel,
rendered by a law firm having a recognized national tax and securities
practice, to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or which pronouncement or
decision is announced on or after the date of issuance of the applicable
series of QUIDS under the Indenture, there is more than an insubstantial risk
that interest payable by MCI on such series of QUIDS is not, or within 90 days
of the date of such opinion, will not be, deductible by MCI, in whole or in
part, for United States federal income tax purposes.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of QUIDS to be redeemed at
its registered address. Unless MCI defaults in payment of the redemption
price, on and after the redemption date interest ceases to accrue on such
QUIDS or portions thereof called for redemption.
10
<PAGE>
OPTION TO EXTEND INTEREST PAYMENT DATE
If provided in the applicable Prospectus Supplement, MCI shall have the
right at any time and from time to time during the term of any series of QUIDS
to defer payment of interest for such number of consecutive interest payment
periods as may be specified in the applicable Prospectus Supplement (each, an
"Extension Period"), subject to the terms, conditions and covenants, if any,
specified in such Prospectus Supplement, provided that such Extension Period
may not extend beyond the Stated Maturity of such series of QUIDS. Certain
United States federal income tax consequences and special considerations
applicable to any such QUIDS will be described in the applicable Prospectus
Supplement.
During such Extension Period MCI may not, and may not permit any subsidiary
of MCI to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of MCI's
capital stock or (ii) make any payment of principal, interest or premium, if
any, on or repay, repurchase or redeem any debt securities of MCI that rank
pari passu with or junior in interest to the QUIDS or make any guarantee
payments with respect to any guarantee by MCI of the debt securities of any
subsidiary of MCI if such guarantee ranks pari passu or junior in interest to
the Series A QUIDS (other than (a) dividends or distributions in common stock
of MCI, (b) redemptions or purchases of any rights pursuant to MCI's Preferred
Stock Rights Plan, or any successor to such Preferred Stock Rights Plan, and
the declaration of a dividend of such rights or the issuance of Preferred
Stock under such plans in the future, (c) payments under any Guarantee, (d)
purchases of Common Stock related to the issuance of Common Stock under any of
MCI's benefit plans for its directors, officers or employees and (e) purchases
of Common Stock required to prevent the loss or secure the renewal or
reinstatement of any government license or franchise held by MCI or any of its
subsidiaries).
MODIFICATION OF INDENTURE
From time to time MCI and the Debenture Trustee may, without the consent of
the holders of any series of QUIDS, amend, waive or supplement the Indenture
for specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies (provided that any such action does not materially
adversely affect the interest of the holders of any series of QUIDS or, in the
case of Corresponding QUIDS, the holders of the corresponding series of QUIPS
so long as they remain outstanding) and qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting MCI and the Debenture Trustee, with the consent
of the holders of not less than a majority in principal amount of each
outstanding series of QUIDS affected, to modify the Indenture in a manner
affecting the rights of the holders of such series of the QUIDS; provided that
no such modification may, without the consent of the holder of each
outstanding QUIDS so affected, (i) change the stated maturity of any series of
QUIDS, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon (except such change or extension as is
contemplated hereby) or (ii) reduce the percentage of principal amount of
QUIDS of any series, the holders of which are required to consent to any such
modification of the Indenture, provided that, in the case of Corresponding
QUIDS, so long as any of the related series of QUIPS remain outstanding, no
such modification may be made that adversely affects the holders of such QUIPS
in any material respect, and no termination of the Indenture may occur, and no
waiver of any Debenture Event of Default or compliance with any covenant under
the Indenture may be effective, without the prior consent of the holders of at
least a majority of the aggregate liquidation preference of such QUIPS unless
and until the principal of the Corresponding QUIDS and all accrued and unpaid
interest thereon have been paid in full and certain other conditions are
satisfied.
In addition, MCI and the Debenture Trustee may execute, without the consent
of any holder of QUIDS, any supplemental Indenture for the purpose of creating
any new series of QUIDS.
11
<PAGE>
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to a series of QUIDS that has occurred and is continuing
constitutes a "Debenture Event of Default" with respect to such series of
QUIDS:
(i) failure for 30 days to pay any interest on such series of the QUIDS,
when due (subject to the deferral of any due date in the case of an
Extension Period); or
(ii) failure to pay any principal or premium, if any, on such series of
QUIDS when due whether at maturity, upon redemption by declaration or
otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to
MCI from the Debenture Trustee or the holders of at least 25% in aggregate
outstanding principal amount of such series of outstanding QUIDS; or
(iv) certain events in bankruptcy, insolvency or reorganization of MCI.
The holders of a majority in aggregate outstanding principal amount of such
series of QUIDS have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee.
The Debenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of such series of QUIDS may declare the principal
due and payable immediately upon a Debenture Event of Default, and, in the
case of Corresponding QUIDS, should the Debenture Trustee or such holders of
such Corresponding QUIDS fail to make such declaration, the holders of at
least 25% in aggregate liquidation preference of the related series of QUIPS
shall have such right. The holders of a majority in aggregate outstanding
principal amount of such series of QUIDS may annul such declaration and waive
the default if the default (other than the non-payment of the principal of
such series of QUIDS which has become due solely by such acceleration) has
been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee and, in the case of Corresponding QUIDS, should the holders
of such Corresponding QUIDS fail to annul such declaration and waive such
default, the holders of a majority in aggregate liquidation preference of the
related series of QUIPS shall have such right.
The holders of a majority in aggregate outstanding principal amount of the
QUIDS affected thereby may, on behalf of the holders of all the QUIDS, waive
any past default, except a default in the payment of principal or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Debenture Trustee) or a default in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding QUIDS and, in the case
of Corresponding QUIDS, should the holders of such Corresponding QUIDS fail to
annul such declaration and waive such default, the holders of a majority in
aggregate liquidation preference of the related series of QUIPS shall have
such right. MCI is required to file annually with the Debenture Trustee a
certificate as to whether or not MCI is in compliance with all the conditions
and covenants applicable to it under the Indenture.
In case a Debenture Event of Default shall occur and be continuing as to a
series of Corresponding QUIDS, the Property Trustee will have the right to
declare the principal of and the interest on such Corresponding QUIDS and any
other amounts payable under the Indenture, to be forthwith due and payable and
to enforce its other rights as a creditor with respect to such Corresponding
QUIDS.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF QUIPS
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of MCI to pay interest or principal on
the related QUIDS on the date such interest or principal
12
<PAGE>
is otherwise payable, a holder of QUIPS may institute a Direct Action (as
defined below under "Description of QUIPS--Enforcement of Certain Rights by
Holders of QUIPS") for payment after the respective due date specified in the
related QUIDS. MCI may not amend the Indenture to remove the foregoing right
to bring a Direct Action without the prior written consent of the holders of
all of the QUIPS. Notwithstanding any payment made to such holder of QUIPS by
MCI in connection with a Direct Action, MCI shall remain obligated to pay the
principal of or interest on the related QUIDS held by the Issuer or the
Property Trustee and MCI shall be subrogated to the rights of the holder of
such QUIPS with respect to payments on the QUIPS to the extent of any payments
made by MCI to such holder in any Direct Action. The holders of QUIPS will not
be able to exercise directly any other remedy available to the holders of the
related QUIDS.
The holders of the QUIPS would not be able to exercise directly any remedies
other than those set forth in the preceding paragraph available to the holders
of the QUIDS unless the Property Trustee or the Debenture Trustee, acting for
the benefit of the Property Trustee, fails to do so for 60 days. In such
event, the holders of at least 25% in aggregate liquidation preference of the
outstanding QUIPS would have such right to institute proceedings.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that MCI shall not consolidate with or merge into any
other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate
with or merge into MCI or convey, transfer or lease its properties and assets
substantially as an entirety to MCI, unless (i) in case MCI consolidates with
or merges into another Person or conveys, transfers or leases its properties
and assets substantially as an entirety to any Person, the successor Person is
organized under the laws of the United States or any state or the District of
Columbia, and such successor Person expressly assumes MCI's obligations on the
QUIDS issued under the Indenture; (ii) immediately after giving effect
thereto, no Debenture Event of Default, and no event which, after notice or
lapse of time or both, would become a Debenture Event of Default, shall have
happened and be continuing; (iii) in the case of Corresponding QUIDS, such
transaction is permitted under the related Trust Agreement or Guarantee and
does not give rise to any breach or violation of the related Trust Agreement
and Guarantee, and (iv) certain other conditions as prescribed in the
Indenture are met.
The general provisions of the Indenture do not afford holders of the QUIDS
protection in the event of a highly leveraged or other transaction involving
MCI that may adversely affect holders of the QUIDS.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all QUIDS not
previously delivered to the Debenture Trustee for cancellation (i) have become
due and payable or (ii) will become due and payable at their Stated Maturity
within one year, and MCI deposits or causes to be deposited with the Debenture
Trustee trust funds, in trust, for the purpose and in an amount in the
currency or currencies in which the QUIDS are payable sufficient to pay and
discharge the entire indebtedness on the QUIDS not previously delivered to the
Debenture Trustee for cancellation, for the principal and premium, if any, and
interest to the date of the deposit or to the Stated Maturity, as the case may
be, then the Indenture will cease to be of further effect (except as to MCI's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and MCI
will be deemed to have satisfied and discharged the Indenture.
CONVERSION OR EXCHANGE
Unless otherwise indicated in the applicable Prospectus Supplement, the
QUIDS of any series may be convertible or exchangeable into QUIPS or other
securities. The specific terms on which
13
<PAGE>
QUIDS of any series may be so converted or exchanged will be set forth in the
applicable Prospectus Supplement. Such terms may include provisions for
conversion or exchange, either mandatory, at the option of the holder, or at
the option of MCI, in which case the number of shares of QUIPS or other
securities to be received by the Holders of QUIDS would be calculated as of a
time and in the manner stated in the applicable Prospectus Supplement.
SUBORDINATION
In the Indenture, MCI has covenanted and agreed that any QUIDS issued
thereunder will be subordinate and junior in right of payment to all Senior
Debt to the extent provided in the Indenture. Upon any payment or distribution
of assets to creditors upon any liquidation, dissolution, winding-up,
reorganization, assignment for the benefit of creditors, marshaling of assets
or any bankruptcy, insolvency, debt restructuring or similar proceedings in
connection with any insolvency or bankruptcy proceeding of MCI, the holders of
Senior Debt will first be entitled to receive payment in full of principal of
and premium, if any, and interest, if any, on such Senior Debt before the
holders of QUIDS or, in the case of Corresponding QUIDS, the Property Trustee
on behalf of the holders, will be entitled to receive or retain any payment in
respect of the principal of and premium, if any, or interest, if any, on the
QUIDS.
In the event of the acceleration of the maturity of any QUIDS, the holders
of all Senior Debt outstanding at the time of such acceleration will first be
entitled to receive payment in full of all amounts due thereon (including any
amounts due upon acceleration) before the holders of QUIDS will be entitled to
receive or retain any payment in respect of the principal of or premium, if
any, or interest, if any, on the QUIDS.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the QUIDS may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Debt, or an event
of default with respect to any Senior Debt resulting in the acceleration of
the maturity thereof, or if any judicial proceeding shall be pending with
respect to any such default.
"Debt" means 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,
assets or businesses; (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 (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of such
Person; and (vi) every guarantee of or responsibility or liability for, direct
or indirect, as obligor or otherwise of (a) any obligation of the types
referred to in clauses (i) through (v) of another Person or (b) the payment of
any dividends of another Person.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to MCI whether or not such claim for
post-petition interest is allowed in such proceeding), on Debt, whether
incurred on or prior to the date of the Indenture or thereafter incurred,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are not superior
in right of payment to the QUIDS or to other Debt which is pari passu with, or
subordinated to, the QUIDS; provided, however, that Senior Debt shall not be
deemed to include
14
<PAGE>
(i) any Debt of MCI which when incurred and without respect to any election
under Section 1111 (b) of the Bankruptcy Code, was without recourse to MCI,
(ii) any Debt of MCI to any of its subsidiaries, (iii) Debt to any employee of
MCI, (iv) any liability for taxes, and (v) indebtedness or monetary
obligations to trade creditors or assumed by MCI or any of its subsidiaries in
the ordinary course of business in connection with the obtaining of materials
or services.
MCI is a non-operating holding company and almost all of the operating
assets of MCI and its consolidated subsidiaries are owned by such
subsidiaries. Accordingly, the QUIDS will be effectively subordinated to all
existing and future liabilities of MCI's subsidiaries. Holders of QUIDS should
look only to the assets of MCI for payments of interest and principal and
premium, if any, on the QUIDS.
The Indenture places no limitation on the amount of additional Senior Debt
that may be incurred by MCI. The communications services business is capital
intensive, and MCI anticipates that from time to time it will incur
substantial additional indebtedness constituting Senior Debt.
The Indenture provides that the foregoing subordination provisions, insofar
as they relate to any particular issue of QUIDS, may be changed prior to such
issuance. Any such change would be described in the applicable Prospectus
Supplement.
GOVERNING LAW
The Indenture and the QUIDS will be governed by and construed in accordance
with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of QUIDS, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which
might be incurred thereby. The Debenture Trustee is not required to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
DESCRIPTION OF QUIPS
Pursuant to the terms of the Trust Agreement for each Issuer, the Issuer
Trustees on behalf of such Issuer will issue the QUIPS and the Common
Securities. The QUIPS of a particular issue will represent preferred undivided
beneficial interests in the assets of the related Issuer and the holders
thereof will be entitled to a preference in certain circumstances with respect
to Distributions and amounts payable on redemption or liquidation over the
Common Securities of such Issuer, as well as other benefits as described in
the corresponding Trust Agreement. This summary of certain provisions of the
QUIPS and each Trust Agreement does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of
each Trust Agreement, including the definitions therein of certain terms, and
the Trust Indenture Act. Wherever particular defined terms of a Trust
Agreement (as supplemented or amended from time to time) are referred to
herein or in a Prospectus Supplement, such defined terms are incorporated
herein or therein by reference. The form of each Trust Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. Each of the Issuers is a legally separate entity and the assets
of one are not available to satisfy the obligations of any of the others.
15
<PAGE>
GENERAL
The QUIPS of an Issuer will rank pari passu, and payments will be made
thereon pro rata, with the Common Securities of that Issuer except as
described under "--Subordination of Common Securities". Legal title to the
Corresponding QUIDS will be held by the Property Trustee in trust for the
benefit of the holders of the related QUIPS and Common Securities. Each
Guarantee Agreement executed by MCI for the benefit of the holders of an
Issuer's QUIPS (each, the "Guarantee") will be a guarantee on a subordinated
basis with respect to the related QUIPS but will not guarantee payment of
Distributions or amounts payable on redemption or liquidation of such QUIPS
when the related Issuer does not have funds on hand available to make such
payments. See "Description of Guarantees".
DISTRIBUTIONS
Each Issuer's QUIPS represent preferred undivided beneficial interests in
the assets of such Issuer, and the Distributions on each QUIPS will be payable
at a rate specified in the Prospectus Supplement for such QUIPS. The amount of
Distributions payable for any period will be computed on the basis of a 360-
day year of twelve 30-day months unless otherwise specified in the applicable
Prospectus Supplement. Distributions to which holders of QUIPS are entitled
will accumulate additional Distributions at the rate per annum if and as
specified in the applicable Prospectus Supplement. The term "Distributions" as
used herein includes any such additional Distributions unless otherwise
stated.
Distributions on the QUIPS will be cumulative, will accrue from the date of
original issuance and will be payable on such dates as specified in the
applicable Prospectus Supplement. In the event that any date on which
Distributions are payable on the QUIPS is not a Business Day (as defined
below), payment of the Distribution payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect to any such delay) except that, if such Business Day is in
the next succeeding calendar year, payment of such Distribution shall be made
on the immediately preceding Business Day, in each case with the same force
and effect as if made on such date (each date on which Distributions are
payable in accordance with the foregoing, a "Distribution Date"). A "Business
Day" shall mean any day other than a Saturday or a Sunday, or a day on which
banking institutions in The City of New York are authorized or required by law
or executive order to remain closed or a day on which the corporate trust
office of the Property Trustee or the Debenture Trustee (as defined herein) is
closed for business.
If provided in the applicable Prospectus Supplement, MCI has the right under
the Indenture, pursuant to which it will issue the Corresponding QUIDS, to
defer the payment of interest at any time or from time to time on any series
of the Corresponding QUIDS for a period which will be specified in such
Prospectus Supplement relating to such series (each, an "Extension Period"),
provided that no Extension Period may extend beyond the Stated Maturity of
such series of QUIDS. As a consequence of any such extension, Distributions on
the corresponding QUIPS would be deferred (but the QUIPS would continue to
accumulate additional Distributions thereon at the rate per annum set forth in
the Prospectus Supplement for such QUIPS) by the Issuer of such QUIPS during
any such Extension Period. During such Extension Period MCI may not, and may
not permit any subsidiary of MCI to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of MCI's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of MCI that rank pari passu with or junior in interest to the
Corresponding QUIDS or make any guarantee payments with respect to any
guarantee by MCI of the debt securities of any subsidiary of MCI if such
guarantee ranks pari passu or junior in interest to the Series A QUIDS (other
than (a) dividends or distributions in Common Stock of MCI, (b) redemptions or
purchases of any rights pursuant to MCI's Preferred Stock Rights Plan, or any
successor to such Preferred Stock Rights Plan, and the declaration of a
dividend of such rights or the issuance of Preferred Stock under such plans in
the future, (c) payments under any
16
<PAGE>
Guarantee, (d) purchases of Common Stock related to the issuance of Common
Stock under any of MCI's benefit plans for its directors, officers or
employees and (e) purchases of Common Stock required to prevent the loss or
secure the renewal or reinstatement of any government license or franchise
held by MCI or any of its subsidiaries).
The revenue of each Issuer available for distribution to holders of its
QUIPS will be limited to payments under the Corresponding QUIDS in which the
Issuer will invest the proceeds from the issuance and sale of its QUIPS and
its Common Securities. See "Description of Corresponding QUIDS". If MCI does
not make interest payments on such Corresponding QUIDS, the Property Trustee
will not have funds available to pay Distributions on the related QUIPS. The
payment of Distributions (if and to the extent the Issuer has funds legally
available for the payment of such Distributions and cash sufficient to make
such payments) is guaranteed by MCI on a limited basis as set forth herein
under "Description of Guarantees".
Distributions on the QUIPS will be payable to the holders thereof as they
appear on the register of such Issuer on the relevant record dates, which, as
long as the QUIPS remain in book-entry form, will be one Business Day prior to
the relevant Distribution Date. Subject to any applicable laws and regulations
and the provisions of the applicable Trust Agreement, each such payment will
be made as described under "--Book-Entry Issuance". In the event any QUIPS are
not in book-entry form, the relevant record date for such QUIPS shall be a
date at least 15 days prior to the relevant Distribution Date, as specified in
the applicable Prospectus Supplement.
REDEMPTION OR EXCHANGE
MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in part,
of any Corresponding QUIDS, whether at maturity or upon earlier redemption as
provided in the Indenture, the proceeds from such repayment or redemption
shall be applied by the Property Trustee to redeem a Like Amount (as defined
below) of the related QUIPS and the Common Securities, upon not less than 30
nor more than 60 days notice, at a redemption price (the "Redemption Price"),
with respect to the Common Securities, equal to the aggregate liquidation
preference of such QUIPS plus accumulated and unpaid Distributions thereon to
the date of redemption (the "Redemption Date") and the related amount of the
premium, if any, paid by MCI upon the concurrent redemption of such
Corresponding QUIDS. See "Description of Corresponding QUIDS--Optional
Redemption". If less than all of any series of Corresponding QUIDS are to be
repaid or redeemed on a Redemption Date, then the proceeds from such repayment
or redemption shall be allocated to the redemption pro rata of the related
QUIPS and the Common Securities. The amount of premium, if any, paid by MCI
upon the redemption of all or any part of any series of any Corresponding
QUIDS to be repaid or redeemed on a Redemption Date shall be allocated to the
redemption pro rata of the related QUIPS and the Common Securities.
MCI will have the right to redeem any series of Corresponding QUIDS (i) in
whole at any time or in part from time to time, subject to the conditions
described under "Description of Corresponding QUIDS--Optional Redemption",
(ii) at any time, in whole (but not in part), upon the occurrence of a Tax
Event or an Investment Company Event (each as defined below, a "Special
Event") and subject to the further conditions described under "Description of
Corresponding QUIDS--Optional Redemption", or (iii) as may be otherwise
specified in the applicable Prospectus Supplement.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION OF CORRESPONDING QUIDS. If a
Special Event in respect of a series of QUIPS and Common Securities shall
occur and be continuing, MCI has the right to redeem the Corresponding QUIDS
in whole (but not in part) and thereby cause a mandatory redemption of such
QUIPS and Common Securities in whole (but not in part) at the Redemption Price
within 90 days following the occurrence of such Special Event. At any time,
MCI has the right to terminate the related Issuer and, after satisfaction of
liabilities to creditors of such Issuer as provided by
17
<PAGE>
applicable law, cause such Corresponding QUIDS to be distributed to the
holders of such QUIPS and Common Securities in liquidation of the Issuer. If
MCI does not elect either option described above, the applicable series of
QUIPS will remain outstanding and, in the event a Tax Event has occurred and
is continuing, Additional Sums (as defined below) may be payable on the
Corresponding QUIDS.
EXTENSION OF MATURITY OF CORRESPONDING QUIDS. If provided in the applicable
Prospectus Supplement, MCI shall have the right to extend or shorten the
maturity of any series of Corresponding QUIDS at the time that MCI exercises
its right to elect to liquidate the related Issuer and cause such
Corresponding QUIDS to be distributed to the holders of such QUIPS and Common
Securities in liquidation of the Issuer, provided that it can extend the
maturity only if certain conditions specified in the applicable Prospectus
Supplement are met at the time such election is made and at the time of such
extension.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by an Issuer on the
outstanding QUIPS and Common Securities of the Issuer shall not be reduced as
a result of any additional taxes, duties and other governmental charges to
which the Issuer has become subject as a result of a Tax Event.
"Investment Company Event" means the receipt by the applicable Issuer of an
opinion of counsel, rendered by a law firm having a recognized national tax
and securities practice, to the effect that, as a result of the occurrence of
a change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), the applicable Issuer is or
will be considered an "investment company" that is required to be registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), which Change in 1940 Act Law becomes effective on or after the date of
original issuance of the series of QUIPS issued by the applicable Issuer.
"Like Amount" means (i) with respect to a redemption of any series of QUIPS,
QUIPS of such series and the Common Securities having a Liquidation Amount (as
defined below) equal to that portion of the principal amount of Corresponding
QUIDS to be contemporaneously redeemed in accordance with the Indenture
allocated 3% to the Common Securities and 97% to the QUIPS of such series and
the proceeds of which will be used to pay the Redemption Price of such QUIPS
and to redeem such Common Securities, and (ii) with respect to a distribution
of Corresponding QUIDS to holders of any series of QUIPS and the Common
Securities in connection with a dissolution or liquidation of the related
Issuer, Corresponding QUIDS having a principal amount equal to the Liquidation
Amount of the QUIPS and the Common Securities of the holder to whom such
Corresponding QUIDS are distributed. "Liquidation Amount" means the stated
amount of $25 per QUIPS and Common Security.
"Tax Event" means the receipt by the applicable Issuer of an opinion of
counsel, rendered by a law firm having a national tax and securities practice,
to the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after the date of issuance of the QUIPS under the related
Trust Agreement, there is more than an insubstantial risk that (i) the
applicable Issuer is, or will be within 90 days of the date of such opinion,
subject to United States federal income tax with respect to income received or
accrued on the corresponding series of Corresponding QUIDS, (ii) interest
payable by MCI on such series of Corresponding QUIDS is not, or within 90 days
of the date of such opinion, will not be, deductible by MCI, in whole or in
part, for United States federal income tax purposes, or (iii) the applicable
Issuer is, or will be within 90 days of the date of such opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
18
<PAGE>
After the liquidation date fixed for any distribution of Corresponding QUIDS
for any series of QUIPS (i) such series of QUIPS will no longer be deemed to
be outstanding, (ii) The Depository Trust Company ("DTC") or its nominee, as
the record holder of such series of QUIPS, will receive a registered global
certificate or certificates representing the Corresponding QUIDS to be
delivered upon such distribution and (iii) any certificates representing such
series of QUIPS not held by DTC or its nominee will be deemed to represent the
Corresponding QUIDS having a principal amount equal to the stated liquidation
preference of such series of QUIPS, and bearing accrued and unpaid interest in
an amount equal to the accrued and unpaid Distributions on such series of
QUIPS until such certificates are presented to the Administrative Trustees or
their agent for transfer or reissuance.
There can be no assurance as to the market prices for the QUIPS or the
Corresponding QUIDS that may be distributed in exchange for QUIPS if a
dissolution and liquidation of an Issuer were to occur. Accordingly, the QUIPS
that an investor may purchase, or the Corresponding QUIDS that the investor
may receive on dissolution and liquidation of an Issuer, may trade at a
discount to the price that the investor paid to purchase the QUIPS offered
hereby.
REDEMPTION PROCEDURES
QUIPS redeemed on each Redemption Date shall be redeemed at the Redemption
Price with the applicable proceeds from the contemporaneous redemption of the
Corresponding QUIDS. Redemptions of the QUIPS shall be made and the Redemption
Price shall be payable on each Redemption Date only to the extent that the
related Issuer has funds on hand available for the payment of such Redemption
Price. See also "--Subordination of Common Securities".
If an Issuer gives a notice of redemption in respect of its QUIPS, then, by
12:00 noon, New York City time, on the Redemption Date, to the extent funds
are available, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
holders of such QUIPS. See "--Book-Entry Issuance". If such QUIPS are no
longer in book-entry form, the Issuer, to the extent funds are available, will
irrevocably deposit with the paying agent for such QUIPS funds sufficient to
pay the applicable Redemption Price and will give such paying agent
irrevocable instructions and authority to pay the Redemption Price to the
holders thereof upon surrender of their certificates evidencing such QUIPS.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any QUIPS called for redemption shall be payable to the
holders of such QUIPS on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of the
holders of such QUIPS so called for redemption will cease, except the right of
the holders of such QUIPS to receive the Redemption Price, but without
interest on such Redemption Price, and such QUIPS will cease to be
outstanding. In the event that any date fixed for redemption of QUIPS is not a
Business Day, then payment of the Redemption Price payable on such date will
be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of QUIPS called for redemption is improperly
withheld or refused and not paid either by the Issuer or by MCI pursuant to
the Guarantee as described under "Description of Guarantees", Distributions on
such QUIPS will continue to accrue at the then applicable rate, from the
Redemption Date originally established by the Issuer for such QUIPS to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), MCI or its subsidiaries may at any time and from time
to time purchase outstanding QUIPS by tender, in the open market or by private
agreement.
19
<PAGE>
Payment of the Redemption Price on the QUIPS and any distribution of
Corresponding QUIDS to holders of QUIPS shall be made to the applicable
recordholders thereof as they appear on the register for such QUIPS on the
relevant record date, which shall be one Business Day prior to the relevant
Redemption Date or liquidation date, as applicable; provided, however, that in
the event that any QUIPS are not in book-entry form, the relevant record date
for such QUIPS shall be a date at least 15 days prior to the Redemption Date
or liquidation date, as applicable, as specified in the applicable Prospectus
Supplement.
If less than all of the QUIPS and Common Securities issued by an Issuer are
to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of
such QUIPS and Common Securities to be redeemed shall be allocated pro rata
among the QUIPS and the Common Securities. The particular QUIPS to be redeemed
shall be selected on a pro rata basis not more than 60 days prior to the
Redemption Date by the Property Trustee from the outstanding QUIPS not
previously called for redemption, by such method as the Property Trustee shall
deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $25 or an integral multiple of $25 in excess
thereof) of the liquidation preference of QUIPS of a denomination larger than
$25. The Property Trustee shall promptly notify the trust registrar in writing
of the QUIPS selected for redemption and, in the case of any QUIPS selected
for partial redemption, the liquidation preference thereof to be redeemed. For
all purposes of each Trust Agreement, unless the context otherwise requires,
all provisions relating to the redemption of QUIPS shall relate, in the case
of any QUIPS redeemed or to be redeemed only in part, to the portion of the
aggregate liquidation preference of QUIPS which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of QUIDS to be redeemed at
its registered address. Unless MCI defaults in payment of the Redemption
Price, on and after the Redemption Date interest ceases to accrue on such
QUIDS or portions thereof called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, each Issuer's
QUIPS and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of such QUIPS and Common Securities; provided, however,
that if on any Distribution Date or Redemption Date a Debenture Event of
Default shall have occurred and be continuing, no payment of any Distribution
on, or Redemption Price of, any of the Issuer's Common Securities, and no
other payment on account of the redemption, liquidation or other acquisition
of such Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the Issuer's outstanding QUIPS
for all Distribution periods terminating on or prior thereto, or in the case
of payment of the Redemption Price the full amount of such Redemption Price on
all of the Issuer's outstanding QUIPS then called for redemption, shall have
been made or provided for, and all funds available to the Property Trustee
shall first be applied to the payment in full in cash of all Distributions on,
or Redemption Price of, the Issuer's QUIPS then due and payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, MCI as holder of such Issuer's Common Securities will be deemed to
have waived any right to act with respect to any such Event of Default under
the applicable Trust Agreement until the effect of all such Events of Default
with respect to such QUIPS have been cured, waived or otherwise eliminated.
Until any such Events of Default under the applicable Trust Agreement with
respect to the QUIPS have been so cured, waived or otherwise eliminated, the
Property Trustee shall act solely on behalf of the holders of such QUIPS and
not on behalf of MCI as holder of the Issuer's Common Securities, and only the
holders of such QUIPS will have the right to direct the Property Trustee to
act on their behalf.
20
<PAGE>
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to each Trust Agreement, each Issuer shall automatically terminate
upon expiration of its term and shall terminate on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of MCI; (ii) the
distribution of a Like Amount of the Corresponding QUIDS to the holders of its
QUIPS and Common Securities, if MCI, as Depositor, has given written direction
to the Property Trustee to terminate such Issuer (which direction is optional
and wholly within the discretion of MCI, as Depositor); (iii) the redemption
of all of the Issuer's QUIPS and Common Securities following a Special Event;
(iv) the redemption of all of the Issuer's QUIPS as described under
"Description of QUIPS--Redemption or Exchange--Mandatory Redemption"; and
(v) the entry by a court of competent jurisdiction of an order for the
dissolution of the Issuer.
If an early termination occurs as described in clause (i), (ii) or (v)
above, the Issuer shall be liquidated by the Issuer Trustees as expeditiously
as the Issuer Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of such Issuer as provided by
applicable law, to the holders of such QUIPS and Common Securities a Like
Amount of the Corresponding QUIDS, unless such distribution is determined by
the Property Trustee not to be practical, in which event such holders will be
entitled to receive out of the assets of the Issuer available for distribution
to holders, after satisfaction of liabilities to creditors of such Issuer as
provided by applicable law, an amount equal to, in the case of holders of
QUIPS, the aggregate of the liquidation preference plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because such Issuer has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by
such Issuer on its QUIPS shall be paid on a pro rata basis. The holder(s) of
such Issuer's Common Securities will be entitled to receive distributions upon
any such liquidation pro rata with the holders of its QUIPS, except that if a
Debenture Event of Default has occurred and is continuing, the QUIPS shall
have a priority over the Common Securities. A supplemental Indenture may
provide that if an early termination occurs as described in clause (v) above,
the Corresponding QUIDS may be subject to optional redemption in whole (but
not in part).
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under each
Trust Agreement (an "Event of Default") with respect to the QUIPS issued
thereunder (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of QUIDS--Debenture Events of Default"); or
(ii) default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any QUIPS or Common Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in such Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the defaulting Issuer
Trustee or Trustees by the holders of at least 25% in aggregate liquidation
preference of the outstanding QUIPS of the applicable Issuer, a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" under such Trust
Agreement; or
21
<PAGE>
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by MCI to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of such Issuer's QUIPS, the
Administrative Trustees and MCI, as Depositor, unless such Event of Default
shall have been cured or waived. MCI, as Depositor, and the Administrative
Trustees are required to file annually with the Property Trustee a certificate
as to whether or not they are in compliance with all the conditions and
covenants applicable to them under each Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the QUIPS
shall have a preference over the Common Securities upon termination of each
Issuer as described above. See "--Liquidation Distribution Upon Termination".
The existence of an Event of Default does not entitle the holders of QUIPS to
accelerate the maturity thereof.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF QUIPS
If an Event of Default has occurred and is continuing, then the holders of
QUIPS would rely on the enforcement by the Debenture Trustee of its rights as
a holder of the related QUIDS against MCI. Notwithstanding the foregoing, if
an Event of Default has occurred and is continuing and such event is
attributable to the failure of MCI to pay interest or principal on the related
QUIDS on the date such interest or principal is otherwise payable (or in the
case of redemption, on the redemption date), then a holder of QUIPS may
directly institute a proceeding against MCI for enforcement of payment to such
holder of the principal of or interest on the related QUIDS having a principal
amount equal to the aggregate liquidation preference of the QUIPS of such
holder (a "Direct Action") after the respective due date specified in the
related QUIDS. In connection with such Direct Action, MCI will be subrogated
to the rights of such holder of QUIPS under the Trust Agreement to the extent
of any payment made by MCI to such holder of QUIPS in such Direct Action.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by
the holders of a majority in Liquidation Amount of the outstanding QUIPS. In
no event will the holders of the QUIPS have the right to vote to appoint,
remove or replace the Administrative Trustees, which voting rights are vested
exclusively in MCI as the holder of the Common Securities. No resignation or
removal of an Issuer Trustee and no appointment of a successor trustee shall
be effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the applicable Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property
may at the time be located, MCI, as the holder of the Common Securities, and
the Administrative Trustees shall have power to appoint one or more persons
either to act as a co-trustee, jointly with the Property Trustee, of all or
any part of such Trust Property, or to act as separate trustee of any such
property, in either case with such powers as may be provided in the instrument
of appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the applicable Trust Agreement. In case a Debenture Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make such appointment.
22
<PAGE>
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of such Trustee, shall be the successor of such Trustee under each
Trust Agreement, provided such corporation shall be otherwise qualified and
eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUERS
An Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. An Issuer may, at the request of MCI, with the consent of the
Administrative Trustees and without the consent of the holders of the QUIPS,
merge with or into, consolidate, amalgamate, be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to a
trust organized as such under the laws of any State; provided that (i) such
successor entity either (a) expressly assumes all of the obligations of such
Issuer with respect to the QUIPS or (b) substitutes for the QUIPS other
securities having substantially the same terms as the QUIPS (the "Successor
Securities") so long as the Successor Securities rank the same as the QUIPS
rank in priority with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) MCI expressly appoints a trustee of such
successor entity possessing the same powers and duties as the Property Trustee
as the holder of the Corresponding QUIDS, (iii) the Successor Securities are
listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or other organization on which
the QUIPS are then listed, if any, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
QUIPS (including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the QUIPS
(including any Successor Securities) in any material respect, (vi) such
successor entity has a purpose identical to that of the Issuer, (vii) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer,
or lease, MCI has received an opinion from independent counsel to the Issuer
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the QUIPS
(including any Successor Securities) in any material respect and (b) following
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, neither the Issuer nor such successor entity will be required to
register as an investment company under the Investment Company Act, and (viii)
MCI or any permitted successor or assignee owns all of the Common Securities
of such successor entity and guarantees the obligations of such successor
entity under the Successor Securities at least to the extent provided by the
Guarantee. Notwithstanding the foregoing, an Issuer shall not, except with the
consent of holders of 100% in aggregate liquidation preference of the QUIPS,
consolidate, amalgamate, merge with or into, be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to
any other entity or permit any other entity to consolidate, amalgamate, merge
with or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Issuer or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF EACH TRUST AGREEMENT
Except as provided below and under "Description of Guarantees--Amendments
and Assignment" and as otherwise required by law and the applicable Trust
Agreement, the holders of the QUIPS will have no voting rights.
23
<PAGE>
Each Trust Agreement may be amended from time to time by MCI and the Issuer
Trustees, without the consent of the holders of the QUIPS (i) to cure any
ambiguity, correct or supplement any provisions in such Trust Agreement that
may be inconsistent with any other provision, or to make any other provisions
with respect to matters or questions arising under such Trust Agreement that
shall not be inconsistent with the other provisions of such Trust Agreement,
or (ii) to modify, eliminate or add to any provisions of such Trust Agreement
to such extent as shall be necessary to ensure that the Issuer will be
classified for United States federal income tax purposes as a grantor trust at
all times that any QUIPS and Common Securities are outstanding or to ensure
that the Issuer will not be required to register as an "investment company"
under the Investment Company Act, provided, however, that in the case of
clause (i), such action shall not adversely affect in any material respect the
interests of any holder of QUIPS or Common Securities, and any amendments of
such Trust Agreement shall become effective when notice thereof is given to
the holders of QUIPS and Common Securities. Each Trust Agreement may be
amended by the Issuer Trustees and MCI with (i) the consent of holders
representing not less than a majority (based upon Liquidation Amounts) of the
outstanding QUIPS and Common Securities and (ii) receipt by the Issuer
Trustees of an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not affect the Issuer's status as a grantor trust for United
States federal income tax purposes or the Issuer's exemption from status of an
"investment company" under the Investment Company Act, provided, further that
without the consent of each holder of QUIPS and Common Securities, such Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the QUIPS and Common Securities or otherwise adversely affect
the amount of any Distribution required to be made in respect of the QUIPS and
Common Securities as of a specified date or (ii) restrict the right of a
holder of QUIPS and Common Securities to institute suit for the enforcement of
any such payment on or after such date.
So long as any Corresponding QUIDS are held by the Property Trustee, the
Issuer Trustees shall not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee or executing
any trust or power conferred on the Property Trustee with respect to such
Corresponding QUIDS, (ii) waive any past default that is waiveable under
Section 513 of the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the QUIDS shall be due and payable or
(iv) consent to any amendment, modification or termination of the Indenture or
such Corresponding QUIDS, where such consent shall be required, without, in
each case, obtaining the prior approval of the holders of a majority in
aggregate liquidation preference of all outstanding QUIPS; provided, however,
that where a consent under the Indenture would require the consent of each
holder of Corresponding QUIDS affected thereby, no such consent shall be given
by the Property Trustee without the prior consent of each holder of the
corresponding QUIPS. The Issuer Trustees shall not revoke any action
previously authorized or approved by a vote of the holders of the QUIPS except
by subsequent vote of the holders of the QUIPS. The Property Trustee shall
notify each holder of record of the QUIPS of any notice of default with
respect to the Corresponding QUIDS. In addition to obtaining the foregoing
approvals of the holders of the QUIPS, prior to taking any of the foregoing
actions, the Issuer Trustees shall obtain an opinion of counsel experienced in
such matters to the effect that the Issuer will not be classified as a
corporation for United States federal income tax purposes on account of such
action.
Any required approval of holders of QUIPS may be given at a meeting of
holders of QUIPS convened for such purpose or pursuant to written consent. The
Property Trustee will cause a notice of any meeting at which holders of QUIPS
are entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be given to each holder of record of QUIPS in
the manner set forth in the applicable Trust Agreement.
No vote or consent of the holders of QUIPS will be required for an Issuer to
redeem and cancel its QUIPS in accordance with the applicable Trust Agreement.
24
<PAGE>
Notwithstanding that holders of QUIPS are entitled to vote or consent under
any of the circumstances described above, any of the QUIPS that are owned by
MCI, the Issuer Trustees or any affiliate of MCI or any Issuer Trustees,
shall, for purposes of such vote or consent, be treated as if they were not
outstanding.
PAYMENT AND PAYING AGENCY
Payments in respect of the QUIPS shall be made to DTC, which shall credit
the relevant accounts at DTC on the applicable Distribution Dates or, if any
Issuer's QUIPS are not held by DTC, such payments shall be made by check
mailed to the address of the holder entitled thereto as such address shall
appear on the Register. Unless otherwise specified in the applicable
Prospectus Supplement, the paying agent (the "Paying Agent") shall initially
be the Property Trustee and any co-paying agent chosen by the Property Trustee
and acceptable to the Administrative Trustees and MCI. The Paying Agent shall
be permitted to resign as Paying Agent upon 30 days' written notice to the
Property Trustee and MCI. In the event that the Property Trustee shall no
longer be the Paying Agent, the Administrative Trustees shall appoint a
successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and MCI) to act as Paying Agent.
BOOK-ENTRY ISSUANCE
DTC will act as securities depositary for all of the QUIPS. The QUIPS will
be issued only as fully-registered securities registered in the name of Cede &
Co. (DTC's nominee). One or more fully-registered global certificates will be
issued for the QUIPS of each Issuer, representing in the aggregate the total
number of such Issuer's QUIPS, and will be deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the DTC system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain custodial relationships with Direct Participants,
either directly or indirectly ("Indirect Participants"). The rules applicable
to DTC and its Participants are on file with the Commission.
Purchases of QUIPS within the DTC system must be made by or through Direct
Participants, which will receive a credit for the QUIPS on DTC's records. The
ownership interest of each actual purchaser of each QUIPS ("Beneficial Owner")
is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchases, but Beneficial Owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their
holdings, from the Direct or Indirect Participants through which the
Beneficial Owners purchased QUIPS. Transfers of ownership interests in the
QUIPS are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in QUIPS, except in the
event that use of the book-entry system for the QUIPS of such Issuer is
discontinued.
25
<PAGE>
DTC has no knowledge of the actual Beneficial Owners of the QUIPS; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such QUIPS are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Redemption notices shall be sent to Cede & Co. as the registered holder of
the QUIPS. If less than all of an Issuer's QUIPS are being redeemed, DTC's
current practice is to determine by lot the amount of the interest of each
Direct Participant to be redeemed.
Although voting with respect to the QUIPS is limited to the holders of
record of the QUIPS, in those instances in which a vote is required, neither
DTC nor Cede & Co. will itself consent or vote with respect to QUIPS. Under
its usual procedures, DTC would mail an omnibus proxy (the "Omnibus Proxy") to
the Property Trustee as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts such QUIPS are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Distribution payments on the QUIPS will be made by the Property Trustee to
DTC. DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payments on
such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices and will be the
responsibility of such Participant and not of DTC, the Property Trustee, the
Issuer thereof or MCI, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of Distributions to DTC is the
responsibility of the Property Trustee, disbursement of such payments to
Direct Participants is the responsibility of DTC, and disbursements of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities depositary with
respect to any of the QUIPS at any time by giving reasonable notice to the
Property Trustee and MCI. In the event that a successor securities depositary
is not obtained, definitive QUIPS certificates representing such QUIPS are
required to be printed and delivered. MCI, at its option, may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depositary). After a Debenture Event of Default, the holders of a
majority in liquidation preference of QUIPS may determine to discontinue the
system of book-entry transfers through DTC. In any such event, definitive
certificates for such Issuer's QUIPS will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuers and MCI believe to be
accurate, but the Issuers and MCI assume no responsibility for the accuracy
thereof. Neither the Issuers nor MCI has any responsibility for the
performance by DTC or its Participants of their respective obligations as
described herein or under the rules and procedures governing their respective
operations.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable Prospectus Supplement, the
Property Trustee will act as registrar and transfer agent for the QUIPS.
26
<PAGE>
Registration of transfers of QUIPS will be effected without charge by or on
behalf of each Issuer, but upon payment of any tax or other governmental
charges that may be imposed in connection with any transfer or exchange. The
Issuers will not be required to register or cause to be registered the
transfer of their QUIPS after such QUIPS have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in each Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Property Trustee is under no obligation to exercise any of the powers
vested in it by the applicable Trust Agreement at the request of any holder of
QUIPS unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby. If no Event of Default has
occurred and is continuing and the Property Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the
applicable Trust Agreement or is unsure of the application of any provision of
the applicable Trust Agreement, and the matter is not one on which holders of
QUIPS are entitled under such Trust Agreement to vote, then the Property
Trustee shall take such action as is directed by MCI and if not so directed,
shall take such action as it deems advisable and in the best interests of the
holders of the QUIPS and the Common Securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Issuers in such a way that no Issuer will be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a
corporation for United States federal income tax purposes and so that the
Corresponding QUIDS will be treated as indebtedness of MCI for United States
federal income tax purposes. In this connection, MCI and the Administrative
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of each Issuer or each Trust Agreement, that MCI
and the Administrative Trustees determine in their discretion to be necessary
or desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the related QUIPS.
Holders of the QUIPS have no preemptive or similar rights.
No Issuer may borrow money or issue debt or mortgage or pledge any of its
assets.
DESCRIPTION OF GUARANTEES
Each Guarantee will be executed and delivered by MCI concurrently with the
issuance by each Issuer of its QUIPS for the benefit of the holders from time
to time of such QUIPS. Wilmington Trust Company will act as indenture trustee
("Guarantee Trustee") under each Guarantee for the purposes of compliance with
the Trust Indenture Act and each Guarantee will be qualified as an Indenture
under the Trust Indenture Act. This summary of certain provisions of the
Guarantees does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of each Guarantee,
including the definitions therein of certain terms, and the Trust Indenture
Act. The form of the Guarantee has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Reference in
this summary to QUIPS means that Issuer's QUIPS to which a Guarantee relates.
The Guarantee Trustee will hold each Guarantee for the benefit of the holders
of the related Issuer's QUIPS.
27
<PAGE>
GENERAL
MCI will irrevocably agree to pay in full on a subordinated basis, to the
extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the QUIPS, as and when due, regardless of any defense, right of
set-off or counterclaim that such Issuer may have or assert other than the
defense of payment. The following payments with respect to the QUIPS, to the
extent not paid by or on behalf of the related Issuer (the "Guarantee
Payments"), will be subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on such QUIPS, to the extent that such
Issuer has funds on hand available therefor at such time, (ii) the Redemption
Price with respect to any QUIPS called for redemption to the extent that such
Issuer has funds on hand available therefor at such time, or (iii) upon a
voluntary or involuntary dissolution, winding up or liquidation of such Issuer
(unless the Corresponding QUIDS are distributed to holders of such QUIPS), the
lesser of (a) the Liquidation Distribution and (b) the amount of assets of
such Issuer remaining available for distribution to holders of QUIPS. MCI's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by MCI to the holders of the applicable QUIPS or by
causing the Issuer to pay such amounts to such holders.
Each Guarantee will be an irrevocable guarantee on a subordinated basis of
the related Issuer's obligations under the QUIPS, but will apply only to the
extent that such related Issuer has funds sufficient to make such payments,
and is not a guarantee of collection.
If MCI does not make interest payments on the Corresponding QUIDS held by
the Issuer, the Issuer will not be able to pay Distributions on the QUIPS and
will not have funds legally available therefor. Each Guarantee will rank
subordinate and junior in right of payment to all Senior Debt of MCI. See "--
Status of the Guarantees". MCI is a non-operating holding company and almost
all of the operating assets of MCI and its consolidated subsidiaries are owned
by such subsidiaries. MCI relies primarily on interest and dividends from such
subsidiaries to meet its obligations for payment of principal and interest on
its outstanding debt obligations and corporate expenses. Accordingly, MCI's
obligations under the Guarantees will be effectively subordinated to all
existing and future liabilities of MCI's subsidiaries, and claimants should
look only to the assets of MCI for payments thereunder. Except as otherwise
provided in the applicable Prospectus Supplement, the Guarantees do not limit
the incurrence or issuance of other secured or unsecured debt of MCI, whether
under the Indenture or any existing or other indenture that MCI may enter into
in the future or otherwise, including MCI's Senior and Subordinated Indentures
entered into with Citibank, N.A. and Bankers Trust Company, respectively.
MCI has, through the applicable Guarantee, the applicable Trust Agreement,
the QUIDS, the Indenture and the Expense Agreement, taken together, fully,
irrevocably and unconditionally guaranteed all of the Issuer's obligations
under the QUIPS. No single document standing alone or operating in conjunction
with fewer than all of the other documents constitutes such guarantee. It is
only the combined operation of these documents that has the effect of
providing a full, irrevocable and unconditional guarantee of the Issuer's
obligations under the QUIPS. See "Relationship Among the QUIPS, the QUIDS and
the Guarantees--General".
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of MCI and will rank
subordinate and junior in right of payment to all Senior Debt.
Each Guarantee will rank pari passu with all other Guarantees issued by MCI.
Each Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). Each
Guarantee will be held for the benefit of the holders of the related QUIPS.
Each Guarantee will not be discharged except by payment
28
<PAGE>
of the Guarantee Payments in full to the extent not paid by the Issuer or upon
distribution to the holders of the QUIPS of the Corresponding QUIDS. None of
the Guarantees places a limitation on the amount of additional Senior Debt
that may be incurred by MCI. The communication services business is capital
intensive and MCI anticipates that from time to time it will incur substantial
additional indebtedness constituting Senior Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the related QUIPS (in which case no vote will be
required), no Guarantee may be amended without the prior approval of the
holders of not less than a majority of the aggregate liquidation preference of
such outstanding QUIPS. The manner of obtaining any such approval will be as
set forth under "Description of the QUIPS--Voting Rights; Amendment of Each
Trust Agreement". All guarantees and agreements contained in each Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
MCI and shall inure to the benefit of the holders of the related QUIPS then
outstanding.
EVENTS OF DEFAULT
An event of default under each Guarantee will occur upon the failure of MCI
to perform any of its payment or other obligations thereunder. The holders of
not less than a majority in aggregate Liquidation Amount of the related QUIPS
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of
such Guarantee or to direct the exercise of any trust or power conferred upon
the Guarantee Trustee under such Guarantee.
Any holder of the QUIPS may institute a legal proceeding directly against
MCI to enforce its rights under such Guarantee without first instituting a
legal proceeding against the Issuer, the Guarantee Trustee or any other person
or entity.
MCI, as guarantor, is required to file annually with the Guarantee Trustee a
certificate as to whether or not MCI is in compliance with all the conditions
and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by MCI in performance of any Guarantee, undertakes to perform only
such duties as are specifically set forth in each Guarantee and, after default
with respect to any Guarantee, must exercise the same degree of care and skill
as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by any Guarantee at the
request of any holder of any QUIPS unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
Each Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the related QUIPS, upon full payment
of the amounts payable upon liquidation of the related Issuer or upon
distribution of Corresponding QUIDS to the holders of the related QUIPS. Each
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the related QUIPS must restore payment of any
sums paid under such QUIPS or such Guarantee.
29
<PAGE>
GOVERNING LAW
Each Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to an Expense Agreement entered into by MCI under each Trust
Agreement (the "Expense Agreement"), MCI will irrevocably and unconditionally
guarantee to each person or entity to whom the Issuer becomes indebted or
liable, the full payment of any costs, expenses or liabilities of the Issuer,
other than obligations of the Issuer to pay to the holders of any QUIPS or
other similar interests in the Issuer the amounts due such holders pursuant to
the terms of the QUIPS or such other similar interests, as the case may be.
DESCRIPTION OF CORRESPONDING QUIDS
The Corresponding QUIDS are to be issued in one or more series under the
Indenture with terms corresponding to the terms of the related QUIPS. See
"Description of QUIDS". This summary of certain terms and provisions of, or
relating to, Corresponding QUIDS and the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Indenture, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, and to the Trust Indenture
Act. Whenever particular defined terms of the Indenture (as supplemented or
amended from time to time) are referred to herein or in a Prospectus
Supplement, such defined terms are incorporated herein or therein by
reference.
GENERAL
Concurrently with the issuance of each Issuer's QUIPS, such Issuer will
invest the proceeds thereof and the consideration paid by MCI for the Common
Securities in a series of Corresponding QUIDS issued by MCI to such Issuer.
Each series of Corresponding QUIDS will be in the principal amount equal to
the aggregate stated Liquidation Amount of the related QUIPS plus MCI's
concurrent investment in the Common Securities and will rank pari passu with
all other series of QUIDS. The Corresponding QUIDS will be unsecured and
subordinate and junior in right of payment to the extent and in the manner set
forth in the Indenture to all Senior Debt of MCI. See "Description of QUIDS--
Subordination" and the Prospectus Supplement relating to any offering of
related QUIPS.
OPTIONAL REDEMPTION
Unless otherwise specified in the applicable Prospectus Supplement, MCI may,
at its option, redeem the Corresponding QUIDS of any series in whole at any
time or in part from time to time. Except as otherwise set forth in the
applicable Prospectus Supplement, the redemption price for any Corresponding
QUIDS so redeemed shall be equal to any accrued and unpaid interest thereon to
the date fixed for redemption, plus the principal amount thereof. See
"Description of QUIDS--Redemption".
If a Special Event in respect of an Issuer shall occur and be continuing,
MCI may, at its option, redeem the Corresponding QUIDS at any time within 90
days of the occurrence of such Special Event, in whole but not in part,
subject to the provisions of the Indenture. The redemption price for any
Corresponding QUIDS shall be equal to 100% of the principal amount of such
Corresponding QUIDS then outstanding plus accrued and unpaid interest to the
date fixed for redemption.
For so long as the applicable Issuer is the holder of all the outstanding
series of Corresponding QUIDS, the proceeds of any such redemption will be
used by the Issuer to redeem the corresponding
30
<PAGE>
QUIPS in accordance with their terms. MCI may not redeem a series of
Corresponding QUIDS in part unless all accrued and unpaid interest has been
paid in full on all outstanding Corresponding QUIDS of such series for all
interest periods terminating on or prior to the Redemption Date.
CERTAIN COVENANTS OF MCI
MCI will covenant in the Indenture as to each series of Corresponding QUIDS
that if and so long as (i) the Issuer of the related series of QUIPS and
Common Securities is the holder of all such Corresponding QUIDS, (ii) a Tax
Event in respect of such Issuer has occurred and is continuing and (iii) MCI
has elected, and has not revoked such election, to pay Additional Sums in
respect of such QUIPS and Common Securities, MCI will pay to such Issuer such
Additional Sums. MCI will also covenant, as to each series of Corresponding
QUIDS, that it will not, and will not permit any subsidiary of MCI to, (i)
declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of MCI's capital
stock or (ii) make any payment of principal, interest or premium, if any, on
or repay or repurchase or redeem any debt securities (including other
Corresponding QUIDS) that rank pari passu with or junior in interest to the
Corresponding QUIDS or make any guarantee payments with respect to the
foregoing (other than (a) dividends or distributions in Common Stock of MCI,
(b) redemptions or purchases of any rights pursuant to MCI's Preferred Stock
Rights Plan, or any successor to such Preferred Stock Rights Plan, and the
declaration of a dividend of such rights or the issuance of Preferred Stock
under such plans in the future, (c) payments under any Guarantee, (d)
purchases of Common Stock related to the issuance of Common Stock under any of
MCI's benefit plans for its directors, officers or employees and (e) purchases
of Common Stock required to prevent the loss or secure the renewal or
reinstatement of any government license or franchise held by MCI or any of its
subsidiaries) if at such time (i) there shall have occurred any event of which
MCI has actual knowledge that (a) with the giving of notice or the lapse of
time, or both, would constitute an "Event of Default" under the Indenture with
respect to Corresponding QUIDS of such series and (b) in respect of which MCI
shall not have taken reasonable steps to cure, (ii) MCI shall be in default
with respect to its payment of any obligations under the related Guarantee or
(iii) MCI shall have given notice of its selection of an Extension Period as
provided in the Indenture with respect to Corresponding QUIDS of such series
and shall not have rescinded such notice, or such Extension Period, or any
extension thereof, shall be continuing. MCI will also covenant, as to each
series of Corresponding QUIDS, (i) to maintain directly or indirectly 100%
ownership of the Common Securities of the Issuer to which Corresponding QUIDS
have been issued, provided that certain successors which are permitted
pursuant to the Indenture may succeed to MCI's ownership of the Common
Securities, (ii) not to voluntarily terminate, wind-up or liquidate any
Issuer, except (a) in connection with a distribution of Corresponding QUIDS to
the holders of the QUIPS in liquidation of such Issuer or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the related
Trust Agreement, and (iii) to use its reasonable efforts, consistent with the
terms and provisions of the related Trust Agreement, to cause such Issuer to
remain classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes.
RELATIONSHIP AMONG THE QUIPS,
THE CORRESPONDING QUIDS AND THE GUARANTEES
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the QUIPS (to the extent
the Issuer has funds available for the payment of such Distributions) are
irrevocably guaranteed by MCI as and to the extent set forth under
"Description of Guarantees". Taken together, MCI's obligations under each
series of QUIDS, the Indenture, the related Trust Agreement, the related
Expense Agreement and the related Guarantee provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of distributions and other
amounts due on the related series of QUIPS. No single document
31
<PAGE>
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer's obligations under the QUIPS. If and to
the extent that MCI does not make payments on any series of Corresponding
QUIDS, such Issuer will not pay Distributions or other amounts due on related
QUIPS. The Guarantees do not cover payment of Distributions when the related
Issuer does not have sufficient funds to pay such Distributions. In such
event, a holder of a series of QUIPS may institute a legal proceeding directly
against MCI to enforce payment of such Distributions to such holder after the
respective due dates. The obligations of MCI under each Guarantee are
subordinate and junior in right of payment to all Senior Debt of MCI.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on each
series of Corresponding QUIDS, such payments will be sufficient to cover
Distributions and other payments due on the related QUIPS, primarily because
(i) the aggregate principal amount of each series of Corresponding QUIDS will
be equal to the sum of the aggregate stated liquidation amount of the related
QUIPS and related Common Securities; (ii) the interest rate and interest and
other payment dates on each series of Corresponding QUIDS will match the
Distribution rate and Distribution and other payment dates for the related
QUIPS; (iii) MCI shall pay for all and any costs, expenses and liabilities of
such Issuer except the Issuer's obligations to holders of its QUIPS under such
QUIPS; and (iv) each Trust Agreement further provides that the Issuer will not
engage in any activity that is not consistent with the limited purposes of
such Issuer.
Notwithstanding anything to the contrary in the Indenture, MCI has the right
to set-off any payment it is otherwise required to make thereunder with and to
the extent MCI has theretofore made, or is concurrently on the date of such
payment making, a payment under the related Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF QUIPS
A holder of any related QUIPS may institute a legal proceeding directly
against MCI to enforce its rights under the related Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the related
Issuer or any other person or entity.
A default or event of default under any Senior Debt of MCI will not
constitute a default or Event of Default under the Indenture. However, in the
event of payment defaults under, or acceleration of, Senior Debt of MCI, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Corresponding QUIDS until such Senior Debt has been paid in
full or any payment default thereunder has been cured or waived. Failure to
make required payments on any series of Corresponding QUIDS would constitute
an Event of Default under the Indenture.
LIMITED PURPOSE OF ISSUERS
Each Issuer's QUIPS evidence a beneficial interest in such Issuer, and each
Issuer exists for the sole purpose of issuing its QUIPS and Common Securities
and investing the proceeds thereof in Corresponding QUIDS. A principal
difference between the rights of a holder of a QUIPS and a holder of a
Corresponding QUIDS is that a holder of a Corresponding QUIDS is entitled to
receive from MCI the principal amount of and interest accrued on Corresponding
QUIDS held, while a holder of QUIPS is entitled to receive Distributions from
such Issuer (or from MCI under the applicable Guarantee) if and to the extent
such Issuer has funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
any Issuer involving the liquidation of the Corresponding QUIDS, the holders
of the related QUIPS will be entitled to receive,
32
<PAGE>
out of assets held by such Issuer, the Liquidation Distribution in cash. See
"Description of QUIPS--Liquidation Distribution Upon Termination". Upon any
voluntary or involuntary liquidation or bankruptcy of MCI, the Property
Trustee, as holder of the Corresponding QUIDS, would be a subordinated
creditor of MCI, subordinated in right of payment to all Senior Debt, but
entitled to receive payment in full of principal and interest before any
stockholders of MCI receive payments or distributions. Since MCI is the
guarantor under each Guarantee and has agreed to pay for all costs, expenses
and liabilities of each Issuer (other than the Issuer's obligations to the
holders of its QUIPS), the positions of a holder of such QUIPS and a holder of
such Corresponding QUIDS relative to other creditors and to stockholders of
MCI in the event of liquidation or bankruptcy of MCI would be substantially
the same.
PLAN OF DISTRIBUTION
The QUIDS and the QUIPS may be sold in a public offering to or through
underwriters or dealers designated from time to time. MCI and each Issuer may
sell its QUIDS and QUIPS as soon as practicable after effectiveness of the
Registration Statement of which the Prospectus is a part. The names of any
underwriters or dealers involved in the sale of the QUIDS and QUIPS in respect
of which this Prospectus is delivered, the amount or number of QUIDS and QUIPS
to be purchased by any such underwriters and any applicable commissions or
discounts will be set forth in the Prospectus Supplement.
Underwriters may offer and sell QUIDS and QUIPS at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. In connection with the sale of QUIPS, underwriters may be
deemed to have received compensation from MCI and/or the applicable Issuer in
the form of underwriting discounts or commissions and may also receive
commissions. Underwriters may sell QUIDS and QUIPS to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters.
Any underwriting compensation paid by MCI and/or the applicable Issuer to
underwriters in connection with the offering of QUIDS and QUIPS, and any
discounts, concessions or commissions allowed by such underwriters to
participating dealers, will be described in a Prospectus Supplement.
Underwriters and dealers participating in the distribution of QUIDS and QUIPS
may be deemed to be underwriters, and any discounts and commissions received
by them and any profit realized by them on resale of such QUIDS and QUIPS may
be deemed to be underwriting discounts and commissions, under the Securities
Act. Underwriters and dealers may be entitled, under agreement with MCI and
the applicable Issuer, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act, and
to reimbursement by MCI for certain expenses.
In connection with the offering of the QUIPS of any Issuer, such Issuer may
grant to the underwriters an option to purchase additional QUIPS to cover
over-allotments, if any, at the initial public offering price (with an
additional underwriting commission), as may be set forth in the accompanying
Prospectus Supplement. If such Issuer grants any over-allotment option, the
terms of such over-allotment option will be set forth in the Prospectus
Supplement for such QUIPS.
Underwriters and dealers may engage in transactions with, or perform
services for, MCI and/or the applicable Issuer and/or any of their affiliates
in the ordinary course of business.
The QUIDS and the QUIPS will be new issues of securities and will have no
established trading market. Any underwriters to whom QUIDS and QUIPS are sold
for public offering and sale may make a market in such QUIDS and QUIPS, but
such underwriters will not be obligated to do so and may discontinue any
market making at any time without notice. Such QUIDS and QUIPS may or may not
be listed on a national securities exchange or the Nasdaq National Market, as
set forth in the
33
<PAGE>
applicable Prospectus Supplement. No assurance can be given as to the
liquidity of or the existence of trading markets for any QUIDS or QUIPS.
LEGAL OPINIONS
Unless otherwise set forth in the applicable Prospectus Supplement, certain
matters of Delaware law relating to the legality of the QUIPS, the validity of
the Trust Agreements and the formation of the Issuers will be passed upon by
Richards, Layton & Finger, special Delaware counsel to MCI and the Issuers.
The legality of the Guarantees and QUIDS will be passed upon for MCI by
Kramer, Levin, Naftalis & Frankel, New York, New York, and for the
Underwriters by Sullivan & Cromwell, New York, New York. Certain matters
relating to United States federal income tax considerations will be passed
upon for MCI by Kramer, Levin, Naftalis & Frankel.
EXPERTS
The audited consolidated financial statements of MCI and subsidiaries
incorporated herein by reference to MCI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 have been so incorporated in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
34
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PRO-
SPECTUS SUPPLEMENT AND THE PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MCI
COMMUNICATIONS CORPORATION SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Factors......................................................... S-4
MCI Capital I........................................................ S-9
MCI Communications Corporation....................................... S-9
Ratio of Earnings to Fixed Charges................................... S-10
Use of Proceeds...................................................... S-10
Capitalization....................................................... S-11
Accounting Treatment................................................. S-12
Selected Financial Information....................................... S-12
Certain Terms of Series A QUIPS...................................... S-13
Certain Terms of Series A QUIDS...................................... S-15
Certain Federal Income Tax Consequences.............................. S-18
Underwriting......................................................... S-21
Legal Opinions....................................................... S-23
PROSPECTUS
Available Information................................................ 3
Incorporation of Certain Information by Reference.................... 3
MCI Communications Corporation....................................... 4
The Issuers.......................................................... 5
Use of Proceeds...................................................... 6
Ratio of Earnings to Fixed Charges................................... 6
Description of QUIDS................................................. 6
Description of QUIPS................................................. 15
Description of Guarantees............................................ 27
Description of Corresponding QUIDS................................... 30
Relationship Among the QUIPS, the
Corresponding QUIDS and
the Guarantees...................................................... 31
Plan of Distribution................................................. 33
Legal Opinions....................................................... 34
Experts.............................................................. 34
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
30,000,000 PREFERRED SECURITIES
MCI CAPITAL I
8.00% CUMULATIVE QUARTERLY
INCOME PREFERRED SECURITIES,
SERIES A (QUIPS SM)
GUARANTEED TO THE EXTENT THE SERIES A
ISSUER HAS FUNDS AS SET FORTH
HEREIN BY
MCI COMMUNICATIONS
CORPORATION
-----------
[LOGO OF MCI APPEARS HERE]
-----------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
