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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _______
Commission File Number: 0-6457
MCI COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 52-0886267
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 872-1600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
The aggregate market value of the voting stock of registrant, which includes the
Common Stock and Class A Common Stock, held by non-affiliates was
$20,414,632,708 at February 26, 1996, based upon the closing price of the Common
Stock on that date.
As of February 26, 1996, registrant had outstanding 555,135,701 shares of Common
Stock and 135,998,932 shares of Class A Common Stock.
Documents Incorporated by Reference:
Portions of the Annual Report to Stockholders for the year ended December 31,
1995 - Part II Portions of the Proxy Statement For the 1996 Annual Meeting of
Stockholders -
Part III
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PART I
Item 1. Business
GENERAL
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MCI* provides 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 MCI's core business. 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 MCI's
operating revenues and operating income were derived from its core business. 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 conducts its business primarily through its subsidiaries. Unless the
context otherwise requires, "MCI" or "company" means MCI Communications
Corporation, a Delaware corporation organized in August 1968, and its
subsidiaries on a consolidated basis. MCI is a registered service mark of MCI
Communications Corporation. MCI has its principal executive offices at 1801
Pennsylvania Avenue, N.W., Washington, D.C. 20006 (telephone number (202)
872-1600).
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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 ("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. See "CORE BUSINESS - COMPETITION" and "CORE BUSINESS -
TELECOMMUNICATIONS ACT" below for a further discussion of the Telecommunications
Act and its anticipated impact on competition.
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. See "VENTURES AND DEVELOPING MARKETS BUSINESS" and "CORE
BUSINESS" below.
MCI anticipates that continued substantial capital expenditures will be
required to compete effectively in these markets. Competition from 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 MCI's
future success, but the company believes that it will compete effectively in
providing its services.
As of December 31, 1995, MCI had approximately 50,000 full-time employees.
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CORE BUSINESS
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Services
--------
MCI provides a wide range of long-distance telecommunication services,
including: basic long-distance telephone service; voice and data services over
software-defined virtual private networks; private line services; collect
calling, operator assistance and calling card services, including prepaid
calling cards; toll free or 800 services; 900 services; switched and dedicated
Internet access services; and Internet backbone services. The company offers
these services individually and in combinations. Through combined offerings, MCI
is able to provide customers with benefits such as single billing, unified
services for multi-location companies and customized calling plans.
MCI markets domestic and international voice and data communication
services primarily through its long-distance telecommunication subsidiary, MCI
Telecommunications Corporation ("MCIT"). Domestic and international
long-distance telecommunication, domestic data communication and electronic
messaging services are marketed to business, government and residential
customers by MCIT's sales organization located throughout the United States.
International data communication and electronic messaging services are marketed
through MCI International, Inc., a wholly-owned subsidiary of MCI. To a lesser
extent, MCI also markets its voice and data communication services domestically
and internationally through arrangements with third parties.
System
------
Domestic long-distance services are provided primarily over MCI's own
coast-to-coast optical fiber and terrestrial digital microwave communication
system and, to a lesser extent, over transmission facilities leased from other
common carriers, utilizing MCI's digital switches. International communication
services are provided by submarine cable systems in which MCI holds investment
positions, satellites and facilities of other domestic and foreign carriers.
MCI continues to expand its digital transmission and switching facilities
and capabilities to meet the requirements of its customers for additional and
enhanced domestic and international services, to add redundancy to its network
and to enhance network intelligence. This expansion includes the continued
deployment in
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its network of Synchronous Optical Network ("SONET") and Asynchronous Transfer
Mode ("ATM") technologies.
SONET technology, which is currently deployed throughout MCI's domestic
network, substantially increases the speed at which data is carried on MCI's
network, thereby allowing MCI to provide high-speed multimedia applications and
information services throughout its domestic network. In addition, it allows MCI
to install customer circuits faster and improves monitoring of the network by
anticipating certain problems before they occur. Further, when deployed in a
ring design, SONET allows MCI to provide its customers with millisecond
restoration of traffic in the event of a network outage. MCI has installed SONET
rings in a number of major cities in the U.S. and on all new international
gateways. Construction of additional SONET rings are planned for 1996.
ATM switching technology facilitates the provision of a wide range of data
communication services. This technology increases MCI's network switching
capabilities, permitting MCI's customers to transmit simultaneously voice, data
and video communications over the same line. ATM is currently offered
commercially on a substantial portion of MCI's domestic network. MCI plans to
have ATM available throughout its domestic network by the end of 1996.
These network initiatives and continued expansion of the network require
substantial capital expenditures. Total capital expenditures were approximately
$2.9 billion in both 1995 and 1994, and $1.7 billion in 1993. Approximately $300
million of MCI's capital expenditures for 1995 were for ventures and developing
markets business units (See "VENTURES AND DEVELOPING MARKETS BUSINESS - LOCAL
SERVICES" below). MCI anticipates that its core business and its ventures and
developing markets business units will require total capital expenditures of
approximately $3 billion in 1996.
Local Access
------------
MCI provides customers that utilize large volumes of long-distance
telecommunication services with direct access to its long-distance network.
Other lower volume customers access MCI's services primarily through local
interconnection facilities provided by local exchange carriers ("LECs"), the
largest of which are subsidiaries of the RBOCs. To a much lesser extent, local
access is provided by MCImetro, Inc. ("MCImetro"), an MCI subsidiary providing
local telephone service, and competitive access providers ("CAPs"). The charges
for these local interconnection facilities are a significant component of MCI's
operating expenses.
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Competition in providing local services, including interconnection
services, should increase dramatically as a result of the requirement of the
Telecommunications Act that the RBOCs unbundle local services and provide such
services at rates that are cost based and non-discriminatory. MCI expects that
this anticipated increase in competition in the local services market will lower
access and interconnection costs. MCImetro* expects that the unbundling of
services will enable it to offer a wider variety of services and increase its
revenues. However, the extent to which MCI and MCImetro will benefit cannot be
quantified and will be partially dependent upon the prices at which unbundled
services are available and the extent new and existing competitors in the local
services market are successful in competing with the LECs. See "CORE BUSINESS -
TELECOMMUNICATIONS ACT" below for a discussion of the Telecommunications Act and
"VENTURES AND DEVELOPING MARKETS BUSINESS- LOCAL SERVICES" below for discussion
of the benefits to MCImetro anticipated from the Telecommunications Act.
Competition
-----------
MCI's primary and most vigorous competitor in the domestic and
international long-distance telecommunication services market continues to be
the long-distance telecommunications unit of AT&T Corp ("AT&T"). AT&T's
long-distance telecommunications unit, which is being separated from AT&T's
equipment and computer services units, is substantially larger than MCI. In
general, MCI's long-distance telecommunication services are priced lower than
AT&T's comparable services. Although price is a factor in customer choice,
innovation and quality of services, diversity of services, the ability to offer
a combination of services, marketing strategy, customer service and other
non-price elements are also important competitive factors.
The Telecommunications Act now allows the RBOCs to provide long-distance
telecommunication services internationally and domestically in territories
outside of their respective local service regions. The RBOCs may also provide
long-distance telecommunication services that are incidental to certain other
services (e.g., wireless and video services) in their local regions. The
authority to provide long-distance telecommunication service originating outside
of their respective regions does not include calls that terminate in-region,
such as private line services, 800 services or any equivalent service that
terminates in-region and allows the called party to choose the interLATA (see
definition of LATA below) carrier. The RBOCs are prohibited from providing a
full range of long-distance telecommunication services in their local regions
until certain important conditions are met (See "CORE BUSINESS -
TELECOMMUNICATIONS ACT" below). The RBOCs
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own extensive facilities in their regions and have long-standing customer
relationships and very substantial capital resources. MCI believes that the
RBOCs will eventually become substantial competitors of MCI for long-distance
telecommunication services, especially in their local regions.
In addition to AT&T and the RBOCs, MCI competes with Sprint Corporation
("Sprint"), other facilities-based domestic telecommunication common carriers
and numerous resellers of long-distance telecommunication services. MCI also
competes with LECs that service a local access transport area ("LATA") in the
provision of intraLATA 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, such as the wireless services and multimedia services markets,
are likely to compete with MCI in the long-distance telecommunication services
market. Some of these companies have substantial financial and other resources.
Regulation
----------
The Telecommunications Act broadened the scope of authority of the Federal
Communications Commission ("FCC"). See "CORE BUSINESS - TELECOMMUNICATIONS ACT"
below for a summary of portions of the Telecommunications Act. The FCC retains
its extensive authority to regulate interstate services and local access
facilities and services provided by common carriers, including the right to
review the interstate rates charged by common carriers, as well as the authority
to implement policies that promote competition for all telecommunication
services. The Telecommunications Act gives the FCC, in consultation with the
Attorney General of the United States, authority to determine when the RBOCs may
provide long-distance telecommunication services in their local regions. The FCC
was also given authority to preempt state and local action that is inconsistent
with the Telecommunications Act. In addition, as part of its interstate
regulatory authority, the FCC currently requires all common carriers subject to
its jurisdiction to file tariffs for service offerings, although the
Telecommunications Act authorizes the FCC to exempt certain carriers from such
regulation if it determines that consumers would benefit from the removal of
tariff regulation for some or all of their services. The FCC recently instituted
a proceeding that contemplates mandatory detariffing by all non-dominant
carriers of their domestic services, but left open the possibility of either
continued tariffing or permissive (i.e. voluntary) detariffing.
Under the Telecommunications Act, the states retain their authority to
impose requirements necessary to preserve and advance
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universal telecommunication service, to protect the public safety and welfare,
to ensure continued quality of telecommunication services and to safeguard the
rights of consumers, subject to FCC authority to preempt state and local action
that violates or is inconsistent with the Telecommunications Act. In addition,
to the extent MCI provides intrastate long-distance telecommunication services,
it is subject to extensive regulation by state regulatory commissions.
Rates of international communication carriers for traffic from the United
States to foreign countries are regulated by the FCC. Revenues from traffic
between the foreign country and the United States (with the exception of leased
channel services) are generally collected by the originating carrier and shared
with the terminating carrier through agreements that are subject to the approval
of the FCC and the appropriate overseas agency. In addition to regulation of
rates and agreements, the FCC has jurisdiction over international communication
facilities located in the United States. The provision of long-distance
telecommunication services to a foreign country is subject to the approval of
the FCC and the appropriate foreign governmental agencies.
Telecommunications Act
----------------------
The Telecommunications Act, among other things, allows the RBOCs to offer
long-distance telecommunication services outside of their respective regions,
and allows the RBOCs to offer such services within their region on a
state-by-state basis upon the determination by the FCC that certain criteria
have been met. The primary criteria that must be satisfied before an RBOC may be
granted authority to offer long-distance telecommunication services in a state
within its region are (i) satisfying the requirements of the competitive
checklist (the "Competitive Checklist") set forth in the Telecommunications Act;
and (ii) the presence of one or more facilities-based competitors in the local
services market in the state where authority to offer long-distance
telecommunication services is requested.
The Competitive Checklist includes the requirements that:(i)
interconnection be at any technically feasible point and of equal quality as
that provided to the RBOC or to other carriers; (ii) access to the RBOC's
facilities and equipment, and their features, functions and capabilities, be
provided on an unbundled, non-discriminatory basis; (iii) any telecommunication
service the RBOC provides at retail to subscribers who are not carriers be
offered to carriers for resale, at wholesale rates; (iv) access to poles, ducts,
conduits and rights-of-way owned or controlled by the RBOC be provided on a
non-discriminatory basis; (v) local loop
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transmission from the central office to the customer's premises be provided
unbundled from local switching or other services; (vi) local transport be
provided from the trunk side of a wireline switch unbundled from switching or
other services; (vii) local switching be provided unbundled from transport,
local loop transmission or other services; (viii) access be provided on a
non-discriminatory basis to 911 and Enhanced 911 services, directory assistance
services and operator call completion services; (ix) white pages directory
listings for customers of the other carrier's telephone exchange service be
provided; (x) access to telephone numbers for assignment to the other carrier's
telephone exchange service customers be provided on a non-discriminatory basis
until telecommunications numbering administration guidelines are established by
the FCC and thereafter be provided in accordance with such guidelines; (xi)
access to data bases and associated signaling necessary for call routing and
completion be provided on a non-discriminatory basis; (xii) interim number
portability be provided through remote call forwarding, direct inward dialing
trunks or other comparable arrangements until the FCC supersedes such interim
arrangements by issuing its number portability rules; (xiii) access to such
services or information as are necessary to allow the requesting carrier to
implement local dialing parity be provided on a non-discriminatory basis; and
(xiv) reciprocal compensation arrangements be implemented for the origination
and termination of telecommunications so as to provide the recovery by each
carrier of costs based on a reasonable approximation of the additional costs of
terminating calls.
An RBOC can satisfy the requirement that one or more facilities- based
competitors be present in the local services market if it has entered into one
or more interconnection and access agreements approved by the applicable state
regulatory authority in accordance with the Telecommunications Act, subject to
the FCC's determination that such a competitor exists and offers its services to
both business and residential customers either predominantly or exclusively over
its own network facilities. Under these agreements, the RBOC must provide on a
non-discriminatory basis access and interconnection services, at rates which are
cost based (which may include a reasonable profit), to the RBOC's network
facilities to one or more competing providers of telephone exchange service to
residential and business customers.
In addition, to provide long-distance services in a state in its region,
the RBOC must demonstrate that: (i) the RBOC has entered into approved
interconnection agreement(s) in the state which satisfy the requirements of the
Competitive Checklist; (ii) the RBOC will provide long-distance
telecommunication service in a state in its local region only through a separate
subsidiary of the RBOC, and dealings with such subsidiary are at arm's length;
and (iii) the RBOC's request to provide long-distance telecommunication
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services in a state in its local region is consistent with the public interest,
convenience and necessity.
The FCC must consult with the Attorney General of the United States to
determine whether to grant the RBOC authority to offer long-distance
telecommunication services in a state in its local service region is consistent
with the public interest, convenience and necessity, and must give substantial
weight to the Attorney General's recommendations. The FCC must also consult with
the relevant state regulatory authority to verify the RBOC's compliance with the
Competitive Checklist requirements. MCI will vigorously seek to ensure that the
Telecommunications Act requirement of meaningful facilities-based competition in
the local services market in a state in the RBOC's local service region is fully
enforced before the RBOC is allowed to provide long-distance telecommunication
services in that state.
Upon the grant of in-region authority, the RBOC is required to provide
intraLATA toll dialing parity throughout the applicable state as soon as it
exercises such authority. In general, states cannot require such dialing parity
until the date that the RBOC is granted in-region interLATA authority or
February 8, 1999, whichever is earlier. Importantly, the following categories of
states may require such dialing parity sooner: (i) the ten single LATA states,
and (ii) the 15 states (of which two are single LATA states) that issued dialing
parity orders by December 19, 1995.
The Telecommunications Act also provides that until the date that an RBOC
is authorized to provide long-distance telecommunication services within a state
in the RBOC's local services region or February 8, 1999, whichever is earlier, a
carrier, such as MCI, serving more than 5% of the United States' presubscribed
access lines may not market within a state resold telephone exchange service
obtained from the RBOC jointly with interLATA services offered by that carrier.
This restriction would not preclude MCI from combining local services provided
by MCImetro or another non-RBOC local service provider over its own facilities
with MCI's long-distance telecommunication services. The Telecommunications Act
also provides that an RBOC is restricted from marketing its local services
within any of the states in its region jointly with an affiliate's interLATA
services until the RBOC is authorized to offer interLATA services in such state.
VENTURES AND DEVELOPING MARKETS BUSINESS
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To meet more of the communications needs of its customers and to take
advantage of developing opportunities in the communication services market, MCI
has been diversifying the communication services it offers through investments
in ventures and developing markets businesses. In 1995, MCI recognized $365
million of revenues generated by the ventures and developing markets businesses.
MCI anticipates investing in 1996 an estimated $2 billion in existing ventures
and developing markets businesses, including the purchase of a high-power direct
satellite services license and an additional investment in The News Corporation
Limited. See Item 6. Management's Discussion and Analysis and "VENTURES AND
DEVELOPING MARKETS BUSINESS - MULTIMEDIA SERVICES" below.
Local Services
--------------
MCImetro was organized in 1993 to enter the local services market and
compete with the LECs and CAPs, initially by providing special access services
and, when permitted by local regulation, all local services. In 1995, MCImetro
had revenues of $108 million, substantially all of which were from sales of
services to MCI. Also in 1995, MCImetro had capital expenditures of $265 million
and, through completed construction on local networks and the formation of joint
ventures or alliances with CAPs, had full or part ownership in 40 local networks
in 25 major cities.
MCImetro provides businesses and governments high quality dedicated access
to the MCI network or to the networks of other long-distance telecommunications
providers. The access services are provided either on MCImetro's own local city
networks or through arrangements with the LECs and CAPs for special access and
switched access services. As of December 31, 1995, MCImetro had also been
granted authority to offer a full range of local services in 14 states and had
applications pending for such services in six other states. As of March 1996,
MCImetro had installed 11 Class 5 switches which allow MCImetro to offer local
exchange services such as local telephone service, business lines, private
branch exchange (PBX) trunks, access services and enhanced services. Although
all 11 switches were operational as of March 1996, MCImetro could only offer
local exchange services to businesses on eight of the switches located in areas
where MCImetro had an approved tariff and agreed interconnection arrangements
with the LEC.
If or when MCImetro will be able to offer a full range of local services
in competition with the LECs in all states is unknown. Although the
Telecommunications Act establishes a timetable for an RBOC to sell separately
its local services and provide them to other carriers on a non-discriminatory
basis, prior to receiving in-region authority, it is not known at this time if
the timetable
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will be met. See "CORE BUSINESS - TELECOMMUNICATIONS ACT" above. The pace at
which all local services are sold separately, the prices at which MCImetro can
purchase such services from the LEC, and the amount of capital MCImetro has to
expand its facilities will affect the types of services MCImetro can offer and
its ability to compete with the LECs in providing local telecommunications
services.
The LECs have very substantial capital and other resources, long standing
customer relationships and extensive existing facilities and network
rights-of-way and will be MCImetro's primary competitors in the local services
market. In addition, it is anticipated that a number of long-distance
telecommunication, wireless and cable service providers, will enter the local
services market in competition with MCImetro. Some of these potential
competitors have substantial financial and other resources. MCImetro will also
compete in the local services market with a number of CAPs, a few of which have
existing local networks and significant financial resources.
To the extent MCImetro and others provide intrastate local services, they
are also subject to regulation by state regulatory commissions, which have
extensive authority to regulate the provision of local services. MCImetro will
be required to file tariffs as a competitive local exchange carrier, which
filing requirements may be less restrictive than those imposed on the LECs,
which are also subject to regulation by the same commissions.
Wireless Services
-----------------
In 1995, MCI acquired Nationwide Cellular Service, Inc. ("Nationwide"), a
reseller of cellular phone services and, to a lesser extent, cellular phone
equipment. The Nationwide acquisition and the execution of resale agreements
with facilities based cellular phone service and paging service providers has
positioned MCI to become a significant participant in the cellular phone and
paging service markets. MCI expects, through the execution of additional resale
agreements, to have the capability to offer cellular phone services to
approximately 45% of the population of the United States by the end of 1996. MCI
markets these services to both business and residential customers through
Nationwide's and MCIT's sales organizations. Revenues for the three months ended
December 31, 1995 from these services were $82 million. Revenues are expected to
increase in 1996 as MCI increases the number of cities in which it offers
cellular phone and paging services and also combines these service offerings
with MCI's core business service offerings to meet its customers' needs. At
December 31, 1995, MCI had approximately 347,000 cellular phone service
subscribers and 465,000 paging service subscribers.
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MCI's primary competitors in the wireless market are AT&T Wireless
Services, Airtouch Communications, Inc., 360 Degrees (the former wireless
subsidiary of Sprint) and many of the RBOCs, which have facilities based
wireless operations. As MCI is not a facilities based wireless operator, its
ability to be competitive is dependent on the terms and conditions under which
it obtains services and its ability to renew on satisfactory terms its resale
agreements to provide cellular phone and paging services. In addition,
competition is expected to intensify as the winning bidders in the Personal
Communication Services spectrum auctions begin to offer competing services.
As a reseller, MCI is not subject to any tariffing or licensing
requirements by the FCC or state regulatory agencies.
Information Technology Services
-------------------------------
MCI's information technology ("IT") services primarily consist of IT
outsourcing, consulting and system integration services, and call center
services. MCI provides a broad range of call center services that include
fulfillment, billing, data collection, database management, customer service and
telemarketing. IT services revenues for the three months ended December 31,
1995, including SHL Systemhouse Inc. ("SHL") revenue from the date of its
acquisition by MCI, were $126 million.
In November 1995, MCI acquired SHL, one of the world's largest providers
of IT outsourcing services to commercial and government enterprises. The
acquisition of SHL allows MCI to meet the growing demands of its business
customers for IT outsourcing services. These services include the design,
development and implementation of IT systems with an emphasis on client/server
technologies; the management, operation and maintenance of client IT functions
as part of outsourcing arrangements; and the delivery and installation of IT
hardware and software for clients' services related to such products and
training and education of client users.
MCI serves its IT clients by, (i) working with a client to analyze its IT
needs, and, based on this analysis, designing, developing and implementing an
integrated client/server IT system; (ii) providing systems operations and
management services for a broad range of computing platforms, including
mainframe, minicomputer and personal computer, and network environments, such as
local-area networks and wide-area networks; and (iii) assessing a client's
computing platform and network requirements and then configuring, delivering,
installing and testing the needed hardware and software products to meet such
requirements. MCI also offers service for IT products and training and education
of client IT users.
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Competitors in the IT business include Andersen Consulting, Computer
Sciences Corporation, Electronic Data Systems Corporation and Integrated Systems
Solutions Corp., a wholly-owned subsidiary of International Business Machines
Corporation, all of which have substantial financial and other resources. MCI
derives a material amount of its IT revenues from a small number of customers.
In addition, MCI faces competition in the IT industry not only for contracts,
but also for personnel. There is a shortage of skilled employees and a high
turnover rate among skilled employees in the client/server portion of the IT
business. However, MCI is not dependent on any single employee or group in
providing these services.
International Services
----------------------
MCI continues to develop global alliances to expand the use and reach of
its services and to meet the global needs of its customers.
Concert Communications Company ("Concert"), is a business venture between
British Telecommunications plc ("BT") and MCI in which MCI owns a 24.9% equity
interest. Concert** provides global enhanced and value-added telecommunication
services, such as packet data, virtual network, frame relay and managed
bandwidth services. MCI is the exclusive distributor of Concert services in
North, Central and South America, and BT is the exclusive distributor of Concert
services in the rest of the world. Since July 1994, MCI has invested $145
million in Concert and intends to continue making contributions to Concert over
the next several years in order to maintain its proportionate interest. For the
year ended December 31, 1995, Concert's distributors had approximately $300
million in revenue from the sale of Concert's products. As of December 31, 1995,
the Concert network had 6,000 communication nodes deployed in over 800 cities in
more than 50 countries.
AT&T and Sprint have also formed global alliances that will compete with
Concert. AT&T's WorldPartners is an association of member companies formed in
1993 to provide a family of telecommunication services (private line, frame
relay and virtual network services) to multinational customers. Members of the
association include AT&T, KDD of Japan, Singapore Telecom, Telstra of Australia,
Unisource, Telecom New Zealand, Hong Kong Telecom, Unitel of Canada, Korea
Telecom and Telefonica of Spain. Sprint, France Telecom ("FT") and Deutsche
Telekom ("DT") have formed Global One, a global partnership which offers an
array of international telecommunication services to multinational business
customers. As part of the transaction, FT and DT each acquired 10% of Sprint's
common stock.
<PAGE>
PAGE 15
AVANTEL S.A. de C.V. ("AVANTEL")is a business venture between Grupo
Financiero Banamex-Accival, Mexico's largest financial group, and MCI, in which
MCI owns a 44.5% equity interest. AVANTEL was formed in 1994 to provide
competitive domestic and international long-distance telecommunication services
in Mexico using MCI's technology. In September 1995, AVANTEL received a license
from the Mexican Secretariat of Communications and Transportation to construct
and operate a nationwide fiber-optic telecommunications network in Mexico.
AVANTEL plans to provide competitive domestic and international long-distance
telecommunication services in Mexico when the market opens for competition for
business customers in 1996. As of December 31, 1995, MCI had invested in AVANTEL
approximately $250 million, one-half of MCI's total anticipated investment, the
remainder of which is expected to be made in 1996.
In Mexico, Telefonos de Mexico ("TelMex"), the monopoly telecommunications
provider, will be AVANTEL's primary competitor. TelMex's financial and other
resources are substantially greater than AVANTEL's, and it has an extensive
existing customer base.
In 1992, MCI entered into a strategic alliance with Stentor, an alliance
of major Canadian telephone companies, to develop a fully integrated intelligent
network linking the United States and Canada. In 1995, Stentor entered into an
agreement with Concert to become the exclusive distributor of Concert services
in Canada. The Stentor alliance and the AVANTEL joint venture will facilitate
the development of a fully integrated, seamless North American network capable
of providing services with identical features to customers throughout the United
States, Canada and Mexico.
In addition, MCI owns minority equity interests in telecommunication
service providers in New Zealand and Belize and is exploring opportunities in
Latin America and other areas of the world.
Multimedia Services
-------------------
In August 1995, MCI invested $1 billion in The News Corporation Limited
("News Corp."). In addition, MCI received a five year option to invest in News
Corp. from time to time up to an additional $1 billion in the aggregate. Under
certain circumstances, News Corp. has the right from time to time to cause MCI
to exercise this option and make additional investments up to $1 billion in the
aggregate. MCI, at the request of News Corp., will partially exercise this
option and invest $350 million in News Corp. in the first half of 1996.
In furtherance of the business objectives of this business
alliance, MCI anticipates forming ventures with News Corp. and
<PAGE>
PAGE 16
others to compete in various multimedia service markets. MCI and News Corp. are
currently discussing the formation of a venture to provide high-powered direct
satellite services to homes and offices. High-powered direct satellite service
is a point-to- multipoint broadcast service that uses high-powered KU band
satellites which are placed in a geosynchronous orbit. High- powered direct
satellite service has the capability of delivering a wide range of services,
such as subscription television, pay-per- view services, such as movies,
concerts and sporting events, and digitized content, such as magazines.
The proposed venture would offer information and entertainment services to
businesses and consumers. The venture would utilize satellites which will
operate under a license to be awarded to MCI as a result of a federal spectrum
auction in January 1996. MCI submitted a winning bid of $682 million for the
right to use 28 of 32 channels in the satellite slot located at 110 degrees west
longitude, which provides coverage to all fifty states and Puerto Rico. MCI has
entered into an agreement to purchase two satellites, one of which is scheduled
for launch in late 1997. MCI anticipates the proposed venture will provide
high-powered direct services by late 1997, assuming the first of its satellites
is successfully launched according to plan.
Competition in the high-powered satellite service market will arise from
three sources: existing and future high-powered direct satellite service
providers with spectrum at locations other than 110-west longitude; medium-power
satellite video service providers; and cable companies that operate land based
facilities. These competitors have substantial financial resources, existing
customer bases and experienced marketing organizations. In addition, it is
anticipated that certain long-distance telecommunication service providers and
the RBOCS may seek to form alliances with high- powered direct satellite service
or other multimedia service providers and compete with MCI in this market. AT&T
announced in January 1996 it is acquiring an equity interest in an existing
high-powered direct satellite service provider and will begin offering the
services and equipment of such provider to AT&T's customers by mid-summer 1996.
Except for routine FCC licensing of earth station (uplink) facilities to
be used in conjunction with the satellites and certain restrictions on use of
the spectrum, upon successful completion of the FCC's current review of MCI's
post-auction satellite system application, neither MCI nor the proposed venture
will be subject to extensive regulation by the FCC. At the state level, the
venture will be subject to standard zoning requirements for the placement of
uplink facilities. Zoning restrictions by localities on the placement of receive
dishes is largely preempted by federal law.
<PAGE>
PAGE 17
- ---------------------
* MCImetro is a service mark of MCI.
** Concert is a mark of Concert Communications Company and is used
under license.
Item 2. Properties.
- -------------------
MCI leases, under long-term leases, portions of railroad, utility and
other rights-of-way for its fiber-optic transmission system. MCI also has
numerous tower sites, generally in rural areas, to serve as repeater stations in
its domestic microwave transmission system. Most of these sites are leased,
although MCI does own many of those which are at an intersection of two or more
routes of MCI's transmission system. Generally, MCI owns the buildings that
serve as switch facilities for the transmission system. In metropolitan areas,
MCI leases facilities to serve as operations facilities for its transmission
systems.
MCI also leases, under long-term leases, office space to serve as sales
office and/or administrative facilities. Some of these facilities are located
jointly with operations facilities. In addition, MCI owns its headquarters
building in Washington, D.C. and two buildings in a suburb of Washington, D.C.,
as well as administrative facilities in Cary, North Carolina; Cedar Rapids,
Iowa; Colorado Springs, Colorado; Piscataway, New Jersey; and Richardson, Texas.
MCImetro leases under long-term leases or has conduit rights-of-way for
the placement of its fiber optic transmission system. MCImetro leases under
long-term leases the buildings that house its Class 5 switches and other network
and administrative office space. MCImetro also sub-leases administrative and
sales office, and operation facility space from MCI.
Item 3. Legal Proceedings.
- ---------------------------
Information regarding contingencies and legal proceedings is included in
Note 14 of the Notes to Consolidated Financial Statements on page 27 of the
company's Annual Report to Stockholders for the year ended December 31, 1995,
which has been filed as Exhibit 13 to this Annual Report on Form 10-K. Such
information is incorporated herein by reference.
<PAGE>
PAGE 18
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None.
Item 10. Executive Officers of the Registrant.*
- -----------------------------------------------
The executive officers of MCI, including its subsidiaries, are elected
annually and serve at the pleasure of the respective board of directors. They
are:
Name Age* Position**
Bert C. Roberts, Jr. 53 Chairman of the Board,
Chief Executive Officer, Director
Gerald H. Taylor 54 President and
Chief Operating Officer, Director
Timothy F. Price 42 President and
Chief Operating Officer,
MCI Telecommunications Corporation
Seth D. Blumenfeld 55 President,
MCI International, Inc.
John W. Gerdelman 43 Executive Vice President,
MCI Telecommunications Corporation
Douglas L. Maine 47 Executive Vice President and
Chief Financial Officer
Michael J. Rowny 45 Executive Vice President
Michael H. Salsbury 46 Executive Vice President and
General Counsel
James M. Schneider 43 Senior Vice President
- --------------------
*As of March 1, 1996.
**Unless otherwise indicated, the position is with MCI
Communications Corporation.
Mr. Roberts has been Chairman of the Board of MCI since June
1992 and Chief Executive Officer of MCI since December 1991. Prior
thereto he was President and Chief Operating Officer of MCI from
<PAGE>
PAGE 19
October 1985 to June 1992 and President of MCIT from May 1983 to
June 1992. Mr. Roberts has been a director of MCI since 1985.
Mr. Taylor has been President and Chief Operating Officer of MCI since
July 1994 and Vice Chairman of MCIT since July 1995. He was President and Chief
Operating Officer of MCIT from April 1994 to July 1995. He was an Executive Vice
President and Group Executive of MCIT from September 1993 to April 1994. He was
an Executive Vice President of MCIT, serving as President, Consumer Markets,
from November 1990 to September 1993. Mr. Taylor has been a director of MCI
since September 1994.
Mr. Price has been President and Chief Operating Officer of MCIT since
July 1995. He was an Executive Vice President and Group President of MCIT,
serving as Group President, Communication Services, from December 1994 to July
1995. He was an Executive Vice President of MCIT, serving as President, Business
Markets, from June 1993 to December 1994. He was a Senior Vice President of MCIT
from November 1990 to June 1993, serving as President, Business Services, from
July 1992 to June 1993 and as Senior Vice President, Consumer Markets, from
November 1990 to July 1992.
Mr. Blumenfeld has been President of MCI International, Inc.,
since September 1984.
Mr. Gerdelman has been an Executive Vice President of MCIT, serving as
President, networkMCI Services, since October 1994. He was a Senior Vice
President of MCIT from August 1992 to October 1994. From July 1991 to August
1992, he was President and Chief Executive Officer of MCI Services Marketing,
Inc., a company that provided telemarketing services to, and in which a 51%
equity interest was held by, MCIT. For more than two years prior thereto, he was
Executive Vice President and Chief Operating Officer of Pioneer
Teletechnologies, Inc., a company that provided telemarketing services to, and
in which a 25% equity interest was owned by, MCIT. Mr. Gerdelman is also a
director of General Communication, Inc. ("GCI"), a telecommunications provider
in Alaska, of which MCIT owns approximately 33% of the outstanding shares of
Class A Common Stock and approximately 31% of the outstanding shares of Class B
Common Stock.
Mr. Maine has been an Executive Vice President of MCI since
April 1994. He was a Senior Vice President of MCI from September
1988 to April 1994. Mr. Maine has been Chief Financial Officer of
MCI since February 1992. From November 1990 to February 1992, he
was a Senior Vice President of MCIT, serving as President of the
Southern Division.
Mr. Rowny has been an Executive Vice President of MCI since
April 1995 and an Executive Vice President of MCIT since June 1994,
<PAGE>
PAGE 20
serving as Executive Vice President, Ventures and Alliances. He was President of
MJR Enterprises, a consulting company, from April 1994 to June 1994; Executive
Vice President and Chief Financial Officer and a director of ICF Kaiser
International, Inc., an environmental and engineering services company, from
April 1992 to April 1994; and Chairman and Chief Executive Officer of Ransohoff
Company, a manufacturer of environmental and industrial equipment, from November
1989 to April 1992.
Mr. Salsbury has been Executive Vice President and General Counsel of MCI
since November 1995. He was a partner in the law firm of Jenner & Block for more
than five years prior thereto.
Mr. Schneider has been a Senior Vice President of MCI, serving as Senior
Vice President of Corporate Finance, since July 1995. He was a Senior Vice
President of MCIT, serving as Senior Vice President of Finance for Consumer
Markets, from November 1993 to July 1995 and was a Senior Vice President of MCI,
serving as Controller, from September 1993 to November 1993. He was a partner in
the national accounting firm of Price Waterhouse LLP for more than five years
prior thereto. Mr. Schneider is also a director of GCI.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
PAGE 21
PART II
Item 5. Market for Registrant's Common Equity and Related
- -----------------------------------------------------------------
Stockholder Matters.
- -------------------
MCI Common Stock is traded on the NASDAQ National Market. The tables below
set forth the high and low sales prices of the Common Stock as reported for the
periods indicated.
1995
HIGH LOW
-------- ---------
1st Quarter $21 1/4 $17 3/8
2nd Quarter 23 1/8 19 7/64
3rd Quarter 27 1/8 20 7/8
4th Quarter 27 1/2 23 3/4
1994
HIGH LOW
-------- ---------
1st Quarter $29 $22 5/8
2nd Quarter 24 15/16 21 3/8
3rd Quarter 25 7/8 21 1/2
4th Quarter 25 1/2 17 1/4
MCI paid cash dividends of $.025 per share of Common Stock in July and
December in each of 1994 and 1995 and an equivalent cash dividend on the shares
of Series D Preferred Stock and Class A Common Stock outstanding at the
applicable record date.
At February 26, 1996, there were 50,049 holders of record of MCI's Common
Stock and 1 holder of record of MCI's Class A Common Stock.
Items 6 through 8.
- -----------------
The information required by these items is included in pages 4 through 29
of the company's Annual Report to Stockholders for the year ended December 31,
1995. The referenced pages of the company's Annual Report to Stockholders have
been filed as Exhibit 13 to this Annual Report on Form 10-K. Such information is
incorporated herein by reference.
<PAGE>
PAGE 22
Item 9. Change in and Disagreements with Accountants on
- --------------------------------------------------------
Accounting and Financial Disclosure.
- ------------------------------------
None.
PART III
Item 10. Directors and Executive Officers.
- ------------------------------------------
Information with respect to executive officers of MCI is set forth in Part
I of this Annual Report on Form 10-K.
Information with respect to directors of MCI is incorporated herein by
reference to the information under the captions "Election of Directors" and
"Compliance with Section 16(a) of the Exchange Act" in MCI's Proxy Statement for
its 1996 Annual Meeting of Stockholders (the "1996 Proxy Statement").
Item 11. Executive Compensation.
- --------------------------------
Information with respect to executive compensation is incorporated herein
by reference to the information under the captions "Board of Directors'
Committees, Meetings and Fees", "Remuneration of Executive Officers", "Pension
Plans" and "Compensation Committee Interlocks and Insider Participation" in the
1996 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
- -------------------------------------------------------------
Management.
- ----------
Information with respect to security ownership is incorporated herein by
reference to the information under the captions "Election of Directors" and
"Security Ownership of Management and Certain Beneficial Owners" in the 1996
Proxy Statement.
<PAGE>
PAGE 23
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
Information with respect to certain relationships and related transactions
is incorporated herein by reference to the information under the caption
"Certain Relationships and Related Transactions" in the 1996 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
- -----------------------------------------------------------------
Form 8-K.
- --------
(a) Documents filed as a part of this report.
(1) Financial Statements.
Report of Management
Report of Independent Accountants
Income Statements for the years
ended December 31, 1995, 1994
and 1993
Balance Sheets at December 31, 1995
and 1994
Statements of Cash Flows for the
years ended December 31, 1995,
1994 and 1993
Statements of Stockholders' Equity
for the years ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
The Financial Statements and Notes thereto are incorporated
herein by reference to pages 4 through 29 of the company's Annual
Report to Stockholders for the year ended December 31, 1995. See
Part II.
<PAGE>
PAGE 24
(2) Financial Statement Schedule.
The following additional financial data should be read in conjunction with
the Financial Statements and Notes thereto which are included in Exhibit 13 to
this Annual Report on Form 10-K. Schedules not included with this additional
financial data have been omitted because they are not required or applicable or
the required information is shown in the Financial Statements or Notes thereto.
Report of Independent Accountants on
Financial Statement Schedule
Valuation and Qualifying Accounts (Schedule II)
The Report of Independent Accountants on Financial Statement Schedule is
on page 30 of this Annual Report on Form 10-K.
The Financial Statement Schedule is submitted as Exhibit 99(a) to this
Annual Report on Form 10-K.
(3) Exhibits.
Executive compensation plans and arrangements required to be filed, and
which have been filed, with the Commission pursuant to Item 14(c) of this Annual
Report on Form 10-K are listed in this Annual Report on Form 10-K as Exhibits
10(a)-(l).
Exhibit No. Description
- ----------- -----------
3 (a) Restated Certificate of Incorporation of MCI
Communications Corporation filed on March 28, 1995.
(Incorporated by reference to Exhibit 3 (a) to
registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.)
(b) By-laws of registrant, as amended. (Incorporated by
reference to Exhibit 3(ii) to registrant's Form S-3,
Reg. No. 33-57155.)
4 (a) Indenture, dated as of October 15, 1989, between
registrant and Bankers Trust Company. (Incorporated
by reference to Exhibit 4(c) to registrant's
<PAGE>
PAGE 25
Registration Statement on Form S-3, Reg. No.
33-31600.)
(b) Indenture dated as of October 15, 1989 between
registrant and Bankers Trust Company. (Incorporated
by reference to Exhibit 4(d) to registrant's
Registration Statement on Form S-3, Reg. No.
33-31600.)
(c) Indenture dated as of October 15, 1989 between
registrant and Citibank, N.A. (Incorporated by
reference to Exhibit 4(e) to registrant's
Registration Statement on Form S-3, Reg. No. 33-
31600.)
(d) Indenture dated as of February 17, 1995 between
registrant and Citibank, N.A. (Incorporated by
reference to Exhibit 4 (d) to registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994.)
(e) Form of Senior Fixed Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(f) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-57155.)
(f) Form of Senior Floating Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(g) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-57155.)
(g) Form of Subordinated Fixed Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(g) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-31600.)
(h) Form of Subordinated Floating Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(i) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-31600.)
(i) Form of 7-5/8% Senior Note due November 7, 1996.
(Incorporated by reference to Exhibit 1(c) to
registrant's Current Report on Form 8-K dated
November 6, 1991.)
(j) Form of 7-1/2% Senior Note due August 20, 2004.
(Incorporated by reference to Exhibit 4 of
registrant's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1992.)
<PAGE>
PAGE 26
(k) Form of 7-1/8% Senior Note due January 20, 2000.
(Incorporated by reference to Exhibit 1(b) of
registrant's Current Report on Form 8-K dated January
19, 1993.)
(l) Form of 8-1/4% Senior Debenture due January 20, 2023.
(Incorporated by reference to Exhibit 1(c) of
registrant's Current Report on Form 8-K dated January
19, 1993.)
(m) Form of 7-3/4% Senior Debenture due March 15, 2024.
(Incorporated by reference to Exhibit 4(a) of
registrant's Current Report on Form 8-K dated March
12, 1993.)
(n) Form of 6-1/4% Senior Note due March 23, 1999.
(Incorporated by reference to Exhibit 4(a) of
registrant's Current Report on Form 8-K dated March
15, 1994.)
(o) Form of 7-3/4% Senior Debenture due March 23, 2025.
(Incorporated by reference to Exhibit 4(b) of
registrant's Current Report on Form 8-K dated March
15, 1994.)
(p) Form of Senior Floating Rate Note due March 16,
1999. (Incorporated by reference to Exhibit 4(c) of
registrant's Current Report on Form 8-K dated March
15, 1994.)
(q) Rights Agreement dated as of September 30, 1994
between the registrant and Mellon Bank, N.A.
(Incorporated by reference to Exhibit 4(a) to
registrant's Current Report on Form 8-K dated October
4, 1994.)
10 (a) 1979 Stock Option Plan of registrant, as amended and
restated. (Incorporated by reference to Exhibit
10(a) to registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.)
(b) Supplemental Retirement Plan for Employees of MCI
Communications Corporation and Subsidiaries, as
amended. (Incorporated by reference to Exhibit 10(b)
to registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.)
<PAGE>
PAGE 27
(c) Description of Executive Life Insurance Plan for MCI
Communications Corporation and Subsidiaries.
(Incorporated by reference to "Remuneration of
Officers" in registrant's Proxy Statement for its
1992 Annual Meeting of Stockholders.)
(d) MCI Communications Corporation Executive Incentive
Compensation Plan. (Incorporated by reference to
Exhibit 10(e) to registrant's Annual Report on Form
10-K for the year ended December 31, 1994.)
(e) MCI Communications Corporation Executive Incentive
Compensation Plan.
(f) Form of Director Indemnification
Agreement.(Incorporated by reference to Appendix B to
registrant's Proxy Statement for its 1987 Annual
Meeting of Stockholders.)
(g) 1988 Directors' Stock Option Plan of registrant.
(Incorporated by reference to Exhibit D to
registrant's Proxy Statement for its 1989 Annual
Meeting of Stockholders.)
(h) Stock Option Plan of registrant. (Incorporated by
reference to Exhibit C to registrant's Proxy
Statement for its 1989 Annual Meeting of
Stockholders.)
(i) Board of Directors Deferred Compensation Plan of
Registrant. (Incorporated by reference to Exhibit
10 (e) to registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.)
(j) The Senior Executive Incentive Compensation Plan of
registrant. (Incorporated by reference to Appendix
A to registrant's Proxy Statement for its 1996
Annual Meeting of Stockholders.)
(k) Amendment to the Stock Option Plan of registrant.
(Incorporated by reference to Appendix B to
registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders.)
(l) Amendment to the 1988 Directors' Stock Option Plan of
registrant. (Incorporated by reference to Appendix D
to registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders.)
<PAGE>
PAGE 28
(m) $2,000,000,000 Revolving Credit Agreement dated as
of July 8, 1994 among MCI Communications
Corporation, Bank of America National Trust and
Savings Association and the several financial
institutions parties thereto. (Incorporated by
reference to Exhibit 10 (a) to registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994.)
(n) Amended and Restated Investment Agreement dated as
of January 31, 1994 between MCI Communications
Corporation and British Telecommunications plc.
(Incorporated by reference to Appendix I of
registrant's Notice of Special Meeting of
Stockholders and Proxy Statement dated February 4,
1994.)
(o) Modified Joint Venture Agreement dated as of July 1,
1994 between MCI Communications Corporation and
British Telecommunications plc and MCI Ventures
Corporation and Moorgate (Twelve) Limited and
Concert Communications Company. (Incorporated by
reference to Exhibit 10 (e) to registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994.)
(p) Warrant Purchase Agreement by and between The News
Corporation Limited and MCI Communications
Corporation dated as of August 2, 1995.
(q) Preferred Stock Purchase Agreement by and among MCI,
News Triangle Finance, Inc. and News T Investments,
Inc. dated as of August 2, 1995.
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Specified portions (pages 4 through 29) of the
registrant's Annual Report to Stockholders for the
year ended December 31, 1995.
21 Significant Subsidiaries of MCI Communications
Corporation.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
99 (a) Valuation and Qualifying Accounts (Schedule II).
<PAGE>
PAGE 29
(b) Capitalization Schedule.
(b) Reports on Form 8-K. None.
(c) Exhibits.
See Item 14(a)(3) of this Annual Report on Form 10-K.
(d) Financial Statement Schedules.
See Items 14(a)(2) and 14(a)(3) of this Annual Report on Form 10-K.
<PAGE>
PAGE 30
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
MCI Communications Corporation
Our audits of the consolidated financial statements referred to in our
report dated January 29, 1996 appearing on page 29 of MCI Communications
Corporation's Annual Report to Stockholders for the year ended December 31, 1995
(which report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an audit of the
Financial Statement Schedule listed in Item 14(a)(2) of this Annual Report on
Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/PRICE WATERHOUSE LLP
- ------------------------------
PRICE WATERHOUSE LLP
Washington, D.C.
January 29, 1996
<PAGE>
PAGE 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MCI COMMUNICATIONS CORPORATION
/s/ Bert C. Roberts, Jr.
Dated: March 29, 1996 By: --------------------------
Bert C. Roberts, Jr.
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on March 29, 1996 on
behalf of the registrant and in the capacities indicated.
Signature Title
/s/ Bert C. Roberts, Jr.
- ----------------------------- Principal Executive Officer,
Bert C. Roberts, Jr. Director
/s/ Douglas L. Maine
- ----------------------------- Principal Financial Officer
Douglas L. Maine
/s/ James M. Schneider
- ----------------------------- Principal Accounting Officer
James M. Schneider
/s/ Clifford L. Alexander, Jr.
- ----------------------------- Director
Clifford L. Alexander, Jr.
/s/ Judith Areen
- ------------------------------ Director
Judith Areen
/s/ Michael H. Bader
- ----------------------------- Director
Michael H. Bader
<PAGE>
PAGE 32
- ----------------------------- Director
Sir Peter L. Bonfield
/s/ Richard M. Jones
- ----------------------------- Director
Richard M. Jones
/s/ Gordon S. Macklin
- ----------------------------- Director
Gordon S. Macklin
- ----------------------------- Director
Alfred T. Mockett
/s/ K. Rupert Murdoch
- ----------------------------- Director
K. Rupert Murdoch
/s/ Dr. Alan W. Rudge
- ----------------------------- Director
Dr. Alan W. Rudge
/s/ Richard B. Sayford
- ----------------------------- Director
Richard B. Sayford
/s/ Gerald H. Taylor
- ---------------------------- Director
Gerald H. Taylor
/s/ Judith Whittaker
- ----------------------------- Director
Judith Whittaker
/s/ John R. Worthington
- ----------------------------- Director
John R. Worthington
<PAGE>
PAGE 33
Exhibit Index
---------------
Exhibit No. Description
- ----------- -----------
3 (a) Restated Certificate of Incorporation of MCI
Communications Corporation filed on March 28, 1995.
(Incorporated by reference to Exhibit 3 (a) to
registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.)
(b) By-laws of registrant, as amended. (Incorporated by
reference to Exhibit 3(ii) to registrant's Form S-3,
Reg. No. 33-57155.)
4 (a) Indenture, dated as of October 15, 1989, between
registrant and Bankers Trust Company. (Incorporated
by reference to Exhibit 4(c) to registrant's
Registration Statement on Form S-3, Reg. No.
33-31600.)
(b) Indenture dated as of October 15, 1989 between
registrant and Bankers Trust Company. (Incorporated
by reference to Exhibit 4(d) to registrant's
Registration Statement on Form S-3, Reg. No.
33-31600.)
(c) Indenture dated as of October 15, 1989 between
registrant and Citibank, N.A. (Incorporated by
reference to Exhibit 4(e) to registrant's
Registration Statement on Form S-3, Reg. No. 33-
31600.)
(d) Indenture dated as of February 17, 1995 between
registrant and Citibank, N.A. (Incorporated by
reference to Exhibit 4 (d) to registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994.)
(e) Form of Senior Fixed Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(f) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-57155.)
(f) Form of Senior Floating Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(g) to
<PAGE>
PAGE 34
registrant's Registration Statement on Form S-3,
Reg. No. 33-57155.)
(g) Form of Subordinated Fixed Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(g) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-31600.)
(h) Form of Subordinated Floating Rate Medium-Term Note.
(Incorporated by reference to Exhibit 4(i) to
registrant's Registration Statement on Form S-3,
Reg. No. 33-31600.)
(i) Form of 7-5/8% Senior Note due November 7, 1996.
(Incorporated by reference to Exhibit 1(c) to
registrant's Current Report on Form 8-K dated
November 6, 1991.)
(j) Form of 7-1/2% Senior Note due August 20, 2004.
(Incorporated by reference to Exhibit 4 of
registrant's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1992.)
(k) Form of 7-1/8% Senior Note due January 20, 2000.
(Incorporated by reference to Exhibit 1(b) of
registrant's Current Report on Form 8-K dated January
19, 1993.)
(l) Form of 8-1/4% Senior Debenture due January 20, 2023.
(Incorporated by reference to Exhibit 1(c) of
registrant's Current Report on Form 8-K dated January
19, 1993.)
(m) Form of 7-3/4% Senior Debenture due March 15, 2024.
(Incorporated by reference to Exhibit 4(a) of
registrant's Current Report on Form 8-K dated March
12, 1993.)
(n) Form of 6-1/4% Senior Note due March 23, 1999.
(Incorporated by reference to Exhibit 4(a) of
registrant's Current Report on Form 8-K dated March
15, 1994.)
(o) Form of 7-3/4% Senior Debenture due March 23, 2025.
(Incorporated by reference to Exhibit 4(b) of
registrant's Current Report on Form 8-K dated March
15, 1994.)
(p) Form of Senior Floating Rate Note due March 16,
1999. (Incorporated by reference to Exhibit 4(c) of
<PAGE>
PAGE 35
registrant's Current Report on Form 8-K dated March
15, 1994.)
(q) Rights Agreement dated as of September 30, 1994
between the registrant and Mellon Bank, N.A.
(Incorporated by reference to Exhibit 4(a) to
registrant's Current Report on Form 8-K dated October
4, 1994.)
10 (a) 1979 Stock Option Plan of registrant, as amended and
restated. (Incorporated by reference to Exhibit
10(a) to registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.)
(b) Supplemental Retirement Plan for Employees of MCI
Communications Corporation and Subsidiaries, as
amended. (Incorporated by reference to Exhibit 10(b)
to registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.)
(c) Description of Executive Life Insurance Plan for MCI
Communications Corporation and Subsidiaries.
(Incorporated by reference to "Remuneration of
Officers" in registrant's Proxy Statement for its
1992 Annual Meeting of Stockholders.)
(d) MCI Communications Corporation Executive Incentive
Compensation Plan. (Incorporated by reference to
Exhibit 10 (e) to registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994.)
(e) MCI Communications Corporation Executive Incentive
Compensation Plan.
(f) Form of Director Indemnification Agreement.
(Incorporated by reference to Appendix B to
registrant's Proxy Statement for its 1987 Annual
Meeting of Stockholders.)
(g) 1988 Directors' Stock Option Plan of registrant.
(Incorporated by reference to Exhibit D to
registrant's Proxy Statement for its 1989 Annual
Meeting of Stockholders.)
(h) Stock Option Plan of registrant. (Incorporated by
reference to Exhibit C to registrant's Proxy
Statement for its 1989 Annual Meeting of
Stockholders.)
<PAGE>
PAGE 36
(i) Board of Directors Deferred Compensation Plan of
Registrant. (Incorporated by reference to Exhibit
10 (e) to registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.)
(j) The Senior Executive Incentive Compensation Plan of
registrant. (Incorporated by reference to Appendix
A to registrant's Proxy Statement for its 1996
Annual Meeting of Stockholders.)
(k) Amendment to the Stock Option Plan of registrant.
(Incorporated by reference to Appendix B to
registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders.)
(l) Amendment to the 1988 Directors' Stock Option Plan of
registrant. (Incorporated by reference to Appendix D
to registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders.)
(m) $2,000,000,000 Revolving Credit Agreement dated as
of July 8, 1994 among MCI Communications
Corporation, Bank of America National Trust and
Savings Association and the several financial
institutions parties thereto. (Incorporated by
reference to Exhibit 10 (a) to registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994.)
(n) Amended and Restated Investment Agreement dated as
of January 31, 1994 between MCI Communications
Corporation and British Telecommunications plc.
(Incorporated by reference to Appendix I of
registrant's Notice of Special Meeting of
Stockholders and Proxy Statement dated February 4,
1994.)
(o) Modified Joint Venture Agreement dated as of July 1,
1994 between MCI Communications Corporation and
British Telecommunications plc and MCI Ventures
Corporation and Moorgate (Twelve) Limited and
Concert Communications Company. (Incorporated by
reference to Exhibit 10 (e) to registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994.)
(p) Warrant Purchase Agreement by and between The News
Corporation Limited and MCI Communications
Corporation dated as of August 2, 1995.
<PAGE>
PAGE 37
(q) Preferred Stock Purchase Agreement by and among MCI,
News Triangle Finance, Inc. and News T. Investments,
Inc. dated as of August 2, 1995.
11 Computation of Earnings per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Specified portions (pages 4 through 29) of the
registrant's Annual Report to Stockholders for the
year ended December 31, 1995.
21 Significant Subsidiaries of MCI Communications
Corporation.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
99 (a) Valuation and Qualifying Accounts (Schedule II).
(b) Capitalization Schedule.
<PAGE>
PAGE 1
Exhibit 10(e)
MCI COMMUNICATIONS CORPORATION
EXECUTIVE INCENTIVE COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1996
A. PURPOSE
The purpose of this Plan (the "Plan) is to further the growth in earnings
of the Company and to define the means of paying incentive compensation to
executives who, by their knowledge, ability, ingenuity, integrity and
industry have contributed and are expected to continue to contribute
materially to the success of the Company's business. The Plan is intended
to stimulate a motivational environment, achieve improved earnings
performance, make key management positions in the Company more attractive,
focus management's attention on key financial measurements and improve
overall efficiency. This Plan replaces all prior executive incentive plans
adopted by the Company.
B. DEFINITIONS
As used in the Plan, the following terms shall have the meanings stated:
"Chief Executive Officer and Chairman of the Board" shall
mean the Chief Executive Officer and Chairman of the Board
of MCI.
"Chief Operating Officer and President" shall mean the Chief
Operating Officer and President of MCI.
"Committee" shall mean the Compensation Committee of the
board of directors of MCI.
"Company" shall mean MCI and its Subsidiaries.
"Disability" shall mean "totally disabled" as such term is defined in the
Company's long-term disability insurance plan, as from time to time in
effect.
"Employee" shall men an individual actively employed during the relevant
period at the relevant dates by the Company.
"MCI" shall mean MCI Communications Corporation.
"Operating Cash Flow" shall mean net income before interest taxes,
depreciation and amortization.
<PAGE>
PAGE 2
"Revenue growth" shall mean revenue from business operation for the
relevant year.
"Operating Income" shall mean income from operations of the
relevant year.
"Participant" shall mean all Employees of MCI and each Subsidiary holding,
on the last day of the last month of the third quarter for the relevant
year, a position at the level of E09 or higher, except the Chief Executive
Officer and the Chairman of the Board of MCI , and the Chief Operating
Officer and President of MCI and other officers as determined by the
Committee.
"Subsidiary" shall mean MCI Telecommunications Corporation, MCI
International, Inc., and any other direct or indirect subsidiary of MCI
from time to time designated as a Subsidiary for purposes of the Plan by
the Chief Executive Officer.
"Target Incentive Award" shall mean the dollar amount set by the Chief
Executive Officer for Participants in each eligible salary grade level.
C. TARGET INCENTIVE AWARDS
Prior to the end of the first quarter of each fiscal year, the Chief
Executive Officer will establish a Target Incentive Award for each
Participant. The target award will be a percentage of the midpoint of the
salary range to which the Participant is assigned.
D. PERFORMANCE MEASUREMENT AND AWARD DETERMINATION
The performance criteria for Participants in grades E09 through E13 will be
established by the management of the business units prior to the end of
February based on the business unit's business plan. Performance will be
measured and awards will be determined by the business units. For staff
units who do not have a business plan, criteria and awards will be
established by the management of the unit. Unit plans and the resulting
awards will be subject to review by the committee.
Executives at the level of Grade E14 or higher will be placed in a special
performance program which considers an appropriate combination of
corporate, business unit, and individual performance. Prior to the end of
February corporate performance criteria for this special performance
program will be proposed by the Chief Executive Officer and
<PAGE>
PAGE 3
approved by the Committee. Certain corporate staff officers
at the E12 and E13 level may be designated to be included in
this program.
E. NEW HIRES AND PROMOTIONS
An individual who becomes a Participant because of being promoted or hired
shall be elibible for inclusion in the Plan starting in the month following
the month of hire or promotion providing that the individual is hired by
the last day of the third quarter of the year. A Participant who is
promoted to a higher grade shall be eligible for a prorateaward based on
the target award for the prior grade through the month in which the
promotion occurred and on the target award for the higher grade starting in
the month following the month of the promotion.
F. DEATH, RETIREMENT OR DISABILITY
If a Participant's employment terminates due to death, retirement or
disability, the Participant or his/her estate shall be entitled to a
prorata incentive award equal to what he or she would have been entitled to
receive as a Participant to the date of termination.
G. LEAVES OF ABSENCE AND DISABILITY
If a Participant is on a short or long term disability or leave of absence
in excess of 60 days during the plan year, the period of absence will not
be included in the award calculation and the award will be prorated.
If a Participant is on a short term or long term disability at the time
awards are paid, the prorate award will be paid if the Participant worked
at least one month during the year which performance was measured.
Except for military leave, if a Participant has not returned to work and is
on a personal or family leave of absence at the time awards are paid, the
award will be paid only if the Participant returns to work within six
months of the start of the leave. If the Participant does not return by the
end of the six month period, the award is forfeited.
H. PLAN ADMINISTRATION
1. Except as otherwise provided herein, the Plan shall be
administered by the Committee. The Committee shall be
<PAGE>
PAGE 4
appointed by the board of directors of MCI and consist entirely of
outside directors who are disinterested directors.
2. The Committee shall act with respect to the Plan by the
a majority of its members (which must be at lease two)
and such action may be taken either by a vote at a
meeting or in writing without a meeting. The Committee
shall have the fullest power and discretion permitted
by law to construe and interpret this Plan and to
establish and to amend rules and regulations for its
administration. The interpretation and construction of
the provisions of the Plan by the Committee shall be
final and binding.
3. All expenses incurred in the administration of the Plan
shall be borne by the Company.
4. The Plan may be amended at any time and from time to time by the
Committee, and nothing herein shall limit the Company from changing
the salary grade to which a Participant is assigned for purposes of
the Plan.
5. The Plan does not confer upon the Participant any right with respect
to continuance of employment with the Company nor does it alter the
Participant's status as a employee-at-will of the Company, whose
employment may be terminated by the Company at any time for any reason
or no reason.
6. MCI reserves the right to amend or terminate the Plan
at any time.
I. DISTRIBUTION OF INCENTIVE COMPENSATION
The Company shall pay in cash to each Participant the amount of incentive
compensation awarded to that Participant, after deducting from the
Participant's award all required federal, state, local or other withholding
taxes, amounts required to be withheld by law or amounts owed by the
Participant to the Company. Notwithstanding any other provision in this
Plan, the Company shall not be required to distribute an incentive
compensation award to a person who is not an Employee on the active payroll
on the date of distribution (except as provided in Section H above), or to
a Participant whose individual performance is determined by the Chief
Executive Officer to be unsatisfactory. Awards will be paid annually by the
end of the first quarter of the following year.
<PAGE>
PAGE 5
J. SPENDTHRIFT CLAUSE
Except as may be otherwise required by law, no award or payment under this
Plan shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, whether voluntary or
involuntary, and no attempt so to anticipate alienate, sell transfer,
assign, pledge, encumber or charge the same shall be valid, nor shall any
such benefit or payment be in any way liable for or subject to the debts,
contract, liabilities, engagements or torts of any person entitled to such
benefit or payment, or subject to attachment, garnishment, levy, executive
or other legal or equitable process.
IN WITNESS WHEREOF, MCI COMMUNICATIONS CORPORATION has caused this instrument to
be executive by its duly authorized officers, and its corporate seal to be
hereunto affixed as of the 6th day of December, 1995.
MCI COMMUNICATIONS CORPORATION
/s/ William D. Wooten
-------------------------
William D. Wooten
Senior Vice President
ATTEST:
/s/ C. Bolton-Smith, Jr.
- ------------------------
C. Bolton-Smith, Jr.
Secretary
<PAGE>
PAGE 1
EXHIBIT 10(p)
WARRANT PURCHASE AGREEMENT
by and between
THE NEWS CORPORATION LIMITED
and
MCI COMMUNICATIONS CORPORATION
Dated as of August 2, 1995
<PAGE>
PAGE 2
Exhibits and Schedules
Exhibit A - Warrant
Exhibit B - Registration Rights Agreement
Exhibit C - Securityholders' Agreement
Exhibit D - Opinion of Squadron, Ellenoff, Plesent
& Sheinfeld, LLP
Exhibit E - Opinion of Atanaskovic Hartnell
Exhibit F - Opinion of Simpson Thacher & Bartlett
Schedule 4.1 - Australian Legal and Regulatory Issues
Schedule 4.9 - Capitalization
Schedule 8.2 - Redeemable Ordinary Shares
<PAGE>
PAGE 3
WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT, dated as of the 2nd day of August, 1995, by and
between The News Corporation Limited, a South Australia corporation (the
"Company"), and MCI Communications Corporation, a Delaware corporation
("Purchaser").
W I T N E S S E T H:
WHEREAS, Purchaser desires to purchase, and the Company desires to issue
and sell to Purchaser, securities of the Company on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in reliance upon the representations and warranties contained
herein, the parties hereto do hereby agree as follows:
1. Authorization of Issue of Initial Warrant. The Company has authorized
the issue and sale to Purchaser or its Permitted Transferees of a warrant (the
"Initial Warrant"), representing the right to purchase up to 155,339,806
Ordinary Shares (the "Initial Warrant Shares"), upon the terms and conditions
set forth in the Initial Warrant, which shall be in the form attached hereto as
Exhibit A.
Certain capitalized terms used in this Agreement are defined in paragraph
14 hereof; references to a paragraph, section or subsection are, unless
otherwise specified, to one of the paragraphs, sections or subsections of this
Agreement and references to an "Exhibit" or a "Schedule" are, unless otherwise
specified, to one of the exhibits or schedules attached to this Agreement.
2. Sale and Purchase of Initial Warrant. Subject to the terms and
conditions herein set forth, at the closing of the sale and purchase of the
Initial Warrant (the "Initial Closing") the Company will issue and sell to
Purchaser, and Purchaser will purchase from the Company, the Initial Warrant at
a purchase price equal to One Hundred Fifty Million Dollars (US$150,000,000).
3. Initial Closing; Delivery of Initial Warrant. Subject to the terms and
conditions herein set forth, the Initial Closing shall take place at the offices
of Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New
York at 10:00 A.M. New York City time on August 2, 1995 (the "Initial Closing
Date"), or such other date, not later than five Business Days following the date
on which all of the applicable conditions precedent set forth in paragraphs 6
and 7 have been satisfied or waived. At the Initial Closing, the Company will
deliver to Purchaser the Initial Warrant, against payment of the purchase price
therefor by wire transfer in United States currency with
<PAGE>
PAGE 4
funds immediately available to the Company in New York, New York.
4. Representations and Warranties of the Company. The
Company represents and warrants that:
4.1 Organization; Authority; Validity. The Company is a corporation
duly organized under the laws of the State of South Australia, Australia.
Subject to any necessary shareholder approvals and compliance with Australian
law and ASX rules and regulations, as such approvals and compliance are
disclosed in Schedule 4.1 annexed hereto, the execution and delivery of this
Agreement and the Warrants by the Company and compliance by the Company with all
of the provisions of this Agreement and the Warrants: (i) are within the
corporate powers and authority of the Company; and (ii) have been duly
authorized by all requisite corporate proceedings on the part of the Company.
This Agreement has been duly executed and delivered by the Company and, subject
to the foregoing, constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally.
4.2 Financial Statements; SEC Reports. The Company has furnished
Purchaser with copies of the unaudited consolidated financial statements of the
Company and its Consolidated Subsidiaries as at March 31, 1995, and for the
nine-month period then ended. Such financial statements fairly present, in all
material respects, the financial condition of the Company and its Consolidated
Subsidiaries as of the date thereof and the results of operations of the Company
and its Consolidated Subsidiaries for the period then ended, all in accordance
with GAAP, subject to year-end adjustments and the absence of footnotes in such
financial statements. From March 31, 1995 through the date hereof, no event has
occurred which has had a Material Adverse Effect with respect to the Company.
The Company has filed all forms, reports and documents required to be filed by
it with the SEC since December 31, 1993. The Company's Annual Report on Form
20-F for the fiscal year ended June 30, 1994 (as amended, the "20-F"), at the
time that it was filed with the SEC under the Exchange Act, did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading; provided that no representation or warranty is made as to any
statement or omission contained in any exhibits to the 20-F.
4.3 Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company, which questions the validity of this Agreement or the Warrants, or
which could reasonably be expected to have a Material Adverse Effect with
<PAGE>
PAGE 5
respect to the Company.
4.4 Governmental Consents and Approvals. Subject to any necessary
shareholder approvals and compliance with Australian law and ASX rules and
regulations, as such approvals and compliance are disclosed in Schedule 4.1
annexed hereto, and expiration or termination of any applicable waiting periods
pursuant to HSR, no authorization, consent, approval, license, franchise, permit
or certificate by or of, filing, declaration, nor any qualification or
registration with, any foreign or domestic governmental authority or the ASX
required to be obtained or made by or on behalf of the Company is necessary to
permit the valid execution, delivery and performance of this Agreement and the
Warrants and the valid issuance and sale and delivery of the Warrants and the
Warrant Shares and the Preferred Limited Shares which may be issuable pursuant
to the Warrants, or the performance by the Company of its obligations in respect
thereof, or the exercise of any of the rights and privileges accorded to
Purchaser under this Agreement or the Warrants.
4.5 Purchase Permitted by Applicable Laws. Subject to any necessary
shareholder approvals and compliance with Australian law and ASX rules and
regulations, as such approvals and compliance are disclosed in Schedule 4.1
annexed hereto, and to the expiration or termination of any applicable waiting
periods pursuant to HSR, the purchase of and payment for the Warrants on the
terms and conditions herein provided does not violate any law or governmental
regulation applicable to the Company.
4.6 Conflicting Agreement and Charter Provisions. Neither the
execution, delivery or performance of this Agreement and the Warrants, nor
compliance with the terms and provisions of either of them, will conflict with
the Memorandum and Articles of Association of the Company, conflict with, or
result in a breach of or constitute a default under, or result in the creation
of a lien, charge or encumbrance upon or security interest in (in each case,
with or without the giving of notice, lapse of time or both) any of the
properties or assets of the Company, or any of its Consolidated Subsidiaries,
pursuant to the terms of, any indenture, mortgage, agreement, instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company, or any
of its Consolidated Subsidiaries is a party, or to which any of their respective
properties are subject except any of the foregoing which could not reasonably be
expected to have a Material Adverse Effect with respect to the Company.
4.7 Compliance with Securities Laws. Subject to any necessary
shareholder approvals and compliance with Australian law and ASX rules and
regulations, as such approvals and compliance are disclosed in Schedule 4.1
annexed hereto, the issuance of the Warrants and the transactions contemplated
thereby comply with all applicable requirements of United States and Australian
securities laws.
<PAGE>
PAGE 6
4.8 [INTENTIONALLY OMITTED]
4.9 Capitalization. The number of authorized shares of capital stock
of the Company and the number of such shares issued and outstanding as of March
31, 1995 and as of a recent date, are disclosed in Schedule 4.9 annexed hereto.
Except as set forth in Schedule 4.9, the Company (i) does not have outstanding
any capital stock or securities issuable pursuant to Convertible Securities or
Options and no person has any right to subscribe for or to purchase, or any
Options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or other claims of any
character relating to, any capital stock or any Convertible Securities pursuant
to which any capital stock of the Company may be issued and (ii) is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock or any Convertible Securities, rights
or Options of the type described in the preceding clause (i). The number of
issued and outstanding Ordinary Shares as of the close of business on May 10,
1995 was 1,915,207,316. The number of Ordinary Shares issuable as of May 10,
1995 pursuant to Convertible Securities or Options which were outstanding on May
10, 1995 was 143,240,079 (subject to adjustment pursuant to the terms of the
converting preferred shares as described in Note 18 of the 20-F).
4.10 Validity of Stock. Subject to any necessary shareholder approvals
and compliance with Australian law and ASX rules and regulations, as such
approvals and compliance are disclosed in Schedule 4.1 annexed hereto, the
Warrant Shares have been duly authorized by the Company and, when issued, sold
and delivered in accordance with the terms of this Agreement and the Warrant,
will be duly and validly issued, fully paid and nonassessable, free of
preemptive rights, and Purchaser will acquire such Warrant Shares free and clear
of any lien, claim, charge, equity or encumbrances of any kind, except as may be
provided for in this Agreement and the Warrants. Such Warrant Shares have been,
and at all times prior to the exercise of the Warrants will be, duly reserved
for issuance upon such exercise. Subject to any necessary shareholder approval,
compliance with Australian law and ASX rules and regulations, as such approvals
and compliance are disclosed in Schedule 4.1 annexed hereto, the Preferred
Limited Shares which may be issuable upon the conversion or exchange of the
Warrant Shares or the exercise of the Warrant have been duly authorized and,
when issued upon the conversion or exchange of the Warrant Shares or the
exercise of the Warrant, will be validly issued, fully paid and nonassessable,
free of preemptive rights, and Purchaser will acquire such shares free and clear
of any lien, claim, charge, equity or encumbrance of any kind. Such Preferred
Limited Shares have been, and at all times prior to the conversion or exchange
of the Warrant Shares or the exercise of the Warrant will be, duly reserved for
issuance upon such conversion, exchange or exercise.
<PAGE>
PAGE 7
5. Representations and Warranties of Purchaser.
Purchaser represents and warrants that:
5.1 Organization; Authority; Validity. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The execution and delivery of this Agreement and compliance by
Purchaser with all of the provisions of this Agreement: (i) are within the
corporate powers and authority of Purchaser; and (ii) have been duly authorized
by all requisite corporate proceedings on the part of Purchaser. This Agreement
has been duly executed and delivered by Purchaser and constitutes the valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally.
5.2 Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of Purchaser, threatened against
Purchaser which questions the validity of this Agreement or which could
reasonably be expected to have an adverse effect with respect to the ability of
Purchaser to perform its obligations hereunder.
5.3 Governmental Consents and Approvals. Assuming the accuracy of the
matters set forth in Schedule 4.1 hereto, subject to any necessary shareholder
approvals and compliance with Australian law and ASX rules and regulations, as
such approvals and compliance are disclosed in Schedule 4.1 annexed hereto, and
expiration or termination of any applicable waiting periods pursuant to HSR, no
authorization, consent, approval, license, franchise, permit or certificate by
or of, filing, declaration, nor any qualification or registration with, any
foreign or domestic governmental authority required to be obtained or made by or
on behalf of Purchaser is necessary to permit the valid execution, delivery and
performance of this Agreement.
5.4 Purchase Permitted by Applicable Laws. Assuming the accuracy of
the matters set forth in Schedule 4.1 hereto, subject to any necessary
shareholder approvals and compliance with Australian law and ASX rules and
regulations, as such approvals and compliance are disclosed in Schedule 4.1
annexed hereto, and expiration or termination of any applicable waiting periods
pursuant to HSR, the purchase of and payment for the Warrants to be purchased by
Purchaser on the terms and conditions herein provided does not violate any law
or governmental regulation applicable to Purchaser.
5.5 Conflicting Agreement and Charter Provisions. Neither the
execution, delivery or performance of this Agreement, nor compliance with the
terms and provisions hereof will conflict with the Certificate of Incorporation
or By-laws of Purchaser, conflict with, or result in a breach of or constitute a
default
<PAGE>
PAGE 8
under, or result in the creation of a lien, charge or encumbrance upon or
security interest in (in each case, with or without the giving of notice, lapse
of time or both) any of the properties or assets of Purchaser, pursuant to the
terms of, any indenture, mortgage, agreement, instrument, order, judgment,
decree, statute, law, rule or regulation to which Purchaser is a party, or to
which any of its properties is subject except any of the foregoing which could
not reasonably be expected to have a Material Adverse Effect with respect to
Purchaser.
5.6 Acquisition for Investment. Purchaser represents that it is an
Accredited Investor acquiring the Initial Warrant, the Additional Warrants, if
any, and the Warrant Shares solely for its own account for the purpose of
investment and not with a view to or for the sale thereof. Purchaser
acknowledges that the Warrant Shares, the Preferred Limited Shares issuable
under paragraph 8.2 hereof or pursuant to the Warrants, and the ADSs
representing any such shares, are subject to the provisions of this Agreement,
the Warrants and the Registration Rights Agreement, and have not been registered
under the Securities Act, and may be sold or disposed of in the absence of such
registration only pursuant to an exemption from such registration and in
accordance with this Agreement, the Warrants and the Registration Rights
Agreement.
5.7 [INTENTIONALLY OMITTED]
6. Conditions Precedent to the Obligations of Purchaser. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement on the
Initial Closing Date or, to the extent set forth below, on any Additional
Closing Date, as the case may be, shall be subject to the satisfaction or waiver
by Purchaser of the following conditions:
6.1 Representations and Warranties; Covenants and Agreements. (a) The
representations and warranties of the Company contained in this Agreement and in
any certificate or document executed and delivered by the Company pursuant to
this Agreement shall be true, accurate and complete in all material respects on
and as of each Closing Date with the same force and effect as though made on and
as of such Closing Date, except that (i) any such representations and warranties
that relate solely to a specified date (other than the date hereof) or period
shall be true, accurate and complete in all material respects only as of such
date or period; and (ii) the representations and warranties contained in
paragraphs 4.2 and 4.9 shall be true, accurate and complete in all material
respects only on and as of the date hereof and the Initial Closing Date. The
Company shall have delivered to Purchaser a certificate, dated as of such
Closing Date and signed on its behalf, to the foregoing effect.
(b) The Company shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by the
<PAGE>
PAGE 9
Company on or prior to such Closing Date. The Company shall have delivered to
Purchaser a certificate, dated as of such Closing Date and signed on its behalf,
to the foregoing effect.
6.2 Illegality. Subject to any necessary shareholder approvals and
compliance with Australian law and ASX rules and regulations, as such approvals
and compliance are described in Schedule 4.1 annexed hereto, there shall not be
in effect any statute, rule, regulation or order of any court, governmental or
regulatory body which prohibits or makes illegal any of the transactions
contemplated by this Agreement or the Warrants in accordance with the terms and
conditions contained herein and therein.
6.3 Litigation. There shall be no litigation pending or threatened
which seeks to enjoin, restrain or prohibit the consummation of the transactions
contemplated by this Agreement or the Warrants or to impose limitations on the
ability of Purchaser to exercise full rights of ownership of the Warrants.
6.4 Consents. Subject to any necessary shareholder approvals and
compliance with Australian law and ASX rules and regulations, as such approvals
and compliance are disclosed in Schedule 4.1 annexed hereto, there shall have
been obtained all consents and approvals from parties to contracts or other
agreements with the Company and from governmental authorities or other Persons
that are required in connection with the performance by the Company of its
obligations under this Agreement and the Warrants.
6.5 No Material Adverse Effect. At the Initial Closing only, there
shall not have been a Material Adverse Effect with respect to the Company since
March 31, 1995.
6.6 Corporate Action. At the Initial Closing only, Purchaser shall
have received: (a) a copy of the resolution or resolutions duly adopted by the
Board of Directors of the Company (or a duly authorized committee thereof) (the
"Board"), authorizing the execution, delivery and performance by the Company of
this Agreement and the Warrants, certified by a director or the Secretary of the
Company; and (b) a certificate of a director or the Secretary of the Company as
to the incumbency and signatures of its authorized signatories executing this
Agreement.
6.7 Opinion of the Company's Counsel. At the Initial Closing only,
Purchaser shall have received from Squadron, Ellenoff, Plesent & Sheinfeld, LLP,
United States counsel to the Company, and Atanaskovic Hartnell, Australian
counsel to the Company, opinions in the forms attached hereto as Exhibits D and
E, respectively.
6.8 Other Agreements. At the Initial Closing only,
the following documents shall have been executed and delivered:
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PAGE 10
the Registration Rights Agreement, the Securityholders'
Agreement, the Joint Venture Formation Agreement and the Joint
Venture Agreement.
6.9 Delivery of Warrant. The Company shall have delivered to Purchaser
the Initial Warrant or the Additional Warrant then being issued, as the case may
be, as provided herein.
6.10 Preferred Stock Purchase Agreement. The closing
of the purchase and sale of the Initial Subsidiaries' Preferred
Stock pursuant to the Preferred Stock Purchase Agreement shall
have occurred.
7. Conditions Precedent to the Obligations of the Company. The obligations
of the Company to consummate the transactions contemplated by this Agreement on
the Initial Closing Date or, to the extent provided for below, on any Additional
Closing Date, as the case may be, shall be subject to the satisfaction or waiver
by the Company of the following conditions:
7.1 Representations and Warranties; Covenants and
Agreements.
(a) The representations and warranties of Purchaser contained in this
Agreement and in any certificate or document executed and delivered by it
pursuant to this Agreement shall be true, accurate and complete in all material
respects on and as of each Closing Date with the same force and effect as though
made on and as of such Closing Date except that (i) any such representations and
warranties that relate solely to a specified date (other than the date hereof)
or period shall be true, accurate and complete in all material respects only as
of such date or period; and (ii) the representations and warranties set forth in
the first sentence of paragraph 5.6 shall be true, accurate and complete (1) as
of the date hereof and the Initial Closing Date; and (2) as of each Additional
Closing Date, but only with respect to the Additional Warrant that is being
acquired on such Additional Closing Date and the Warrant Shares issuable upon
exercise of such Warrant. Purchaser shall have delivered to the Company a
certificate, dated as of such Closing Date and signed on its behalf, to the
foregoing effect.
(b) Purchaser shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to such Closing Date. Purchaser
shall have delivered to the Company a certificate, dated as of such Closing Date
and signed on its behalf, to the foregoing effect.
7.2 Illegality. Subject to any necessary shareholder approvals and
compliance with Australian law and ASX rules and regulations, as such approvals
and compliance are described in Schedule 4.1 annexed hereto, there shall not be
in effect any statute, rule, regulation or order of any court, governmental or
<PAGE>
PAGE 11
regulatory body which prohibits or makes illegal any of the transactions
contemplated by this Agreement or the Warrants in accordance with the terms and
conditions contained herein and therein.
7.3 Litigation. There shall be no litigation pending or threatened
which seeks to enjoin, restrain or prohibit the consummation of the transactions
contemplated by this Agreement or the Warrants.
7.4 Consents. Subject to any necessary shareholder approval and
compliance with Australian law and ASX rules and regulations, as such approvals
and compliance are disclosed in Schedule 4.1 annexed hereto, there shall have
been obtained all consents and approvals from parties to contracts or other
agreements with Purchaser and from governmental authorities and other Persons
that are required in connection with the performance by Purchaser of its
obligations under this Agreement and the Warrants.
7.5 Corporate Action. At the Initial Closing only, the Company shall
have received: (a) a copy of the resolution or resolutions duly adopted by the
Board of Directors of Purchaser authorizing the execution, delivery and
performance by Purchaser of this Agreement, certified by the Secretary or an
Assistant Secretary of Purchaser; and (b) a certificate of the Secretary or an
Assistant Secretary of Purchaser as to the incumbency and signatures of the
officers of Purchaser executing this Agreement.
7.6 Opinion of Purchaser's Counsel. At the Initial Closing only, the
Company shall have received from Simpson Thacher & Bartlett, counsel to
Purchaser, an opinion in the form attached hereto as Exhibit F.
7.7 Other Agreements. At the Initial Closing only,
the following documents shall have been executed and delivered:
the Registration Rights Agreement, the Securityholders'
Agreement, the Joint Venture Formation Agreement and the Joint
Venture Agreement.
7.8 Payment for Warrant. Purchaser shall have made payment of the
purchase price for the Initial Warrant or the Additional Warrant then being
issued, as the case may be, as provided herein.
7.9 Preferred Stock Purchase Agreement. The closing
of the purchase and sale of the Initial Subsidiaries' Preferred
Stock pursuant to the Preferred Stock Purchase Agreement shall
have occurred.
8. Transfer of Securities.
8.1 Restrictions on Transfer. (a) Prior to any
Triggering Event, the Ordinary Shares acquired upon exercise, in
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PAGE 12
whole or in part, of any Warrant shall be subject to a stop transfer order and
shall not be transferable by Purchaser or any Permitted Transferee, other than
in accordance with this Section 8 or paragraph 13.2. In the event that Purchaser
elects to acquire Preferred Limited Shares upon exercise, in whole or in part,
of any Warrant or pursuant to paragraph 8.2 below, the shares so acquired shall
be subject to a stop transfer order unless such shares are registered under the
Securities Act or exempt from registration under such Act. Following a
Triggering Event, Purchaser may transfer the Warrant Shares to any party,
provided such shares are registered under the Securities Act or exempt from
registration under such Act, without regard to the restrictions contained in the
first sentence of this paragraph 8.1 or paragraph 8.2 below.
(b) Purchaser agrees that it shall not (and it shall cause each
Permitted Transferee to not) in Australia sell or offer for sale or issue
invitations to make an offer to buy any of the Warrants, Warrant Shares or
Preferred Limited Shares issued pursuant to clause 8.2 hereof or the Warrants
within a period of six months after the issue thereof except, in the case of
such shares, by means of on-market sales in accordance with section 1030(1A) of
the Corporations Law or an excluded offer or excluded invitation as defined in
the Corporations Law.
8.2 Exchange for Preferred Limited Shares. (a) Prior to any Triggering
Event, Purchaser, as a condition to the sale or other transfer (other than to a
Permitted Transferee in accordance with Section 13.2 hereof) of any Warrant
Shares issued upon exercise, in whole or in part, of the Warrants, shall take
all actions required by this paragraph 8.2 to permit the Company to effect the
exchange or conversion of such Warrant Shares for or into Preferred Limited
Shares.
(b) Purchaser and the Company agree that the exchange or conversion of
the Warrant Shares into Preferred Limited Shares may be accomplished, subject to
any necessary shareholder approvals and compliance with Australian law and ASX
rules and regulations, through the issuance by the Company, upon exercise of the
Warrants, of a new class of redeemable ordinary shares (as Warrant Shares)
containing the terms and conditions described in Schedule 8.2 annexed hereto and
such other terms and conditions necessary to accomplish the foregoing purpose as
the Company shall determine and as may be reasonably acceptable to Purchaser
(the "Redeemable Ordinary Shares"). If the issuance of the Redeemable Ordinary
Shares is not in compliance with Australian law or ASX rules and regulations, or
if the Company determines not to effect such exchange or conversion through
Redeemable Ordinary Shares, then the exchange or conversion of the Warrant
Shares into Preferred Limited Shares shall be accomplished by a selective
buy-back, reduction of capital, scheme of arrangement or combination of the
foregoing (and issue of such Preferred Limited Shares, if appropriate), as the
Company shall determine and as may be reasonably acceptable to Purchaser,
subject to
<PAGE>
PAGE 13
shareholder approval and compliance with Australian law and ASX rules and
regulations. Purchaser shall, subject to applicable legal requirements,
including ASX rules and regulations, vote any securities of the Company entitled
to vote with respect to the issuance of the Redeemable Ordinary Shares or any
other method for the exchange or conversion of the Warrant Shares into Preferred
Limited Shares which requires approval by the shareholders of the Company, which
may be voted by it, in favor of such approval. Purchaser and the Company agree
to cooperate to accomplish the intent and purposes of the provisions contained
herein, i.e., the sale of Preferred Limited Shares and not Ordinary Shares by
Purchaser in any sale subject to this paragraph 8.2. Each of Purchaser and the
Company agrees to do and cause to be done such acts as may be necessary or
appropriate to accomplish such intent and purposes. The Company shall, within
ten Business Days following notice from Purchaser, pay the reasonable expenses
of Purchaser in connection with the matters described in this paragraph 8.2(b),
subject to Purchaser's furnishing the Company with such documentation concerning
such expenses as the Company may reasonably require. The Company hereby
represents and warrants that the conversion or exchange of the Ordinary Shares
subject to such Purchaser Notice into Preferred Limited Shares (as described in
this paragraph 8.2) will not result in any Incremental Tax Cost (as defined
below) to Purchaser. In the event of a breach of the foregoing representation
and warranty, Purchaser shall be indemnified and made whole on an after-tax
basis by the Company, within ten Business Days following notice from Purchaser,
for any such Incremental Tax Costs. "Incremental Tax Cost" shall mean the
excess, if any, of (x) the sum of any United States and Australian tax costs
(including but not limited to any withholding tax, transfer tax, or other
governmental charges or assessments) resulting from (i) the conversion or
exchange of the Ordinary Shares subject to such Purchaser Notice into Preferred
Limited Shares as described in this paragraph 8.2 (excluding any additional
Preferred Limited Shares covered in clause (iii) below), (ii) the sale or other
transfer of such Preferred Limited Shares (the value of such Preferred Limited
Shares to be measured as of the Valuation Date, as defined in paragraph
8.2(e)(i) below) and (iii) the payment of additional Preferred Limited Shares
and/or cash (pursuant to paragraphs 8.2(d) and (e)(i) below) over (y) the United
States and Australian tax costs Purchaser would have incurred had it sold such
Ordinary Shares without converting such Ordinary Shares into Preferred Limited
Shares (the value of such Ordinary Shares to be measured as of the Valuation
Date, as defined in paragraph 8.2(e)(i) below). For purposes of the preceding
sentence, tax costs shall include any reduction of a tax benefit of Purchaser,
to the extent such reduction is in excess of the reduction that would have
obtained had Purchaser sold such Ordinary Shares without converting or
exchanging such Ordinary Shares into Preferred Limited Shares as described in
this paragraph 8.2. In addition, tax costs shall be reduced by any tax credits
or other tax benefits (including any increase in basis of the shares held by
Purchaser that reduces
<PAGE>
PAGE 14
the tax costs to Purchaser in connection with the sale of, or distributions with
respect to, the Preferred Limited Shares) resulting from the conversion or
exchange of the Ordinary Shares subject to such Purchaser Notice into Preferred
Limited Shares as described in this paragraph 8.2.
(c) If Purchaser intends to sell any such Warrant Shares in any sale
subject to this paragraph 8.2, Purchaser shall give written notice to the
Company (the "Purchaser Notice") of its intention to sell, the date of sale, the
number of Warrant Shares to be sold and whether the sale will be completed in a
market transaction, a negotiated transaction, a registered public offering,
private placement or otherwise. The Purchaser Notice shall be given by Purchaser
to the Company at least ten Business Days before any such sale is to occur.
Purchaser shall deliver to the Company the number of Warrant Shares subject to
the Purchaser Notice on or prior to the date the Purchaser Notice is given.
(d) If any Warrant Shares are Redeemable Ordinary Shares, the Company
shall deliver to Purchaser the Preferred Limited Shares to be issued upon
exchange or conversion of such Redeemable Ordinary Shares (including, at the
Company's election, Preferred Limited Shares in excess of the number of Warrant
Shares being exchanged or converted, determined on the same basis with respect
to the Redeemable Ordinary Shares as any payment of additional Preferred Limited
Shares described in paragraph 8.2(e)(i)) and the cash payment, if any
(determined on the same basis with respect to the Redeemable Ordinary Shares as
any cash payment with respect to the Ordinary Shares described in paragraph
8.2(e)(i) hereof), on the date of sale set forth in the Purchaser Notice.
(e) If any Warrant Shares are not Redeemable Ordinary
Shares, then:
(i) Within two Business Days following the Valuation Date
described below, the Company shall elect, by giving written notice to Purchaser,
in addition to delivering one Preferred Limited Share for each Warrant Share to
be sold, whether to pay in cash or in additional Preferred Limited Shares
(valued at the Current Market Price as of the fifth trading day prior to the
date of sale set forth in the Purchaser Notice (the "Valuation Date")), an
amount equal to the product of (A) the number of Warrant Shares to be exchanged
or converted and (B) the excess, if any, of the Current Market Price of the
Ordinary Shares over the Current Market Price of the Preferred Limited Shares at
the Valuation Date.
(ii) The Company shall use its best efforts to deliver to
Purchaser the Preferred Limited Shares to be issued upon exchange or conversion
upon the date of sale set forth in the Purchaser Notice or, failing such
delivery on such date, as promptly thereafter as may be practicable, but in no
event later
<PAGE>
PAGE 15
than 8 months following such date. In the event that the Company shall not have
delivered to Purchaser the Preferred Limited Shares within such 8 month period,
Purchaser shall have the right to sell the Ordinary Shares, subject to a right
of first refusal in favor of the Company or its designees. The Company shall, in
any case, deliver the cash payment described in clause (i) above, if applicable,
upon the date of sale set forth in the Purchaser Notice. If the Company is
unable to deliver any Preferred Limited Shares on or prior to the date of sale
set forth in the Purchaser Notice, then, following the delivery of any such
Preferred Limited Shares, Purchaser shall sell such Preferred Limited Shares and
the Company shall, within ten Business Days following the sale by Purchaser of
all of the Preferred Limited Shares issued pursuant to each Purchaser Notice,
reimburse Purchaser for the difference, if any, between the aggregate proceeds
of such sales and the Current Market Price on the Valuation Date of a number of
Ordinary Shares equal to the number of Warrant Shares subject, to the extent
permitted by applicable law, to the Purchaser Notice, less any amounts paid in
cash pursuant to clause (i) of this paragraph 8.2(e).
8.3 Prohibited Transfers. Any transfer of the Warrant Shares or
Preferred Limited Shares issued pursuant to any Warrant or pursuant to paragraph
8.2 above in violation of the provisions of this Agreement or such Warrant shall
be null and void and of no force and effect whatsoever.
9. Increased Voting Rights. In the event of any issuance by the Company of
Special Voting Securities in excess of 2 1/2% of the Base Level (the "Issuance
Threshold") prior to the occurrence of a Triggering Event (each, an "Issuance"),
other than any issuances (i) to any Investor Party; (ii) pursuant to the
Dividend Reinvestment Plan; or (iii) pursuant to any Convertible Securities or
Options which were outstanding on May 10, 1995, the Warrant Shares will be
entitled to the same voting rights or be subject to such lesser restrictions as
such Special Voting Securities on the following basis: (A) if and so long as the
total number of such Special Voting Securities is not in excess of 10% of the
Base Level (the "10% Basket"), the same number of Warrant Shares (or such lesser
number as may be outstanding) as such number of Special Voting Securities
subject to the Issuance shall be entitled to the same voting rights as such
Special Voting Securities; and (B) if the total number of such Special Voting
Securities is in excess of the 10% Basket, all of Purchaser's Warrant Shares
shall be entitled to the same voting rights as such Special Voting Securities.
Notwithstanding the foregoing, the Issuance Threshold shall be increased by the
number of Voting Securities redeemed or otherwise acquired by the Company (other
than Warrant Shares acquired by the Company in connection with the issuance of
Preferred Limited Shares pursuant to paragraph 8.2) during a period of three
months prior to or three months following any Issuance, except where such
Issuance results in any person, other than members of the Murdoch Family, owning
more than the lesser of (1) Purchaser's percentage of
<PAGE>
PAGE 16
Beneficial Ownership of Voting Securities (assuming exercise of any Warrants
then outstanding) and (2) 10% of the Base Level immediately prior to such
Issuance.
10. Restriction on Certain Actions by Purchaser. Prior to the occurrence of
a Triggering Event, each Investor agrees that it will not, nor will it permit
any of its controlled Affiliates (the Investors and their respective controlled
Affiliates are sometimes referred to herein collectively as the "Investor
Parties"), directly or indirectly, at any time, to:
(a) acquire, directly or indirectly, by purchase or otherwise, any
Voting Securities if after such acquisition the Investor Parties would
Beneficially Own in the aggregate more than 20% of the Voting Securities (the
"Permitted Percentage"), including for purpose of calculating such percentage
(i) any Voting Securities issuable pursuant to any Options or Convertible
Securities Beneficially Owned by the Investor Parties; (ii) the Voting
Securities that would be Beneficially Owned by the Investor Parties following
the issuance of the maximum number of Warrants that could thereafter be issuable
pursuant to paragraphs 12.1 and 12.2, but excluding for the purpose of
calculating the total number of Voting Securities outstanding, any Voting
Securities issuable pursuant to any Options or Convertible Securities other than
those referred to in clause (i) or (ii) above; provided that (A) Ordinary Shares
acquired by any Investor Party pursuant to the Securityholders' Agreement shall
not be considered for purposes of calculating whether the Permitted Percentage
has been exceeded and (B) the exercise of the Preemptive Right provided for in
paragraph 12.3 hereof and/or Section 7 of any Warrant shall not be deemed to be
a breach of this Section 10(a). If, notwithstanding the preceding provisions of
this paragraph, the Investor Parties shall at any time Beneficially Own for any
reason (other than as a result of a reduction in the number of outstanding
Voting Securities of the Company, as provided below) Voting Securities in excess
of the Permitted Percentage, then, subject to the last sentence of this
paragraph 10(a), the Investor Parties shall be required to (to the extent
permitted by law), and shall each cause their respective controlled Affiliates
to, dispose of such excess by, promptly and, in any event within ten Business
Days, selling or otherwise transferring a sufficient number of Voting Securities
(other than any Warrants or Warrant Shares) so that after such sale or transfer
the Investor Parties shall own not more than the Permitted Percentage; provided
that if such excess Voting Securities (other than any Warrants or Warrant
Shares) are not so transferred within five Business Days, then the Company may,
at its option, upon two Business Days' notice, subject to the next following
sentence, require the Investor Parties to transfer Warrants or Warrant Shares in
excess of the Permitted Percentage. If any Warrant Shares are to be transferred,
such transfer shall be effected through the conversion or exchange of such
Warrant Shares into Preferred Limited Shares and the sale of such Preferred
Limited Shares pursuant to paragraph 8.2, which sale
<PAGE>
PAGE 17
shall be effected by Purchaser as promptly as practicable in accordance with
paragraph 8.2 hereof. Notwithstanding the preceding provisions of this paragraph
10(a), if the number of shares of outstanding Voting Securities is reduced, none
of the Investor Parties will be required to transfer Voting Securities
Beneficially Owned by them which, in the aggregate, are in excess of the
Permitted Percentage if such reduction in outstanding shares results in such
ownership exceeding the Permitted Percentage;
(b) "solicit" proxies with respect to Voting Securities under any
circumstances or become a "participant" in any "election contest" relating to
the election of directors of the Company, as such terms are defined in
Regulation 14A under the Exchange Act;
(c) deposit any Voting Securities in a voting trust or subject them to
a voting agreement or other agreement of similar effect, other than as required
hereunder or under the other documents contemplated hereby;
(d) initiate, propose or otherwise solicit shareholders for the
approval of one or more shareholder proposals at any time, or induce or attempt
to induce any other person to initiate any shareholder proposal;
(e) except as contemplated by this Agreement or the other documents
contemplated hereby, take any action to acquire or affect control of the Company
or to encourage or assist any other person to do so; or
(f) while Purchaser or any of its Permitted Transferees Beneficially
Owns any Warrants or Warrant Shares, engage in any "short sales" of any
securities of the Company.
11. Negative Covenant of the Company. Provided that Purchaser and the
Permitted Transferees continue to own (i) the Initial Warrant and all of the
Initial Subsidiaries' Preferred Stock (except to the extent the Initial Warrant
has been exercised and/or the Initial Subsidiaries' Preferred Stock has been
surrendered upon exercise of any Warrant); (ii) all Additional Warrants and
Additional Subsidiaries' Preferred Stock issued to Purchaser and the Permitted
Transferees (except to the extent the Additional Warrants have been exercised
and/or the Additional Subsidiaries' Preferred Stock has been surrendered upon
exercise of any Warrant); and (iii) all securities issued to Purchaser and the
Permitted Transferees upon exercise of the Warrants or upon the exchange or
conversion of such securities, the Company will not, and will not permit its
Subsidiaries to, without the consent of Purchaser, take of any of the following
actions: (A) (1) enter into (directly or indirectly, through Affiliates or
otherwise) any arrangement providing for joint marketing or promotion with any
MCI Competitor or permitting its controlled content to be used for any
activities that would
<PAGE>
PAGE 18
promote (directly or indirectly) the products or services of any MCI Competitor,
without giving Purchaser a first preference to enter into the arrangement; (2)
enter into a co-branding arrangement with an MCI Competitor (i.e., the connected
use of the Company's trade names, trademarks or service marks (e.g., "News Corp"
or "Fox") together with a trade name, trademark or service mark of an MCI
Competitor); (3) enter into (directly or indirectly, through Affiliates or
otherwise) any strategic joint venture arrangement, alliance or similar
arrangement (including any exclusive arrangement, or any agreement entered into
outside of the ordinary course) with an MCI Competitor similar to or having the
purposes of or providing any of the services referred to in the Joint Venture
Agreement or otherwise provided by the Joint Venture from time to time; or (4)
issue any Voting Security to any MCI Competitor in any privately-negotiated
transaction (each of the actions described in this clause (A) is sometimes
referred to herein as a "Restricted Alliance"); (B) incur any Indebtedness, if
the aggregate amount of the Company's Consolidated Indebtedness after such
incurrence would exceed two-thirds of the greater of (1) the Consolidated Book
Value of the Company, and (2) the Aggregate Current Market Value of the
outstanding equity securities of the Company on the date of the Company's notice
referred to in the last sentence of this paragraph 11; (C) enter into any
business combination transaction involving the sale of all or substantially all
of the assets or equity securities of the Company, unless in connection with
such business combination Purchaser is entitled to receive in respect of its
interest in any Warrant Shares at least the same kind and amount of
consideration it would receive in respect of such interest assuming the full
exercise of each Warrant immediately prior to such business combination; or (D)
enter into any agreement providing for an acquisition of, or otherwise acquire,
Non-Media Assets if the acquisition costs for any such acquisition (or series of
related acquisitions) exceed US$1 billion. The Company shall notify Purchaser
not less than 20 Business Days prior to taking any proposed action described in
clause (A), (B), (C) or (D) above. Unless Purchaser shall have notified the
Company, within ten Business Days following the Company's notice, that it does
not approve of any such action, Purchaser shall be deemed to have consented to
such action.
12. Additional Issuances of Securities of the Company.
12.1 Purchaser Option. (a) Subject to (i) paragraphs 12.1(b) and
12.1(c) below, (ii) shareholder approval and compliance with Australian law and
ASX rules and regulations, as such approvals and compliance are disclosed in
Schedule 4.1 annexed hereto, and (iii) the other terms of this Agreement,
Purchaser shall have the option at any time and from time to time (the "Warrant
Purchase Option") to purchase Additional Warrants representing, in the
aggregate, the right to purchase up to such number of Ordinary Shares as would
be issuable if the Initial Warrant were to be exercised in full as of the
issuance date of the Additional Warrant, assuming that no prior exercise of the
<PAGE>
PAGE 19
Initial Warrant had occurred (the "Aggregate Warrant Shares"), reduced by the
number of Ordinary Shares issuable pursuant to all Additional Warrants which
have been issued pursuant to the Warrant Put Right. The purchase price for each
Additional Warrant shall be an amount equal to the quotient of (A) the product
of (1) the number of Ordinary Shares subject to such Additional Warrant,
multiplied by (2) US$150,000,000, divided by (B) the Aggregate Warrant Shares.
Each purchase pursuant to the Warrant Purchase Option must be in increments of
US$30,000,000. The aggregate purchase price for all Additional Warrants issued
pursuant to the Warrant Purchase Option and the Warrant Put Right shall not
exceed US$150,000,000. The form and content of each Additional Warrant,
including the exercise price as in effect pursuant to the Initial Warrant at the
time of issuance of such Additional Warrant, shall be substantially identical to
those of the Initial Warrant; provided that (1) each Additional Warrant shall be
immediately exercisable and (2) any Additional Warrant that is issued following
the first anniversary of the Initial Closing Date shall expire on the fifth
anniversary of the Initial Closing Date.
(b) Each exercise of the Warrant Purchase Option (i.e., the
acquisition of an Additional Warrant pursuant to the exercise of such Warrant
Purchase Option) is subject to (i) continued ownership by Purchaser and the
Permitted Transferees of (A) the Initial Warrant and all of the Initial
Subsidiaries' Preferred Stock (except to the extent the Initial Warrant has been
exercised and/or shares of Initial Subsidiaries' Preferred Stock have been
surrendered upon the exercise of any Warrant), and (B) all securities issued to
Purchaser or the Permitted Transferees upon exercise of the Initial Warrant or
upon exchange or conversion of such securities; and (ii) the requirement that
each exercise of the Warrant Purchase Option (at any time in whole and, from
time to time, in part), occur prior to 5:00 p.m., New York time, on the fifth
anniversary of the Initial Closing Date (such five-year period being hereinafter
referred to as the "Option Period").
(c) It shall be a condition to each exercise of the Warrant Purchase
Option that Purchaser concurrently exercise the same percentage of its option to
purchase Additional Subsidiaries' Preferred Stock pursuant to the Preferred
Stock
Purchase Agreement.
(d) The Warrant Purchase Option may be assigned to a Permitted
Transferee without the Company's consent, subject in all respects to all the
terms and conditions of this Section 12, including, without limitation, the
reduction of the number of Ordinary Shares (or the corresponding number of
Preferred Limited Shares) issuable upon exercise of any Additional Warrant that
may be issuable pursuant to the Warrant Purchase Option by the number of
Ordinary Shares issuable upon exercise of all the Additional Warrants which have
been issued pursuant to the Warrant Put Right and paragraph 13.2 hereof. Except
as expressly provided above,
<PAGE>
PAGE 20
Purchaser may not sell, transfer or assign the Warrant Purchase Option and any
attempt to do so will be null and void and of no force and effect whatsoever.
(e) In the event Purchaser elects to exercise the Warrant Purchase
Option, Purchaser shall give written notice thereof (the "Warrant Option
Notice") to the Company setting forth the dollar amount and the number of
Warrant Shares underlying the Additional Warrant with respect to which Purchaser
has elected to exercise the Warrant Purchase Option. The Warrant Option Notice
shall also specify a time and date, not less than 30 Business Days nor more than
60 Business Days following receipt by the Company of the Warrant Option Notice,
of the closing of the purchase and sale of the Additional Warrant with respect
to which Purchaser is exercising the Warrant Purchase Option.
12.2 Company Put. (a) Subject to (i) paragraphs 12.2(b) and (c) below,
(ii) shareholder approval and compliance with Australian law and ASX rules and
regulations, as such approvals and compliance are disclosed in Schedule 4.1
annexed hereto, and (iii) the other terms of this Agreement and the other
documents contemplated hereby, the Company shall have the right (the "Warrant
Put Right") at any time and from time to time during the Option Period to
require Purchaser to purchase Additional Warrants, the proceeds of which shall
be applied solely in connection with the financing of Qualifying Transactions
and related costs, up to the amount of Additional Warrants issuable pursuant to
the Warrant Purchase Option, reduced by the number of Additional Warrants
previously issued pursuant to the Warrant Purchase Option.
(b) It shall be a condition to each exercise of the Warrant Put Right
hereunder that (i) each of News Triangle and News T concurrently exercise the
same percentage of their respective rights to require Purchaser to purchase
Additional Subsidiaries' Preferred Stock pursuant to the Preferred Stock
Purchase Agreement (the "Share Put Right"); and (ii) at the time of such
exercise, Purchaser would not be unable to exercise the Warrant Purchase Option
because any necessary shareholder approval described in Schedule 4.1 annexed
hereto has not been obtained or because such exercise would not be in compliance
with Australian law or ASX rules or regulations, as described in such Schedule.
(c) The Company may not exercise its Warrant Put Right to receive an
amount which, when aggregated with the amount to be paid by Purchaser upon
exercise of the related Share Put Right, is (i) less than the lesser of (A) the
aggregate dollar amount remaining subject to the Warrant Put Right and the Share
Put Right, and (B) US$200,000,000, or (ii) greater than the amount necessary to
pay the purchase price and related costs of the relevant Qualifying Transaction.
<PAGE>
PAGE 21
(d) (i) In the event the Company elects to exercise the Warrant Put
Right, the Company shall give written notice thereof (the "Warrant Put
Right Notice") to Purchaser setting forth (A) a description of the
Qualifying Transaction in connection with which the Company is
exercising the Warrant Put Right; (B) whether such Qualifying
Transaction is a Special Qualifying Transaction; (C) the dollar amount
and the number of Additional Warrant Shares underlying the Additional
Warrant, with respect to which the Company has elected to exercise the
Warrant Put Right; and (D) a time and date, not less than 30 Business
Days nor more than 60 Business Days following receipt by Purchaser of
the Warrant Put Right Notice, of the closing of the purchase and sale
of the Additional Warrant with respect to which the Company is
exercising the Warrant Put Right.
(ii) In the case of an exercise by the Company of the Warrant Put
Right in connection with a Special Qualifying Transaction, Purchaser
shall, within ten Business Days following receipt of the Warrant Put
Right Notice (the "Special Put Right Notice Period"), give written
notice (the "Put Right Election Notice") to the Company setting forth
Purchaser's election, as set forth in paragraph 12.2(e) below, with
respect to the manner in which such Warrant Put Right will be
effected. In the event that Purchaser fails to deliver the Put Right
Election Notice to the Company during the Special Put Right Notice
Period, the Company may elect to effect such Warrant Put Right in
either manner set forth in paragraph 12.2(e) below.
(e) If the Warrant Put Right is exercised in connection with a Special
Qualifying Transaction, Purchaser may require, in accordance with paragraph
12.2(d), that the Special Qualifying Transaction be effected by the Joint
Venture, in which event the Warrant Put Right shall be exercised as follows:
(i) the Warrant Put Right shall be exercised in an amount equal
to one-half of the amount for which the Company originally proposed to
exercise such Warrant Put Right in accordance with paragraph 12.2(c)
above, and an amount equal to the proceeds from
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PAGE 22
such exercise shall be contributed by the Company or any of its
wholly-owned Subsidiaries to the Joint Venture for the purpose of
providing all or a portion of the Company's share of the funds
required to be contributed to the Joint Venture for the purpose of
financing the Special Qualifying Transaction; and
(ii) Purchaser or any of its wholly-owned
Subsidiaries shall contribute to the
Joint Venture an amount equal to the contribution made by the Company
pursuant to clause (i) above for the purpose of providing all or a
portion of the Purchaser's share of the funds required to be
contributed to the Joint Venture for the purpose of financing the
Special Qualifying Transaction. The amount of Purchaser's contribution
to the Joint Venture pursuant to this clause (ii) shall not be deemed
to be in connection with an exercise of the Warrant Purchase Option or
the Warrant Put Right.
12.3 Preemptive Rights. (a) Provided that Purchaser and the Permitted
Transferees continue to own (i) the Initial Warrant and all of the Initial
Subsidiaries' Preferred Stock (except to the extent the Initial Warrant has been
exercised and/or the Initial Subsidiaries' Preferred Stock has been surrendered
upon exercise of any Warrant) and (ii) all securities issued to Purchaser and
the Permitted Transferees upon exercise of the Initial Warrant or upon the
exchange or conversion of such securities, in the event that, at any time and
from time to time, the Company proposes to issue (other than in an issuance of a
type described in Section 8 of the Initial Warrant) Voting Securities (each, a
"Proposed Issuance"), Purchaser shall have the right (the "Preemptive Right") to
participate in such Proposed Issuance to the extent necessary to maintain the
percentage interest (prior to such Proposed Issuance) in the Company's
outstanding voting equity (on a fully-diluted basis giving effect to the
exercise of all outstanding Convertible Securities and Options, including shares
issuable upon exercise of outstanding stock options) represented by the Warrant
Shares which have been issued to, and continue to be held by, Purchaser and the
other Investor Parties following exercise of such Warrant (the "Percentage
Interest"). The price for the shares subject to such Preemptive Right shall be
equal to the price payable pursuant to the Proposed Issuance and the Preemptive
Right shall otherwise be on the same terms and shall expire at such time as the
Proposed Issuance is consummated. In the event of a Proposed Issuance, the
Company shall cause to be mailed to Purchaser, at least 15 Business Days prior
to the consummation of such Proposed Issuance, a notice describing the Proposed
Issuance, which notice
<PAGE>
PAGE 23
shall state (i) the number of Voting Securities proposed to be issued, (ii) the
per share purchase price of such Voting Securities and (iii) the date on which
such Proposed Issuance is to be consummated. Within five Business Days following
receipt of such notice, Purchaser shall notify the Company in writing if it
elects to exercise such Preemptive Right.
(b) In the event that a Proposed Issuance pursuant to paragraph
12.3(a) is in connection with an acquisition by the Company or any of its
Affiliates of any equity, assets or business of, or other business combination
with, any Person (whether through purchase, exchange or any other method
whatsoever, each of the foregoing being referred to herein as an "Acquisition"),
Purchaser shall not have the right to participate in the Proposed Issuance as
set forth above; provided, however, that Purchaser shall have the right to
require the Company to sell to Purchaser, on the terms and conditions set forth
above, a sufficient number of additional Voting Securities as shall be necessary
to maintain Purchaser's Percentage Interest. The per share purchase price of
Voting Securities issued in connection with an Acquisition shall be the Current
Market Price thereof on the date or dates with reference to which the
consideration for the Acquisition is determined.
(c) Any Voting Securities issued pursuant to the Preemptive Right
hereunder or pursuant to Section 7 of the Warrant shall be subject to the
provisions of paragraphs 8 and 9, as if they were Warrant Shares.
(d) Notwithstanding the preceding provisions of this paragraph 12.3,
the Preemptive Right shall not be exercisable with respect to any Proposed
Issuance of Voting Securities (i) in which Purchaser and/or any other Investor
Parties participate or in which they are offered the right to participate, in
either case to the extent such participation would have permitted Purchaser
and/or any other Investor Parties to maintain the Percentage Interest, whether
or not they elect to do so; (ii) pursuant to Options or Convertible Securities
outstanding on May 10, 1995; (iii) pursuant to employee stock options; or (iv)
pursuant to the Dividend Reinvestment Plan.
(e) The Preemptive Right provided for herein with respect to Warrant Shares
acquired upon partial exercise of any Warrant is not intended to be duplicative
of the preemptive right granted pursuant to Section 7 of any Warrant with
respect to Ordinary Shares remaining subject to purchase under such Warrant.
13. Miscellaneous.
13.1 Survival of Representations and Warranties;
Entire Agreement; Indemnity. (a) Each representation and
warranty contained herein or made in writing in connection
herewith shall survive the execution and delivery hereof and each
Closing on which it was made for a period of 12 months,
<PAGE>
PAGE 24
except that the representations and warranties of the Company contained in
paragraphs 4.10, 8.2(b) and 13.1(c) shall survive indefinitely.
(b) This Agreement embodies the entire agreement and understanding
between the Purchaser and the Company and supersedes all prior agreements and
understandings relating to the subject matter hereof.
(c) The Company hereby represents and warrants that Purchaser, its
Affiliates and each officer, director, employee and agent of Purchaser and such
Affiliates (each an "Indemnified Party") shall not incur any damages, losses or
other liabilities of any kind (excluding any foreign, federal, state and/or
local taxes and any damages, losses or other liabilities relating to any
foreign, federal, state and/or local taxes) arising solely by reason of
Purchaser's (or any Permitted Transferee's) status as a securityholder of the
Company and not arising by virtue of Purchaser's (or any Permitted Transferee's)
acts or omissions. In the event of a breach of the foregoing representation and
warranty, the Company agrees to indemnify and hold harmless each Indemnified
Party from and against (i) any and all damages, losses and other liabilities of
any kind (excluding any foreign, federal, state and/or local taxes and any
damages, losses or other liabilities relating to any foreign, federal, state
and/or local taxes), including, without limitation, judgments and costs of
settlement, and (ii) any and all reasonable out-of-pocket costs and expenses of
any kind (excluding any foreign, federal, state and/or local taxes and any costs
and expenses relating to any foreign, federal, state and/or local taxes),
including, without limitation, reasonable fees and disbursements of counsel,
suffered or incurred in connection with any investigative, administrative or
judicial proceeding (whether or not such Indemnified Party is designated as a
party thereto) arising solely by reason of Purchaser's (or any Permitted
Transferee's) status as a securityholder of the Company and not arising by
virtue of Purchaser's, or any Permitted Transferee's, acts or omissions. The
foregoing shall not limit any claim Purchaser may have against the Company with
respect to any breach by the Company of any covenant or representation and
warranty of the Company herein contained.
13.2 Binding Effect; Assignment Limited. (a) This
Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective
successors and assigns (in accordance with paragraphs 13.2(b) and
(c) below) and legal representatives.
(b) Purchaser may, upon five Business Days' notice to the Company,
assign all or portions of its rights and interests in this Agreement to any
Permitted Transferee solely in connection with the transfer of any Warrant (or
portion thereof) or any Warrant Shares or the assignment of the Warrant Purchase
Option (or the right or obligation to purchase any Warrants);
<PAGE>
PAGE 25
provided that, as a precondition to the effectiveness of any proposed assignment
by Purchaser (i) the assignee (and BT, if the assignee is a Subsidiary of BT)
shall agree in a writing, in form and substance reasonably satisfactory to the
Company, to be bound by all of the terms and conditions hereof applicable to
Purchaser; (ii) if the proposed Permitted Transferee is a Subsidiary of
Purchaser that is not wholly-owned by Purchaser, the Company's written consent,
which shall not be unreasonably withheld, shall be required; and (iii) if the
Permitted Transferee is BT or a Subsidiary of BT, then Purchaser and BT (and any
such Subsidiary, if applicable) shall, in addition to the provisions of this
paragraph 13.2, agree to act in accordance with clause (ii) of paragraph 13.2(d)
below. Notwithstanding any assignment by Purchaser (other than to BT or a
Subsidiary of BT) provided for in this paragraph 13.2, Purchaser shall remain
liable to perform all of its obligations hereunder. Except as provided above in
this paragraph 13.2(b), neither this Agreement, nor any rights or interests
hereunder, may be assigned by any party without the prior written consent of the
other party hereto.
(c) Except with the prior written consent of the Company, no assignee of
any of Purchaser's rights or interests hereunder or, prior to a Triggering
Event, no transferee of any Warrant (or portion thereof) or Warrant Shares may
at any time cease to be a Permitted Transferee, unless it first transfers such
rights and interests or any such Warrant (or portion thereof) and Warrant
Shares, as the case may be, to another Permitted Transferee. Upon any such
assignee's or transferee's ceasing to be a Permitted Transferee, any such
assignee shall cease to have any of the rights or interests of an assignee
hereunder and any such transferee (i) shall cease to have any rights or
interests with respect to the exercise of any Warrant (or portion thereof) or
the voting of any Warrant Shares; and (ii) shall forthwith transfer any such
Warrant (or portion thereof) or Warrant Shares, as the case may be, to a
Permitted Transferee in accordance with the applicable provisions of this
Agreement and the Warrant, whereupon such Permitted Transferee shall have all of
the rights and interests of a Permitted Transferee in respect of such
securities. If any transferee of any Warrant Shares ceases to be a Permitted
Transferee, then until the transfer of any such securities to a Permitted
Transferee, the Company or its designee shall have an irrevocable proxy to vote
any such Warrant Shares held by such transferee.
(d) As a precondition to BT or any Subsidiary of BT becoming a transferee
of any shares of Subsidiaries' Preferred Stock, a Partner (as such term is
defined in the Joint Venture Agreement) or a partner or owner of an equity
interest (other than an indirect interest owned by BT as a result of its equity
interest in Purchaser) in an Operating Venture (as such term is defined in the
Joint Venture Agreement), BT (and any such Subsidiary, if applicable) shall
agree in writing with Purchaser and the Company (i) to be bound by all of the
terms and
<PAGE>
PAGE 26
conditions of this Agreement applicable to an Investor, including without
limitation, paragraph 10 hereof; and (ii) if, as a result of any acquisition or
ownership by BT (and/or any of its controlled Affiliates excluding, for purposes
of this paragraph 13.2(d), Purchaser and Purchaser's controlled Affiliates) of
Voting Securities, the Investor Parties Beneficially Own Voting Securities in
excess of the Permitted Percentage, that BT (and any such Subsidiary, if
applicable) shall, and shall cause its controlled Affiliates to, sell or
otherwise transfer Voting Securities Beneficially Owned by BT or any of its
controlled Affiliates in accordance with paragraph 10(a) hereof, so that,
following such transfer, the Investor Parties will be in compliance with
paragraph 10(a) hereof and the other Investor Parties (including Purchaser and
its controlled Affiliates) will not be required to sell or otherwise transfer
Voting Securities which they Beneficially Own. If, as a result of any such
acquisition by BT (and/or any of its controlled Affiliates) of Voting
Securities, the Investor Parties own Voting Securities in excess of the
Permitted Percentage, and BT and/or its controlled Affiliates do not so transfer
such excess Voting Securities, then the Company may require Purchaser (and/or
any of its controlled Affiliates) upon two Business Days' notice, to transfer
Voting Securities (including any Warrants or Warrant Shares, if so required by
the Company), in accordance with Section 10(a) hereof. If (A) the Permitted
Percentage is exceeded as a result of the acquisition or ownership of Voting
Securities by BT and/or any of its controlled Affiliates and (B) Purchaser
and/or any of its controlled Affiliates are required to transfer Warrants and/or
Warrant Shares as described in the preceding sentence, then, notwithstanding any
provision to the contrary contained in this Agreement or the Warrant, Purchaser
and its Permitted Transferees shall be deemed to continue to satisfy any
provision contained in this Agreement or the Warrant related to or conditioned
upon the continued ownership of securities by Purchaser and its Permitted
Transferees, if such provision would be satisfied but for such transfer. Upon
any assignment of this Agreement to BT or a Subsidiary of BT in accordance with
paragraph 13.2(a) or if BT or any Subsidiary of BT shall otherwise become an
Investor in accordance with this paragraph 13.2(d), Purchaser shall not be
liable to perform any obligations assumed by BT, except as may be provided in
this paragraph 13.2(d).
13.3 Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed given (i) when made,
if made by hand delivery, (ii) upon confirmation, if made by telecopier or (iii)
one Business Day after being deposited with a reputable next day courier,
postage prepaid, to the parties as follows:
If to the Company:
The News Corporation Limited
c/o News America Publishing Incorporated
<PAGE>
PAGE 27
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind, Esq.
Executive Vice President and Group General
Counsel
Telecopier: (212) 768-2029
Confirmation: (212) 852-7007
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Harvey Horowitz, Esq.
Telecopier: (212) 697-6686
Confirmation: (212) 661-6500
If to Purchaser:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: Michael J. Rowny
Executive Vice President
Telecopier: (202) 887-2348
Confirmation: (202) 887-3051
With copies to:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: John R. Worthington, Esq.
Senior Vice President and
General Counsel
Telecopier: (202) 887-2026
Confirmation: (202) 887-2051
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Philip T. Ruegger III, Esq.
Telecopier: (212) 455-2502
Confirmation: (212) 455-2500
The Company or Purchaser by notice to the other party may designate
such additional or different addresses as shall be furnished in writing by such
party.
13.4 Descriptive Headings. The descriptive headings
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PAGE 28
of the several paragraphs of this Agreement are inserted for convenience only
and do not constitute a part of this Agreement.
13.5 Governing Law; Jurisdiction. The validity, interpretation and
performance of this Agreement shall be governed by the laws of the State of New
York, as applied to contracts made and performed within the State of New York,
without regard to the principles of conflicts of laws, except to the extent that
Australian law applies by virtue of the fact that the Company is organized or
its securities are issued under the laws of South Australia. Each party hereto
hereby irrevocably submits to the jurisdiction of any New York State court
sitting in the Borough of Manhattan or any federal court sitting in the Borough
of Manhattan in respect of any suit, action or proceeding arising out of or
relating to this Agreement and the transactions pursuant hereto and in
connection herewith, and irrevocably agrees that all claims in respect of any
such suit, action or proceeding may be heard and determined in any such court.
Each party irrevocably waives any objection which it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding brought in any
such court and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.
13.6 Termination and Abandonment. This Agreement may be terminated and
the transactions contemplated by this Agreement may be abandoned at any time
prior to the Initial Closing:
(a) by mutual written consent of the Company and
Purchaser; or
(b) by the Company or Purchaser if the Initial Closing shall not have
occurred on or before May 9, 1996; provided, however, that the right to
terminate this Agreement under this paragraph 13.6(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Initial Closing to occur on or
before such date; or
(c) by the Company or Purchaser if any court of competent jurisdiction
shall have issued an order, decree or ruling or taken any other action
permanently enjoining or otherwise permanently prohibiting the transactions
contemplated under this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable.
13.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and both of which
together shall constitute one and the same instrument.
13.8 Confidentiality/Publicity. (a) Each of Purchaser
and the Company agrees that all Proprietary Information will
remain the property of the party disclosing such information
<PAGE>
PAGE 29
(the "Disclosing Party), will be held and treated by the party receiving any
such Proprietary Information and its Affiliates (if the Company receives any
such Proprietary Information) or the Investor Parties (if Purchaser receives any
such Proprietary Information) and the respective employees, officers, directors,
advisors, agents and representatives of the party receiving such information and
its Affiliates or the Investor Parties, as the case may be (collectively, the
"Receiving Parties" and singly, a "Receiving Party"), in strict confidence and
will not, except as hereinafter provided, without the prior written consent of
the Disclosing Party, be disclosed by any Receiving Party to any third party
(other than any other Receiving Party) in any manner whatsoever, in whole or in
part, and will not be used by any Receiving Party except as permitted by this
paragraph 13.8 and as contemplated by the agreements between the parties.
(b) Information shall not be deemed to be Proprietary Information, and
the Receiving Parties shall have no obligation (except, in the case of clause
(vi) below, as set forth in paragraph 13.8(c)) with respect thereto, or to any
part thereof, which (i) is approved for release by prior written authorization
of the Disclosing Party; (ii) is already known to any Receiving Party at the
time of receipt or disclosure, or subsequently becomes publicly available other
than through disclosure by a Receiving Party in violation of this Agreement or
any other obligation of confidentiality; (iii) is independently developed or
formulated by any Receiving Party; (iv) is obtained by any Receiving Party from
a third person who, the Receiving Party reasonably believes, is under no
obligation of confidence to the Disclosing Party; (v) is reasonably necessary to
be disclosed in connection with any litigation between the parties hereto; or
(vi) is required by law or legal process to be disclosed.
(c) In the event that any Receiving Party is required by law or legal
process (by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or otherwise) to disclose any
Proprietary Information, the Receiving Party will, to the extent, and as soon
as, practicable, provide the Disclosing Party with prompt written notice of any
such request or requirement, and the Receiving Party, at the Disclosing Party's
expense, shall cooperate with the Disclosing Party in using all reasonable
efforts to obtain an appropriate protective order or comparable confidentiality
order. If, failing the entry of an appropriate protective order or comparable
confidentiality order or the receipt of a waiver hereunder, any Receiving Party
is, in the opinion of counsel, compelled to disclose any Proprietary
Information, the Receiving Party may disclose only that portion of the
Proprietary Information which counsel advises that the Receiving Party is
compelled to disclose, and the Receiving Party will use reasonable efforts to
obtain assurance that confidential treatment will be accorded to such
Proprietary Information.
(d) Except as may otherwise be required by law, no
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PAGE 30
news release or announcement concerning this Agreement or the transactions
contemplated hereby shall be made without advance approval thereof by the
Company and Purchaser. The Company and Purchaser will cooperate with each other
in the development and distribution of all news releases and other public
announcements with respect to this Agreement or any of the transactions
contemplated hereby and, in any event, the parties agree to make a mutually
agreed upon announcement concerning the Initial Closing on or about the Initial
Closing Date.
13.9 Certain Tax Matters. Upon the written request of Purchaser, the
Company shall cooperate with Purchaser and provide Purchaser with access to, and
copies of, all information, documents and records in the Company's possession
with respect to the Company's trade or business activities necessary for
Purchaser or any of its Affiliates to comply with its United States (including
federal, state and local) or Australian income tax obligations for any taxable
period with respect to which Purchaser holds any Warrants or Warrant Shares;
provided, however, that the Company shall not be obligated to provide any
information with respect to the Securityholders.
13.10 Board Representation. Purchaser shall have the right to
designate one director to be appointed to the Board during the time period from
the Initial Closing Date through the first Annual General Meeting of the
Shareholders of the Company following the date hereof. If Purchaser desires to
exercise such right, Purchaser shall notify the Company as to the identity and
background of the person whom it proposes to designate to serve on the Board and
the Company shall, within 20 Business Days following such notice or, if later,
on the Initial Closing Date, cause such designee to be appointed as a director
pursuant to Article 77(4) of the Articles of Association of the Company. In
addition, the Company shall do all that is necessary to enable any such director
designated by MCI to stand for election at the first Annual General Meeting of
the Shareholders of the Company following the Initial Closing as the designee of
Purchaser in accordance with, and subject to, Section 6.4 of the Initial
Warrant. If, at any time prior to such Annual General Meeting, Purchaser and the
Permitted Transferees shall cease to own the Initial Warrant, then, at the
option of the Company, upon five Business Days' notice to Purchaser, Purchaser
shall cause the director designated by it to resign. Prior to such Annual
General Meeting, Purchaser shall have the right to designate a replacement for
any director designated by it that ceases to serve as a director for any reason,
other than pursuant to the immediately preceding sentence. If, at any time, any
TNCL Competitor (or any group of Persons that includes a TNCL Competitor, acting
in concert) acquires the power to control Purchaser, Purchaser shall cause each
director designated by it pursuant to this paragraph 13.10 to resign and
Purchaser shall have no further rights pursuant to this paragraph.
14. Certain Definitions. For the purpose of this
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PAGE 31
Agreement the following terms shall have the meanings specified with respect
thereto below:
"Accredited Investor" has the meaning ascribed thereto in Regulation D
under the Securities Act.
"Acquisition" has the meaning specified in paragraph
12.3(b).
"Additional Closing" means any closing of the purchase
by Purchaser of any Additional Warrants.
"Additional Closing Date" means the date of any closing of the
purchase by Purchaser of any Additional Warrant.
"Additional Subsidiaries' Preferred Stock" means the shares of
Subsidiaries' Preferred Stock issuable on any Additional Closing Date pursuant
to paragraph 8.1 or 8.2 of the Preferred Stock Purchase Agreement.
"Additional Warrant" means any warrant to purchase Ordinary Shares
issued pursuant to paragraph 12.1 or 12.2.
"Additional Warrant Shares" means the Ordinary Shares issuable upon
exercise of any of the Additional Warrants.
"ADSs" means American Depositary Shares.
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, controls, is controlled by or is under common control with such
Person. As used in this definition, "control" (including, with correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person (whether through ownership
of securities or partnership or other ownership interests, by contract or
otherwise).
"Aggregate Current Market Value" means the sum of the Current Market
Values of each of the classes of outstanding equity securities of a Person.
"Aggregate Warrant Shares" has the meaning specified in
paragraph 12.1(a).
"ASX" means the Australian Stock Exchange Limited.
"Base Level" means 1,915,207,316 Ordinary Shares (i.e., the number of
Ordinary Shares outstanding at May 10, 1995), as such number of Ordinary Shares
may be increased or decreased to adjust for stock splits, bonus issues,
combinations or similar events from and after May 10, 1995.
"Beneficially Owned", or any derivative thereof, has
<PAGE>
PAGE 32
the meaning ascribed thereto in Rule 13d-3 under the Exchange
Act.
"Board" has the meaning specified in paragraph 6.6.
"BT" means British Telecommunications plc.
"Business Day" means any day other than Saturday, Sunday or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Closing" means the Initial Closing and any Additional
Closing.
"Closing Date" means the Initial Closing Date and any
Additional Closing Date.
"Company" has the meaning specified in the preamble
hereto.
"Consolidated Book Value" with respect to a Person and its
Consolidated Subsidiaries on any date, means the aggregate net book value of the
assets of such Person and its Consolidated Subsidiaries on a consolidated basis
in accordance with GAAP as of the end of the last fiscal quarter for which full
financial statements have been publicly disclosed.
"Consolidated Indebtedness" means, without duplication,
Indebtedness of the Company and its Consolidated Subsidiaries.
"Consolidated Subsidiary" of a Person at any time means each of the
subsidiaries of such Person whose accounts are or should, in accordance with
GAAP, be consolidated with those of such Person.
"Convertible Securities" means any securities or other interests
convertible into or exchangeable for other securities, including conversions or
exchanges to be effected at the issuer's option.
"Core Business Assets" means assets used in: the production or
distribution of motion pictures, television programming, print, electronic
images, music, electronic and interactive products and/or television
broadcasting; the publishing or distribution of newspapers, magazines and/or
books; the creation of encryption methods and products and subscriber management
systems; the ownership or leasing of satellites of every kind; or assets
otherwise used in the production, publication, distribution or dissemination in
any form of business or consumer entertainment, information, or news products of
whatever kind or nature; and shall include any direct or indirect interests in
corporations, limited liability companies, partnerships, joint ventures or other
types of entities engaged
<PAGE>
PAGE 33
in businesses utilizing any of such assets.
"Current Market Price" of any security on any date shall be deemed to
be the average of the daily closing prices for the 20 consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be the last reported sales price regular way or, in case no such reported sale
takes place on such day, the closing bid price regular way, in either case on
the principal United States national securities exchange (including, for
purposes hereof, the NASDAQ/NM) on which such security is listed or admitted to
trading or, if such security is not listed or admitted to trading on any United
States national securities exchange or NASDAQ/NM, the last reported sales price
on the ASX, and if such security is not listed or admitted to trading on the
ASX, the fair value of such security on such date, as determined in good faith
by the Board and reasonably acceptable to Purchaser. In determining any Current
Market Price, appropriate provisions will be made for currency translations and
adjustments to reflect trading in ADSs.
"Current Market Value" means, on any date for each class of equity
securities of a person, the product obtained by multiplying the Current Market
Price of any such security by the total number of outstanding securities of such
class.
"Disclosing Party" has the meaning specified in
paragraph 13.8.
"Dividend Reinvestment Plan" means (i) the Dividend Reinvestment and
Bonus Share Plan and the related United States Plan for participation by holders
of ADSs, of the Company as approved by holders of Ordinary Shares on March 27,
1991, or (ii) such plan as may hereafter be put into place in substitution or
modification thereto in whole or in part, as any such plan described in clause
(i) or (ii) above has been or may be hereafter amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"GAAP" means with respect to any computation required or permitted
hereunder and/or with respect to any Person, such accounting principles which
are generally accepted at the date of this Agreement in the country whose
generally accepted accounting principles are customarily applied to such Person.
"HSR" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
"Incremental Tax Cost" has the meaning specified in
paragraph 8.2.
"Indebtedness" means, as to any Person, without
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PAGE 34
duplication, (i) indebtedness for borrowed money; (ii) indebtedness for the
deferred purchase price of property or services (other than in the ordinary
course of business); (iii) indebtedness evidenced by bonds, debentures, notes or
other similar instruments (other than performance, surety and appeal or other
similar bonds arising in the ordinary course of business); (iv) obligations and
liabilities secured by a lien upon property owned by such Person, whether or not
owing by such Person and even though such Person has not assumed or become
liable for the payment thereof; and (v) obligations and liabilities of the type
set forth in clauses (i) through (iv) above which are guaranteed by such Person.
"Indemnified Party" has the meaning specified in
paragraph 13.1(c).
"Initial Closing" has the meaning specified in
paragraph 2.
"Initial Closing Date" has the meaning specified in
paragraph 3.
"Initial Subsidiaries' Preferred Stock" means the
shares of Subsidiaries' Preferred Stock to be issued on the
Initial Closing Date pursuant to the Preferred Stock Purchase
Agreement.
"Initial Warrant" has the meaning specified in
paragraph 1.
"Initial Warrant Shares" has the meaning specified in
paragraph 1.
"Investor" means (i) Purchaser; (ii) any Permitted Transferee that is
the record or Beneficial Owner of any Warrant, Warrant Shares or Subsidiaries'
Preferred Stock; and (iii) BT and its Subsidiaries, if BT or any such Subsidiary
is a Partner (as such term is defined in the Joint Venture Agreement) or is a
partner or owner of an equity interest in an Operating Venture (as such term is
defined in the Joint Venture Agreement).
"Investor Parties" has the meaning specified in
paragraph 10.
"Issuance" has the meaning specified in paragraph 9.2.
"Issuance Threshold" has the meaning specified in
paragraph 9.2.
"Joint Venture" means the Venture (as such term is defined in the
Joint Venture Agreement).
"Joint Venture Agreement" means the Partnership
Agreement to be entered into upon the closing of the Joint
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PAGE 35
Venture Formation Agreement.
"Joint Venture Formation Agreement" means the Joint
Venture Formation Agreement between Purchaser and the Company.
"Major Studio" means any of Paramount Pictures Corporation, The Walt
Disney Company, Universal City Studios Inc., Metro Goldwyn-Mayer Inc., Sony
Pictures Entertainment, Inc. (including Columbia Pictures and Tri-Star
Pictures), Turner Pictures (including Castle Rock and New Line) or Warner Bros,
Inc. or any company which is the legal successor thereof or which becomes the
owner of all or substantially all of the motion picture production/distribution
business thereof, or any Motion Picture Association of America, Inc. ("MPAA")
member (but excluding any entity that becomes an MPAA member subsequent to the
date hereof which would not have qualified as an MPAA member under criteria
existing as of the date hereof) and/or a motion picture producer/distributor
which theatrically releases in the United States substantially the same number
of films with substantially the same size budgets as the average during the
preceding year of all entities that are MPAA members, together with such
respective successor entities to such Persons.
"Material Adverse Effect" in respect of any Person, shall mean an
effect on the business, financial condition or results of operations of such
Person or its Consolidated Subsidiaries, which is (i) material and adverse to
such Person and its Consolidated Subsidiaries, taken as a whole or (ii) adverse
to the ability of such Person to perform its obligations hereunder.
"MCI Competitor" shall mean (i) AT&T, Sprint, Worldcom, Ameritech,
Bell Canada, Bell Atlantic, Bell South, Nynex, Pactel, SBC, US West and GTE;
(ii) any entity (other than those referred to in clause (i) above) with
consolidated annual revenues in excess of $400 million, 75% or more of which are
derived from telecommunications services regulated in the United States as
common carriage services or their equivalents provided in North, Central and/or
South America; (iii) any entity controlled by a party referred to in clause (i)
or (ii) above; and (iv) any successor or assign of a party referred to in clause
(i), (ii) or (iii) above.
"Murdoch Family" shall mean K. Rupert Murdoch, his wife, mother,
children or sisters or children of sisters or grandchildren, grand nieces and
grand nephews or any trust or any other entity directly or indirectly owned and
controlled by one or more of the Persons hereinabove listed; provided, however,
that any such trust or entity will be deemed to be owned by one or more of the
Persons hereinabove listed so long as either: (A) the beneficial interest in the
Ordinary Shares held by such trust or entity or the beneficial interest in the
trust or in the shares or other proprietary interest in the entity are held by
Persons which, on the date hereof, would be entitled to hold or
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PAGE 36
be granted a beneficial interest in the Ordinary Shares or in the trust or the
shares or other proprietary interest in the entity; or (B) the holders of the
beneficial interest in such trust or shares or other proprietary interest in
such entity are the Persons hereinabove listed or Cruden Investments Pty
Limited, Cruden Holdings Pty Limited, Kayarem Pty. Limited or any Subsidiaries
of any of them. For purposes of this definition a "beneficial interest" means a
direct or indirect equity interest and includes an interest as a beneficiary
under any trust. A trust or other entity will be deemed to be controlled for
purposes of the first sentence of this definition if the majority of the
trustees or members of the Board of Directors or other governing body, as the
case may be, are Persons hereinabove listed (other than any Persons included by
reason of the proviso at the end of the first sentence of this definition) or
can be removed or replaced by any one or more of such Persons, any entity
controlled by such Persons, any personal representatives of such Persons or any
combination of the foregoing. For the purposes of this Agreement, any of the
sisters, nieces and nephews of K. Rupert Murdoch and the children of any such
sisters, nieces or nephews who currently own shares of preferred stock of Cruden
Holdings Pty. Limited shall cease to be considered members of the Murdoch Family
upon the redemption of all of such shares of preferred stock owned by such
Persons.
"NASDAQ/NM" means the NASDAQ National Market System.
"News T" means News T Investments, Inc., a Delaware
corporation.
"News Triangle" means News Triangle Finance, Inc., a
Delaware corporation.
"Non-Media Assets" means assets or interests in entities that are not
Core Business Assets.
"Option Period" has the meaning specified in paragraph
12.1(b).
"Options" means securities or other interests exercisable for other
securities, including exercises to be effected at the issuer's option.
"Ordinary Share ADS" or "Ordinary Share ADSs" shall
mean American Depositary Shares representing Ordinary Shares.
"Ordinary Shares" means the Company's Ordinary Shares of Australian
$.50 each, the Ordinary Share ADSs and/or, with respect to the Ordinary Shares
issuable upon exercise of the Warrants, the Redeemable Ordinary Shares, as the
context requires.
"Percentage Interest" has the meaning specified in
paragraph 12.3(a).
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PAGE 37
"Permitted Percentage" has the meaning specified in
paragraph 10(a).
"Permitted Transferee" means, subject to paragraph 13.2, (i) any
Subsidiary of Purchaser, (ii) BT, (iii) any wholly-owned Subsidiary of BT, or
(iv) any other Subsidiary of BT, so long as BT, Purchaser and/or any of BT's or
Purchaser's wholly-owned Subsidiaries are the only Persons owning, or
controlling the voting of, any voting stock or other ownership interests of such
Subsidiary and (v) with respect to any transfer by any other Permitted
Transferee, in addition to any Permitted Transferee referred to in clause (i),
(ii), (iii) or (iv) above, Purchaser.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, business trust, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"Preemptive Right" has the meaning specified in
paragraph 12.3(a).
"Preferred Limited Shares" the Company's Preferred Limited Voting
Ordinary Shares of Australian $.50 each and/or the Preferred Share ADSs, as the
context requires.
"Preferred Share ADS" or "Preferred Share ADSs" shall
mean American Depositary Shares representing Preferred Limited
Shares.
"Preferred Stock Purchase Agreement" means the
Preferred Stock Purchase Agreement of even date herewith among
News Triangle, News T and Purchaser.
"Proposed Issuance" has the meaning specified in
paragraph 12.3(a).
"Proprietary Information" means, subject to paragraph 13.8, any
proprietary ideas, plans and information, including without limitation,
information of a technological or business nature (including, without
limitation, all trade secrets, technology, intellectual property, data,
summaries, reports, or mailing lists, whether written or oral and if written,
however produced or reproduced) received by or otherwise disclosed to any
Receiving Party from or by any Disclosing Party that is marked proprietary or
confidential or bears a marking of like import, or that the Disclosing Party
states is to be considered proprietary or confidential, or that would logically
be considered proprietary or confidential under the circumstances of its
disclosure.
"Purchaser" has the meaning specified in the preamble
hereto.
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PAGE 38
"Purchaser Notice" has the meaning specified in
paragraph 8.2(c).
"Put Right Election Notice" has the meaning specified
in paragraph 12.2(d)(ii).
"Qualifying Core Business Assets" means Core Business Assets in or for
use in North or South America and, in the case of content or software, in the
English or Spanish language; provided that any interests in entities shall be
directly or indirectly-owned majority interests in entities primarily engaged in
businesses utilizing any of such assets.
"Qualifying Transactions" means: (i) the acquisition by the Company or
any of its Subsidiaries, in any form, of Qualifying Core Business Assets; and
(ii) any capital contribution by the Company to the Joint Venture to fund
acquisitions by the Joint Venture (or other joint ventures of the Company and
Purchaser, as may be agreed upon).
"Receiving Party" or "Receiving Parties" has the
meaning specified in paragraph 13.8(a).
"Redeemable Ordinary Shares" has the meaning specified
in paragraph 8.2(b).
"Registration Rights Agreement" means the Registration Rights
Agreement in the form attached hereto as Exhibit B.
"Restricted Alliance" has the meaning specified in
paragraph 11.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the United States Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Securityholders" means Kayarem Pty. Limited, Cruden
Investments Pty Limited and Telegraph Investment Co. Pty. Ltd.
"Securityholders' Agreement" means the Securityholders' Agreement in
the form attached hereto as Exhibit C.
"Share Put Right" has the meaning specified in
paragraph 12.2(b).
"Special Put Right Notice Period" has the meaning
specified in paragraph 12.2(d)(ii).
"Special Qualifying Transactions" means Qualifying
Transactions wherein the assets being acquired: (i) are movie
studio or direct broadcast satellite assets; (ii) are Non-Media
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PAGE 39
Assets; or (iii) are in a business in which the Joint Venture is engaged or has
agreed to become engaged at the time of such Qualifying Transaction.
"Special Voting Securities" means Ordinary Shares or other securities
of the Company, in each case with voting rights that are greater than, or
subject to lesser restrictions on voting than, the Warrant Shares.
"Subsidiaries' Preferred Stock" means the Cumulative Convertible
Preferred Stock, without par value, of each of News T and News Triangle,
issuable pursuant to the Preferred Stock Purchase Agreement.
"Subsidiary" means, (i) with respect to any Person, any entity of
which such Person owns or controls the voting of, directly or indirectly through
one or more intermediaries, more than 50% of the voting stock or other ownership
interests representing more than 50% of the ordinary voting power, or with
respect to which such Person has the power to elect a majority of the members of
the Board of Directors or other governing body, of such entity at the time of
determination and (ii) with respect to the Company, in addition to any entities
described in clause (i) above, Twentieth Holdings Corporation and its
Subsidiaries, so long as (x) the Company or its Subsidiaries own all of the
outstanding common stock of Twentieth Holdings Corporation, (y) the Company or
its Subsidiaries maintain a call on all the outstanding preferred stock of
Twentieth Holdings Corporation and (z) prior to a Triggering Event, a majority
of the outstanding preferred stock of Twentieth Holdings Corporation is held by
a member of the Murdoch Family or a nominee thereof).
"10% Basket" has the meaning specified in paragraph
9.2.
"TNCL Competitor" means (i) any Person that is, or directly or
indirectly owns or controls, any (A) Major Studio; (B) broadcast or cable
television network business (including, without limitation, United Paramount
Network and Warner Brothers Network) in the United States; (C) cable television
business in the United States that has at least 10,000,000 subscribers; or (D)
direct broadcast satellite business in the United States; and (ii) Bertelsmann
A.G.
"Triggering Event" means the occurrence of any of the following: (i)
members of the Murdoch Family propose to sell shares which would result in a
change of control of the Company; (ii) any slate of directors of the Company
opposed by the Murdoch Family is elected; (iii) any party or group of related
parties owns or controls Ordinary Shares in an amount greater than the total
number of Ordinary Shares held by the Murdoch Family; (iv) any party or group of
related parties: (A) has commenced an offer to acquire all of the shareholdings
in the Company and the Murdoch Family intends to tender its shares of the
Company in
<PAGE>
PAGE 40
connection with such offer or (B) other than members of the Murdoch Family,
directly or indirectly, by contract or otherwise, has the ability to elect a
majority of the directors of the Company; or (v) the consummation by the Company
of, or the binding agreement of the Company to enter into, a Restricted
Alliance.
"20-F" has the meaning specified in paragraph 4.2.
"Valuation Date" has the meaning specified in paragraph
8.2(e)(i).
"Voting Securities" means (i) Ordinary Shares, (ii) other securities
of the Company, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the Company's directors or (iii)
Convertible Securities or Options convertible into, or exercisable or
exchangeable for, any of the securities described in clauses (i) and (ii)
hereof.
"Warrant Option Notice" has the meaning specified in
paragraph 12.1(e).
"Warrant Purchase Option" has the meaning specified in
paragraph 12.1(a).
"Warrant Put Right" has the meaning specified in
paragraph 12.2(a).
"Warrant Put Right Notice" has the meaning specified in
paragraph 12.2(d)(i).
"Warrant Shares" means the Initial Warrant Shares and
any Additional Warrant Shares.
"Warrants" means the Initial Warrant and any Additional
Warrant or Warrants.
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PAGE 41
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE NEWS CORPORATION LIMITED
By: /s/ Arthur M. Siskind
MCI COMMUNICATIONS CORPORATION
By: /s/ Michael J. Rowny
<PAGE>
PAGE 42
Exhibit A
NEITHER THIS WARRANT, NOR THE SHARES TO BE ISSUED UPON EXERCISE HEREOF, HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT (AS DEFINED BELOW), AND THIS WARRANT
HAS BEEN, AND THE SHARES TO BE ISSUED UPON EXERCISE HEREOF WILL BE, ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF.
THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO THE PROVISIONS
(INCLUDING CERTAIN RESTRICTIONS ON TRANSFER) AND ENTITLED TO THE BENEFITS OF A
WARRANT PURCHASE AGREEMENT, DATED AS OF AUGUST 2, 1995 (THE "WARRANT PURCHASE
AGREEMENT"). A COPY OF SUCH AGREEMENT IS ON FILE AT THE OFFICES OF THE NEWS
CORPORATION LIMITED, C/O NEWS AMERICA PUBLISHING INCORPORATED, 1211 AVENUE OF
THE AMERICAS, NEW YORK, NEW YORK 10036.
THE TRANSFER OF THIS WARRANT AND
THE SHARES ISSUABLE UPON EXERCISE HEREOF ARE
RESTRICTED AS DESCRIBED HEREIN
AND IN THE WARRANT PURCHASE AGREEMENT.
VOID AFTER 5:00 P.M., NEW YORK TIME, AUGUST 2, 1999
WARRANT
TO PURCHASE
ORDINARY SHARES
OF
THE NEWS CORPORATION LIMITED
155,339,806 Ordinary
Shares
THIS IS TO CERTIFY THAT MCI TELECOMMUNICATIONS CORPORATION, a Delaware
corporation ("MCIT"; MCIT, together with MCI's Permitted Transferees in
accordance with Section 2.1 hereof, is sometimes hereinafter referred to as the
"Holder"), is entitled, at any time and from time to time from the Initial
Exercise Date (as defined below) August 2, 1995 until 5:00 P.M., New York time,
on the Warrant Expiration Date (as defined below), to purchase from The News
Corporation Limited, a South Australia corporation (the "Company"), up to
155,339,806 of the Company's Ordinary Shares of Australian $.50 each, in whole
or in part, at the Exercise Price (as defined below), all on the terms and
conditions and pursuant to the provisions hereinafter provided. The Exercise
Price and the number of Ordinary Shares purchasable hereunder are subject to
adjustment as provided herein.
SECTION 1. Certain Definitions. Unless the context
otherwise requires, the terms set forth below shall have the
respective meanings herein specified:
"Acquisition" has the meaning specified in Section
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PAGE 43
7(a)(ii) hereof.
"Additional Warrant" shall mean any warrant issued pursuant to
paragraph 12.1 or 12.2 of the Warrant Purchase Agreement.
"Additional Warrant Shares" shall mean the Ordinary Shares, Preferred
Limited Shares and other consideration, if any, issuable upon exercise of any
Additional Warrant, or such other securities into which such Ordinary Shares are
exchanged or converted as determined in accordance with the terms thereof.
"Affiliate" means, as to any Person, any other Person, which, directly
or indirectly, controls, is controlled by or is under common control with such
specified Person. As used in this definition, "control" (including, with
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of the management or policies of a Person (whether through the
ownership of securities or partnership or other ownership interests, by contract
or otherwise).
"ASX" shall mean the Australian Stock Exchange Limited.
"Beneficially Owned", or any derivative thereof, has the meaning
ascribed thereto in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended.
"Board" has the meaning specified in Section 6.4
hereof.
"BT" shall mean British Telecommunications plc.
"Business Day" shall mean any day other than Saturday, Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Company" has the meaning specified in the preamble
hereto.
"Current Market Price" of any security on any date shall be deemed to
be the average of the daily closing prices for the 20 consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be the last reported sales price regular way or, in case no such reported sale
takes place on such day, the closing bid price regular way, in either case on
the principal United States national securities exchange (including, for
purposes hereof, the NASDAQ/NM on which such security is listed or admitted to
trading or, if such security is not listed or admitted to trading on any United
States national securities exchange or NASDAQ/NM, the last reported sales price
on the ASX, and if such security is not listed or admitted to trading on the
ASX, the fair value of such
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PAGE 44
security on such date, as determined in good faith by the Board of Directors of
the Company, and reasonably acceptable to the Holder. In determining any Current
Market Price, appropriate provisions will be made for currency translations and
adjustments to reflect trading in Ordinary Shares ADSs.
"Determination Date" shall mean with respect to any dividend or other
distribution, the date fixed for the determination of the holders of Ordinary
Shares entitled to receive such dividend or distribution, or if a dividend or
distribution is paid or made without fixing such a date, the date of such
dividend or distribution.
"Dividend Reinvestment Plan" means (i) the Dividend Reinvestment and
Bonus Share Plan and the related United States Plan for participation by holders
of ADSs, of the Company as approved by holders of Ordinary Shares on March 27,
1991, or (ii) such plan as may hereafter be put into place in substitution or
modification thereto in whole or in part, as any such plan described in clause
(i) or (ii) above has been or may be hereafter amended from time to time.
"Exercise Price" shall initially be $5.47 per Warrant Share and $21.89
per Ordinary Share ADS, and shall be adjusted and readjusted from time to time
as provided in Section 8 hereof.
"Holder" has the meaning specified in the preamble
hereto.
"Initial Exercise Date" has the meaning specified in
Section 3.1 hereof.
"Initial Shares" shall mean the shares of Subsidiaries' Preferred
Stock issued to MCIT pursuant to the Preferred Stock Purchase Agreement on the
date of the closing of the purchase and sale of this Warrant.
"Investor" means (i) MCI; (ii) any Permitted Transferee that is the
record or Beneficial Owner of this Warrant or any Additional Warrant, Warrant
Shares, Additional Warrant Shares or Subsidiaries' Preferred Stock; and (iii) BT
and its Subsidiaries, if BT or any such Subsidiary is a Partner (as such term is
defined in the Joint Venture Agreement) or is a partner or owner of an equity
interest in an Operating Venture (as such term is defined in the Joint Venture
Agreement).
"Investor Parties" means the Investors and their
respective controlled Affiliates.
"Joint Venture" means the Venture (as such term is defined in the
Joint Venture Agreement).
"Joint Venture Agreement" means the Partnership
Agreement to be entered into upon the closing of the Joint
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PAGE 45
Venture Formation Agreement.
"Joint Venture Formation Agreement" means the Joint
Venture Formation Agreement between MCI and the Company.
"Liquidation" shall mean the voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company.
"Liquidation Value" shall mean (i) in the case of each share of News T
Preferred Stock, $50,000,000; and (ii) in the case of each share of News
Triangle Preferred Stock, $10,000,000.
"Major Studio" means any of Paramount Pictures Corporation, The Walt
Disney Company, Universal City Studios Inc., Metro Goldwyn-Mayer Inc., Sony
Pictures Entertainment, Inc. (including Columbia Pictures and Tri-Star
Pictures), Turner Pictures (including Castle Rock and New Line) or Warner Bros,
Inc. or any company which is the legal successor thereof or which becomes the
owner of all or substantially all of the motion picture production/distribution
business thereof, or any Motion Picture Association of America, Inc. ("MPAA")
member (but excluding any entity that becomes an MPAA member subsequent to the
date hereof which would not have qualified as an MPAA member under criteria
existing as of the date hereof) and/or a motion picture producer/distributor
which theatrically releases in the United States substantially the same number
of films with substantially the same size budgets as the average during the
preceding year of all entities that are MPAA members, together with such
respective successor entities to such Persons.
"MCI" shall mean MCI Communications Corporation, a Delaware
corporation of which MCIT is a wholly-owned Subsidiary.
"MCI Competitor" shall mean (i) AT&T, Sprint, Worldcom, Ameritech,
Bell Canada, Bell Atlantic, Bell South, Nynex, Pactel, SBC, US West and GTE;
(ii) any entity (other than those referred to in clause (i) above) with
consolidated annual revenues in excess of $400 million, 75% or more of which are
derived from telecommunications services regulated in the United States as
common carriage services or their equivalents provided in North, Central and/or
South America; (iii) any entity controlled by a party referred to in clause (i)
or (ii) above; and (iv) any successor or assign of a party referred to in clause
(i), (ii) or (iii) above.
"Murdoch Family" shall mean K. Rupert Murdoch, his wife, mother,
children or sisters or children of sisters or grandchildren, grand nieces and
grand nephews or any trust or any other entity directly or indirectly owned and
controlled by one or more of the Persons hereinabove listed; provided, however,
that any such trust or entity will be deemed to be owned by one or more of the
Persons hereinabove listed so long as either: (a)
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PAGE 46
the beneficial interest in the Ordinary Shares held by such trust or entity or
the beneficial interest in the trust or in the shares or other proprietary
interest in the entity are held by Persons which, on the date hereof, would be
entitled to hold or be granted a beneficial interest in the Ordinary Shares or
in the trust or the shares or other proprietary interest in the entity; or (b)
the holders of the beneficial interest in such trust or shares or other
proprietary interest in such entity are the Persons hereinabove listed or Cruden
Investments Pty Limited, Cruden Holdings Pty Limited, Kayarem Pty. Limited or
any Subsidiaries of any of them. For purposes of this definition, a "beneficial
interest" means a direct or indirect equity interest and includes an interest as
a beneficiary under any trust. A trust or other entity will be deemed to be
controlled for purposes of the first sentence of this definition if the majority
of the trustees or members of the Board of Directors or other governing body, as
the case may be, are Persons hereinabove listed (other than any Persons included
by reason of the proviso at the end of the first sentence of this definition) or
can be removed or replaced by any one or more of such Persons, any entity
controlled by such Persons, any personal representatives of such Persons or any
combination of the foregoing. For the purposes of this Agreement, any of the
sisters, nieces and nephews of K. Rupert Murdoch and the children of any such
sisters, nieces or nephews who currently own shares of preferred stock of Cruden
Holdings Pty. Limited shall cease to be considered members of the Murdoch Family
upon the redemption of all of such shares of preferred stock owned by such
Persons.
"NASDAQ/NM" shall mean the NASDAQ National Market
System.
"News T" shall mean News T Investments, Inc., a Delaware corporation.
"News T Preferred Stock" shall mean the Cumulative Convertible
Preferred Stock, without par value, of News T.
"News Triangle" shall mean News Triangle Finance, Inc.,
a Delaware corporation.
"News Triangle Preferred Stock" shall mean the
Cumulative Convertible Preferred Stock, without par value, of
News Triangle.
"Notice of Exercise" has the meaning specified in
Section 3.2 hereof.
"Ordinary Share ADS" or "Ordinary Share ADSs" shall
mean American Depositary Shares representing Ordinary Shares.
"Ordinary Shares" shall mean the Company's Ordinary
Shares of Australian $.50 each, the Ordinary Share ADSs and/or
the Redeemable Ordinary Shares, if Redeemable Ordinary Shares are
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issuable upon the exercise hereof pursuant to paragraph 8.2 of the Warrant
Purchase Agreement, as the context requires.
"Percentage Interest" has the meaning specified in
Section 7(a)(i) hereof.
"Permitted Transferee" means, subject to Section 2.1 hereof, (i) any
Subsidiary of MCI, (ii) BT, (iii) any wholly-owned Subsidiary of BT, or (iv) any
other Subsidiary of BT, so long as BT, MCI and/or any of BT's or MCI's
wholly-owned Subsidiaries are the only Persons owning, or controlling the voting
of, any voting stock or other ownership interests of such Subsidiary and (v)
with respect to any transfer by any other Permitted Transferee, in addition to
any Permitted Transferee referred to in clause (i), (ii), (iii) or (iv) above,
MCI.
"Person" shall mean any individual, corporation, limited liability
company, partnership, joint venture, association, business trust, joint-stock
company, trust, unincorporated organization or government or agency or political
subdivision thereof.
"Preemptive Right" has the meaning specified in Section
7(a)(i) hereof.
"Preferred Limited Shares" shall mean the Company's Preferred Limited
Voting Ordinary Shares of Australian $.50 each and/or the Preferred Share ADSs,
as the context requires.
"Preferred Share ADS" or "Preferred Share ADSs" shall
mean American Depositary Shares representing Preferred Limited
Shares.
"Preferred Stock Purchase Agreement" means the Preferred Stock
Purchase Agreement dated as of August 2, 1995 by and among MCI and each of News
T and News Triangle.
"Proposed Issuance" has the meaning specified in
Section 7(a)(i) hereof.
"Redeemable Ordinary Shares" shall mean shares of a new class of
redeemable ordinary shares of the Company containing the terms and conditions
described in Schedule 8.2 to the Warrant Purchase Agreement and such other terms
and conditions necessary to accomplish the exchange or conversion of the Warrant
Shares into Preferred Limited Shares and reasonably acceptable to MCI.
"Reorganizations" has the meaning specified in Section
8(d) hereof.
"Restricted Alliance" shall mean if the Company or any
of its Subsidiaries shall, without the consent of MCI, take any
of the following actions: (i) enter into (directly or
indirectly, through Affiliates or otherwise) any arrangement
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PAGE 48
providing for joint marketing or promotion with any MCI Competitor or permitting
its controlled content to be used for any activities that would promote
(directly or indirectly) the products or services of any MCI Competitor, without
giving Purchaser a first preference to enter into the arrangement; (ii) enter
into a co-branding arrangement with an MCI Competitor (i.e., the connected use
of the Company's trade names, trademarks or service marks (e.g., "News Corp" or
"Fox") together with a trade name, trademark or service mark of an MCI
Competitor); (iii) enter into (directly or indirectly, through Affiliates or
otherwise) any strategic joint venture arrangement, alliance or similar
arrangement (including any exclusive arrangement, or any agreement entered into
outside the ordinary course) with an MCI Competitor similar to or having the
purposes of or providing any of the services referred to in the Joint Venture
Agreement or otherwise provided by the Joint Venture from time to time; or (iv)
issue any Voting Security to any MCI Competitor in any privately-negotiated
transaction.
"SEC" shall mean the United States Securities and
Exchange Commission.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended, and the rules and regulations promulgated by the SEC thereunder.
"Subsidiary" means, (i) with respect to any Person, any entity of
which such Person owns or controls the voting of, directly or indirectly through
one or more intermediaries, more than 50% of the voting stock or other ownership
interests representing more than 50% of the ordinary voting power, or with
respect to which such Person has the power to elect a majority of the members of
the Board of Directors or other governing body, of such entity at the time of
determination; and (ii) with respect to the Company, in addition to any entities
described in clause (i) above, Twentieth Holdings Corporation and its
Subsidiaries, so long as (x) the Company or its Subsidiaries own all of the
outstanding common stock of Twentieth Holdings Corporation, (y) the Company or
its Subsidiaries maintain a call on all of the outstanding preferred stock of
Twentieth Holdings Corporation and (z) prior to a Triggering Event, a majority
of the outstanding Preferred Stock of Twentieth Holdings Corporation is held by
a member of the Murdoch Family or a nominee thereof.
"Subsidiaries' Preferred Stock" shall mean the News T
Preferred Stock and News Triangle Preferred Stock.
"TNCL Competitor" means (i) any Person that is, or directly or
indirectly owns or controls, any (A) Major Studio; (B) broadcast or cable
television network business (including, without limitation, United Paramount
Network and Warner Brothers Network) in the United States; (C) cable television
business in the United States that has at least 10,000,000 subscribers; or
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(D) direct broadcast satellite business in the United States; and (ii)
Bertelsmann A.G.
"Transfer" has the meaning specified in Section 2.1
hereof.
"Triggering Event" shall mean the occurrence of any of the following:
(i) members of the Murdoch Family propose to sell shares which would result in a
change of control of the Company; (ii) any slate of directors of the Company
opposed by the Murdoch Family is elected; (iii) any party or group of related
parties owns or controls Ordinary Shares in an amount greater than the total
number of Ordinary Shares held by the Murdoch Family; (iv) any party or group of
related parties: (A) has commenced an offer to acquire all of the shareholdings
in the Company and the Murdoch Family intends to tender its shares of the
Company in connection with such offer or (B) other than members of the Murdoch
Family, directly or indirectly, by contract or otherwise, has the ability to
elect a majority of the directors of the Company; or (v) the consummation by the
Company of, or the binding agreement of the Company to enter into, a Restricted
Alliance.
"Voting Securities" shall mean (i) Ordinary Shares, (ii) other
securities of the Company, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect a majority of the Company's directors or
(iii) securities or other interests convertible into, or exercisable or
exchangeable for, the securities described in clauses (i) and (ii) hereof.
"Warrant Expiration Date" has the meaning specified in
Section 3.1 hereof.
"Warrant Purchase Agreement" has the meaning specified
in the legend at the beginning hereof.
"Warrant Shares" shall mean the Ordinary Shares, Preferred Limited
Shares and other consideration, if any, issuable upon exercise of this Warrant,
or such other securities into which such Ordinary Shares are exchanged or
converted as determined in accordance with the terms hereof.
SECTION 2. Transfer; Legend.
2.1 Transfer. (a) The Holder may, upon five Business Days' notice to the
Company, sell, assign or otherwise transfer ("transfer") this Warrant, in whole
or in part, to any Permitted Transferee; provided that, as a precondition to the
effectiveness of any proposed transfer by the Holder, (i) the proposed Permitted
Transferee (and BT, if such Permitted Transferee is a Subsidiary of BT) shall
agree in a writing, in form and substance reasonably satisfactory to the
Company, to be bound by all of the terms and conditions hereof applicable to the
Holder; and (ii) if the proposed Permitted Transferee is a Subsidiary of MCI
that is
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not wholly-owned by MCI, the Company's written consent, which shall not be
unreasonably withheld, shall be required. Notwithstanding any transfer by the
Holder (other than to BT or a Subsidiary of BT) provided for in this paragraph
2.1, MCI shall remain liable to perform all of its obligations hereunder. Except
as provided above in this Section 2.1(a), neither this Warrant, nor any rights
or interests hereunder, may be transferred by any the Holder or the Company
without the prior written consent of the other. Upon such assignment to BT or a
Subsidiary of BT, MCI shall not remain liable to perform the obligations
hereunder assumed by BT in connection with such assignment; provided that BT
(and any such Subsidiary, if applicable) shall execute the agreement referred to
in paragraph 13.2(b) of the Warrant Purchase Agreement in connection with such
assignment.
(b) Except with the prior written consent of the Company, prior to a
Triggering Event, no transferee of this Warrant (or portion thereof) may at any
time cease to be a Permitted Transferee, unless it first transfers this Warrant
(or portion thereof) to another Permitted Transferee. Upon any such transferee's
ceasing to be a Permitted Transferee, any such transferee (i) shall cease to
have any rights or interests with respect to the exercise of this Warrant (or
portion thereof), or the voting of any Warrant Shares; and (ii) shall forthwith
transfer this Warrant (or portion thereof) to a Permitted Transferee in
accordance with the applicable provisions of this Warrant, whereupon such
Permitted Transferee shall have all of the rights and interests of a Permitted
Transferee in respect of this Warrant.
(c) All Preferred Limited Shares issued to a Holder upon exercise of
this Warrant pursuant to Section 3.5 below shall be subject to a stop transfer
order unless such shares are registered under the Securities Act or exempt from
registration under the Securities Act. Any transfer in violation of the
provisions of this Warrant shall be null and void and of no force and effect.
Notwithstanding the foregoing provisions of this Section 2.1, MCI's rights under
Section 6.4 hereof shall not be transferable, including, without limitation, to
a Permitted Transferee, without the prior written consent of the Company.
2.2 Legend. The certificate or certificates evidencing the
Warrant Shares shall bear the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, OR AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT."
"THE SECURITIES REPRESENTED BY THIS
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CERTIFICATE ARE SUBJECT TO THE PROVISIONS (INCLUDING CERTAIN
RESTRICTIONS ON TRANSFER) AND ENTITLED TO THE BENEFITS OF A WARRANT
PURCHASE AGREEMENT, DATED AS OF AUGUST 2, 1995. A COPY OF SUCH
AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY, C/O NEWS AMERICA
PUBLISHING INCORPORATED, AT 1211 AVENUE OF THE AMERICAS, NEW YORK, NEW
YORK 10036.
SECTION 3. Term of Warrant; Exercise of Warrant.
3.1 Term of Warrant. This Warrant may be exercised at any time in whole and
from time to time in part, from 9:00 a.m., New York time, on the earlier of (i)
the sixth monthly anniversary of the date of issuance hereof and (ii) the
granting of the necessary approvals referred to in Schedule 4.1 to the Warrant
Purchase Agreement (the "Initial Exercise Date") until 5:00 p.m., New York time,
on the fourth yearly anniversary of the date of issuance hereof (the "Warrant
Expiration Date"). If this Warrant is not exercised at or before 5:00 p.m., New
York time, on the Warrant Expiration Date, it shall become void, and all rights
hereunder shall thereupon cease.
3.2 Exercise of Warrant. In order to exercise this Warrant, in whole or in
part, the Holder hereof shall deliver to the Company (at its address as provided
in Section 11 hereof), (i) a written notice of the Holder's election to exercise
this Warrant, in the form of Exhibit A hereto, which notice shall specify the
number of Warrant Shares to be purchased (the "Notice of Exercise"), (ii)
payment of the Exercise Price with respect to the Warrant Shares being
purchased, and (iii) if required pursuant to the second sentence of Section 4,
an amount sufficient to pay any transfer or similar tax (or evidence reasonably
satisfactory to the Company demonstrating that such taxes have been paid).
Payment of the aggregate Exercise Price may be made (i) in United States
currency with funds immediately available to the Company in New York, New York,
(ii) by surrender of shares of Subsidiaries' Preferred Stock or (iii) a
combination thereof; provided that, if the Holder surrenders shares of
Subsidiaries' Preferred Stock, such shares or any fraction thereof shall be
surrendered in the ratio of five shares of News Triangle Preferred Stock to each
share of News T, Preferred Stock. In the event that the Holder elects to
surrender shares of Subsidiaries' Preferred Stock upon exercise hereof, the
Company shall, cause each of News T and News Triangle to pay to the Holder, to
the extent News T or News Triangle, as the case may be, is legally permitted to
do so, all accrued and unpaid dividends on such surrendered shares of Preferred
Stock issued by it. For purposes of paying the aggregate Exercise Price, each
share of Subsidiaries' Preferred Stock shall be valued at the Liquidation Value
thereof, as defined in the Certificate of Designation thereof. If the Holder
surrenders shares of Subsidiaries' Preferred Stock having a Liquidation Value in
excess of the aggregate Exercise Price of Warrants being
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PAGE 52
exercised, only an amount relating to whole shares which is not in excess of
such aggregate Exercise Price shall be applied to the payment thereof and the
balance of such Exercise Price, if any, shall be payable in United States
currency as provided above. In such event, the Company shall cause the Holder to
receive in return a certificate representing any shares of Subsidiaries'
Preferred Stock not so applied to such aggregate Exercise Price. For so long as
MCI or its Permitted Transferees continue to own any shares of Subsidiaries'
Preferred Stock, the Company shall vote and shall cause the transferees of any
shares of Subsidiaries' Preferred Stock acquired by the Company, News T and/or
News Triangle (as applicable) upon exercise hereof to vote as directed by the
Holder.
3.3 Issuance of Ordinary Shares. The Company shall, promptly following
exercise of this Warrant and compliance with the other conditions herein
contained, issue and deliver to the Holder a certificate or certificates
evidencing the number of Ordinary Shares (or any other securities into which
this Warrant may become exercisable) or, at the Holder's option, the
corresponding number of Ordinary Share ADSs representing such Ordinary Shares to
which such the Holder shall be entitled, together with a cash payment in respect
of any fraction of an Ordinary Share as hereinafter provided. This Warrant shall
be deemed to have been exercised immediately prior to the close of business on
the date on which the Notice of Exercise, together with the payment of the
Exercise Price and taxes (if applicable), are received by the Company and the
Holder shall be treated for all purposes as the record holder of the Ordinary
Shares (or any other securities into which this Warrant may become exercisable)
for which this Warrant was exercised at such time on such date. If this Warrant
is exercised in part only at any time prior to the Warrant Expiration Date, the
Company shall, upon surrender of this Warrant for cancellation, promptly execute
and deliver a new Warrant evidencing the right of the Holder to purchase the
balance of the Warrant Shares (or portions thereof) subject to purchase
hereunder.
3.4 No Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon exercise of this Warrant. In lieu of any
fractional share that would otherwise be issuable upon exercise hereof, the
Company shall pay a cash adjustment in respect of such fractional share in an
amount equal to the same fraction of the Current Market Price of the Ordinary
Shares on the trading day immediately preceding the date of exercise, calculated
to the nearest cent, with one half cent rounded upward.
3.5 Exercise for Preferred Limited Shares. Subject to any shareholder
approvals required by Listing Rule 3E(6) of the ASX, the Holder shall have the
option to acquire upon the exercise of this Warrant, such number of the
Company's Preferred Limited Shares (in place and in stead of Ordinary Shares)
or, at the Holder's option, the corresponding number of Preferred Share
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PAGE 53
ADSs, as shall be equivalent in value to the Ordinary Shares for which this
Warrant would otherwise have been exercised, as determined in accordance with
the formula set forth below. In the event that the Holder elects to exercise all
or any portion of this Warrant for Preferred Limited Shares of the Company, the
amount to be paid upon exercise pursuant to this Section 3.5 shall be equal to
the product of (i) the number of Ordinary Shares for which this Warrant would
have otherwise been exercised, multiplied by (ii) the Exercise Price then in
effect. The number of Preferred Limited Shares issuable upon such exercise shall
be equal to the quotient of (x) the product of the number of Ordinary Shares for
which this Warrant would have otherwise been exercised, multiplied by the
Current Market Price of one Ordinary Share, divided by (y) the Current Market
Price of one Preferred Limited Share. The Company shall pay a cash adjustment as
provided in Section 3.4 hereof in lieu of issuing any fractional Preferred
Limited Shares that would otherwise be issuable upon exercise pursuant to this
Section 3.5. In the event that this Warrant is exercised pursuant to this
Section 3.5, the Holder shall comply with the provisions of Section 3.2 above to
the extent applicable, and the Company shall comply with the provisions of
Section 3.3 above to the extent applicable. In the event of any partial exercise
of this Warrant pursuant to this Section 3.5, the number of Warrant Shares
remaining subject to purchase hereunder shall be reduced by the number of
Ordinary Shares for which this Warrant would otherwise have been exercised.
SECTION 4. Payment of Taxes. The Company shall pay any and all issue or
other similar taxes that may be payable in respect of any issue or delivery of
capital stock of the Company upon exercise hereof. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of this Warrant, or the Warrant
Shares (or other securities or assets), in a name other than that in which the
Warrant so exercised was registered, except to the extent that such taxes are
not greater than the taxes which would be imposed upon the original Holder, and
no such issue or delivery shall be made unless and until the person requesting
such issue has paid to the Company the amount of such tax or has established, to
the satisfaction of the Company, that such tax has been paid.
SECTION 5. Mutilated or Missing Warrant. If this Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of this Warrant, or in lieu
of and substitution for this Warrant if lost, stolen or destroyed, and upon
receipt of evidence to its reasonable satisfaction of the destruction, loss or
theft of this Warrant and such security or indemnity as may reasonably be
required by the Company to save it and its agents harmless, a new Warrant of
like tenor and representing an equivalent right or interest.
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PAGE 54
SECTION 6. Covenants of the Company.
6.1 Reservation of Warrant Shares. The Company shall at all times reserve
and keep available, out of its authorized and unissued share capital solely for
the purpose of effecting the exercise of this Warrant, such number of its
Ordinary Shares and Preferred Limited Shares, free of preemptive rights, as
shall from time to time be sufficient to effect the exercise in full of this
Warrant. The transfer agent for the Ordinary Shares and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of this Warrant shall be irrevocably authorized and directed at all
times to reserve the maximum number of authorized shares as shall be required
for such purpose. The Company shall keep a copy of this Agreement on file with
the transfer agent for the Ordinary Shares and with every subsequent transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of the Warrant.
6.2 Legal and Valid Issuance. The Warrant Shares issued upon exercise
hereof will, upon issuance and payment therefor in accordance with the terms
hereof, be validly issued, fully paid, nonassessable and free of preemptive
rights.
6.3 Listing. The Company shall, upon MCI's request, use its best efforts to
cause the Warrant Shares to be listed for trading following the occurrence of
(i) any exchange or conversion contemplated by paragraph 8.2(a) of the Warrant
Purchase Agreement, or (ii) any Triggering Event, on the ASX and, in the form of
Ordinary Shares ADSs or Preferred Shares ADSs, as appropriate, on the New York
Stock Exchange.
6.4 Board Representation. Provided that MCI and the Permitted Transferees
continue to own (i) this Warrant and all of the Initial Shares (except to the
extent this Warrant has been exercised and/or the Initial Shares have been
surrendered upon exercise of this Warrant or any Additional Warrant), and (ii)
all securities issued to MCI and the Permitted Transferees upon exercise of this
Warrant or upon the exchange or conversion of such securities, MCI shall have a
right to designate (A) one person to stand for election to the Board of
Directors of the Company (the "Board") or (B) two persons to stand for election
to the Board, subject to the remaining provisions of this Section 6.4, if MCI,
in the case of clause (B) above only, together with the other Investor Parties,
Beneficially Owns, in the aggregate, 19% or more of the outstanding Voting
Securities of the Company, including (in both the numerator and denominator),
for purposes of calculating such percentage, any Warrant Shares and Additional
Warrant Shares issued and/or issuable upon exercise, in whole or in part, of
this Warrant and any Additional Warrants and any other Voting Securities
Beneficially Owned by MCI and the other Investor Parties. If MCI desires to
exercise any such right, MCI shall notify the Company in writing at least 45
Business Days before the next Annual General Meeting of the Shareholders of the
Company as to the number of Voting Securities owned by it and the
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PAGE 55
other Investor Parties and as to the identity and background of the person or
persons whom it proposes to designate to serve on the Board and the Company
shall take such action as may be required to cause such designee or designees to
stand for election at such Annual General Meeting. If, at any time, MCI or any
of its Permitted Transferees shall have transferred (1) this Warrant or the
Initial Shares, in whole or in part (except to the extent this Warrant has been
exercised, in whole or in part, and/or the Initial Shares have been surrendered
upon exercise of this Warrant or any Additional Warrant) or (2) any securities
issued to MCI and the Permitted Transferees upon exercise of this Warrant or
upon exchange or conversion of such securities, other than to a Permitted
Transferee, then, at the option of the Company, upon five days' notice to MCI,
MCI shall cause each director designated by MCI to resign. If two directors
designated by MCI shall be serving on the Board and MCI and the other Investor
Parties shall cease to Beneficially Own at least 19% of the outstanding Voting
Securities, as described in clause (B) of the first sentence of this Section
6.4, then, at the option of the Company, upon five days' notice to MCI, MCI
shall cause either, but not both, of the directors designated by MCI to resign.
Following the initial vote with respect to the election of a second designee of
MCI in respect of the Beneficial Ownership by MCI and the other Investor Parties
of at least 19% of the outstanding Voting Securities, as provided above, the
Company shall not be required to take any action with respect to causing such a
designee to stand for election, as described above, unless MCI and the other
Investor Parties Beneficially Own at least 19% of the outstanding Voting
Securities for at least 180 days during the 12-month period preceding the date
the shareholders of the Company are to be notified that such designee will be
standing for election. If, at any time, any TNCL Competitor (or any group of
Persons that includes a TNCL Competitor, acting in concert) acquires the power
to control MCI, MCI shall cause each director designated by MCI to resign and
MCI shall have no further rights pursuant to this Section 6. The provisions of
this Section 6.4 shall survive the exercise of this Warrant, in whole or in
part, and shall be effective so long as the applicable conditions set forth in
clauses (i) and (ii) of this Section 6.4 continue to be satisfied.
SECTION 7. Preemptive Right.
(a) Provided that MCI or the Permitted Transferees continue to own (i)
this Warrant and all of the Initial Shares (except to the extent this
Warrant has been exercised and/or the Initial Shares have been surrendered
upon exercise of this Warrant or any Additional Warrant), and (ii) all
securities issued to MCI or the Permitted Transferees upon exercise of this
Warrant or upon the exchange or conversion of such securities, the Holder
shall have the following rights:
(i) In the event that the Company proposes to issue
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(other than issuances described in Section 8 hereof), Voting Securities
(the "Proposed Issuance"), this Warrant shall be deemed to grant to the
Holder the right (the "Preemptive Right") to participate in such Proposed
Issuance to the extent necessary to maintain the percentage (prior to such
Proposed Issuance) of the Company's outstanding voting equity (on a fully
diluted basis giving effect to the conversion of all outstanding
convertible securities and the exercise of all outstanding option and
warrants, including shares issuable upon exercise of outstanding employee
stock options) represented by the Ordinary Shares remaining subject to
purchase hereunder (the "Percentage Interest"). The exercise price for the
Voting Securities subject to such Preemptive Right shall be equal to the
price payable pursuant to the Proposed Issuance. The exercise period
applicable to such Preemptive Right shall expire at such time as the
Proposed Issuance is consummated. In the event of a Proposed Issuance, the
Company shall cause to be mailed to the Holder, at least fifteen (15)
business days prior to the consummation of such Proposed Issuance, a notice
describing the Proposed Issuance, which notice shall state (x) the number
of Voting Securities proposed to be issued, (y) the per share purchase
price of such Voting Securities and (z) the date on which such Proposed
Issuance is to be consummated. Within five (5) business days following
receipt of such notice, the Holder shall notify the Company in writing if
it elects to exercise such Preemptive Right. Any Voting Securities issued
pursuant to the Preemptive Right shall be subject to the provisions of
Section 2 hereof as if they were Warrant Shares.
(ii) In the event that a Proposed Issuance is in connection with an
acquisition by the Company or any of its Affiliates of the equity, assets
or business of, or other business combination with, any Person (whether
through purchase, exchange or any other method whatsoever, each of the
foregoing being referred to herein as an "Acquisition"), the Holder shall
not have the right to participate in the Proposed Issuance as set forth
above; provided, however, that the Holder shall have the right to require
the Company to sell to the Holder, on the terms and conditions set forth
above, a sufficient number of additional Voting Securities as shall be
necessary to maintain the Holder's Percentage
Interest. The per share purchase price of Voting Securities payable by the
Holder shall be the Current Market Price thereof on the date or dates with
reference to which the consideration for the Acquisition is determined.
(b) Notwithstanding the preceding provisions of this Section 7, the
Preemptive Right shall not be exercisable with respect to any Proposed
Issuance of Voting Securities (i) in which MCI or any other Investor
Parties participate (any such participation by any other Investor Party
being
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deemed to be equivalent to participation by the Holder for purposes of
calculating the Percentage Interest pursuant to this clause (i)) or in
which they are offered the right to participate, in either case, to the
extent such participation would have permitted the Holder and/or any other
Investor Parties to maintain the Percentage Interest, whether or not they
elect to do so; (ii) pursuant to options or convertible securities
outstanding on May 10, 1995; (iii) pursuant to employee stock options; or
(iv) pursuant to the Dividend Reinvestment Plan.
(c) The Preemptive Right granted herein with respect to Ordinary
Shares remaining subject to purchase hereunder is not intended to be
duplicative of the preemptive right granted pursuant to Section 12.3 of the
Warrant Purchase Agreement with respect to the Warrant Shares acquired upon
partial exercise hereof.
SECTION 8. Adjustments. Subject to the provisions of this Section 8, the
number of Warrant Shares issuable pursuant hereto and the Exercise Price in
effect from time to time shall be subject to adjustment, as set forth
below:
(a) In case the Company shall at any time after the date hereof
(i) authorize a bonus issue or declare a dividend on the outstanding
Ordinary Shares payable in shares of its capital stock, (ii) subdivide the
outstanding Ordinary Shares by bonus issue or otherwise, (iii) combine the
outstanding Ordinary Shares into a smaller number of Ordinary Shares, or
(iv) issue any shares of its capital stock by reclassification of the
Ordinary Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing
corporation), then, in each case, the Exercise Price in effect, and the
number of Ordinary Shares issuable upon exercise of the Warrants
outstanding, at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, shall
be proportionately adjusted so that the Holder hereof after such time shall
be entitled to receive the aggregate number and kind of shares which, if
such Warrant had been exercised immediately prior to such time, such the
Holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall distribute to all holders of
Ordinary Shares (including any such distribution made to the stockholders
of the Company in connection with a consolidation or merger in which the
Company is the continuing corporation) evidences of its indebtedness, cash
(other than ordinary cash dividends) or assets (other than
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distributions and dividends payable in Ordinary Shares, or rights, options
or warrants to subscribe for or purchase Ordinary Shares or securities
convertible into or exchangeable for Ordinary Shares), then, in each case,
the Exercise Price shall be adjusted by multiplying the Exercise Price in
effect immediately prior to the Determination Date by a fraction, the
numerator of which shall be the Current Market Price per Ordinary Share on
such date, less the fair market value (as determined in good faith by the
Board (or committee thereof), whose determination shall be conclusive
absent manifest error) of the portion of the evidences of indebtedness or
assets so to be distributed, or of such rights, options, or warrants or
convertible or exchangeable securities, or the amount of such cash,
applicable to one share, and the denominator of which shall be such Current
Market Price per Ordinary Share. Such adjustment shall become effective at
the close of business on such Determination Date.
(c) Whenever there shall be an adjustment as provided in this
Section 8, the Company shall within fifteen (15) days thereafter cause
written notice thereof to be sent by registered mail, postage prepaid, to
the Holder, which notice shall be accompanied by an officer's certificate
setting forth the number of Warrant Shares issuable hereunder and the
exercise price thereof after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the computation
thereof, which officer's certificate shall be conclusive evidence of the
correctness of any such adjustment absent manifest error.
(d) In case of any scheme of arrangement, reconstruction,
amalgamation, consolidation with or merger of the Company with or into
another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation and which does not
result in any reclassification of the outstanding Ordinary Shares or the
conversion of such outstanding Ordinary Shares into shares of other stock
or other securities or property) or other business combination, or in case
of any sale, lease or conveyance to another corporation of the property and
assets of any nature of the Company as an entirety or substantially as an
entirety (such actions being hereinafter collectively referred to as
"Reorganizations"), there shall thereafter be deliverable upon exercise of
this Warrant (in lieu of the number of Ordinary Shares theretofore
deliverable) the kind and amount of shares of stock or other securities or
property to which a holder of the number of Ordinary Shares which would
otherwise have been deliverable upon the exercise of this Warrant upon such
Reorganization if this Warrant had been exercised in full immediately prior
to such Reorganization. In case of any Reorganization, appropriate
adjustment, as determined in good faith by the Board (or committee
thereof), shall be made in the
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application of the provisions herein set forth with respect to the rights
and interests of the Holder so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares
or other property thereafter deliverable upon exercise of this Warrant. Any
such adjustment shall be made by and set forth in a supplemental agreement
between the Company, or any successor thereto, and the Holder and shall for
all purposes hereof conclusively be deemed to be an appropriate adjustment.
The Company shall not effect any such Reorganization unless upon or prior
to the consummation thereof the successor corporation, or if the Company
shall be the surviving corporation in any such Reorganization and is not
the issuer of the shares of stock or other securities or property to be
delivered to holders of Ordinary Shares outstanding at the effective time
thereof, then such issuer, shall assume by written instrument the
obligation to deliver to the Holder such shares of stock, securities, cash
or other property as the Holder shall be entitled to purchase in accordance
with the foregoing provisions.
(e) In case of any reclassification or change of the Ordinary
Shares issuable upon exercise of this Warrant (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two
or more classes or series of shares), or in case of any consolidation or
merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
Ordinary Shares (other than a change in par value, or from no par value to
a specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Holder shall have the right thereafter to receive upon
exercise of this Warrant solely the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable
upon such reclassification, change, consolidation, or merger by a holder of
the number of Ordinary Shares for which this Warrant might have been
exercised immediately prior to such reclassification, change,
consolidation, or merger. Thereafter, appropriate provision shall be made
for adjustments which shall be as nearly equivalent as practicable to the
adjustments in this Section 8.
(f) Provisions (d) and (e) of this Section 8 shall similarly
apply to successive reclassifications and changes of Ordinary Shares and to
successive consolidations, mergers, sales, leases, or conveyances.
(g) Except as provided in this Section 8, no
adjustment of this Warrant shall be made during the term, or
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upon exercise, hereof.
SECTION 9. No Rights as Stockholders. Except as set forth in Sections 6.4
and 7 hereof, nothing contained in this Warrant shall be construed as conferring
upon the Holder thereof the right to vote or to receive dividends or to consent
or to receive notice as stockholders in respect of any meeting of stockholders
for the election of directors of the Company or any other matter, or any rights
whatsoever as stockholders of the Company.
SECTION 10. Notices to the Holder. In case:
(a) the Company shall (i) declare any dividend or any other
distribution on its Ordinary Shares (other then regular annual and interim
dividends), (ii) declare or authorize a redemption or repurchase of
Ordinary Shares, or (iii) authorize the granting to all holders of Ordinary
Shares of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or
warrants; or
(b) of any reclassification of Ordinary Shares, or of any
consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company shall be required, or of any
compulsory share exchange whereby the Ordinary Shares are converted into
other securities, cash or other property; or
(c) of a Liquidation; or
(d) the Company shall propose to take any action that would
require an adjustment pursuant to Section 8; then the Company shall cause
to be mailed to the Holder of the Warrant, at least fifteen (15) days prior
to the applicable date hereinafter specified, a notice stating (x) the date
on which a record (if any) is to be taken for the purpose of such dividend,
distribution, redemption, repurchase or granting of rights or warrants or
(y) the date on which such subdivision, reclassification, consolidation,
merger or Liquidation is expected to become effective (but no failure to
mail such notice or any defect therein or in the mailing thereof shall
affect the validity of the corporate action required to be specified in
such notice).
SECTION 11. Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed given (i) when made,
if made by hand delivery, (ii) upon confirmation, if made by telecopier or (iii)
one business day after being deposited with a reputable next day courier,
postage prepaid, to the parties as follows:
if to the Company:
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The News Corporation Limited
c/o News America Publishing Incorporated
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind, Esq.
Executive Vice President and
Group General Counsel
Fax: (212) 768-2029
Confirmation: (212) 852-7007
with a copy to:
Squadron Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Harvey Horowitz, Esq.
Fax: (212) 697-6686
Confirmation: (212) 661-6500
if to MCIT or MCI:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: Michael J. Rowny
Executive Vice President
Fax: (202) 887-2348
Confirmation: (202) 887-3051
With copies to:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: John R. Worthington, Esq.
Senior Vice President and
General Counsel
Fax: (202) 887-2026
Confirmation: (202) 887-2015
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
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PAGE 62
Attention: Philip T. Ruegger III, Esq.
Fax: (212) 455-2502
Confirmation: (212) 455-2000
The Company or MCIT by notice to the other party may designate such
additional or different addresses as shall be furnished in writing by such
party.
SECTION 12. Successors. All the covenants and provisions
of this Warrant by or for the benefit of the Company shall be
binding upon and shall inure to the benefit of its successors and
assigns hereunder.
SECTION 13. Governing Law. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF
THIS WARRANT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO THE EXTENT THAT AUSTRALIAN LAW APPLIES
BY VIRTUE OF THE FACT THAT THE COMPANY IS ORGANIZED AND THIS WARRANT AND THE
WARRANT SHARES ARE ISSUED UNDER THE LAWS OF THE STATE OF SOUTH AUSTRALIA. EACH
OF THE COMPANY AND THE HOLDER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AND THE TRANSACTIONS
PURSUANT HERETO AND IN CONNECTION HEREWITH, AND IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT. EACH OF THE COMPANY AND THE HOLDER IRREVOCABLY
WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed.
Dated: August 2, 1995.
THE NEWS CORPORATION
LIMITED
By: /s/ Arthur M. Siskind
ACKNOWLEDGED AND AGREED:
MCI TELECOMMUNICATIONS CORPORATION
By: /s/ Michael J. Rowny
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PAGE 64
EXHIBIT A
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise its right to
purchase [ Ordinary Shares represented by the within Warrant] [that number of
Preferred Limited Shares corresponding to _____ Ordinary Shares as calculated in
accordance with Section 3.5 of the within Warrant], and requests that
certificates for [the corresponding number of [Ordinary Shares] [Preferred
Share] ADSs representing] such [Ordinary] [Preferred Limited] Shares be issued
and delivered as follows:
ISSUE TO:
(Name)
(Address, Including Zip Code)
DELIVER TO:
(Name)
(Address, Including Zip Code)
In payment of the exercise price for the Warrant Shares hereby
purchased, the undersigned hereby tenders payment of [$__________] [,] [___
shares of News T Preferred Stock having an aggregate face value of $__________]
[and] [__ shares of News Triangle Preferred Stock having an aggregate face value
of $______], in accordance with Section 3.2 of the Warrant. If the number of
Warrant Shares hereby exercised is fewer than all the Warrant Shares represented
by the Warrant, the undersigned requests that a new Warrant representing the
number of Warrant Shares not hereby or previously exercised to be issued and
delivered to the undersigned at the address set forth below:
Address:
Signature:_____________________
DATED:_____________________________
EXECUTION COPY
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PAGE 65
Exhibit B
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT, dated as of August 2, 1995 between
The News Corporation Limited, a South Australia corporation (the "Company"), and
MCI Communications Corporation, a Delaware corporation ("MCI" and, together with
its Permitted Transferees (as defined herein), the "Holders").
14. Background. The Company has issued and sold on the date hereof to
MCI (a) a warrant (the "Initial Warrant") to purchase an aggregate of
155,339,806 (subject to adjustment) Ordinary Shares or, at the option of MCI,
Ordinary Share ADSs and (b) an option (the "Option") to purchase additional
warrants (the "Additional Warrants", and together with the Initial Warrant, the
"Warrants") to purchase up to an additional 155,339,806 Ordinary Shares (subject
to adjustment) or, at the option of MCI, Ordinary Share ADSs, all as contained
in the Warrant Purchase Agreement. The Company has the right (the "Put") to
require MCI to purchase the Additional Warrants in such amount and under such
circumstances as are contained in the Warrant Purchase Agreement.
15. Definitions. As used in this Agreement, the
following capitalized terms shall have the following meanings:
"Exchange Act" - The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Ordinary Share ADSs" - American Depositary Shares
representing Ordinary Shares.
"Ordinary Shares" - The Company's Ordinary Shares of Australian $.50
each and/or the Ordinary Share ADSs, as the context requires.
"Permitted Transferee" - as defined in the Warrant
Purchase Agreement.
"Person" - Any individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof.
"Registrable Securities" - All Ordinary Shares issued, or issuable
upon exercise of the Warrants, to a Holder and any shares of capital stock which
may be issued or distributed in respect of such Ordinary Shares by way of
conversion, exchange, stock dividend or stock split or other distribution,
recapitalization or reclassification; provided that any Ordinary Shares (or
other shares of capital stock) registered pursuant to
<PAGE>
PAGE 66
this Agreement shall be registered in the form of American depositary shares
representing such shares, so long as American depositary receipts representing
such American depositary shares are publicly traded in the United States at the
relevant time. As to any particular Registrable Securities, once issued such
Securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such Securities shall have become
effective under the Securities Act and such Securities shall have been disposed
of in accordance with such registration statement, (ii) they shall have been
distributed to the public pursuant to Rule 144 or 144A (or any successor
provisions) under the Securities Act, (iii) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
them shall not require registration or qualification of them under the
Securities Act or (iv) they shall have ceased to be outstanding.
"Registration Expenses" - Any and all reasonable expenses incident to
performance of or compliance with this Agreement, including, without limitation,
(i) all SEC and stock exchange or National Association of Securities Dealers,
Inc. registration and filing fees, (ii) all fees and expenses of complying with
securities or blue sky laws (including reasonable fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Registrable Securities), (iii) all printing, messenger and delivery expenses,
(iv) all fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange pursuant to clause (viii) of
Section 5, (v) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance, and (vi) all fees and expenses, if any, incurred in connection with
retaining a depositary for the Ordinary Share ADSs.
"Securities Act" - The Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"SEC" - The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
"Warrant Purchase Agreement" - The Warrant Purchase Agreement dated
the date hereof between the Company and MCI.
16. Piggyback Registrations.
(a) Right to Include Registrable Securities. Subject
to the last sentence of this Section 3(a), if the Company at any
time after the date hereof proposes to register its Ordinary
Shares under the Securities Act (other than a registration on
<PAGE>
PAGE 67
Form F-4 or S-8, or any successor or other forms promulgated for similar
purposes), whether or not for sale for its own account, pursuant to a
registration statement on which it is permissible to register Registrable
Securities for sale to the public under the Securities Act, it will each such
time give prompt written notice to all Holders of Registrable Securities of its
intention to do so and of such Holders' rights under this Section 3. Upon the
written request of any such Holder made within 15 days after the receipt of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by such Holder), the Company will use its best efforts to effect
the registration under the Securities Act of all Registrable Securities which
the Company has been so requested to register by the Holders thereof. If a
registration requested pursuant to this Section 3(a) involves an underwritten
public offering, any Holder of Registrable Securities requesting to be included
in such registration may elect, in writing prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration. The Company may
terminate or delay its efforts to register such securities, including the
Registrable Securities, at any time without liability to the Holders. The
Company shall have the right in its sole discretion to elect not to make the
rights contemplated in this Section 3 available to the Holders.
(b) Expenses. News America Publishing Incorporated ("News America")
will pay all Registration Expenses in connection with each registration of
Registrable Securities requested pursuant to this Section 3; and each Holder
will pay all underwriting discounts and commissions and transfer taxes relating
to the sale or other disposition of such Holder's Registrable Securities
pursuant to such registration.
(c) Priority in Piggyback Registrations. If a registration pursuant to
this Section 3 involves an underwritten offering and the managing underwriter
advises the Company in writing that, in its opinion, the amount of securities
requested to be included in such registration by all selling securityholders
exceeds the amount which can be sold in such offering, so as to be likely to
have an adverse effect on such offering as contemplated by the Company
(including the price at which the Company proposes to sell such securities),
then the Company will include in such registration (A) if such registration
relates to a primary offering initiated by the Company, (i) first, the
securities proposed to be sold by the Company, (ii) second, to the extent the
number of securities proposed to be included in such registration by the Company
is less than the number of securities which the Company has been advised can be
sold in such offering without having the adverse effect referred to above, the
securities requested to be included in such registration by the Holders and
other Persons entitled to participate in such registration (provided that if the
number of such securities, in combination with the number of securities
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PAGE 68
proposed to be included in such registration by the Company, exceeds the number
which the Company has been advised can be sold in such offering, without having
the adverse effect referred to above, the number of such securities included in
such registration shall be allocated pro rata among all such Holders and other
Persons on the basis of the relative number of securities that each of the
Holders and the other Persons has requested to be included in such
registration); and (B) if such registration relates to a secondary offering
initiated by any Person other than a Holder, (i) first, the securities requested
to be included in such registration by such other Person (to the extent that the
number of such securities does not exceed the number of securities which the
Company has been advised can be sold in such offering without having the adverse
effect described above), (ii) second, to the extent the number of securities
requested to be included in such registration by such other Persons is less than
the number of securities which the Company has been advised can be sold in such
offering without having the adverse effect referred to above, the securities
proposed to be sold by the Company (to the extent that the number of securities
does not exceed, in combination with the securities of such other Persons to be
included in such registration, the number of securities which the Company has
been advised can be sold in such offering without having the adverse effect
described above), (iii) third, to the extent the sum of the number of securities
requested to be included in such registration by such other Persons plus the
number of securities proposed to be included in such registration by the Company
is less than the number of securities which the Company has been advised can be
sold in such offering without having the adverse effect referred to above, the
Registrable Securities requested to be included in such registration by the
Holders (provided that if the number of such Registrable Securities in
combination with the securities of such other Persons and the Securities of the
Company to be included in such registration, exceeds the number which the
Company has been advised can be sold in such offering without having the adverse
effect referred to above, the number of such Registrable Securities of the
Holders included in such registration shall be allocated pro rata among all such
Holders on the basis of the relative number of Registrable Securities each such
Holder has requested to be included in such registration).
(d) Underwritten Public Offerings. If a registration pursuant to this
Section 3 involves an underwritten public offering, each Holder who has
requested that any of its Registrable Securities be included in such
registration must sell such Registrable Securities to the underwriters on the
same terms and conditions as apply to the Company, with such differences,
including any with respect to indemnification and contribution, as may be
customary or appropriate in combined primary and secondary offerings.
17. Demand Registrations.
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PAGE 69
(a) Request by Holders. At any time from and after the date hereof
upon the written request of any Holder or Holders holding in the aggregate more
than 50% of the Registrable Securities then outstanding requesting that the
Company effect the registration under the Securities Act of all or part of such
Holder's or Holders' Registrable Securities which Registrable Securities
represent not less than 10% of the Registrable Securities then outstanding, and
specifying the intended method of disposition thereof, the Company will promptly
give written notice of such requested registration to all other Holders of
Registrable Securities, and thereupon will, as expeditiously as possible, use
its best efforts to effect the registration under the Securities Act of:
(i) the Registrable Securities which the Company has
been so requested to register by such Holder or Holders; and
(ii) all other Registrable Securities which the Company has been
requested to register by any other Holder thereof by written request given
to the Company within 15 days after the giving of such written notice by
the Company, so as to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities so to
be registered; provided, however, that the Company may delay filing the
registration statement for up to 180 days if its Board of Directors
determines that filing the Registration Statement would be detrimental to
the Company. So long as the Company does not breach any of its obligations
in respect of the registration contemplated by this Section 4 (other than a
breach which would not materially adversely affect MCI's rights hereunder),
with respect to each Holder, the Company shall only be required to comply
with two requests for registrations pursuant to this Section 4, plus one
additional request for registration pursuant to this Section 4 if any
Additional Warrants are issued to any Holder, plus one additional request
for registration pursuant to this Section 4 if more than 50% of the
aggregate number of Additional Warrants issuable pursuant to the Warrant
Purchase Agreement are so issued. The requests for registration referred to
in the preceding sentence may be exercised by the Holders, in the
aggregate, no more than twice in a twelve calendar month period. If a
Holder has exercised his registration right under this Section 4(a) once in
a twelve calendar month period, such Holder may exercise his registration
rights under this Section 4(a) the second time in such period only if prior
to exercising the second registration right, such Holder shall have
provided notice to other Holders who have not exercised their rights during
such period and such other Holders choose not to exercise their rights
within 30 days after the date of such notice. If any Holder shall withdraw
its request for registration, following the filing of a registration
statement therefor and other than as a result of a material adverse change
in the business, financial
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PAGE 70
condition or results of operations of the Company, such withdrawn request
shall be deemed to be one of the five requests granted to the Holders
pursuant to this Section 4. The Holders shall only exercise registration
rights for Registrable Securities which they intend to sell, transfer or
otherwise dispose of within 60 days of the effectiveness of the
registration statement relating to such Registrable Securities.
(b) Expenses. News America will pay all Registration Expenses in
connection with the registrations of Registrable Securities pursuant to this
Section 4, and each Holder will pay all underwriting discounts and commissions
and transfer taxes relating to the sale or other disposition of such Holder's
Registrable Securities pursuant to such registration.
(c) Effective Registration Statement. A registration requested
pursuant to this Section 4 will not be deemed to have been effected unless a
registration statement for the Ordinary Share ADSs (the "ADS Registration
Statement") being offered thereby has become effective; provided, that if,
within 60 days after the effective date of the ADS Registration Statement, the
offering of Registrable Securities pursuant to such registration is prevented by
any stop order, injunction or other order or requirement of the SEC or other
governmental agency or court, such registration will be deemed not to have been
effected. Notwithstanding the preceding sentence, if any such stop order is
rescinded, the effective period shall continue upon such rescission and be
extended by the number of days by which such stop order delayed the filing.
(d) Selection of Underwriters. If a requested registration pursuant to
this Section 4 involves either a firm or best efforts underwritten public
offering, the Holder or a majority of the Holders (based on ownership of
Registrable Securities) shall have the right to select the underwriter or
underwriters of nationally recognized standing to administer the offering,
subject to the prior written consent of the Company, which consent shall not be
unreasonably withheld, and each Holder participating in such registrations must
sell such Registrable Securities to the underwriters on the same terms and
conditions.
(e) Priority in Demand Registrations. If a requested registration
pursuant to this Section 4 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceeds the number which
can be sold in such offering, the Company will include in such registration only
the Registrable Securities requested to be included in such registration. In the
event that the number of Registrable Securities requested to be included in such
registration exceeds the number which, in the opinion of such managing
underwriter, can be sold, the number of such Registrable
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PAGE 71
Securities to be included in such registration shall be allocated pro rata among
all requesting Holders on the basis of the relative number of shares of
Registrable Securities then held by each such Holder (provided that any shares
thereby allocated to any such Holder that exceed such Holder's request shall be
reallocated among the remaining requesting Holders in like manner). In the event
that the number of Registrable Securities requested to be included in such
registration is less than the number which, in the opinion of the managing
underwriter, can be sold, the Company may include in such registration the
securities the Company proposes to sell up to the number of securities that, in
the opinion of the underwriter, can be sold. In the event that the number of
Registrable Securities requested to be included in such registration plus the
number of securities proposed to be included in such registration by the Company
is less than the number which, in the opinion of the managing underwriter, can
be sold, the securities requested to be included in such registration by other
Persons whose requests have been approved by the Company may be included in such
registration up to the number of securities that, in the opinion of the
underwriter, can be sold.
(f) Additional Rights. The Company shall not grant any other person
rights to register securities of the Company on terms which could restrict in
any way the ability of the Company fully to perform its obligations to the
Holders pursuant to Section 4.
(g) Other Disposition of Registrable Securities. In connection with
any exercise of the rights set forth in this Section 4, if the Company, within
10 business days of the receipt of a written request from the Holders in
accordance with the first sentence of Section 4(a), notifies the Holders in
writing that the Company has determined in good faith that the registration of
the Registrable Securities under the Securities Act pursuant to such request is
not necessary to provide the Holders making such request with a liquid market
for the sale of such Registrable Securities on the proposed terms of the sale
(which notice shall identify the alternative market or markets which would
permit such sale), then the Company shall not be required to effect the
registration so requested unless the Holders, after due consideration of the
Company's good faith determination, disagree on a reasonable basis with such
determination and advise the Company to proceed with the requested registration.
18. Registration Procedures. (a) If and whenever the
Company is required to use its best efforts to effect or cause
the registration of any Registrable Securities under the
Securities Act as provided in this Agreement, the Company will,
subject to the provisions of Section 4(a), as expeditiously as
possible:
(i) prepare and file with the SEC within 60 days (or
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as soon thereafter as possible, if any required financial statements of the
Company are not available within such 60-day period) after the end of the
period within which requests for registration may be given to the Company,
an ADS Registration Statement (collectively, the "Registration Statement")
with respect to such Registrable Securities and use its best efforts to
cause such Registration Statement to become effective;
(ii) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective for a
period not in excess of 60 days and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set forth
in such Registration Statement; provided, that before filing a Registration
Statement or prospectus, or any amendments or supplements thereto, the
Company will furnish to one counsel selected by the Holders of a majority
of the Registrable Securities covered by such Registration Statement to
represent all Holders of Registrable Securities covered by such
Registration Statement, copies of all documents proposed to be filed, which
documents will be subject to the review of such counsel;
(iii) furnish to each seller of such Registrable Securities such
number of copies of such Registration Statement and of each amendment and
supplement thereto (in each case including all exhibits), such number of
copies of the prospectus included in such Registration Statement (including
each preliminary prospectus and summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as such seller
may reasonably request in order to facilitate the disposition of the
Registrable Securities by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by
such seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in
any jurisdiction where, but for the requirements of this clause (iv), it
would not be obligated to be so qualified, to subject itself to taxation in
any such jurisdiction, or to consent to general service of process in any
such jurisdiction;
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(v) use its best efforts to cause such Registrable Securities covered
by such Registration Statement to be registered with or approved by such
other governmental agencies or authorities of the United States of America
as may be necessary by virtue of the business and operations of the Company
to enable the seller or sellers thereof to consummate the disposition of
such Registrable Securities;
(vi) immediately notify each seller of any such Registrable Securities
covered by such Registration Statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (ii) of this Section 5,
of the Company's becoming aware that the prospectus included in such
Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such
seller, prepare and furnish to such seller a reasonable number of copies of
an amended or supplemental prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable (but not more than fifteen
months) after the effective date of the Registration Statement, an earnings
statement which shall satisfy the provisions of Section 11(a) of the
Securities Act and the rules and regulations promulgated thereunder;
(viii) use its best efforts to list such Registrable Securities on any
securities exchange on which the Ordinary Share ADSs are then listed, if
such Registrable Securities are not already so listed and if such listing
is then permitted under the rules of such exchange, and to provide a
transfer agent and registrar for such Registrable Securities covered by
such Registration Statement not later than the effective date of such
Registration Statement;
(ix) enter into an agreement with a depositary to provide for the
custody of the Registrable Securities and issuance of American Depositary
Receipts representing such Registrable Securities;
(x) enter into such customary agreements (including an
underwriting agreement in customary form) and take such
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other actions customarily taken by registrants as sellers of a majority of
such Registrable Securities or the underwriters, if any, reasonably request
in order to expedite or facilitate the disposition of such Registrable
Securities;
(xi) obtain a "cold comfort" letter or letters from the Company's
independent public accountants in customary form and covering matters of
the type customarily covered by
"cold comfort" letters as the seller or sellers of a
majority of such Registrable Securities shall reasonably
request; and
(xii) subject to the appropriate parties signing confidentiality
agreements reasonably acceptable to the Company, make available for
inspection by any seller of such Registrable Securities covered by such
Registration Statement, by any underwriter participating in any disposition
to be effected pursuant to such Registration Statement and by any attorney,
accountant or other agent retained by any such seller or any such
underwriter (collectively, the "Inspector"), all pertinent financial and
other records, pertinent corporate documents and properties of the Company
(collectively the "Records") as shall be reasonably necessary to enable
them to exercise "due diligence," and cause all of the Company's officers,
directors and employees to supply all information reasonably requested by
any Inspector in connection with such Registration Statement. Sellers of
Registrable Securities hereunder agree that Records and other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors and sellers are so notified, shall not be
disclosed by the Inspectors or sellers unless (i) the disclosure of such
Records is necessary to avoid or correct a material misstatement or
material omission in the registration statement or is otherwise required by
law or legal process or (ii) the release of such Records is required
pursuant to a subpoena, court order or regulatory or agency request or
(iii) the information in such Records has been made generally available to
the public without violation of any confidentiality obligations hereunder.
(b) The Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish the Company with such
information regarding such seller and pertinent to the disclosure requirements
relating to the registration and the distribution of such securities as the
Company may from time to time reasonably request in writing.
(c) Each Holder of Registrable Securities agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in clause (vi) of this Section 5, such Holder will forthwith discontinue
disposition of Registrable
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Securities pursuant to the Registration Statement covering such Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by clause (vi) of this Section 5, and, if so
directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in clause (ii) of this Section 5
shall be extended by the number of days during the period from and including the
date of the giving of such notice pursuant to clause (vi) of this Section 5 to
and including the date when each seller of Registrable Securities covered by
such Registration Statement shall have received the copies of the supplemented
or amended prospectus contemplated by clause (vi) of this Section 5.
19. Indemnification.
(a) Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act pursuant to Section 3
or 4, the Company will, and it hereby does, indemnify and hold harmless, to the
extent permitted by law, the seller of any Registrable Securities covered by
such Registration Statement, each affiliate of such seller and their respective
employees, directors and officers or general and limited partners (and the
directors, officers, affiliates and controlling Persons thereof), each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act (collectively, the
"Indemnified Parties"), against any and all losses, claims, damages or
liabilities, joint or several, and reasonable expenses to which such seller, any
such director or officer or general or limited partner or affiliate or any such
underwriter or controlling Person may become subject under the Securities Act,
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof, whether commenced or threatened,
and whether or not such Indemnified Party is a party thereto) arise out of or
are based upon (a) any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement under which such
securities were registered under the Securities Act, any preliminary, final or
summary prospectus contained therein (except where errors or omissions in such
preliminary prospectus are corrected in the final prospectus and the Seller
fails to deliver such final prospectus) or any amendment or supplement thereto,
or (b) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and the Company will reimburse such Indemnified Party for any legal
or any other expenses reasonably incurred by it in connection with investigating
or defending any such loss, claim, liability, action or proceeding; provided,
that
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the Company shall not be liable to any Indemnified Party in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
Registration Statement or amendment or supplement thereto or in any such
preliminary, final or summary prospectus in reliance upon and in conformity with
written information with respect to such seller furnished to the Company by such
seller for use in the preparation thereof. The indemnity agreements contained in
this Section 6(a) shall not apply to amounts paid in settlement of claims if
such settlement is effectuated without the consent of the Company (which shall
not be unreasonably withheld). Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such seller or
any Indemnified Party and shall survive the transfer of such securities by such
seller.
(b) Indemnification by the Seller. In the event of any registration of
any securities of the Company under the Securities Act pursuant to Section 3 or
4, each seller will, and it hereby does, indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 6) the Company, each of its affiliates, employees, directors and
officers and each Person, if any, who controls the Company within the meaning of
the Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such Registration Statement, any preliminary,
final or summary prospectus contained therein, or any amendment or supplement,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information with respect to such
seller furnished to the Company by such seller for use in the preparation of
such Registration Statement, preliminary, final or summary prospectus or
amendment or supplement, or a document incorporated by reference into any of the
foregoing; provided, however, that the indemnity agreement contained in this
paragraph 6(b) shall not apply to amounts paid in settlement of any loss, claim,
damage, liability or action arising pursuant to a registration under Section 3
if such settlement is effected without the consent of the Holder (which consent
shall not be unreasonably withheld). Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any of the prospective sellers, or any of their respective affiliates,
directors, officers or controlling Persons and shall survive the transfer of
such securities by such seller.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 6, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, that the
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failure of the indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 6, except to the extent that the indemnifying party
is actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
will be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof, the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that specified
in the preceding subdivisions of this Section 6 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation or governmental authority other than the
Securities Act.
(e) Non-Exclusivity. The obligations of the parties under this Section
6 shall be in addition to any liability which any party may otherwise have to
any other party.
20. Rule 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and it
will take such further action as any Holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
Holder to sell shares of Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (ii)
any similar rule or regulation hereafter adopted by the SEC. Upon the request of
any Holder of Registrable Securities, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
21. Miscellaneous.
(a) Holdback Agreement. If any such registration
shall be in connection with an underwritten public offering, each
Holder of Registrable Securities agrees not to effect any public
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sale or distribution, including any sale pursuant to Rule 144 under the
Securities Act, of any equity securities of the Company, or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (in each case, other than as part of such underwritten public offering),
within 7 days before or 60 days (or such lesser period as the managing
underwriters may permit) after the effective date of such registration, and the
Company hereby also so agrees (other than (i) as part of such underwriting
offering, (ii) any such sale or distribution in connection with any merger or
consolidation by the Company or any subsidiary of the Company or the acquisition
by the Company or any subsidiary of the Company of capital stock or assets of
any other Person or (iii) in connection with an employee stock option or other
benefit plan, including any dividend reinvestment plan).
(b) Amendments and Waivers. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Holders of
a majority of the Registrable Securities then outstanding. Each Holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 8(c), whether or not such Registrable
Securities shall have been marked to indicate such consent.
(c) Successors, Assigns and Transferees. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement which are for
the benefit of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent Holder of any Registrable
Securities, subject to the provisions contained herein.
(d) Notices. All notices and other communications provided for
hereunder shall be in writing and shall be sent by first class mail, telecopier
or hand delivery:
(i) if to the Company, to:
The News Corporation Limited
c/o News America Publishing Incorporated
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind, Esq.
Executive Vice President
and Group General Counsel
Telecopy No.: (212) 852-7136
Confirmation No.: (212) 852-7007
With a copy to:
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Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10178
Attention: Harvey Horowitz, Esq.
Telecopy No.: (212) 697-6686
Confirmation No.: (212) 661-6500
(ii) if to MCI, to:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, DC 20006
Attention: Michael J. Rowny
Executive Vice President
Telecopy No.: (202) 887-2348
Confirmation No.: (202) 887-3051
With copies to:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, DC 20006
Attention: John R. Worthington, Esq.
Senior Vice President,
Assistant Secretary and General Counsel
Telecopy No.: (202) 887-2026
Confirmation No.: (202) 887-2015
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3909
Attention: Philip T. Ruegger III, Esq.
Telecopy No.: (212) 455-2502
Confirmation No.: (212) 455-2500
(iii) if to any other holder of Registrable Securities, to the
address of such other holder as shown in the books and records of the Company,
or to such other address as any of the above shall have designated in writing to
all of the other above.
All such notices and communications shall be deemed to have been given or made
(1) when delivered by hand, (2) five business days after being deposited in the
mail, postage prepaid, or (3) when telecopied, receipt acknowledged.
(e) Descriptive Headings. The headings in this
Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning of terms contained herein.
(f) Severability. In the event that any one or more
of the provisions, paragraphs, words, clauses, phrases or
sentences contained herein, or the application thereof in any
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circumstances, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision,
paragraph, word, clause, phrase or sentence in every other respect and of the
remaining provisions, paragraphs, words, clauses, phrases or sentences hereof
shall not be in any way impaired, it being intended that all rights, powers and
privileges of the parties hereto shall be enforceable to the fullest extent
permitted by law.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, and by different parties on separate counterparts, each of which
shall be deemed an original, but all such counterparts shall together constitute
one and the same instrument, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED THEREIN. The parties to this Agreement hereby
agree to submit to the non-exclusive jurisdiction of the courts of the City of
New York, State of New York in any action or proceeding arising out of or
relating to this Agreement.
(i) Specific Performance. The parties hereto acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. Accordingly, it is agreed that they shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of competent jurisdiction in the United States or any state thereof, in
addition to any other remedy to which they may be entitled at law or equity.
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IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first written above.
THE NEWS CORPORATION LIMITED
By: /s/ Arthur M. Siskind
Name:
Title:
MCI COMMUNICATIONS CORPORATION
By: /s/ Michael J. Rowny
Name:
Title:
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PAGE 82
The undersigned hereby agrees to perform its obligations described in
Sections 3(b) and 4(b) hereof.
NEWS AMERICA PUBLISHING INCORPORATED
By: /s/ Arthur M. Siskind
Name:
Title:
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PAGE 83
Exhibit C
SECURITYHOLDERS' AGREEMENT
SECURITYHOLDERS' AGREEMENT made this 2nd day of August, 1995 by and among
MCI COMMUNICATIONS CORPORATION, a Delaware corporation ("MCI"), and KAYAREM PTY.
LIMITED, a corporation organized under the laws of the Australian Capital
Territory ("Kayarem"), CRUDEN INVESTMENTS PTY LIMITED, a corporation organized
under the laws of Victoria, Australia ("Cruden"), and TELEGRAPH INVESTMENT CO.
PTY. LTD., a corporation organized under the laws of Queensland, Australia
("Telegraph") (each of Kayarem, Cruden and Telegraph is referred to herein as a
"Securityholder" and all of them are collectively referred to as the
"Securityholders"). Certain terms used in this Agreement are defined in Section
1(d) hereof.
W I T N E S S E T H:
WHEREAS, each of News Triangle Finance, Inc. ("News Triangle") and News T
Investments, Inc. ("News T"), the common stock of which is held indirectly by
The News Corporation Limited ("TNCL"), entered into a Preferred Stock Purchase
Agreement with MCI dated as of August 2, 1995 (the "Preferred Stock Purchase
Agreement") pursuant to which MCI purchased 8.5 shares of News T Preferred Stock
and 42.5 shares of News Triangle Preferred Stock (collectively, the "Initial
Shares") for an aggregate purchase price of US$850,000,000; and
WHEREAS, pursuant to the Preferred Stock Purchase Agreement, News T granted
to MCI an option to purchase, and MCI granted to News T the right to require MCI
to purchase, up to an additional 8.5 shares of News T Preferred Stock (the "News
T Additional Shares"); and
WHEREAS, pursuant to the Preferred Stock Purchase Agreement, News Triangle
granted to MCI an option to purchase, and MCI granted to News Triangle the right
to require MCI to purchase, up to an additional 42.5 shares of News Triangle
Preferred Stock (the "News Triangle Additional Shares"; the News Triangle
Additional Shares and the News T Additional Shares are sometimes hereinafter
referred to collectively as the "Additional Shares"); and
WHEREAS, TNCL and MCI entered into a Warrant Purchase Agreement dated as of
August 2, 1995 (the "Warrant Purchase Agreement") pursuant to which MCI
purchased, for US$150,000,000, a warrant to purchase up to 155,339,806 (subject
to adjustment) TNCL Ordinary Shares (the "Initial Warrant"); and
WHEREAS, pursuant to the Warrant Purchase Agreement, TNCL granted to MCI an
option to purchase, and MCI granted to TNCL the
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PAGE 84
right to require MCI to purchase, additional warrants to purchase up to
155,339,806 (subject to adjustment) additional TNCL Ordinary Shares (the
"Additional Warrants" and together with the Initial Warrant, the "Warrants");
and
WHEREAS, the Securityholders own certain TNCL Ordinary
Shares; and
WHEREAS, in order to induce MCI to enter into the Preferred Stock Purchase
Agreement and the Warrant Purchase Agreement, the Securityholders have agreed,
among other things, to grant to MCI certain rights with respect to voting for
the election of directors and disposition of the TNCL Ordinary Shares owned by
the Securityholders, upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Right of First Offer/Right of First Refusal. Provided that MCI or the
Permitted Transferees continue to own (i) the Initial Warrant and all of the
Initial Shares (except to the extent the Initial Warrant has been exercised
and/or the Initial Shares have been surrendered upon exercise of any Warrant),
(ii) all of the Additional Warrants and Additional Shares issued to MCI or the
Permitted Transferees (except to the extent the Additional Warrants have been
exercised and/or the Additional Shares have been surrendered upon exercise of
any Warrant) and (iii) all securities issued to MCI or such Permitted
Transferees upon exercise of the Warrants or upon the exchange or conversion of
such securities (provided, further, that MCI or the Permitted Transferees shall
be deemed for purposes of this Section 1 to continue to own the Initial Warrant,
any Additional Warrants and/or any securities issued to MCI or such Permitted
Transferees upon exercise of such Warrants or upon the exchange or conversion of
such securities, if such Warrant and/or any such securities have been
transferred pursuant to the third and second to last sentences of paragraph
13.2(d) of the Warrant Purchase Agreement), MCI shall have the following rights:
(a) If any Securityholder (the "Selling Securityholder") desires to
sell, transfer or otherwise dispose of any TNCL Ordinary Shares (whether
currently owned or hereafter acquired), other than (i) to another Securityholder
or to a member of the Murdoch Family ("Permitted Ordinary Share Transferees"),
or (ii) the transfer or other disposition by any or all of the Selling
Securityholders of up to 89,361,852 TNCL Ordinary Shares, in the aggregate for
all such Selling Securityholders (subject to adjustment for any stock splits,
combinations or similar events after the date hereof and increased by 15% of any
TNCL Ordinary Shares hereafter acquired), such Selling Securityholder shall
comply with the applicable
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provisions set forth below:
(i)(A) In the event that such Selling Securityholder proposes to
sell such shares into the public market or in a negotiated block trade in the
secondary market (a "Public Sale"), the Selling Securityholder shall give
written notice (the "Public Sale Notice") to MCI setting forth the number of
shares proposed to be so sold (the "Offered Shares") and offering to sell to MCI
the Offered Shares at their Current Market Price on the day of the sale. If MCI
desires to purchase the Offered Shares as aforesaid, MCI shall, within five days
following receipt of the Public Sale Notice (the "Acceptance Period"), deliver
written notice (the "Acceptance Notice") to the Selling Securityholder. The
Acceptance Notice shall specify the time and date of the closing of the purchase
and sale of the Offered Shares, which shall (subject to Section 1(b) below) be
not more than five days following the date of such Acceptance Notice.
(B) In the event that (i) MCI fails to deliver an Acceptance
Notice during the Acceptance Period, or (ii) the sale to MCI requires the
approval of the shareholders of TNCL ("Shareholder Approval") and such
Shareholder Approval is denied by the shareholders at a meeting duly convened by
TNCL for the purpose of obtaining such approval and the Securityholders did not
vote against the matter requiring such shareholder approval (a "Negative
Shareholder Vote"), the Selling Securityholder shall have the right, for a
period of 30 days (the "Free Public Sale Period") following the earlier to occur
of (x) expiration of the Acceptance Period or (y) a Negative Shareholder Vote,
to sell or enter into a binding agreement to sell the Offered Shares in a Public
Sale, free from any right of MCI to purchase the Offered Shares pursuant to any
provision of this Agreement. In the event that the Selling Securityholder does
not sell or enter into an agreement to sell the Offered Shares during the Free
Public Sale Period, the Selling Securityholder shall comply with the provisions
of this Section 1(a)(i) with respect to any subsequent proposed Public Sale.
(ii)(A) In the event that such Selling Securityholder proposes to
sell such shares to a third party ("Third Party") other than in a Public Sale (a
"Third Party Sale"), such Selling Securityholder shall give written notice (the
"First Offer Notice") to MCI setting forth the number of shares which such
Selling Securityholder desires to sell (the "Third Party Offered Shares") and
(1) if such Selling Securityholder has received an offer from such Third Party,
which such Securityholder is willing to accept (an "Acceptable Offer"), the
proposed sale price for the sale to such Third Party of the Third Party Offered
Shares and the other terms and conditions of such Acceptable Offer or (2) if
such Selling Securityholder has not received an Acceptable Offer, the proposed
sale price for the Third Party Offered Shares (in either case, the "First Offer
Price") and offering to sell to MCI the Third Party Offered
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PAGE 86
Shares for the First Offer Price. If MCI desires to purchase the Third Party
Offered Shares at the First Offer Price, MCI shall, within 30 days following
receipt of the First Offer Notice (the "Third Party Acceptance Period"), deliver
written notice (the "Third Party Acceptance Notice") to the Selling
Securityholder. The Third Party Acceptance Notice shall specify the time and
date of the closing of the purchase and sale of the Third Party Offered Shares,
which shall (subject to Section 1(b) below) be not more than 30 days following
the date of such Third Party Acceptance Notice.
(B) In the event that (i) MCI fails to deliver the Third Party
Acceptance Notice during the Third Party Acceptance Period, or (ii) the sale to
MCI requires Shareholder Approval and such Shareholder Approval is denied by a
Negative Shareholder Vote, the Selling Securityholder shall have the right, for
a period of 90 days (the "Free Third Party Sale Period") following the earlier
to occur of (x) the expiration of the Third Party Acceptance Period or (y) a
Negative Shareholder Vote, to sell or enter into a binding agreement to sell the
Third Party Offered Shares to any Third Party for a price greater than 105% of
the First Offer Price, free from any right of MCI to purchase the Third Party
Offered Shares pursuant to any provision of this Agreement. In the event that
the Selling Shareholder does not sell or enter into an agreement to sell the
Third Party Offered Shares to a Third Party for a price greater than 105% of the
First Offer Price during the Free Third Party Sale Period, the Selling
Securityholder shall comply with the provisions of this Section 1(a)(ii) with
respect to any subsequent proposed Third Party Sale.
(C) If at any time during the Free Third Party Sale Period the
Selling Securityholder receives, and desires to accept, a bona fide offer from a
Third Party to purchase the Third Party Offered Shares at 105% or less than the
First Offer Price (a "Third Party Offer"), the Selling Securityholder shall give
written notice of such Third Party Offer to MCI (the "First Refusal Notice").
The First Refusal Notice shall set forth the name of the prospective purchaser
and the terms and conditions of the Third Party Offer. MCI shall thereupon have
the right to purchase the Third Party Offered Shares on the terms and conditions
set forth in the First Refusal Notice. Such right shall be exercised by delivery
of a written notice (the "Exercise Notice") to the Selling Securityholder within
ten days following receipt of the First Refusal Notice (the "First Refusal
Period"). The Exercise Notice shall specify the time and date of the closing of
the purchase and sale of the Third Party Offered Shares, which shall (subject to
Section 1(b) below) be not more than ten days following the date of such
Exercise Notice.
(D) In the event that (i) an Exercise Notice has not been
delivered to the Selling Securityholder within the First Refusal Period or (ii)
the sale to MCI requires Shareholder Approval and such Shareholder Approval is
denied by a Negative
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Shareholder Vote, the Selling Securityholder shall have the right, for the
remainder of the Free Third Party Sale Period (which period shall be extended by
the number of days elapsing between the date of the First Refusal Notice and the
earlier to occur of the events described in clauses (i) and (ii) of this Section
1(a)(ii)(D)), to sell or enter into an agreement to sell the Third Party Offered
Shares to the Third Party on the terms and conditions of the Third Party Offer,
free from any right of MCI to purchase the Third Party Offered Shares pursuant
to any provision of this Agreement. The Selling Securityholders shall comply
with the provisions of this Section 1(a)(ii) with respect to all Third Party
Offers received during the Free Third Party Sale Period.
(b) Notwithstanding the time periods set forth in Sections 1(a)(i) and
(ii) relating to the consummation of any purchase and sale to MCI or to a Third
Party (including any Public Sale), if any waiting periods are imposed by any
applicable law on, or the consent of one or more third parties (including
governmental authorities) or Shareholder Approval is required as a condition to,
the consummation of such sale, the closing of such sale (in the case of a sale
to MCI) or expiration of the Free Sale Period (in the case of a sale to a Third
Party (including any Public Sale)) shall be deferred to the fifth business day
occurring after the later of (i) the expiration of the last applicable waiting
period to expire, or (ii) the date upon which all required third party consents
or Shareholder Approval has been obtained. In the event of a sale to MCI
hereunder, MCI and the Selling Securityholder shall cooperate in all reasonable
ways, including by filing appropriate notifications with, and furnishing
appropriate information to, governmental authorities, to ensure that any such
waiting periods expire on the earliest practicable date. In the event that any
proposed acquisition by MCI of TNCL Ordinary Shares pursuant to Sections 1(a)(i)
or (ii) above shall require Shareholder Approval, TNCL will cause a meeting of
the shareholders of TNCL to be held for the purpose of seeking such approval
and, to the extent permitted by law, such Securityholders agree to and shall
vote all of the shares of TNCL owned by them in favor of the proposed
acquisition by MCI. At the closing of any purchase and sale hereunder, the
Selling Securityholder shall deliver the Offered Shares or the Third Party
Offered Shares, as the case may be, to MCI against payment therefor in full in
United States currency by wire transfer of immediately available funds to such
account(s) as shall be designated by the Selling Securityholder. Any such
closing shall take place at the principal office of TNCL in New York City or
such other place as the Selling Securityholder and MCI shall mutually agree.
(c) (i) This Agreement (including the provisions binding upon TNCL and
Harris Trust) shall be conditional upon the obtaining of the shareholder
approvals and compliance with the Australian law, as such approvals and
compliance are disclosed in Schedule I annexed hereto.
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(ii) For the avoidance of doubt, the Securityholders and MCI confirm
that prior to the satisfaction of the condition in paragraph (c)(i), the
Securityholders are free to dispose of, or to exercise the voting power relating
to, any TNCL Ordinary Shares without regard to the provisions of this Agreement.
(iii) Notwithstanding the satisfaction of the condition in paragraph
(c)(i), MCI shall in no event be entitled to be offered or to acquire rights
under Section 1 or 3 in excess of those rights which MCI is then permitted to
acquire in the absence of further compliance with the provisions of the
Corporations Law of Australia or the provisions of the Foreign Acquisitions and
Takeovers Act 1975.
(iv) Paragraph (c)(iii) is intended to operate so as to cause the
number of TNCL Ordinary Shares in which MCI has rights pursuant to Section 1 or
3 to increase and decrease from time to time so that at all times the rights are
held with respect to the maximum permissible number of TNCL Ordinary Shares,
having regard to the provisions of the Corporations Law of Australia, the
provisions of the Foreign Acquisitions and Takeovers Act 1975 and other
arrangements relating to TNCL Ordinary Shares to which MCI is party from time to
time.
(d) For the purposes of this Agreement, the following terms shall have
the meanings specified with respect thereto below:
"Acceptable Offer" has the meaning specified in Section
1(a)(ii)(A).
"Acceptance Notice" has the meaning specified in Section
1(a)(i)(A).
"Acceptance Period" has the meaning specified in Section
1(a)(i)(A).
"Additional Shares" has the meaning specified in the
recitals hereto.
"Additional Warrants" has the meaning specified in the
recitals hereto.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person.
"ASX" shall mean the Australian Stock Exchange Limited.
"Beneficially Owned", or any derivative thereof, has the meaning ascribed
thereto in Rule 13d-3 under the Exchange Act.
"BT" means British Telecommunications plc.
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"Consolidated Subsidiaries" of a party hereto at any time shall mean each
of the subsidiaries of such party whose accounts are or should, in accordance
with generally accepted accounting principles on the date of this Agreement in
the country whose generally accepted accounting principles are customarily
applied to such party, be consolidated with those of such party.
"control" shall mean possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person (whether
through the ownership of securities or partnership or other ownership interests,
by contract or otherwise), and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Cruden" has the meaning specified in the preamble hereto.
"Current Market Price" shall mean the closing price of TNCL Ordinary Shares
on the trading day immediately preceding the date in question. The closing price
for any day shall be the last reported sales price regular way or, in case no
such reported sale takes place on such day, the closing bid price regular way,
in either case on the principal United States national securities exchange
(including, for purposes hereof, the NASDAQ/NM) on which TNCL Ordinary Shares
are listed or admitted to trading or, if TNCL Ordinary Shares are not listed or
admitted to trading on any United States national securities exchange or
NASDAQ/NM, the last reported sales price on the ASX, and if the TNCL Ordinary
Shares are not listed or admitted to trading on the ASX, the fair value of such
security on the date in question, as determined in good faith by the Board of
Directors of TNCL and reasonably acceptable to MCI. In determining any Current
Market Price, appropriate provisions will be made for currency translations and
adjustments to reflect trading in American Depositary Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Exercise Notice" has the meaning specified in Section
1(a)(ii)(C).
"First Offer Notice" has the meaning specified in Section
1(a)(ii)(A).
"First Offer Price" has the meaning specified in Section
1(a)(ii)(A).
"First Refusal Notice" has the meaning specified in Section
1(a)(ii) (C).
"First Refusal Period" has the meaning specified in Section
1(a)(ii)(C).
"Free Public Sale Period" has the meaning specified in
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Section 1(a)(i)(B).
"Free Sale Period" shall mean the Free Public Sale Period or
Free Third Party Sale Period, as applicable.
"Free Third Party Sale Period" has the meaning specified in
Section 1(a)(ii)(B).
"Initial Shares" has the meaning specified in the recitals
hereto.
"Initial Warrant" has the meaning specified in the recitals
hereto.
"Investor Parties" means the Investors and their respective
controlled Affiliates.
"Joint Venture" means the Venture (as such term is defined in the Joint
Venture Agreement).
"Joint Venture Agreement" means the Partnership Agreement to be entered
into upon the closing of the Joint Venture Formation Agreement.
"Joint Venture Formation Agreement" means the Joint Venture
Formation Agreement between MCI and TNCL.
"Kayarem" has the meaning specified in the preamble hereto.
"Material Adverse Effect" shall mean in respect of any party an effect on
the business, financial condition or results of operations of such party or its
Consolidated Subsidiaries, which is (i) material and adverse to such Person and
its Consolidated Subsidiaries, taken as a whole or (ii) adverse to the ability
of such person to perform its obligations hereunder.
"Major Studio" means any of Paramount Pictures Corporation, The Walt Disney
Company, Universal City Studios Inc., Metro Goldwyn-Mayer Inc., Sony Pictures
Entertainment, Inc. (including Columbia Pictures and Tri-Star Pictures), Turner
Pictures (including Castle Rock and New Line) or Warner Bros, Inc. or any
company which is the legal successor thereof or which becomes the owner of all
or substantially all of the motion picture production/distribution business
thereof, or any Motion Picture Association of America, Inc. ("MPAA") member (but
excluding any entity that becomes an MPAA member subsequent to the date hereof
which would not have qualified as an MPAA member under criteria existing as of
the date hereof) and/or a motion picture producer/distributor which theatrically
releases in the United States substantially the same number of films with
substantially the same size budgets as the average during the preceding year of
all entities that are MPAA members, together with such respective successor
entities to such Persons.
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"MCI" has the meaning specified in the preamble hereto.
"MCI Competitor" shall mean (i) AT&T, Sprint, Worldcom, Ameritech, Bell
Canada, Bell Atlantic, Bell South, Nynex, Pactel, SBC, US West and GTE; (ii) any
entity (other than those referred to in clause (i) above) with consolidated
annual revenues in excess of $400 million, 75% or more of which are derived from
telecommunications services regulated in the United States as common carriage
services or their equivalents provided in North, Central and/or South America;
(iii) any entity controlled by a party referred to in clause (i) or (ii) above;
and (iv) any successor or assign of a party referred to in clause (i), (ii) or
(iii) above.
"Murdoch Family" shall mean K. Rupert Murdoch, his wife, mother, children
or sisters or children of sisters or grandchildren, grand nieces and grand
nephews or any trust or any other entity directly or indirectly owned and
controlled by one or more of the Persons hereinabove listed; provided, however,
that any such trust or entity will be deemed to be owned by one or more of the
Persons hereinabove listed so long as either: (A) the beneficial interest in the
TNCL Ordinary Shares held by such trust or entity or the beneficial interest in
the trust or in the shares or other proprietary interest in the entity are held
by Persons which, on the date hereof, would be entitled to hold or be granted a
beneficial interest in the TNCL Ordinary Shares or in the trust or the shares or
other proprietary interest in the entity; or (B) the holders of the beneficial
interest in such trust or shares or other proprietary interest in such entity
are the Persons hereinabove listed or Cruden, Cruden Holdings Pty Limited
("Cruden Holdings"), Kayarem or any Subsidiaries of any of them or, for purposes
of Section 12 hereof only, in the case of Queensland Press Limited (or any
Subsidiary thereof) are owned to the extent of not more than 40% by Persons (but
not more than 5% by any single Person excluding an institutional investor) other
than TNCL, Cruden, Cruden Holdings, Kayarem or any Subsidiaries of any of them
or the Persons hereinabove listed. For purposes of this definition, a
"beneficial interest" means a direct or indirect equity interest and includes an
interest as a beneficiary under any trust. A trust or other entity will be
deemed to be controlled for purposes of the first sentence of this definition if
the majority of the trustees or members of the Board of Directors or other
governing body, as the case may be, are Persons hereinabove listed (other than
any Persons included by reason of the proviso at the end of the first sentence
of this definition) or can be removed or replaced by any one or more of such
Persons, any entity controlled by such Persons, any personal representatives of
such Persons or any combination of the foregoing. For the purposes of this
Agreement, any of the sisters, nieces and nephews of K. Rupert Murdoch and the
children of any such sisters, nieces or nephews who currently own shares of
preferred stock of Cruden Holdings shall cease to be considered members of the
Murdoch Family upon the redemption of all of such shares of preferred stock
owned by such Persons.
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"NASDAQ/NM" shall mean the NASDAQ National Market System.
"Negative Shareholder Vote" has the meaning specified in
Section 1(a)(i)(B).
"News T" has the meaning specified in the recitals hereto.
"News T Additional Shares" has the meaning specified in the
recitals hereto.
"News T Preferred Stock" shall mean the Cumulative Convertible Preferred
Stock, without the par value, of News T.
"News Triangle" has the meaning specified in the recitals
hereto.
"News Triangle Additional Shares" has the meaning specified
in the recitals hereto.
"News Triangle Preferred Stock" shall mean the Cumulative
Convertible Preferred Stock, without par value, of News Triangle.
"Offered Shares" has the meaning specified in Section
1(a)(i)(A).
"Ordinary Share ADS" or "Ordinary Share ADSs" shall mean
American Depositary Shares representing TNCL Ordinary Shares.
"Permitted Ordinary Share Transferees" has the meaning
specified in Section 1(a).
"Permitted Transferee" means, subject to paragraph 13.2 of the Warrant
Purchase Agreement or paragraph 9.2 of the Preferred Stock Purchase Agreement,
as the case may be, (i) any Subsidiary of MCI, (ii) BT, (iii) any wholly-owned
Subsidiary of BT, or (iv) any other Subsidiary of BT, so long as BT, MCI and/or
any of BT's or MCI's wholly-owned Subsidiaries are the only Persons owning, or
controlling the voting of, any voting stock or other ownership interests of such
Subsidiary and (v) with respect to any transfer by any other Permitted
Transferee, in addition to any Permitted Transferee referred to in clause (i),
(ii), (iii) or (iv) above, MCI.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, business trust, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"Preferred Limited Shares" the TNCL Preferred Limited Voting
Ordinary Shares of Australian $.50 each and/or the Preferred
Share ADSs, as the context requires.
"Preferred Share ADS" or "Preferred Share ADSs" shall mean
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American Depositary Shares representing Preferred Limited Shares.
"Preferred Stock Purchase Agreement" has the meaning
specified in the recitals hereto.
"Public Sale" has the meaning specified in Section
1(a)(i)(A).
"Public Sale Notice" has the meaning specified in Section
1(a)(i)(A).
"Restricted Alliance" shall mean if TNCL or any of its Subsidiaries shall,
without the consent of MCI, take any of the following actions: (i) enter into
(directly or indirectly, through Affiliates or otherwise) any arrangement
providing for joint marketing or promotion with any MCI Competitor or permitting
its controlled content to be used for any activities that would promote
(directly or indirectly) the products or services of any MCI Competitor, without
giving Purchaser a first preference to enter into the arrangement; (ii) enter
into a co-branding arrangement with an MCI Competitor (i.e., the connected use
of TNCL's trade names, trademarks or service marks (e.g., "News Corp" or "Fox")
together with a trade name, trademark or service mark of an MCI Competitor); (3)
enter into (directly or indirectly, through Affiliates or otherwise) any
strategic joint venture arrangement, alliance or similar arrangement (including
any exclusive arrangement, or any agreement entered into outside the ordinary
course) with an MCI Competitor similar to or having the purposes of or providing
any of the services referred to in the Joint Venture Agreement or otherwise
provided by the Joint Venture from time to time; or (4) issue any Voting
Security to any MCI Competitor in any privately-negotiated transaction.
"SEC" means the United States Securities and Exchange
Commission.
"Securityholder" or "Securityholders" has the meaning
specified in the preamble hereto.
"Selling Securityholder" has the meaning specified in
Section
1(a).
"Shareholder Approval" has the meaning specified in Section
1(a)(i)(B).
"Subsidiary" means, (i) with respect to any Person, any entity of which
such Person owns or controls the voting of, directly or indirectly through one
or more intermediaries, more than 50% of the voting stock or other ownership
interests representing more than 50% of the ordinary voting power, or with
respect to which such Person has the power to elect a majority of the members of
the Board of Directors or other governing body, of
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such entity at the time of determination and (ii) with respect to TNCL, in
addition to any entities described in clause (i) above, Twentieth Holdings
Corporation and its Subsidiaries, so long as (x) TNCL or its Subsidiaries own
all of the outstanding common stock of Twentieth Holdings Corporation, (y) TNCL
or its Subsidiaries maintain a call on all of the outstanding preferred stock of
Twentieth Holdings Corporation and (z) prior to a Triggering Event, a majority
of the outstanding preferred stock of Twentieth Holdings Corporation is held by
a member of the Murdoch Family or a nominee thereof.
"Third Party" has the meaning specified in Section
1(a)(ii)(A).
"Third Party Acceptance Notice" has the meaning specified in
Section 1(a)(ii)(A).
"Third Party Acceptance Period" has the meaning specified in
Section 1(a)(ii)(A).
"Third Party Offer" has the meaning specified in Section
1(a)(ii)(C).
"Third Party Offered Shares" has the meaning specified in
Section 1(a)(ii)(A).
"Third Party Sale" has the meaning specified in Section
1(a)(ii)(A).
"TNCL" has the meaning specified in the recitals hereto.
"TNCL Competitor" means (i) any Person that is, or directly or indirectly
owns or controls, any (A) Major Studio; (B) broadcast or cable television
network business (including, without limitation, United Paramount Network and
Warner Brothers Network) in the United States; (C) cable television business in
the United States that has at least 10,000,000 subscribers; or (D) direct
broadcast satellite business in the United States; and (ii) Bertelsmann A.G.
"TNCL Ordinary Shares" means TNCL's Ordinary Shares of Australian $.50
each, the Ordinary Share ADSs and/or, with respect to the Ordinary Shares
issuable upon exercise of the Warrants, any new class of redeemable ordinary
shares issuable upon such exercise, as the context requires.
"Triggering Event" shall mean the occurrence of any of the following: (i)
members of the Murdoch Family propose to sell shares which would result in a
change of control of TNCL; (ii) any slate of directors of TNCL opposed by the
Murdoch Family is elected; (iii) any party or group of related parties owns or
controls TNCL Ordinary Shares in an amount greater than the total number of TNCL
Ordinary Shares held by the Murdoch Family; (iv) any party or group of related
parties: (A) has commenced an
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PAGE 95
offer to acquire all of the shareholdings in TNCL and the Murdoch Family intends
to tender its shares of TNCL in connection with such offer or (B) other than
members of the Murdoch Family, directly or indirectly, by contract or otherwise,
has the ability to elect a majority of the directors of TNCL; or (v) the
consummation by TNCL of, or the binding agreement of TNCL to enter into, a
Restricted Alliance.
"Voting Securities" shall mean (i) TNCL Ordinary Shares, (ii) other
securities of TNCL, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of TNCL's directors or (iii)
securities or other interests convertible into, or exercisable or exchangeable
for, the securities described in clauses (i) and (ii) hereof.
"Warrant Purchase Agreement" has the meaning specified in
the recitals hereto.
"Warrants" has the meaning specified in the recitals hereto.
2. Deemed Share Ownership of Telegraph Investment Co. Pty.
Ltd. For purposes of calculating the number of Offered Shares
when Telegraph is the Selling Securityholder, only that
percentage of the TNCL Ordinary Shares of which Telegraph is the
record owner which is equal to the percentage ownership directly
or indirectly by Cruden of Queensland Press Limited will be
deemed to be included in the Offered Shares.
3. Board of Directors. Subject to the provisions of paragraph 1(c) hereof,
and provided that MCI has a right to designate a person to stand for election to
the Board of Directors of TNCL under Section 6.4 of the Initial Warrant, each
Securityholder shall vote the TNCL Ordinary Shares owned by such Securityholder
in favor of the election of each person properly designated by MCI pursuant to
such right.
4. Representations. Each Securityholder hereby
represents and warrants to, and covenants with, MCI that (A) as
of the date hereof, (i) it is the lawful record or beneficial
owner of the number of TNCL Ordinary Shares set forth opposite
its name on Exhibit A hereto and has sole voting and dispositive
power over such shares; and (ii) not less than 98% of the TNCL
Ordinary Shares held beneficially or of record by K. Rupert
Murdoch, his wife and children are held beneficially or of record
by the Securityholders and (B) it will cooperate with and use its
best efforts to assist MCI in obtaining approval of the
Australian Treasurer pursuant to the Foreign Acquisitions and
Takeovers Act 1975 with respect to (i) the exercise of the rights
contained in Section 1 hereof and (ii) the acquisition of up to
20% of the Voting Securities; provided, however, that MCI
specifically acknowledges the possibility that, despite the best
efforts of the Securityholders, such approvals may not be
obtained and that such failure will not give rise to any
liability on the part of TNCL or the Securityholders. Cruden
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PAGE 96
Investments Pty Limited hereby represents and warrants to MCI that, as of the
date hereof, it, together with its wholly-owned Subsidiaries, is the lawful
record owner of 58% of the outstanding equity of Queensland Press Limited. Each
Securityholder further represents and warrants to MCI that the execution and
delivery of this Agreement and the performance of such party's obligations
hereunder: (i) are within the powers and authority of such party; and (ii) have
been duly authorized by all requisite proceedings on the part of such party.
Each Securityholder further represents and warrants to MCI that neither the
execution, delivery or performance of this Agreement, nor compliance with the
terms and provisions hereof, will (i) conflict with the constitutive documents
of such party, or (ii) conflict with or result in a breach of or constitute a
default under, or result in the creation of a lien, charge or encumbrance upon
or security interest in (in each case, with or without the giving of notice,
lapse of time or both) any of the properties or assets of such party, pursuant
to the terms of any indenture, mortgage, agreement, instrument, order, judgment,
decree, statute, law, rule or regulation to which such party is a party, or to
which it or any of its properties is or are subject, except any of the foregoing
which could not reasonably be expected to have a Material Adverse Effect on such
party.
5. [INTENTIONALLY OMITTED]
6. Notices. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereby be designated in
writing by such party to the other parties:
(a) if to MCI, to:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: Michael J. Rowny
Executive Vice President
Telecopier: (202) 887-2348
Confirmation: (202) 887-3051
With copies to:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: John R. Worthington, Esq.
Senior Vice President and
General Counsel
Telecopier: (202) 887-2026
Confirmation: (202) 887-2015
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PAGE 97
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Philip T. Ruegger III, Esq.
Telecopier: (212) 455-2502
Confirmation: (212) 455-2500
(b) if to Kayarem Pty. Limited, to:
Kayarem Pty. Limited
Level 6
Skygarden
77 Castlereagh Street
Sydney N.S.W. 2000
Attention: Mr. Brian D. Fraser
Telecopier: (02) 489-1745
Confirmation: (02) 487-2668
(c) if to Cruden Investments Pty Limited, to:
Cruden Investments Pty Limited
2nd Floor, 116 Queen Street
GPO Box 4377QQ
Melbourne Victoria 3001
Attention: Clive Little
Telecopier: (03) 9650 9916
Confirmation: (03) 9650 9199
(d) if to Telegraph Investment Co. Pty. Ltd., to:
Telegraph Investment Co. Pty. Ltd.
41 Campbell Street
Bowen Hills 5006
GPO Box 130, Brisbane, 4001
Attention: Arthur W. Kirk
Telecopier: (07) 252-6697
Confirmation: (07) 252-6503
(e) if to any Securityholder, with a copy to:
The News Corporation Limited
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind, Esq.
Executive Vice President and
Group General Counsel
Fax: (212) 768-2029
Confirmation: (212) 852-7007
and
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
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PAGE 98
551 Fifth Avenue
New York, New York 10176
Attention: Harvey Horowitz, Esq.
Fax: (212) 697-6686
Confirmation: (212) 661-6500
7. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof shall be
deemed to be an original, but all such counterparts together
shall constitute one and the same agreement.
8. Headings. The headings of the sections of this
Agreement have been inserted for convenience of reference only
and shall not be deemed to be part of this Agreement.
9. Nouns and Pronouns. Whenever the context may require
any pronouns used herein shall include the corresponding
masculine, feminine or neuter forms, and the singular form of
names and pronouns shall include the plural and vice-versa.
10. Governing Law. The validity, interpretation and performance of this
Agreement (including the provisions binding upon TNCL and Harris Trust) shall be
governed by the laws of the State of New York as applied to contracts made and
performed within the State of New York without regard to the principles of
conflicts of law except to the extent that Australian law applies by virtue of
the fact that any party hereto is organized or any securities are issued under
Australian law. Each party hereto hereby irrevocably submits to the jurisdiction
of any New York state court sitting in the borough of Manhattan or any federal
court sitting in the borough of Manhattan in respect of any suit, action or
proceeding arising out of or relating to this Agreement and the transactions
pursuant hereto and in connection herewith, and irrevocably agrees that all
claims in respect of any such suit, action or proceeding may be heard and
determined in any such court. Each such party irrevocably waives any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in any such court and any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.
11. Assignment. Any Permitted Ordinary Share Transferee that is not a party
to this Agreement shall agree in writing to be bound by all of the terms and
provisions hereof which are applicable to the transferor of the TNCL Ordinary
Shares transferred to such Permitted Ordinary Share Transferee, in respect of
such Shares. Except as provided herein, neither this Agreement, nor any right
hereunder, shall be assigned by any party without the express prior written
consent of the other parties hereto.
12. Further Agreement. Each Securityholder agrees that it
shall not take any action or do anything indirectly (including by
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PAGE 99
transferring shares or other ownership interests of entities which are the
record owners of TNCL Ordinary Shares indirectly owned by any Securityholder)
which it could not take or do hereunder directly, other than in compliance with
the terms hereby applicable to such action or thing done on a direct basis.
13. Notice of Intent to Tender. In the event that any party or group of
related parties has commenced an offer to acquire all of the shareholdings of
TNCL and the Murdoch Family intends to tender its shares of TNCL in connection
with such offer, the Securityholders shall notify MCI of such intention at least
10 business days in advance of the expiration of such offer.
14. Termination. This Agreement shall terminate if, and
at such time as, any TNCL Competitor (or any group of Persons
that includes a TNCL Competitor, acting in concert) acquires the
power to control MCI.
15. Severability. In the event any provision hereof is, for any reason,
held to be invalid, illegal or otherwise unenforceable in any respect, such
provision shall not affect any other provision of this Agreement and this
Agreement shall be construed as if such provision had never been contained
herein. The parties hereto shall endeavor in good faith negotiations to replace
such a provision with a valid provision the economic effect of which comes as
close as possible to that of the invalid, illegal or otherwise unenforceable
provision.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
MCI COMMUNICATIONS CORPORATION
By:___________________________
Name:
Title:
KAYAREM PTY. LIMITED
By:____________________________
Name:
Title:
CRUDEN INVESTMENTS PTY LIMITED
By:____________________________
Name:
Title:
TELEGRAPH INVESTMENT CO. PTY. LTD.
By:______________________________
Name:
Title:
<PAGE>
PAGE 101
The undersigned agrees that it shall: (i) cause a meeting of its
shareholders to be held in accordance with the provisions of Section 1(b) of the
attached Securityholders' Agreement and in accordance with Section 623 of the
Corporations Law; and (ii) (subject to the requirements of TNCL's Articles of
Association, the Corporations Law, and the ASX Listing Rules, not make and
reflect, and not permit any transfer agent with respect to the TNCL Ordinary
Shares to make and reflect, any transfer of any TNCL Ordinary Shares on the
stock transfer records of the undersigned that would breach the terms of the
attached Securityholders' Agreement.
Dated: ______________, 1995
THE NEWS CORPORATION LIMITED
By:___________________________
Name:
Title:
<PAGE>
PAGE 102
The undersigned (i) agrees to cause the Securityholders to comply with the
terms of the attached Securityholders' Agreement; (ii) agrees that it shall take
no action or do anything indirectly which it could not take or do directly
without breaching clause (i) above; (iii) represents and warrants to MCI that
(A) the representations of each of the Securityholders contained in Section 4 of
the attached Securityholders' Agreement were true and correct when made; (B) the
execution and delivery of this attachment to such Securityholders' Agreement and
the performance of its obligations hereunder: (1) are within its powers and
authority; and (2) have been duly authorized by all requisite proceedings on its
part; and (C) neither the execution, delivery or performance of this attachment
to such Securityholder's Agreement, nor compliance with the terms and provisions
hereof, will (1) conflict with its constitutive documents, or (2) conflict with
or result in a breach of or constitute a default under, or result in the
creation of a lien, charge or encumbrance upon or security interest in (in each
case, with or without the giving of notice, lapse of time of both) any of its
properties or assets, pursuant to the terms of any indenture, mortgage,
agreement, instrument, order, judgment, decree, statute, law, rule or regulation
to which it is a party, or to which it or any of its properties is or are
subject, except any of the foregoing which could not reasonably be expected to
have a Material Adverse Effect on it.
Dated: ______________, 1995
HARRIS TRUST
By: SAFEGUARD NOMINEES PTY.
LIMITED
By:______________________________
Name:
Title:
SECURE NOMINEES PTY. LIMITED
By:______________________________
Name:
Title:
<PAGE>
PAGE 103
EXHIBIT A
SHARE OWNERSHIP
Securityholder Number of Shares
Kayarem Pty. Limited 16,920,423
Cruden Investments Pty Limited 291,088,743
Telegraph Investment Co. Pty. Ltd. 287,736,511
<PAGE>
PAGE 104
Schedule I
Australian Legal and Regulatory Issues
(a) Approval of the Australian Treasurer (the "Treasurer")
pursuant to the Foreign Acquisitions and Takeovers Act 1975
(the "FATA") is required and will be sought with respect to
MCI's (i) taking (but not exercise) of its right (the
"ROFO") under Section 1 of this Agreement to purchase
Offered Shares, (ii) taking and exercise of its right (the
"Voting Arrangement") under Section 3 of this Agreement to
cause each Securityholder to vote the Ordinary Shares owned
by such Securityholder in favor of the election of each
person properly designated by MCI, (iii) taking of the
Additional Warrants, (iv) exercise of the Warrants and (v)
taking and exercise of the Preemptive Right (as defined in
the Warrant Purchase Agreement).
(b) Pursuant to listing Rule 3E(6) ("Rule 3E(6)") of the Australian Stock
Exchange Limited Listing Rules, to the extent provided therein, the
approval of the shareholders of TNCL is required prior to the grant,
whether by way of the Warrant Purchase Option or the Warrant Put Right (as
such terms are defined in the Warrant Purchase Agreement), of the
Additional Warrants.
(c) Section 615 of the Corporations Law of South Australia (the
"Corporations Law") limits MCI's (i) exercise of the
Warrants, (ii) taking and exercise of the Preemptive Right,
(iii) taking and exercise of the ROFO and (iv) taking and
exercise of the Voting Arrangement, to the extent that any
acquisition (as defined in the Corporations Law) of voting
shares (as defined in the Corporations Law) ("Voting
Shares") resulting from any such taking or exercise causes
it or any other Person to become entitled (as defined in the
Corporations Law) ("Entitled") to more than 20% of the
Voting Shares in TNCL, or if such Person is already Entitled
to not less than 20% of the Voting Shares in TNCL, causes
such Person to become Entitled to a greater percentage of
Voting Shares in TNCL, unless permitted pursuant to Sections
616 through 633 of the Corporations Law (as modified by the
Australian Securities Commission pursuant to the
Corporations Law).
(d) Section 623 and/or other provisions of the Corporations Law must be
modified and/or the subject of exemption in order to establish that
shareholder approval will achieve the results contemplated by paragraph (e)
below. TNCL will make an application to the Australian Securities
Commission for such appropriate modification and exemption of Section 623
of the Corporations Law.
(e) The approval of the shareholders of TNCL is required with
<PAGE>
PAGE 105
respect to the grant of the Additional Warrants pursuant to Rule 3E(6) and
with respect to the matters set forth in items (i) through (iv) of
paragraph (c) above pursuant to Section 623 of the Corporations Law. TNCL
will submit resolutions for such approval at the Annual General Meeting of
Shareholders of TNCL to be held in October, 1995. Shareholder approval to
be sought with respect to the exercise of the Warrants, the taking and
exercise of the Preemptive Right, the taking of the ROFO and the taking and
exercise of the Voting Arrangement shall be on terms which permit each such
exercise or taking and exercise to have full effect, subject only in the
case of the ROFO and the Warrants, to the requirement that MCI take such
further action as may be required pursuant to the Corporations Law if the
exercise of the ROFO or the Warrants pursuant to an acquisition (as defined
in the Corporations Law) would result in MCI becoming Entitled to more than
20% of the Voting Shares of TNCL or if such Person is already Entitled to
not less than 20% of the Voting Shares of TNCL cause such Person to become
Entitled to a greater percentage of the Voting Shares of TNCL (assuming in
each case that any Entitlement arising by reason of the proposal to enter
into, the entry into, or the existence of, (i) the Warrant Put Agreement
and Share Put Agreement among MCI, TNCL and others, (ii) this Agreement,
(iii) the Warrant Purchase Agreement, (iv) the Voting Agreement among MCI
and others, or (v) the Shareholders' Agreement among the MCI, TNCL and
others, did not exist).
(f) Notification under and compliance with section 25 of the
FATA is not compulsory, but (in the absence of such
notification and compliance) could give rise to and permit
action by the Treasurer against MCI and/or Permitted
Transferees, including the possible prohibition of the
acquisition of rights and/or securities and/or divestiture
action. The power to take such action shall not arise with
respect to the matters approved in accordance with paragraph
(a) above. In addition, application for foreign investment
approval may be required in respect of the taking and/or
exercise of the Warrants, the ROFO, the Voting Arrangement
and/or the Preemptive Right under the non-legally binding
Foreign Investment Guidelines of the Australian Government.
Those requirements will be satisfied with respect to the
matters approved in accordance with paragraph (a) above.
Schedule 4.1
Australian Legal and Regulatory Issues
(a) Approval of the Australian Treasurer (the "Treasurer") pursuant to the
Foreign Acquisitions and Takeovers Act 1975 (the "FATA") is required and
will be sought with respect to
<PAGE>
PAGE 106
Purchaser's (i) taking (but not exercise) of its right (the "ROFO") under
Section 1 of the Securityholders' Agreement to purchase Offered Shares (as
defined in the Securityholders' Agreement), (ii) taking and exercise of its
right (the "Voting Arrangement") under Section 3 of the Securityholders'
Agreement to cause each Securityholder to vote the Ordinary Shares owned by
such Securityholder in favor of the election of each person properly
designated by Purchaser, (iii) taking of the Additional Warrants, (iv)
exercise of the Warrants and (v) taking and exercise of the Preemptive
Right.
(b) Pursuant to listing Rule 3E(6) ("Rule 3E(6)") of the Australian Stock
Exchange Limited Listing Rules, to the extent provided therein, the
approval of the shareholders of the Company is required prior to the grant,
whether by way of the Warrant Purchase Option or the Warrant Put
Right, of the Additional Warrants.
(c) Section 615 of the Corporations Law of South Australia (the
"Corporations Law") limits Purchaser's (i) exercise of the
Warrants, (ii) taking and exercise of the Preemptive Right,
(iii) taking and exercise of the ROFO and (iv) taking and
exercise of the Voting Arrangement, to the extent that any
acquisition (as defined in the Corporations Law) of voting
shares (as defined in the Corporations Law) ("Voting
Shares") resulting from any such taking or exercise causes
it or any other Person to become entitled (as defined in
the Corporations Law) ("Entitled") to more than 20% of the
Voting Shares in the Company, or if such Person is already
Entitled to not less than 20% of the Voting Shares in the
Company, causes such Person to become Entitled to a greater
percentage of Voting Shares in the Company, unless
permitted pursuant to Sections 616 through 633 of the
Corporations Law (as modified by the Australian Securities
Commission pursuant to the Corporations Law).
(d) Section 623 and/or other provisions of the Corporations Law must be
modified and/or the subject of exemption in order to establish that
shareholder approval will achieve the results contemplated by paragraph (e)
below. The Company will make an application to the Australian Securities
Commission for such appropriate modifications and exemptions.
(e) The approval of the shareholders of the Company is required
with respect to the grant of the Additional Warrants
pursuant to Rule 3E(6) and with respect to the matters set
forth in items (i) through (iv) of paragraph (c) above
pursuant to Section 623 of the Corporations Law. The
Company will submit resolutions for such approval at the
Annual General Meeting of Shareholders of the Company to be
held in October, 1995. Shareholder approval to be sought
with respect to the exercise of the Warrants, the taking
<PAGE>
PAGE 107
and exercise of the Preemptive Right, the taking of the ROFO and the taking
and exercise of the Voting Arrangement shall be on terms which permit each
such exercise or taking and exercise to have full effect, subject only in
the case of the ROFO and the Warrants, to the requirement that Purchaser
take such further action as may be required pursuant to the Corporations
Law if the exercise of the ROFO or the Warrants pursuant to an acquisition
(as defined in the Corporation Law) would result in Purchaser or any other
Person becoming Entitled to more than 20% of the Voting Shares of the
Company or if such Person is already Entitled to not less than 20% of the
Voting Shares of the Company, cause such Person to become Entitled to a
greater percentage of Voting Shares of the Company (assuming in each case
that any Entitlement arising by reason of the proposal to enter into, the
entry into, or the existence of, (i) the Warrant Put Agreement and Share
Put Agreement among the Purchaser, the Company and others, (ii) the
Securityholders' Agreement, (iii) the Warrant Purchase Agreement, (iv) the
Voting Agreement among the Purchaser and others, or (v) the Shareholders'
Agreement among the Purchaser, the Company and others, did not exist).
(f) Notification under and compliance with section 25 of the
FATA is not compulsory, but (in the absence of such
notification and compliance) could give rise to and permit
action by the Treasurer against Purchaser and/or Permitted
Transferees, including the possible prohibition of the
acquisition of rights and/or securities and/or divestiture
action. The power to take such action shall not arise with
respect to the matters approved in accordance with
paragraph (a) above. In addition, application for foreign
investment approval may be required in respect of the
taking and/or exercise of the Warrants, the ROFO, the
Voting Arrangement and/or the Preemptive Right under the
non-legally binding Foreign Investment Guidelines of the
Australian Government. Those requirements will be
satisfied with respect to the matters approved in
accordance with paragraph (a) above.
<PAGE>
PAGE 108
Schedule 4.9
Outstanding Shares as of August 1, 1995
Ordinary Shares 1,930,903,332
Preferred Limited Voting Ordinary shares 968,142,958
Shares assumed to be outstanding
Remaining Zeros, unconverted 6,042,452
Preferred share entitlement
on unconverted Zeros 3,021,226
LYONS 85,356,000
Preferred share entitlement on LYONS 42,678,000
Executive share Option Scheme
Ordinary shares 10,753,019
Executive share Option Scheme Limited
Voting shares 5,176,510
Special Dividend Shares 123,157,492
Preferred share entitlement on special
dividend shares 61,728,746
Converting Preference Shares 25,000,000
Preferred share entitlement on Converting
Preference Shares 12,500,000
Less TNCL Shares owned by QPL (179,205,598)
--------------
Total: 3,095,254,137
<PAGE>
PAGE 109
Schedule 8.2
Redeemable Ordinary Shares
Subject to approval and/or modification by the Australian Stock Exchange
Limited and approval by the shareholders of the Company, the Redeemable Ordinary
Shares will contain the following terms and conditions:
(a) The voting, capital and dividend rights of the
Redeemable Ordinary Shares will be identical to those of the
Ordinary Shares;
(b) The Redeemable Ordinary Shares must be redeemed prior to any transfer
thereof (other than to Permitted Transferees) if such transfer occurs prior to a
Triggering Event, but are not redeemable under any other circumstances;
provided, however, that the proceeds of any such redemption must be immediately
applied to the acquisition of Preferred Limited Shares (and the number of shares
of Preferred Limited Shares to be acquired with such proceeds will be determined
in the same manner as set forth in paragraph 8.2(e) of this Agreement);
(c) The Redeemable Ordinary Shares will be "preference shares" in that they
will be entitled to a priority payment in liquidation of A$1.00 for each million
shares of Redeemable Ordinary Shares (i.e., A$156 with respect to all Warrant
Shares issuable pursuant to the Initial Warrant); and
(d) Upon the occurrence of a Triggering Event, the Redeemable Ordinary
Shares will cease to be redeemable or have preference rights and will become
additional Ordinary Shares.
<PAGE>
PAGE 1
Exhibit 10(q)
PREFERRED STOCK PURCHASE AGREEMENT
by and among
MCI COMMUNICATIONS CORPORATION,
NEWS TRIANGLE FINANCE, INC.
and
NEWS T INVESTMENTS, INC.
Dated as of August 2, 1995
<PAGE>
PAGE 2
Exhibits and Schedules
Exhibit A - Certificate of Designation
Exhibit B - Opinion of Squadron, Ellenoff, Plesent &
Sheinfeld, LLP
Exhibit C - Opinion of Simpson Thacher & Bartlett
Schedule 4.8 - Capitalization
<PAGE>
PAGE 1
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT, dated as of the 2nd day of August, 1995
by and among MCI Communications Corporation, a Delaware corporation
("Purchaser"), News Triangle Finance, Inc., a Delaware corporation ("News
Triangle"), and News T Investments, Inc., a Delaware corporation ("News T")
(News Triangle and News T are each referred to singly herein as an "Issuer" and
collectively as the "Issuers").
W I T N E S E T H:
WHEREAS, Purchaser desires to purchase, and each of the Issuers desires to
issue and sell to Purchaser, securities of such Issuer on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in reliance upon the representations and warranties contained
herein, the parties hereto do hereby agree as follows:
1. Authorization of Issue of Shares. News Triangle and News T have
authorized the issue and sale to Purchaser or its Permitted Transferees of 42.5
and 8.5 shares of preferred stock, respectively, such shares to be constituted,
with respect to each Issuer, as a new series of preferred stock, without par
value, and being designated as the "Cumulative Convertible Preferred Stock" of
such Issuer (such shares, whether issued by News Triangle and/or News T are
referred to herein as the "Shares"). The relative powers, preferences and rights
and qualifications, limitations and restrictions with respect to each new series
of preferred stock shall be set forth in a certificate of designation in the
form attached hereto as Exhibit A (each such instrument being referred to herein
as a "Certificate of Designation" and, together as the "Certificates of
Designation").
Certain capitalized terms used in this Agreement are defined in paragraph
10 hereof; references to a paragraph, section or subsection are, unless
otherwise specified, to one of the paragraphs, sections or subsections of this
Agreement and references to an "Exhibit" or a "Schedule" are, unless otherwise
specified, to one of the exhibits or schedules attached to this Agreement.
2. Sale and Purchase of Shares. Subject to the terms and conditions herein
set forth, at the closing of the sale and purchase of the Shares described below
(the "Initial Closing"), (i) News Triangle will issue and sell to Purchaser, and
Purchaser will purchase from News Triangle, 42.5 Shares (the "News Triangle
Initial Shares"), at a purchase price equal to US$425,000,000; and (ii) News T
will issue and sell to Purchaser, and Purchaser
<PAGE>
PAGE 2
will purchase from News T, 8.5 Shares (the "News T Initial Shares"; the News
Triangle Initial Shares and the News T Initial Shares are sometimes hereinafter
referred to as the "Initial Shares"), at a purchase price equal to
US$425,000,000.
3. Initial Closing; Delivery of Shares. Subject to the terms and conditions
herein set forth, the Initial Closing shall take place at the offices of
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New
York at 10:00 A.M. New York City time on August 2, 1995 (the "Initial Closing
Date"), or such other date, not later than five Business Days following the date
on which all of the applicable conditions precedent set forth in paragraphs 6
and 7 have been satisfied or waived. At the Initial Closing, each Issuer will
deliver to Purchaser a certificate representing the Shares issued and sold by
such Issuer, against payment of the purchase price therefor by wire transfer in
United States currency with funds immediately available to such Issuer in New
York, New York.
4. Representations and Warranties of Issuer. Each Issuer
represents and warrants, as to itself only, that:
4.1. Organization; Authority; Validity. All of the common stock of
such Issuer is held, directly or indirectly, by TNCL. Such Issuer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The execution and delivery of this Agreement and the
issuance and sale by such issuer of the Shares to be issued and sold by such
Issuer pursuant hereto and compliance by such Issuer with all of the provisions
of this Agreement and the applicable Certificate of Designation: (i) are within
the corporate powers and authority of such Issuer; and (ii) have been duly
authorized by all requisite corporate proceedings on the part of such Issuer.
This Agreement has been duly executed and delivered by such Issuer and
constitutes the valid and binding obligation of such Issuer, enforceable against
such Issuer in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally.
4.2. Financial Statements. Such Issuer has furnished Purchaser with
copies of a balance sheet of such Issuer as of the date hereof, certified by an
officer of such Issuer, which fairly presents, in all material respects, the
financial position of such Issuer as of such date.
4.3. Actions Pending. There is no action, suit,
investigation or proceeding pending or, to the knowledge of such
Issuer, threatened against such Issuer, which questions the
validity of this Agreement, its Certificate of Designation or the
Shares to be issued and sold by such Issuer or any action taken
<PAGE>
PAGE 3
or to be taken pursuant hereto or thereto, or which could reasonably be expected
to have a Material Adverse Effect with respect to such Issuer.
4.4. Certificate of Incorporation of Issuer. Such Issuer has furnished
Purchaser with a copy of the Certificate of Incorporation of such Issuer as in
effect on the date hereof. On the Initial Closing Date, such Certificate of
Incorporation shall have been amended and supplemented by its Certificate of
Designation and, except for the provisions of such Certificate of Designation,
on the Initial Closing Date such Certificate of Incorporation shall not have
been amended, modified or supplemented in any respect.
4.5. Governmental Consents and Approvals. Except for the filing of its
Certificate of Designation with the Delaware Secretary of State, no
authorization, consent, approval, license, franchise, permit or certificate by
or of, filing, declaration, nor any qualification or registration with, any
foreign or domestic governmental authority required to be obtained or made by or
on behalf of such Issuer is necessary to permit the valid execution, delivery
and performance of this Agreement and the valid issuance, sale and delivery of
the Shares to be issued by such Issuer pursuant hereto, or the performance by
such Issuer of its obligations in respect thereof, or the exercise of any of the
rights and privileges accorded to Purchaser under this Agreement or such
Issuer's Certificate of Designation.
4.6. Purchase Permitted by Applicable Laws. The purchase of and
payment for the Shares to be issued by such Issuer and purchased by Purchaser on
the terms and conditions herein provided does not violate any law or
governmental regulation (including Australian Securities Exchange Limited rules
and regulations) applicable to such Issuer or to TNCL.
4.7. Conflicting Agreement and Charter Provisions. Neither the
execution, delivery or performance of this Agreement, the issuance and delivery
of the Shares to be issued by such Issuer pursuant hereto nor, the filing and
effectiveness of its Certificate of Designation, nor compliance with the terms
and provisions of any of them, will conflict with the Certificate of
Incorporation or By-laws of such Issuer, conflict with, or result in a breach of
or constitute a default under, or result in the creation of a lien, charge or
encumbrance upon or security interest in (in each case, with or without the
giving of notice, lapse of time or both) any of the properties or assets of such
Issuer, pursuant to the terms of any indenture, mortgage, agreement, instrument,
order, judgment, decree, statute, law, rule or regulation to which such Issuer
is a party, or to which any of its properties is subject except any of the
foregoing as could not reasonably be expected to have a Material Adverse Effect
on such Issuer.
<PAGE>
PAGE 4
4.8. Capitalization. The number of authorized shares of capital stock
of such Issuer and the number of such shares issued and outstanding as of the
date hereof and to be outstanding as of the Initial Closing Date are as set
forth in Schedule 4.8 hereto. All of the shares of capital stock of such Issuer
which are outstanding have been validly issued and are fully paid and
nonassessable. Except as set forth in Schedule 4.8, there are no shares of
capital stock or other equity securities of such Issuer outstanding and no
outstanding Options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or Convertible Securities
or rights pursuant to which shares of any capital stock of such Issuer, or
contracts, commitments, understandings, or arrangements by which such Issuer is
or may become bound to issue additional shares of capital stock or options,
warrants or rights to purchase or acquire any shares of capital stock.
4.9. Status of Shares. The Shares to be issued by such Issuer have
been duly authorized by all necessary corporate action on the part of such
Issuer and, when issued, such Shares will be validly issued and outstanding,
fully paid and nonassessable, and such Shares will rank prior to all shares of
common stock of such Issuer upon liquidation and in right of payment of
dividends.
The Shares issued by the Issuers pursuant to this Agreement may bear
legends to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED.
SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT; THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A PREFERRED STOCK PURCHASE
AGREEMENT, DATED AS OF AUGUST 2, 1995 AMONG NEWS TRIANGLE FINANCE, INC.,
NEWS T INVESTMENTS, INC. AND MCI COMMUNICATIONS CORPORATION, WHICH IS ON
FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF NEWS TRIANGLE FINANCE, INC.
AND NEWS T INVESTMENTS, INC., 1300 NORTH
MARKET STREET, SUITE 404, WILMINGTON, DELAWARE 19801.
5. Representations and Warranties of Purchaser. Purchaser
represents and warrants that:
5.1. Organization; Authority; Validity. Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The execution and
delivery of this Agreement and compliance by Purchaser with all
of the provisions of this Agreement: (i) are within the
corporate powers and authority of Purchaser; and (ii) have been
<PAGE>
PAGE 5
duly authorized by all requisite corporate proceedings on the part of Purchaser.
This Agreement has been duly executed and delivered by Purchaser and constitutes
the valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally.
5.2. Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of Purchaser, threatened against
Purchaser which questions the validity of this Agreement or the Shares or any
action to be taken pursuant hereto, which could reasonably be expected to have
an adverse effect with respect to the ability of Purchaser to perform its
obligations hereunder.
5.3. Governmental Consents and Approvals. No authorization, consent,
approval, license, franchise, permit or certificate by or of, filing,
declaration, nor any qualification or registration with, any foreign or domestic
governmental authority required to be obtained or made by or on behalf of
Purchaser is necessary to permit the valid execution, delivery and performance
of this Agreement.
5.4. Purchase Permitted by Applicable Laws. The
purchase of and payment for the Shares to be purchased by
Purchaser on the terms and conditions herein provided does not
violate any law or governmental regulation applicable to
Purchaser.
5.5. Conflicting Agreement and Charter Provisions. Neither the
execution, delivery or performance of this Agreement nor compliance with the
terms and provisions hereof will conflict with the Certificate of Incorporation
or By-laws of Purchaser, conflict with, or result in a breach of or constitute a
default under, or result in the creation of a lien, charge or encumbrance upon
or security interest in (in each case, with or without the giving of notice,
lapse of time or both) any of the properties or assets of Purchaser, pursuant to
the terms of, any indenture, mortgage, agreement, instrument, order, judgment,
decree, statute, law, rule or regulation to which Purchaser is a party, or to
which any of its properties is subject except any of the foregoing as could not
reasonably be expected to have a Material Adverse Effect on Purchaser.
5.6. Acquisition for Investment. Purchaser represents
that it is an Accredited Investor acquiring the Shares solely for
its own account for the purpose of investment and not with a view
to or for the sale thereof. Purchaser acknowledges that the
Shares have not been registered under the Securities Act, and may
be sold or disposed of in the absence of such registration only
<PAGE>
PAGE 6
pursuant to an exemption from such registration and in accordance
with this Agreement.
6. Conditions Precedent to the Obligations of Purchaser. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement on the
Initial Closing Date or, to the extent set forth below, on any Additional
Closing Date, as the case may be, shall be subject to the satisfaction or waiver
by Purchaser of the following conditions:
6.1. Representations and Warranties; Covenants and Agreements. (a) The
representations and warranties of each Issuer contained in this Agreement and in
any certificate or document executed and delivered by either Issuer pursuant to
this Agreement shall be true, accurate and complete in all material respects on
and as of each Closing Date with the same force and effect as though made on and
as of such Closing Date, except that (i) any such representations and warranties
that relate solely to a specified date (other than the date hereof) or period
shall be true, accurate and complete in all material respects only as of such
date or period; and (ii) the representations and warranties contained in
paragraphs 4.2 and 4.8 shall be true, accurate and complete in all material
respects only as of the date hereof and the Initial Closing Date. Each Issuer
shall have delivered to Purchaser a certificate, dated as of such Closing Date
and signed on behalf of such Issuer, to the foregoing effect.
(b) Each Issuer shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by such Issuer on or prior to such Closing Date. Each
Issuer shall have delivered to Purchaser a certificate, dated as of such Closing
Date and signed on behalf of such Issuer, to the foregoing effect.
6.2. Illegality. There shall not be in effect any
statute, rule, regulation or order of any court, governmental or
regulatory body which prohibits or makes illegal any of the
transactions contemplated by this Agreement.
6.3. Litigation. There shall be no litigation pending or threatened
which seeks to enjoin, restrain or prohibit the consummation of the transactions
contemplated by this Agreement or to impose limitations on the ability of
Purchaser to exercise full rights of ownership of the Shares issued hereunder.
6.4. Consents. There shall have been obtained all consents and
approvals from parties to contracts or other agreements with either Issuer and
from governmental authorities or other Persons that are required in connection
with the performance by either Issuer of its obligations under this Agreement.
<PAGE>
PAGE 7
6.5. No Material Adverse Effect. At the Initial
Closing only, there shall not have been a Material Adverse Effect
with respect to either Issuer since the date hereof.
6.6. Corporate Action. At the Initial Closing only, Purchaser shall
have received: (a) a copy of the resolution or resolutions duly adopted by the
Board of Directors of each Issuer (or a duly authorized committee thereof)
authorizing the execution, delivery and performance by such Issuer of this
Agreement, certified by the Secretary or an Assistant Secretary of such Issuer;
and (b) a certificate of the Secretary or an Assistant Secretary of each Issuer
as to the incumbency and signatures of its officers executing this Agreement.
6.7. Charter Documents. The Certificate of
Incorporation of each Issuer, as in effect on the date hereof,
shall have been amended and supplemented by the applicable
Certificate of Designation, and except as so amended and
supplemented, shall not have been modified in any respect.
6.8. Opinion of Issuer's Counsel. At the Initial Closing only,
Purchaser shall have received from Squadron, Ellenoff, Plesent & Sheinfeld, LLP,
counsel to the Issuers, an opinion in the form attached hereto as Exhibit B.
6.9. Other Agreements. At the Initial Closing only,
the following documents shall have been executed and delivered:
the Registration Rights Agreement, the Securityholders'
Agreement, the Joint Venture Formation Agreement and the Joint
Venture Agreement.
6.10. Delivery of Shares. Each Issuer shall have
delivered to Purchaser a certificate representing the Initial
Shares or the Additional Shares then being issued by such Issuer,
as the case may be, as provided herein.
6.11. Warrant Purchase Agreement. The closing of
the purchase and sale of the Initial Warrant pursuant to the
Warrant Purchase Agreement shall have occurred.
7. Conditions Precedent to the Obligations of the Issuers. The obligations
of each Issuer to consummate the transactions contemplated by this Agreement on
the Initial Closing Date or, to the extent provided for below, on any Additional
Closing Date, as the case may be, shall be subject to the satisfaction or waiver
by such Issuer of the following conditions:
7.1. Representations and Warranties; Covenants and
Agreements.
(a) The representations and warranties of Purchaser
contained in this Agreement and in any certificate or document
<PAGE>
PAGE 8
executed and delivered by it pursuant to this Agreement shall be true, accurate
and complete in all material respects on and as of each Closing Date with the
same force and effect as though made on and as of such Closing Date except (i)
that any such representations and warranties that relate solely to a specified
date (other than the date hereof) or period shall be true, accurate and complete
in all material respects only as of such date or period; and (ii) the
representations and warranties set forth in the first sentence of paragraph 5.6
shall be true, accurate and complete (1) as of the date hereof and the Initial
Closing Date; and (2) as of each Additional Closing Date, but only with respect
to the Additional Shares that are being acquired on such Additional Closing
Date. Purchaser shall have delivered to each Issuer a certificate, dated as of
such Closing Date and signed on its behalf, to the foregoing effect.
(b) Purchaser shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to such Closing Date. Purchaser
shall have delivered to each Issuer a certificate, dated as of such Closing Date
and signed on its behalf, to the foregoing effect.
7.2. Illegality. There shall not be in effect any
statute, rule, regulation or order of any court, governmental or
regulatory body which prohibits or makes illegal any of the
transactions contemplated by this Agreement.
7.3. Litigation. There shall be no litigation pending
or threatened which seeks to enjoin, restrain or prohibit the
consummation of the transactions contemplated by this Agreement.
7.4. Consents. There shall have been obtained all consents and
approvals from parties to contracts or other agreements with Purchaser and from
governmental authorities and other Persons that are required in connection with
the performance by Purchaser of its obligations under this Agreement.
7.5. Corporate Action. At the Initial Closing only, each Issuer shall
have received: (a) a copy of the resolution or resolutions duly adopted by the
Board of Directors (or a duly authorized committee thereof) of Purchaser
authorizing the execution, delivery and performance by Purchaser of this
Agreement, certified by the Secretary or an Assistant Secretary of Purchaser;
and (b) a certificate of the Secretary or an Assistant Secretary of Purchaser as
to the incumbency and signatures of the officers of Purchaser executing this
Agreement.
7.6. Opinion of Purchaser's Counsel. At the Initial Closing only, each
Issuer shall have received from Simpson Thacher & Bartlett, counsel for
Purchaser, an opinion in the form attached hereto as Exhibit C.
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PAGE 9
7.7. Other Agreements. At the Initial Closing only,
the following documents shall have been executed and delivered:
the Registration Rights Agreement, the Securityholders'
Agreement, the Joint Venture Formation Agreement and the Joint
Venture Agreement.
7.8. Payment for Shares. Purchaser shall have made
payment of the purchase price for the Initial Shares or the
Additional Shares then being issued, as the case may be, as
provided herein.
7.9. Warrant Purchase Agreement. The closing of the
purchase and sale of the Initial Warrant pursuant to the Warrant
Purchase Agreement shall have occurred.
8. Issuances of Additional Shares.
8.1. Purchaser Option. (a) Subject to Sections 8.1(b) and 8.1(c) below
and the other terms of this Agreement, Purchaser shall have the option at any
time and from time to time (the "Share Purchase Option") to purchase from News
Triangle and News T up to 42.5 and 8.5, respectively, additional Shares (the
"Additional Shares"), reduced by the number of Shares purchased from such Issuer
pursuant to the Share Put Right. The purchase price for each Additional Share
shall be equal to the purchase price for each Initial Share purchased from such
Issuer pursuant to paragraph 2 hereof. Each purchase from the Issuers pursuant
to any exercise of the Share Purchase Option must be in increments of
US$170,000,000. The aggregate purchase price for all Additional Shares issued by
the Issuers pursuant to the Share Purchase Option and the Share Put Right shall
not exceed US$850,000,000.
(b) Each exercise of the Share Purchase Option is subject to (i)
continued ownership by Purchaser and the Permitted Transferees of (A) the
Initial Warrant and all of the Initial Shares (except to the extent the Initial
Warrant has been exercised and/or the Initial Shares have been surrendered upon
the exercise of any Warrant) and (B) all securities issued to Purchaser or the
Permitted Transferees upon exercise of the Initial Warrant or upon the exchange
or conversion of such securities, except if any Initial Shares or any securities
issued upon exercise of the Initial Warrant or upon the conversion or exchange
of such securities are transferred pursuant to the third and second to last
sentence of paragraph 13.2(d) of the Warrant Purchase Agreement, and (ii) the
requirement that each exercise of the Share Purchase Option (at any time in
whole and, from time to time, in part) occur prior to 5:00 p.m., New York time,
on the fifth anniversary of the Initial Closing Date (such five-year period
being hereinafter referred to as the "Option Period").
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PAGE 10
(c) It shall be a condition to each exercise of the Share Purchase
Option that Purchaser (i) exercise the Share Purchase Option with respect to an
equal number of Additional Shares of each Issuer and (ii) concurrently exercise
the same percentage of its option to purchase Additional Warrants pursuant to
the Warrant Purchase Agreement.
(d) The Share Purchase Option may be assigned to a Permitted
Transferee without the Issuers' consent, subject in all respects to all the
terms and conditions of this Section 8, including, without limitation, the
reduction of the number of Additional Shares issuable pursuant to the Share
Purchase Option by the number of Additional Shares issued pursuant to the Share
Put Right and paragraph 9.2 hereof (and Purchaser shall remain primarily liable
for performance of the obligations thereunder subject to paragraph 9.2(b)
hereof). Except as expressly provided above, Purchaser may not sell, transfer or
assign the Share Purchase Option and any attempt to do so will be null and void
and of no force and effect whatsoever.
(e) In the event Purchaser elects to exercise the Share Purchase
Option, Purchaser shall give written notice thereof (the "Share Option Notice")
to each Issuer setting forth the dollar amount and the number of Shares of each
Issuer with respect to which Purchaser has elected to exercise the Share
Purchase Option. The Share Option Notice shall also specify a time and date, not
less than 30 Business Days nor more than 60 Business Days following receipt by
such Issuer of the Share Option Notice, of the closing of the purchase and sale
of the Additional Shares with respect to which Purchaser is exercising the Share
Purchase Option.
8.2. Issuer Put. (a) Subject to Sections 8.2(b) and (c) below and the
other terms of this Agreement and the other documents contemplated hereby, the
Issuers shall have the right (the "Share Put Right") at any time and from time
to time during the Option Period to require Purchaser to purchase Additional
Shares, the proceeds of which purchase shall be applied solely in connection
with the financing of Qualifying Transactions and related costs, up to the
amount of the Additional Shares issuable pursuant to the Share Purchase Option,
reduced by the number of Additional Shares previously issued pursuant to the
Share Purchase Option.
(b) It shall be a condition to each purchase of Additional Shares
pursuant to the Share Put Right hereunder that (i) the Share Put Right be
exercised with respect to an equal number of Additional Shares of each Issuer
and (ii) TNCL concurrently exercise the same percentage of its right to require
Purchaser to purchase Additional Warrants pursuant to the Warrant Purchase
Agreement (the "Warrant Put Right").
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PAGE 11
(c) The Issuers may not exercise the Share Put Right to receive an
aggregate amount which, when aggregated with the amount to be paid by Purchaser
upon exercise of the related Warrant Put Right, is (i) less than the lesser of
(A) the aggregate dollar amount remaining subject to the Share Put Right and the
Warrant Put Right, and (B) US$200,000,000, or (ii) greater than the amount
necessary to pay the purchase price and related costs of the relevant Qualifying
Transaction.
(d) (i) In the event that the Issuers elect to exercise the Share Put
Right, the Issuers shall give written notice thereof (the "Share Put
Right Notice") to Purchaser setting forth (A) a description of the
Qualifying Transaction in connection with which the Share Put Right is
being exercised; (B) whether such Qualifying Transaction is a Special
Qualifying Transaction; (C) the dollar amount and the number of
Additional Shares with respect to which the Share Put Right is being
exercised; and (D) a time and date, not less than 30 Business Days and
not more than 60 Business Days following receipt by Purchaser of the
Share Put Right Notice, of the closing of the purchase and sale of the
Additional Shares with respect to which the Share Put Right is being
exercised.
(ii) In the case of an exercise of the Share Put Right in
connection with a Special Qualifying Transaction, Purchaser shall,
within ten Business Days following receipt of the Share Put Right
Notice (the "Special Put Right Notice Period"), give written notice
(the "Put Right Election Notice") to each Issuer setting forth
Purchaser's election, as set forth in paragraph 8.2(e) below, with
respect to the manner in which such Share Put Right will be effected.
In the event that Purchaser fails to deliver the Put Right Election
Notice to such Issuer during the Special Put Right Notice Period, such
Issuer may elect to effect such Share Put Right in any manner set
forth in paragraph 8.2(e) below.
(e) If the Share Put Right is exercised in connection with a Special
Qualifying Transaction, Purchaser may require, in accordance with paragraph
8.2(d), that the Special Qualifying Transaction be effected by the Joint
Venture, in which event the Share Put Right shall be exercised as follows:
(i) the Share Put Right shall be exercised in an amount equal to
one-half of the amount for which the Issuers originally proposed to
exercise such Share Put Right in accordance with paragraph 8.2(c)
above, and an amount equal to the proceeds from such exercise shall be
contributed by TNCL or any of its wholly-owned
<PAGE>
PAGE 12
Subsidiaries to the Joint Venture for the purpose of providing all or
a portion of TNCL's share of the funds required to be contributed to
the Joint Venture for the purpose of financing the Special Qualifying
Transaction; and
(ii) Purchaser or any of its wholly-owned Subsidiaries shall
contribute to the Joint Venture an amount equal to the contribution
made by TNCL pursuant to clause (i) above for the purpose of providing
all or a portion of Purchaser's share of the funds required to be
contributed to the Joint Venture for the purpose of financing the
Special Qualifying Transaction. The amount of the contribution to the
Joint Venture pursuant to this clause (ii) shall not be deemed to be
in connection with an exercise of the Share Purchase Option or the
Share Put Right.
9. Miscellaneous.
9.1. Survival of Representations and Warranties; Entire
Agreement;
Indemnity.
(a) Each representation and warranty contained herein or made in
writing in connection herewith shall survive the execution and delivery hereof
and each Closing on which it was made for a period of 12 months, except that (i)
the representations and warranties of each of the Issuers contained in paragraph
4.9, shall survive indefinitely. The covenants of each Issuer set forth in
paragraphs 9.10 and 9.11 shall survive in respect of the Shares issued on any
Closing Date until the last applicable statute of limitations has expired with
respect to any action that could be taken or any claim that could be asserted
against Purchaser by any taxing authority as a result of the breach of any such
covenant.
(b) This Agreement and the respective Certificates of Designation
embody the entire agreement and understanding between Purchaser and each of the
Issuers and supersede all prior agreements and understandings relating to the
subject matter hereof and thereof.
(c) Each of the Issuers agrees to indemnify and hold harmless
Purchaser, its Affiliates and each officer, director, employee and agent of
Purchaser and such Affiliates (each, an "Indemnified Party") from and against
(i) any and all damages, losses and other liabilities of any kind (excluding any
foreign, federal, state and/or local taxes and damages, losses or other
liabilities relating to any foreign, federal, state and/or local taxes),
including, without limitation, judgments and costs of settlement, and (ii) any
and all reasonable out-of-pocket costs and expenses of any kind (excluding any
foreign, federal, state
<PAGE>
PAGE 13
and/or local taxes and costs and expenses relating to any foreign, federal,
state and/or local taxes), including, without limitation, reasonable fees and
disbursements of counsel, suffered or incurred in connection with any
investigative, administrative or judicial proceeding (whether or not such
Indemnified Party is designated as a party thereto) arising solely by reason of
Purchaser's (or any Permitted Transferee's) status as a securityholder of such
Issuer and not arising by virtue of Purchaser's, or any Permitted Transferee's,
acts or omissions. The foregoing shall not limit any claim Purchaser may have
against either Issuer with respect to any breach by such Issuer of any covenant
or representation and warranty of such Issuer herein contained.
9.2. Binding Effect; Assignment Limited. (a) This
Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective
successors and assigns (in accordance with paragraphs 9.2(b) and
(c) below) and legal representatives.
(b) Purchaser may, upon five Business Days' notice to each Issuer,
assign all or portions of its rights and interests in this Agreement to any
Permitted Transferee solely in connection with the transfer of any Shares or the
assignment of the Share Purchase Option (or the right or obligation to purchase
any Shares); provided that, as a precondition to the effectiveness of any
proposed assignment by Purchaser (i) the assignee (and BT, if the assignee is a
Subsidiary of BT) shall agree in a writing, in form and substance reasonably
satisfactory to each of the Issuers, to be bound by all of the terms and
conditions hereof applicable to Purchaser; and (ii) if the proposed Permitted
Transferee is a Subsidiary of Purchaser that is not wholly-owned by Purchaser,
each Issuer's written consent, which shall not be unreasonably withheld, shall
be required. Notwithstanding any assignment by Purchaser (other than to BT or a
Subsidiary of BT) provided for in this paragraph 9.2, Purchaser shall remain
liable to perform all of its obligations hereunder. Upon such assignment to BT
or a Subsidiary of BT, Purchaser shall not remain liable to perform the
obligations hereunder assumed by BT in connection with such assignment; provided
that BT (and any such Subsidiary, if applicable) shall execute the agreement
referred to in paragraph 13.2(d) of the Warrant Purchase Agreement. Except as
provided in this paragraph 9.2(b), and except as otherwise contemplated by the
Warrant Purchase Agreement, neither this Agreement, nor any rights or interests
hereunder, may be assigned by any party without the prior written consent of the
other parties hereto.
(c) Except with the prior written consent of each Issuer, no assignee
of any of Purchaser's rights or interests hereunder or, prior to a Triggering
Event, no transferee of any Shares may at any time cease to be a Permitted
Transferee, unless
<PAGE>
PAGE 14
it first transfers such rights and interests or any such Shares to another
Permitted Transferee. Upon any such assignee's or transferee's ceasing to be a
Permitted Transferee, any such assignee shall cease to have any of the rights or
interests of an assignee hereunder and any such transferee (i) shall cease to
have any rights or interests with respect to the voting of any Shares; and (ii)
shall forthwith transfer any Shares owned by such transferee to a Permitted
Transferee in accordance with the applicable provisions of this Agreement,
whereupon such Permitted Transferee shall have all of the rights and interests
of a Permitted Transferee in respect of such securities. If any transferee of
any Shares ceases to be a Permitted Transferee, then until the transfer of any
such securities to a Permitted Transferee, the Issuer thereof or its designee
shall have an irrevocable proxy to vote any such Shares held by such transferee.
9.3. Shares Acquired by the Issuers or its Affiliates. Anything herein
to the contrary notwithstanding, all Shares acquired by the Issuer of such
Shares or its Affiliates shall not be entitled to any benefits or rights under
this Agreement, nor shall any such Shares be entitled to (and such Shares shall
not be deemed outstanding for purposes of) any vote or consent required pursuant
to this Agreement.
9.4. Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed given (i) when made,
if made by hand delivery, (ii) upon confirmation, if made by telecopier or (iii)
one Business Day after being deposited with a reputable next day courier,
postage prepaid, to the parties as follows:
If to either Issuer:
c/o News America Publishing Incorporated
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind, Esq.
Executive Vice President and Group General
Counsel
Telecopier: (212) 768-2029
Confirmation: (212) 852-7007
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Harvey Horowitz, Esq.
Telecopier: (212) 697-6686
Confirmation: (212) 661-6900
<PAGE>
PAGE 15
If to Purchaser:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: Michael J. Rowny
Executive Vice President
Telecopier: (202) 887-2348
Confirmation: (202) 887-3051
with copies to:
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: John R. Worthington, Esq.
Senior Vice President and
General Counsel
Telecopier: (202) 887-2026
Confirmation: (202) 887-2015
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Philip T. Ruegger III, Esq.
Telecopier: (212) 455-2502
Confirmation: (212) 455-2500
Any party by notice to the other parties may designate such additional
or different addresses as shall be furnished in writing by such party.
9.5. Descriptive Headings. The descriptive headings of
the several paragraphs of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
9.6. Governing Law. The validity, interpretation and performance of
this Agreement shall be governed by the laws of the State of New York, as
applied to contracts made and performed within the State of New York, without
regard to the principles of conflicts of laws. Each party hereto hereby
irrevocably submits to the jurisdiction of any New York State court sitting in
the Borough of Manhattan or any federal court sitting in the Borough of
Manhattan in respect of any suit, action or proceeding arising out of or
relating to this Agreement and the transactions pursuant hereto and in
connection herewith, and irrevocably agrees that all claims in respect of any
such suit, action or proceeding may be heard and determined in any such court.
Each party irrevocably waives any objection which it may now or
<PAGE>
PAGE 16
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
9.7. Termination and Abandonment. This Agreement may be
terminated and the transactions contemplated by this Agreement
may be abandoned at any time prior to the Initial Closing:
(a) by mutual written consent of the Issuers and
Purchaser; or
(b) by either Issuer or Purchaser if the Initial Closing shall not
have occurred on or before May 9, 1996; provided, however, that the right to
terminate this Agreement under this paragraph 9.7(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Initial Closing to occur on or
before such date; or
(c) by either Issuer or Purchaser if any court of competent
jurisdiction shall have issued an order, decree or ruling or taken any other
action permanently enjoining or otherwise permanently prohibiting the
transactions contemplated under this Agreement and such order, decree, ruling or
other action shall have become final and nonappealable.
9.8. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, and all of which
together shall constitute one and the same instrument.
9.9. Publicity. Except as may otherwise be required by law, no news
release or announcement concerning this Agreement or the transactions
contemplated hereby shall be made without advance approval thereof by Issuer and
Purchaser. Issuer and Purchaser will cooperate with each other in the
development and distribution of all news releases and other public announcements
with respect to this Agreement or any of the transactions contemplated hereby
and, in any event, the parties agree to make a mutually agreed upon announcement
concerning the Closing on or about the Closing Date.
9.10. Certain Tax Matters. Each Issuer covenants
with Purchaser, as to itself only, that:
(a) from each Closing Date until the fourth anniversary thereof, (i)
distributions made by such Issuer with respect to the Shares issued by such
Issuer on such Closing Date will qualify as "dividends" within the meaning of
Section 316(a) of the Internal Revenue Code of 1986, as amended (the "Code");
and (ii) such Issuer will be a "domestic" corporation within the
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PAGE 17
meaning of Section 7701(a)(4) of the Code; and
(b) at all times from and after the date hereof, such Issuer will
characterize the Shares to be issued by such Issuer pursuant hereto as "stock"
within the meaning of Section 385(c) of the Code and will not take a position or
any action to the contrary thereto unless required to do so by applicable tax
laws pursuant to a final determination under Section 1313(a) of the Code.
(c) the Shares of News Triangle and News T, respectively, do not
constitute more than 20% of the total voting power of the stock of each such
company within the meaning of Section 1504(a)(2) of the Code.
9.11. Use of Proceeds. From each Closing Date until the fourth
anniversary thereof, each Issuer shall use the proceeds received by it in
payment of the purchase price of any Shares issued by such Issuer on such
Closing Date pursuant hereto to make loans to, or purchase securities from,
United States entities.
9.12. Surrender of Shares. If, upon the surrender of any Shares upon
the exercise of any Warrant pursuant to Section 3.1 thereof, either Issuer
becomes the owner of the Shares issued by it, such Issuer will not transfer or
reissue such Shares to any Person, other than to TNCL or a wholly-owned
Subsidiary of TNCL, unless Purchaser and its Permitted Transferees no longer
hold any Shares issued by such Issuer.
10. Certain Definitions. For the purpose of this Agreement
the following terms shall have the meanings specified with
respect thereto below;
"Accredited Investor" has the meaning ascribed thereto in Regulation D
under the Securities Act.
"Additional Closing Date" means the date of any Closing of the purchase by
Purchaser of any Additional Shares.
"Additional Shares" has the meaning specified in paragraph
8.1(a).
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person. As used in this definition, "control" (including, with correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person (whether through ownership
of securities or partnership or other ownership interests, by contract or
otherwise).
<PAGE>
PAGE 18
"BT" means British Telecommunications plc.
"Business Day" means any day other than Saturday, Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
"Certificate of Designation" or "Certificates of
Designation" has the meaning specified in paragraph 1.
"Closing" means the Initial Closing and any Additional
Closing.
"Closing Date" means the Initial Closing Date and any
Additional Closing Date.
"Code" has the meaning specified in paragraph 9.10(a).
"Consolidated Subsidiary" of a Person at any time means each of the
subsidiaries of such Person whose accounts are or should, in accordance with
GAAP, be consolidated with those of such Person.
"Convertible Securities" means any securities or other interests
convertible into or exchangeable for other securities, including conversions or
exchanges to be effected at the issuer's option.
"Core Business Assets" means assets used in: the production or distribution
of motion pictures, television programming, print, electronic images, music,
electronic and interactive products and/or television broadcasting; the
publishing or distribution of newspapers, magazines and/or books, the creation
of encryption methods and products and subscriber management systems; the
ownership or leasing of satellites of every kind; or assets otherwise used in
the production, publication, distribution or dissemination in any form of
business or consumer entertainment, information, or news products of whatever
kind or nature; and shall include any direct or indirect interests in
corporations, limited liability companies, partnerships, joint ventures or other
types of entities engaged in businesses utilizing any of such assets.
"GAAP" means with respect to any computation required or permitted
hereunder and/or with respect to any Person, such accounting principles which
are generally accepted at the date of this Agreement in the country whose
generally accepted accounting principles are customarily applied to such Person.
"Initial Closing" has the meaning specified in paragraph 2.
"Initial Closing Date" has the meaning specified in
paragraph 3.
<PAGE>
PAGE 19
"Initial Shares" has the meaning specified in paragraph 2.
"Initial Warrant" means the warrant issued by TNCL on the date hereof
pursuant to the Warrant Purchase Agreement.
"Issuer" or Issuers" has the meaning specified in the
introductory paragraph.
"Joint Venture" means the Venture (as such term is defined in the Joint
Venture Agreement).
"Joint Venture Agreement" means the Partnership Agreement to be entered
into upon the closing of the Joint Venture Formation Agreement.
"Joint Venture Formation Agreement" means the Joint Venture
Formation Agreement between Purchaser and TNCL.
"Material Adverse Effect" in respect of any Person, shall mean an effect on
the business, financial condition or results of operations of such Person or its
Consolidated Subsidiaries, which is (i) material and adverse to such Person and
its Consolidated Subsidiaries, taken as a whole, or (ii) adverse to the ability
of such Person to perform its obligations hereunder.
"MCI Competitor" means (i) AT&T, Sprint, Worldcom, Ameritech, Bell Canada,
Bell Atlantic, Bell South, Nynex, Pactel, SBC, US West and GTE; (ii) any entity
(other than those referred to in clause (i) above) with consolidated annual
revenues in excess of $400 million, 75% or more of which are derived from
telecommunications services regulated in the United States as common carriage
services or their equivalents provided in North, Central and/or South America;
(iii) any entity controlled by a party referred to in clause (i) or (ii) above;
and (iv) any successor or assign of a party referred to in clause (i), (ii) or
(iii) above.
"Murdoch Family" shall mean K. Rupert Murdoch, his wife, mother, children
or sisters or children of sisters or grandchildren, grand nieces and grand
nephews or any trust or any other entity directly or indirectly owned and
controlled by one or more of the Persons hereinabove listed; provided, however,
that any such trust or entity will be deemed to be owned by one or more of the
Persons hereinabove listed so long as either: (a) the beneficial interest in the
Ordinary Shares held by such trust or entity or the beneficial interest in the
trust or in the shares or other proprietary interest in the entity are held by
Persons which, on the date hereof, would be entitled to hold or be granted a
beneficial interest in the Ordinary Shares or in the trust or the shares or
other proprietary interest in the entity; or (b) the holders of the beneficial
interest in such trust or shares or other proprietary interest in such entity
are the
<PAGE>
PAGE 20
Persons hereinabove listed or Cruden Investments Pty Limited, Cruden Holdings
Pty Limited, Kayarem Pty. Limited or any Subsidiaries of any of them. For
purposes of this definition, a "beneficial interest" means a direct or indirect
equity interest and includes an interest as a beneficiary under any trust. A
trust or other entity will be deemed to be controlled for the purposes of the
first sentence of this definition if the majority of the trustees or members of
the Board of Directors or other governing body, as the case may be, are Persons
hereinabove listed (other than Persons included by reason of the proviso at the
end of the first sentence of this definition) or can be removed or replaced by
any one or more of such Persons, any entity controlled by such Persons, any
personal representatives of such Persons or any combination of the foregoing.
For the purposes of this Agreement, any of the sisters, nieces and nephews of K.
Rupert Murdoch and the children of any such sisters, nieces or nephews who
currently own shares of preferred stock of Cruden Holdings Pty. Limited shall
cease to be considered members of the Murdoch Family upon the redemption of all
of such shares of preferred stock owned by such Persons.
"News T" has the meaning specified in the introductory
paragraph.
"News T Initial Shares" has the meaning specified in
paragraph 2.
"News Triangle" has the meaning specified in the
introductory paragraph.
"News Triangle Initial Shares" has the meaning specified in
paragraph 2.
"Non-Media Assets" means assets or interests in entities that are not Core
Business Assets.
"Option Period" has the meaning specified in paragraph
8.1(b).
"Options" means securities or other interests exercisable for other
securities, including exercises to be effected at the issuer's option.
"Ordinary Shares" means TNCL's ordinary shares of Australian $.50 each, or
with respect to the Ordinary Shares issuable upon exercise of the Warrants, any
new class of redeemable ordinary shares issuable upon such exercise, as the
context requires.
"Permitted Transferee" means, subject to Section 9.2, (i) any Subsidiary of
Purchaser, (ii) BT, (iii) any wholly-owned Subsidiary of BT, or (iv) any other
Subsidiary of BT, so long as BT, Purchaser and/or any of BT's or Purchaser's
wholly-owned
<PAGE>
PAGE 21
Subsidiaries are the only Persons owning, or controlling the voting of, any
voting stock or other ownership interests of such Subsidiary and (v) with
respect to any transfer by any other Permitted Transferee, in addition to any
Permitted Transferee referred to in clause (i), (ii), (iii) or (iv) above,
Purchaser.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, business trust, joint stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"Preferred Stock Purchase Agreement" means this Agreement.
"Purchaser" has the meaning specified in the introductory
paragraph.
"Put Right Election Notice" has the meaning specified in
paragraph 8.2(d)(ii).
"Qualifying Core Business Assets" means Core Business Assets in or for use
in North or South America and, in the case of content or software in the English
or Spanish language; provided that any interests in entities shall be directly
or indirectly-owned majority interests in entities primarily engaged in
businesses utilizing any of such assets.
"Qualifying Transactions" means: (i) the acquisition by TNCL or any of its
Subsidiaries, in any form, of Qualifying Core Business Assets; and (ii) any
capital contribution by TNCL to the Joint Venture to fund acquisitions by the
Joint Venture (or other joint ventures of TNCL and Purchaser, as may be agreed
upon).
"Registration Rights Agreement" means the Registration Rights Agreement
dated the date hereof between Purchaser and TNCL.
"Restricted Alliance" means if TNCL or any of its Subsidiaries shall,
without the consent of Purchaser, take any of the following actions: (i) enter
into (directly or indirectly, through Affiliates or otherwise) any arrangement
providing for joint marketing or promotion with any MCI Competitor or permitting
its controlled content to be used for any activities that would promote
(directly or indirectly) the products or services of any MCI Competitor, without
giving Purchaser a first preference to enter into the arrangement; (ii) enter
into a co-branding arrangement with an MCI Competitor (i.e., the connected use
of TNCL's trade names, trademarks or service marks (e.g., "News Corp" or "Fox")
together with a trade name, trademark or service mark of an MCI Competitor);
(iii) enter into (directly or indirectly, through Affiliates or otherwise) any
strategic joint venture arrangement, alliance or similar
<PAGE>
PAGE 22
arrangement (including any exclusive arrangement, or any agreement entered into
outside the ordinary course) with an MCI Competitor similar to or having the
purposes of or providing any of the services referred to in the Joint Venture
Agreement or otherwise provided by the Joint Venture from time to time; or (iv)
issue any Voting Security to any MCI Competitor in any privately-negotiated
transaction.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the United States Securities Act of 1933, as amended
and the rules and regulations of the SEC thereunder.
"Securityholders' Agreement" means the Securityholders' Agreement dated the
date hereof between Purchaser and certain securityholders of TNCL.
"Share Option Notice" has the meaning specified in paragraph
8.1(e).
"Share Purchase Option" has the meaning specified in
paragraph 8.1(a).
"Share Put Right" has the meaning specified in paragraph
8.2(a).
"Share Put Right Notice" has the meaning specified in
paragraph 8.2(d)(i).
"Shares" has the meaning specified in paragraph 1.
"Special Put Right Notice Period" has the meaning specified
in paragraph 8.2(d)(ii).
"Special Qualifying Transactions" means Qualifying Transactions wherein the
assets being acquired: (i) are movie studio or direct broadcast satellite
assets; (ii) are Non-Media Assets; or (iii) are in a business in which the Joint
Venture is engaged or has agreed to become engaged at the time of such
Qualifying Transaction.
"Subsidiary" means, (i) with respect to any Person, any entity of which
such Person owns or controls the voting of, directly or indirectly through one
or more intermediaries, more than 50% of the voting stock or other ownership
interests representing more than 50% of the ordinary voting power, or with
respect to which such Person has the power to elect a majority of the members of
the Board of Directors or other governing body, of such entity at the time of
determination and (ii) with respect to TNCL, in addition to any entities
described in clause (i) above,
<PAGE>
PAGE 23
Twentieth Holdings Corporation and its Subsidiaries, so long as (x) TNCL or its
Subsidiaries own all of the outstanding common stock of Twentieth Holdings
Corporation, (y) TNCL or its Subsidiaries maintain a call on all the outstanding
preferred stock, of Twentieth Holdings Corporation and (z) prior to a Triggering
Event, a majority of the outstanding preferred stock of Twentieth Holdings
Corporation is held by a member of the Murdoch Family or a nominee thereof.
"TNCL" means The News Corporation Limited, a South Australia
corporation (ACN 007910330).
"Triggering Event" means the occurrence of any of the following: (i)
members of the Murdoch Family propose to sell shares which would result in a
change of control of TNCL; (ii) any slate of directors of TNCL opposed by the
Murdoch Family is elected; (iii) any party or group of related parties owns or
controls ordinary shares of TNCL ("Ordinary Shares") in an amount greater than
the total number of Ordinary Shares held by the Murdoch Family; (iv) any party
or group of related parties: (A) has commenced an offer to acquire all of the
shareholdings in TNCL and the Murdoch Family intends to tender its shares of
TNCL in connection with such offer or (B) other than members of the Murdoch
Family, directly or indirectly, by contract or otherwise, has the ability to
elect a majority of the directors of TNCL; or (v) the consummation by TNCL of,
or the binding agreement of TNCL to enter into, a Restricted Alliance.
"Warrant" means any warrant to purchase Ordinary Shares issued pursuant to
paragraph 1, 12.1 or 12.2 of the Warrant Purchase Agreement.
"Warrant Purchase Agreement" means the Warrant Purchase Agreement dated as
of the date hereof between TNCL and Purchaser.
"Warrant Put Right" has the meaning specified in paragraph
8.2(b).
<PAGE>
PAGE 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
NEWS TRIANGLE FINANCE, INC.
By:_________________________________
NEWS T INVESTMENTS, INC.
By:_________________________________
MCI COMMUNICATIONS CORPORATION
By:_________________________________
<PAGE>
PAGE 25
EXHIBIT A
CERTIFICATE OF DESIGNATION
OF CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
[NAME OF ISSUER]
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
[NAME OF ISSUER], a corporation organized under the laws of the State of
Delaware (the "Corporation"), certifies that, pursuant to the authority
contained in its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has adopted the following resolution creating a
series of its Preferred Stock, without par value, designated Cumulative
Convertible Preferred Stock;
RESOLVED, that a series of the class of authorized Preferred Stock, without
par value, of the Corporation be hereby created, and that the designation and
amount thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations and restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as the "Cumulative Convertible Preferred Stock" (the "Preferred
Stock") and the number of shares constituting such series shall be 100.
Section 2. Conversion. The Preferred Stock shall be convertible, in whole
or in part, at any time at the option of the holder into shares of common stock,
without par value, of the Corporation (the "Common Stock") at a rate equal to
one share of Common Stock per five shares of Preferred Stock.
Section 3. Dividends and Distributions.
(a) General Obligation. Following the declaration of such dividends by the
Board of Directors of the Corporation, the Corporation will pay preferential
dividends to the holders of Preferred Stock at the times and in the amounts
provided for in this Section 3. Cumulative dividends on each share of the
Preferred Stock will accrue on a daily basis (computed on the basis of a 365- or
366-day year) at a rate per annum equal to
<PAGE>
PAGE 26
5.147%. All dividends will accrue and be cumulative whether or not they have
been declared and whether or not there are profits, surplus or other funds of
the Corporation legally available for the payment of dividends.
(b) Payment of Dividends. Dividends accrued on the Preferred Stock shall be
declared quarterly effective on the last day of March, June, September and
December in each year and shall be payable semi-annually on the last day of June
and December in each year (each such date being herein referred to as a
"Dividend Reference Date"), beginning, with respect to any shares of Preferred
Stock, on the first such date following the date of issuance thereof. Payments
of dividends on each share of the Preferred Stock shall be made to the holder of
record thereof on such record date, not exceeding 25 days and not less than 10
days preceding each Dividend Reference Date, as may be fixed by the Board of
Directors of the Corporation. Such payment shall be made, at the option of the
Corporation, either (i) in cash to each holder at the address set forth on the
record books of the Corporation or at such other place as such holder shall
designate in writing to the Corporation, in each case at least two Business Days
prior to the date of payment, or (ii) subject to applicable law and Australian
Stock Exchange Limited regulation, in duly authorized, fully paid and
nonassessable preferred limited voting ordinary shares ("TNCL Preferred Shares")
of TNCL (or, at the holder's option, Preferred Share ADSs), provided that the
Current Market Price of such TNCL Preferred Shares can be determined at such
time and that such shares are free and clear of preemptive rights and all liens,
claims or encumbrances, of any kind, and are eligible for listing in compliance
with the rules of the stock exchanges on which the TNCL Preferred Shares are
then listed or (iii) with any combination of cash and, subject to the same
conditions and provisions set forth in clause (ii) above, TNCL Preferred Shares
(or Preferred Share ADSs). Each such dividend payment (or portion thereof) to be
paid in TNCL Preferred Shares (or Preferred Share ADSs) shall be paid by the
issuance to the holders of Preferred Stock of that number of TNCL Preferred
Shares (or Preferred Share ADSs) as shall equal the quotient obtained by
dividing the amount of such dividend payment (or portion thereof) in respect of
each share of Preferred Stock to be paid in TNCL Preferred Shares (or Preferred
Share ADSs) by the Current Market Price of the TNCL Preferred Shares (or
Preferred Share ADSs) as of the Dividend Reference Date with respect to which
the dividend is paid. Dividends accrued on the Preferred Stock shall be paid on
each Dividend Reference Date, subject to the availability of profit, surplus or
other funds of the Corporation legally available for such payment, and shall be
deemed paid when delivered by wire transfer of immediately available funds to
the Holder entitled thereto or, to the extent that such dividend is paid in TNCL
Preferred Shares, when deposited in the U.S. mail.
<PAGE>
PAGE 27
(c) Distribution of Partial Dividend Payments. If at any time the
Corporation distributes less than the total amount of dividends then accrued
with respect to Preferred Stock, such payment will be distributed among the
holders of Preferred Stock so that an equal amount will be paid (as nearly as
possible) with respect to each outstanding share of Preferred Stock.
(d) Priority. So long as any Preferred Stock remains outstanding, the
Corporation will not redeem, purchase or otherwise acquire any Junior Capital
Stock, nor will the Corporation declare or pay any dividend or make any
distribution (in each case, whether in cash or securities or assets in kind)
upon Junior Capital Stock unless the Corporation shall have paid the full amount
of dividends accrued on the Preferred Stock as of the most recent Dividend
Reference Date.
Section 4. Covenants.
(a) The affirmative prior written consent of the holders of at least 75% of
the outstanding shares of Preferred Stock shall be necessary (i) to amend,
repeal or change any provisions of the Certificate of Incorporation of the
Corporation (other than the provision of the Certificate of Designation
("Certificate of Designation") of the Preferred Stock which embodies this
Resolution) in any manner which would adversely affect the powers, preferences
or special rights of the shares of Preferred Stock; (ii) to amend, repeal or
change any provisions of the Certificate of Designation which embodies this
resolution; (iii) to designate or issue shares of any class of preferred stock
having powers, preferences or special rights which are senior to, or pari passu
with, the powers, preferences or special rights of the Preferred Stock
designated hereby or to issue any shares of Preferred Stock, other than pursuant
to the Preferred Stock Purchase Agreement dated August 2, 1995 by and among of
the Corporation, [News Triangle Finance, Inc] [News T Investments, Inc.] and MCI
Communications Corporation; (iv) for the Corporation to merge, consolidate or
enter into any other business combination, or to sell all or substantially all
of its assets; or (v) to voluntarily liquidate, dissolve, or wind-up the
Corporation. The foregoing provisions will be of no further force and effect on
the date four years following the last issuance of shares of Preferred Stock
designated hereby. No shares of Preferred Stock shall be issued subsequent to
August 2, 2000.
(b) Except as may be otherwise provided by law, the holders of the shares
of Preferred Stock and the holders of the shares of Common Stock shall vote as a
single class with respect to all actions to be taken by the stockholders of the
Corporation. Each share of Preferred Stock shall entitle the holder thereof to
one vote with respect to any such action.
<PAGE>
PAGE 28
Section 5. Reacquired Shares. So long as any share of Preferred Stock is
outstanding, any share of Preferred Stock redeemed, purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof and will not be reissued, sold
or transferred.
Section 6. Liquidation, Dissolution or Winding Up.
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of Junior Capital Stock
unless, prior thereto, the holders of shares of Preferred Stock shall have
received, first, an amount equal to the accrued and unpaid dividends thereon
and, second, an amount equal to the Liquidation Value thereof which amounts
shall be paid, at the option of the Corporation, either (i) in cash or (ii)
subject to law and Australian Stock Exchange Limited regulations, in duly
authorized, fully paid and nonassessable TNCL Preferred Shares (or, at the
holder's option, Preferred Share ADSs), provided that the Current Market Price
of TNCL Preferred Shares can be determined at such time and such shares are free
and clear of preemptive rights and all liens, claims or encumbrances, of any
kind or (iii) with any combination of cash and, subject to the same conditions
and provisions set forth in clause (ii) above, TNCL Preferred Shares (or
Preferred Share ADSs). Each such payment (or portion thereof) to be paid in TNCL
Preferred Shares (or Preferred Share ADSs) shall be paid by the issuance to the
holders of Preferred Stock of that number of TNCL Preferred Shares (or Preferred
Share ADSs) as shall equal the quotient obtained by dividing the amount of such
dividend payment (or portion thereof) in respect of each share of Preferred
Stock to be paid in TNCL Preferred Shares (or Preferred Share ADSs) by the
Current Market Price of the TNCL Preferred Shares (or Preferred Share ADSs) as
of the date such payment is to be made.
Section 7. Definitions. For the purposes of the
Certificate of Designation which embodies this resolution:
"Business Day" means any day other than Saturday, Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
"Certificate of Designation" has the meaning specified in
Section 4(a) hereof.
"Common Stock" has the meaning specified in Section 2
hereof.
"Corporation" has the meaning specified in the preamble
<PAGE>
PAGE 29
hereto.
"Current Market Price" of any security on any date shall be deemed to be
the average of the daily closing prices for the 20 consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be the last reported sales price regular way or, in case no such reported sale
takes place on such day, the closing bid price regular way, in either case on
the principal United States national securities exchange (including, for
purposes hereof, the NASDAQ National Market System) on which such security is
listed or admitted to trading or, if such security is not listed or admitted to
trading on any United States national securities exchange, the last reported
sales price on the Australian Stock Exchange Limited. In determining any Current
Market Price, appropriate provisions will be made for currency translations and
adjustments to reflect trading in American Depositary Shares.
"Dividend Reference Date" has the meaning specified in
Section 3(b) hereof.
"Junior Capital Stock" means all shares of capital stock of the Corporation
other than the Preferred Stock.
"Liquidation Value" of any share of Preferred Stock will be
equal to $___________.
"NASDAQ" means the National Association of Securities
Dealers, Inc. Automated Quotation System.
"Ordinary Shares" means TNCL's Ordinary Shares of Australian
$.50 each.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, business trust, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"Preferred Share ADS" or "Preferred Share ADSs" means
American Depositary Shares representing TNCL Preferred Shares.
"Preferred Stock" has the meaning specified in Section 1
hereof.
<PAGE>
PAGE 30
"TNCL" means The News Corporation Limited, a corporation organized and
existing under the laws of South Australia.
"TNCL Preferred Shares" has the meaning specified in Section
3(b) hereof.
"Warrant" shall mean any Warrant issued by TNCL pursuant to the Warrant
Purchase Agreement dated August 2, 1995 between MCI Communications Corporation
and TNCL.
Section 8. Currency.
Unless otherwise herein specified, all references to money or cash shall
mean lawful money of the United States and all references to dollars shall mean
United States dollars.
IN WITNESS WHEREOF, said [NAME OF ISSUER] has caused this Certificate of
Designation of Cumulative Convertible Preferred Stock to be duly executed by its
Vice President, this ___ day of
__________, 1995.
[NAME OF ISSUER]
By:___________________________
<PAGE>
PAGE 31
SCHEDULE 4.8
I. Capitalization of News Triangle Finance, Inc.:
Common 1,500 shares
Preferred 100 shares
II. Capitalization of News T Investments, Inc.:
Common 3,000 shares
Preferred 100 shares
Exhibit 11
-------------
(Page 1 of 3)
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In millions, except per share amounts)
For the Year ended
December 31, 1995
Assuming
Primary Full Dilution
----------- -------------
Net income ......................................... $ 548 $ 548
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding .................................... 680 680
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents .................................... 52 52
Shares of common stock assumed repurchased
for treasury(a) ................................ (45) (38)
----- -----
Adjusted shares of common stock and common
stock equivalents for computation .............. 687 694
===== =====
Earnings per common and common
equivalent shares ................................ $ .80 $ .79
===== =====
(a) At an average market price of $22.45 for primary. The December 31, 1995
market price of $26.13 for fully diluted was used as it was higher than the
average 1995 market price of $22.45.
<PAGE>
Exhibit 11
-------------
(Page 2 of 3)
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In millions, except per share amounts)
For the Year ended
December 31, 1994
Assuming
Primary Full Dilution
----------- -------------
Net income ......................................... $ 795 $ 795
Dividends on preferred stock ....................... (1) (1)
----- -----
Earnings applicable to common
stockholders ................................... $ 794 $ 794
===== =====
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding .................................... 597 597
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents .................................... 41 41
Shares of common stock assumed repurchased
for treasury(b) ................................ (34) (34)
----- -----
Adjusted shares of common stock and common
stock equivalents for computation .............. 604 604
===== =====
Earnings per common and common
equivalent shares ................................ $1.32 $1.32
===== =====
(b) At an average market price of $23.58 for primary and fully diluted as the
December 31, 1994 market price of $18.38 was less than the average market
price of $23.58.
<PAGE>
Exhibit 11
-------------
(Page 3 of 3)
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In millions, except per share amounts)
For the Year ended
December 31, 1993
Assuming
Primary Full Dilution
----------- -------------
Income before extraordinary item ................... $ 627 $ 627
Loss on early debt retirements, less
applicable income tax benefit of
$26 million ...................................... 45 45
----- -----
Net income ......................................... 582 582
Dividends on preferred stock ....................... (1) (1)
----- -----
Earnings applicable to common
stockholders ................................... 581 581
Add back:
Convertible preferred stock dividends ............ 1 1
----- -----
Earnings as adjusted for purposes
of computing earnings per share .................. $ 582 $ 582
===== =====
Adjustment of shares outstanding:
Weighted average shares of common stock
outstanding (c) ................................ 524 524
Assumed conversion of preferred stock ............ 27 27
Shares of common stock issuable upon the
assumed exercise of common stock
equivalents .................................... 51 51
Shares of common stock assumed repurchased
for treasury(d) ................................ (40) (35)
----- -----
Adjusted shares of common stock and common
stock equivalents for computation .............. 562 567
===== =====
Earnings per common and common equivalent shares:
Income before extraordinary item ................. $1.12 $1.11
Loss on early debt retirements ................... (.08) (.08)
----- -----
$1.04 $1.03
===== =====
(c) Amounts have been retroactively restated to reflect a two-for-one stock
split effected in the form of a 100% stock dividend declared in the second
quarter of 1993.
(d) At an average market price of $25.24 for primary. The December 31, 1993
market price of $28.25 for fully diluted was used as it was higher than the
average 1993 market price of $25.24.
Exhibit 12
----------
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio amounts)
(unaudited)
Year Ended December 31,
-----------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
Earnings:
Income before
income taxes and
extraordinary item .............. $ 897 $1,280 $1,045 $ 963 $ 848
Add:
Fixed charges ................... 344 315 315 346 334
Less:
Capitalized interest ............ 93 78 61 52 58
------ ------ ------ ------ ------
Total earnings .................. $1,148 $1,517 $1,299 $1,257 $1,124
====== ====== ====== ====== ======
Fixed Charges:
Fixed charges on
indebtedness, including
amortization of debt
discount and premium ............ $ 242 $ 231 $ 239 $ 270 $ 270
Interest portion of
operating lease
rentals(a) ...................... 102 84 76 76 64
------ ------ ------ ------ ------
Total fixed charges ............ $ 344 $ 315 $ 315 $ 346 $ 334
====== ====== ====== ====== ======
Ratio of earnings to
fixed charges ................... 3.34 4.82 4.12 3.63 3.37
====== ====== ====== ====== ======
(a) The interest portion of operating lease rentals is calculated as one third
of rent expense which represents a reasonable approximation of the interest
factor.
<TABLE>
SELECTED FINANCIAL INFORMATION
<CAPTION>
MCI Communications Corporation and Subsidiaries
Year ended December 31, 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(In millions, except per share amounts and employees)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenue ......................................... $ 15,265 $ 13,338 $ 11,921 $ 10,562 $ 9,491
Total operating expenses ........................ (14,147) (11,882) (10,653) (9,351) (8,400)
Income from operations .......................... 1,118 1,456 1,268 1,211 1,091
Equity in income (losses) of affiliated companies (187) (4) (2) (2) (1)
Income before extraordinary item ................ 548 795 627 609 551
Net income ...................................... 548 795 582 609 551
Earnings applicable to common stockholders ...... 548 794 581 589 522
Earnings per common and common
equivalent share .............................. .80 1.32 1.04 1.11 1.00
Cash dividends per share ........................ .05 .05 .05 .05 .05
-------- -------- -------- -------- --------
BALANCE SHEET
Gross investment in property and equipment ...... $ 15,547 $ 13,408 $ 11,618 $ 10,316 $ 9,684
Total assets .................................... 19,301 16,366 11,276 9,678 8,834
Long-term debt .................................. 3,444 2,997 2,366 3,432 3,104
Stockholders' equity ............................ 9,602 9,004 4,713 3,150 2,959
-------- -------- -------- -------- --------
CASH FLOW
Cash from operating activities .................. $ 2,979 $ 2,355 $ 1,978 $ 1,726 $ 1,271
Capital expenditures for property and equipment . 2,866 2,897 1,733 1,272 1,377
Acquisition (disposition) of businesses
and investment in affiliates and News Corp. ... 2,737 284 8 (22) -
-------- -------- -------- -------- --------
OPERATIONS
Capacity circuit miles .......................... 6,786 4,767 3,556 2,107 1,888
Billable calls .................................. 23,365 19,411 16,484 14,245 12,189
Number of full-time employees ................... 50,367 40,667 36,235 30,964 27,857
-------- -------- -------- -------- --------
<FN>
In September and November 1995, the company acquired all of the outstanding
shares of common stock of Nationwide Cellular Service, Inc. and SHL Systemhouse
Inc., respectively. These acquisitions were accounted for as purchases;
accordingly, the net assets and results of operations of the acquired companies
are included in the information above since their respective acquisition dates.
In 1994, British Telecommunications plc (BT) completed the purchase of 136
million shares of the company's Class A common stock for $4.3 billion, which
resulted in a 20 % voting interest in the company. This was achieved by the
issuance of 108.5 million shares of Class A common stock to BT for $3.5 billion
on September 30, 1994 and BT's conversion of 13,736 shares of Series D
convertible preferred stock, purchased for $830 million in June 1993, into 27.5
million shares of Class A common stock. This investment is reflected in
stockholders' equity.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
accompanying notes.
The company operates predominantly in a single industry segment, the
telecommunications industry. The industry consists of a wide range of
telecommunications services to residential and business customers, including
domestic and international long distance voice and data services,
teleconferencing and electronic messaging services, which are the markets in
which the company has historically operated (core business). Management has
embarked on a strategy to expand the company's business into certain developing
markets, including the local, wireless, information technology and multimedia
markets, which is discussed in further detail in the Enterprise Reporting
section of Management's Discussion and Analysis.
Financial Summary
- -----------------
In 1995, total revenue grew $1.9 billion or 14% over the prior year versus $1.4
billion or 12% in 1994. Revenue from the company's core business grew $1.7
billion or 13% and traffic increased 16% over 1994. The company's revenue growth
from its core business in 1995 was approximately 33% of the total long distance
industry growth, estimated to be approximately $5 billion.
1995 vs. 1994 1994 vs. 1993
------------- -------------
Increase in core business revenue ........... 13% 12%
Increase in traffic ......................... 16% 12%
------------- -------------
Revenue to traffic variance ................. (3)% -%
------------- -------------
In 1995, the company's variance of (3)% between revenue growth and traffic
growth in the core business was due primarily to growth in large account and
carrier market traffic, which typically carries both a lower average revenue
rate and lower overall costs, and due to increased volume and promotional
discounts for consumer market customers. International growth of 33% in 1995 and
20% in 1994 continued to affect the revenue to traffic variance favorably.
Income from operations decreased 23% to $1,118 million in 1995, which followed a
15% increase in 1994. In 1995, 1994 and 1993, operating income was affected by
special pretax operating charges of $736 million, $133 million and $150 million,
respectively. Excluding these charges, which are discussed below, operating
income and margins would have been $1,854 million or 12.1% in 1995; $1,589
million or 11.9% in 1994; and $1,418 million or 11.9% in 1993.
<PAGE>
[GRAPHIC OMITTED]
REVENUE (in millions of dollars)
1993 11,921
1994 13,338
1995 15,265
BILLABLE CALLS (in millions)
1993 16,484
1994 19,411
1995 23,365
Earnings were $548 million or $.80 per share for 1995; $794 million or $1.32 per
share for 1994; and $581 million or $1.04 per share for 1993. Excluding special
items in 1995, 1994 and 1993, and an extraordinary loss on early debt
retirements in 1993, earnings per share would have been $1.55, $1.47 and $1.28,
respectively. The September 1994 issuance of 136 million shares of Class A
common stock to British Telecommunications plc (BT) had a full year dilutive
impact on earnings per share in 1995 versus 1994 and 1993. In 1995, earnings per
share was also negatively affected by the results of the company's recent
business acquisitions and investments in ventures and developing markets.
In 1994, BT completed its purchase of 136 million shares of the company's Class
A common stock for $4.3 billion, which resulted in a 20% voting interest in the
company. This was achieved by the issuance of 108.5 million shares of Class A
common stock to BT for $3.5 billion on September 30, 1994 and BT's conversion of
13,736 shares of Series D convertible preferred stock, purchased for $830
million in June 1993, into 27.5 million shares of Class A common stock.
During the third quarter of 1995, the company implemented a reorganization
designed to increase efficiency, enhance marketplace effectiveness and improve
business focus. The reorganization was largely in response to the rapid changes
in business scope, technology and regulation affecting the telecommunications
industry. The company consolidated its core business and centralized major
administrative functions. The core business includes network operations,
information systems and the former Business Markets and Consumer Markets groups.
In connection with the reorganization and other third quarter 1995 events, the
company recorded special pretax charges of $831 million. After the applicable
tax benefit, the charge resulted in a reduction to earnings of $518 million, or
$.75 per share.
In 1994, the company recorded special pretax items totaling $148 million, which
related primarily to reduced utility of older asynchronous fiber-optic
transmission equipment and product launch costs. In 1993, the company recorded a
special pretax charge of $150 million primarily associated with a strategic
realignment and streamlining of engineering and network operations. Also, 1993
results included an extraordinary loss of $45 million, net of tax benefit, for
the early retirement of debt.
[GRAPHIC OMITTED]
BOOK VALUE PER SHARE (in dollars)
1993 8.71
1994 13.26
1995 14.00
MARKET TO BOOK RATIO
1993 3.2
1994 1.4
1995 1.9
<PAGE>
Business Acquisitions and Investments in Ventures and Developing Markets
- ------------------------------------------------------------------------
In November 1995, the company acquired all the outstanding shares of SHL
Systemhouse Inc. (SHL) for U.S. $13 per share or approximately U.S. $1.13
billion. The company anticipates that SHL, a Canadian corporation which provides
information technology services to commercial and government enterprises, will
provide it with the ability to design, build and manage information solutions
that integrate computing and communications technologies for its business
customers.
In September 1995, the company acquired all the outstanding shares of Nationwide
Cellular Service, Inc. (Nationwide) for approximately $210 million. The
acquisition of Nationwide represents part of the company's strategy to provide
wireless services integrated with other company services for both consumer and
business customers. In addition, during 1995, the company negotiated agreements
with a number of cellular companies to purchase wireless services for resale.
These agreements, including arrangements that Nationwide has with other cellular
carriers, give the company the ability to market wireless services in the top
100 U.S. markets.
In August 1995, the company made an initial investment of $1 billion in The News
Corporation Limited (News Corp.). The investment was comprised of (i) an
aggregate of 51 preferred shares of two U.S. subsidiaries of News Corp. (News
Triangle Finance, Inc. and News T Investments, Inc.) with a stated value and
liquidation preference of $850 million and bearing a dividend rate of 5.147%
(which is eligible for the dividend received deduction under current income tax
laws) and (ii) a four year warrant (purchase price of $150 million) to acquire
up to approximately 155 million News Corp. ordinary shares for $850 million. The
exercise price of the warrant is payable, at the company's option, in cash,
through the surrender of the preferred shares or a combination of both. In
addition, the company has an option for five years to invest an additional $1
billion under the same terms and for the same consideration as its initial
investment. Under certain circumstances, News Corp. shall have the right to
cause the company to make the additional $1 billion investment or a portion
thereof. In January 1996, News Corp. exercised a portion of this right by
requiring the company to invest $350 million in the first half of 1996. As a
result of the alliance with News Corp., the companies are working together on
the formation of ventures in the multimedia service arena, including a direct
broadcast satellite (DBS) venture.
<PAGE>
During 1995, the company also invested a total of approximately $800 million in
other ventures and developing markets, including Concert Communications Company
(Concert(cm)), AVANTEL S.A. de C.V. (AVANTEL) and MCImetro, Inc. (MCImetro(sm)).
Furthermore, in January 1996, the company and Microsoft Corporation announced
their intent to enter into a strategic alliance to jointly market and develop a
range of services in the on-line, Internet and networking markets.
These acquisitions and investments are discussed in more detail in the
Enterprise Reporting section.
Current Legislation
- -------------------
On February 8, 1996, the Telecommunications Act of 1996 (the Act) was signed
into law. This legislation constitutes the most comprehensive revision of the
United States' communications policies in more than 60 years. The Act eliminates
legal barriers to competition in the local telephone market and, at the same
time, contains provisions intended to protect consumers and businesses from
unfair competition by the seven regional Bell operating companies (RBOCs). The
RBOCs will be able to offer long distance services outside their regions
immediately, but will be barred from offering in-region long distance services
until they have opened their own markets and face facilities-based local
competition. Further, the entry of an RBOC into the long distance market in its
region requires the approval of the Federal Communications Commission (FCC)
which, in consultation with the Department of Justice, must find such entry to
be in the public interest. With the passage of the legislation, the company can
enter local telephone markets by building new facilities, reselling local
network capacity, and partnering with other new market entrants, including other
long distance companies. It is too soon to determine the legislation's eventual
impact on the company's financial position and results of operations.
Recent Accounting Pronouncements
- --------------------------------
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." SFAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans and is effective
for fiscal years beginning after December 15, 1995. The company expects to
continue to apply the accounting provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," in determining its
net income. However, beginning in 1996, additional disclosures will be made
about the estimated compensation expense under the method established by SFAS
123.
<PAGE>
RESULTS OF OPERATIONS
Revenue
- -------
In the business market, revenue and traffic showed continued growth in 1995 and
1994, which was driven by increases in most segments, particularly mid-sized
customer, large account and carrier segments. Revenue increases in 1995 were
primarily attributable to growth in data products, which grew 34% in 1995, as
well as the continued success of the company's virtual private network product
(Vnet(rm)), MCI Vision(rm) and 800 services. The 1994 revenue growth was largely
in 800 revenue, which resulted, in part, from the FCC's 800 service number
portability ruling, which took effect in May 1993, and in data revenue, which
increased 35% in 1994, in part, from the company's purchase of BT North America
Inc. in January 1994.
In the consumer market, revenue and traffic growth in 1995 and 1994 was driven
by the company's Friends & Family(rm) products, collect-calling product
(1-800-COLLECT(rm)), calling card products and consumer 800 number products.
In 1995, revenue of acquired companies contributed to approximately 10% of the
company's consolidated year-over-year revenue growth.
Telecommunications
- ------------------
The principal components of telecommunications expense are the cost of access
facilities provided by local exchange carriers and other domestic service
providers, and payments made to foreign telephone companies (international
settlements) to complete calls made to foreign countries from the U.S. by the
company's customers. In the core business, telecommunications expense as a
percentage of revenue declined to 51.9% in 1995 from 52.1% in 1994 and 53.7% in
1993 due to reductions in domestic access and international settlement rates.
The decline from 1993 was also a result of efficiencies resulting from operator
services automation.
Sales, Operations and General
- -----------------------------
Sales, operations and general expenses increased as a percentage of revenue to
29.5% in 1995 from 28.4% in 1994 and 27.8% in 1993. The year-over-year increases
primarily related to special charges of $216 million in 1995, discussed below;
$70 million for the launch of networkMCI BUSINESS(tm) in 1994; and the $150
million realignment charge in 1993. The 1995 sales, operations and general
expenses also include the cost of hardware and licensed software of
approximately $64 million, which related to information technology services
revenue of SHL since its acquisition in November 1995. Excluding these costs and
the special charges, sales, operations and general expenses would have been
27.7%, 27.9% and 26.5% of revenue in 1995, 1994 and 1993, respectively. The 1995
decrease in these expenses as a percentage of revenue was primarily due to cost
savings associated with reorganization efforts, while the increase in 1994 was
primarily due to higher personnel costs, higher levels of advertising and
related sales and marketing expenses.
<PAGE>
[GRAPHIC OMITTED]
NUMBER OF FULL-TIME EMPLOYEES
1993 36,235
1994 40,667
1995 50,367*
*includes 7,582 of acquired company employees
CAPACITY CIRCUIT MILES (in millions)
1993 3,556
1994 4,767
1995 6,786
Depreciation
- ------------
Depreciation expense increased year-over-year by $132 million or 11% in 1995 and
by $206 million or 21% in 1994. These increases were primarily a result of
additions to the communications system network, which were made in order to
increase network capacity, redundancy and reliability. The 1995 depreciation
expense reflected depreciation savings associated with the asset write-down
discussed below. Depreciation expense in 1994 also included a $63 million
special charge to recognize the reduced utility of older asynchronous
fiber-optic transmission equipment and to reflect the results of an asset
utilization review. The company expects depreciation expense to continue to
increase with the expansion of its communications system network.
1995 Special Charges
- --------------------
As previously mentioned, the company recorded special pretax charges of $831
million during the third quarter of 1995. The charges were comprised of the
following three major components.
The company recorded a $520 million charge for an asset write-down, which
reflected a decline in value of certain of the company's assets caused by
changes in the business and technology strategy. The write-down primarily
related to communications systems and administrative assets that have become
redundant or were no longer aligned with strategic product offerings. The amount
of the write-down was measured in conformity with the Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which the company adopted
in the third quarter of 1995. Under this standard, charges were taken for the
difference between the current carrying value and the estimated fair value of
such assets at the expected disposal date. In the company's case, the fair value
of most of the assets covered by this write-down was deemed to be salvage value.
Disposal or abandonment of substantially all of these assets occurred by
December 31, 1995.
<PAGE>
The company also recorded a $216 million charge in sales, operations and general
expenses, which related primarily to reorganization costs. These costs included
approximately $50 million of severance associated with a workforce reduction,
$55 million of lease obligations and penalties associated with vacating
facilities, and $45 million of costs to modify and terminate contracts
associated with changes in the business organization and strategic product
offerings. The remainder of the charge included other costs associated with the
company's business reorganization and certain legal costs. The company expects
to reduce its workforce by approximately 2,800 employees, of whom approximately
2,400 had left the company at December 31, 1995. The remaining employees are
expected to leave during the first half of 1996. The terminated employees, which
included management and nonmanagement, were primarily sales, support and systems
engineering personnel located at business administrative and operations sites.
The company abandoned excess and duplicate facilities at various business and
operations locations due to automation, workforce reductions and centralization.
As of December 31, 1995, the company had incurred $55 million of the accrued
reorganization costs with the majority of the remaining costs to be incurred
during 1996. The remaining accrual is primarily comprised of costs associated
with lease obligations, severance, modification and termination of contracts,
other business reorganization costs and certain accrued legal costs. The
reorganization accrual is charged when applicable severance payments are
disbursed, or when rental expense is incurred or lease termination costs are
disbursed, or when contract settlements are completed and payment is disbursed.
Other costs are charged as incurred. Cash expenditures for these expenses were
and will continue to be funded from cash from operations.
In addition, the company recorded a charge of $95 million in equity in income
(losses) of affiliated companies, which related to several investees where
restructuring plans were implemented in the third quarter of 1995 or where
product offerings were not expected to generate future cash flows sufficient to
recover current carrying values.
As a result of the reorganization, the company expects to realize annual savings
of approximately $100 million in sales, operations and general expenses. The
depreciation savings from the asset write-down will partially offset increases
in depreciation expense from continuing additions to the communications system.
Other
- -----
Interest expense decreased in 1995 and 1994 from prior years. During 1995, the
company issued and assumed new debt balances as a result of the purchase of SHL
in November 1995. The increase in average debt balances and higher interest
rates increased interest costs in 1995 and 1994; however, these increases were
more than offset by increased capitalized interest due to the company's
increased investment in its communications system.
Interest income increased significantly in 1995 and 1994 from 1993 due to the
investment of the BT proceeds received in September 1994. Interest income
declined in the fourth quarter of 1995 and will continue to decline in 1996 as
cash is used to fund the company's business acquisitions and its investments in
ventures and developing markets.
Other expense, net, decreased by $37 million in 1995, which reflected a $25
million charge recorded in 1994 in connection with the settlement of two class
action suits and the dividend income of $18 million from News Corp. recorded in
1995.
<PAGE>
Equity in Income (Losses) of Affiliated Companies
- -------------------------------------------------
The company's equity in losses from its investment in affiliates, exclusive of
the aforementioned special charge impact, was $92 million in 1995. The majority
of the 1995 losses were attributable to Concert and In-Flight Phone Corporation.
Equity in losses of affiliated companies was $4 million in 1994, which included
Concert losses that were partially offset by a gain on the sale of the company's
equity investment in AAP Telecommunications Pty. Ltd. The company expects losses
to continue in 1996 due to the start-up nature of these and other investments in
ventures and developing markets as discussed in the Enterprise Reporting
section.
Weighted Average Shares
- -----------------------
Weighted average shares increased approximately 14% in 1995 due to the issuance
to BT in September 1994 of 108.5 million shares of Class A common stock.
ENTERPRISE REPORTING
The company has invested in ventures and developing markets outside of its core
business through acquisitions, alliances and other strategic initiatives in the
local, wireless, information technology, international and multimedia markets.
Investments in these ventures and developing markets are included in the
company's financial statements as consolidated subsidiaries, unconsolidated
equity investments, or cost method investments such as News Corp.
This section segregates the performance of the company's core business from its
investments in ventures and developing markets business. The following unaudited
information was prepared using all amounts included in the company's
consolidated financial statements and reflects estimates and allocations that
management believes provide a reasonable basis on which to present such
information. The revenue and income amounts include sales of services between
the core business and the ventures and developing markets business based upon
prevailing market rates. Administrative expenses are allocated to the respective
enterprises on a fully distributed basis reflective of actual utilization. Net
interest expense is fully distributed based upon proportionate debt levels
reflecting the cash flow of the respective enterprise commencing on October 1,
1995. Prior to October 1, 1995, all debt was allocated to the core business
except for amounts allocated to support the acquisition of Nationwide and the
investment in News Corp. The consolidated income tax provision and related tax
payments are allocated to each enterprise based on its tax attributes.
Financial Summary
- -----------------
For the year ended December 31, 1995, net income (loss) for the core business
and the ventures and developing markets business was $757 million and $(209)
million, respectively. EBITDA (earnings before interest, taxes, depreciation and
amortization), excluding other income (expense) and equity in income (losses) of
affiliated companies, was $2,992 million for the core business and $(46) million
for the ventures and developing markets business for the year ended December 31,
1995. EBITDA, a measure of the company's ability to generate cash flows, should
be considered in addition to, but not as a substitute for, or superior to, other
measures of financial performance reported in accordance with generally accepted
accounting principles. EBITDA, also known as operating cash flow, is often used
by analysts when evaluating companies. Operating income (loss) for the core
business and the ventures and developing markets business was $1,226 million and
$(108) million, respectively.
<PAGE>
The following table summarizes the financial highlights of these enterprises
excluding the aforementioned special pretax charges.
Supplemental Enterprise Reporting Data
- --------------------------------------
Ventures and
Year ended December 31, 1995 Core Business Developing Markets
------------- ------------------
(In millions)
Revenue .......................................... $14,990 $ 365
EBITDA* .......................................... 3,208 (46)
Operating income (loss)* ......................... 1,923 (69)
Equity in income (losses) of affiliated companies* - (92)
Net income (loss)* ............................... 1,191 (125)
Capital expenditures ............................. 2,558 308
------------- ------------------
* Amounts have been adjusted to exclude the impact of the special charges.
The following discussion focuses on significant financial and operational
results of the company's ventures and developing markets business.
Local Services
- --------------
MCImetro, the company's wholly-owned local services subsidiary, provides local
fiber-optic capacity and competitive access services to the company's core
business and other long distance carriers, large businesses and government users
of telecommunications services. MCImetro intends to become a single-source
provider of comprehensive local wireline telecommunications services,
encompassing voice, data and enhanced services in key markets as regulatory
authorities permit. At December 31, 1995, MCImetro had been granted authority to
offer local exchange service in 14 states and had applications for such services
pending in six other states.
In 1995, MCImetro installed 10 Class 5 local switches and conducted testing of
its initial set of local service offerings and support systems. In February
1996, MCImetro offered its initial set of local exchange services in Baltimore,
Boston and Detroit. The initial services encompass basic local telephone
service, business lines, private branch exchange (PBX) trunks and access
services, which provide businesses with high quality dedicated access
connections to a long distance carrier or other service provider, as well as
enhanced services.
As of December 31, 1995, MCImetro had constructed 38 operational local city
networks in 25 cities, which represented an increase of 30 local city networks
and 20 cities in 1995. At December 31, 1995, MCImetro had 2,338 route miles and
3,700 right-of-way miles.
In 1995, MCImetro reported revenue of $108 million on sales of fiber-optic
capacity and competitive access services, of which substantially all was derived
from sales to the company's core business. EBITDA for the year ended December
31, 1995 was $(15) million and net loss was $(17) million. For the same period,
MCImetro made capital expenditures of $265 million, which were primarily for the
construction of its local city networks and Class 5 switch development.
<PAGE>
[GRAPHIC OMITTED]
MCImetro CAPITAL EXPENDITURES (in millions of dollars)
1994 32
1995 265
MCImetro LOCAL CITY NETWORKS
1994 8
1995 38
Wireless Services
- -----------------
Wireless services revenue for the three months ended December 31, 1995,
following the acquisition of Nationwide, was $82 million, which was derived from
cellular and paging services, as well as equipment sales. EBITDA for the same
period was $(5) million and net loss was $(10) million. At December 31, 1995,
the company had approximately 347,000 cellular service subscribers and 465,000
paging service subscribers. The company provides wireless services through
resale from facility based wireless service providers.
[GRAPHIC OMITTED]
WIRELESS CUSTOMER BASE* (in thousands)
1993 176 cellular
1994 257 includes 250 cellular and 7 paging
1995 812 includes 347 cellular and 465 paging
WIRELESS REVENUE* (in millions of dollars)
1993 183
1994 213
1995 272
* 1993, 1994 and 1995 includes Nationwide's operational results prior to
acquisition by the company and are shown for comparison purposes only.
Information Technology Services
- -------------------------------
Information technology services revenue for the three months ended December 31,
1995, including SHL revenue from the November 1995 acquisition date, was $126
million, which was comprised of $62 million of equipment deployment and
educational services, $37 million for consulting and systems integration and $27
million for outsourcing services. EBITDA was $1 million and net loss was $(17)
million for same period.
Backlog at December 31, 1995 was $1.4 billion, the majority of which was from
the 10 largest contracts. Reported backlog includes amounts committed under
executed contracts or letters of intent. The company expects that approximately
30% of the backlog will be delivered in 1996. Since revenue depends on actual
usage under service contracts, which may be subject to termination under certain
circumstances, actual revenue for a particular contract may be higher or lower
than the reported backlog for such contract.
International Services
- ----------------------
During 1995, the company invested $66 million in Concert, a 24.9% owned
international services venture with BT, which provides global enhanced
telecommunications services for business customers. This represents the
company's percentage share of required ongoing capital infusions to the venture.
For the year ended December 31, 1995, the company's share of Concert losses
reported in accordance with U.S. generally accepted accounting principles was
$(57) million, excluding Concert's special charges. Through December 31, 1995,
the company has invested a total of $145 million since Concert's launch in July
1994. The company intends to continue making contributions to Concert in order
to maintain its proportionate interest.
<PAGE>
For the twelve months ended December 31, 1995, Concert product sales amounted to
approximately $300 million in revenue to its distributors. Concert services are
available through the company, BT and distributors in North America, Europe and
Asia. Concert provides a complete portfolio of advanced global communication
services to multinational businesses worldwide, which include virtual network,
frame relay, managed bandwidth and packet services. Monthly revenues for these
services, in the aggregate, grew more than 100% year-over-year. The Concert
network has 6,000 nodes deployed in over 800 cities in more than 50 countries.
In November 1995, the company increased its investment in AVANTEL, a 44.5% owned
business venture with Grupo Financiero Banamex-Accival, to approximately $250
million, which represents half of the company's total anticipated investment,
the remainder of which is expected to be made in 1996. In September 1995,
AVANTEL received a license from the Mexican Secretariat of Communications and
Transportation to construct and operate a nationwide fiber-optic
telecommunications network in Mexico. AVANTEL plans to provide competitive
domestic and international long distance telecommunications services in Mexico
when the market opens for competition for business customers in August 1996.
Certain value added, private line and data services may be offered prior to that
time. A full range of competitive switched long distance services is expected to
be offered by AVANTEL to residential and business customers beginning in January
1997. For the year ended December 31, 1995, AVANTEL's capital expenditures were
$86 million, and at December 31, 1995, AVANTEL had installed 1,540 route miles
of its fiber-optic network in Mexico.
Multimedia Services
- -------------------
The company invested $1 billion in News Corp. in August 1995, and recorded $18
million in dividend income during the period ended December 31, 1995. The
company has the option for five years to invest an additional $1 billion in News
Corp. During the five year period, under certain circumstances, News Corp. can
require the company to invest the additional $1 billion or a part thereof. In
January 1996, News Corp. exercised a portion of this right by requiring the
company to invest $350 million in the first half of 1996. If the $2 billion
investment had been made and the related warrants exercised at December 31,
1995, the company would have held a 13.8% voting interest (12.9% on a fully
diluted basis) in News Corp.
On January 25, 1996, the company submitted the winning bid of $682 million for
the last remaining unallocated DBS spectrum slot that provides coverage of all
fifty states and Puerto Rico, located at 110-degrees West Longitude. DBS is a
point-to-multipoint broadcast service that uses high-powered Ku band satellites
which are placed in geosynchronous orbit. The company has paid a portion of the
license fee, with the remainder due upon receipt of the license. In addition,
the company and News Corp. will form a joint venture to enter the United States
DBS video, audio and data market. The venture will offer information and
entertainment services to businesses and consumers. The companies plan to invest
approximately $1.3 billion, on a 50-50 basis, in the venture, and expect to
offer service by late 1997.
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
- ----------
Cash from operating activities increased 26% to $2,979 million in 1995 and 19%
to $2,355 million in 1994, which was consistent with the growth in the company's
recurring income from operations for these periods. A significant increase in
interest received, which resulted from a full year earnings of marketable
securities, also contributed to the 1995 increase. Cash from operating
activities has been the company's primary source of cash to finance capital
expenditures. The 1995 business acquisitions and investments in ventures and
developing markets were funded with proceeds from the BT investment and, to a
lesser extent, from the issuance of commercial paper. In 1994, financing
activities were a significant source of cash as a result of the BT transaction
and debt issuances. EBITDA, excluding special charges, other income (expense)
and equity in income (losses) of affiliated companies increased to $3.2 billion
in 1995 from $2.7 billion in 1994 and $2.4 billion in 1993. The increases were
primarily a result of strong revenue growth, which was partially offset by
higher operating expenses.
Working Capital
- ---------------
The company had working capital (current assets less current liabilities) of
$(.3) billion and $1.8 billion at December 31, 1995 and 1994, respectively. The
decline in working capital was primarily attributable to the use of cash and
cash equivalents and the sale of marketable securities to fund 1995 business
acquisitions and investments in ventures and developing markets. Current assets
decreased due to a decline in cash, cash equivalents and current marketable
securities of $1.4 billion, which was offset by increases of $.7 billion in
receivables and $.4 billion in other. The increase in receivables and other
current assets reflected strong year-end business volumes and acquired company
balances. Current liabilities increased $1.7 billion from December 31, 1994 due
to increases of $.5 billion in accrued telecommunications expense and accounts
payable, $.8 billion in other accrued liabilities and $.4 billion in long-term
debt due within one year. The increase in accrued telecommunications expense and
accounts payable was attributable to the growth in the company's overall
business and acquired company balances. Other accrued liabilities increased
primarily due to the accrued reorganization costs, increases in accrued payroll
and related costs and acquired company balances. Long-term debt due within one
year increased as a result of current maturity on the company's long-term debt
portfolio.
<PAGE>
Capital Expenditures
- --------------------
The company continued to invest in its communications system in order to
increase network capacity, reliability and performance, and to enhance network
intelligence. Capital expenditures for property and equipment were approximately
$2.9 billion in each of 1995 and 1994, and $1.7 billion in 1993. The increases
in capital expenditures for 1995 and 1994 were due primarily to increases in
capacity, intelligent network and switch software development, and the company's
continued deployment of Synchronous Optical Network (SONET) technology. SONET
technology enables high-speed multimedia applications and information services,
as well as advanced network technologies for improved reliability and delivery
of advanced services. Also contributing to the 1995 increase were MCImetro
capital expenditures of approximately $.3 billion. In addition to the
construction of MCImetro's SONET-based local city networks, during 1995, the
company accelerated its deployment of long distance network SONET rings around
major metropolitan areas. SONET rings provide millisecond restoration of traffic
in the event of a fiber cut. In addition, the company activated the nation's
first commercial network combining SONET and Asynchronous Transfer Mode (ATM)
technologies called vBNS, very high-speed backbone network service during 1995.
The combination of SONET and ATM allows the company to combine voice, data and
video transmissions for unique high-speed applications over a single channel.
Property and equipment retirements were $.9 billion and $1.1 billion in 1995 and
1994, respectively.
[GRAPHIC OMITTED]
CASH FROM OPERATIONS (in millions of dollars)
1993 1,978
1994 2,355
1995 2,979
CAPITAL EXPENDITURES (in millions of dollars)
1993 1,733
1994 2,897
1995 2,866
<PAGE>
Funding of Capital Expenditures and Investments in Ventures and
Developing Markets
- ------------------
In 1995, the company funded its capital expenditures, acquisitions of SHL and
Nationwide, as well as investments in News Corp., AVANTEL, Concert and other
ventures, through cash from operations, marketable securities purchased with the
proceeds from the investment of BT and debt issuances. In 1996, the company
plans to spend approximately $3 billion on capital expenditures, which includes
MCImetro capital expenditures, most of which will be funded with cash from
operations. In addition, the company expects to invest approximately $2 billion
in existing ventures and developing markets, which includes the company's share
of planned DBS venture costs, additional investment in News Corp., and a 1996
planned capital contribution in AVANTEL. The company believes that it will be
able to meet its current and long-term liquidity and its capital requirements
from cash from operations and existing debt facilities. The company has a $2
billion bank credit facility, which expires in July 2000. The bank credit
facility supports the company's commercial paper program and may also be used to
fund short-term fluctuations in working capital and other general corporate
requirements. In addition, the company has a $1 billion shelf registration in
effect, which covers debt securities with a range of maturities at either fixed
or variable rates. At December 31, 1995, there was $705 million outstanding
under the commercial paper program and bank credit facility, and no securities
were issued under the shelf registration.
The company's ratio of debt to total capitalization, defined as total debt to
total debt plus equity, increased to 29% at December 31, 1995 from 26% at
December 31, 1994, as a result of the issuance of commercial paper to fund
certain of the company's business acquisitions and investments in ventures and
developing markets. On September 30, 1994, the company issued 108.5 million
shares of Class A common stock to BT for $3.5 billion in cash, which caused the
company's debt to total capitalization ratio to decrease to 26% at December 31,
1994 from 35% at December 31, 1993.
(sm) - service mark
(rm) - registered service mark
(tm) - trademark
(cm) - Concert is a mark of the Concert Communications Company.
<PAGE>
INCOME STATEMENTS
MCI Communications Corporation and Subsidiaries
Year ended December 31, 1995 1994 1993
(In millions, except per share amounts) -------- -------- --------
REVENUE ..................................... $ 15,265 $ 13,338 $ 11,921
OPERATING EXPENSES
Telecommunications ........................ 7,813 6,916 6,373
Sales, operations and general ............. 4,506 3,790 3,310
Depreciation .............................. 1,308 1,176 970
Asset write-down .......................... 520 - -
-------- -------- --------
TOTAL OPERATING EXPENSES .................. 14,147 11,882 10,653
-------- -------- --------
INCOME FROM OPERATIONS ...................... 1,118 1,456 1,268
Interest expense ............................ (149) (153) (178)
Interest income ............................. 147 50 8
Other expense, net .......................... (32) (69) (51)
Equity in income (losses) of
affiliated companies ...................... (187) (4) (2)
-------- -------- --------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM .................... 897 1,280 1,045
Income tax provision ........................ 349 485 418
-------- -------- --------
Income before extraordinary item ............ 548 795 627
Extraordinary loss on early debt retirements,
less applicable tax benefit of $26 million - - 45
-------- -------- --------
NET INCOME ................................ $ 548 $ 795 $ 582
Dividends on preferred stock ................ - 1 1
-------- -------- --------
EARNINGS APPLICABLE TO
COMMON STOCKHOLDERS ....................... $ 548 $ 794 $ 581
======== ======== ========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARES
Income before extraordinary item ............ $ .80 $ 1.32 $ 1.12
Loss on early debt retirements .............. - - (.08)
-------- -------- --------
Total ....................................... $ .80 $ 1.32 $ 1.04
======== ======== ========
Weighted average number of common shares .... 687 604 562
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
BALANCE SHEETS
MCI Communications Corporation and Subsidiaries
December 31, 1995 1994
(In millions) -------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ....................... $ 471 $ 1,429
Marketable securities ........................... 373 839
Receivables, net of allowance for
uncollectibles of $260 and $226 million ....... 2,954 2,266
Other current assets ............................ 749 354
-------- --------
TOTAL CURRENT ASSETS .......................... 4,547 4,888
-------- --------
PROPERTY AND EQUIPMENT
Communications system in service ................ 11,318 9,766
Furniture, fixtures and equipment ............... 2,432 1,974
Other property .................................. 493 478
-------- --------
TOTAL PROPERTY AND EQUIPMENT .................. 14,243 12,218
Accumulated depreciation ........................ (5,238) (4,349)
Construction in progress ........................ 1,304 1,190
-------- --------
TOTAL PROPERTY AND EQUIPMENT, NET ............. 10,309 9,059
-------- --------
OTHER ASSETS
Noncurrent marketable securities ................ - 824
Other assets and deferred charges, net .......... 469 293
Investment in affiliates ........................ 495 199
Investment in News Corp. ........................ 1,000 -
Goodwill, net ................................... 2,481 1,103
-------- --------
TOTAL OTHER ASSETS ............................ 4,445 2,419
-------- --------
TOTAL ASSETS .................................. $ 19,301 $ 16,366
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................................ $ 706 $ 609
Accrued telecommunications expense .............. 1,936 1,505
Other accrued liabilities ....................... 1,728 893
Long-term debt due within one year .............. 500 130
-------- --------
TOTAL CURRENT LIABILITIES ..................... 4,870 3,137
-------- --------
NONCURRENT LIABILITIES
Long-term debt .................................. 3,444 2,997
Deferred taxes and other ........................ 1,385 1,228
-------- --------
TOTAL NONCURRENT LIABILITIES .................. 4,829 4,225
-------- --------
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 and 592 million shares .................... 60 60
Additional paid in capital ...................... 6,405 6,227
Retained earnings ............................... 4,063 3,548
Treasury stock, at cost, 43 and 48 million shares (940) (845)
-------- --------
TOTAL STOCKHOLDERS' EQUITY .................... 9,602 9,004
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $ 19,301 $ 16,366
======== ========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
MCI Communications Corporation and Subsidiaries
Year ended December 31, 1995 1994 1993
(In millions) --------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Receipts from customers ...................................................... $ 14,786 $ 13,298 $ 11,546
Payments to suppliers and employees .......................................... (11,453) (10,472) (9,106)
Taxes paid ................................................................... (410) (393) (321)
Interest paid ................................................................ (113) (100) (150)
Interest received ............................................................ 169 22 9
--------- --------- ---------
CASH FROM OPERATING ACTIVITIES .......................................... 2,979 2,355 1,978
--------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures for property and equipment .............................. (2,866) (2,897) (1,733)
Purchases of marketable securities ........................................... (4,630) (4,096) -
Proceeds from sales and maturities of marketable securities .................. 5,930 2,424 3
Acquisition of businesses, net of cash acquired .............................. (1,243) (110) 5
Investment in News Corp. ..................................................... (1,000) - -
Investment in affiliates ..................................................... (494) (174) (13)
Other, net ................................................................... 11 (64) (21)
--------- --------- ---------
CASH USED FOR INVESTING ACTIVITIES ...................................... (4,292) (4,917) (1,759)
--------- --------- ---------
NET CASH FLOW BEFORE FINANCING ACTIVITIES ............................... (1,313) (2,562) 219
--------- --------- ---------
FINANCING ACTIVITIES
Issuance of Senior Notes and other debt ...................................... - 939 756
Payment of Senior Notes and other debt ....................................... (305) (246) (1,468)
Commercial paper and bank credit facility
activity, net .............................................................. 702 (239) (497)
Issuance of preferred stock .................................................. - - 830
Issuance of Class A common stock ............................................. - 3,510 -
Issuance of common stock for employee plans .................................. 275 248 319
Payment of dividends on common and
preferred stock ............................................................ (33) (32) (28)
Purchase of treasury stock ................................................... (284) (354) (198)
--------- --------- ---------
CASH FROM (USED FOR) FINANCING ACTIVITIES ............................... 355 3,826 (286)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ........................... (958) 1,264 (67)
Cash and cash equivalents at beginning of year ................................. 1,429 165 232
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................................ $ 471 $ 1,429 $ 165
========= ========= =========
RECONCILIATION OF NET INCOME TO CASH FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 548 $ 795 $ 582
Adjustments to net income:
Depreciation and amortization ................................................ 1,367 1,230 1,019
Asset write-down ............................................................. 520 - -
Equity in (income) losses of affiliated companies ............................ 187 4 2
Deferred income tax provision ................................................ 144 269 253
Net change in operating activity accounts other
than cash and cash equivalents,
net of effects of acquisition of businesses:
Receivables .................................................................. (442) (135) (370)
Operating accounts payable ................................................... 57 36 (68)
Other operating activity accounts ............................................ 598 156 560
--------- --------- ---------
CASH FROM OPERATING ACTIVITIES ......................................... $ 2,979 $ 2,355 $ 1,978
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
MCI Communications Corporation and Subsidiaries
<CAPTION>
Class A Additional Treasury Stock-
Preferred Common Common Paid in Retained Stock, holders'
Stock Stock Stock Capital Earnings at Cost Equity
-------- -------- -------- -------- -------- -------- --------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 ................ - - $ 30 $ 1,479 $ 2,231 $ (590) $ 3,150
Common stock issued for employee
stock and benefit plans (23 million shares) - - - 179 - 160 339
Tax benefit of common stock transactions
related to employee benefit plans ......... - - - 36 - - 36
Net income .................................. - - - - 582 - 582
Common and preferred dividends .............. - - - - (28) - (28)
Convertible preferred stock issued .......... $ 1 - - 829 - - 830
Stock split effected in the form of
a 100% stock dividend ..................... - - 30 (30) - - -
Treasury stock purchased
(8 million shares ) ....................... - - - - - (196) (196)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1993 ................ 1 - 60 2,493 2,785 (626) 4,713
Class A common stock issued
(136 million shares) and preferred
stock converted ........................... (1) $ 14 - 3,496 - - 3,509
Common stock issued for employee
stock and benefit plans
(18 million shares) ....................... - - - 180 - 124 304
Tax benefit of common stock
transactions related to employee
benefit plans ............................. - - - 63 - - 63
Change in unrealized loss on
marketable securities ..................... - - - (5) - - (5)
Net income .................................. - - - - 795 - 795
Common and preferred dividends .............. - - - - (32) - (32)
Treasury stock purchased
(15 million shares) ....................... - - - - - (343) (343)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1994 ................ - 14 60 6,227 3,548 (845) 9,004
Common stock issued for employee
stock and benefit plans
(18 million shares) ....................... - - - 132 - 189 321
Tax benefit of common stock
transactions related to employee
benefit plans ............................. - - - 25 - - 25
Acquisition of business
(.8 million shares) ....................... - - - 16 - - 16
Change in unrealized loss on
marketable securities ..................... - - - 5 - - 5
Net income .................................. - - - - 548 - 548
Common stock dividends ...................... - - - - (33) - (33)
Treasury stock purchased
(13 million shares) ....................... - - - - - (284) (284)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995 ................ $ - $ 14 $ 60 $ 6,405 $ 4,063 $ (940) $ 9,602
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MCI Communications Corporation and Subsidiaries
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- --------------------
The company operates predominantly in a single industry segment, the
telecommunications industry, which consists of a wide range of
telecommunications services to residential and business customers, including
domestic and international long distance voice and data services, wireless,
teleconferencing and electronic messaging services.
Use of Estimates in Preparation of Financial Statements
- -------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Estimates are used when
accounting for revenue, allowance for uncollectible receivables,
telecommunications expense, depreciation and amortization, reorganization
accruals and asset write-downs, employee benefit plans and taxes.
Principles of Consolidation
- ---------------------------
The financial statements include the consolidated accounts of MCI Communications
Corporation and its majority-owned subsidiaries (collectively, the company) with
all significant intercompany transactions eliminated.
Revenue
- -------
The company records as revenue the amount of communications services rendered,
as measured primarily by the minutes of traffic processed, after deducting an
estimate of the traffic which will be neither billed nor collected. Service
discounts and incentives are accounted for as a reduction of revenue when
granted or, where a service continuation contract exists, ratably over the
contract period. Revenue from information technology services is recognized,
depending on the service provided, on a percentage of completion basis or as
services and products are rendered or delivered.
Cash and Cash Equivalents
- -------------------------
Cash equivalents consist primarily of certificates of deposit, securities of the
U.S. Government and its agencies and corporate debt securities all having
maturities of ninety days or less when purchased. The carrying amount reported
in the accompanying balance sheets for cash equivalents approximates fair value
due to the short-term maturity of these instruments. At December 31, 1995 and
1994, checks not yet presented for payment of $248 million and $192 million in
excess of cash balances, respectively, were included in current liabilities. The
company had sufficient funds available to cover these outstanding checks when
they were presented for payment.
<PAGE>
Investments
- -----------
Investments in marketable securities at December 31, 1995 and 1994 are
classified as available for sale and are reported at fair value in accordance
with Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting
for Certain Investments in Debt and Equity Securities." The fair values are
based on quoted market prices, and any holding gains and losses are excluded
from earnings and reported as a net amount in additional paid in capital until
realized. Realized gains and losses are recorded in the income statement and the
cost assigned to securities sold is based on the specific identification method.
The company uses the equity method to account for investments in entities in
which it has less than a majority interest but can exercise significant
influence. These investments are classified on the accompanying balance sheets
as investment in affiliates. Under the equity method, the investment, originally
recorded at cost, is adjusted to recognize the company's share of the net
earnings or losses of the affiliates as they occur, rather than as dividends or
other distributions are received, limited to the extent of the company's
investment in, advances to and guarantees for the investee. The company's share
of net earnings or losses of affiliates includes amortization of purchase
adjustments. Other investments in which the ownership is less than 20% and the
company does not exercise significant influence are recorded at cost. The
company's investment in News Corp. is recorded under the cost method.
Property and Equipment
- ----------------------
The investment in communications system is recorded at cost and includes
material, interest, labor and overhead. The costs of construction and equipment
are transferred to communications system in service as construction projects are
completed and/or equipment is placed in service. Depreciation is recorded
commencing with the first full month that the assets are in service and is
provided using the straight-line method over their estimated useful lives. A
majority of the company's communications system assets are grouped in like pools
for depreciation purposes. For these asset groups, the cost of equipment retired
in the ordinary course of business, less proceeds, is charged to accumulated
depreciation. The company periodically reviews and adjusts the useful lives
assigned to fixed assets to ensure that depreciation charges provide appropriate
recovery of capital costs over the estimated physical and technological lives of
the assets. The weighted average depreciable life of the assets comprising the
communications system in service approximates 10 years. Furniture, fixtures and
equipment are depreciated over a weighted average life of 6 years and includes
computer and data center equipment along with other administrative assets. Other
property includes land, buildings and leasehold improvements. Leasehold
improvements are depreciated over the shorter of the life of the equipment or
the life of the lease. Buildings are depreciated using lives of up to 35 years.
Maintenance and repairs are charged to expense as incurred.
<PAGE>
Capital Leases
- --------------
Certain of the company's lease obligations meet the criteria of a capital lease.
These obligations are recorded at the present value of the future lease
payments, including estimated bargain purchase options, discounted at the
approximate interest rate implicit in each lease. Amounts are depreciated over
the estimated useful lives of the equipment, which are generally longer than the
terms of the leases. Leases not capitalized are primarily for land on which
communications equipment is located and for administrative facilities, including
office buildings, vehicles, certain data processing equipment and office
equipment.
Other Assets and Deferred Charges
- ---------------------------------
Included in other assets and deferred charges are unamortized customer discounts
and service incentives, right-of-way agreements with third parties, purchased
subscriber base, deferred advertising costs and debt issuance costs. Deferred
customer discounts and service incentives are amortized over the life of the
specific contract to which they relate; also included are amounts recoverable
under long-term customer service contracts, which are amortized over the
contract period. Right-of-way costs are amortized as the assets are placed in
service, over the lesser of the remaining term of the agreements or 25 years.
Purchased subscriber base is amortized over the period benefited. In accordance
with Statement of Position 93-7, "Reporting on Advertising Costs," certain
advertising costs are deferred and amortized over the period benefited. Debt
issuance costs are amortized over the life of the applicable debt.
Goodwill
- --------
Goodwill represents the excess of the cost to acquire subsidiaries over the
estimated fair market value of the net assets acquired. These amounts are
amortized using the straight-line method over lives ranging from 10 to 40 years.
Accumulated amortization at December 31, 1995 and 1994 was $172 million and $131
million, respectively. The company periodically evaluates the realizability of
goodwill based upon projected undiscounted cash flows and operating income for
each subsidiary having a material goodwill balance. The company believes that no
impairment of goodwill existed at December 31, 1995.
Foreign Exchange Contracts and Interest Rate Swaps
- --------------------------------------------------
The company enters into foreign exchange contracts and interest rate swap
agreements to hedge its foreign currency risks and reduce its interest rate
exposure (see Note 9). While the company does not engage in speculation, it is
exposed to market rate risk in the event of nonperformance by the other parties
to the agreements. The company manages credit risk by regularly monitoring and
evaluating the counterparties. At December 31, 1995, the fair values of and
potential risk of loss on these agreements were not material.
<PAGE>
Income Taxes
- ------------
The company files a consolidated federal income tax return on a March 31 fiscal
year end. Deferred income taxes are provided on transactions which are reported
in the financial statements in different periods than for income tax purposes.
Income tax benefits of tax deductions related to common stock transactions with
the company's employee benefit plans are recorded directly to additional paid in
capital. General business credits are accounted for by the flow-through method.
Earnings Per Common and Common Equivalent Share
- -----------------------------------------------
Earnings per common and common equivalent share amounts are based on the
weighted average number of shares of common stock outstanding during each year,
adjusted for the effect of common stock equivalents arising from the assumed
exercise of stock options, if dilutive, and the assumed conversion of the Series
D convertible preferred stock in 1993. Fully diluted earnings per share are not
materially different from primary earnings per share.
Reclassification
- ----------------
Certain prior year information has been reclassified to conform to the current
year presentation.
NOTE 2. 1995 SPECIAL CHARGES
During the third quarter of 1995, the company implemented a reorganization
designed to increase efficiency, enhance marketplace effectiveness and improve
business focus. The reorganization was largely in response to the rapid changes
in business scope, technology and regulation affecting the telecommunications
industry. The company consolidated its core business and centralized major
administrative functions. The core business includes network operations,
information systems and the former Business Markets and Consumer Markets groups.
In connection with this reorganization and in response to other third quarter
1995 events, the company recorded special pretax charges of $831 million, which
were comprised of the following three major components.
The company recorded a $520 million charge for an asset write-down, which
reflected a decline in value of certain of the company's assets caused by
changes in the business and technology strategy. The write-down primarily
related to communications systems and administrative assets that have become
redundant or were no longer aligned with strategic product offerings. The amount
of the write-down was measured in conformity with the Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which the company adopted
in the third quarter of 1995. Under this standard, charges were taken for the
difference between the current carrying value and the estimated fair value of
such assets at the expected disposal date. In the company's case, the fair value
of most of the assets covered by this write-down was deemed to be salvage value.
Disposal or abandonment of substantially all of these assets occurred by
December 31, 1995.
<PAGE>
The company also recorded a $216 million charge in sales, operations and general
expenses, which related primarily to reorganization costs. These costs included
approximately $50 million of severance associated with a workforce reduction,
$55 million of lease obligations and penalties associated with vacating
facilities, and $45 million of costs to modify and terminate contracts
associated with changes in the business organization and strategic product
offerings. The remainder of the charge included other costs associated with the
company's business reorganization and certain legal costs. The company expects
to reduce its workforce by approximately 2,800 employees, of whom approximately
2,400 had left the company at December 31, 1995. The remaining employees are
expected to leave during the first half of 1996. The terminated employees, which
included management and nonmanagement, were primarily sales, support and systems
engineering personnel located at business administrative and operations sites.
The company abandoned excess and duplicate facilities at various business and
operations locations due to automation, workforce reductions and centralization.
As of December 31, 1995, the company had incurred $55 million of the accrued
reorganization costs with the majority of the remaining costs to be incurred
during 1996. The remaining accrual is primarily comprised of costs associated
with lease obligations, severance, modification and termination of contracts,
other business reorganization costs and certain accrued legal costs. The
reorganization accrual is charged when applicable severance payments are
disbursed, or when rental expense is incurred or lease termination costs are
disbursed, or when contract settlements are completed and payment is disbursed.
Other costs are charged as incurred. Cash expenditures for these expenses were
and will continue to be funded from cash from operations.
In addition, the company recorded a charge of $95 million in equity in income
(losses) of affiliated companies, which related to several investees where
restructuring plans were implemented in the third quarter of 1995 or where
product offerings were not expected to generate future cash flows sufficient to
recover current carrying values.
NOTE 3. ACQUISITIONS
In September 1995, the company completed its acquisition of Nationwide Cellular
Service, Inc. (Nationwide), a provider of cellular phone service, for
approximately $210 million. In November 1995, the company acquired all the
outstanding shares of SHL Systemhouse Inc. (SHL), a Canadian corporation which
provides information technology services to commercial and government
enterprises, for U.S. $13 per share or approximately U.S. $1.13 billion. These
acquisitions have been accounted for as purchase business combinations and,
accordingly, the net assets and results of their operations have been included
in the company's financial statements since the acquisition dates. Acquisition
costs have been allocated to the fair value of assets acquired, including
intangibles, and liabilities assumed. The total assets acquired, including
excess of cost over net assets acquired, for these and other less significant
1995 acquisitions were $1,982 million. The associated obligations assumed, net
of deferred taxes of $184 million, were $739 million. The excess of the purchase
price over the fair value of net assets of approximately $1.4 billion is being
amortized over periods of 20 to 40 years.
<PAGE>
NOTE 4. NEWS CORP. INVESTMENT
In August 1995, the company made an initial investment of $1 billion in The News
Corporation Limited (News Corp.). The investment was comprised of (i) an
aggregate of 51 preferred shares of two U.S. subsidiaries of News Corp. (News
Triangle Finance, Inc. and News T Investments, Inc.) with a stated value and
liquidation preference of $850 million and bearing a dividend rate of 5.147%,
and (ii) a four year warrant (purchase price of $150 million) to acquire up to
approximately 155 million News Corp. ordinary shares for $850 million. The
exercise price of the warrant is payable, at the company's option, in cash or
through the surrender of the preferred shares. In addition, the company has an
option for five years to invest an additional $1 billion under the same terms
and for the same consideration as its initial investment. Under certain
circumstances, News Corp. shall have the right to cause the company to make the
additional $1 billion investment or a portion thereof. In January 1996, News
Corp. exercised a portion of this right by requiring the company to invest $350
million in the first half of 1996.
Should the company exercise its warrants and acquire ordinary shares of News
Corp., subject to certain exceptions, the company shall vote in the same
proportion as all other votes. The company accounts for its investment in News
Corp. under the cost method. In January 1996, the company received a dividend on
its preferred stock investment in News Corp. of $18 million.
On January 25, 1996, the company submitted the winning bid of $682 million for
the last remaining unallocated direct broadcast satellite (DBS) spectrum slot
that provides coverage of all fifty states and Puerto Rico. The company and News
Corp. will form a joint venture to enter the United States DBS video, audio and
data market. The companies plan to invest approximately $1.3 billion, on a 50-50
basis, in the venture, and expect to offer service by late 1997.
NOTE 5. BRITISH TELECOMMUNICATIONS PLC ALLIANCE
On September 30, 1994, British Telecommunications plc (BT) completed the
purchase of 136 million shares of the company's Class A common stock for $4.3
billion, which resulted in a 20% voting interest in the company. This purchase
was achieved by the company's issuance of 108.5 million shares of Class A common
stock to BT for $3.5 billion in cash on September 30, 1994 and BT's conversion
of 13,736 shares of Series D convertible preferred stock, purchased for $830
million in June 1993, into 27.5 million shares of Class A common stock (see Note
10).
In conjunction with the above investment, the company purchased a 24.9% equity
interest in Concert Communications Company (Concert), a business venture
launched by BT in July 1994, which provides global enhanced telecommunications
services for business customers. In addition, the company purchased from BT
substantially all of the operations of BT North America Inc. in January 1994 for
$108 million and divested its interest in AAP Telecommunications Pty. Ltd. in
October 1994.
The company and BT lease each others' access lines at prevailing market rates in
the ordinary course of business to process traffic in the United States and the
United Kingdom. The company also conducts business with Concert through the
provision and receipt of communications services at prevailing market rates.
During 1995, 1994 and 1993, the amounts associated with those transactions were
immaterial to the company.
<PAGE>
NOTE 6. INVESTMENT IN AFFILIATES
The company has various investments accounted for under the equity method, which
are reported in the accompanying balance sheets as investments in affiliates. At
December 31, 1995, the net investment in affiliated companies was $495 million,
which included net investment balances of $237 million for AVANTEL, S.A. de C.V.
(AVANTEL), a 44.5% owned business venture with Grupo Financiero Banamex-Accival
formed to provide competitive domestic and international long distance
telecommunications services in Mexico, and $58 million for Concert. During 1996,
the company is required to make an additional capital contribution in AVANTEL of
approximately $250 million and expects to continue making capital contributions
in Concert to maintain its proportionate equity interest.
NOTE 7. MARKETABLE SECURITIES
At December 31, 1995 and 1994, all of the company's marketable securities were
classified as available-for-sale and stated at fair value. These securities were
included in the accompanying balance sheets as either cash and cash equivalents,
current marketable securities or noncurrent marketable securities. At December
31, 1995, the portfolio consisted of $70 million of certificates of deposit,
$385 million of U.S. Government agency securities and $129 million of corporate
debt securities. At December 31, 1994, the portfolio consisted of $1,059 million
of corporate debt securities, $875 million of U.S. Government agency securities,
$748 million of certificates of deposit, $230 million of U.S. Treasury
securities and $76 million of asset-backed securities.
At December 31, 1995, amortized cost equaled fair market value. At December 31,
1994, an unrealized loss of $9 million, net of estimated tax benefit, reduced
additional paid in capital by $5 million. Sales of available-for-sale marketable
securities during 1995 and 1994 resulted in a net realized gain of $13 million
and a net realized loss of $3 million, respectively, which were included in
interest income.
The distribution of maturities of marketable securities is as follows:
December 31, --------1995-------- --------1994--------
Cost Fair Value Cost Fair Value
-------- ---------- -------- ----------
(In millions) Marketable securities:
Maturing within three months ...... $ 211 $ 211 $1,316 $1,316
Maturing within one year .......... 373 373 842 839
Maturing between one and five years - - 830 824
-------- ---------- -------- ----------
Total marketable securities ......... $ 584 $ 584 $2,988 $2,979
======== ========== ======== ==========
<PAGE>
NOTE 8. SUPPLEMENTARY BALANCE SHEET INFORMATION
December 31, 1995 1994
------- -------
(In millions) Other current assets:
Deferred income taxes ........... $ 317 $ 115
Other receivables, net .......... 173 110
Other ........................... 259 129
------- -------
Total other current assets ........ $ 749 $ 354
------- -------
Other accrued liabilities:
Taxes, other than income ........ $ 399 $ 263
Payroll and employee benefits ... 270 156
Reorganization costs ............ 161 -
Other ........................... 898 474
------- -------
Total other accrued liabilities ... $1,728 $ 893
------- -------
Deferred taxes and other:
Deferred income taxes ........... $1,357 $1,192
Other ........................... 28 36
------- -------
Total deferred taxes and other .... $1,385 $1,228
------- -------
NOTE 9. DEBT AND LEASE OBLIGATIONS
Company debt consists of:
December 31, 1995 1994
(In millions) ------- -------
Senior Notes, with maturities ranging
from June 1996 to August 2004, at a
weighted average interest rate of 6.9%,
net of unamortized discount of $1 million ...... $ 1,486 $ 1,501
Senior Debentures, with maturities ranging
from January 2023 to March 2025, at a
weighted average interest rate of 7.9%,
net of unamortized discount of $6 million ...... 884 884
Capital lease obligations at a weighted
average interest rate of 9.0% and 8.7% ......... 589 596
Commercial paper and bank credit facility
borrowings at a weighted average interest
rate of 5.7% ................................... 705 -
Other debt at a weighted average interest
rate of 7.6% and 5.4% .......................... 280 146
------- -------
Total debt ....................................... 3,944 3,127
Debt due within one year ......................... (500) (130)
------- -------
Total long-term debt ............................. $ 3,444 $ 2,997
======= =======
<PAGE>
Annual maturities of long-term debt for the five years after December 31, 1995
are as follows: $500 million in 1996; $166 million in 1997; $122 million in
1998; $386 million in 1999; and $1,196 million in 2000.
Total interest costs were $242 million in 1995, $231 million in 1994 and $239
million in 1993, of which $93 million, $78 million and $61 million,
respectively, were capitalized.
At December 31, 1995 and 1994, the estimated fair value of the company's
long-term debt, excluding capital lease obligations, is listed below. This
valuation represents either quoted market values, where available, or the
company's estimate based upon market prices of comparable debt instruments.
December 31,
--------1995------ --------1994------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(In millions)
Senior Notes ................. $1,486 $1,540 $1,501 $1,438
Senior Debentures ............ 884 955 884 793
Commercial paper and bank
credit facility borrowings . 705 705 - -
Other debt ................... 280 280 146 146
-------- -------- -------- --------
Total debt, excluding
capital leases ............. $3,355 $3,480 $2,531 $2,377
======== ======== ======== ========
The change in the estimated fair value versus the carrying amount of debt from
1994 to 1995 reflects the change in market rates during 1995 from rates above
the company's fixed rate debt to levels below the company's fixed rate debt.
Senior Notes and Debentures
- ---------------------------
In March 1994, the company issued $450 million principal amount of 7 3/4% Senior
Debentures due March 23, 2025, $300 million principal amount of 6 1/4% Senior
Notes due March 23, 1999 and $200 million principal amount of Senior Floating
Rate Notes due March 16, 1999 (Senior Floating Rate Notes). In conjunction with
the issuance of the Senior Floating Rate Notes, the company entered into an
interest rate swap agreement for a notional principal amount of $200 million
which resulted in an effective fixed interest cost of 6.37%. A substantial
portion of the net proceeds from these issuances was used to repay commercial
paper borrowings while the remaining proceeds were used for general corporate
purposes. During 1995 and 1994, the company repaid $15 million and $93 million
of maturing Senior Notes, leaving $2,370 million and $2,385 million of debt
securities outstanding at a weighted average annual interest rate of 7.25% at
December 31, 1995 and 1994, respectively.
The company has in effect a $1 billion shelf registration which will enable the
company to issue debt securities with a range of maturities at either fixed or
variable rates. The company has not issued any securities under this shelf
registration at December 31, 1995.
<PAGE>
Commercial Paper and Bank Credit Facility Borrowings
- ----------------------------------------------------
On July 8, 1994, the company executed a five year $2 billion bank credit
facility agreement (Credit Facility) which replaced its previous $1.25 billion
bank credit facility. In 1995, the Credit Facility was extended for another year
and now expires in July 2000. This Credit Facility supports the company's
commercial paper program and, in conjunction with this program, will be used to
fund fluctuations in working capital and other general corporate requirements.
During 1995, the company issued commercial paper and borrowed under the Credit
Facility an aggregate of $771 million and repaid an aggregate of $66 million. At
December 31, 1995, there was $705 million outstanding under the commercial paper
program and Credit Facility. Borrowings under the commercial paper program and
Credit Facility are classified as noncurrent if the remaining term of the Credit
Facility agreement exceeds one year and the unused commitment thereunder equals
or exceeds the amount of commercial paper then outstanding. During 1994, the
company issued commercial paper and borrowed under the credit facilities an
aggregate of $6,637 million and repaid an aggregate of $6,876 million of credit
facility and commercial paper borrowings, leaving no amounts outstanding at
December 31, 1994.
Retirements and Redemptions
- ---------------------------
In 1993, the company redeemed all $616 million, net of the unamortized discount,
of its Zero-Coupon Subordinated Convertible Notes due December 11, 2004. The
funds for this redemption came from the issuance of Senior Notes, Senior
Debentures, commercial paper and credit facility borrowings. Also in 1993, the
company redeemed all $575 million principal amount of its 10% Subordinated
Debentures due April 1, 2011. This redemption was funded from segregated cash
generated by the company's operations and earnings, as well as a portion of the
proceeds from the sale of preferred stock to BT (see Note 5). An extraordinary
loss of $45 million, net of current income tax benefit of $26 million, was
recorded for the 1993 redemptions.
Lease Obligations
- -----------------
Future minimum rental commitments for capital leases are as follows: $140
million in 1996; $126 million in 1997; $64 million in 1998; $55 million in 1999;
$51 million in 2000; and $596 million thereafter. At December 31, 1995,
aggregate future minimum capital lease payments were $1,032 million including
interest of $443 million. The present value of future capital lease payments at
December 31, 1995 was $589 million. The gross and net book values of property
and equipment financed by capital leases were $584 million and $274 million,
respectively, at December 31, 1995 and $604 million and $271 million,
respectively, at December 31, 1994. Future minimum rental commitments for
noncancellable operating leases are as follows: $217 million in 1996; $172
million in 1997; $136 million in 1998; $109 million in 1999; $82 million in
2000; and $246 million thereafter. At December 31, 1995, aggregate future
minimum payments for noncancellable operating leases were $962 million. Total
rental expense for all operating leases was $321 million, $262 million and $227
million for the years ended December 31, 1995, 1994 and 1993, respectively.
<PAGE>
NOTE 10. STOCKHOLDERS' EQUITY
Preferred Stock Rights Plan
- ---------------------------
On September 7, 1994, the company's board of directors adopted a stockholders'
rights plan (Rights Plan), effective September 30, 1994, and declared a
dividend, payable to the holders of record on October 11, 1994, of one preferred
share purchase right (Right) for each outstanding share of common stock and
Class A common stock (collectively, Common Shares) to the stockholders of record
on that date. The Rights will also be attached to certain future issuances of
Common Shares. Each Right entitles the registered holder to purchase from the
company one one-hundredth of a share of the company's Series E Junior
Participating Preferred Stock, par value $.10 per share, (Series E Preferred
Stock) for an initial purchase price of $100, subject to adjustment.
The Rights will become exercisable upon the occurrence of certain specified
events, including a public announcement that a person or group of affiliated or
associated persons (Acquiring Person) have acquired beneficial ownership of 10%
or more of the outstanding Common Shares (more than 20.1% in the case of share
acquisitions by BT). In the event that any person or group of affiliated or
associated persons becomes an Acquiring Person, each holder of a Right (other
than Rights beneficially owned by the Acquiring Person, which will become void),
will thereafter have the right, subject to certain restrictions, to receive upon
exercise in lieu of Series E Preferred Stock that number of shares of the
company's common stock (or, at the option of the company, that number of one
one-hundredth of a share of Series E Preferred Stock) determined as set forth in
the Rights Plan.
For purposes of the Rights Plan, the company's board of directors has designated
10 million shares of Series E Preferred Stock which amount may be increased or
decreased by the board of directors. All Rights expire on September 30, 2004,
unless this date is extended or the Rights are earlier redeemed or exchanged by
the company in accordance with the Rights Plan.
Class A Common Stock
- --------------------
On September 30, 1994, BT completed the purchase of 136 million shares of the
company's Class A common stock for $4.3 billion, which resulted in a 20% voting
interest in the company. This purchase was achieved by the company's issuance of
108.5 million shares of Class A common stock to BT for a cash payment of $3.5
billion on September 30, 1994, and BT's conversion of all the outstanding 13,736
shares of Series D convertible preferred stock (Series D), purchased for $830
million in June 1993, into 27.5 million shares of Class A common stock. The
company paid dividends of $50 and $100 per share on the Series D in 1994 and
1993, respectively, and $.05 and $.025 on the Class A common stock in 1995 and
1994, respectively.
At December 31, 1995, all of the Class A common stock was held by BT. The Class
A common stock is equivalent on a per share basis to the company's common stock,
except with respect to certain voting rights. BT is entitled to proportionate
representation on the company's board of directors, which currently equates to
three seats. In addition to board representation, BT is entitled to preemptive
rights with respect to the issuance of additional shares of common stock and to
investor protections with respect to certain corporate actions of the company.
Shares of Class A common stock automatically convert into common stock upon
transfer and in certain other events.
<PAGE>
Common Stock
- ------------
On May 24, 1993, the company's board of directors declared a two-for-one stock
split in the form of a 100% stock dividend, which was issued on July 9, 1993 to
stockholders of record as of the close of business on June 11, 1993. The
following have been adjusted for the effect of the common stock dividend: 1993
and prior years' per share amounts, 1993 treasury stock transactions, the
December 31, 1993 treasury stock balances and data for common stock options and
the employee stock purchase plan.
In 1995, 1994 and 1993, the company paid semiannual dividends of $.025 per share
on its common stock.
NOTE 11. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
Employee and Directors' Stock Option Plans
- ------------------------------------------
The current Employee Stock Option Plan (Plan) provides for the issuance of up to
108 million shares of common stock. On an annual basis, pursuant to the Plan,
the board of directors may increase the maximum number of shares available for
issuance under the Plan as of each January 1, by up to 5% of the number of
shares of common stock outstanding at each such date. Options granted under the
Plan are exercisable at such times and in such installments as determined by the
compensation committee of the board of directors. Options granted under the Plan
may not have an option price less than the fair market value of the common stock
on the date of the grant.
Stock appreciation rights may be granted in combination with a stock option
either at the time of the grant or anytime thereafter. No stock appreciation
rights had been granted at December 31, 1995.
The compensation committee may also grant restricted stock awards and
performance share awards, subject to such conditions, restrictions and
requirements as the committee may determine in its sole discretion. During the
year ended December 31, 1995, there were approximately 375,000 restricted shares
granted. At December 31, 1995, there were approximately 1,222,000 restricted
shares outstanding. No performance share awards had been issued at December 31,
1995.
The compensation committee may grant both incentive stock options and
non-qualified options under the Plan. All options granted in the last three
years have been non-qualified options. These non-qualified options expire after
ten years and are exercisable to the extent of 33% of the option shares after
one year, 66% after two years and 100% after three years. Incentive stock
options expire between five and ten years after issuance and are exercisable to
the extent of 33% of the option shares after one year, 66% after two years and
100% after three years.
The Plan permits the holder of an option to pay the purchase price for stock
option exercises by surrendering shares of the company's common stock having a
fair market value equal to, or greater than, the purchase price.
<PAGE>
The company also has a stock option plan for non-employee directors (Directors'
Plan) which provides for the issuance of up to 1,000,000 shares of common stock.
Under the Directors' Plan, each non-employee director has been granted a
five-year option to purchase up to 40,000 shares of common stock at the closing
price of the common stock on the date of grant. The options are exercisable
after the first anniversary of the date of grant, in cumulative installments of
25% per year. Similar options will be granted automatically to all new board
members who are not employees, including the nominee directors from BT. Upon the
fifth anniversary of the date of grant of options, the unexercised portion of
the grant shall be canceled and a new option for 40,000 shares shall be granted
automatically.
Additional information with respect to stock options under these plans is:
-----Option Amount-------
Number Per Common
of Shares Share Total
-------- ------------- --------
(In millions, except per
common share amounts)
Shares under option, December 31, 1992 .. 50.0 $ 3.25-22.44 $ 690.9
Options granted ......................... 18.6 20.56-28.75 394.5
Options exercised ....................... (15.0) 3.25-22.44 (202.4)
Options terminated ...................... (2.3) 9.38-28.75 (40.6)
-------- ------------- --------
Shares under option, December 31, 1993 .. 51.3 3.44-28.75 842.4
Options granted ......................... 22.3 18.88-26.88 587.1
Options exercised ....................... (8.1) 3.44-22.44 (110.2)
Options terminated ...................... (3.2) 3.81-28.75 (74.9)
-------- ------------- --------
Shares under option, December 31, 1994 .. 62.3 3.44-28.75 1,244.4
Options granted ......................... 25.2 18.38-26.50 482.2
Options exercised ....................... (9.8) 3.44-26.88 (149.0)
Options terminated ...................... (6.0) 5.38-28.25 (134.2)
-------- ------------- --------
Shares under option, December 31, 1995 .. 71.7 $3.44-28.75 $1,443.4
Options exercisable, December 31, 1995 .. 31.1 $3.44-28.75 $ 565.1
======== ============= ========
At December 31, 1995, the company had 5.7 million shares available for future
grant.
Employee Stock Purchase Plan
- ----------------------------
Under the current Employee Stock Purchase Plan (ESPP Plan), up to 45 million
shares of common stock may be purchased by eligible employees of the company
through payroll deductions of up to 15% of their eligible compensation. The
purchase price is equal to the lesser of (a) 85% of the fair market value of the
stock on the date it is purchased or (b) 85% of the fair market value of the
stock on certain specified valuation dates.
<PAGE>
Common Stock Reserved for Future Issuance
- -----------------------------------------
At December 31, 1995, 89.8 million shares of the company's authorized common
stock, including 71.7 million shares under option, were reserved for future
issuance under the Employee and Directors' Stock Option Plans and the ESPP Plan.
The company has opted to use treasury shares to fulfill the purchases made under
these plans during the three-year period ended December 31, 1995.
NOTE 12. EMPLOYEE BENEFIT PLANS
Pension Plans
- -------------
The company maintains a noncontributory defined benefit pension plan (MCI Plan)
and a supplemental pension plan (Supplemental Plan). Western Union
International, Inc. (WUI), a subsidiary of the company, also has a defined
benefit pension plan (WUI Plan). Collectively, these plans cover substantially
all employees who work 1,000 hours in a year.
The MCI Plan and the Supplemental Plan provide pension benefits that are based
on the employee's compensation for each year of service prior to retirement. The
WUI Plan provides pension benefits based on the employee's compensation for each
year of service after 1990 and prior to retirement.
The company's policy is to fund the MCI Plan and the WUI Plan in accordance with
the funding requirements of the Employee Retirement Income Security Act of 1974
and within the limits of allowable tax deductions. The assets of the plans are
primarily invested in corporate equities, government securities and corporate
debt securities.
Net periodic pension cost includes:
Year ended December 31, 1995 1994 1993
(In millions) ----- ----- -----
Service cost during the period ................. $ 40 $ 37 $ 18
Interest cost on projected benefit obligation .. 25 21 14
Actual return on plan assets ................... (70) 3 (21)
Net amortization and deferral .................. 48 (20) 7
----- ----- -----
Net pension cost ............................... $ 43 $ 41 $ 18
===== ===== =====
<PAGE>
Pension cost increased in 1994 primarily due to a plan amendment which increased
MCI Plan benefits effective January 1, 1994.
The company's pension asset consists of:
December 31, 1995 1994
(In millions) ------ ------
Plan assets at fair value ........................ $ 399 $ 254
Accumulated benefit obligation including vested
benefits of $305 in 1995 and $173 in 1994 ...... (334) (194)
------ ------
Plan assets in excess of accumulated
benefit obligation ............................. $ 65 $ 60
====== ======
Plan assets at fair value ........................ $ 399 $ 254
Projected benefit obligation for service
rendered to date ............................... (401) (271)
------ ------
Plan assets less than projected benefit obligation (2) (17)
Unrecognized net (gain) loss from past experience
different from that assumed .................... 42 (16)
Prior service cost not yet recognized in net
periodic pension cost .......................... 33 64
Unrecognized net asset at January 1, 1986
being recognized over 16 years ................. (4) (5)
------ ------
Total prepaid pension asset ...................... $ 69 $ 26
====== ======
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation at
December 31, 1995 were 7.25% and 5%, respectively, for the plans. At December
31, 1994, the discount rate used was 8.75% and the rate of increase in future
compensation levels was 5% for both plans. The expected long-term rate of return
on assets in 1995 and 1994 was 9% for the MCI Plan and 8.5% for the WUI Plan.
Annual service cost is determined using the Projected Unit Credit actuarial
method and prior service cost is amortized on a straight-line basis over the
average remaining service period of employees.
Effective January 1, 1996, the company amended the MCI Plan. Retirement benefits
will be calculated by first establishing an initial balance for each participant
based on the present value of benefits earned through 1995. For service after
1995, participants will accrue benefits based on a specific percentage of annual
salary and will earn interest credits based on the prior year's balance at a
specific interest rate. To protect the interests of employees who are age 50 or
older and have at least five years of service, benefits will continue to accrue
under the current formula through the year 2001. The amendment resulted in a
reduction to the 1995 projected benefit obligation for services rendered to date
of approximately $27 million.
<PAGE>
Employee Stock Ownership Plan and 401(k) Plans
- ----------------------------------------------
The company has combined employee stock ownership (ESOP) and 401(k) retirement
savings plans (RSP) covering substantially all of its employees. The savings
plans allow employees to defer pretax income in accordance with the requirements
of Internal Revenue Code Section 401(k). The company matches employee
contributions up to a certain limit. Participants vest in the company's matching
contributions at a rate of 20% per year of service and are immediately 100%
vested in their elective deferrals.
During 1994, the company made a one time supplemental contribution of
approximately 874,000 shares of common stock to the 401(k) sections of its plans
in place of a contribution to the ESOP for the plan year ended December 31,
1993. At this time, future contributions to the ESOP have been suspended.
Effective January 1, 1994, the company increased the matching contribution on
401(k) contributions to encourage employee savings. The company contributed
approximately 1,741,000 shares, 1,455,000 shares and 791,000 shares of its
common stock as the company's matching contribution to the RSP for the plan
years ended December 31, 1995, 1994 and 1993, respectively.
WUI sponsors a 401(k) savings plan for its collectively bargained employees (WUI
401(k)). The savings plan is intended to meet requirements of Internal Revenue
Code Section 401(k). WUI 401(k) participants vest in the company's matching
contributions at a rate of 20% per year of service and are immediately 100%
vested in their elective deferrals. The company contributed approximately 24,000
shares, 22,000 shares and 19,000 shares of its common stock to the WUI 401(k)
for the plan years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 13. INCOME TAXES
The components of the total income tax provision are:
Year ended December 31, 1995 1994 1993
(In millions) ----- ----- -----
Current
Federal ............................. $182 $190 $148
State and local ..................... 23 26 17
----- ----- -----
Current income tax provision ........ 205 216 165
----- ----- -----
Deferred
Federal ............................. 129 243 227
State and local ..................... 15 26 26
----- ----- -----
Deferred income tax provision ....... 144 269 253
----- ----- -----
Total income tax provision .......... $349 $485 $418
===== ===== =====
<PAGE>
A reconciliation of the statutory federal income tax rate to the company's
effective income tax rate is:
Year ended December 31, 1995 1994 1993
----- ----- -----
Statutory federal income tax rate ... 35% 35% 35%
State and local income taxes, net
of federal income tax effect ...... 3 3 3
Nondeductible amortization .......... 2 1 1
Changes in federal tax laws ......... - - 1
Other ............................... (1) (1) -
----- ----- -----
Effective income tax rate ........... 39% 38% 40%
===== ===== =====
In 1995, 1994 and 1993 the company recorded a tax benefit of $25 million, $63
million and $36 million, respectively, to additional paid in capital for tax
deductions related to common stock transactions with its employee benefit plans.
At December 31, 1995, for federal income tax purposes, the company has available
$207 million of Alternative Minimum Tax (AMT) credit carryforwards which have no
expiration date. In addition, the company has available $73 million of acquired
U.S. net operating loss carryforwards expiring through 2009, all of which is
subject to limitation due to change in ownership control, and $14 million of
acquired U.K. net operating loss carryforwards.
At December 31, 1995, 1994 and 1993, the company's net deferred income tax
liability is comprised of the following:
1995 1994 1993
------- ------- -------
(In millions)
Deferred income tax asset ............. $ 587 $ 321 $ 338
Deferred income tax liability ......... (1,627) (1,398) (1,149)
------- ------- -------
Net deferred income tax liability .......... $(1,040) $(1,077) $ (811)
======= ======= =======
The components of these amounts are:
Communications system ................. $(1,577) $(1,312) $(1,097)
Customer discounts .................... (87) (61) (43)
Allowance for uncollectibles .......... 56 46 20
Reorganization and realignment expenses 61 4 56
Domestic equity investments ........... 38 (6) -
Alternative minimum and general
business tax credits ................ 104 102 116
Other, net ............................ 365 150 137
------- ------- -------
Net deferred income tax liability .......... $(1,040) $(1,077) $ (811)
======= ======= =======
The company has not recorded any valuation allowances against its deferred
income tax assets under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," during the years ended December 31, 1995, 1994
and 1993.
<PAGE>
NOTE 14. CONTINGENCIES
The company, in the normal course of business, is a party to a number of
lawsuits and regulatory and other proceedings. The company's management does not
expect that the results in these lawsuits and proceedings will have a material
adverse effect on the consolidated financial position or results of operations
of the company.
In December 1992, the company petitioned the United States District Court for
the District of Columbia for a declaratory ruling that certain patents being
asserted against the company by AT&T Corp. (AT&T) were invalid and that AT&T
should therefore, and for other reasons, be barred from enforcing them against
the company. AT&T counterclaimed that the company was violating certain patents.
In May 1993, AT&T and Unitel Communications Inc., a Canadian corporation in
which AT&T has an equity interest, filed a companion suit in Canada, alleging
that the company and the Stentor Group of Canadian telephone companies (with
which the company has an alliance) are infringing in Canada four of the patents
at issue in the U.S. litigation. Although discovery has not yet been completed,
the company does not expect that either action will have a material adverse
effect on the consolidated financial position or results of operations of the
company.
<PAGE>
<TABLE>
NOTE 15. SELECTED QUARTERLY INFORMATION (Unaudited)
<CAPTION>
Three months ended Dec. 31, Sept. 30, June 30, Mar. 31,
1995 1995 1995 1995
------- ------- ------- -------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenue ......................................... $ 4,136 $ 3,862 $ 3,706 $ 3,561
Operating expenses:
Telecommunications ............................ 2,072 2,001 1,921 1,819
Sales, operations and general ................. 1,207 1,283 1,023 993
Depreciation .................................. 336 328 325 319
Asset write-down .............................. - 520 - -
Income (loss) from operations ................... 521 (270) 437 430
Equity in income (losses) of affiliated companies (24) (116) (18) (29)
Net income (loss) ............................... 284 (240) 260 244
Earnings (loss) per common and
common equivalent shares ...................... .41 (.35) .38 .36
Weighted average number of shares of
common stock and common stock
equivalents outstanding ....................... 694 688 684 685
======= ======= ======= =======
<CAPTION>
Three months ended Dec. 31, Sept. 30, June 30, Mar. 31,
1994 1994 1994 1994
------- ------- ------- -------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenue ......................................... $ 3,401 $ 3,407 $ 3,309 $ 3,221
Operating expenses:
Telecommunications ............................ 1,764 1,765 1,715 1,672
Sales, operations and general ................. 999 952 933 906
Depreciation .................................. 358 282 272 264
Income from operations .......................... 280 408 389 379
Equity in income (losses) of affiliated companies (6) 1 1 -
Net income ...................................... 151 220 215 209
Earnings applicable to
common stockholders ........................... 151 220 214 209
Earnings per common and common
equivalent shares ............................. .22 .38 .37 .36
Weighted average number of shares of
common stock and common stock
equivalents outstanding ....................... 685 579 575 580
======= ======= ======= =======
<FN>
In September and November 1995, the company acquired all of the outstanding
shares of common stock of Nationwide and SHL, respectively. These acquisitions
were accounted for as purchases; accordingly, the net assets and results of
operations of the acquired companies are included in the information above since
their respective acquisition dates.
The three months ended September 30, 1995 includes $831 million of special
pretax charges. Charges include a $520 million asset write-down, $216 million
primarily of reorganization costs and $95 million recorded as equity in income
(losses) of affiliated companies where restructuring plans have been implemented
or where an adjustment for recoverability was made.
The three months ended December 31, 1994 includes $148 million of special pretax
items. Items include incremental expenses of $70 million associated with the
launch of networkMCI BUSINESS and an additional $63 million depreciation charge.
On September 30, 1994, BT completed the purchase of 136 million shares of the
company's Class A common stock for $4.3 billion, which resulted in a 20% voting
interest in the company. This was achieved by the issuance of 108.5 million
shares of Class A common stock to BT for $3.5 billion on September 30, 1994 and
BT's conversion of 13,736 shares of Series D convertible preferred stock,
purchased for $830 million in June 1993, into 27.5 million shares of Class A
common stock. This investment is reflected in stockholders' equity.
Since there are changes in the weighted average number of shares outstanding
each quarter, the sum of earnings per share by quarter may not equal the
earnings per share for the applicable year.
</FN>
</TABLE>
<PAGE>
REPORT OF MANAGEMENT
MCI Communications Corporation and Subsidiaries
The management of the company is responsible for the financial information and
representations contained in the financial statements, notes and all other
sections of the annual report. The financial statements have been prepared in
conformity with generally accepted accounting principles appropriate under the
circumstances to reflect, in all material respects, the substance of events and
transactions which have occurred. In preparing the financial statements, it is
necessary that management make informed estimates and judgments based on
currently available information in order to record the results of certain events
and transactions.
The company maintains a system of internal controls designed to enable
management to meet its responsibility for reporting reliable financial
information. The system is designed to provide reasonable assurance that assets
are safeguarded and transactions are recorded and executed with management's
authorization. Internal control systems are subject to inherent limitations due
to the necessity to balance costs incurred with benefits provided. The company
believes that the existing system of internal controls provides reasonable
assurance that errors or irregularities that could be material to the financial
statements are prevented or would be detected in a timely manner.
The board of directors pursues its oversight role for the financial statements
through its audit committee, which is comprised solely of directors who are not
officers or employees of the company. They are responsible for engaging, subject
to stockholder approval, the independent accountants. The audit committee meets
periodically with management and the independent accountants to review their
activities in connection with financial reporting matters. The independent
accountants have full and free access to meet with the audit committee, without
management representatives present, to discuss the results of their examination
and the adequacy and quality of internal controls and financial reporting.
The report of our independent accountants, Price Waterhouse LLP, appears
herewith. Their audit of the financial statements includes a review of the
company's system of internal controls and testing of records as required by
generally accepted auditing standards.
/s/DAVID M. CASE
- ----------------
David M. Case
Vice President and Controller
January 29, 1996
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
To the Board of Directors and Stockholders of
MCI Communications Corporation
In our opinion, the consolidated balance sheets and the related consolidated
income statements, statements of cash flows and stockholders' equity appearing
on pages 14 through 28 present fairly, in all material respects, the financial
position of MCI Communications Corporation and its subsidiaries at December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PRICE WATERHOUSE LLP
- -----------------------
Price Waterhouse LLP
January 29, 1996
Washington, D.C.
Exhibit 21
----------
Significant Subsidiaries of MCI Communications Corporation at December 31, 1995.
Subsidiary State of Incorporation
- ------------- ----------------------
MCI International, Inc. Delaware
MCI International Telecommunications Corporation Delaware
MCI Telecommunications Corporation Delaware
Telecom*USA, Inc. Delaware
Exhibit 23
- ----------
(1 of 1)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 33-21740,
33-23275, 33-29547, 33-29549, 33-29550, 33-35339, 33-49304, 33-49403, 33-52133,
33-58071 and 333-01137) and Form S-3 (Nos. 33-48913, 33-49387 and 33-57155) of
MCI Communications Corporation of our report dated January 29, 1996, appearing
on page 29 of the company's Annual Report to Stockholders for the year ended
December 31, 1995. We also consent to the incorporation by reference of our
report on the Financial Statement Schedules, which appears on page 30 of this
Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
- -------------------------
PRICE WATERHOUSE LLP
Washington, D.C.
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of MCI Communications Corporation and Subsidiaries at December 31, 1995
and the income statement for the year ended December 31, 1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000064079
<NAME> MCI Communications Corporation
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 471
<SECURITIES> 373
<RECEIVABLES> 3,214
<ALLOWANCES> 260
<INVENTORY> 0
<CURRENT-ASSETS> 4,547
<PP&E> 15,547
<DEPRECIATION> 5,238
<TOTAL-ASSETS> 19,301
<CURRENT-LIABILITIES> 4,870
<BONDS> 3,444
0
0
<COMMON> 74
<OTHER-SE> 9,528
<TOTAL-LIABILITY-AND-EQUITY> 19,301
<SALES> 0
<TOTAL-REVENUES> 15,265
<CGS> 0
<TOTAL-COSTS> 14,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 416
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> 897
<INCOME-TAX> 349
<INCOME-CONTINUING> 548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 548
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.79
</TABLE>
Exhibit 99(a)
-------------
Schedule II
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR UNCOLLECTIBLES
(In millions)
Balance at Balance at
Beginning Deductions End of
of Period Additions (Write-offs) Period
----------- ---------- ----------- ----------
December 31, 1995 .............. $226 $437 $403 $260
December 31, 1994 .............. 211 394 379 226
December 31, 1993 .............. 189 346 324 211
Exhibit 99(b)
-------------
MCI COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CAPITALIZATION SCHEDULE
(In millions)
Set forth below is the capitalization of the company as of December 31, 1995:
Debt(a):
Secured debt:
Capital lease obligations .................................. $ 589
Other secured obligations .................................. 19
--------
Total secured debt ............................................ 608
--------
Unsecured debt:
Senior Notes, net .......................................... 1,486
Senior Debentures, net ..................................... 884
Commercial Paper and bank credit facility borrowings ....... 705
Other unsecured debt ....................................... 261
--------
Total unsecured debt .......................................... 3,336
--------
Total debt ................................................. $ 3,944
--------
Stockholders' equity:
Class A common stock, $.10 par value, authorized
500 million shares, issued 136 million shares ............ $ 14
Common stock, $.10 par value, authorized 2 billion
shares, issued 593 million shares ........................ 60
Additional paid in capital ................................. 6,405
Retained earnings .......................................... 4,063
Treasury stock, at cost, 43 million shares ................. (940)
--------
Total stockholders' equity .................................... 9,602
--------
Total capitalization .......................................... $ 13,546
========
(a) See Note 9 of Notes to Consolidated Financial Statements on pages 22
through 24 of the company's Annual Report to Stockholders, which is
included in Exhibit 13 to the company's Annual Report on Form 10-K for the
year ended December 31, 1995, for additional information concerning the
company's debt and capital lease obligations, which are obligations of
subsidiaries of the company that are guaranteed by the company. Interest
rates on capital lease obligations, on a weighted average basis,
approximated 9.0% per annum at December 31, 1995.
