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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 0-11258
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WORLDCOM, INC.
(Exact name of registrant as specified in its charter)
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Georgia 58-1521612
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
515 East Amite Street, Jackson, Mississippi 39201-2702
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (601) 360-8600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days).
Yes X No
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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 the 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 1996 was:
Common Stock, $.01 par value: $ 7,675,991,323
Series 2 6.50% Cumulative Senior Perpetual Convertible Preferred Stock:
$89,450,306
There were 194,043,449 shares of the registrant's Common Stock outstanding as
of March 15, 1996.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the registrant for the
registrant's 1996 Annual Meeting of Shareholders, which definitive proxy
statement will be filed with the Securities and Exchange Commission not later
than 120 days after the registrant's fiscal year end of December 31, 1995, are
incorporated by reference into Part III.
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GLOSSARY
ACCESS CHARGES -- Expenses incurred by an IXC and paid to LECs for accessing
the local networks of the LECs in order to originate and terminate long
distance calls and provide the customer connection for private line services.
AT&T -- AT&T COMMUNICATIONS, INC. -- An IXC wholly owned by American Telephone
and Telegraph Company which provides interexchange services and facilities on a
nationwide and international basis.
AT&T DIVESTITURE DECREE -- Entered on August 24, 1982, by the United States
District Court for the District of Columbia. The AT&T Divestiture Decree,
among other things, ordered AT&T to divest its wholly owned BOCs from its Long
Lines Division and manufacturing operations and generally prohibited BOCs from
providing long distance telephone service between LATAs.
BOC -- BELL SYSTEM OPERATING COMPANY -- A local exchange carrier owned by any
of the seven Regional Bell Operating Companies, which are holding companies
established following the AT&T Divestiture Decree to serve as parent companies
for the BOCs.
EQUAL ACCESS -- Connection provided by a LEC permitting a customer to be
automatically connected to the IXC of the customer's choice when the customer
dials "1".
FCC -- Federal Communications Commission.
INBOUND "800" SERVICE -- A service that assesses long distance telephone
charges to the called party.
IXC -- INTEREXCHANGE CARRIER -- A long distance carrier providing services
between local exchanges.
LATAS -- LOCAL ACCESS AND TRANSPORT AREAS -- The approximately 200 geographic
areas defined pursuant to the AT&T Divestiture Decree between which the BOCs
are generally prohibited from providing long distance service.
LEC -- LOCAL EXCHANGE CARRIER -- A company providing local telephone services.
Each BOC is a LEC.
LINE COSTS -- Primarily includes the sum of access charges and transport
charges.
LOCAL EXCHANGE -- A geographic area generally determined by a PUC, in which
calls generally are transmitted without toll charges to the calling or called
party.
MCI -- MCI TELECOMMUNICATIONS CORPORATION -- An IXC which provides
interexchange services and facilities on a nationwide and international basis.
NETWORK SWITCHING CENTER -- A location where installed switching equipment
routes long distance calls and records information with respect to calls such
as the length of the call and the telephone numbers of the calling and called
parties.
OSP -- OPERATOR SERVICE PROVIDER -- Any common carrier or other person
providing any automatic or live assistance to a consumer to arrange for billing
or completion, or both, of a telephone call initiated from an aggregator
location, other than by means of automatic completion of the call with billing
to the originating telephone or completion through an access code used by the
consumer with billing to a previously established account.
PTT - POST TELEPHONE AND TELEGRAPH ADMINISTRATION -- The PTTs, usually
controlled by their governments, provide telephone and telecommunications
services in most foreign countries.
PUC -- PUBLIC UTILITY COMMISSION -- A state regulatory body empowered to
establish and enforce rules and regulations governing public utility companies
and others, such as the Company in many of its state jurisdictions (sometimes
referred to as Public Service Commissions, or PSCs).
RBOC -- REGIONAL BELL OPERATING COMPANY -- Any of seven regional Bell holding
companies which the AT&T Divestiture Decree established to serve as parent
companies for the BOCs.
SPRINT -- SPRINT CORPORATION - An IXC which provides interexchange services and
facilities on a nationwide and international basis.
SUBSCRIBERS -- Commercial and residential customers for which an IXC provides
direct dial long distance telephone service. For operator assisted long
distance telephone service, "Subscribers" refers to owners of pay telephones,
owners of premises on which pay telephones are located, and multi-telephone
facilities such as hotels and hospitals with which an OSP contracts to process
and transmit operator assisted long distance telephone calls.
TARIFF -- The schedule of rates and regulations set by communications common
carriers and filed with the appropriate federal and state regulatory agencies;
the published official list of charges, terms and conditions governing
provision of a specific communications service or facility, which functions in
lieu of a contract between the Subscriber or user and the supplier or carrier.
TRANSPORT CHARGES -- Expenses paid to facilities-based carriers for
transmission between or within LATAs.
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TABLE OF CONTENTS
PART I
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Page
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 11
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters . . . . . . . . . . 12
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . 19
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . 19
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . 19
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K . . . . . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Index to Financial Statements and Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
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PART I
ITEM 1. BUSINESS
GENERAL
WorldCom, Inc., a Georgia corporation which conducts business under the name
"LDDS WorldCom" ("WorldCom" or the "Company"), is one of the four largest long
distance telecommunications companies in the United States based on 1994
revenues. The Company provides long distance telecommunications services to
business, consumer and other carrier customers, through its network of fiber
optic cables, digital microwave, and fixed and transportable satellite earth
stations, with service to points throughout the nation and the world. The
products and services provided by WorldCom include: switched and dedicated
long distance products, 800 services, calling cards, operator services,
domestic and international private lines, broadband data services, debit cards,
conference calling, advanced billing systems, enhanced faxed and data
connections, television and radio transmission and mobile satellite
communications.
WorldCom was organized in 1983. Its operations have grown as a result of
management's emphasis on a four-point growth strategy, which includes internal
growth, the selective acquisition of smaller long distance companies with
limited geographic service areas and market shares, the consolidation of
certain third tier long distance carriers with larger market shares, and
international expansion. On September 15, 1993, a three-way merger occurred
whereby (i) Metromedia Communications Corporation, a Delaware corporation
("MCC"), merged with and into Resurgens Communications Group, Inc., a Georgia
corporation ("Resurgens"), and (ii) LDDS Communications, Inc., a Tennessee
corporation ("LDDS-TN"), merged with and into Resurgens (the "Prior Mergers").
At the time of the Prior Mergers, the name of Resurgens, the legal survivor,
was changed to LDDS Communications, Inc. and the separate corporate existences
of LDDS-TN and MCC terminated. For accounting purposes, however, LDDS-TN was
the survivor because the former shareholders of LDDS-TN acquired majority
ownership of the Company. Accordingly, unless otherwise indicated, all
historical information presented herein reflects the operations of LDDS-TN. At
the annual meeting of shareholders held May 25, 1995, shareholders of LDDS
Communications, Inc. voted to change the name of the Company to WorldCom, Inc.,
effective immediately. Information in this document has also been revised to
reflect the stock splits of the Company's common stock. See Note 1 of Notes to
Consolidated Financial Statements.
BUSINESS COMBINATIONS
The Company's emphasis on acquisitions has taken the Company from a small
regional long distance carrier to one of the largest long distance
telecommunications companies in the industry, serving customers domestically
and internationally.
On January 5, 1995, WorldCom completed the acquisition of the network services
operations of Williams Telecommunications Group, Inc. ("WilTel"), a subsidiary
of The Williams Companies, Inc. ("Williams"), for approximately $2.5 billion in
cash (the "WilTel Acquisition"). Through this purchase, the Company acquired a
nationwide common carrier network of approximately 11,000 miles of fiber optic
cable and digital microwave facilities. The funds paid to Williams were
obtained by WorldCom under a new credit facility entered into on December 21,
1994. See Note 4 of Notes to Consolidated Financial Statements.
On December 30, 1994, WorldCom, through a wholly owned subsidiary, merged with
IDB Communications Group, Inc., a Delaware corporation ("IDB"). IDB operates a
domestic and international communications network providing private line and
public switched long distance telecommunications services, facsimile and data
connections, television and radio transmission services, and mobile satellite
communications capabilities. As a result of this merger (the "IDB Merger"),
each share of common stock of IDB was converted into the right to receive
0.476879 shares of WorldCom common stock (the "Common Stock") resulting in the
issuance of approximately 35,881,000 shares of Common Stock. In addition,
WorldCom assumed, on a subordinated basis, jointly and severally with IDB, the
obligations of IDB to pay the principal of and interest on $195.5 million 5%
convertible subordinated notes due 2003, issued by IDB. The IDB Merger was
accounted for as a pooling-of-interests and accordingly, the WorldCom financial
statements for the periods prior to the IDB Merger have been restated to
include the results of IDB for all periods presented.
In 1993, upon effectiveness of the Prior Mergers, each share of the outstanding
common stock of LDDS-TN was converted into the right to receive 0.9595 shares
of Common Stock. The 500,000 shares of LDDS-TN Series B 6.5% Cumulative Senior
Perpetual Convertible Preferred Stock outstanding were converted into 2,000,000
shares of WorldCom Series 2 6.5% Cumulative Senior Perpetual Convertible
Preferred Stock having a liquidation value of $25 per share and a conversion
price of $11.81171 per share (the "Series 2 Preferred Stock"). As a result of
the consummation of the Prior Mergers, Metromedia Company ("Metromedia"), the
sole stockholder of MCC, received 2,758,620 shares of the Common Stock,
10,896,785 shares of WorldCom Series 1 $2.25 Cumulative Senior Perpetual
Convertible Preferred Stock having a liquidation value of $50 per share and a
conversion price of $24.9046875 per share (the "Series 1 Preferred Stock"),
warrants to purchase 5,000,400 shares of the Common Stock at an average price
of $8.35 per share, and $150.0 million in cash. The common stock of Resurgens
was unchanged in the Prior Mergers.
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On August 23, 1995, Metromedia converted its Series 1 Preferred Stock into
21,876,976 shares of Common Stock and exercised warrants to acquire 3,106,976
shares of Common Stock and immediately sold its position of 30,849,548 shares
of Common Stock in a public offering. In connection with the preferred stock
conversion, WorldCom made a non-recurring payment of $15.0 million to
Metromedia, representing a discount to the minimum nominal dividends that would
have been payable on the Series 1 Preferred Stock prior to the September 15,
1996 optional call date of approximately $26.6 million (which amount includes
an annual dividend requirement of $24.5 million plus accrued dividends to such
call date). The Company did not receive any proceeds from the sale of the
shares, but did receive approximately $33.7 million in proceeds from the
exercise of the warrants, which were used to repay certain existing bank debt.
On December 4, 1992, LDDS-TN, through a wholly owned subsidiary, merged with
Advanced Telecommunications Corporation ("ATC"). As a result of this merger
(the "ATC Merger"), each share of common stock of ATC was converted into the
right to receive 0.83 shares of common stock of LDDS-TN. The ATC Merger was
accounted for under the pooling-of-interests method.
The following table sets forth certain data concerning the Company's
acquisitions, during the past five years, of companies with annual revenues
exceeding $50.0 million, other than the IDB Merger and the ATC Merger.
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Revenues for Fiscal Year
Preceding Acquisition
Name Acquisition Date (In thousands)
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MidAmerican Communications Corporation July 1991 $ 75,924
AmeriCall and First Phone February 1992 65,028
World Communications, Inc. December 1992 90,602
Dial-Net, Inc. ("Dial-Net") March 1993 69,328
Metromedia Communications Corporation September 1993 368,532
Resurgens Communications Group, Inc. September 1993 151,963
TRT Communications, Inc. ("TRT") September 1993 175,057
Williams Telecommunications Group, Inc. January 1995 921,813
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In addition to the acquisitions reflected in the above table, WorldCom and its
predecessors have completed other acquisitions involving companies each with
annual revenues of less than $50.0 million.
COMPANY STRATEGY
The Company follows a four-point growth strategy, consisting of internal
growth, the selective acquisition of smaller long distance companies with
limited geographic service areas and market shares, the consolidation of
certain third tier long distance carriers with larger market shares, and
international expansion.
A decentralized management system allows regional managers responsibility and
authority for the development of area customers. Regional management directs
resources toward attracting new accounts as well as expanding product usage by
current customers.
A predominant share of the Company's total revenues is derived from commercial
customers. Commercial customers typically use higher volumes of
telecommunications services than residential customers and concentrate usage on
weekdays during business hours when rates are highest. Consequently,
commercial customers, on average, generate higher revenues per account than
residential customers.
The Company has become a significant participant in the long distance wholesale
market and intends to pursue opportunities, if any, for continued expansion in
this area. While total revenues in the wholesale market are less than from
commercial customers, expenses are generally reduced in servicing these
customers as the result of fewer invoices, fewer customer service personnel and
a smaller sales force.
The enactment of the Telecommunications Act of 1996 in early February has made
it possible for WorldCom to participate in both the local and long distance
markets. The Company has formed business associations to provide long distance
telecommunications
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services with certain LECs and the Company expects to pursue resale of local
service in those markets where it is both economically and technically
feasible.
In the first quarter of 1996, the Company signed agreements to provide long
distance telecommunications services to GTE Long Distance, Ameritech
Communications, Inc., and Southwestern Bell Mobile Systems, Inc. WorldCom also
entered into an agreement to become a major provider of data telecommunications
services for Electronic Data Systems Corporation ("EDS"), a global information
services company.
Additionally, in response to the changing regulatory environment, WorldCom has
filed applications with PUCs in several states to offer customers local
telephone exchange services, an important capability that will serve as a
complement to the Company's national and international service offerings. To
date, WorldCom has received permission to provide local service on a resale
basis in California, Connecticut, Florida, Illinois and Texas.
SERVICES
GENERAL. The Company is one of the four largest United States based long
distance telecommunications companies in the industry, based on revenues, and
serves its customers domestically and internationally. The products and
services provided by the Company include switched and dedicated long distance
products, 800 services, calling cards, operator services, domestic and
international private lines, broadband data services, debit cards, conference
calling, advanced billing systems, enhanced faxed and data connections,
television and radio transmission, and mobile satellite communications.
DOMESTIC LONG DISTANCE. There are several ways in which a customer can access
the Company's network. In areas where equal access has been made available, a
customer who has selected the Company as its IXC can utilize the Company's
network for interLATA long distance calls through "one plus" dialing of the
desired call destination. Equal access customers can access the Company's
network for interLATA long distance calls and for intraLATA calls where
intraLATA competition has been allowed.
Customers in areas without equal access or customers in equal access areas who
do not select the Company as their IXC can utilize the Company's network for
all their long distance calls through three methods of "dial-up access." They
can dial a local telephone number to access the Company's computerized
switching equipment and then enter a personal authorization code and the area
code and telephone number of the desired call destination. Customers may also
access the Company's network by dialing 10 plus the three digit Carrier
Identification Number belonging to the Company and the area code and telephone
number of the desired call location. High-volume customers can access the
WorldCom network through the use of high-capacity dedicated circuits.
Customer billing is generated internally and through a facilities management
agreement under which EDS performs significant data processing functions. See
Note 6 of Notes to Consolidated Financial Statements.
INTERNATIONAL LONG DISTANCE. The Company offers international private line and
public switched long distance telecommunications services to government,
commercial and carrier organizations worldwide. The Company has over 200
switched voice and private line operating agreements in foreign countries,
thereby making the Company a leading participant in the international
telecommunications market.
Through these operating agreements, international long distance traffic is both
delivered and received. Under these agreements, foreign carriers are
obligated to adhere to the policy of the FCC whereby traffic from the foreign
country is routed to international carriers of which the Company is one, in the
same proportion as traffic carried into the foreign country.
The Company provides permanent and temporary domestic and international private
line services to customers for a number of applications. These applications
generally involve establishing private, international point-to-point
communications links for customers who need special services, such as heavy
data and voice usage, lower cost, and greater security. The Company has
private line operating agreements with 160 foreign countries and is the carrier
for many of the world's most critical communications links, including the
Washington-Moscow hotline and launch control circuits for the NASA Space
Program. The Company also provides international private line services for a
range of financial, airline, commercial and governmental communications
networks.
The Company also offers public switched international telecommunications
services worldwide and provides direct services to approximately 60 foreign
countries. The Company sells telecommunications services to both corporate
customers and to domestic long distance carriers that lack transmission
facilities to locations served by the Company or need more transmission
capacity. Accessing the Company's international switching center via permanent
domestic connections or via dial-up access code, customers can make
international telephone calls.
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Such operations are subject to certain risks such as changes in foreign
government regulations and telecommunications standards, licensing
requirements, tariffs or taxes, and other trade barriers and political and
economic instability. In addition, the Company's revenues and costs of sales
are sensitive to changes in international settlement rates.
OTHER SERVICES. WorldCom provides its billing and collection and operator
services to other IXCs. Due to the time and expense associated with the
negotiation of billing and collection agreements, many IXCs choose not to
establish operator services or to obtain billing and collection agreements.
Using WorldCom's operator services enables IXCs to retain revenues by carrying
operator assisted traffic over their own networks.
In addition, the Company offers a broad range of related services which enhance
customer convenience, add value and provide additional revenue sources.
Advanced "800" service offers features for caller and customer convenience,
including a variety of call routing and call blocking options, customer
reconfiguration, termination overflow to switched or dedicated lines, Dialed
Number Identification Service (DNIS), real-time Automatic Number Identification
(ANI), and flexible after-hours call handling services. The Company's travel
cards offer worldwide calling services, caller-friendly voice mail with message
waiting signal, message storage and delivery, conference calling, personal
greetings, speed dialing, customer deactivation and reactivation of cards,
customer card, and private-label card options. The Company is also a market
leader for the prepaid calling card which allows a purchaser to pay in advance
for a specific number of long distance minutes. The prepaid calling card is
successful in the collectors market and continues to be a growing source of
revenues for the Company.
The Company outsources the management of its broadcast operations, which
provides radio and television broadcast transmission services for major
network, cable, syndication, pay-per-view, sports and special event
programmers.
The Company also designs, installs, and integrates "turnkey" transmission
facilities and communications networks primarily for international customers.
Services provided include fixed customer premise earth stations, network
management systems, system integration consulting and project management.
TRANSMISSION FACILITIES
Domestically, the Company owns one of four nationwide fiber optic networks in
the country, consisting of more than 15,000 miles of fiber optic cable and
microwave equipment with access to over 50,000 miles of additional fiber optic
network through lease agreements with other carriers. In January 1995, the
Company acquired the majority of this network through the purchase of WilTel,
which owned a network of approximately 11,000 miles of fiber optic cable and
digital microwave facilities with access to approximately 30,000 miles of
additional fiber optic network through lease agreements with other carriers.
Internationally, the Company owns fiber optic facilities on most major
international cable systems in the Pacific and Atlantic Ocean regions,
providing fiber optic cable connections between the United States and the
Pacific Rim and the United States and Europe. WorldCom also owns fiber optic
cable for services to the Commonwealth of Independent States, Latin America and
South America.
Additionally, the Company owns 22 international gateway earth stations and
approximately 50 domestic earth stations, which enable WorldCom to provide
radio, television, private line and public switched telecommunications services
to and from locations throughout the world. WorldCom also owns fixed earth
stations located in 33 metropolitan areas, including seven international
gateway earth stations in San Francisco and Washington D.C., which serve as
central collection points for domestic traffic and connect the network with
international satellites.
The Company's ability to generate profits is largely dependent upon its ability
to optimize the different types of transmission facilities used to process and
complete calls. These facilities are complemented by a least cost routing plan
which is accomplished through digital switching technology and network routing
software. Calls can be routed over fixed cost transmission facilities or
variable cost transmission facilities. Fixed cost facilities, including the
Company's owned networks are typically most cost effective for routes that
carry high volumes of traffic. The Company's expansion has been to contiguous
geographic areas which has enabled the Company to concentrate a significant
portion of its traffic over fixed cost transmission facilities and thereby
achieve an overall lower network cost. In addition, a variety of lease
agreements for fixed and variable cost (usage sensitive) services ensure
diversity in processing calls.
NETWORK SWITCHING
The Company owns or leases computerized network switching equipment that routes
its customers' long distance calls. The Company presently maintains
approximately 50 digital switching centers. The Company's digital switching
equipment is interconnected with digital transmission lines. The Company's
entire switching network utilizes SS7 common channel signaling, which increases
efficiencies by eliminating connect time delays and provides "look ahead"
routing. In addition to networking, the
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Company's switching equipment verifies customers' pre-assigned authorization
codes, records billing data and monitors system quality and performance.
In addition to the switching centers, the Company has a number of other network
facility locations which are known as points of presence. These points of
presence allow the Company to concentrate customers' traffic at locations where
the Company has not installed switching equipment. The traffic is carried to
switching centers over the Company's digital transmission network.
RATES AND CHARGES
LONG DISTANCE. The Company charges customers on the basis of minutes or
partial minutes of usage at rates that vary with the distance, duration and
time of day of the call. The rates charged are not affected by the particular
transmission facilities selected by the Company's network switching centers for
transmission of the call. Additional discounts are available to customers who
generate higher volumes of monthly usage.
Domestic business services are billed in six-second increments; others are
billed in partial minutes rounded to the next minute. Long distance services
are billed in arrears, with monthly billing statements itemizing date, time,
duration and charges; private line services are billed monthly in advance, with
the invoice indicating the number of circuits and applicable rates.
The Company's rates are generally designed to be competitive with those charged
by other long distance carriers. The rates offered by the Company may be
adjusted in the future if other IXCs continue to adjust their rates.
OPERATOR ASSISTED LONG DISTANCE. The Company has billing and collection
services agreements with each of the RBOCs and BOCs, as well as all major
independent telephone companies, under which these companies bill the callers
for operator assisted telephone calls processed and transmitted by the Company.
Since January 1990, the Company has maintained access through a third party to
the billing validation data bases of credit card issuers, the RBOCs and certain
LECs. These data bases enable the Company to verify the validity of charge
cards used by callers to pay for operator assisted long distance telephone
calls. Validation reduces the Company's unbillable and uncollectible call
expense because the operator can verify the validity of credit card numbers and
collect or third party billing instructions before transmitting the call, which
saves network expenses.
MARKETING AND SALES
WorldCom markets its long distance services primarily through a direct sales
force of approximately 1,600 employees worldwide which are targeted at specific
geographic markets. WorldCom markets its operator assisted services through
telemarketing and trade shows. WorldCom's sales force also provides advanced
sales specialization for the data and international marketplaces, including
domestic and international private line services.
In each of its geographic markets, the Company employs full service support
teams that provide its customers with prompt and personal attention. A
customer service representative is assigned to each customer account whose
monthly business exceeds $1,000. With offices nationwide, WorldCom's localized
management, sales and customer support are designed to engender a high degree
of customer loyalty and service quality.
COMPETITION
The Company faces intense competition in providing both domestic and
international long distance telecommunications services. Domestically,
WorldCom competes for interLATA and intraLATA services with AT&T, MCI, Sprint,
the LECs, and other national and regional IXCs, where permissible; and with
respect to operator service, with AT&T and other operator service providers.
Internationally, the Company competes for services with other IXCs, including
AT&T, MCI, and Sprint. Certain of these companies have substantially greater
market share and financial resources than WorldCom, and some of them are the
source of communications capacity used by WorldCom to provide its own services.
For most of the Company's communications services, the factors critical to a
customer's choice of a service provider are cost, ease of use, speed of
installation, quality, reputation and, in some cases, geography, and network
size. WorldCom's objective is to be one of the most responsive service
providers, particularly when providing customized communications services.
WorldCom's array of communications facilities and international relationships,
together with its engineering and operations capability, provide WorldCom with
considerable flexibility in tailoring cost-effective communications services to
meet its customers' requirements. This network allows WorldCom to implement
complex permanent and temporary communications circuits to and from virtually
any location in the world. WorldCom relies on its decentralized management
structure and the local orientation of its operations and personnel to
distinguish itself from larger, less personalized operations. In addition,
WorldCom's understanding of international telecommunications technical and
regulatory issues has often allowed WorldCom to provide prompt solutions to the
diverse
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communications needs of multinational corporations, government entities and
other organizations. No assurance can be given, however, that the Company's
strategies will be successful.
WorldCom expects to encounter continued competition from major domestic and
international communications companies, including AT&T, MCI, and Sprint. In
addition, the Company may be subject to additional competition due to the
enactment of the Telecommunications Act of 1996, the development of new
technologies and increased availability of domestic and international
transmission capacity. The telecommunications industry is in a period of rapid
technological evolution, marked by the introduction of new product and service
offerings and increasing satellite and fiber optic transmission capacity for
services similar to those provided by the Company. The Company cannot predict
which of the many possible future product and service offerings will be
important to maintain its competitive position or what expenditures will be
required to develop and provide such products and services.
REGULATION
The Company operates in a highly regulated industry. The FCC regulates
international communications services and interstate telephone service, and
certain states, through the appropriate regulatory agency, regulate intrastate
telephone service. In addition, the Company is subject to regulation in
various foreign countries in connection with certain overseas business
activities.
The regulation of the telecommunications industry is changing rapidly and the
regulatory environment varies substantially from state to state. There can be
no assurance that future regulatory changes will not have a material adverse
impact on WorldCom. Recent developments include, without limitation, enactment
of legislation that modifies the AT&T Divestiture Decree restrictions on the
provision of long distance services by the BOCs between LATAs as defined in the
AT&T Divestiture Decree, FCC and PUC action changing access rates charged by
LECs and making other related changes to access and interconnection policies,
certain of which could have adverse consequences for the Company; related FCC
and state regulatory proceedings considering additional deregulation of LEC
access pricing; a pending FCC rulemaking on "billed party preference" that
could affect WorldCom's provision of operator services; and various legislative
and regulatory proceedings that would result in new local exchange competition.
On February 8, 1996, President Clinton signed legislation, that: will, without
limitation, permit the BOCs to provide domestic and international long distance
services upon a finding by the FCC that the petitioning BOC has satisfied
certain criteria for opening up its local exchange network to competition and
that its provision of long distance services would further the public interest;
removes existing barriers to entry into local service markets; significantly
changes the manner in which carrier-to-carrier arrangements are regulated at
the federal and state level; establishes procedures to revise universal service
standards; and establishes penalties for unauthorized switching of customers.
The Company cannot predict the effect such legislation will have on the Company
or the industry. However, the Company believes that it is positioned to pursue
business opportunities in the rapidly changing telecommunications market.
FCC REGULATION. As a non-dominant IXC, the Company is not required to obtain a
certificate of public convenience and necessity from the FCC for its domestic
interexchange services. The FCC retains general regulatory jurisdiction over
the sale of interstate telecommunications services by IXCs, including the
requirement that calls be charged on a nondiscriminatory, just and reasonable
basis.
Transmissions from earth stations to all satellites, transmissions from
microwave and other transmitters, reception from international satellites, and
transmission of international traffic by any means, including operator assisted
long distance service, satellite, and undersea cable, must be pursuant to
license or other authorizations issued by the FCC. The Company, or an
affiliate of the Company, has operating authority or has made other
arrangements to transmit and/or receive signals from all locations where it
currently offers satellite transmission and/or reception service.
Although the Company has never had a license application denied by the FCC,
there can be no assurance that it will receive all authorizations or licenses
necessary for new communications services or that delays in the licensing
process will not adversely affect the Company's business. Domestic radio
licenses issued by the FCC are for limited periods not to exceed 10 years. The
Company must seek renewal of such licenses prior to their expiration. The
Company knows of no facts that would result in the denial of any such renewals.
WorldCom monitors compliance with federal, state and local regulations
governing the discharge and disposal of hazardous and environmentally sensitive
materials, including the emission of electromagnetic radiation. WorldCom
believes that it is in compliance with such regulations. However, there can be
no assurance that any such discharge, disposal or emission might not expose
WorldCom to claims or actions that could have a material adverse effect on the
Company's consolidated results of operations or financial position.
In conjunction with its approval of the transfer of control of IDB to the
Company, the FCC indicated that a protest filed by Comsat Corporation raised
sufficient question that there might have been a prior unauthorized transfer of
control of IDB Mobile Communications, Inc. ("IDB Mobile"), an affiliate of IDB,
to Teleglobe Inc., a Canadian corporation ("Teleglobe"), for it to initiate
6
<PAGE> 10
an investigation into IDB and Teleglobe's ownership and control of IDB Mobile.
The Company is cooperating with the investigation. Although the Company cannot
predict the outcome of the investigation, it believes that it will not result
in a material adverse effect upon the Company's consolidated results of
operations or financial position.
In October 1988, Judge Harold Greene, who oversees compliance with the AT&T
Divestiture Decree ordered the RBOCs to provide for equal access to the BOC
owned pay telephone long distance markets. The opinion accompanying the
federal court order mandating presubscription of public pay telephones
envisions that presubscription will be an interim measure pending perfection of
a technical system permitting all "0 plus" calls from public payphones to be
automatically routed to the billed party's presubscribed OSP. If implemented,
"billed party preference" could route some previously presubscribed public
traffic away from the Company. However, the technical and economic barriers to
implementation of a "billed party preference" system are such that the RBOCs
have been unable and unwilling to effect its implementation to date. A
rulemaking proceeding is currently being conducted by the FCC on "billed party
preference" to determine whether such a system will be required or if
appropriate alternatives to "billed party preference" exist. The Company
cannot predict the outcome of this proceeding. The Company is unaware of any
other regulatory proceedings related to operator services that could have a
material adverse effect upon its consolidated results of operations or
financial position.
ALIEN OWNERSHIP. The Communications Act of 1934, as amended (the
"Communications Act") prohibits any entity in which more than 20% of the
capital stock is owned of record or voted by noncitizens or a foreign
government or its representative, or which has any officer or director who is
not a U.S. citizen, from receiving or holding a common carrier radio
transmission license (including microwave). The Communications Act also
prohibits subsidiaries of any entity of which more than 25% of the capital
stock is owned by noncitizens, or where more than one-fourth of the directors
or any officers are noncitizens, from receiving or holding common carrier radio
transmission licenses (including microwave), if the FCC finds that the public
interest would be served by the refusal or revocation of the licenses under
those circumstances. The Company's charter restricts aggregate beneficial
ownership of the Common Stock by certain foreign shareholders to 20% of the
total outstanding stock, and subjects excess shares to redemption.
In November 1995, the FCC adopted new rules regarding foreign ownership of U.S.
international common carrier service providers. The FCC will examine whether
"effective competitive opportunities" ("ECO") exist for U.S. carriers in the
destination markets of foreign carriers with market power seeking to enter the
U.S. international services market through an "affiliation" with a U.S.
facilities-based carrier. The FCC defined "affiliation" as an ownership
interest of 25% or more, or a controlling interest. The FCC also reserved the
right to review foreign carrier investment below the 25% threshold where such
investment presents a significant potential impact on competition in the U.S.
market for international services. WorldCom is not aware of any foreign
carrier investment in the Company that would require FCC review under the ECO
test.
STATE REGULATION. The Company's intrastate long distance telecommunications
operations are subject to various state laws and regulations including, in many
jurisdictions, certification requirements. Generally, the Company must obtain
and maintain certificates of public convenience and necessity from regulatory
authorities in most states in which it offers intrastate long distance
services. In most of these jurisdictions the Company must also file and obtain
prior regulatory approval of tariffs for its intrastate offerings. The Company
currently provides intrastate services in each of the 48 contiguous states.
RISK FACTORS
An investment in the Common Stock involves a high degree of risk. Prospective
investors should carefully consider the following risk factors, together with
the other information contained in this Form 10-K, in evaluating the Company
and its business before purchasing shares of Common Stock. In particular,
prospective investors should note that this Form 10-K contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 and that actual results could differ materially from those contemplated
by such statements. The factors listed below represent certain important
factors the Company believes could cause such results to differ. These factors
are not intended to represent a complete list of the general or specific risks
that may affect the Company. It should be recognized that other risks may be
significant, presently or in the future, and the risks set forth below may
affect the Company to a greater extent than indicated.
RISKS OF INCREASED FINANCIAL LEVERAGE; DEBT SERVICE, INTEREST RATE
FLUCTUATIONS, POSSIBLE REDUCTION IN LIQUIDITY, DIVIDEND RESTRICTIONS AND OTHER
RESTRICTIVE COVENANTS. As a result of the WilTel Acquisition and the financing
thereof, the Company has a significantly higher degree of leverage than
previously existed. At December 31, 1995, the Company reported $3.39 billion
of long-term debt (including capital leases and current maturities) and a
long-term debt to equity ratio of 1.55 to 1.
Borrowings under the Company's credit facilities bear interest at rates that
fluctuate with prevailing short-term interest rates. Increases in interest
rates, economic downturns and other adverse developments, including factors
beyond the Company's control, could impair its ability to service its
indebtedness under the credit facilities. In addition, the cash flow required
to service the Company's debt may reduce its ability to fund internal growth,
additional acquisitions and capital improvements. One facility (the
7
<PAGE> 11
"Term Principal Debt") of the credit facilities, which totals $1.25 billion,
matures in a single installment on December 31, 1996. The other facility (the
"Revolving Facility Commitment"), which totals $2.16 billion, will be reduced
at the end of each fiscal quarter, commencing on September 30, 1996, in varying
amounts, and must be paid in full on December 31, 2000. In addition, these
credit facilities restrict the payment of cash dividends and otherwise limit
the Company's financial flexibility.
The Company is committed to a priority plan of accelerating operating cash flow
to reduce debt. The Company anticipates that the existing debt balances
including the $1.25 billion Term Principal Debt, which matures December 1996,
will be refinanced with a new revolving commercial bank credit facility with
similar terms. Additional capital availability may be generated through a
combination of commercial bank debt and public market debt. Successful
execution of the refinancings and the priority plan would provide continued
compliance with required operating ratio covenants and would eliminate any type
of equity financing other than equity issued in connection with acquisitions.
No assurance can be given that the Company will achieve its priority plan or
that any refinancing will be available on terms acceptable to WorldCom.
ACQUISITION INTEGRATION. A major portion of the Company's growth in recent
years has resulted from acquisitions, which involve certain operational and
financial risks. Operational risks include the possibility that an acquisition
does not ultimately provide the benefits originally anticipated by management
of the acquiror, while the acquiror continues to incur operating expenses to
provide the services formerly provided by the acquired company. Financial
risks involve the incurrence of indebtedness by the acquiror in order to effect
the acquisition and the consequent need to service that indebtedness. In
addition, the issuance of stock in connection with acquisitions dilutes the
voting power and may dilute certain other interests of existing stockholders.
In carrying out its acquisition strategy, the Company attempts to minimize the
risk of unexpected liabilities and contingencies associated with acquired
businesses through planning, investigation and negotiation, but such unexpected
liabilities may nevertheless accompany acquisitions. There can be no assurance
that the Company will be successful in identifying attractive acquisition
candidates or completing additional acquisitions on favorable terms.
CONTINGENT LIABILITIES. The Company is subject to a number of legal and
regulatory proceedings, including certain legal proceedings pending against IDB
prior to its merger with a wholly-owned subsidiary of WorldCom on December 30,
1994 (the "IDB Merger"). While the Company believes that the probable outcome
of any of these matters, or all of them combined, will not have a material
adverse effect on the Company's consolidated results of operations or financial
position, no assurance can be given that a contrary result will not be
obtained. See Item 3 - "Legal Proceedings."
In addition to a number of other pending legal proceedings, on May 23, 1994,
Deloitte & Touche LLP ("Deloitte") resigned as IDB's independent auditors.
Deloitte has stated it resigned as a result of events surrounding the release
and reporting of IDB's financial results for the first quarter of 1994. In
submitting its resignation, Deloitte informed IDB management and the Audit
Committee of the IDB Board of Directors that there had been a serious breakdown
in IDB's process of identifying, analyzing and recording IDB's business
transactions which prohibited Deloitte from the satisfactory completion of a
quarterly review, and that Deloitte was no longer willing to rely on IDB
management's representations regarding IDB's interim financial statements. IDB
announced Deloitte's resignation on May 31, 1994. On June 24, 1994, upon the
recommendation of the independent members of IDB's Audit Committee, IDB
retained Arthur Andersen LLP as its new independent auditors. On August 1,
1994, IDB announced that it would restate its reported financial results for
the quarter ended March 31, 1994 to eliminate approximately $6.0 million of
pre-tax income, approximately $5.0 million of which related to a sale of
transponder capacity and approximately $1.0 million of which related to
purchase accounting adjustments and on August 22, 1994, IDB filed Amendment
No.1 on Form 10-Q/A restating its 1994 first quarter results in order to
eliminate previously recorded items. Certain of these items were among those
as to which Deloitte had expressed disagreement. On November 21, 1994, IDB
filed Form 10-Q/A amendments to its reported first and second quarter financial
results making the previously announced changes and reflecting the effect of
IDB's method of accounting for international long distance traffic, thereby
reducing its first quarter net income from $0.12 per share, as originally
reported, to $0.05 per share and, when combined with adjustments for income tax
effects, increasing its second quarter net loss from $0.20 per share, as
originally reported, to $0.27 per share.
IDB is a party to indemnification agreements with IDB's former officers and
directors, certain selling shareholders and certain underwriters. IDB's former
officers and directors are not covered by any applicable liability insurance.
The Company has agreed to provide indemnification to IDB's officers and
directors under certain circumstances pursuant to the agreement relating to the
IDB Merger.
On June 9, 1994, the SEC issued a formal order of investigation concerning
certain matters, including IDB's financial position, books and records and
internal controls and trading in IDB securities on the basis of non-public
information. The SEC has issued subpoenas to IDB and others, including certain
former officers of IDB, in connection with its investigation. The National
Association of Securities Dealers, Inc. ("NASD") and other self-regulatory
bodies have also made inquiries of IDB concerning similar matters.
The U.S. Attorney's Office for the Central District of California has issued
grand jury subpoenas to IDB seeking documents relating to IDB's 1994 first
quarter results, the Deloitte resignation, trading in IDB securities and other
matters, including information
8
<PAGE> 12
concerning certain entities in which certain former officers of IDB are
personal investors and transactions between such entities and IDB. IDB has
been informed that a criminal investigation has commenced. The U.S. Attorney's
Office for the Central District of California issued a grand jury subpoena to
the Company arising out of the same investigation seeking certain documents
relating to IDB.
The outcome of any of the foregoing litigation or investigations, or of other
pending legal proceedings, has not been determined. See Item 3 - "Legal
Proceedings" for more information regarding the foregoing litigation and
investigations, as well as other pending legal proceedings.
RISKS OF INTERNATIONAL BUSINESS. As a result of the IDB Merger, the Company
derives substantial revenues by providing international communication services
primarily to customers headquartered in the United States. Such operations are
subject to certain risks such as changes in foreign government regulations and
telecommunication standards, licensing requirements, tariffs or taxes and other
trade barriers and political and economic instability. In addition, such
revenues and costs of sales are sensitive to changes in international
settlement rates. International rates may decrease in the future due to
aggressiveness on the part of existing carriers, aggressiveness on the part of
new entrants into niche markets, the widespread resale of international private
lines, the consummation of joint ventures among large international carriers
that facilitate targeted pricing and cost reductions, and the rapid growth of
international circuit capacity due to the deployment of new transatlantic and
transpacific fiber optic cables.
DEPENDENCE ON AVAILABILITY OF TRANSMISSION FACILITIES. The future
profitability of the Company will be dependent in part on its ability to
utilize transmission facilities leased from others on a cost-effective basis.
The recent acquisitions of WilTel and IDB have reduced the leasing risk through
the ownership of significant domestic and international assets, however, due to
the possibility of unforeseen changes in industry conditions, the continued
availability of leased transmission facilities at historical rates cannot be
assured. See "Item 1 - Business - Transmission Facilities."
REGULATION RISKS. The Company is subject to extensive regulation at the
federal and state levels, as well as in various foreign countries in connection
with certain overseas business activities. The regulatory environment varies
substantially by jurisdiction.
The regulation of the telecommunications industry is changing rapidly and the
regulatory environment varies substantially from state to state. There can be
no assurance that future regulatory changes will not have a material adverse
impact on WorldCom. Recent developments include, without limitation, enactment
of legislation that modifies the AT&T Divestiture Decree restrictions on the
provision of long distance services by the BOCs between LATAs as defined in the
AT&T Divestiture Decree, FCC and PUC action changing access rates charged by
LECs and making other related changes to access and interconnection policies,
certain of which could have adverse consequences for the Company; related FCC
and state regulatory proceedings considering additional deregulation of LEC
access pricing; a pending FCC rulemaking on "billed party preference" that
could affect WorldCom's provision of operator services; and various legislative
and regulatory proceedings that would result in new local exchange competition.
On February 8, 1996, President Clinton signed legislation, that: will, without
limitation, permit the BOCs to provide domestic and international long distance
services upon a finding by the FCC that the petitioning BOC has satisfied
certain criteria for opening up its local exchange network to competition and
that its provision of long distance services would further the public interest;
removes existing barriers to entry into local service markets; significantly
changes the manner in which carrier-to-carrier arrangements are regulated at
the federal and state level; establishes procedures to revise universal service
standards; and establishes penalties for unauthorized switching of customers.
The Company cannot predict the effect such legislation will have on the Company
or the industry.
The Company will need to comply with the applicable laws and obtain the
approval of the regulatory authority of each country in which it provides or
proposes to provide telecommunications services. The laws and regulatory
requirements vary from country to country. Some countries have substantially
deregulated various communications services, while other countries have
maintained strict regulatory regimes. The application procedure can be
time-consuming and costly, and terms of licenses vary for different countries.
Transmissions from earth stations to all satellites, transmissions from
microwave and other transmitters, reception from international satellites, and
transmission of international traffic by any means, including operator assisted
long distance service, satellite, and undersea cable, must be pursuant to
license or other authorizations issued by the FCC. The Company, or an
affiliate of the Company, has operating authority or has made other
arrangements to transmit and/or receive signals from all locations where it
currently offers satellite transmission and/or reception service.
Although the Company has never had a license application denied by the FCC,
there can be no assurance that it will receive all authorizations or licenses
necessary for new communications services or that delays in the licensing
process will not adversely affect the Company's business. Domestic radio
licenses issued by the FCC are for limited periods not to exceed 10 years. The
Company must seek renewal of such licenses prior to their expiration. The
Company knows of no facts that would result in the denial of any
9
<PAGE> 13
such renewals. WorldCom monitors compliance with federal, state and local
regulations governing the discharge and disposal of hazardous and
environmentally sensitive materials, including the emission of electromagnetic
radiation. WorldCom believes that it is in compliance with such regulations.
However, there can be no assurance that any such discharge, disposal or
emission might not expose WorldCom to claims or actions that could have a
material adverse effect on the Company's consolidated results of operations or
financial position.
COMPETITION RISKS. The Company faces intense competition in providing both
domestic and international long distance telecommunications services.
Domestically, WorldCom competes for interLATA and intraLATA services with AT&T,
MCI, Sprint, the LECs, and other national and regional IXCs, where permissible;
and with respect to operator service, with AT&T and other operator service
providers. Internationally, the Company competes for services with other IXCs,
including AT&T, MCI, and Sprint. Certain of these companies have substantially
greater market share and financial resources than WorldCom, and some of them
are the source of communications capacity used by WorldCom to provide its own
services.
WorldCom expects to encounter continued competition from major domestic and
international communications companies, including AT&T, MCI, and Sprint. In
addition, the Company may be subject to additional competition due to the
enactment of the Telecommunications Act of 1996, the development of new
technologies and increased availability of domestic and international
transmission capacity.
For example, even though fiber-optic networks, such as that of the Company, are
now widely used for long distance transmission, it is possible that the
desirability of such networks could be adversely affected by changing
technology. The telecommunications industry is in a period of rapid
technological evolution, marked by the introduction of new product and service
offerings and increasing satellite and fiber optic transmission capacity for
services similar to those provided by the Company. The Company cannot predict
which of many possible future product and service offerings will be important
to maintain its competitive position or what expenditures will be required to
develop and provide such products and services.
ANTI-TAKEOVER PROVISIONS. The Amended and Restated Articles of Incorporation
of the Company contain provisions (a) requiring a 70% vote for approval of
certain business combinations with certain 10% stockholders unless approved by
a majority of the continuing Board of Directors or unless certain minimum
price, procedural and other requirements are met; (b) restricting aggregate
beneficial ownership of the capital stock of the Company by foreign
stockholders to 20% of the total outstanding capital stock, and subjecting
excess shares to redemption; and (c) requiring a two-thirds vote of the holders
of the Company's Series 2 Preferred Stock to approve certain extraordinary
transactions or, alternatively, redemption of such stock at a specified
premium. In addition, the Bylaws of the Company (a) contain requirements
regarding advance notice of nomination of directors by stockholders, and (b)
restrict the calling of special meetings by stockholders to those owning shares
representing not less than 40% of the votes to be cast. These provisions may
have an "anti-takeover" effect.
EMPLOYEES
As of March 15, 1996, the Company employed approximately 7,500 full-time
persons. Substantially all of the Company's employees are not represented by
any labor union.
ITEM 2. PROPERTIES
The tangible assets of the Company include a substantial investment in
telecommunications equipment. The aggregate value of the Company's
transmission equipment and communications equipment which include network
switches and customer premise equipment was $1.38 billion and $401.5 million,
respectively, at December 31, 1995. Approximately $390.0 million has been
budgeted for telecommunications equipment purchases in 1996 without regard to
possible future acquisitions, if any.
The Company's rights-of-way for its fiber optic cable and 172 tower microwave
transmission network are typically held under leases, easements, licenses or
governmental permits. All other major equipment and physical facilities are
owned in fee and are operated, constructed and maintained pursuant to
rights-of-way, easements, permits, licenses or consents on or across properties
owned by others.
WilTel has sold to independent entities and leased back its microwave system
and its Kansas City to Los Angeles fiber optic system over primary lease terms
ranging from 15 to 20 years. The leases have renewal options permitting WilTel
to extend the leases for terms expiring during the years 2012 to 2019 and
purchase options based upon the fair market value.
The Company attempts to structure its leases of space for its network switching
centers and rights-of-way for its fiber optic network with initial terms and
renewal options so that the risk of relocation is minimized. The Company
anticipates that prior to termination of any of the leases, it will be able to
renew such leases or make other suitable arrangements.
10
<PAGE> 14
WorldCom believes that all of the Company's facilities and equipment are in
good condition and are suitable for their intended purposes.
ITEM 3. LEGAL PROCEEDINGS
IDB RELATED INVESTIGATIONS. On June 9, 1994, the SEC issued a formal order of
investigation concerning certain matters, including IDB's financial position,
books and records and internal controls and trading in IDB securities on the
basis of non-public information. The SEC has issued subpoenas to WorldCom, IDB
and others, including certain former officers of IDB, in connection with its
investigation. The NASD and other self-regulatory bodies have also made
inquiries of IDB concerning similar matters.
The U.S. Attorney's Office for the Central District of California has issued
grand jury subpoenas to IDB seeking documents relating to IDB's first quarter
of 1994 results, the Deloitte & Touche LLP resignation, trading in IDB
securities and other matters, including information concerning certain entities
in which certain former officers of IDB are personal investors and transactions
between such entities and IDB. IDB has been informed that a criminal
investigation has commenced. The U.S. Attorney's Office has issued a grand
jury subpoena to WorldCom arising out of the same investigation seeking certain
documents relating to IDB. See Item 1 - "Business - Risk Factors - Contingent
Liabilities."
AT&T PATENTS. AT&T has claimed that a number of long distance carriers,
including the Company, make unauthorized use of AT&T patents in the provision
of some of the carriers' long distance services. Effective December 15, 1995,
the Company and AT&T entered into a two year patent licensing agreement which,
among other things, released all claims by AT&T against the Company relating to
any alleged patent infringement.
OTHER. On February 8, 1996, President Clinton signed legislation that: will,
without limitation, permit the BOCs to provide domestic and international long
distance services upon a finding by the FCC that the petitioning BOC has
satisfied certain criteria for opening up its local exchange network to
competition and that its provision of long distance services would further the
public interest; removes existing barriers to entry into local service markets;
significantly changes the manner in which carrier-to-carrier arrangements are
regulated at the federal and state level; establishes procedures to revise
universal service standards; and establishes penalties for unauthorized
switching of customers. The Company cannot predict the effect such legislation
will have on the Company or the industry. However, the Company believes that
it is positioned to take advantage of business opportunities in the rapidly
changing telecommunications market.
The Company is involved in other legal and regulatory proceedings generally
incidental to its business. In some instances, rulings by regulatory
authorities in some states may result in increased operating costs to the
Company.
While the results of these various legal and regulatory matters contain an
element of uncertainty, the Company believes that the probable outcome of any
of the legal or regulatory matters, or all of them combined, should not have a
material adverse effect on the Company's consolidated results of operations or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The shares of WorldCom Common Stock are quoted on the Nasdaq National Market.
On May 25, 1995, the Company changed its name to WorldCom, Inc. and its trading
symbol became WCOM. Prior to the name change, the Company's Common Stock was
traded on the Nasdaq National Market under the trading symbol LDDS. The
following table sets forth the high and low sales prices per share of WorldCom
Common Stock as reported on the Nasdaq National Market based on published
financial sources, for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
----
First Quarter $29.50 $23.25
Second Quarter 25.25 14.00
Third Quarter 25.00 16.50
Fourth Quarter 24.38 16.38
1995
----
First Quarter $26.25 $19.13
Second Quarter 27.38 23.13
Third Quarter 34.13 26.75
Fourth Quarter 35.88 29.75
</TABLE>
As of March 15, 1996, there were 194,043,449 shares of Common Stock issued and
outstanding held by 6,406 shareholders of record.
The Company has never paid cash dividends on its Common Stock. The policy of
the Company's Board of Directors has been to retain earnings to provide funds
for the operation and expansion of its business. Also, the Company's credit
facilities restrict the payment of dividends on its Common Stock. See Note 4
of Notes to Consolidated Financial Statements.
PREFERRED STOCK
The Company's Series 2 Preferred Stock has a liquidation value of $25 per
share, a conversion price of $11.81171 per share and pays dividends at the rate
of 6.5% annually, payable quarterly. There is no established public trading
market for the Series 2 Preferred Stock. Except under certain circumstances,
the Series 2 Preferred Stock may not be redeemed by the Company prior to June
5, 1996. Thereafter, the Series 2 Preferred Stock may be redeemed in whole or
in part in integral multiples of $10.0 million, at prices which include
premiums over the liquidation preference of $25 per share, which prices range
from 108% in 1996 declining to 100% on and after June 5, 2002. As of March 15,
1996, there were 1,244,048 shares of the Series 2 Preferred Stock outstanding.
In March 1996, the Company's Board of Directors approved a resolution
authorizing the Company to redeem on June 5, 1996 or such later date as the
president of the Company may determine, all outstanding shares of the Series 2
Preferred Stock, including all accrued and unpaid dividends thereon. See Note
5 of Notes to Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data of the Company as of and
for the five years ended December 31, 1995. The historical financial data as
of December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994,
and 1993 have been derived from the historical financial statements of the
Company, which financial statements have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report included elsewhere
herein. The report of Arthur Andersen LLP on the Consolidated Financial
Statements of the Company as of and for the three years ended December 31, 1995
refers to their reliance on the report of other auditors in rendering an
opinion on those financial statements. This data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's Consolidated Financial Statements appearing
elsewhere in this document.
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------- ---------- ---------- ----------
(In thousands, except ratios and per share data)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues $3,639,875 $2,220,765 $1,474,257 $948,060 $719,214
Operating income 676,048 69,738 238,833 51,983 96,197
Income (loss) before
extraordinary item 267,660 (122,158) 124,321 8,344 39,592
Extraordinary item - - (7,949) (5,800) (1,283)
Net income (loss) 267,660 (122,158) 116,372 2,544 38,309
Preferred dividend
requirement 33,191 27,766 11,683 2,112 -
Earnings (loss) per common share:
Income (loss)
before extraordinary item --
Primary 1.30 (0.95) 0.82 0.06 0.39
Fully diluted 1.28 (0.95) 0.80 0.06 0.38
Net income (loss)--
Primary 1.30 (0.95) 0.76 0.00 0.37
Fully diluted 1.28 (0.95) 0.74 0.00 0.37
Net income before special
dividend payment to Series 1
preferred shareholder:
Primary 1.37 (0.95) 0.76 0.00 0.37
Fully diluted 1.36 (0.95) 0.74 0.00 0.37
Weighted average shares --
Primary 193,449 157,805 137,927 112,653 102,658
Fully diluted 201,495 157,805 140,796 113,053 103,103
Financial position:
Total assets $6,634,571 $ 3,430,192 $ 3,236,718 $ 1,241,278 $ 959,909
Long-term debt 3,391,281 794,001 730,023 448,496 457,767
Shareholders' investment 2,187,286 1,827,170 1,911,800 478,823 347,940
Ratio of earnings to combined
fixed charges and preferred
stock dividends 2.31:1 0.13:1 4.14:1 1.40:1 2.53:1
Deficiency of earnings to combined
fixed charges and preferred
stock dividends $ - $ (78,088) $ - $ - $ -
</TABLE>
NOTES TO SELECTED FINANCIAL DATA:
(1) In 1995, Metromedia converted its Series 1 Preferred Stock into
21,876,976 shares of Common Stock and exercised warrants to acquire
3,106,976 shares of Common Stock and immediately sold its position of
30,849,548 shares of Common Stock in a public offering. In connection
with the preferred stock conversion, WorldCom made a non- recurring
payment of $15.0 million to Metromedia, representing a discount to the
minimum nominal dividends that would have been payable on the Series 1
Preferred Stock prior to the September 15, 1996 optional call date of
approximately $26.6 million (which amount includes an annual dividend
requirement of $24.5 million plus accrued dividends to such call
date).
(2) As a result of the IDB Merger and the ATC Merger, the Company
initiated plans to reorganize and restructure its management and
operational organization and facilities to eliminate duplicate
personnel, physical facilities and service capacity, to abandon
certain products and marketing activities, and to take further
advantage of the synergies available
13
<PAGE> 17
to the combined entities. Also, during the fourth quarter of 1993,
plans were approved to reduce IDB's cost structure and to improve
productivity. Accordingly, in 1994, 1993 and 1992, the Company
charged to operations the estimated costs of such reorganization and
restructuring activities, including employee severance, physical
facility abandonment and duplicate service capacity. These costs
totaled $43.7 million in 1994, $5.9 million in 1993 and $79.8 million
in 1992.
Also, during 1994 and 1992, the Company incurred direct merger costs
of $15.0 million and $7.3 million, respectively, related to the IDB
Merger (in 1994) and the ATC Merger (in 1992). These costs include
professional fees, proxy solicitation costs, travel and related
expenses and certain other direct costs attributable to these mergers.
(3) In connection with certain debt refinancing, the Company recognized in
1993 and 1992 extraordinary items of approximately $7.9 million and
$5.8 million, respectively, net of income taxes, consisting of
unamortized debt discount, unamortized issuance cost and prepayment
fees. See Note 4 of Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis relates to the financial condition and
results of operations of the Company for the three years ended December 31,
1995 after giving effect to the IDB Merger, which was accounted for as a
pooling-of- interests. This information should be read in conjunction with the
"Selected Financial Data" and the Company's Consolidated Financial Statements
appearing elsewhere in this document.
GENERAL
The Company's emphasis on acquisitions has taken the Company from a small
regional long distance carrier to one of the largest long distance
telecommunications companies in the industry, serving customers domestically
and internationally. The Company's operations have grown significantly in each
year of its operations as a result of internal growth, the selective
acquisition of smaller long distance companies with limited geographic service
areas and market shares, the consolidation of certain third tier long distance
carriers with larger market shares, and international expansion.
On January 5, 1995, the Company completed the acquisition of the network
services operations of Williams Telecommunications Group, Inc. ("WilTel"), a
subsidiary of The Williams Companies, Inc. ("Williams"), for approximately $2.5
billion in cash (the "WilTel Acquisition"). Through this purchase, the Company
acquired a nationwide common carrier network of approximately 11,000 miles of
fiber optic cable and digital microwave facilities. The WilTel Acquisition
was accounted for as a purchase transaction for financial reporting purposes.
The funds paid to Williams were obtained by the Company under new credit
facilities entered into on December 21, 1994. See Note 4 of Notes to
Consolidated Financial Statements.
The Company's long distance revenues are derived principally from the number of
minutes of use billed by the Company. Minutes billed are those conversation
minutes during which a call is actually connected at the Company's switch
(except for minutes during which the customer receives a busy signal or the
call is unanswered at its destination). The Company's profitability is
dependent upon, among other things, its ability to achieve line costs that are
less than its revenues. The principal components of line costs are access
charges and transport charges. Access charges are expenses incurred by IXCs
for accessing the local networks of the LECs in order to originate and
terminate calls and payments made to PTTs to complete international calls made
from the U.S. Transport charges are the expenses incurred in transmitting
calls between or within LATAs.
The most significant portion of the Company's line costs is access charges
which are highly regulated. The FCC regulates international communications
services and interstate telephone service and certain states, through the
appropriate regulatory agency, regulate intrastate telephone service.
Accordingly, the Company cannot predict what effect continued regulation and
increased competition between LECs and other IXCs will have on future access
charges. However, the Company believes that it will be able to continue to
reduce transport costs through effective utilization of its network, favorable
contracts with carriers and network efficiencies made possible as a result of
expansion of the Company's customer base by acquisitions and internal growth.
On February 8, 1996, President Clinton signed legislation, that: will, without
limitation, permit the BOCs to provide domestic and international long distance
services upon a finding by the FCC that the petitioning BOC has satisfied
certain criteria for opening up its local exchange network to competition and
that its provision of long distance services would further the public interest;
removes existing barriers to entry into local service markets; significantly
changes the manner in which carrier-to-carrier arrangements are regulated at
the federal and state level; establishes procedures to revise universal service
standards; and, establishes penalties for unauthorized switching of customers.
The enactment of this legislation has made it possible for the Company to form
business associations to provide long distance telecommunications services with
certain LECs and the Company expects to pursue resale of
14
<PAGE> 18
local service in those markets where it is both economically and technically
feasible. While the effects of this legislation on the Company and the
industry remain uncertain, the Company believes that it is positioned to take
advantage of business opportunities in the rapidly changing telecommunications
marketplace.
In the first quarter of 1996, the Company signed agreements to provide long
distance telecommunications services to GTE Long Distance, Ameritech
Communications, Inc., and Southwestern Bell Mobile Systems, Inc. WorldCom also
entered into an agreement to become a major provider of data telecommunications
services for EDS, a global information services company.
Additionally, in response to the changing regulatory environment, WorldCom has
filed applications with public utility commissions in several states to offer
customers a full range of local telephone exchange services, an important
capability that will serve as a complement to the Company's national and
international service offerings. To date, WorldCom has received permission to
provide local service on a resale basis in California, Connecticut, Florida,
Illinois and Texas.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the Company's
statement of operations as a percentage of its operating revenues.
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
----- ----- -----
Line costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54.7 65.2 59.8
Selling, general and administrative . . . . . . . . . . . . . . . . 18.1 19.4 16.7
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 8.6 7.4 6.9
Direct merger costs, restructuring and other charges . . . . . . . - 4.8 0.4
----- ----- -----
Operating income (expense): . . . . . . . . . . . . . . . . . . . . 18.6 3.1 16.2
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (6.8) (2.1) (2.4)
Shareholder litigation settlement . . . . . . . . . . . . . . . - (3.4) -
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.2 0.5
----- ----- -----
Income (loss) before income taxes and extraordinary item . . . . . 12.1 (2.2) 14.2
Provision for income taxes . . . . . . . . . . . . . . . . . . . . 4.7 3.3 5.8
----- ----- -----
Net income (loss) before extraordinary item . . . . . . . . . . . . 7.4 (5.5) 8.4
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . - - (0.5)
----- ----- -----
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 (5.5) 7.9
Preferred dividend requirement . . . . . . . . . . . . . . . . . . 1.0 1.3 0.8
----- ----- -----
Net income (loss) applicable to common shareholders . . . . . . . . 6.4% (6.8)% 7.1%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1995 VS.
YEAR ENDED DECEMBER 31, 1994:
Revenues for 1995 increased 64% to $3.64 billion on 19.37 billion revenue
minutes as compared to $2.22 billion on 10.97 billion revenue minutes for 1994.
On a pro forma basis, as though the acquisition of WilTel occurred at the
beginning of 1994, revenues and traffic for 1995 increased 19% and 30%,
respectively, compared with pro forma revenues of $3.07 billion on 14.60
billion revenue minutes for 1994. Revenue growth for 1995 was driven by strong
performance from the Company's retail and wholesale switched services offset
insignificantly by declines in operator services revenue. Switched retail
revenues and traffic rose 18% and 22%, respectively. Wholesale revenues and
traffic rose 26% and 47%, respectively. Operator services revenues and traffic
decreased 6% and 15%, respectively, yet represented less than 5% of total
Company revenues for 1995.
Private line revenues for 1995 also reflected positive growth, increasing 21%
over 1994 pro forma results due to growth in commercial Internet business and
other frame relay applications.
Line costs as a percentage of revenues decreased to 54.7% in 1995 compared to
65.2% for 1994. These decreases are attributable to changes in product mix,
rate reductions resulting from favorable contract negotiations and synergies
and economies of scale resulting from network efficiencies achieved from the
assimilation of the IDB Merger and the WilTel Acquisition into the Company's
15
<PAGE> 19
operations. Additionally, through the WilTel Acquisition, the Company has been
able to achieve further network efficiencies associated with owning the WilTel
nationwide fiber optic cable network rather than leasing similar capacity from
other providers at a higher cost.
Selling, general and administrative ("SG&A") expenses for 1995 increased to
$660.1 million or 18.1% of revenues as compared to $432.4 million or 19.4% of
revenues for 1994. The increase in selling, general and administrative
expenses results from the Company's expanding operations, primarily through the
WilTel Acquisition and internal growth. The decrease in expense as a
percentage of revenues reflects the assimiliation of recent acquisitions into
the Company's strategy of cost control.
Depreciation and amortization expense for 1995 increased to $311.3 million or
8.6% of revenues from $163.8 million or 7.4% of revenues for 1994. This
increase reflects depreciation and amortization of the additional property and
equipment and goodwill from the WilTel Acquisition.
Interest expense in 1995 was $249.1 million or 6.8% of revenues, as compared to
$47.3 million or 2.1% of revenues in 1994. The increase in interest expense
was due primarily to an increase in the average debt outstanding by the Company
to finance the WilTel Acquisition. Also, higher interest rates were in effect
on the Company's long-term debt, reflecting higher prevailing interest rates in
the market generally. For the year ended December 31, 1995 and 1994, weighted
average annual interest rates were 7.2% and 6.2%, respectively. For the year
ended December 31, 1995 and 1994, weighted average annual levels of borrowing
were $3.51 billion and $795.8 million, respectively.
The effective income tax rate for 1995 was 39% of income before taxes versus a
1994 rate in excess of 100%. The 1995 effective rate of 39% includes the
effect of a $7.0 million decrease in the Company's valuation allowance. The
valuation allowance decreased due to the Company's ability to utilize net
operating losses that management had previously determined would not be
utilized under a "more likely than not" scenario. This is mainly attributable
to the profitability of individual operating units in 1995. The remaining
valuation allowance as of December 31, 1995 is $101.7 million. The unusually
high income tax rate in 1994 was due to permanent items not deductible for tax
purposes as well as a $90.0 million valuation allowance placed on the deferred
tax asset in connection with IDB net operating losses.
In the third quarter of 1995, Metromedia converted its Series 1 Preferred Stock
into 21,876,976 shares of Common Stock and exercised warrants to acquire
3,106,976 shares of Common Stock and immediately sold its position of
30,849,548 shares of Common Stock in a public offering. In connection with the
preferred stock conversion, WorldCom made a non- recurring payment of $15.0
million to Metromedia, representing a discount to the minimum nominal dividends
that would have been payable on the Series 1 Preferred Stock prior to the
September 15, 1996 optional call date of approximately $26.6 million (which
amount includes an annual dividend requirement of $24.5 million plus accrued
dividends to such call date).
Net income applicable to common shareholders was $234.5 million for 1995 versus
a $149.9 million loss in the comparable 1994 period. Operating results for
1995 include the non-recurring payment of $15.0 million to Metromedia.
Excluding this payment, earnings for 1995 would have been $249.5 million or
$1.36 per common share.
YEAR ENDED DECEMBER 31, 1994 VS.
YEAR ENDED DECEMBER 31, 1993:
Revenues increased by 50.6% to $2.22 billion on 10.97 billion revenue minutes
in 1994 from $1.47 billion on 6.94 billion revenue minutes in 1993. The
overall increase in total revenues was primarily attributable to the inclusion
of a full year's revenues from the 1993 acquisitions of Dial-Net, MCC,
Resurgens and TRT and internal growth. See Note 2 of Notes to Consolidated
Financial Statements.
Line costs increased from $881.5 million in 1993 to $1.4 billion in 1994. This
increase is due to increased traffic volumes, partially offset by network
efficiencies and rate reductions resulting from favorable contract
negotiations. As a percentage of revenues, line costs increased to 65.2% in
1994 from 59.8% in 1993. This increase is attributable to the change in
product mix including increased international traffic, which carries higher
line costs. Additionally, IDB's margins decreased in 1994 as IDB was unable to
deliver all of its inbound traffic over its existing facilities and had to use
other carriers at a higher cost to deliver this overflow traffic. Also in
1994, IDB's carrier revenue as a proportion of total international traffic
increased and these rates are typically lower than rates charged to commercial
customers. Certain of these IDB carrier contracts provided either a break even
or negative margin to the Company and accordingly, service to these customers
was discontinued in December 1994.
SG&A increased to $432.4 million in 1994 from $246.1 million in 1993, and as a
percentage of revenues, these expenses increased to 19.4% in 1994 from 16.7% in
1993. The increase in SG&A as a percentage of revenues is attributable to
various IDB-related one-time adjustments which were recorded in 1994. These
adjustments included $40.9 million to adjust the provision for doubtful
16
<PAGE> 20
accounts receivable, $8.0 million in accounting and legal expenses incurred in
connection with the resignation of IDB's prior auditors and $37.5 million
related to various investment write-downs and other balance sheet accruals.
In 1994, the Company determined that adjustments to certain assets of IDB
Broadcast were appropriate to properly reflect estimated net realizable values.
Accordingly, the Company recorded adjustments of $48.5 million, to reduce the
carrying value of these broadcast assets (primarily intangible assets and
property and equipment) to the Company's best estimate of the net realizable
value. See Note 3 of Notes to Consolidated Financial Statements. Although the
Company continues to offer IDB Broadcast services, such services are not a part
of the Company's core business operations. Accordingly, subsequent to December
31, 1994, the Company sold its simulcasting operations and entered into an
agreement to outsource the management of the remaining IDB Broadcast
operations.
As a result of the IDB Merger, the Company initiated plans to reorganize and
restructure its management and operational organization and facilities.
Accordingly, the Company charged to operations in 1994, the estimated costs of
the IDB Merger and restructuring of $15.0 million and $43.7 million,
respectively. In 1993, plans were approved to reduce IDB's cost structure and
to improve productivity. Such plans included a reduction in the number of
employees and the disposition of certain assets. In connection with this plan,
$5.9 million was charged to operations in 1993. See Note 3 of Notes to
Consolidated Financial Statements.
Depreciation and amortization expense, which includes depreciation of the
Company's call transmission facilities, increased to $163.8 million from $101.9
million in 1993 or 7.4% and 6.9% of revenues in 1994 and 1993, respectively.
The increase in such expenses was due primarily to depreciation and
amortization of the additional property and equipment, customer bases and
goodwill resulting from acquisitions by the Company during 1993.
Interest expense in 1994 was $47.3 million or 2.1% of revenues, as compared to
$35.6 million or 2.4% of revenues in 1993. This decrease as a percentage of
revenues was a result of several factors, including the Company's prepayment of
long-term debt with funds obtained through the public offering of IDB common
stock in May 1993 and the issuance by IDB in August 1993 of $195.5 million of
5% convertible subordinated notes due 2003. Additionally, as some of the
Company's acquisitions were funded by a combination of stock and debt, the
interest expense has not grown as rapidly as the revenues.
In the third quarter of 1994, the Company recorded a $76.0 million charge which
represents an estimated shareholder litigation settlement of $75.0 million and
$1.0 million in related legal costs. This liability was paid by the Company in
April 1995.
The Company recorded a provision for income taxes of $73.8 million on a pretax
loss of $48.3 million in 1994. Although the Company generated a consolidated
pre-tax loss in 1994, permanent items aggregating approximately $113.0 million
resulted in the recognition of taxable income. Also, because the current year
net operating loss ("NOL") generated by IDB prior to the IDB Merger may be
offset only by future taxable income generated at the IDB level of the
Company's operations, the Company believed that only a portion of the current
year NOL could be utilized under a "more likely than not" scenario.
Accordingly, the Company placed a valuation allowance on the deferred tax asset
attributable to approximately $90.0 million of the NOL.
LIQUIDITY AND CAPITAL RESOURCES
On January 5, 1995, in conjunction with the WilTel Acquisition, the Company
utilized its $3.41 billion long-term credit facilities and repaid all debt
under the Company's previous credit facilities and $123.0 million in senior
notes. Total additional borrowings for 1995 were $2.7 billion. At December
31, 1995, the Company had access to an additional $251.1 million under its
long-term credit facilities. The credit facility is comprised of a $2.16
billion, six-year reducing revolving credit facility (the "Revolving Facility
Commitment") and a $1.25 billion, two-year term facility (the "Term Principal
Debt"). The maximum principal amount permitted to be outstanding under the
Revolving Facility Commitment will be reduced at the end of each fiscal
quarter, commencing September 30, 1996, in varying amounts, and the outstanding
balance must be paid in full on December 31, 2000. The Term Principal Debt
matures in a single installment on December 31, 1996. The Revolving Facility
Commitment and the Term Principal Debt bear interest, payable quarterly, at
variable rates selected by the Company under the terms of the credit
facilities. The Company is permitted to choose from several interest rate
options including: a Base Rate plus applicable margin, the London Interbank
Offering Rate ("LIBOR") plus applicable margin, or, for the Revolving Facility
Commitment only, any Competitive Bid Rate. The applicable margin varies from
0% to 3/8% for Base Rate Borrowings and 1/2% to 1.5% for LIBOR Rate Borrowings
from time to time based upon the lower of a specified financial test or the
Company's long-term debt rating. The credit facilities are unsecured and
require compliance with certain financial and other operating covenants which
require the maintenance of certain minimum operating ratios and which limit,
among other things, the incurrence of additional indebtedness by the Company
and restricts the payment of cash dividends to WorldCom shareholders. See Note
4 to Notes to Consolidated Financial Statements.
In February 1995, to protect against the effect of rising interest rates, the
Company entered into financial hedging agreements with various financial
institutions, in connection with requirements under the credit facilities. The
hedging agreements establish capped fixed rates of interest ranging from 8.25%
to 8.3125% on an aggregate notional value of $1.7 billion. If interest rates
do not reach this cap, the Company's interest rate remains variable. These
contracts range in duration from one to two years with $845.4 million
17
<PAGE> 21
maturing in each of the years ending 1996 and 1997. The $845.4 million which
matured in 1996, was replaced with a hedging agreement which caps the fixed
interest at 7.43% and matures in 1997.
The Company is committed to a priority plan of accelerating operating cash flow
to reduce debt. The Company anticipates that the existing debt balances
including the $1.25 billion Term Principal Debt, which matures December 1996,
will be refinanced with a new revolving commercial bank credit facility with
similar terms. Additional capital availability may be generated through a
combination of commercial bank debt and public market debt. Successful
execution of the refinancings and the priority plan would provide continued
compliance with required operating ratio covenants and would eliminate any type
of equity financing other than equity issued in connection with acquisitions.
No assurance can be given that the Company will achieve its priority plan or
that any refinancing will be available on terms acceptable to WorldCom.
The Company has historically utilized cash flow from operations to finance
capital expenditures and a mixture of cash flow, debt and stock to finance
acquisitions. The Company will continue to analyze potential acquisitions
utilizing primarily equity financing until the additional leverage from the
WilTel Acquisition is reduced.
For 1995, the Company's cash flow from operations was $615.7 million,
increasing from $246.6 million in 1994 and $159.0 million in 1993. The
increase in cash flow from operations was primarily attributable to cash flow
from acquired operations, internal growth and the sale of the Company's
receivables as noted below.
Cash used in investing activities in 1995 totaled $3.22 billion and included
$2.77 billion for acquisitions and related costs and $355.8 million for capital
expenditures. Primary capital expenditures include purchases of switching,
transmission, communication and other equipment. Current budgeted network
capital expenditures for 1996 total approximately $390.0 million.
Included in cash flows from financing activities are payments of $18.2 million
for preferred dividend requirements and $15.0 million for the non-recurring
payment to Metromedia. All of the Series 1 Preferred Stock was converted by
Metromedia in August 1995 and accordingly, no further dividends will be
required on the Series 1 Preferred Stock. A portion of the Company's Series 2
Preferred Stock was also converted during the third quarter of 1995. The
Series 2 Preferred Stock remaining is expected to be redeemed by the Company
during 1996. Assuming that the redemption of the Series 2 Preferred Stock
occurs, as approved by the Company's Board of Directors, on or about June 5,
1996, the 1996 dividend expense is not anticipated to exceed $1.0 million.
During 1995, the Company amended WilTel's existing $80.0 million receivables
purchase agreement to include certain additional receivables and received
additional proceeds of $215.4 million. The Company used these proceeds to
reduce the outstanding debt under the Company's credit facilities and provide
additional working capital. As of December 31, 1995, the purchaser owned an
undivided interest in a $608.9 million pool of receivables which includes the
$295.4 million sold. The aggregate purchase limit under this agreement was
$300.0 million at December 31, 1995.
In April 1995, an additional $75.0 million was borrowed against the Company's
long-term credit facilities to pay the IDB shareholder litigation settlement
liability, which had been recognized by the Company during the third quarter of
1994.
During 1995, Metromedia exercised its right to purchase a total of 6.2 million
shares of the Company's Common Stock under purchase warrants. Aggregate
proceeds of $64.4 million from these exercises were used to reduce the
outstanding debt under the Company's credit facilities.
Absent significant capital requirements for other acquisitions, the Company
believes that cash flow from operations and funds available under the credit
facilities will be adequate to meet the Company's capital needs for the
remainder of 1996.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This Statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. This Statement is effective for
financial statements for fiscal years beginning after December 15, 1995.
WorldCom believes that the adoption of this standard will not have a material
effect on the Company's consolidated results of operations or financial
position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement 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 APB Opinion 25 in determining
its net income. However, additional disclosures will be made to disclose the
estimated value of compensation expense under the method established by SFAS
No. 123.
18
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and notes thereto are included
elsewhere in this report on Form 10-K as follows:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of independent public accountants F-2
Consolidated financial statements-
Consolidated balance sheets - December 31, 1995
and 1994 F-4
Consolidated statements of operations for the three
years ended December 31, 1995 F-5
Consolidated statements of shareholders' investment
for the three years ended December 31, 1995 F-6
Consolidated statements of cash flows for the
three years ended December 31, 1995 F-7
Notes to consolidated financial statements F-8
Financial Statement Schedule F-19
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information required by this Part III will be provided in the Company's
definitive proxy statement for the Company's 1996 annual meeting of
shareholders (involving the election of directors), which definitive proxy
statement will be filed pursuant to Regulation 14A not later than 120 days
following the Company's fiscal year ended December 31, 1995, and is
incorporated herein by this reference to the following extent:
(a) ITEM 10. Directors and Executive Officers of the Registrant -
the information under the captions "ELECTION OF
DIRECTORS - Information About Nominees and Executive
Officers" and "EXECUTIVE COMPENSATION - Compliance
with Section 16 of the Securities Exchange Act of
1934."
(b) ITEM 11. Executive Compensation - the information under the
captions "INFORMATION CONCERNING BOARD OF DIRECTORS -
Compensation of Directors," and "EXECUTIVE
COMPENSATION."
(c) ITEM 12. Security Ownership of Certain Beneficial Owners and
Management - the information under the captions
"PRINCIPAL HOLDERS OF VOTING SECURITIES" and
"SECURITY OWNERSHIP OF MANAGEMENT."
(d) ITEM 13. Certain Relationships and Related Transactions - the
information under the caption "EXECUTIVE COMPENSATION
- Certain Relationships and Related Transactions."
19
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1 and 2
Financial statements and financial statement schedules
See Index to Consolidated Financial Statements and Financial Statement Schedule
on page F-1 hereof.
(a) 3
Exhibits required by Item 601 of Regulation S-K
See Exhibit Index for the exhibits filed as part of or incorporated by
reference into this Report. There are omitted from the exhibits filed with or
incorporated by reference into this Annual Report on Form 10-K certain
promissory notes and other instruments and agreements with respect to long-term
debt of the Company, none of which authorizes securities in a total amount that
exceeds 10% of the total assets of the Company on a consolidated basis.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company hereby agrees to
furnish to the Securities and Exchange Commission copies of any such omitted
promissory notes or other instruments or agreements as the Commission requests.
(b) Reports on Form 8-K
None.
20
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 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.
WorldCom, Inc.
By: /s/ Scott D. Sullivan
-----------------------------------
Date: March 29, 1996 Scott D. Sullivan,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Carl J. Aycock Director March 29, 1996
- ----------------------------
Carl J. Aycock
/s/ Max E. Bobbitt Director March 29, 1996
- ----------------------------
Max E. Bobbitt
Director, President
/s/ Bernard J. Ebbers and Chief Executive March 29, 1996
- ---------------------------- Officer
Bernard J. Ebbers
/s/ Francesco Galesi Director March 29, 1996
- ----------------------------
Francesco Galesi
/s/ Stiles A. Kellett, Jr. Director March 29, 1996
- ----------------------------
Stiles A. Kellett, Jr.
/s/ Silvia Kessel Director March 29, 1996
- ----------------------------
Silvia Kessel
/s/ John W. Kluge Director March 29, 1996
- ----------------------------
John W. Kluge
Director March 29, 1996
- ----------------------------
John A. Porter
/s/ Stuart Subotnick Director March 29, 1996
- ----------------------------
Stuart Subotnick
Director,
Principal Financial
/s/ Scott D. Sullivan Officer and Principal March 29, 1996
- ---------------------------- Accounting Officer
Scott D. Sullivan
/s/ Lawrence C. Tucker Director March 29, 1996
- ----------------------------
Lawrence C. Tucker
/s/ Roy A. Wilkens Director March 29, 1996
- ----------------------------
Roy A. Wilkens
</TABLE>
21
<PAGE> 25
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of independent public accountants F-2
Consolidated financial statements-
Consolidated balance sheets - December 31, 1995
and 1994 F-4
Consolidated statements of operations for the
three years ended December 31, 1995 F-5
Consolidated statements of shareholders' investment
for the three years ended December 31, 1995 F-6
Consolidated statements of cash flows for the
three years ended December 31, 1995 F-7
Notes to consolidated financial statements F-8
Financial Statement Schedule:
II. Valuation and qualifying accounts F-19
</TABLE>
Schedules other than the schedule listed above have been omitted because of the
absence of conditions under which they are required or because the information
is included in the financial statements or notes thereto.
F-1
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To WorldCom, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of WorldCom, Inc.
(a Georgia corporation) and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, shareholders' investment and
cash flows for each of the years in the three-year period ended December 31,
1995. We did not audit the financial statements of IDB Communications Group,
Inc., a company acquired during 1994 in a transaction accounted for as a
pooling-of-interests, for the year ended December 31, 1993. Such statements
are included in the consolidated financial statements of WorldCom, Inc. for the
year ended December 31, 1993, and reflect 23 percent of consolidated total
revenues for that year. These statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to the
amounts included for IDB Communications Group, Inc., is based solely upon the
report of the other auditors. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of WorldCom, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the Index to Financial
Statements and Financial Statement Schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, based on our audits and the report of
other auditors, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Jackson, Mississippi,
March 6, 1996.
F-2
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
IDB COMMUNICATIONS GROUP, INC.:
We have audited the consolidated statements of operations, shareholders' equity
and cash flows of IDB Communications Group, Inc. for the year ended December
31, 1993 (not presented separately herein). Our audit also included the
financial statement schedule for the year ended December 31, 1993 listed in the
Index to Financial Statements and Financial Statement Schedule (not presented
separately herein). These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and of cash flow of IDB
Communications Group, Inc. and its subsidiaries for the year ended December 31,
1993 in conformity with generally accepted accounting principles. Also in our
opinion, such financial statement schedule when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Los Angeles, California
March 7, 1994
F-3
<PAGE> 28
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41,679 $ 19,259
Short-term investments - 1,000
Accounts receivable, net of allowance for bad debts of $57,980 and $52,949 at
December 31, 1995 and 1994, respectively 528,763 470,175
Income taxes receivable 17,499 -
Deferred tax asset 16,899 62,687
Other current assets 49,992 51,053
------------ -----------
Total current assets 654,832 604,174
------------ -----------
Property and equipment:
Transmission equipment 1,376,242 472,737
Communications equipment 401,454 307,262
Furniture, fixtures and other 278,716 164,266
------------ -----------
2,056,412 944,265
Less - accumulated depreciation (487,080) (317,598)
------------ -----------
1,569,332 626,667
------------ -----------
Excess of cost over net tangible assets acquired, net of accumulated amortization 4,292,752 2,070,709
Line installation costs, net of accumulated amortization 35,379 28,768
Deferred income taxes - 14,120
Other assets 82,276 85,754
------------ -----------
$ 6,634,571 $ 3,430,192
============ ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term debt and current maturities of long-term debt $ 1,112,853 $ 5,996
Accounts payable 137,342 138,101
Accrued line costs 391,604 258,053
Accrued restructuring costs 5,275 25,837
Shareholder litigation reserve - 75,000
Income taxes payable - 11,940
Other current liabilities 331,738 195,728
------------ -----------
Total current liabilities 1,978,812 710,655
------------ -----------
Long-term liabilities, less current portion:
Long-term debt 2,278,428 788,005
Deferred income taxes payable 26,172 -
Other liabilities 163,873 104,362
------------ -----------
Total long-term liabilities 2,468,473 892,367
------------ -----------
Commitments and contingencies
Shareholders' investment:
Series 1 preferred stock, par value $.01 per share; authorized, issued and
outstanding: none in 1995 and 10,896,785 shares in 1994 (liquidation
preference of $544,839 in 1994) - 109
Series 2 preferred stock, par value $.01 per share; authorized, issued and
outstanding: 1,244,048 in 1995 and 2,000,000 shares in 1994 (liquidation
preference of $31,101 in 1995 and $50,000 in 1994) 12 20
Preferred stock, par value $.01 per share; authorized: 48,755,952 shares in
1995 and 37,103,215 shares in 1994; none issued - -
Common stock, par value $.01 per share; authorized: 500,000,000 shares; issued
and outstanding: 193,242,639 shares in 1995 and 159,643,312 shares in 1994 1,932 1,596
Additional paid-in capital 1,898,310 1,772,882
Retained earnings 287,032 52,563
------------ -----------
Total shareholders' investment 2,187,286 1,827,170
------------ -----------
$ 6,634,571 $ 3,430,192
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 29
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 3,639,875 $ 2,220,765 $ 1,474,257
-------------- ------------- -------------
Operating expenses:
Line costs 1,992,413 1,447,633 881,540
Selling, general and administrative 660,149 432,360 246,105
Depreciation and amortization 311,265 163,828 101,859
Provision to reduce carrying value of certain assets - 48,500 -
Direct merger costs - 15,002 -
Restructuring and other charges - 43,704 5,920
-------------- ------------- -------------
Total 2,963,827 2,151,027 1,235,424
-------------- ------------- -------------
Operating income 676,048 69,738 238,833
Other income (expense):
Interest expense (249,062) (47,303) (35,557)
Shareholder litigation settlement - (76,000) -
Miscellaneous 11,801 5,223 6,644
-------------- ------------- -------------
Income (loss) before income taxes and extraordinary item 438,787 (48,342) 209,920
Provision for income taxes 171,127 73,816 85,599
-------------- ------------- -------------
Net income (loss) before extraordinary item 267,660 (122,158) 124,321
Extraordinary item (net of income taxes of $5,639) - - (7,949)
-------------- ------------- -------------
Net income (loss) 267,660 (122,158) 116,372
Preferred dividend requirement 18,191 27,766 11,683
Special dividend payment to Series 1 preferred shareholder 15,000 - -
-------------- ------------- -------------
Net income (loss) applicable to common shareholders $ 234,469 $ (149,924) $ 104,689
============== ============= =============
Earnings (loss) per common share -
Income (loss) before extraordinary item:
Primary $ 1.30 $ (0.95) $ 0.82
Fully diluted 1.28 (0.95) 0.80
Extraordinary item - - (0.06)
Net income (loss):
Primary 1.30 (0.95) 0.76
Fully diluted 1.28 (0.95) 0.74
Net income (loss) before special dividend payment to
Series 1 preferred shareholder:
Primary 1.37 (0.95) 0.76
Fully diluted 1.36 (0.95) 0.74
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 30
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Three Years Ended December 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
Series 1 Preferred Series 2 Preferred Preferred
Stock Stock Stock Common Stock
--------------------- ------------------ ------------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992 - $ - - $ - 534 $ 64,014 116,862 $ 1,169
Exercise of stock options - - - - - - 5,048 50
Conversion of preferred stock - - - - (34) (17,444) 2,937 29
Conversion of preferred stock into
Series 2 Preferred Stock - - 2,000 20 (500) (46,570) - -
Common stock issued - - - - - - 2,253 23
Common stock issued to
repurchase debt - - - - - - 160 2
Tax adjustment resulting from exercise
of stock options - - - - - - - -
Cash for fractional shares - - - - - - (3) -
Shares issued for acquisitions 10,897 109 - - - - 26,197 262
Net income - - - - - - - -
Cash dividends on preferred
stock - - - - - - - -
-------------------------------------------------------------------------------------
Balances, December 31, 1993 10,897 109 2,000 20 - - 153,454 1,535
Exercise of stock options - - - - - - 3,209 32
Common stock issued - - - - - - 2,195 22
Tax adjustment resulting from exercise
of stock options - - - - - - - -
Shares issued for acquisitions - - - - - - 785 7
Net loss - - - - - - - -
Cash dividends on preferred
stock - - - - - - - -
-------------------------------------------------------------------------------------
Balances, December 31, 1994 10,897 109 2,000 20 - - 159,643 1,596
Exercise of stock options - - - - - - 9,483 95
Conversion of Series 1 Preferred Stock (10,897) (109) - - - - 21,877 219
Conversion of Series 2 Preferred Stock - - (756) (8) - - 1,600 16
Tax adjustment resulting from exercise
of stock options - - - - - - - -
Cash for fractional shares - - - - - - - -
Shares issued for acquisitions - - - - - - 640 6
Net income - - - - - - - -
Cash dividends on preferred
stock - - - - - - - -
-------------------------------------------------------------------------------------
Balances, December 31, 1995 - $ - 1,244 $ 12 - $ - 193,243 $ 1,932
=====================================================================================
<CAPTION>
Additional
Paid-in Retained
Capital Earnings
-------------------------
<S> <C> <C>
Balances, December 31, 1992 $ 308,907 $ 104,733
Exercise of stock options 20,174 -
Conversion of preferred stock 17,415 -
Conversion of preferred stock into
Series 2 Preferred Stock 46,550 -
Common stock issued 50,977 -
Common stock issued to
repurchase debt 5,987 -
Tax adjustment resulting from exercise
of stock options 20,770 -
Cash for fractional shares (76) -
Shares issued for acquisitions 1,230,010 -
Net income - 116,372
Cash dividends on preferred
stock - (11,683)
-------------------------
Balances, December 31, 1993 1,700,714 209,422
Exercise of stock options 15,895 -
Common stock issued 22,971 (6,935)
Tax adjustment resulting from exercise
of stock options 15,918 -
Shares issued for acquisitions 17,384 -
Net loss - (122,158)
Cash dividends on preferred
stock - (27,766)
-------------------------
Balances, December 31, 1994 1,772,882 52,563
Exercise of stock options 90,437 -
Conversion of Series 1 Preferred Stock (110) -
Conversion of Series 2 Preferred Stock (8) -
Tax adjustment resulting from exercise
of stock options 22,280 -
Cash for fractional shares (15) -
Shares issued for acquisitions 12,844 -
Net income - 267,660
Cash dividends on preferred
stock - (33,191)
-------------------------
Balances, December 31, 1995 $ 1,898,310 $ 287,032
=========================
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 31
WORLDCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------
1995 1994 1993
------------ ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 267,660 $ (122,158) $ 116,372
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item - - 7,949
Depreciation 185,702 97,089 64,239
Amortization 125,563 66,739 37,620
Provision for losses on accounts receivable 39,175 58,952 25,231
Provision for shareholder litigation - 76,000 -
Provision to reduce the carrying value of certain assets - 48,500 -
Provision for deferred income taxes 171,463 24,961 53,259
Change in assets and liabilities, net of effect of
business combinations:
Accounts receivable (77,512) (148,053) (79,981)
Income taxes, net (7,160) 21,215 18,362
Other current assets 2,182 (14,739) 3,622
Accrued line costs 63,830 18,629 49,585
Shareholder litigation reserve (75,000) 75,000 -
Accounts payable and other current liabilities (69,684) 26,601 (137,065)
Other (10,539) 17,905 (185)
------------ ----------- ----------
Net cash provided by operating activities 615,680 246,641 159,008
------------ ----------- ----------
Cash flows from investing activities:
Capital expenditures (355,841) (192,162) (83,957)
Sale (purchase) of short-term investments, net 1,000 11,672 (12,672)
Acquisitions and related costs (2,766,355) (91,750) (284,397)
Increase in intangible assets (46,062) (14,877) (17,070)
Proceeds from disposition of other assets 21,294 - -
Increase in other assets (8,171) (8,585) (9,161)
Decrease in other liabilities (62,604) (30,947) (7,379)
Payment for line installation costs (20,949) (11,071) (13,936)
Proceeds from sale of property and equipment 13,676 2,000 6,118
------------ ----------- ----------
Net cash used in investing activities (3,224,012) (335,720) (422,454)
------------ ----------- ----------
Cash flows from financing activities:
Borrowings 2,702,650 77,600 391,050
Principal payments on debt (129,224) (40,707) (126,178)
Common stock issuance 90,532 38,431 71,238
Dividends paid on preferred stock (33,191) (27,766) (11,683)
Other (15) - (5,667)
------------ ----------- ----------
Net cash provided by financing activities 2,630,752 47,558 318,760
------------ ----------- ----------
Net increase (decrease) in cash and cash equivalents 22,420 (41,521) 55,314
Cash and cash equivalents at beginning of period 19,259 60,780 5,466
------------ ----------- ----------
Cash and cash equivalents at end of period $ 41,679 $ 19,259 $ 60,780
============ ----------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 32
WORLDCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -
DESCRIPTION OF BUSINESS AND ORGANIZATION:
WorldCom, Inc., a Georgia corporation ("WorldCom" or the "Company"), is one of
the four largest long distance telecommunications companies in the United
States, serving customers domestically and internationally. The Company
provides long distance telecommunications services to business, consumer and
other carrier customers, through its network of fiber optic cables, digital
microwave, and fixed and transportable satellite earth stations, with service
to points throughout the nation and the world. The products and services
provided by WorldCom include: switched and dedicated long distance products,
800 services, calling cards, operator services, domestic and international
private lines, broadband data services, debit cards, conference calling,
advanced billing systems, enhanced faxed and data connections, television and
radio transmission, and mobile satellite communications.
THE MERGERS:
On December 30, 1994, WorldCom, Inc., through a wholly owned subsidiary, merged
with IDB Communications Group, Inc., a Delaware corporation ("IDB"), and in
connection therewith issued approximately 35,881,000 shares of WorldCom common
stock, (the "Common Stock"), for all of the outstanding shares of IDB common
stock, (the "IDB Merger"). In addition, WorldCom assumed, on a subordinated
basis, jointly and severally with IDB, the obligations of IDB to pay the
principal of and interest on $195.5 million 5% convertible subordinated notes
due 2003, issued by IDB. The IDB Merger was accounted for as a
pooling-of-interests and, accordingly, the Company's financial statements for
periods prior to the IDB Merger have been restated to include the results of
IDB for all periods presented.
On September 15, 1993, a three-way merger occurred whereby (i) Metromedia
Communications Corporation, a Delaware corporation ("MCC"), merged with and
into Resurgens Communications Group, Inc., a Georgia corporation ("Resurgens"),
and (ii) LDDS Communications, Inc., a Tennessee corporation ("LDDS-TN"), merged
with and into Resurgens (the "Prior Mergers").
At the time of the Prior Mergers, the name of Resurgens, the legal survivor,
was changed to LDDS Communications, Inc., and the separate corporate existences
of LDDS-TN and MCC terminated. For accounting purposes, however, LDDS-TN was
the survivor because the former shareholders of LDDS-TN acquired majority
ownership of the Company. Accordingly, unless otherwise indicated, all
historical information presented herein reflects the operations of LDDS-TN. At
the annual meeting of shareholders held May 25, 1995, shareholders of LDDS
Communications, Inc. voted to change the name of the Company to WorldCom, Inc.,
effective immediately. Information in this document has also been revised to
reflect the stock splits of the Company's Common Stock.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and balances have
been eliminated in consolidation. Investments in joint ventures and other
equity investments in which the Company owns a 20% to 50% ownership interest,
are accounted for by the equity method. Investments of less than 20% ownership
are recorded at cost.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts for cash, short-term investments, accounts receivable,
notes receivable, accounts payable and accrued liabilities approximate their
fair value. The fair value of the long-term debt is determined based on the
cash flows from such financial instruments discounted at the Company's
estimated current interest rate to enter into similar financial instruments.
At December 31, 1995, the fair value of the 5.0% convertible subordinated notes
was $244.1 million. The recorded amounts for all other long-term debt of the
Company approximate fair values.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is provided for
financial reporting purposes using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Transmission equipment 5 to 30 years
Communications equipment 5 to 25 years
Furniture, fixtures and other 5 to 30 years
</TABLE>
Maintenance and repairs are expensed as incurred. Replacements and betterments
are capitalized. The cost and related reserves of assets sold or retired are
removed from the accounts, and any resulting gain or loss is reflected in
results of operations.
F-8
<PAGE> 33
The Company constructs certain of its own transmission systems and related
facilities. All internal costs directly related to the construction of such
facilities, including interest and salaries of certain employees, are
capitalized. Such costs were $14.7 million ($4.9 million in interest), $6.8
million ($1.2 million in interest), and $8.3 million ($3.1 million in interest)
in 1995, 1994, and 1993, respectively.
EXCESS OF COST OVER NET TANGIBLE ASSETS ACQUIRED:
The major classes of intangible assets are summarized below (in thousands):
<TABLE>
<CAPTION>
December 31,
Amortization ---------------------------
Period 1995 1994
------------- ---------- ------------
<S> <C> <C> <C>
Goodwill 40 years $4,417,964 $2,076,174
Customer acquisition cost 7 to 10 years 82,539 75,245
Other intangibles 5 years 96,147 61,290
---------- ----------
4,596,650 2,212,709
Less accumulated amortization 303,898 142,000
---------- ----------
$4,292,752 $2,070,709
========== ==========
</TABLE>
Intangible assets are amortized using the straight-line method for the periods
noted above.
Goodwill is recognized for the excess of the purchase price of the various
business combinations over the value of the identifiable net assets and
customer bases. See Note 2. Realization of acquisition-related intangibles,
including goodwill, is periodically assessed by the management of the Company
based on the current and expected future profitability and cash flows of
acquired companies and their contribution to the overall operations of
WorldCom.
Customer acquisition costs represent costs incurred as a result of purchase
business combinations and are recorded based upon the estimated value of the
customer bases acquired. See Note 2.
LINE INSTALLATION COSTS:
The Company defers the costs associated with the installation of local access
lines and other network facilities. Amortization of these costs is provided
over five years using the straight-line method. Accumulated amortization on
line installation costs was $41.0 million and $29.5 million as of December 31,
1995 and 1994, respectively.
OTHER LONG-TERM LIABILITIES:
At December 31, 1995 and 1994, other long-term liabilities includes $149.3
million and $80.1 million, respectively, related to estimated costs of closing
duplicate facilities, and other non-recurring duplicative costs expected to be
incurred as the result of various acquisitions and mergers. See Note 2.
RECOGNITION OF REVENUES:
The Company records revenues for long distance telecommunications sales at the
time of customer usage. The Company also performs systems integration services
consisting of design and installation of transmission equipment and systems for
its customers. Revenues and related costs for these services are recorded
under the percentage of completion method.
ACCOUNTING FOR INTERNATIONAL LONG DISTANCE TRAFFIC:
The Company enters into operating agreements with telecommunications carriers
in foreign countries under which international long distance traffic is both
delivered and received. Under these agreements, the foreign carriers are
obligated to adhere to the policy of the Federal Communications Commission
("FCC") whereby traffic from the foreign country is routed to international
carriers, of which the Company is one, in the same proportion as traffic
carried into the foreign country. Mutually exchanged traffic between the
Company and foreign carriers is settled in cash through a formal settlement
policy that generally extends over a six-month period at an agreed upon tariff
rate. Although the Company can estimate the amount of inbound traffic it will
receive, under the FCC's proportional share policy, it generally must wait up
to six months before it actually receives the inbound traffic.
The Company utilizes the net settlement concept that is inherent in the
operating agreements as the basis for its accounting policy for international
long distance traffic. Under this approach, the margin on outbound calls
(recognizing that the proportionate return of the actual inbound call is
received generally on a six-month lag) is normalized to reflect the implicit
overall earning rate concept of the contract. Accordingly, a portion of the
outbound call fee due the foreign carrier is deferred and accounted for as a
cost attributable to the revenue
F-9
<PAGE> 34
associated with the inbound call. All costs deferred are expensed six months
later and offset against the revenues recognized upon receipt of return
traffic.
LINE COSTS:
Line costs primarily include right-of-way payments and all payments to local
exchange carriers ("LECs"), interexchange carriers and post telephone and
telegraph administrations ("PTTs") primarily for access and transport charges.
INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. SFAS 109
has as its basic objective the recognition of current and deferred income tax
assets and liabilities based upon all events that have been recognized in the
consolidated financial statements as measured by the provisions of the enacted
tax laws. See Note 9.
EARNINGS PER SHARE:
For the years ended December 31, 1995 and 1993, earnings per share are
calculated based on the weighted average number of shares outstanding during
the period plus the dilutive effect of stock options and warrants determined
using the treasury stock method. For the year ended December 31, 1994,
earnings per share were calculated based on the weighted average number of
shares outstanding during the period. The effect of common stock equivalents
was not considered in the 1994 period because the effect of such options and
warrants would have been anti-dilutive.
Average common shares and common equivalent shares utilized were 193,449,000;
157,805,000; and 137,927,000, respectively, for primary earnings per share and
201,495,000; 157,805,000; and 140,796,000, respectively, for fully diluted
earnings per share, for the years ended December 31, 1995, 1994 and 1993.
STOCK SPLITS:
On December 7, 1992, the Board of Directors authorized a 3-for-2 stock split in
the form of a 50% stock dividend which was distributed on January 14, 1993 to
shareholders of record on December 21, 1992. On November 18, 1993, the Board
of Directors authorized a 2-for-1 stock split in the form of a 100% stock
dividend which was distributed on January 6, 1994, to shareholders of record on
December 7, 1993. Upon effectiveness of the Prior Mergers on September 15,
1993, each share of the outstanding common stock of LDDS-TN was converted into
the right to receive 0.9595 shares of the Common Stock.
All per share data and numbers of common shares have been retroactively
restated to reflect the effect of the stock splits, stock dividends and the
exchange ratio of 0.9595.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
The Company considers cash in banks and short-term investments with original
maturities of three months or less as cash and cash equivalents. Highly liquid
investments with original maturities beyond three months are classified as
short-term investments and carried at fair value, which approximates cost.
Short-term investments principally consist of tax exempt municipal bonds and
corporate bonds.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This Statement establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. This Statement is
effective for financial statements for fiscal years beginning after December
15, 1995. WorldCom believes that the adoption of this standard will not have a
material effect on the Company's consolidated results of operations or
financial position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement 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 APB Opinion 25 in determining
its net income. However, additional disclosures will be made to disclose the
estimated value of compensation expense under the method established by SFAS
No. 123.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for long-term
contracts, allowance for doubtful accounts, depreciation and amortization,
taxes, restructuring reserves and contingencies.
F-10
<PAGE> 35
RECLASSIFICATIONS:
Certain consolidated financial statement amounts have been reclassified for
consistent presentation.
(2) BUSINESS COMBINATIONS -
On January 5, 1995, WorldCom completed the acquisition of Williams
Telecommunications Group, Inc. ("WilTel"), a subsidiary of The Williams
Companies, Inc. ("Williams"), for approximately $2.5 billion in cash (the
"WilTel Acquisition"). Through this purchase, the Company acquired a
nationwide common carrier network of approximately 11,000 miles of fiber optic
cable and digital microwave facilities. The funds paid to Williams were
obtained by WorldCom under a new credit facility entered into on December 21,
1994. See Note 4.
In 1993, upon effectiveness of the Prior Mergers, each share of the outstanding
common stock of LDDS-TN was converted into the right to receive 0.9595 shares
of Common Stock. The 500,000 shares of LDDS-TN Series B 6.5% Cumulative Senior
Perpetual Convertible Preferred Stock outstanding were converted into 2,000,000
shares of WorldCom Series 2 6.5% Cumulative Senior Perpetual Convertible
Preferred Stock having a liquidation value of $25 per share and a conversion
price of $11.81171 per share (the "Series 2 Preferred Stock"). As a result of
the consummation of the Prior Mergers, Metromedia Company ("Metromedia"), the
sole stockholder of MCC, received 2,758,620 shares of the Common Stock,
10,896,785 shares of WorldCom Series 1 $2.25 Cumulative Senior Perpetual
Convertible Preferred Stock having a liquidation value of $50 per share and a
conversion price of $24.9046875 per share (the "Series 1 Preferred Stock"),
warrants to purchase 5,000,400 shares of the Common Stock, and $150.0 million
in cash. The common stock of Resurgens was unchanged in the Prior Mergers.
For accounting purposes, LDDS-TN was the survivor because the former
shareholders of LDDS-TN acquired majority ownership of the Company. The Prior
Mergers have been accounted for as purchases, and the excess purchase price
over net tangible assets acquired has been recorded based upon an estimate of
fair values of assets acquired and liabilities assumed.
The Company has acquired other long distance companies offering similar or
complementary services to those offered by the Company. Such acquisitions have
been accomplished through the purchase of the outstanding stock or assets of
the acquired entity for cash, notes, shares of the Company's common stock, or a
combination thereof. The cash portion of acquisition costs has generally been
financed through the Company's bank loan agreements. See Note 4.
Most of the acquisitions have been accounted for as purchases and resulted in
an excess of the purchase costs over the net tangible assets acquired. These
costs, composed primarily of goodwill, are amortized over 40 years using the
straight-line method. The results of those purchased businesses have been
included since the dates of acquisition. Business combinations which have been
accounted for as poolings-of-interests have been included in all periods
presented. The table below sets forth information concerning certain other
recent acquisitions which were accounted for as purchases.
<TABLE>
<CAPTION>
Purchase Price Allocation of Excess Costs
--------------------------------- Over Tangible Assets Acquired
Shares Issued -------------------------------
Acquisition ------------------- Customer
Acquired Entity Date Cash Number Value Acquisition Cost Goodwill
- --------------- -------------- ------ ------ ------ ---------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Dial-Net, Inc. March 1993 $ 31,200 2,746 $ 50,095 $ 10,139 $ 91,255
("Dial-Net")
MCC/Resurgens September 1993 150,000 * 1,097,915 - 1,269,105
TRT Communications, Inc. ("TRT") September 1993 1,000 6,760 79,000 - 39,000
Williams Telecommunications Group, Inc. January 1995 2,500,000 - - - 2,216,909
("WilTel")
- -----------------------------------------
</TABLE>
* See the second paragraph of Note 2 for a description of the common and
preferred shares and warrants issued.
In addition to those acquisitions listed above, the Company or its predecessors
completed several smaller acquisitions during 1993 through 1995.
The following unaudited pro forma combined results of operations for the
Company assume that the WilTel Acquisition as well as the 1993 acquisitions of
Dial-Net, Resurgens, MCC and TRT were completed on January 1, 1993.
F-11
<PAGE> 36
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1994 1993
---------- ----------
(In thousands, except per share data)
<S> <C> <C>
Revenues $3,067,994 $2,631,740
Loss before extraordinary item (202,933) (3,385)
Loss applicable to common
shareholders (202,933) (11,334)
Loss per common share:
Loss before extraordinary item (1.29) (0.02)
Net loss (1.29) (0.08)
</TABLE>
These pro forma amounts represent the historical operating results of these
acquired entities combined with those of the Company with appropriate
adjustments which give effect to interest expense, amortization and the common
shares issued. These pro forma amounts are not necessarily indicative of
operating results which would have occurred if Dial-Net, Resurgens, MCC, TRT
and the WilTel Acquisition had been operated by current management during the
periods presented because these amounts do not reflect full network
optimization and the synergistic effect on operating, selling, general and
administrative expenses.
(3) DIRECT MERGER COSTS, RESTRUCTURING AND OTHER CHARGES -
RESTRUCTURING AND OTHER CHARGES:
As a result of the IDB Merger, the Company initiated plans to reorganize and
restructure its management and operational organization and facilities to
eliminate duplicate personnel, physical facilities and service capacity, to
abandon certain products and marketing activities, and to take further
advantage of the synergies available to the combined entities. Accordingly,
the Company charged to operations during the fourth quarter of 1994, the
estimated costs of such reorganization and restructuring activities, including
employee severance, physical facility abandonment, and duplicate service
capacity.
During 1993, plans were approved to reduce IDB's cost structure and to improve
productivity. Such plans included a reduction in the number of employees and
the disposition of certain assets.
The following table reflects the components of the significant items shown as
restructuring and other charges in 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------
1994 1993
--------- --------
<S> <C> <C>
Severance costs $ 18,702 $ 691
Duplicate facilities and other restructuring 13,990 -
Provision for settlement of certain legal issues 8,000 -
Reduction in carrying amount of certain assets 2,423 4,954
Other 589 275
---------- --------
$ 43,704 $ 5,920
======== =======
</TABLE>
As of December 31, 1995 and 1994, the accompanying consolidated financial
statements reflect $5.3 million and $25.8 million, respectively, in accrued
restructuring costs and $5.6 million and $14.7 million, respectively, in other
long- term liabilities, in connection with the IDB Merger.
DIRECT MERGER COSTS:
During 1994, the Company recorded direct merger costs of $15.0 million related
to the IDB Merger. These costs included professional fees, proxy solicitation
costs, travel and related expenses and certain other direct costs attributable
to these mergers.
PROVISION TO REDUCE THE CARRYING VALUE OF CERTAIN ASSETS:
During 1994 several events occurred which caused the Company to evaluate the
realization of its investment in the assets of IDB Broadcast. These events
included a proposed but never consummated sale of IDB Broadcast at amounts
significantly below book value, and the continued emergence of
telecommunications as the core business of IDB (making IDB Broadcast a non-core
operation). These factors, combined with broad economic factors adversely
impacting broadcast assets in general, have caused a decline in the value of
the Company's investment in these assets.
The Company has assessed the impact of these factors relative to its ability to
recover the recorded values of these assets, and determined that such values
should be reduced. Accordingly, the Company recorded adjustments of $48.5
million, to reduce the carrying value of these
F-12
<PAGE> 37
broadcast assets (primarily intangible assets and property and equipment) to
the Company's best estimate of the net realizable value. During 1995, the
Company sold its simulcasting operations and entered into an agreement to
outsource the management of the remaining IDB Broadcast operations.
(4) LONG-TERM DEBT -
Long-term debt outstanding consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---------- ---------
<S> <C> <C>
Reducing revolving credit agreements $3,171,500 $ 468,850
Convertible subordinated notes 195,500 195,500
Senior notes - 123,000
Other debt (maturing through 2000) 24,281 6,651
---------- ---------
3,391,281 794,001
Less: Short-term debt and current maturities 1,112,853 5,996
---------- ---------
$2,278,428 $ 788,005
========== =========
</TABLE>
In December 1994, WorldCom entered into new credit facilities to finance the
WilTel Acquisition, refinance WorldCom's existing credit facilities and provide
additional working capital. The credit facility is comprised of a $2.16
billion, six-year reducing revolving credit facility (the "Revolving Facility
Commitment") and a $1.25 billion, two-year term facility (the "Term Principal
Debt"). The maximum principal amount permitted to be outstanding under the
Revolving Facility Commitment will be reduced at the end of each fiscal
quarter, commencing September 30, 1996, in varying amounts, and the outstanding
balance must be paid in full on December 31, 2000. The Term Principal Debt
matures in a single installment on December 31, 1996. The Revolving Facility
Commitment and the Term Principal Debt bear interest, payable quarterly, at
variable rates selected by the Company, under the terms of the credit
facilities. The Company is permitted to choose from several interest rate
options including: a Base Rate plus applicable margin, the London Interbank
Offering Rate ("LIBOR") plus applicable margin, or, for the Revolving Facility
Commitment only, any Competitive Bid Rate. The applicable margin varies from
0% to 3/8% for Base Rate Borrowings and 1/2% to 1.5% for LIBOR Rate Borrowings
from time to time based upon the lower of a specified financial test or
WorldCom's long-term debt rating. The credit facility is unsecured and
requires compliance with certain financial and other operating covenants which
limit, among other things, the incurrence of additional indebtedness by
WorldCom and restricts the payment of cash dividends to WorldCom's
shareholders. The credit facility is also subject to an annual commitment fee
not to exceed 0.375% of any unborrowed portion of the credit facility.
The $3.41 billion credit facility was utilized by the Company on January 5,
1995, in conjunction with the WilTel Acquisition and all debt outstanding under
WorldCom's previous credit facilities and the $123.0 million in senior notes
was repaid. For the year ended December 31, 1995, the weighted average
interest rate under the credit facilities was 7.3%. The aggregate principal
repayments and reductions required in each of the years ending December 31,
1995 through December 31, 2000 and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1996 $1,112,853
1997 300,868
1998 513,738
1999 500,783
2000 767,539
Thereafter 195,500
----------
$3,391,281
==========
</TABLE>
In February 1995, in the event of rising interest rates, the Company entered
into financial hedging agreements with various financial institutions, in
connection with requirements under the credit facility. The hedging agreements
establish capped fixed rates of interest ranging from 8.25% to 8.3125% on an
aggregate notional value of $1.7 billion. If interest rates do not reach this
cap, the Company's interest rate remains variable. These contracts range in
duration from one to two years with $845.4 million maturing in each of the
years ending 1996 and 1997. The $845.4 million which matured in 1996 was
replaced with a hedging agreement which caps the fixed rate of interest at
7.43% and matures in 1997.
On August 20, 1993, IDB issued $195.5 million of convertible subordinated notes
(the "Notes"), proceeds of which were approximately $189.6 million net of
direct fees and expenses. Interest on the Notes is payable semiannually on
February 15 and August 15 of each year at an interest rate of 5% per annum.
The Notes are convertible at the option of the holder at anytime prior to
maturity into WorldCom Common Stock at approximately $38.07 per share. The
Notes include certain anti-dilution rights and rights with regard to certain
changes in control. At its option, the Company may redeem the Notes at any
time after August 1996, but will incur a redemption premium which ranges from
103.5% in 1996 declining to 100% on the maturity date. The Notes mature and
are due in full on August 15, 2003.
F-13
<PAGE> 38
IDB used the proceeds of this issue, together with the proceeds of a May 1993
common stock issuance to repay and defease substantially all of its then
existing debt. The repayment and defeasance of this debt resulted in an
extraordinary charge of $7.9 million, net of income tax benefit of $5.6
million, which represents payment of debt redemption premiums and the write-off
of unamortized debt issuance costs.
(5) PREFERRED STOCK -
As a result of the Prior Mergers, 10,896,785 shares of the Series 1 Preferred
Stock were issued to Metromedia, the sole stockholder of MCC. Also in 1993,
the IDB convertible preferred stock issued in connection with the acquisition
of World Communications, Inc. was converted into common stock of IDB.
In May 1992, the Company issued 500,000 shares of no par, 6.5% cumulative
senior perpetual convertible preferred stock for $50 million. The net proceeds
of the issue ($46.6 million after issuance costs) were used to reduce
outstanding indebtedness. These shares were converted into 2,000,000 shares of
the Series 2 Preferred Stock upon effectiveness of the Prior Mergers.
The Series 2 Preferred Stock has a liquidation value of $25 per share, a
conversion price of $11.81171 per share and pays dividends at the rate of 6.5%
annually, payable quarterly. There is no established public trading market for
the Series 2 Preferred Stock. Except under certain circumstances, the Series 2
Preferred Stock may not be redeemed by the Company prior to June 5, 1996.
Thereafter, the Series 2 Preferred Stock may be redeemed in whole or in part in
integral multiples of $10.0 million, at prices which include premiums over the
liquidation preference of $25 per share, which prices range from 108% in 1996
declining to 100% on and after June 5, 2002.
In March 1996, the Company's Board of Directors approved a resolution
authorizing the Company to redeem on June 5, 1996 or such later date as the
president of the Company may determine, all outstanding shares of the Series 2
Preferred Stock, including all accrued and unpaid dividends thereon.
In August 1995, Metromedia converted its Series 1 Preferred Stock into
21,876,976 shares of WorldCom Common Stock. In connection with the preferred
stock conversion, WorldCom made a non-recurring payment of $15.0 million to
Metromedia, representing a discount to the minimum nominal dividends that would
have been payable on the Series 1 Preferred Stock prior to the September 15,
1996 optional call date of approximately $26.6 million (which amount includes
an annual dividend requirement of $24.5 million plus accrued dividends to such
call date).
The holders of the Series 2 Preferred Stock generally have the right to vote
together as a single class with holders of Common Stock based on one vote for
each share of Common Stock issuable upon conversion of the respective series of
preferred stock. The approval of the holders of two-thirds of the shares of
Series 2 Preferred Stock is required for certain extraordinary transactions or,
alternatively, such shares must be redeemed at a specified premium.
(6) LEASES AND OTHER COMMITMENTS -
The Company leases office facilities and certain equipment under noncancellable
operating leases having initial or remaining terms of more than one year. In
addition, the Company leases a right-of-way from a railroad company under a
fifteen-year lease with three fifteen-year renewal options. Rental expense
under these operating leases was $45.1 million, $30.9 million, and $29.9
million in 1995, 1994 and 1993, respectively.
In prior years, WilTel sold to independent entities and leased back its
microwave system and its Kansas City to Los Angeles fiber optic system over
primary lease terms ranging from 15 to 20 years. The leases have renewal
options permitting the Company to extend the leases for terms expiring during
the years 2012 to 2019 and purchase options based upon the fair market value.
The annual lease commitments pursuant to the sale-leaseback are included below
under the heading Telecommunication Facilities.
At the end of 1995, minimum lease payments under noncancellable operating
leases and commitments were as follows (in thousands):
<TABLE>
<CAPTION>
MINIMUM LEASE PAYMENTS
-------------------------------------------------
OFFICE
FACILITIES AND TELECOMMUNICATION
YEAR EQUIPMENT FACILITIES TOTAL
---- --------- ---------- -----
<S> <C> <C> <C>
1996 $ 43,442 $ 53,963 $ 97,405
1997 37,539 37,495 75,034
1998 33,904 35,519 69,423
1999 28,962 29,792 58,754
2000 22,047 29,519 51,566
</TABLE>
F-14
<PAGE> 39
Certain of the Company's facility leases include renewal options, and all
leases include provisions for rent escalation to reflect increased operating
costs and/or require the Company to pay certain maintenance and utility costs.
WorldCom also has agreements with a company that installs, operates and
maintains certain WorldCom data processing, telecommunications and billing
systems. The agreements expire in 2000 and are renewable on an annual basis
thereafter. The agreements require minimum annual payments of approximately
$16.6 million.
During 1995, the Company amended WilTel's existing $80.0 million receivables
purchase agreement to include certain additional receivables and received
additional proceeds of $215.4 million. The Company used these proceeds to
reduce the outstanding debt under the Company's credit facilities and provide
additional working capital. As of December 31, 1995, the purchaser owned an
undivided interest in $608.9 million pool of receivables which includes the
$295.4 million sold. The aggregate purchase limit under this agreement was
$300.0 million at December 31, 1995.
(7) CONTINGENCIES -
IDB RELATED INVESTIGATIONS. On June 9, 1994, the SEC issued a formal order of
investigation concerning certain matters, including IDB's financial position,
books and records and internal controls and trading in IDB securities on the
basis of non-public information. The SEC has issued subpoenas to WorldCom, IDB
and others, including certain former officers of IDB, in connection with its
investigation. The NASD and other self-regulatory bodies have also made
inquiries of IDB concerning similar matters.
The U.S. Attorney's Office for the Central District of California has issued
grand jury subpoenas to IDB seeking documents relating to IDB's first quarter
of 1994 results, the Deloitte & Touche LLP resignation, trading in IDB
securities and other matters, including information concerning certain entities
in which certain former officers of IDB are personal investors and transactions
between such entities and IDB. IDB has been informed that a criminal
investigation has commenced. The U.S. Attorney's Office has issued a grand
jury subpoena to WorldCom arising out of the same investigation seeking certain
documents relating to IDB.
AT&T PATENTS. AT&T has claimed that a number of long distance carriers,
including the Company, make unauthorized use of AT&T patents in the provision
of some of the carrier's long distance services. Effective December 15, 1995,
the Company and AT&T entered into a two year patent licensing agreement which,
among other things, released all claims by AT&T against the Company relating to
any alleged patent infringement.
OTHER. On February 8, 1996, President Clinton signed legislation that: will,
without limitation, permit the BOCs to provide domestic and international long
distance services upon a finding by the FCC that the petitioning BOC has
satisfied certain criteria for opening up its local exchange network to
competition and that its provision of long distance services would further the
public interest; removes existing barriers to entry into local service markets;
significantly changes the manner in which carrier-to-carrier arrangements are
regulated at the federal and state level; establishes procedures to revise
universal service standards; and, establishes penalties for unauthorized
switching of customers. The Company cannot predict the effect such legislation
will have on the Company or the industry. However, the Company believes that
it is positioned to take advantage of business opportunities in the rapidly
changing telecommunications market.
The Company is involved in other legal and regulatory proceedings generally
incidental to its business. In some instances, rulings by regulatory
authorities in some states may result in increased operating costs to the
Company.
While the results of these various legal and regulatory matters contain an
element of uncertainty, the Company believes that the probable outcome of any
of the legal or regulatory matters, or all of them combined, should not have a
material adverse effect on the Company's consolidated results of operations or
financial position.
(8) EMPLOYEE BENEFIT PLANS -
STOCK OPTION PLANS:
The Company has several stock option plans under which options to acquire up to
30.3 million shares may be granted to directors, officers and certain employees
of the Company. Terms and conditions of the Company's options, including
exercise price and the period in which options are exercisable, generally are
at the discretion of the Compensation and Stock Option Committee of the Board
of Directors; however, no options are exercisable for more than 10 years after
date of grant. As of December 31, 1995, 24.8 million options had been granted
under these plans, and 5.1 million options were fully exercisable.
Additional information regarding options and warrants granted and outstanding
is summarized below:
F-15
<PAGE> 40
<TABLE>
<CAPTION>
Number of Exercise
Options Price
------------ -------------------
<S> <C> <C>
Balance, December 31, 1992 7,787,354 $ 0.29 - $ 10.85
Granted to employees/directors 2,665,875 17.46 - 30.13
Assumed in connection with acquisition 5,986,934 1.76 - 8.00
Granted in connection with acquisition 5,200,400 7.75 - 23.25
Exercised (5,650,547) 1.45 - 17.46
Expired or canceled (28,571) 0.29 - 26.46
----------
Balance, December 31, 1993 15,961,445 0.59 - 30.13
Granted to employees/directors 1,750,710 17.75 - 19.25
Granted in connection with acquisition 61,550 22.02 - 23.00
Exercised (3,209,233) 0.59 - 17.88
Expired or canceled (167,417) 1.76 - 8.00
----------
Balance, December 31, 1994 14,397,055 0.59 - 30.13
Granted to employees/directors 6,431,438 20.69 - 33.88
Granted in connection with acquisition 1,152,002 18.39 - 21.91
Exercised (9,482,517) 0.59 - 30.13
Expired or canceled (895,890) 3.17 - 30.13
----------
Balance, December 31, 1995 11,602,088 $ 0.67 - $ 33.88
==========
</TABLE>
401(K) PLANS:
The Company and its subsidiaries offer its qualified employees the opportunity
to participate in one of its defined contribution retirement plans qualifying
under the provisions of Section 401(k) of the Internal Revenue Code. Each
employee may contribute on a tax deferred basis a portion of annual earnings
not to exceed $9,240. The Company matches individual employee contributions up
to a maximum level which in no case exceeds 6% of the employee's compensation.
Expenses recorded by the Company relating to its 401(k) plans were $3.6
million, $3.1 million, and $2.2 million for the years ended December 31, 1995,
1994, and 1993, respectively.
(9) INCOME TAXES -
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes." When SFAS No. 109 was adopted, the cumulative
effect of this change in accounting principle was not material to the Company.
The provision for income taxes is composed of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- ------- --------
<S> <C> <C> <C>
Current $ (336) $48,855 $ 32,340
Deferred 171,463 24,961 53,259
-------- ------- --------
Total provision for income taxes $171,127 $73,816 $ 85,599
======== ======= ========
</TABLE>
The following is a reconciliation of the provisions for income taxes to the
expected amounts using the statutory rate:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Expected statutory amount 35.0% (35.0)% 35.0 %
Nondeductible amortization of excess of
cost over net tangible assets acquired 4.5 37.1 3.8
State income taxes 2.9 5.7 2.0
Effect of Company Owned Life Insurance (0.4) (3.4) (0.6)
Direct merger, restructuring and other charges - 20.7 -
Writedown of assets - 26.1 -
Valuation allowance (1.6) 96.6 -
Other (1.4) 4.9 0.6
---- ----- ----
Actual tax provision 39.0% 152.7 % 40.8 %
==== ===== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes and the impact of available
net operating loss carryforwards.
F-16
<PAGE> 41
At December 31, 1995, the Company had unused net operating loss ("NOL")
carryforwards of approximately $447.0 million which expire in various amounts
during the years 2000 through 2009. These NOL carryforwards which include
$90.0 million generated by IDB in 1994 are primarily attributable to the
preacquisition operations of acquired companies. These NOL carryforwards
result in a deferred tax asset of approximately $168.1 million at December 31,
1995. A valuation allowance of $101.7 million has been established related to
deferred tax assets due to the uncertainty of realizing the full benefit of the
NOL carryforwards. In evaluating the amount of valuation allowance needed, the
Company considers the acquired companies' prior operating results and future
plans and expectations. The utilization period of the NOL carryforwards and
the turnaround period of other temporary differences are also considered.
Approximately $168.1 million of the Company's deferred tax assets are related
to preacquisition NOL carryforwards or temporary differences attributable to
entities acquired in transactions accounted for as purchases. Accordingly, any
future reductions in the valuation allowance related to such deferred tax
assets will result in a corresponding reduction in goodwill. If, however,
subsequent events or conditions dictate an increase in the valuation allowance
attributable to such deferred tax assets, income tax expense for the period of
the increase will be increased accordingly.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31, 1995 and 1994 (in
thousands).
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1995 1994
------------------------- -------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Allowance for bad debts $ 22,767 $ - $ 7,740 $ -
Fixed assets - (56,129) - (35,926)
Intangible assets - (30,777) - -
Leases 3,796 - 3,981 -
Line installation costs - (13,303) - (10,817)
Accrued liabilities 6,790 - 19,164 -
NOL carryforwards 168,057 - 192,309 -
Restructuring and other charges - - 11,339 -
Other 3,093 (11,888) 10,604 (8,571)
--------- --------- -------- ---------
204,503 (112,097) 245,137 (55,314)
Valuation allowance (101,679) - (113,016) -
--------- --------- --------- ---------
$ 102,824 $(112,097) $ 132,121 $ (55,314)
========= ========= ========= =========
</TABLE>
In 1995, the valuation allowance decreased by $11.3 million due to the
Company's ability to utilize net operating losses that management had
previously determined would not be utilized under a "more likely than not"
scenario. This is mainly attributable to the profitability of individual
operating units in 1995. Accordingly, the valuation allowance was reduced
resulting in reductions to goodwill and the provision for income taxes of $4.3
million and $7.0 million, respectively.
(10) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Interest paid by the Company during the years ended December 31, 1995, 1994 and
1993 amounted to $224.3 million, $48.5 million, and $35.7 million,
respectively. Income taxes paid, net of refunds, during the years ended
December 31, 1995, 1994 and 1993 were $7.3 million, $12.8 million, and $10.6
million, respectively.
In conjunction with business combinations during the years ended December 31,
1995, 1994, and 1993 (see Note 2), assets acquired, liabilities assumed and
common stock issued were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Fair value of assets acquired $ 805,482 $ 13,522 $ 503,449
Excess of cost over net
tangible assets acquired 2,301,567 157,934 1,401,290
Liabilities assumed (327,844) (62,322) (389,961)
Common and treasury
stock issued (12,850) (17,384) (1,230,381)
----------- ---------- ------------
Cash paid $2,766,355 $ 91,750 $ 284,397
========== ========== ============
</TABLE>
F-17
<PAGE> 42
(11) UNAUDITED QUARTERLY FINANCIAL DATA -
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
-------- ------- ------------ -----------
1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $865, 035 $523,895 $894,719 $555,318 $933,560 $ 568,558 $946,561 $572,994
Operating income (loss) 150,538 76,313 162,755 56,748 177,811 25,062 184,944 (88,385)
Net income (loss) 53,963 40,091 61,815 19,812 72,613 (111,756) 79,269 (70,305)
Preferred dividend
requirement 6,939 6,938 6,936 6,952 3,811 6,938 505 6,938
Special dividend
payment to Series 1
preferred shareholder - - - - 15,000 - - -
Earnings (loss) per
common share:
Primary $0.28 $0.20 $0.33 $0.08 $0.29 $ (0.75) $0.40 $ (0.49)
Fully diluted 0.28 0.20 0.32 0.08 0.29 (0.75) 0.40 (0.49)
Earnings (loss) per
common share before
special dividend
payment to Series 1
preferred shareholder:
Primary $0.28 $0.20 $0.33 $0.08 $0.37 $ (0.75) $0.40 $ (0.49)
Fully diluted 0.28 0.20 0.32 0.08 0.37 (0.75) 0.40 (0.49)
</TABLE>
In August 1995, Metromedia converted its Series 1 Preferred Stock into
21,876,976 shares of WorldCom Common Stock. In connection with the preferred
stock conversion, WorldCom made a non-recurring payment of $15.0 million to
Metromedia, representing a discount to the minimum nominal dividends that would
have been payable on the Series 1 Preferred Stock prior to the September 15,
1996 optional call date of approximately $26.6 million (which amount includes
an annual dividend requirement of $24.5 million plus accrued dividends to such
call date).
In the fourth quarter of 1994, the Company undertook restructuring and
reorganizational activities in connection with the IDB Merger. As a result,
direct merger costs of $15.0 million and restructuring charges of $43.7 million
were charged to operations. See Note 3.
In the third quarter of 1994, the Company recorded a $76.0 million charge
related to a shareholder litigation settlement. See Note 7. Also, in the
third and fourth quarters of 1994, the Company recorded adjustments of $35.0
million and $13.5 million, respectively, related to the write-down of certain
IDB Broadcast assets. See Note 3.
F-18
<PAGE> 43
WORLDCOM, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
------------------------------- Deductions
Balance at Charged to Costs ------------
Beginning of and From Purchase Accounts Balance at
Description Period Expenses Transactions Written Off End of Period
----------- ---------------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Accounts Receivable
1995 $52,949 $39,175 $22,042 $56,186 $57,980
1994 26,613 58,952 1,090 33,706 52,949
1993 12,338 25,231 26,750 37,706 26,613
</TABLE>
F-19
<PAGE> 44
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
No.
---
<S> <C> <C>
2.1 Agreement and Plan of Merger by and among IDB Communications Group, Inc., 123 Corp. and
the Company dated as of August 1, 1994 (incorporated herein by reference to Exhibit 2.1
to the Quarterly Report on Form 10-Q filed by the Company (File No. 0-11258) for the
quarter ended September 30, 1994)*
2.2 Stock Purchase Agreement by and among the Company, The Williams Companies, Inc. and WTG
Holdings, Inc., dated as of August 22, 1994 (incorporated herein by reference to Exhibit
2.2 to the Quarterly Report on Form 10-Q filed by LDDS (File No. 0-11258) for the quarter
ended September 30, 1994)*
2.3 Amendment Number 1 to the Stock Purchase Agreement by and among the Company, The Williams
Companies, Inc. and WTG Holdings, Inc., dated as of December 27, 1994 (incorporated
herein by reference to Exhibit 2.3 to LDDS' Current Report on Form 8-K dated December 30,
1994 (File No. 0-11258))
4.1 Amended and Restated Articles of Incorporation of the Company (including preferred stock
designations) as of September 15, 1993, as amended by Articles of Amendment dated May 26,
1994, as amended by Articles of Amendment dated May 25, 1995. ______
4.2 Bylaws of the Company (incorporated herein by reference to Exhibit 3(ii) to Amendment No.
1 to the Company's Registration Statement on Form S-3 (File No. 33-67340))
4.3 Stock Purchase Agreement between LDDS Communications, Inc., a Tennessee corporation
("LDDS-TN"), and The 1818 Fund, L.P., dated as of March 20, 1992 (incorporated herein by
reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q filed by LDDS-TN (File No.
0-7116) for the quarter ended March 31, 1992)
4.4 Registration Rights Agreement between LDDS-TN and The 1818 Fund, L.P., dated as of May 6,
1992 (incorporated herein by reference to Exhibit 4.5 to the Quarterly Report on Form 10-
Q filed by LDDS-TN (File No. 0-7116) for the quarter ended June 30, 1992)
4.5 Agreement to Amend Stock Purchase Agreement and Registration Rights Agreement and to
Exchange Preferred Stock between LDDS-TN and The 1818 Fund, L.P., dated as of July 17,
1992 (incorporated herein by reference to LDDS-TN's Registration Statement on Form S-4
(File No. 33-49798))
4.6 Amendment to Stock Purchase Agreement and Registration Rights Agreement between LDDS-TN
and The 1818 Fund, L.P., dated as of September 1, 1993 (incorporated herein by reference
to Exhibit 4.5 to the Company's Registration Statement on Form S-3 (File No. 33-69122))
4.7 Registration Rights Agreement, dated as of December 4, 1992, between LDDS-TN and ALLTEL
Corporation (incorporated herein by reference to Exhibit 4.7 of the Company's Transition
Report on Form 10-K, as amended, for the period from December 31, 1992 to June 30, 1993
(File No. 1-10415) (the "Transition Report I"))
4.8 First Amendment to Registration Rights Agreement, dated as of September 14, 1993, between
LDDS-TN and ALLTEL Corporation (incorporated herein by reference to Exhibit 4.8 of the
Transition Report I)
4.9 Form of Option expiring July 7, 1996 (incorporated herein by reference to Exhibit 4.2 to
LDDS-TN's Registration Statement on Form S-3 (File No. 33-46556))
4.10 Agreement to Issue Warrants between Resurgens and John D. Phillips, dated June 30, 1989,
together with related form of Common Stock Purchase Warrant (incorporated herein by
reference to Exhibit 10.4 to Resurgens' Current Report on Form 8-K dated July 28, 1989
(File No. 1-10415))
4.11 Stock Registration Agreement among Resurgens, John D. Phillips and certain other holders
of Warrants, dated June 30, 1989 (incorporated herein by reference to Exhibit 10.6 to
Resurgens' Current Report on Form 8-K dated July 28, 1989 (File No. 1-10415))
4.12 Form of Selling Stockholder Agreement between Resurgens and certain Selling Stockholders,
dated 1993 (incorporated herein by reference to Exhibit 4.16 of the Company's Transition
Report on Form 10-K for the period from June 30, 1993 to December 31, 1993 (File No. 1-
10415) (the "Transition Report II"))
4.13 Form of First Amendment to Selling Stockholder Agreement between Resurgens and certain
Selling Stockholders, dated September 13, 1993 (incorporated herein by reference to
Exhibit 4.17 of the Transition Report I)
</TABLE>
E-1
<PAGE> 45
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
No.
---
<S> <C> <C>
10.1 Credit Agreement among the Company, NationsBank of Texas, N.A., (Managing Agent and
Administrative Agent), The Bank of Nova Scotia, Credit Lyonnais Cayman Island Branch,
First Union National Bank of North Carolina, The First National Bank of Chicago and the
Long-Term Credit Bank of Japan, Limited (Agents) and the Lenders named therein (Lenders)
dated as of December 21, 1994 (incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K, dated December 30, 1994 (File No. 0-11258))
10.2 Agreement between LDDS-TN and MCI Telecommunications Corporation, effective as of
September 13, 1991 (incorporated herein by reference to the exhibits to LDDS-TN's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1991, as amended under
cover of Form 8 on February 3, 1992 (File No. 0-7116))
10.3 Amendment dated July 29, 1994, to the agreement between the Company and MCI
Telecommunications Corporation (incorporated herein by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q filed by the Company (File No. 1-10415) for the quarter
ended June 30, 1994)
10.4 Amended and Restated Agreement for Information Technology Services between the Company
and Electronic Data Systems Corporation ("EDS"), dated December 8, 1993 ("EDS Agreement")
(incorporated herein by reference to Exhibit 10.5 of the Transition Report II) *
10.5 Amendment No. 1 to the EDS Agreement dated December 8, 1993 (incorporated herein by
reference to Exhibit 10.6 of the Transition Report II)
10.6 LDDS Communications, Inc. Second Amended and Restated 1990 Stock Option Plan
(incorporated herein by reference to LDDS-TN's Proxy Statement used in connection with
LDDS-TN's 1993 Annual Meeting of Shareholders (File No. 0-7116)) (compensatory plan)
10.7 LDDS Communications, Inc. 1988 Nonqualified Stock Option Plan (incorporated herein by
reference to the exhibits to LDDS-TN's Registration Statement on Form S-4 (File No. 33-
29051)) (compensatory plan)
10.8 LDDS Annual Performance Bonus Plan (incorporated by reference to the Company's Proxy
Statement used in connection with the Company's 1994 Annual Meeting of Shareholders (File
No. 1-10415)) (compensatory plan)
10.9 LDDS 1995 Special Performance Bonus Plan (incorporated herein by reference to Appendix E
to the Prospectus in the Company's Amendment No. 2 to Registration Statement on Form S-4
(File No. 33-56543)) (compensatory plan)
10.10 Employment Agreement between the Company and Gregory A. LeVert, dated December 5, 1994 ______
(compensatory plan)
10.11 Employment Agreement between The Williams Companies, Inc., Williams Telecommunications ______
Group, Inc. and Roy A. Wilkens dated as of January 1, 1990 as amended January 9, 1991 and
January 1, 1994 (compensatory plan)*
11.1 Computation of Per Share Earnings ______
12.1 Statement regarding computation of ratio of earnings to combined fixed charges and ______
preferred stock dividends.
21.1 Subsidiaries of the Company ______
23.1 Consent of Arthur Andersen LLP ______
23.2 Consent of Deloitte & Touche LLP ______
27.1 Financial Data Schedule ______
</TABLE>
___________________________________________
* The Registrant hereby agrees to furnish supplementally a copy of any
omitted schedules to this Agreement to the Securities and Exchange
Commission upon its request.
E-2
<PAGE> 1
EXHIBIT 4.1
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
LDDS COMMUNICATIONS, INC.
1.
The name of the corporation is "LDDS Communications, Inc." (the "Corporation").
2.
Effective the date hereof, Article One of the Corporation's
Amended and Restated Articles of Incorporation is amended, in its entirety, to
read as follows:
ONE
The name of this corporation is WorldCom, Inc. This
corporation is referred to hereinafter as the "Corporation."
3.
All other provisions of the Amended and Restated Articles of
Incorporation, as previously amended, shall remain in full force and effect.
4.
The foregoing amendment was proposed by the Board of Directors
of the Corporation and was duly approved and adopted by the shareholders of the
Corporation in accordance with the provisions of Section 14-2-1003 of the
Georgia Business Corporation Code this 25th day of May, 1995.
IN WITNESS WHEREOF, the Corporation has caused these Articles
of Amendment to be executed and attested by its duly authorized officers this
25th day of May, 1995.
LDDS COMMUNICATIONS, INC.
By: /s/ Bernard J. Ebbers
----------------------------
Bernard J. Ebbers, President
[CORPORATE SEAL]
ATTEST:
By: /s/ Scott D. Sullivan
-----------------------------------
Scott D. Sullivan, Ass't. Secretary
<PAGE> 2
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
LDDS COMMUNICATIONS, INC.
1.
The name of the corporation is "LDDS Communications, Inc." (the
"Corporation").
2.
Effective the date hereof, Section A of Article Four of the
Corporation's Amended and Restated Articles of Incorporation is amended, in its
entirety, to read as follows:
A. Common Stock. The authorized voting common stock of
the Corporation is five hundred million (500,000,000) shares, par
value $.01 per share.
3.
Effective the date hereof, Section B of Article Four of the
Corporation's Amended and Restated Articles of Incorporation is amended, in its
entirety, to read as follows:
B. Preferred Stock. The authorized preferred stock of
the Corporation is fifty million (50,000,000) shares, par value $.01
per share. The Corporation, acting by its board of directors, without
action by the shareholders, may, from time to time by resolution and
upon the filing of such certificate or articles of amendment as may be
required by the Georgia Business Corporation Code as then in effect,
authorize the issuance of shares of preferred stock in one or more
series, determine the preferences, limitations and relative rights of
the class or of any series within the class, and designate the number
of shares within that series.
4.
All other provisions of the Amended and Restated Articles of
Incorporation shall remain in full force and effect.
<PAGE> 3
5.
The foregoing amendments were duly approved by the shareholders of the
Corporation in accordance with the provisions of Section 14-2-1003 of the
Georgia Business Corporation Code and adopted on May 26, 1994.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed and attested by its duly authorized officers this 26th
day of May, 1994.
LDDS COMMUNICATIONS, INC.
By:
----------------------------
Bernard J. Ebbers, President
[CORPORATE SEAL]
ATTEST:
By:
------------------------------------
Charles T. Cannada, Ass't. Secretary
-2-
<PAGE> 4
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
LDDS COMMUNICATIONS, INC.
ONE
The name of this corporation is LDDS COMMUNICATIONS, INC.
This corporation is referred to hereinafter as the "Corporation".
TWO
The Corporation shall have perpetual duration.
THREE
The Corporation has been organized as a corporation for profit
pursuant to the Georgia Business Corporation Code, for the purpose of engaging
in any lawful activities whatsoever.
FOUR
A. Common Stock. The authorized voting common stock of the
Corporation is two hundred million (200,000,000) shares, par value $.01 per
share.
B. Preferred Stock. The authorized preferred stock of the
Corporation is twenty million (20,000,000) shares,
<PAGE> 5
2
par value $.01 per share. The Corporation, acting by its board of directors,
without action by the shareholders, may, from time to time by resolution and
upon the filing of such certificate or articles of amendment as may be required
by the Georgia Business Corporation Code as then in effect, authorize the
issuance of shares of preferred stock in one or more series, determine the
preferences, limitations and relative rights of the class or of any series
within the class, and designate the number of shares within that series.
FIVE
A series of the class of authorized preferred stock, par value
$.01 per share, of the Corporation is hereby created having the designation and
number of shares 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, as are set forth
on Exhibit A.
<PAGE> 6
3
SIX
A series of the class of authorized preferred stock, par value
$.01 per share, of the Corporation is hereby created having the designation and
number of shares 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, as are set forth
on Exhibit B.
SEVEN
Subject to the provisions of Article Twelve, each share of
common stock of the Corporation shall have unlimited voting rights and shall be
entitled to receive the net assets of the Corporation upon dissolution, except
as expressly provided herein. The preferred stock of the Corporation shall
have such voting rights as are set forth in Exhibit A or B hereto or in the
certificate or articles of amendment filed to authorize the issuance of shares
of preferred stock in one of more series and as are provided by law.
<PAGE> 7
4
EIGHT
Shareholders shall not have the pre-emptive right to acquire
unissued shares of the Corporation.
NINE
No director of the Corporation shall be liable to the
Corporation or to its shareholders for monetary damages for breach of duty of
care or other duty as a director, except for liability (i) for any
appropriation, in violation of his duties, of any business opportunity of the
Corporation; (ii) for acts or omissions which involve intentional misconduct or
a knowing violation of the law; (iii) for the types of liability set forth in
section 14-2-832 of the Revised Georgia Business Corporation Code; or (iv) for
any transaction from which the director received an improper personal benefit.
If the Georgia Business Corporation Code is amended to authorize corporate
action further limiting the personal liability of directors, then the liability
of a director of the Corporation shall be limited to the fullest extent
permitted by the Georgia Business Corporation Code, as so amended. Any repeal
or modification of the foregoing paragraph by the shareholders of the
Corporation shall not
<PAGE> 8
5
adversely affect any right or protection of a director of the Corporation
existing immediately prior to the time of such repeal or modification.
TEN
(a) In addition to the requirements of the provisions of
any series of preferred stock which may be outstanding, and whether or not a
vote of the shareholders is otherwise required, the affirmative vote of the
holders of not less than seventy percent (70%) of the Voting Stock shall be
required for the approval or authorization of any Business Transaction with a
Related Person, or any Business Transaction in which a Related Person has an
interest (other than only a proportionate interest as a shareholder of the
corporation); provided, however, that the seventy percent (70%) voting
requirement shall not be applicable if (i) the Business Transaction is Duly
Approved by the Continuing Directors, or (ii) all of the following conditions
are satisfied:
(i) the aggregate amount of cash and the fair
market value of the property, securities or other consideration to be
received per share (on the date of effectiveness of such Business
Transaction) by holders of capital stock of the corporation (other
than such Related Person) in connection with such Business
<PAGE> 9
6
Transaction is at least equal in value to such Related Person's
Highest Stock Price;
(ii) the consideration to be received by holders
of capital stock of the Corporation in connection with such Business
Transaction is in (a) cash, or (b) if the majority of the shares of
any particular class or series of stock of the Corporation as to which
the Related Person is the Beneficial Owner shall have been acquired
for a consideration in a form other than cash, in the same form of
Consideration used by the Related Person to acquire the largest number
of shares of such class or series of stock;
(iii) after such Related Person has become a Related
Person and prior to the consummation of such Business Transaction,
such Related Person shall not have become the Beneficial Owner of any
additional shares of capital stock of the Corporation or securities
convertible into capital stock of the Corporation, except (i) as a
part of the transaction which resulted in such Related Person becoming
a Related Person or (ii) as a result of a pro rata stock dividend or
stock split;
(iv) prior to the consummation of such Business
Transaction, such Related Person shall not have, directly or
indirectly, except as Duly Approved by the Continuing Directors (i)
received the benefit (other than only a proportionate benefit as a
shareholder of the corporation) of any loans, advances, guarantees,
pledges or other financial assistance or tax credits or tax advantages
provided by the Corporation or any of its subsidiaries, (ii) caused
any material change in the Corporation's business or equity capital
structure, including, without limitation, the issuance of shares of
capital stock of the Corporation, or other securities convertible into
or exercisable for such shares, or (iii) caused the Corporation to
fail to declare and pay at the regular date therefor quarterly cash
dividends on the outstanding capital stock of the Corporation entitled
to receive dividends, on a per share basis at least equal to the cash
dividends being
<PAGE> 10
7
paid thereon by the corporation immediately prior to the date on which
the Related Person became a Related Person; and
(v) a proxy or information statement describing
the proposed Business Transaction and complying with the requirements
of the Securities Exchange Act of 1934, as amended (the "Act"), and
the rules and regulations thereunder (or any subsequent provisions
replacing the Act or such rules or regulations) shall be mailed to
shareholders of the Corporation at least thirty (30) days prior to the
consummation of such Business Transaction (whether or not such proxy
or information statement is required to be mailed pursuant to the Act
and such rules and regulations or subsequent provisions).
(b) For the purpose of this Article TEN:
(i) The term "Affiliate", used to indicate a
relationship to a specified person, shall mean a person that directly,
or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such specified person.
(ii) The term "Associate", used to indicate a
relationship with a specified person, shall mean (A) any corporation,
partnership or other organization of which such specified person is an
officer or partner, (B) any trust or other estate in which such
specified person has a substantial beneficial interest or as to which
such specified person serves as trustee or in a similar fiduciary
capacity, (C) any relative or spouse of such specified person who has
the same home as such specified person or who is a director or officer
of the corporation or any of its subsidiaries, and (D) any person who
is a director, officer or partner of such specified person or of any
corporation (other than the corporation or any wholly-owned subsidiary
of the corporation), partnership or other entity which is an Affiliate
of such Specified person.
<PAGE> 11
8
(iii) The term "Beneficial Owner" shall be defined
by reference to Rule 13d-3 under the Act as in effect on [Closing
Date], 1993; provided, however, that any individual, corporation,
partnership, group, association or other person or entity which has
the right to acquire any capital stock of the corporation having
voting power at any time in the future, whether such right is
contingent or absolute, pursuant to any agreement, arrangement or
understanding or upon exercise of conversion rights, warrants or
options, or otherwise, shall be deemed the Beneficial Owner of such
capital stock.
(iv) The term "Business Transaction" shall mean:
(A) any merger, share exchange or consolidation involving the
Corporation or a subsidiary of the Corporation; (B) any sale, lease,
exchange, transfer or other disposition (in one transaction or a
series of related transactions), including, without limitation, a
mortgage, pledge or any other security device of all or any
Substantial Part of the assets either of the Corporation or of a
subsidiary of the Corporation; (C) any sale, lease, exchange, transfer
or other disposition (in one transaction or a series of related
transactions) of all or any Substantial Part of the assets of any
entity to the Corporation or a subsidiary of the Corporation; (D) the
issuance, sale, exchange, transfer or other disposition (in one
transaction or a series of related transactions) by the Corporation or
a subsidiary of the Corporation of any securities of the Corporation
or any subsidiary of the Corporation in exchange for cash, securities
or other property, or a combination thereof, having an aggregate fair
market value of [$15 million] or more; (E) any merger, share exchange
or consolidation of the Corporation with any of its subsidiaries or
any similar transaction in which the Corporation is not the survivor
and the charter or certificate or articles of incorporation of the
consolidated or surviving Corporation do not contain provisions
substantially similar to those in this Article TEN; (F) any
recapitalization or reorganization of the Corporation or any
reclassification of the securities of the Corporation (including,
without
<PAGE> 12
9
limitation, any reverse stock split) or other transaction that would
have the effect of increasing the voting power of a Related Person or
reducing the number of shares of each class of voting securities
outstanding; (G) any liquidation, spin-off, split-off, split-up or
dissolution of the Corporation; and (H) any agreement, contract or
other arrangement providing for any of the transactions described in
this definition of Business Transaction or having a similar purpose or
effect.
(v) The term "Continuing Director" shall mean a
director who either was a member of the Board of Directors of the
Corporation on [Closing Date], 1993, or who became a director of the
Corporation subsequent to such date and whose election or nomination
for election by the Corporation's shareholders was Duly Approved by
the Continuing Directors then on the Board, either by a specific vote
or by approval of the proxy statement issued by the Corporation on
behalf of the Board of Directors in which such person is named as
nominee for director; provided, however, that in no event shall a
director be considered a "Continuing Director" if such director is a
Related Person and the Business Transaction to be voted upon is with
such Related Person or is one in which such Related Person has an
interest (other than only a proportionate interest as a shareholder of
the Corporation).
(vi) The term "Duly Approved by the Continuing
Directors" shall mean an action approved by the vote of at least a
majority of the Continuing Directors then on the Board; provided,
however, that if the votes of such Continuing Directors in favor of
such action would be insufficient to constitute an act of the Board of
Directors (if a vote by the entire Board of Directors were to have
been taken), then such term shall mean an action approved by the
unanimous vote of the Continuing Directors so long as there are at
least three (3) Continuing Directors on the Board of Directors at the
time of such unanimous vote.
<PAGE> 13
10
(vii) The term "Fair Market Value", in the case of
stock, means the highest closing sale price during the 30-day period
immediately preceding the date in question of a share of such stock on
the Composite Tape for New York Stock Exchange-Listed Stocks, or, if
such stock is not on such Exchange, on the principal United States
securities exchange registered under the Act on which such stock is
listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock
during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of
such stock as determined by a majority of the Continuing Directors in
good faith.
(viii) The term "Highest Stock Purchase Price" shall
mean the greatest of the following:
(A) the highest amount of consideration
paid by a Related Person for a share of capital stock of the
Corporation (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) in the transaction which
resulted in such Related Person becoming a Related Person or
within two years prior to the first public announcement of the
Business Transaction (the "Announcement Date"), whichever is
higher; provided, however, that the Highest Stock Purchase
Price calculated under this subsection (A) shall be
appropriately adjusted to reflect the occurrence of any
reclassification, recapitalization, stock-split, reverse
stock-split or other similar corporate readjustment in the
number of outstanding shares of capital stock of the
Corporation between the last date upon which such Related
Person paid the Highest Stock Purchase Price up to the
effective date of the merger, share exchange or consolidation
or the date of distribution to shareholders of the Corporation
of the proceeds from the sale of substantially all of
<PAGE> 14
11
the assets of the Corporation referred to in subparagraph (i)
of Section (a)(ii) of this Article TEN;
(B) the Fair Market Value per share of
the respective classes and series of stock of the Corporation
on the Announcement Date;
(C) the Fair Market Value per share of
the respective classes and series of stock of the Corporation
on the date that the Related Person becomes a Related Person;
(D) if applicable, the Fair Market Value
per share determined pursuant to subsection (b)(viii)(B) or
(C) of this Article TEN, whichever is higher, multiplied by
the ratio of (i) the highest price per share (including any
brokerage commissions, transfer taxes or soliciting dealers'
fees and adjusted for any subsequent stock dividends, splits,
combinations, recapitalizations, reclassifications or other
such reorganizations) paid to acquire any shares of such
respective classes and series Beneficially Owned by the
Related Person within the two years prior to the Announcement
Date, to (ii) the Fair Market Value per share (adjusted for
any subsequent stock dividends, splits, combinations,
recapitalizations, reclassifications or other such
reorganizations) of shares of such respective classes and
series on the first day in the two-year period ending on the
Announcement Date on which such shares Beneficially Owned by
the Related Person were acquired; or
(E) the amount per share of any
preferential payment to which holders of shares of such
respective classes and series are entitled in the event of a
liquidation, dissolution or winding up of the Corporation.
(ix) The term "Preferred Stock" shall mean each class or
series of capital stock which may from time to
<PAGE> 15
12
time be authorized in or by these Articles of Incorporation (as
amended from time to time) which is not designated as "Common Stock".
(x) The phrase "property, securities or other
consideration to be received", for the purpose of subparagraph (i) of
Section (a)(ii) of this Article TEN and in the event of a merger in
which the corporation is the surviving corporation, shall include,
without limitation, common stock of the Corporation retained by its
shareholders (other than such Related Person).
(xi) The term "Related Person" shall mean and include (A)
any individual, corporation, partnership, group, association or other
person or entity which, together with its Affiliates and Associates,
is the Beneficial Owner of not less than ten percent (10%) of the
voting power of the issued and outstanding capital stock of the
Corporation entitled to vote or was the Beneficial Owner of not less
than ten percent (10%) of the voting power of the issued and
outstanding capital stock of the Corporation entitled to vote (x) at
the time the definitive agreement providing for the Business
Transaction (including any amendment thereof) was entered into, (y) at
the time a resolution approving the Business Transaction was adopted
by the Board of Directors of the Corporation, or (z) as of the record
date for the determination of shareholders entitled to notice of and
to vote on or consent to the Business Transaction, and (B) any
Affiliate or Associate of any such individual, Corporation,
partnership, group, association or other person or entity; provided,
however, and notwithstanding any thing in the foregoing to the
contrary, that the term "Related Person" shall not include the
Corporation, a more than 90% owned subsidiary of the Corporation, any
employee stock ownership or other employee benefit plan of either the
Corporation or any more than 90% owned subsidiary of the Corporation,
or any trustee of or fiduciary with respect to any such plan when
acting in such capacity.
<PAGE> 16
13
(xii) The term "Substantial Part" shall mean more than
twenty percent (20%) of the total assets of the entity in question, as
reflected on the most recent consolidated balance sheet of such entity
existing at the time the shareholders of the Corporation would be
required to approve or authorize the Business Transaction involving
the assets constituting any such Substantial Part.
(xiii) The term "Voting Stock" shall mean all outstanding
shares of capital stock of the Corporation whose holders are present
at a meeting of shareholders, in person or by proxy, and which entitle
their holders to vote generally in the election of directors, and
considered for the purpose of this Article TEN as one class.
(c) For the purpose of this Article TEN, so long as
Continuing Directors constitute at least two-thirds (2/3) of the entire Board
of Directors or the Corporation, the Board of Directors shall have the power to
make a good faith determination, on the basis of information known to them, of
(i) the number of shares of Voting Stock of which any person is the Beneficial
Owner, (ii) whether a person is a Related Person or is an Affiliate or
Associate of another, (iii) whether a person has an agreement, arrangement or
understanding with another as to the matters referred to in the definition of
Beneficial Owner herein, (iv) whether the assets subject to any Business
Transaction constitute a Substantial Part, (v) whether any Business Transaction
is
<PAGE> 17
14
with a Related Person or is one in which a Related Person has an interest
(other than only a proportionate interest as a shareholder of the corporation),
(vi) whether a Related Person has, directly or indirectly, received the
benefits or caused any of the changes referred to in subparagraph (iv) of
clause (ii) of Section (a) of this Article TEN, (vii) the fair market value of
any consideration to be received in a Business Transaction and (viii) such
other matters with respect to which a determination is required under this
Article TEN; and such determination by the Board of Directors shall be
conclusive and binding for all purposes of this Article TEN.
(d) Nothing contained in this Article TEN shall be
construed to relieve any Related Person of any fiduciary obligation imposed by
law.
(e) The fact that any Business Transaction complies with
the provisions of Section (a) of this Article TEN shall not be construed to
impose any fiduciary duty, obligation or responsibility on the Board of
Directors, or any member thereof, to approve such Business Transaction or
recommend its adoption of approval to the shareholders of the corporation.
<PAGE> 18
15
(f) Notwithstanding any other provisions of these
Articles of Incorporation or the Bylaws of the corporation (and notwithstanding
that a lesser percentage may be permitted by law), the provisions of this
Article TEN may not be repealed or amended, directly or indirectly in any
respect, unless such action is approved by the affirmative vote of the holders
of not less than seventy percent (70%) of the Voting Stock.
ELEVEN
The Corporation shall indemnify a director against reasonable
expenses and liability incurred by him, and shall advance expenses upon receipt
from the director of the written affirmation and repayment authorization
required by section 14-2-853 of the Georgia Business Corporation Code,
provided, however, that the Corporation shall not indemnify a director for any
liability incurred by a director if he failed to act in a manner he believed in
good faith to be in or not opposed to the best interests of the Corporation, or
to have improperly received a personal benefit or, in the case of any criminal
proceeding, if he had reasonable cause to believe his conduct was unlawful, or
in the case of a
<PAGE> 19
16
proceeding by or in the right of the Corporation, in which he was adjudged
liable to the Corporation, unless a court shall determine that the director is
fairly and reasonably entitled to indemnification in view of all the
circumstances, in which case the director shall be indemnified for reasonable
expenses incurred.
TWELVE
(a) For purposes of this Article TWELVE, the following terms shall have the
respective meanings specified below:
(i) "Act" shall have the meaning set forth in
paragraph (a)(ii)(v) of Article TEN of these Articles of
Incorporation.
(ii) "Beneficial Owner" shall have the meaning set forth
in paragraph (b)(iii) of Article TEN of these Articles of
Incorporation.
(iii) "Closing Price" of a share of stock on any day means
the highest closing sales price or bid quotation on the National
Association of Securities Dealers, Inc. Automated Quotation System
(including the National Market System) or any comparable system then
in use, or if the class or series in question is quoted on a United
States securities exchange registered under the Act, the reported
closing sales price or, in case no such sale takes place, the average
of the reported closing bid and asked price on such exchange, or, if
no such prices or quotations are available, the fair market value on
the day in question as determined by the Board of Directors in good
faith.
<PAGE> 20
17
(iv) "Communications Act" shall mean the Communications Act
of 1934, 47 U.S.C. Sections 151 et seq., as amended.
(v) "Communications Laws" shall mean the Communications Act
and the regulations promulgated by the Federal Communications
Commission pursuant thereto, including any amendments thereof or
successor or replacement provisions thereto.
(vi) "Fair Market Value" of a share of stock shall mean the
average Closing Price for such share for each of the forty-five (45)
most recent days during which shares of stock of such class or series
shall have been traded preceding the day on which notice of redemption
shall have been given pursuant to paragraph (iv) of Section (e) of
this Article TWELVE; provided, however, that if shares of stock of
such class or series are not traded on any securities exchange or in
the over-the-counter market, "Fair Market Value" shall be determined
by the Board of Directors in good faith; and provided, further,
however, that "Fair Market Value" as to any stockholder who purchases
any stock subject to redemption within one hundred twenty (120) days
prior to a Redemption Date shall not (unless otherwise determined by
the Board of Directors) exceed the purchase price paid for such
shares.
(vii) "Foreign Citizen" shall mean any of the following:
(A) any alien;
(B) any foreign government;
(C) any representative of an alien or a foreign
government; or
(D) any corporation organized under the laws of any
country other than the United States; and
(E) any other Person falling within a class of Persons
identified from time to time in the
<PAGE> 21
18
Communications Laws, including without limitation Section 310
of the Communications Act, as being within a class of Persons
whose ownership of stock of a corporation holding station
licenses referenced in Title III of the Communications Act is
limited to a maximum percentage.
(viii) "Permitted Percentage" shall mean twenty percent
(20%), or such other percentage as may from time to time be specified
by the Communications Laws as the maximum percentage of capital stock
of a corporation holding licenses referenced in Section 310 of the
Communications Act that may be owned by Foreign Citizens.
(ix) "Person" shall mean an individual, partnership,
corporation, trust or other entity.
(x) "Redemption Date" shall mean the date fixed by the
Board of Directors for the redemption of any shares of stock of the
Corporation pursuant to Section (e) of this Article TWELVE.
(xi) "Redemption Securities" shall mean any debt or
equity securities of the Corporation, any Subsidiary or any other
corporation, or any combination thereof, having such terms and
conditions as shall be approved by the Board of Directors and which,
together with any cash to be paid as part of the redemption price, in
the opinion of any nationally recognized investment banking firm
selected by the Board of Directors (which may be a firm which provides
other investment banking, brokerage or other services to the
Corporation), has a value, at the time notice of redemption is given
pursuant to paragraph (d) of Section 5 of this Article TWELVE, at
least equal to the Fair Market Value of the shares to be redeemed
pursuant to this Article TWELVE (assuming, in the case of Redemption
Securities to be publicly traded, such Redemption Securities were
fully distributed and subject only to normal trading activity).
<PAGE> 22
19
(b) It is the policy of the Corporation that Foreign Citizens
should own of record or Beneficially Own, directly or indirectly, individually
or in the aggregate, no more than the Permitted Percentage of its from time to
time outstanding shares of capital stock. If at any time Foreign Citizens,
directly or indirectly, individually or in the aggregate, become the record
owners or the Beneficial Owners of more than the Permitted Percentage of the
capital stock of the Corporation, then the Corporation shall have the power to
take the actions prescribed in this Section (b) through Section (f) of this
Article TWELVE. The provisions of this Article TWELVE are intended to assure
that the Corporation remains in continuous compliance with the citizenship
requirements of the Communications Laws. Any amendments to the Communications
Laws relating to the citizenship of station license holders or their
shareholders are deemed to be incorporated herein by reference. To the extent
necessary to enable the Corporation to submit any proof of direct or indirect
citizenship required by law or by contract with the United States government
(or any agency thereof), the Corporation may require the record holders and the
Beneficial Owners of capital stock to confirm their
<PAGE> 23
20
direct or indirect citizenship status from time to time, and dividends payable
with respect to stock held by such record holder or owner by such Beneficial
Owner may, in the discretion of the Board of Directors, be withheld until
confirmation of such citizenship status is received. The Board of Directors is
authorized to take such actions or make such interpretations as it may deem
necessary or advisable in order to implement the policy set forth in this
Section (b) including, without limitation, causing any transfer, or attempted
transfer, of any shares of stock of the Corporation, the effect of which would
be to cause one or more Foreign Citizens to own of record or Beneficially Own
more than the Permitted Percentage of the Corporation's capital stock, to be
ineffective as against the Corporation, and not registering (or permitting its
transfer agent to register) such transfer or purported transfer on the stock
transfer records of the Corporation. In addition, neither the Corporation
(even if the transfer agent shall have recognized such transfer) nor its
transfer agent shall be required to recognize the transferee or purported
transferee thereof as a shareholder of the Corporation for any purpose
whatsoever except to the extent necessary to effect any
<PAGE> 24
21
remedy available to the Corporation under this Article TWELVE. A citizenship
certificate may be required from all transferees (and from any recipient upon
original issuance) of capital stock of the Corporation and, if such transferee
(or recipient) is acting as a fiduciary or nominee for a record owner or a
Beneficial Owner, such Beneficial Owner or record owner, and registration of
transfer (or original issuance) may be denied upon refusal to furnish such
certificate.
(c) If on any date (including any record date) the number of
shares of capital stock that is owned of record or Beneficially Owned, directly
or indirectly, by Foreign Citizens is in excess of the Permitted Percentage of
all outstanding capital stock of the Corporation (such number of shares herein
referred to as the "Excess Shares"), the Corporation shall identify a number of
shares owned of record or Beneficially Owned, directly or indirectly, by
Foreign Citizens equal to the number of Excess Shares. The determination of
the Corporation as to those shares that constitute the Excess Shares shall be
conclusive. Shares deemed to constitute such Excess Shares (so long as such
excess exists) shall not be accorded any voting rights and
<PAGE> 25
22
shall not be deemed to be outstanding for purposes of determining the vote
required on any matter properly brought before the shareholders of the
Corporation for a vote thereon. The Corporation shall (so long as such excess
exists) withhold the payment of dividends and the sharing in any other
distribution (upon liquidation or otherwise) in respect of the Excess Shares.
At such time as the Permitted Percentage is no longer exceeded, full voting
rights shall be restored to any shares previously deemed to be Excess Shares
and any dividends or distribution with respect thereto that have been withheld,
without interest thereon, shall be due and paid solely to the record holders of
such shares at the time the Permitted Percentage is no longer exceeded.
(d) Subject to the provisions of any resolution of the Board
of Directors creating any series of preferred stock or any other class of stock
which has a preference over common stock with regard to dividends or upon
liquidation, and subject to the procedures in the series of preferred stock of
the Corporation referenced in Articles FIVE and SIX hereof, the Excess Shares
shall be subject to redemption at any time by the Corporation by action of the
<PAGE> 26
23
Board of Directors. The terms and conditions of such redemption shall be as
follows:
(i) the redemption price of the shares to be redeemed
pursuant to this Article TWELVE shall be equal to the Fair Market
Value of such shares or such other redemption price as required by
pertinent state or federal law pursuant to which the redemption is
required;
(ii) the redemption price of such shares may be paid in
cash, Redemption Securities or any combination thereof;
(iii) if less than all the Excess Shares are to be
redeemed, the shares to be redeemed shall be selected in such manner
as set forth in Section (c) of this Article TWELVE or as otherwise
determined by the Board of Directors;
(iv) at least thirty (30) days' written notice of the
Redemption Date shall be given to the record holders of the Excess
Shares selected to be redeemed (unless waived in writing by any such
holder) provided that the Redemption Date may be the date on which
written notice shall be given to record holders if the cash or
Redemption Securities necessary to effect the redemption shall have
been deposited in trust for the benefit of such record holders and
subject to immediate withdrawal by them upon surrender of the stock
certificates for Excess Shares to be redeemed;
(v) from and after the Redemption Date or such earlier
date as mandated by pertinent state or federal law, any and all rights
of whatever nature, which may be held by the record holder of Excess
Shares selected for redemption (including without limitation any
rights to vote or participate in dividends declared on stock of the
same class or series as such shares),
<PAGE> 27
24
shall cease and terminate and they shall thenceforth be entitled only
to receive the cash or Redemption Securities payable upon redemption;
and
(vi) such redemption shall be upon such other terms and
conditions as the Board of Directors shall determine.
(e) In determining the direct or indirect citizenship of
owners of record or Beneficial Owners or their transferees of its capital
stock, the Corporation may rely on the stock transfer records of the
Corporation and the citizenship certificates given by Beneficial Owners or
owners of record or their transferees or any recipients (in the case of
original issuance) (in each case whether such certificates have been given on
their own behalf or on behalf of others) to prove the citizenship of such
owners of record, Beneficial Owners, transferees or recipients of such capital
stock. The determination of the direct or indirect citizenship of owners of
record, Beneficial Owners and their transferees of such capital stock may also
be subject to proof in such other way or ways as the Corporation may deem
reasonable. The Corporation may at any time require proof of citizenship, in
addition to the citizenship certificates, of the record owner or Beneficial
Owner or proposed transferees of shares of the Corporation's capital stock,
<PAGE> 28
25
and the payment of dividends may be withheld, and any application for transfer
of ownership on the stock transfer records of the Corporation may be refused,
until such additional proof is submitted.
(f) Each provision of this Article TWELVE is intended to be
severable from every other provision. If any provision contained in this
Article TWELVE is held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of any other provision of this Article TWELVE shall
not be affected, and this Article TWELVE shall be construed as if the provision
held to be invalid, illegal or unenforceable had never been contained therein.
<PAGE> 29
EXHIBIT A
Series 1 $__ Cumulative Senior Perpetual Convertible Preferred Stock
Section 1. Designation and Number.
(a) The shares of such series shall be designated as
"Series 1 $__ Cumulative Senior Perpetual Convertible Preferred Stock" (the
"Preferred Stock"). The number of shares initially constituting the Preferred
Stock shall be ___________, which number may be decreased (but not increased)
by the Board of Directors without a vote of shareholders; provided, however,
that such number may not be decreased below the number of then outstanding
shares of Preferred Stock.
(b) The Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank pari passu to
the Series 2 6.50% Cumulative Senior Perpetual Convertible Preferred Stock of
the Corporation (the "Series 2 Preferred Stock"), and shall rank prior to all
other classes and series of capital stock of the Corporation now or hereafter
authorized including, without limitation, the Common Stock.
(c) Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in Section 11 below.
Section 2. Dividends and Distributions.
(a) The holders of shares of Preferred Stock, in
preference to the holders of shares of Common Stock and of any shares of other
capital stock of the Corporation (but pari passu with the Series 2 Preferred
Stock), shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor,
cumulative cash dividends at an annual rate on the Liquidation Preference
thereof equal to [lesser of 6% and the rate which will yield aggregate annual
dividends on the Preferred Stock of $24.5 million] calculated on the basis of a
360-day year consisting of twelve 30-day months, accruing and payable in equal
<PAGE> 30
2
quarterly payments, in immediately available funds, on the 15th day (or the
first Business Day thereafter if the 15th is not a Business Day) of February,
May, August and November in each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date") commencing [August 16,] 1993; provided,
however, that with respect to such first Quarterly Dividend Payment Date, the
holders of shares of Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors, out of the assets of the Corporation
legally available therefor, a cumulative cash dividend in respect of each share
of Preferred Stock in the amount of (i) [one-fourth of the annual per share
dividend] multiplied by (ii) a fraction equal to (A) the number of days from
(and including) the Issue Date to (but excluding) such Quarterly Dividend
Payment Date divided by (B) 90.
(b) Dividends payable pursuant to Section 2(a) shall
begin to accrue and be cumulative from the Issue Date, and shall accrue on a
daily basis, in each case whether or not declared. Dividends paid on the
shares of Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares of Preferred Stock at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Preferred Stock entitled to receive
payment of a dividend declared thereon, which record date shall be no more than
60 days or less than 10 days prior to the date fixed for the payment thereof.
Accumulated but unpaid dividends for any past quarterly dividend periods may be
declared and paid at any time, without reference to any regular Quarterly
Dividend Payment Date, to holders of record on such date, not more than 60 nor
less than 10 days preceding the payment date thereof, as may be fixed by the
Board of Directors.
(c) In addition to the dividends or distributions on the
Preferred Stock described in Section 2(a), in the event that the Corporation
shall declare a dividend or make any other distribution (including, without
limitation, in cash, in capital stock (which shall include, without limitation,
any options, warrants, convertible securities or other
<PAGE> 31
3
rights to acquire capital stock) of the Corporation, whether or not pursuant to
a shareholder rights plan, "poison pill" or similar arrangement, or other
property or assets) on or with respect to shares of Common Stock other than a
Regular Dividend or a dividend paid solely in Common Stock, then the Board of
Directors shall declare, and the holder of each share of Preferred Stock shall
be entitled to receive in respect of each share of Preferred Stock, a dividend
or distribution in an amount equal to the amount of such dividend or
distribution received by a holder of the number of shares of Common Stock for
which such share of Preferred Stock is convertible on the record date for such
dividend or distribution. Any such amount shall be paid to the holders of
shares of Preferred Stock at the same time such dividend or distribution is
made to holders of Common Stock.
(d) The holders of shares of Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.
Section 3. Voting Rights.
In addition to any voting rights provided by law, the holders
of shares of Preferred Stock shall have the following voting rights:
(a) Except as otherwise required by applicable law, so
long as any shares of the Preferred Stock are outstanding, each outstanding
share of Preferred Stock shall entitle the holder thereof to vote, in person or
by proxy, at a special or annual meeting of shareholders, on all matters voted
on by holders of Common Stock voting together as a single class with other
shares entitled to vote thereon (other than matters on which the holders of
Preferred Stock are entitled by law or the Corporation's Amended and Restated
Articles of Incorporation ("Articles"), to vote as a separate class). With
respect to any such vote, each share of Preferred Stock shall entitle the
holder thereof to cast that number of votes per share of Preferred Stock as is
equal to the number of votes that such holder would be entitled to cast had
such holder converted his shares of Preferred Stock into Common Stock on the
record date for
<PAGE> 32
4
determining the shareholders of the Corporation eligible to vote on any such
matters. Notwithstanding the foregoing, but without impairing the rights of
the Preferred Stock to elect members of the Corporation's Board of Directors
pursuant to Section 3(c)(i) hereof, the Preferred Stock shall not vote with the
Common Stock in the election of directors unless the Preferred Stock Percentage
is less than 2 1/2%.
(b) Unless the consent or approval of a greater number of
shares shall then be required by law, the affirmative vote of the holders of at
least 66-2/3% of the outstanding shares of Preferred Stock, voting separately
as a single class, in person or by proxy, at a special or annual meeting of
shareholders called for the purpose, shall be necessary to (i) authorize,
increase the authorized number of shares of, or issue (including on conversion
or exchange of any convertible or exchangeable securities or by
reclassification), any shares of any class or classes of Senior Stock or Parity
Stock, (ii) authorize, increase the authorized number of shares of, or issue
any shares of any class of capital stock of the Corporation having a mandatory
redemption date earlier than [, third anniversary of closing] 1996 or amend the
terms of any class of capital stock of the Corporation to provide that such
class of capital stock has a mandatory redemption date earlier than [, third
anniversary of closing] 1996, (iii) authorize, adopt or approve an amendment to
the Articles that would increase or decrease the par value of the shares of
Preferred Stock; or alter or change the powers, preferences or special rights
of the shares of Preferred Stock, (iv) amend, alter or repeal the Articles so
as to affect the shares of Preferred Stock adversely, including, without
limitation, by granting any voting right to any holder of notes, bonds,
debentures or other debt obligations of the Corporation, or by amending the
provisions of subsection 3(c) below or Section 9 hereof or (v) authorize or
issue any security convertible into, exchangeable for or evidencing the right
to purchase or otherwise receive any shares of any class or classes of Senior
Stock or Parity Stock.
(c) (i) Until the occurrence of a Change of Control, but not
thereafter, the outstanding shares of
<PAGE> 33
5
Preferred Stock voting separately as a single class, by written consent as
provided herein or in person or by proxy, at a special or annual meeting of
shareholders called for the purpose of electing directors, shall elect a number
of directors to the Corporation's Board of Directors which equals the Specified
Number.
(ii) If on any date (A) the Corporation shall have failed to
declare, or shall have failed to pay, the full amount of dividends payable on
the Preferred Stock for two quarterly dividend periods (whether consecutive or
not) or (B) the Corporation shall have failed to satisfy its obligation to
convert shares of Preferred Stock pursuant to Section 8, then the number of
directors constituting the Board of Directors shall, without further action, be
increased by one and the holders of shares of Preferred Stock shall have, in
addition to the other voting rights set forth herein, the exclusive right,
voting separately as a single class, to elect a director of the Corporation to
fill such newly created directorship, by written consent as provided herein, or
at a special meeting of such holders called as provided herein. Any such
additional director shall continue as a director (subject to reelection or
removal as provided in Section 3(d)(ii)) and the holders of Preferred Stock
shall have such additional voting rights until such time as (A) dividends then
payable on the Preferred Stock shall have been declared and paid in full or (B)
any conversion obligation provided in Section 8 that has become due shall have
been satisfied or all necessary funds have been set aside for payment, as the
case may be, at which time such additional director shall cease to be a
director and such additional voting rights of the holders of Preferred Stock
shall terminate subject to revesting in the event of each and every subsequent
event of the character indicated above.
(d) (i) The foregoing right of holders of shares of Preferred
Stock to take any action as provided in Section 3(c) may be exercised at any
annual meeting of shareholders or at a special meeting of holders of shares of
Preferred Stock held for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the Secretary of
the Corporation, of
<PAGE> 34
6
the holders of the minimum number of shares required to take such action.
So long as such right to vote continues (and unless such right
has been exercised by written consent of the minimum number of shares required
to take such action), the President of the Corporation may call, and upon the
written request of holders of record of at least 5% of the outstanding shares
of Preferred Stock, addressed to the Secretary of the Corporation at the
principal office of the Corporation, shall call, a special meeting of the
holders of shares entitled to vote as provided herein. Such meeting shall be
held within 30 days after delivery of such request to the Secretary, at the
place and upon the notice provided by law and in the by-laws of the Corporation
for the holding of meetings of shareholders.
(ii) At each meeting of shareholders at which the
holders of shares of Preferred Stock shall have the right, voting separately as
a single class, to elect a director or directors of the Corporation as provided
in Section 3(c) or to take any action, the presence in person or by proxy of
the holders of record of a majority of the total number of shares of Preferred
Stock then outstanding and entitled to vote on the matter shall be necessary
and sufficient to constitute a quorum. At any such meeting or at any
adjournment thereof:
(A) the absence of a quorum of the holders of shares of
Preferred Stock shall not prevent the election of directors other than
those to be elected by the holders of shares of Preferred Stock, and
the absence of a quorum of the holders of shares of any other class or
series of capital stock shall not prevent the election of directors to
be elected by the holders of shares of Preferred Stock, or the taking
of any action as provided in this Section 3; and
(B) in the absence of a quorum of the holders of shares
of Preferred Stock, a majority of the holders of such shares present
in person or by proxy shall have the power to adjourn the meeting as
to the actions to be taken by the holders of shares of Preferred Stock
<PAGE> 35
7
from time to time and place to place without notice other than
announcement at the meeting until a quorum shall be present.
For taking of any action as provided in Section 3(b) or
Section 3(c) by the holders of shares of Preferred Stock, each such holder
shall have one vote for each share of such stock standing in his name on the
transfer books of the Corporation as of any record date fixed for such purpose
or, if no such date be fixed, at the close of business on the Business Day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the Business Day next preceding the day on which the
meeting is held; provided, however, that shares of Preferred Stock held by the
Corporation, any Subsidiary of the Corporation or any other Person who controls
the Corporation, is under common control with the Corporation or is controlled
by the Corporation shall not be deemed to be outstanding for purposes of taking
any action as provided in this Section 3.
Each director elected by the holders of shares of Preferred
Stock as provided in Section 3(c) shall, unless his term shall expire earlier
in accordance with the provisions thereof, hold office until the annual meeting
of shareholders next succeeding his election or until his successor, if any, is
elected and qualified.
If any director so elected by the holders of Preferred Stock
shall cease to serve as a director before his term shall expire (except by
reason of the termination of the voting rights accorded to the holders of
Preferred Stock in accordance with Section 3(c)), the holders of the Preferred
Stock then outstanding and entitled to vote for such director may, by written
consent as provided herein, or at a special meeting of such holders called as
provided herein, elect a successor to hold office for the unexpired term of the
director whose place shall be vacant.
Any director elected by the holders of shares of Preferred
Stock voting separately as a single class may be removed from office with or
without cause by the vote or written consent of the holders of at least a
majority of the
<PAGE> 36
8
outstanding shares of Preferred Stock, at the time of removal. A special
meeting of the holders of shares of Preferred Stock may be called in accordance
with the procedures set forth in Section 3(d)(i).
Section 4. Certain Restrictions.
(a) Whenever any quarterly dividends payable on any
shares of Preferred Stock as provided in Section 2 are not paid in full, at
such time and thereafter until all unpaid dividends payable, whether or not
declared, on the outstanding shares of Preferred Stock shall have been paid in
full or declared and irrevocably set apart for payment, or whenever the
Corporation shall not have converted shares of Preferred Stock at a time
required by Section 8, at such time and thereafter until all conversion
obligations provided in Section 8 that have come due shall have been satisfied
or all necessary funds have been set apart for payment, the Corporation shall
not: (i) declare or pay dividends, or make any other distributions, on any
shares of Junior Stock, or (ii) declare or pay dividends, or make any other
distributions, on any shares of Parity Stock, except dividends or distributions
paid ratably on the Preferred Stock and all Parity Stock on which dividends are
payable or in arrears, in proportion to the total amounts to which the holders
of all shares of the Preferred Stock and such Parity Stock are then entitled.
(b) Whenever any dividend payable on any shares of
Preferred Stock as provided in Section 2 are not paid in full, at such time and
thereafter until all unpaid dividends payable, whether or not declared, on the
outstanding shares of Preferred Stock shall have been paid in full or declared
and irrevocably set apart for payment, or whenever the Corporation shall not
have converted shares of Preferred Stock at a time required by Section 8, at
such time and thereafter until all conversion obligations provided in Section 8
that have come due shall have been satisfied or all necessary funds have been
irrevocably set apart for payment, the Corporation shall not redeem, purchase
or otherwise acquire for consideration any shares of Junior Stock, or Parity
Stock, it being understood that for
<PAGE> 37
9
purposes of this Section 4(b), the term "Corporation" shall include any
"grantor trust" within the meaning of Sections 671-679 of the Internal Revenue
Code of 1986, as amended; provided, however, that (A) the Corporation may
accept shares of any Parity Stock or Junior Stock for conversion into Junior
Stock and (B) the Corporation may at any time redeem, purchase or otherwise
acquire shares of the Series 2 Preferred Stock in accordance with Section 10 of
Exhibit B of the Articles as in effect on the Issue Date.
(c) The Corporation shall not permit any Subsidiary of
the Corporation, or cause any other Person, to purchase or otherwise acquire
for consideration any shares of capital stock of the Corporation unless the
Corporation could, pursuant to Section 4(b), purchase such shares at such time
and in such manner.
Section 5. Redemption.
(a) The Corporation shall not have any right to redeem
any shares of Preferred Stock prior to [the third anniversary of closing],
1996. On and after [the third anniversary of closing], 1996, subject to the
restrictions contained in Section 4, the Corporation shall have the right, at
its sole option and election, to redeem the shares of Preferred Stock, in whole
or in part in integral multiples of $100,000,000, on not less than 30 days
notice of the date of redemption, which must be a Business Day (any such date
an "Optional Redemption Date"), at a price per share (the "Optional Redemption
Price") equal to (A) the following prices per share (stated as a percentage of
the Liquidation Preference of such share) plus (B) an amount per share equal to
all accrued and unpaid dividends thereon, whether or not declared or payable,
to the applicable Optional Redemption Date, in immediately available funds:
<TABLE>
<CAPTION>
Optional Redemption Price
If Redeemed as a Percentage of
during the period Liquidation Preference
----------------- -------------------------
<S> <C>
September 15, 1996 to September 14, 1997 105.53%
</TABLE>
<PAGE> 38
10
<TABLE>
<CAPTION>
Optional Redemption Price
If Redeemed as a Percentage of
during the period Liquidation Preference
----------------- -------------------------
<S> <C>
September 15,1997 to 104.74%
September 14,1998
September 15, 1998 to 103.95%
September 14, 1999
September 15, 1999 to 103.16%
September 14, 2000
September 15, 2000 to 102.37%
September 14, 2001
September 15, 2001 to 101.58%
September 14, 2002
September 15, 2002 to 100.79%
September 14, 2003
September 15, 2003 and 100.000%
thereafter
</TABLE>
(b) If less than all shares of Preferred Stock at the
time outstanding are to be redeemed pursuant to Section 5(a), the shares to be
redeemed shall be determined pro rata or, if the shares of Preferred Stock are
then publicly held, by lot.
(c) Notice of any redemption of shares of Preferred Stock
pursuant to Section 5(a) shall be given by publication in a newspaper of
general circulation in the Borough of Manhattan, The City of New York (if such
publication shall be required by applicable law, rule, regulation or securities
exchange requirement), not less than 30, nor more than 60, days prior to the
date fixed for redemption; and, in any case, a similar notice shall be mailed
at least 30, but not more than 60, days prior to the date fixed for redemption
to each holder of shares of Preferred Stock to be redeemed, at such holder's
address as it appears on the transfer books of the Corporation. In order to
facilitate the redemption of shares of Preferred Stock, the Board of Directors
may fix a record date for the determination of shares of Preferred Stock to be
redeemed, or may cause the
<PAGE> 39
11
transfer books of the Corporation for the Preferred Stock to be closed, not
more than 60 days or less than 30 days prior to the date fixed for such
redemption.
(d) On the date of any redemption being made pursuant to
Section 5(a) which is specified in a notice given pursuant to Section 5(c), the
Corporation shall, and at any time after such notice shall have been mailed and
before the date of redemption the Corporation may, deposit for the benefit of
the holders of shares of Preferred Stock to be redeemed the funds necessary for
such redemption with a bank or trust company in the Borough of Manhattan, The
City of New York, having a capital and surplus of at least $100,000,000. Any
moneys so deposited by the Corporation and unclaimed at the end of two years
from the date designated for such redemption shall revert to the general funds
of the Corporation or as otherwise required by law. After such reversion, any
such bank or trust company shall, upon demand, pay over to the Corporation such
unclaimed amounts and thereupon such bank or trust company shall be relieved of
all responsibility in respect thereof and any holder of shares of Preferred
Stock to be redeemed shall look only to the Corporation for the payment of the
Optional Redemption Price. In the event that moneys are deposited pursuant to
this Section 5(d) in respect of shares of Preferred Stock that are converted in
accordance with the provisions of Section 8, such moneys shall, upon such
conversion, revert to the general funds of the Corporation and, upon demand,
such bank or trust company shall pay over to the Corporation such moneys and
shall be relieved of all responsibilities to the holders of such converted
shares in respect thereof. Any interest accrued on funds deposited pursuant to
this Section 5(d) shall be paid from time to time to the Corporation for its
own account.
Section 6. Reacquired Shares.
Any shares of Preferred Stock converted, exchanged, redeemed,
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares of Preferred Stock shall upon their cancellation
<PAGE> 40
12
become authorized but unissued shares of preferred stock, par value $.01 per
share, of the Corporation and, upon the filing of an appropriate Articles of
Amendment to the Articles with the Secretary of State of the State of Georgia,
may be reissued as part of another series of preferred stock, par value $.01
per share, of the Corporation subject to the conditions or restrictions on
issuance set forth herein, but in any event may not be reissued as shares of
Preferred Stock or other Parity Stock unless all of the shares of Preferred
Stock issued on the Issue Date shall have already been redeemed or converted.
Section 7. Liquidation, Dissolution or Winding Up.
(a) If the Corporation shall commence a voluntary case
under the United States bankruptcy laws or any applicable bankruptcy,
insolvency or similar law of any other country, or consent to the entry of an
order for relief in an involuntary case under any such law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due (any such event, a "Voluntary Liquidation Event"), or if a decree or
order for relief in respect of the Corporation shall be entered by a court
having jurisdiction in the premises in an involuntary case under the United
States bankruptcy laws or any applicable bankruptcy, insolvency or similar law
of any other country, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and on account of any such event the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made (i) to the
holders of shares of Junior Stock unless, prior thereto, the holders of shares
of Preferred Stock, subject to Section 8, shall have received (A) if a
Voluntary Liquidation Event shall have occurred, the Optional Redemption Price
with respect to each share and (B) if a Voluntary Liquidation
<PAGE> 41
13
Event shall not have occurred, the Liquidation Preference, plus all accrued and
unpaid dividends, whether or not declared or currently payable, to the date of
distribution, with respect to each share, or (ii) to the holders of shares of
Parity Stock, except distributions made ratably on the Preferred Stock and all
other Parity Stock in proportion to the total amounts to which the holders of
all shares of the Preferred Stock and other Parity Stock are entitled upon such
liquidation, dissolution or winding up.
(b) Neither the consolidation or merger of the
Corporation with or into any other Person nor the sale or other distribution to
another Person of all or substantially all the assets, property or business of
the Corporation, in each case when permitted by Section 3(b), shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Section 7.
Section 8. Conversion.
(a) Following the expiration or termination of applicable
waiting periods under the HSR Act, including any extensions thereof, any holder
of Preferred Stock shall have the right, at its option, at any time and from
time to time, to convert, subject to the terms and provisions of this Section
8, any or all of such holder's shares of Preferred Stock into such number of
fully paid and non-assessable shares of Common Stock as is equal, subject to
Section 8(g), to the product of the number of shares of Preferred Stock being
so converted multiplied by the quotient of (i) the Liquidation Preference
divided by (ii) the Conversion Price (as defined below) then in effect, except
that with respect to any share which shall be called for exchange or
redemption, such right shall terminate at the close of business on the date of
exchange or redemption for such share, unless in any such case the Corporation
shall default in performance or payment due upon exchange or redemption
thereof. The Conversion Price shall be [ ]1/, subject to adjustment as
__________________________________
1/ 15% above average closing price for the Resurgens Common Stock for the
twenty trading days immediately preceding the trading day immediately
preceding the closing date.
<PAGE> 42
14
set forth in Section 8(d). Such conversion right shall be exercised by the
surrender of the shares to be converted to the Corporation at any time during
usual business hours at its principal place of business to be maintained by it,
accompanied by written notice that the holder elects to convert such shares and
specifying the name or names (with address) in which a certificate or
certificates for shares of Common Stock are to be issued and (if so required by
the Corporation) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Corporation duly executed by the holder or its
duly authorized legal representative and transfer tax stamps or funds therefor,
if required pursuant to Section 8(k). All shares surrendered for conversion
shall be delivered to the Corporation for cancellation and canceled by it and
no shares of Preferred Stock shall be issued in lieu thereof.
(b) As promptly as practicable after the surrender as
herein provided, of any shares of Preferred Stock for conversion pursuant to
Section 8(a), the Corporation shall deliver to or upon the written order of the
holder of the shares of Preferred Stock so surrendered a certificate or
certificates representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Preferred Stock may be or have been
converted in accordance with the provisions of this Section 8. Subject to the
following provisions of this paragraph and of Section 8(d), such conversion
shall be deemed to have been made immediately prior to the close of business on
the date that such shares of Preferred Stock shall have been surrendered in
satisfactory form for conversion, and the Person or Persons entitled to receive
the Common Stock deliverable upon conversion of such shares of Preferred Stock
shall be treated for all purposes as having become the record holder or holders
of such Common Stock at such appropriate time, and such conversion shall be at
the Conversion Price in effect at such time; provided, however, that no
surrender shall be effective to constitute the Person or Persons entitled to
receive the Common Stock deliverable upon such
<PAGE> 43
15
conversion as the record holder or holders of such Common Stock while the share
transfer books of the Corporation shall be closed (but not for any period in
excess of five days), but such surrender shall be effective to constitute the
Person or Persons entitled to receive such Common Stock as the record holder or
holders thereof for all purposes immediately prior to the close of business on
the next succeeding day on which such share transfer books are open, and such
conversion shall be deemed to have been made at, and shall be made at the
Conversion Price in effect at, such time on such next succeeding day. In case
of the redemption of any shares of Preferred Stock pursuant to Section 5(a),
the right of conversion shall cease and terminate, as to the shares to be
redeemed, at the close of business on the date fixed for redemption, unless the
Corporation shall default in the payment of the applicable redemption price for
the shares to be redeemed.
If the last day for the exercise of the conversion right shall
not be a Business Day, then suchconversion right may be exercised on the next
succeeding Business Day.
(c) To the extent permitted by law, when shares of
Preferred Stock are converted, all dividends accrued and unpaid (whether or not
declared or currently payable) on the Preferred Stock so converted to the date
of conversion shall be immediately due and payable, at the option of the holder
of shares of Preferred Stock being converted, in cash (subject to the last
sentence of this Section 8(c)) or shares of Common Stock. If the holder of
shares of Preferred Stock elects to receive shares of Common Stock in lieu of
the cash payment of the accrued and unpaid dividends, the holder of shares of
Preferred Stock shall be entitled to receive that number of shares of Common
Stock which the amount of accrued and unpaid dividends would purchase at the
Current Market Price, and such shares of Common Stock must accompany the shares
of Common Stock issued upon such conversion. If the holder of shares of
Preferred Stock elects to receive payment in cash of such accrued and unpaid
dividends, such cash payment must accompany the shares of Common Stock issued
upon such conversion unless (i) there shall exist a default or event of
default under any then currently existing loan or other
<PAGE> 44
16
agreement which contains a restriction on the ability of the Corporation to pay
dividends on the Preferred Stock during the existence of a default or event of
default or (ii) such cash payment would, although not in itself a breach of any
covenant in any such agreement, result in the occurrence of a default or event
of default arising from the breach by the Corporation of one or more covenants
regarding the financial condition of the Corporation, in which case such cash
payment shall be made immediately at such time as the conditions set forth in
both clause (i) and clause (ii) shall not exist; provided, however, that, at
any time prior to such payment, such holder may elect to receive shares of
Common Stock in lieu of such cash payment, and, upon such election, shall be
entitled to receive that number of shares of Common Stock that the amount of
such cash payment would purchase at the Current Market Price on the date of
such election.
(d) The Conversion Price shall be subject to adjustment
as follows:
(i) In case the Corporation shall at any time or
from time to time (A) pay a dividend or make a distribution (other than a
dividend or distribution paid or made to holders of shares of Preferred Stock in
the manner provided in Section 2(c)) on or with respect to shares of Common
Stock in capital stock (which, for purposes of this Section 8(d) shall include,
without limitation, any options, warrants, convertible securities or other
rights to acquire capital stock) of the Corporation, (B) subdivide the
outstanding shares of Common Stock into a larger number of shares, (C) combine
the outstanding shares of Common Stock into a smaller number of shares, (D)
issue any shares of its capital stock in a reclassification of the Common Stock
or (E) pay a dividend or make a distribution (other than a dividend or
distribution paid or made to holders of shares of Preferred Stock in the manner
provided in Section 2(c)) on the outstanding shares of Common Stock in shares of
its capital stock pursuant to a shareholder rights plan, "poison pill" or
similar arrangement, then, and in each such case, the Conversion Price in effect
immediately prior to such event shall be adjusted (and any other appropriate
actions shall be taken by the Corporation) so that the holder of any
<PAGE> 45
17
share of Preferred Stock thereafter surrendered for conversion shall be entitled
to receive the number of shares of Common Stock or other securities of the
Corporation that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such share
of Preferred Stock been converted immediately prior to the occurrence of such
event. An adjustment made pursuant to this Section 8(d)(i) shall become
effective retroactively (A) in the case of any such dividend or distribution, to
a date immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution or (B) in the case of any such subdivision, combination or
reclassification, to the close of business on the day upon which such corporate
action becomes effective.
(ii) In case the Corporation shall at any time or
from time to time issue or sell shares of Common Stock (or securities
convertible into or exchangeable for Common Stock, or any options, warrants or
other rights to acquire shares of Common Stock), at a price per share less than
90% of the Current Market Price per share of Common Stock then in effect at the
record date referred to in the following sentence (treating the price per share
of any security convertible or exchangeable or exercisable into Common Stock as
equal to (A) the sum of the price for such security convertible, exchangeable
or exercisable into Common Stock plus any additional consideration payable
(without regard to any anti-dilution adjustments) upon the conversion, exchange
or exercise of such security into Common Stock divided by (B) the number of
shares of Common Stock initially underlying such convertible, exchangeable or
exercisable security), then, and in each such case, the Conversion Price then
in effect shall be adjusted by dividing the Conversion Price in effect on the
day immediately prior to such record date by a fraction (x) the numerator of
which shall be the sum of the number of shares of Common Stock outstanding on
such record date plus the number of additional shares of Common Stock issued or
to be issued (or the maximum number into which such convertible or exchangeable
securities initially may convert or exchange or for which such options,
warrants or other rights initially
<PAGE> 46
18
may be exercised) and (y) the denominator of which shall be the sum of the
number of shares of Common Stock outstanding on such record date plus the
number of shares of Common Stock which the aggregate consideration for the
total number of such additional shares of Common Stock so issued (or into which
such convertible or exchangeable securities may convert or exchange or for
which such options, warrants or other rights may be exercised plus the
aggregate amount of any additional consideration initially payable upon
conversion, exchange or exercise of such security) would purchase at 90% of the
Current Market Price per share of Common Stock on such record date. Such
adjustment shall be made whenever such shares, securities, options, warrants or
other rights are issued, and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of shareholders entitled to receive such shares, securities,
options, warrants or other rights; provided, however, that the determination as
to whether an adjustment is required to be made pursuant to this Section
8(d)(ii) shall only be made upon the issuance of such shares or such
convertible or exchangeable securities, options, warrants or other rights and
not upon the issuance of the security into which such convertible or
exchangeable security converts or exchanges, or the security underlying such
options, warrants or other rights; provided, further, that if any convertible
or exchangeable securities, options, warrants or other rights (or any portions
thereof) which shall have given rise to an adjustment pursuant to this Section
8(d)(ii) shall have expired or terminated without the exercise thereof and/or
if by reason of the terms of such convertible or exchangeable securities,
options, warrants or other rights there shall have been an increase or
increases, with the passage of time or otherwise, in the price payable upon the
exercise or conversion thereof, then the Conversion Price hereunder shall be
readjusted (but to no greater extent than originally adjusted with respect to
the related event) on the basis of (x) eliminating from the computation any
additional shares of Common Stock corresponding to such convertible or
exchangeable securities, options, warrants or other rights as shall have
expired or terminated, (y) treating the additional shares of Common Stock, if
any, actually issued or issuable pursuant to the previous exercise of such
convertible
<PAGE> 47
19
or exchangeable securities, options, warrants or other rights as having been
issued for the consideration actually received and receivable therefor and (z)
treating any of such convertible or exchangeable securities, options, warrants
or other rights which remain outstanding as being subject to exercise or
conversion on the basis of such exercise or conversion price as shall be in
effect at this time.
(iii) In case the Corporation shall at any time or from time
to time distribute on or with respect to the shares of Common Stock (including
any such distribution made in connection with a consolidation or merger in
which the Corporation is the resulting or surviving corporation and the Common
Stock is not changed or exchanged) cash, evidences of indebtedness of the
Corporation or another issuer, securities of the Corporation or another issuer
or other assets (excluding (A) Regular Dividends, (B) dividends or
distributions paid or made to holders of shares of Preferred Stock and Series 2
Preferred Stock in the manner provided in Section 2(c), and (C) dividends
payable in shares of Common Stock for which adjustment is made under Section
8(d)(i)) or rights or warrants to subscribe for or purchase securities of the
Corporation (excluding those referred to in Section 8(d) (ii)), then, and in
each such case, the Conversion Price then in effect shall be adjusted by
dividing the Conversion Price in effect immediately prior to the date of such
distribution by a fraction (x) the numerator of which shall be the Current
Market Price of the Common Stock on the record date referred to below and (y)
the denominator of which shall be such Current Market Price of the Common Stock
less the then Fair Market Value (as determined by the reasonable good faith
judgment of the Board of Directors of the Corporation) of the portion of the
cash, evidences of indebtedness, securities or other assets so distributed or
of such subscription rights or warrants applicable to one share of Common Stock
(but such denominator not to be less than one); provided, however, that no
adjustment shall be made with respect to any distribution of rights to purchase
securities of the Corporation if the holder of shares of Preferred Stock would
otherwise be entitled to receive such rights upon conversion at any time of
shares of Preferred Stock into Common Stock unless
<PAGE> 48
20
such rights are subsequently redeemed by the Corporation, in which case such
redemption shall be treated for purposes of this Section 8(d)(iii) as a
dividend on the Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of shareholders entitled to receive such distribution.
(iv) In case the Corporation at any time or from
time to time shall take any action affecting its Common Stock, other than an
action described in any of Section 8(d)(i) through Section 8(d)(iii),
inclusive, or Section (h), then, and in each such case, the Conversion Price
shall be adjusted in such manner and at such time as the Board of Directors of
the Corporation in good faith determines to be equitable in the circumstances
(such determination to be evidenced in a resolution, a certified copy of which
shall be mailed to the holders of the Preferred Stock).
(v) Notwithstanding anything herein to the
contrary, no adjustment under this Section 8(d) need be made to the Conversion
Price unless such adjustment would require an increase or decrease of at least
1% of the Conversion Price then in effect. Any lesser adjustment shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment, which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least 1% of such
Conversion Price. Any adjustment to the Conversion Price carried forward and
not theretofore made shall be made immediately prior to the conversion of any
shares of Preferred Stock pursuant hereto.
(e) If the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
shareholders thereof legally abandon its plan to pay or deliver such dividend
or distribution, then thereafter no adjustment in the Conversion Price then in
effect shall be required by reason of the taking of such record.
<PAGE> 49
21
(f) Upon any increase or decrease in the Conversion
Price, then, and in each such case, the Corporation promptly shall deliver to
each registered holder of Preferred Stock at least 10 Business Days prior to
effecting any of the foregoing transactions a certificate, signed by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased
Conversion Price then in effect following such adjustment.
(g) No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of any shares of Preferred Stock.
If more than one share of Preferred Stock shall be surrendered for conversion
at one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate Liquidation Preference of the shares of Preferred Stock so
surrendered. If the conversion of any share or shares of Preferred Stock
results in a fraction, an amount equal to such fraction multiplied by the
Current Market Price of the Common Stock on the Business Day preceding the day
of conversion shall be paid to such holder in cash by the Corporation.
(h) In case of any capital reorganization or
reclassification or other change of outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value), or in case of any consolidation or merger of the
Corporation with or into another Person (other than a consolidation or merger
in which the Corporation is the resulting or surviving Person and which does
not result in any reclassification or change of outstanding Common Stock), or
in case of any sale or other disposition to another Person of all or
substantially all of the assets of the Corporation (any of the foregoing, a
"Transaction"), the Corporation, or such successor or purchasing Person, as the
case may be, shall execute and deliver to each holder of Preferred Stock at
least 10 Business Days prior to effecting any of the foregoing Transactions a
certificate stating that the holder of
<PAGE> 50
22
each share of Preferred Stock then outstanding shall have the right thereafter
to convert such share of Preferred Stock into the kind and amount (estimating
such amount to the extent necessary) of shares of stock or other securities (of
the Corporation or another issuer) or property or cash receivable upon such
Transaction by a holder of the number of shares of Common Stock into which such
share of Preferred Stock could have been converted immediately prior to such
Transaction. Such certificate shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 8. If, in the case of any such Transaction, the stock, other
securities, cash or property receivable thereupon by a holder of Common Stock
includes shares of stock or other securities of a Person other than the
successor or purchasing Person and other than the Corporation, which controls
or is controlled by the successor or purchasing Person or which, in connection
with such Transaction, issues stock, securities, other property or cash to
holders of Common Stock, then such certificate also shall be executed by such
Person, and such Person shall, in such certificate, specifically acknowledge
the obligations of such successor or purchasing Person and acknowledge its
obligations to issue such stock, securities, other property or cash to the
holders of Preferred Stock upon conversion of the shares of Preferred Stock as
provided above. The provisions of this Section 8(h) and any equivalent thereof
in any such certificate similarly shall apply to successive Transactions.
(i) In case at any time or from time to time:
(A) the Corporation shall declare a dividend (or
any other distribution) on or with respect to its Common Stock;
(B) the Corporation shall authorize the granting
to the holders of its Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights or warrants;
(C) there shall be any reclassification of the
Common Stock, or any consolidation or merger to which the Corporation is a
party and for which approval of any
<PAGE> 51
23
shareholders of the Corporation is required, or any sale or other disposition
of all or substantially all of the assets of the Corporation; or
(D) there shall occur any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation;
then the Corporation shall mail to each holder of shares of Preferred Stock at
such holder's address as it appears on the transfer books of the Corporation,
as promptly as possible but in any event at least 10 days prior to the
applicable date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights
or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or rights are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up
is expected to become effective; provided that in the case of any event to
which Section 8(h) applies, the Corporation shall give at least 10 Business
Days' prior written notice as aforesaid. Such notice also shall specify the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for shares of stock or other securities
or property or cash deliverable upon such reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation or winding up.
(j) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the Preferred Stock, such number
of its authorized but unissued shares of Common Stock as will from time to time
be sufficient to permit the conversion of all outstanding shares of Preferred
Stock, and shall take all action required to increase the authorized number of
shares of Common Stock if at any time there shall be insufficient authorized
but unissued shares of Common Stock to permit such reservation or to permit the
conversion of all outstanding shares of Preferred Stock.
<PAGE> 52
24
(k) The issuance or delivery of certificates for Common
Stock upon the conversion of shares of Preferred Stock shall be made without
charge to the converting holder of shares of Preferred Stock for such
certificates or for any tax in respect of the issuance or delivery of such
certificates or the securities represented thereby, and such certificates shall
be issued or delivered in the respective names of, or in such names as may be
directed by, the holders of the shares of Preferred Stock converted; provided,
however, that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the holder of the shares of
Preferred Stock converted, and the Corporation shall not be required to issue
or deliver such certificate unless or until the Person or Persons requesting
the issuance or delivery thereof shall have paid to the Corporation the amount
of such tax or shall have established to the reasonable satisfaction of the
Corporation that such tax has been paid.
Section 9. Board of Directors.
The number of directors comprising the Board of Directors
shall initially be ten. The Board of Directors may increase the number of
directors to a number in excess of ten only in the event that the Corporation
issues equity securities ("Acquisition Equity Securities"), in connection with
acquisitions by the Corporation (whether effectuated by merger, consolidation,
stock purchase or asset purchase) of another entity, to the former shareholders
of such entity or to such entity; provided, however, that no such increase in
the Board of Directors may occur if as a result of such increase (A) is greater
than (B) where (A) equals the fraction (expressed as a percentage) the
numerator of which equals (i) minus (ii) where (i) equals the aggregate number
of directors comprising the Board of Directors and (ii) equals ten and the
denominator of which is the aggregate number of directors comprising the Board
of Directors and (B) equals the fraction (expressed as a percentage) the
numerator of which is the sum of the shares of common stock issued by the
Corporation after [Closing
<PAGE> 53
25
Date], 1993 which constitute Acquisition Equity Securities and the shares of
Common Stock which are issuable upon exercise or conversion of derivative
securities which constitute Acquisition Equity Securities and the denominator
of which is the Fully Diluted Common Shares. Notwithstanding anything to the
contrary, this Section 9 shall be of no force and effect at any time at which
(i) no shares of Preferred Stock are outstanding or (ii) neither Metromedia
Company nor any of its Affiliates own any shares of Preferred Stock.
Section 10. Certain Remedies.
Any registered holder of Preferred Stock shall be entitled to
an injunction or injunctions to prevent breaches of the provisions of this
Exhibit A and to enforce specifically the terms and provisions of this Exhibit
A in any court of the United States or any state thereof having jurisdiction,
this being in addition to any other remedy to which such holder may be entitled
at law or equity.
Section 11. Definitions.
For the purposes of this Exhibit A, the following terms shall
have the meanings indicated:
"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law or executive order to close.
"Change of Control" means the occurrence of a reorganization,
merger or consolidation as a result of which the owners of outstanding shares
of capital stock of the Corporation immediately prior to such reorganization,
merger or consolidation beneficially own less than 50% of the combined voting
power of the then outstanding capital stock
<PAGE> 54
26
of the entity surviving such reorganization, merger or consolidation.
"Common Stock" means the common stock, par value $.01 per
share, of the Corporation, authorized pursuant to Article FOUR of the Articles,
and any other stock of the Corporation issued upon reclassification of the
Common Stock.
"Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a
specified date or specified event.
"Current Market Price" per share shall mean, on any date
specified herein for the determination thereof, (a) the average daily Market
Price of the Common Stock for the twenty trading days immediately preceding
such date (if no Market Price is available for any given trading day, such
trading day shall not be included in the determination of the Current Market
Price), and (b) if the Common Stock is not then listed or admitted to trading
on any national securities exchange or quoted in the over-the-counter market,
the Market Price on such date as determined in the second sentence of the
definition of "Market Price."
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Securities and Exchange
Commission thereunder.
"Fair Market Value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's-length transaction.
"Fully Diluted Common Shares" means all issued and outstanding
shares of Common Stock (except shares then owned or held by or for the account
of the Company or any subsidiary thereof) and all shares of Common Stock
issuable in respect of Options and Convertible Securities.
<PAGE> 55
27
"Issue Date" shall mean the first date on which shares of
Preferred Stock are issued.
"Junior Stock" shall mean any capital stock of the Corporation
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Preferred Stock including, without limitation, the Common
Stock.
"Liquidation Preference" with respect to a share of Preferred
Stock shall mean $50.
"Market Price" shall mean, per share of Common Stock, on any
date specified herein: (a) the closing price per share of the Common Stock on
such date published in the Wall Street Journal or, if no such closing price on
such date is published in the Wall Street Journal, the closing price on such
date, as officially reported on the principal national securities exchange on
which the Common Stock is then listed or admitted to trading; or (b) if the
Common Stock is not then listed or admitted to trading on any national
securities exchange but is designated as a national market system security by
the NASD, the last trading price (the closing sale price) of the Common Stock
on such date; or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the reported closing bid and
asked prices of the Common Stock, on such date as shown by NASDAQ and reported
by any member firm of the New York Stock Exchange, Inc. selected by the
Corporation. If the Common Stock is not then listed or admitted to trading on
any national securities exchange or quoted in the over-the-counter market,
"Market Price" shall mean a market price per share determined at the
Corporation's expense by an appraiser chosen by the holders of a majority of
the shares of Preferred Stock with the consent of the Corporation, which
consent shall not be unreasonably withheld or, if no such appraiser is so
chosen more than twenty business days after notice of the necessity of such
calculation shall have been delivered by the Corporation to the holders of
Preferred Stock, then by an appraiser chosen by the Corporation.
"Metromedia" means Metromedia Company, a Delaware general
partnership and its successors.
<PAGE> 56
28
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NASDAQ" shall mean the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation System.
"Options" means rights, options or warrants to subscribe for,
purchase or otherwise acquire either shares of Common Stock or Convertible
Securities.
"Parity Stock" shall mean any capital stock of the
Corporation, including Series 2 Preferred Stock, ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Preferred
Stock.
"Person" shall mean any individual, firm, corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or an agency or political subdivision thereof)
or other entity of any kind, and shall include any successor (by merger or
otherwise) of such entity.
"Pooling Notice" means a written notice delivered to the
holders of a majority of the outstanding shares of Preferred Stock pursuant to
which (i) the Corporation certifies that it has entered into an agreement
providing for a transaction (a "Pooling Transaction") which it intends to treat
for accounting purposes as a "pooling of interests" and (ii) the Corporation's
independent certified public accountants notify the Corporation that the
inclusion in the numerator of the Preferred Stock Percentage of clause (ii) of
the definition of the Preferred Stock Percentage jeopardizes the ability of the
Corporation to account for such transaction as a "pooling of interests."
"Preferred Stock Percentage" means that fraction (expressed as
a percentage) the numerator of which is the sum (without duplication) of (i)
the number of shares of Common Stock for which outstanding shares of Preferred
Stock could be converted and (ii) the number of Fully Diluted Common Shares
owned by Metromedia and its Affiliates and the denominator of which is the
Fully Diluted Common Shares;
<PAGE> 57
29
provided, that the numerator of such fraction shall equal the number of shares
of Common Stock for which outstanding shares of Preferred Stock could be
converted from and after the consummation of a Pooling Transaction contemplated
by a Pooling Notice.
"Regular Dividend" shall mean a dividend on the Common Stock
declared by the Board of Directors of the Corporation with respect to the most
recently completed quarter of the fiscal year of the Corporation (the
"Quarter"), that satisfies either of the following conditions: (i) the product
of four times the per share amount of such Common Stock dividend declared with
respect to such Quarter is less than or equal to 110% of the aggregate per
share amounts of the Common Stock dividends declared and paid with respect to
the immediately preceding four fiscal quarters or (ii) the aggregate per share
amounts of Common Stock dividends declared with respect to such Quarter and the
immediately preceding three fiscal quarters is less than or equal to 25% of the
consolidated net income of the Corporation and its Subsidiaries per share of
Common Stock (as determined in accordance with generally accepted accounting
principles) for the 12-month period ending on the last day of such Quarter. In
the case of a dividend on the Common Stock declared by the Board of Directors
of the Corporation with respect to a semi-annual or annual period during which
no quarterly dividends were declared, the preceding formula will be adjusted
and applied appropriately to determine whether such dividend is a Regular
Dividend.
"Senior Stock" shall mean any capital stock of the Corporation
ranking senior (either as to dividends or upon liquidation, dissolution or
winding up) to the Preferred Stock.
"Specified Number" means three; provided, however, that the
Specified Number shall be two (i) in the event that the board of directors of
the Corporation shall consist of 15 or more directors and the board shall have
made a good faith determination (which shall be evidenced by a written notice
delivered to the record holders of the Preferred Stock) that the board of
directors' functions may be more effectively performed by decreasing the size
of the board of
<PAGE> 58
30
directors by one or more and (ii) at all times subsequent to [third anniversary
of closing date], 1996. Notwithstanding the foregoing, from and after the
occurrence of any sale by Metromedia to any Person (other than an Affiliate of
Metromedia) of any shares of Preferred Stock or any shares of Common Stock
issued upon conversion of Preferred Stock, if (i) the Preferred Stock Percentage
is at least 5% but less than 10%, the Specified Number shall be two, (ii) the
Preferred Stock Percentage is at least 2 1/2% but less than 5%, the Specified
Number shall be one and (iii) the Preferred Stock Percentage is less than 2
1/2%, the Specified Number shall be zero.
"Subsidiary" shall mean, with respect to any Person, a
corporation or other entity of which 50% or more of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly by
such Person.
<PAGE> 1
EXHIBIT 10.10
December 5, 1994
Gregory A. LeVert
1355 Lakewood Drive
Lake Forest, IL 60045
Dear Greg:
The purpose of this letter is to set forth our understanding as to the
terms of your employment by LDDS Communications, Inc. (the "Company"). Upon
and subject to the terms and conditions set forth below, the Company employs
you as President of Business and Consumer Markets.
1. DUTIES. During the Employment Period (as defined below), you
shall perform such duties as may be assigned from time to time by the Board of
Directors and/or the Chief Executive Officer of the Company. Subject to the
direction and approval of the Board of Directors and the Chief Executive
Officer of the Company and without limiting the generality of the foregoing,
during the Employment Period you shall participate in the development and
implementation of business policies and strategies for the Company and
supervise the business and affairs of the Company and its subsidiaries to the
extent the same directly relate to business and consumer markets. During the
Employment Period, you shall exert your best efforts and devote your time,
attention and energies on a full-time basis to the Company's business and the
performance of your duties hereunder, and shall not engage in any other
employment or business activities without the Company's prior written consent.
2. TERM AND TERMINATION. The "Employment Period" shall be the
period commencing on December 5, 1994, and ending on the effective date of any
termination as hereinafter provided. The effective date of such termination is
herein referred to as the "Date of Termination."
<PAGE> 2
Gregory A. LeVert
December 5, 1994
Page 2
(a) DEATH OR RETIREMENT. The Employment Period shall
terminate at the time of your death or retirement after age 60 in accordance
with the applicable policies of the Company.
(b) DISABILITY. In the event, by reason of physical or
mental disability, as reasonably determined by the Company but not inconsistent
with any applicable provisions of the Company's long-term disability policy in
effect at the time of such determination, you are unable to perform the
services required hereunder, the Employment Period shall terminate if and as
directed by the Company in a notice to you. You shall submit to such medical
or psychiatric examination and tests as may be necessary and reasonable to make
a determination regarding disability.
(c) CAUSE. The Company may terminate the Employment
Period for Cause, as of the date specified in a notice to you, in addition to
such other rights or remedies as the Company may have under this agreement, at
law or in equity. The term "Cause" shall include (i) default or breach by you
of any provision of Section 5, below; (ii) an act or omission by you as a
result of which you are charged with a criminal offense involving moral
turpitude, dishonesty or breach of trust; (iii) your conviction of a felony or
plea of guilty or nolo contendere with respect to a felony; (iv) willful
misconduct by you which results in material injury or loss to the Company; or
(v) a right to discontinue your employment in order reasonably to comply with
applicable laws and regulations or satisfy the orders, recommendations and/or
requirements of any regulatory agency, body or official having jurisdiction.
(d) GOOD REASON. You may terminate the Employment Period
for Good Reason by so notifying the Company in writing within 20 days after you
are aware of the event constituting Good Reason, which termination shall be
effective on the date four weeks after the Company's receipt of such notice
from you, unless the Company elects a different effective date. For purposes
hereof, the term "Good Reason" shall mean (i) the assignment without your
consent, which consent shall not be withheld unreasonably, of continuing duties
in material diminution of the duties initially assigned to you pursuant to this
agreement other than for Cause; (ii) default by the Company in the performance
of any of its material obligations hereunder including, but not limited to, the
failure to pay any amount or provide any benefit required to be paid or
provided to you hereunder when due, which default is not cured within a
reasonable period after receipt by the Company of written notice from you
regarding such default; (iii) failure by the Company other than for Cause to
permit you to exercise in any material respect those rights and powers
customarily associated with your position which failure is not cured within
four weeks after receipt by the Company of written notice from you regarding
such default; (iv) the occurrence of a Change of Control (as defined below);
(v) your removal (other than with your consent) as
<PAGE> 3
Gregory A. LeVert
December 5, 1994
Page 3
President of Business and Consumer Markets of the Company without Cause; (vi)
any decrease in your gross annual base salary; or (vii) a disagreement by you,
reasonably and in good faith, in any material respect with the Chief Executive
Officer of the Company as to a significant management decision regarding the
business and consumer markets of the Company or succession planning with
respect to the Chief Executive Officer position of the Company followed by
implementation of the Chief Executive Officer's decision in that regard
contrary to your views, provided you gave written notice to the Chief Executive
Officer of the Company as to such disagreement promptly after the occurrence
thereof specifying the basis for your position and your intention to terminate
the Employment Period for Good Reason if the Chief Executive Officer's decision
is implemented contrary to your views.
(e) OTHER TERMINATION. The Company or you may terminate
the Employment Period other than by reason of a basis set forth above by so
notifying the other party in writing, which termination shall be effective on
the date four weeks after receipt of such notice unless, in the case of
termination by you, the Company elects a different effective date.
3. COMPENSATION. As full compensation for your services
hereunder, you shall receive and accept the following:
(a) A cash bonus in the amount of $250,000, subject to
all required withholdings and deductions, payable promptly after the date of
execution and delivery of this agreement.
(b) A grant of an option (the "Option") under the
Company's Second Amended and Restated 1990 Stock Option Plan (the "Option
Plan") to purchase from the Company up to 200,000 shares of its common stock
(the "Common Stock") at an exercise price of $17.88 per share. The Option
shall vest and, subject and pursuant to the provisions of the Option Plan,
shall be exercisable to the extent of one-half (1/2) the number of shares of
Common Stock originally covered thereby (the "Option Shares") on and after the
date of execution and delivery of this agreement, one-fourth (1/4) of the
Option Shares on and after January 1, 1996, and the remaining one-fourth (1/4)
of the Option Shares on and after January 1, 1997, subject to appropriate
adjustment pursuant to the Option Plan and provided, as to vesting of the
Option Shares, you must be employed by the Company on the applicable vesting
date. Notwithstanding the foregoing, the Option shall vest and, subject and
pursuant to the provisions of the Option Plan and this agreement, shall be
exercisable with respect to all of the Option Shares immediately upon (i) any
Change of Control (as hereinafter defined) of the Company following the date
hereof, (ii) any termination of the Employment Period by the Company by reason
of your disability or without Cause, (iii) any termination of the Employment
Period by you for Good Reason, or
<PAGE> 4
Gregory A. LeVert
December 5, 1994
Page 4
(iv) your death. The Option shall terminate on the date one year after (i) any
termination of the Employment Period by the Company by reason of your
disability or without Cause, (ii) any termination of the Employment Period by
you for Good Reason, or (iii) your death, or as otherwise provided in the
Option Plan or this agreement. The Option shall terminate and lapse as to any
Option Shares which do not vest pursuant to the provisions hereof. The Option
shall be evidenced by and be further subject to the provisions of the Company's
standard form of agreement reflecting the current terms and conditions
applicable to options granted under the Option Plan. For purposes hereof, a
"Change of Control" shall mean any transaction or series of related
transactions after the date hereof which result in (A) a transfer of more than
fifty percent (50%) of the Common Stock by one or more shareholders of the
Company, other than transfers pursuant to a merger or consolidation of the
Company, (B) any sale of all or substantially all of the assets of the Company,
or (C) any merger or consolidation of the Company with or into any other
corporation, where more than fifty percent (50%) of the equity securities of
the surviving or resulting corporation (by voting power) are directly or
indirectly controlled by persons other than shareholders of the Company
immediately prior to such merger or consolidation. All percentages referenced
herein shall be determined on a fully diluted basis. The following
transactions shall not constitute, or be considered in determining, a Change of
Control: (A) any acquisition of securities by the Company, or (B) any
acquisition of securities by any employee benefit plan or related trust
sponsored or maintained by the Company.
(c) A gross annual base salary in the amount of $420,000.
Said salary shall be subject to all required withholdings and deductions, and
shall be payable in accordance with the payroll practice of the Company in
effect from time to time. On each anniversary of the date of this agreement,
your salary shall be reviewed and adjusted on the basis of the salary levels of
other executives of the Company, your position and performance and other
criteria deemed relevant by the Company, provided such salary shall not be
decreased other than for Cause.
(d) You shall be eligible to participate during the
Employment Period in any benefit plans and programs of the Company available
generally to its employees, subject to and in accordance with the criteria
(including, without limitation, discretionary features) applicable thereto. In
that regard, and without limiting the foregoing sentence, it is anticipated
that initially your cash bonus and award of employee stock options (in addition
to the Option) shall be approximately $400,000 and 100,000 shares,
respectively, on a per annum basis. You shall be included during the
Employment Period in any directors' and officers' liability insurance
maintained by the Company, subject to any requirements of the insurer.
<PAGE> 5
Gregory A. LeVert
December 5, 1994
Page 5
4. SEVERANCE. Upon termination of the Employment Period, you
shall be entitled to the following, in full satisfaction of any and all
obligations to you as a result of or arising out of this agreement, the
employment relationship or the termination thereof:
(a) in the event of termination of the Employment Period
(i) by the Company other than for Cause, (ii) by reason of your death, or (iii)
by you for Good Reason, subject to the conditions specified below:
(A) payment of your unpaid base salary through
the Date of Termination, payable within 30 days after the Date of Termination;
(B) your benefits accrued and not paid or
provided as of the Date of Termination under any plan or program applicable to
your employment hereunder, determined and provided in accordance with the terms
thereof;
(C) without duplicating any of the foregoing, an
amount equal to two times the amount of your annual base salary in effect
immediately prior to the Date of Termination (in no event shall such amount be
less than $840,000, representing two times $420,000), plus two times the amount
of the annual bonus paid to you with respect to the most recent calendar year
ending on or prior to the Date of Termination or, in the event of termination
prior to the determination of the first such annual bonus, an aggregate of
$800,000 as the bonus component (representing two times a deemed annual bonus
of $400,000), payable within 30 days after the Date of Termination;
(D) other than in the case of termination by
reason of your death, in which case the Company's standard policies or
applicable law regarding dependent coverage shall apply, for a period not to
exceed six months following the Date of Termination (which period shall apply
toward any COBRA continuation rights), the Company shall pay the premiums for
your health and disability insurance coverage provided from time to time at or
after the Date of Termination by the Company, subject to payment by you of any
amounts which you would be required to pay if employed by the Company
including, but not limited to, amounts payable with respect to dependent
coverage, provided such obligation of the Company shall terminate upon your
becoming eligible for health and/or disability coverage from a new employer; or
(b) in the event of termination of the Employment Period
on any basis other than those specified in the preceding Subsection 4(a), the
payment and benefits specified in the preceding clauses (A) and (B) of
Subsection 4(a).
<PAGE> 6
Gregory A. LeVert
December 5, 1994
Page 6
All payments, benefits and other obligations pursuant to the foregoing
shall be subject to the withholding and other requirements of applicable law
and, in the case of Subsection 4(a), to the following conditions:
(i) you or, in the event of termination by reason
of your death, the representative of your estate shall execute and deliver to
the Company on or before the Date of Termination, a document in form and
substance reasonably satisfactory to the Company (A) accepting such payments
and benefits in full satisfaction of any and all claims which you (or your
estate) may have against the Company, its affiliates or any of their respective
agents, directors, shareholders, officers or employees, and (B) releasing the
foregoing from any and all claims, injuries and damages arising out of or by
reason of your employment, the termination thereof or any conduct affecting
your employment, or based upon this agreement or any custom, practice or policy
of the Company or any of the Company's affiliates (exclusive of the obligation
to make the payments and provide the benefits set forth in this agreement); and
(ii) you shall provide consultation, cooperation
and assistance as and when reasonably requested with respect to matters in or
of which you were involved or had knowledge during your employment and keep the
Company advised of an address and telephone number where you may be reached.
5. COVENANTS. (a) NON-COMPETITION AND CONFIDENTIALITY. You
acknowledge and agree as follows:
(i) For purposes hereof, all information about
documents pertaining to the business, operations, activities and affairs of
the Company and/or its affiliates and any of their respective customers and
suppliers obtained by you during your employment by the Company constitute
"Confidential Information." You acknowledge that you will have access to
Confidential Information and that improper use or disclosure of the same could
cause serious injury to the business and business relationships of the Company,
its affiliates and others. Accordingly, you agree to keep confidential all
Confidential Information which shall have come or shall hereafter come into
your possession, that you will not use the same for your own benefit or
directly or indirectly for the benefit of others, and that you will not
disclose such Confidential Information to any other person without the
Company's prior written consent, in each case, whether during or after
termination of the Employment Period. For purposes hereof, "Confidential
Information" shall not include any information which is or becomes generally
available to the public through no fault of yours. Nothing contained herein
shall preclude disclosure of Confidential Information to the extent required by
legal process, provided you notify
<PAGE> 7
Gregory A. LeVert
December 5, 1994
Page 7
the Company in writing a reasonable time prior to such disclosure and cooperate
in obtaining a protective order or other appropriate remedy, as determined by
the Company.
(ii) You recognize that you may possess
confidential information and trade secrets about other employees of the Company
and/or its affiliates relating to their education, experience, skills,
abilities, salary and benefits, and interpersonal relationships with customers
and suppliers of the Company and/or its affiliates. You further recognize that
such information is not generally known, is of substantial value to the Company
and/or its affiliates in securing and retaining customers and suppliers, and
will be acquired by you because of your employment. Accordingly, you shall
not, directly or indirectly, solicit or induce any person who is, or was within
six months prior to any contemplated solicitation or inducement, employed by
the Company and/or any of its affiliates to leave such employment or to enter
the employment of any other person or entity.
(iii) For purposes hereof, "Business" means the
direct or indirect origination, transmission, and/or termination of voice and
data messages; the provision of long distance telecommunications services; the
provision of operator services and/or billing and collection services with
respect to long distance telecommunications; the provision of local telephone
services; the provision of related services; and consulting with respect to or
arranging for any such origination, transmission, termination or services; or
any of the above. You hereby agree, without limiting any other provision in
this Subsection 5(a), that you will not, directly or indirectly, during the
Employment Period and for a period of two (2) years following termination of
the Employment Period, (A) own, manage, operate, control, be employed or
engaged by or otherwise participate or have any interest in any person or
entity which is engaged in, or otherwise engage in, the Business in any state
in the United States, or (B) solicit, divert, take away, interfere with or
disrupt relationships with, or attempt to do any of the foregoing with respect
to, any customer, supplier, employee, independent contractor, agent or
representative of the Company or its affiliates. Nothing contained in
Subsection 5(a)(iii)(A) shall (A) limit your right as an investor to make and
hold passive investments in investment securities aggregating not more than 1%
of the issued and outstanding securities of any corporation that is registered
on a national securities exchange or admitted to trading privileges thereon or
actively traded on a generally recognized over-the-counter market, or (B)
preclude, after termination of the Employment Period, your being employed by a
person or entity engaged in the Business other than AT&T Communications, Inc.,
MCI Telecommunications Corporation, US Sprint Corporation, a Regional Bell
Operating Company or any successor or affiliate of the foregoing, or your
ownership of any interest in a person or entity engaged in the Business that
together with its affiliates has less than $50 million in annual gross revenues
at the time of your acquisition of such interest.
<PAGE> 8
Gregory A. LeVert
December 5, 1994
Page 8
The provisions of the foregoing Subsections 5(a)(ii) and (iii) shall
not apply in the event of termination of the Employment Period (i) by the
Company other than by reason of your disability or for Cause, or (ii) by you
for Good Reason.
(b) INVENTIONS. You agree to transfer and assign to or
as directed by the Company your entire right, title and interest in and to any
or all inventions, enhancements, modifications, designs, discoveries,
improvements or ideas which you may develop, either solely or jointly with
others, during the Employment Period and for a period of sixty (60) days
thereafter, which relate in any way to the business, products, properties or
services of the Company or its affiliates, together with all copyrights,
patents, trademarks or other property rights with respect thereto. You agree
to disclose immediately to the Company any invention, enhancement,
modification, design, discovery, improvement or idea developed during said
period and to execute and deliver to the Company, without further compensation,
such documents as may be necessary or desirable for the Company to acquire a
copyright, patent, trademark or other property right with respect thereto and
to transfer and assign to the Company your entire right, title and interest
therein.
(c) LITIGATION. You agree that during the Employment
Period and thereafter, at the Company's expense, you shall do all things
including, but not limited to, the giving of evidence in suits and other
proceedings, which the Company shall deem necessary or proper to obtain,
maintain or assert rights accruing to, and defend claims against, the Company
or its affiliates in connection with which you have knowledge, information or
expertise.
(d) RETURN OF PROPERTY. Upon termination of the
Employment Period, you shall deliver to the Company all documents, records,
books, materials, software, diskettes, keys, financial information, business
plans, operating results and other property belonging or relating to the
Company or its affiliates, and you shall not retain any copies thereof.
6. RIGHTS AND REMEDIES. We agree that the services to be
rendered by you are special, unique and of an extraordinary character.
Accordingly, in the event of the breach or threatened breach by you of any of
the provisions of this agreement, the Company, in addition and as a supplement
to such other rights and remedies as may exist in its favor, shall be entitled
to injunctive relief against any act which would violate any of the provisions
of this agreement. In the event any provision hereof is held to be
unenforceable by any court of competent jurisdiction, it is agreed and
understood that this agreement shall be deemed amended and construed in a
manner that the provisions hereof are enforceable to the fullest extent
permitted by applicable law. The Company shall be entitled to recover from you
all costs and expenses including, but not limited to, attorneys' fees and court
costs, incurred by the Company as a result or arising out of
<PAGE> 9
Gregory A. LeVert
December 5, 1994
Page 9
any breach or threatened breach under or pursuant to this agreement, in
addition to such other rights or remedies as the Company may have under this
agreement or any other agreement, at law or in equity. This agreement shall
not supersede or be in lieu of any other agreement or provision (at law, in
equity or otherwise) restricting activities referenced herein or granting
rights or remedies in favor of the Company but shall be in addition to any such
other restrictions, rights or remedies.
7. MODIFICATION. Except as otherwise provided herein, no
modification, amendment or waiver of any of the provisions of this agreement
shall be effective unless made in writing and signed by the party to be
charged.
8. ENTIRE AGREEMENT. Other than with respect to the Company's
policies, rules and standards of general applicability in effect from time to
time, which shall be binding upon you, this agreement constitutes our entire
agreement with respect to your employment and the compensation therefor. This
agreement replaces and supersedes all prior agreements or understandings
regarding such subject matter, if any.
9. WAIVER. The failure to enforce at any time any of the
provisions of this agreement or to require at any time performance by any party
hereto of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this agreement,
or any part hereof, or the right of each party hereto thereafter to enforce
each and every provision in accordance with the terms of this agreement.
10. BINDING EFFECT. This agreement shall be binding upon and
shall inure to the benefit of the Company and any successor or assignee of the
Company. This agreement also shall be binding upon and shall inure to the
benefit of you and your heirs, executors and legal representatives; provided,
the services to be performed by you hereunder are personal in nature and,
therefore, you may not assign your rights or delegate your obligations
hereunder and any attempted or purported assignment or delegation by you shall
be null and void.
11. GOVERNING LAW AND CONSENT TO JURISDICTION. This agreement
shall be deemed to be made in, and in all respects shall be interpreted,
construed and governed by and in accordance with the internal laws of, the
State of Mississippi, and you consent to the jurisdiction of the courts of the
State of Mississippi with respect to any dispute, controversy or other matter
relating to or arising out of this agreement.
12. SURVIVAL. The provisions of Sections 4 through 15 hereof
shall survive the termination of the Employment Period.
<PAGE> 10
Gregory A. LeVert
December 5, 1994
Page 10
13. SECTION HEADINGS. The section headings contained in this
agreement are for reference purposes only and shall not in any way affect the
meaning, substance or interpretation of this agreement.
14. COUNTERPARTS. This agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.
<PAGE> 11
Gregory A. LeVert
December 5, 1994
Page 11
15. NONCONTRAVENTION. You hereby represent, warrant and covenant
that you have the right to enter into this agreement without breaching or
violating any other agreement or obligation or giving rise to a fee or other
payment to a third party, that you are not a party to any agreement or
understanding whether or not written which would prohibit or interfere with the
performance of your obligations under this agreement and that you will not use
in the performance of your obligations hereunder any proprietary information of
any third party which you are legally prohibited from using.
If the foregoing is consistent with your understanding of the terms of
your employment and acceptable, please so indicate by signing a copy of this
letter where indicated below and return the same to me.
Sincerely,
LDDS COMMUNICATIONS, INC.
By:
------------------------------
Bernard J. Ebbers, President
The undersigned has reviewed and understands the foregoing (including,
but not limited to, the provisions of Sections 5 and 15), has had an
opportunity to discuss the same with his own counsel and accepts and agrees to
the foregoing as of the date of this letter.
--------------------------------------
Gregory A. LeVert
<PAGE> 1
EXHIBIT 10.11
January 4, 1994
Mr. Roy A. Wilkens
WilTel
Tulsa, Oklahoma
Dear Roy:
For several years, the Company and those of its subsidiaries having separate
payrolls have paid to each of certain executives a payment in lieu of
perquisites, in addition to his or her base salary. This "in-lieu" payment was
made separately from base pay and therefore was not included in the
determination of various benefits, including regular and supplemental pension
benefits and investment plan contributions. Particularly in light of recent
changes in the tax laws, it no longer is desirable or useful to have separate
payments. The Compensation Committee has therefore decided to discontinue
separate payments and effective January 1, 1994, the "in-lieu" payments will no
longer be made but as salaries for those executives who have been receiving
them will be increased by corresponding amounts. Since the former "in-lieu"
payments will in the future be considered part of base salary, they will be
included in the determination of benefits.
The Employment Agreement among you, the Company and Williams Telecommunications
Group, Inc., dated as of January 1, 1990, and amended as of January 9, 1991
(the "Employment Agreement") provides for the making of "in-lieu" payments.
The purpose of this letter is to evidence your agreement to amending the
Employment Agreement effective as of January 1, 1994, by deleting Sections
4.01.2 and 4.01.2.1 thereof and by further deleting all other references to the
"In-Lieu Payment" wherever they appear. In consideration for this amendment,
the amount of the Base Salary provided for in Section 4.01.1 of the Employment
Agreement, as in effect on January 1, 1994, prior to any increase that may be
made as a result of compensation actions approved by the Company's board of
directors at its meeting in January 1994, will be increased by the amount of
the In-Lieu Payment as in effect on December 31, 1993.
Please signify your concurrence with the amendment of the Employment Agreement
by signing and returning a copy of this letter
Very truly yours,
/s/ Keith E. Bailey
Keith E. Bailey
Accepted and agreed to this
11th day of January 1994
/s/ Roy A. Wilkens
Roy A. Wilkens
<PAGE> 2
January 9, 1991
Mr. Roy A. Wilkens
President
Williams Telecommunications Group
One Williams Center
Tulsa, Oklahoma 74174
Dear Roy:
As of January 1, 1990, you, The Williams Companies, Inc. and Williams
Telecommunications Group entered into a certain Employment Agreement. An error
has been discovered in paragraph 3.07.2 of such agreement which could result
under certain circumstances in your receiving smaller payments than intended.
As it therefore appears desirable to revise paragraph 3.07.2, upon your
acceptance of this letter, such paragraph will be deemed amended to read as
follows:
3.07.2 Should it ultimately be determined that a termination by the
Company pursuant to paragraph 3.03.1 hereof of paragraph 3.03.2 hereof
was not justified, or that a termination by the Executive pursuant to
paragraph 3.04.1 hereof was justified, then the termination will be
deemed to have occurred under paragraph 3.03.3 hereof and the
Executive will be entitled to retain all sums paid to the Executive
pending the resolution of such dispute and to receive, in addition,
the payments and benefits provided for in paragraph 3.03.3 hereof,
plus interest at the rate provided in paragraph 3.07.1 hereof, from
the Date of Termination to the Date of Resolution, and at the rate
provided in subsection 6.02 hereof thereafter.
Except as herein amended, the above-mentioned Employment Agreement will remain
in full force and effect as written.
Very truly yours,
THE WILLIAMS COMPANIES, INC.
By: /s/ Vernon T. Jones
-----------------------------
Vernon T. Jones
WILLIAMS TELECOMMUNICATIONS GROUP
By: /s/ Vernon T. Jones
-----------------------------
Vernon T. Jones
Accepted this the 9th day of
January, 1991.
/s/ Roy A. Wilkens
- -----------------------------
Roy A. Wilkens
<PAGE> 3
EMPLOYMENT AGREEMENT
Dated as of January 1, 1990
among
THE WILLIAMS COMPANIES, INC.
and
WILLIAMS TELECOMMUNICATIONS GROUP, INC.
and
ROY A. WILKENS
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. DEFINITIONS AND CONSTRUCTION
1.01 Definitions 1
1.02 Construction 5
SECTION 2. DUTIES OF EXECUTIVE
2.01 Duties 6
2.02 Nature of Executive's Obligation 6
SECTION 3. TERM AND TERMINATION
3.01 Term 6
3.02 Termination by Employer or Executive 6
3.03 Termination by Employer 6
3.04 Termination by the Executive 7
3.05 Termination on Death of Executive 8
3.06 Termination Upon Executive's Retirement 8
3.07 Disputed Termination 8
3.08 Employment Relationship 9
SECTION 4. COMPENSATION AND BENEFITS
4.01 Compensation and Benefits for Services 10
4.02 Continuation of Compensation and Benefits on Disability 11
4.03 Payments Upon Executive's Death 11
4.04 Payments Upon Breach of Constructive Breach of this Agreement 12
4.05 Payment and Determination of Monetary Equivalent 14
4.06 Determination of EICP Awards 15
4.07 Vested Incentive Awards and Benefits 15
4.08 Continued Participation in Benefit Plans 15
4.09 Conflicts 15
SECTION 5. CHANGE OF CONTROL
5.01 Effect of Change of Control on Stock Based Incentive Awards 16
5.02 Establishment of Trust 17
5.03 Tax Payments 17
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 6. MISCELLANEOUS
6.01 Executive's Attorney's Fees 19
6.02 Obligation Unconditioned 20
6.03 Successors and Assigns 20
6.04 Notice 21
6.05 Amendments; Waiver 21
6.06 Prior Agreement 21
6.07 Governing Law 21
6.08 Severability 21
6.09 Confidential Information 22
6.10 Derogatory Remarks 22
6.11 Files and Records 22
6.12 Cooperation in Litigation 22
6.13 Survival of Certain Provisions 22
6.14 Rights Exclusive 22
6.15 Consents 23
</TABLE>
<PAGE> 6
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of the 1st day of January, 1990,
by and between The Williams Companies, Inc., a Delaware corporation, Williams
Telecommunications Group, Inc., a Delaware corporation having its principal
offices at One Williams Center, Tulsa, Oklahoma 74172, and Roy A. Wilkens (the
"Executive"):
WITNESSETH:
WHEREAS, the Executive is presently the duly elected and
acting President of the Employer and, as such, is a key executive of the
Employer whose continued employment by the Employer is deemed important to the
Employer; and
WHEREAS, the Employer desires to retain the services of the
Executive under the terms and conditions hereinafter set forth:
NOW, THEREFORE, the parties agree as follows:
SECTION 1. DEFINITIONS AND CONSTRUCTION.
1.01 Definitions. In addition to the terms defined elsewhere
herein, the following terms as used in this Agreement will have the
following meanings when used with initial capital letters:
1.01.1 "Accounting Firm" means Ernst & Young unless
(i) a Gross-up Payment results from a Change of Control and
Ernst & Young has provided services for the Person or Persons
who caused or initiated the Change of Control, or an affiliate
of such Person or Persons, or (ii) Ernst & Young declines to
act as such, in either which event the Accounting Firm will be
another nationally-recognized firm or certified public
accountants jointly selected by the Employer and the
Executive.
1.01.2 "Act" means the Securities Exchange Act of
1934, as amended.
1.01.3 "Base Salary" will have the meaning assigned
in paragraph 4.01.1 hereof.
1.01.4 "Board" means the Company's Board of
Directors.
1.01.5 "Cause" means (i) willful failure by the
Executive substantially to perform the duties provided for
herein, other than any such failure resulting from a
Disability, or (ii) gross negligence or willful misconduct of
the Executive which results in a significantly adverse effect
upon the Company or the Employer, or (iii) willful violation
or disregard of the Code of Business Conduct or other
published policy of the Company or the Employer by the
Executive, or (iv) a Sale of a Business.
1.01.6 "Change of Control" means and will be deemed
to have occurred if (i) any Person, other than the Company or
a Related Party, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly,
of securities of the Company representing twenty percent (20%)
or more of the total voting power of all the then outstanding
Voting Securities, or (ii) a Person, other than the Company or
a Related Party, purchases or otherwise acquires, under a
tender offer, securities representing, when combined with
other securities of the Company owned by such Person, twenty
percent (20%) or more of the total voting power of all the
then outstanding Voting Securities, or (iii) the individuals
(a) who as of the date hereof constitute the Board or (b) who
hereafter are elected to the Board and whose election, or
nomination for election, to the Board was approved by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors as of the date hereof or
whose election or nomination for election
1
<PAGE> 7
was previously so approved, cease for any reason to constitute
a majority of the members of the Board, or (iv) the
stockholders of the Company approve a merger, consolidation,
recapitalization or reorganization of the Company or an
acquisiton of securities or assets by the Company, or
consummation of any such transaction if stockholder approval
is not obtained (other than any such transaction which would
result in the Voting Securities outstanding immediately prior
thereto continuing to represent, either by remaining
outstanding or by being converted into voting securities of
the surviving entity, at least eighty percent (80%) of the
total voting power represented by the voting securities of the
surviving entity outstanding immediately after such
transaction and in or as a result of which the voting rights
of each Voting Security relative to the voting rights of all
other Voting Securities are not altered), or (v) the
stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the
Company's assets, other than any such transaction which would
result in a Related Party owning or acquiring more than fifty
percent (50%) of the assets owned by the Company immediately
prior to the transaction, or (vi) the Board or the Committee
adopts a resolution to the effect that a Change of Control has
occurred or adopts a resolution to the effect that a Potential
Change of Control has arisen and the transaction giving rise
to such resolution has been thereafter approved by the
stockholders of the Company or been consummated if such
approval is not sought.
1.01.7 "Change of Control Price" means, with respect
to a share of the Company's common stock, the higher of (i)
the arithmetic average of the high and the low selling prices
of such stock on the New York Stock Exchange during the thirty
(30) calendar days preceding a Change of Control or (ii) the
highest price paid or offered in a transaction which either
(a) results in a Change in Control or (b) would be consummated
but for another transaction which results in a Change of
Control and, if it were consummated, would result in a Change
of Control. With respect to clause (ii) in the preceding
sentence, the "price paid or offered" will be equal to the sum
of (i) the face amount of any portion of the consideration
consisting of cash or cash equivalents and (ii) the fair
market value of any portion of the consideration consisting of
real or personal property other than cash or cash equivalents,
as established by an independent appraiser jointly selected by
the parties at the sole cost of the Company.
1.01.8 "Code" means the Internal Revenue Code of
1986, as amended.
1.01.9 "Code of Business Conduct" means the Company's
Code of Business Conduct, as amended from time to time by the
Board prior to a Change of Control or a Potential Change of
Control unless such Potential Change of Control is no longer
continuing.
1.01.10 "Committee" means a committee of the Board
properly exercising, with respect to this Agreement or any of
the Incentive Plans, powers assigned under the terms of any
applicable plan document or powers of the Board duly delegated
by the Board.
1.01.11 "Company" means The Williams Companies, and
any successor to its business and/or assets which executes and
delivers the agreement provided for in subsection 6.03 hereof
or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
1.01.12 "Date of Resolution" will have the meaning
assigned in paragraph 3.07.4 hereof.
1.01.13 "Date of Termination" means the date of
termination of this Agreement as specified in the provision of
this Agreement pursuant to which termination is to be
effected.
2
<PAGE> 8
1.01.14 "Disability" means a physical or mental
incapacity of the Executive which substantially prevents the
Executive, after reasonable accommodation, from performing the
essential functions of the duties provided for in this
Agreement on a full-time basis for a period of six (6)
calendar months out of any twelve (12) consecutive calendar
month period and which could reasonably be expected to
continue for a period of at least eighteen (18) months
following such twelve (12) month period.
1.01.15 "EICP" means the Company's Executive
Incentive Compensation Plan or any successor plan providing
substantially equivalent or better benefits.
1.01.16 "Employer" means Williams Telecommunications
Group, Inc. and any successor to its business and/or assets
which executes and delivers the agreement provided for in
subsection 6.03 hereof or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of
law.
1.01.17 "Excise Tax" will have the meaning assigned
in subsection 5.03 hereof.
1.01.18 "Good Reason" means, except in connection
with a permitted termination of this Agreement by the Company
or the Employer, or unless the Executive has consented
thereto, (i) a material change in the Executive's duties
provided for herein, unless associated with a bona fide
promotion of the Executive and a commensurate increase in the
Executive's compensation, in which case the Executive will be
deemed to consent, or (ii) a significant reduction in the
authority and responsibility assigned to the Executive, or
(iii) the removal of the Executive from or failure to reelect
the Executive to the office specified in subsection 2.01
hereof, unless associated with a bona fide promotion of the
Executive and a commensurate increase in the Executive's
compensation or in connection with the election of the
Executive to the corresponding office of another majority
owned subsidiary of the Company, in each which case the
Executive will be deemed to consent, or (iv) a reduction by
the Employer of the Base Salary or In-Lieu Payment below the
amount provided in, respectively, paragraph 4.01.1 or 4.01.2
hereof, as the same may be increased from time to time, or (v)
except in relation to a wage freeze applicable to all
employees of the Employer, a failure by the Company to approve
or the Employer to make an increase in the Base Salary or
In-Lieu Payment each year this Agreement continues in effect,
in accordance with, respectively, paragraph 4.01.1 or 4.01.2
hereof, or (vi) termination of any of the Incentive Plans,
unless such plan is replaced by a successor plan providing
incentive opportunities at least as favorable to the Executive
as those provided in the plan being terminated, or (vii)
amendment of any of the Incentive Plans so as to provide for
incentive opportunities less favorable to the Executive than
those provided in the plan being amended, or (viii) failure by
the Company to continue the Executive as a participant in any
of the Incentive Plans in which the Executive is now or
hereafter becomes a participant on a basis comparable to the
basis on which other senior executives of the Company or its
subsidiaries participate in such plan, or (ix) except in
relation to a wage freeze applicable to all employees of the
Employer or the Company, modification of the administration of
any of the Incentive Plans so as to adversely affect the level
of awards actually received by the Executive, or (x) failure
of the Company to grant to the Executive awards under the EICP
on the basis provided in the first sentence of subsection 4.06
hereof (disregarding the first proviso in such sentence) or
under any of the other Incentive Plans at comparable levels,
or (xi) the relocation of the Employer's principal executive
offices to a location more than 35 miles from Tulsa, Oklahoma
or (xii) a requirement by the Employer or the Company that the
Executive be based anywhere other than the Employer's
principal executive offices, except for travel on the
Employer's business reasonably required by the Executive's
duties contemplated hereby, unless associated with a bona fide
promotion of the Executive and a commensurate increase in the
Executive's compensation or in connection with the election of
the Executive to the office of another majority owned
subsidiary of the Company corresponding to that
3
<PAGE> 9
specified in subsection 2.01 hereof, in each which case the
Executive will be deemed to consent, or (xiii) in the event of
a relocation of the Employer's principal executive offices or
a change in the location at which the Executive is based, in
either case on a basis permitted hereunder, the failure by the
Employer to pay (or reimburse the Executive for) all
reasonable moving expenses (including interest equalization
expenses under the Company's current interest equalization
plan and any excise or income taxes resulting from any
payments made in connection with any such relocation or change
of location) incurred by or for the account of the Executive
relating to a resulting change of the Executive's principal
residence, and to an extent at least as favorable to the
Executive as provided by the current policy of the Company
with respect to senior executive employee relocations, to
indemnify the Executive against the amount, if any, by which
the net proceeds realized in the sale of the Executive's
principal residence in connection with any such change of
residence are less than the Executive's tax basis in such
residence, or (xiv) the failure of the Employer to provide the
Executive with other benefits (including but not limited to
vacations and benefits under the SRP) which, when taken as a
whole, are substantially as favorable to the Executive as
those currently provided to senior executive employees of the
Company or its subsidiaries generally or to pay the Executive
the monetary equivalent thereof, or (xv) the failure of the
Company to establish the trust provided for in subsection 5.02
hereof or after establishment of such trust, the revocation of
the same by the Company or the failure of the Company to fund
and maintain the funding of such trust as required by
subsection 5.02 hereof.
1.01.19 "Gross-up Payment" will have the meaning
assigned in subsection 5.03 hereof.
1.01.20 "Incentive Plan" means any of the Company's
Stock Option Plans, Restricted Stock Plan, EICP, sales
incentive plans or other incentive plans in existence now or
immediately prior to a Change of Control or any additional or
successor plans providing substantially equivalent or better
incentive opportunities.
1.01.21 "In-Lieu Payment" means an amount of money to
be paid to the Executive in lieu of certain perquisites
pursuant to paragraph 4.01.2 hereof.
1.01.22 "IRS" means the Internal Revenue Service.
1.01.23 "Minimum Increase" will have the meaning
assigned in paragraph 4.01.1 hereof.
1.01.24 "Normal Retirement Date" means the date the
Executive is eligible to take normal retirement under the
Pension Plan.
1.01.25 "Notice of Termination" means a written
notice given by one of the parties of this Agreement to the
other parties pursuant to a provision hereof to terminate this
Agreement and setting forth the provision of this Agreement
under which such notice is given, the Date of Termination and
such other information as may be required by the provision of
this Agreement under which such notice is given.
1.01.26 "Pension Plan" means the Company's
Consolidated Pension Plan or any successor plan providing
comparable benefits.
1.01.27 "Person" will have the meaning assigned in
the Act.
1.01.28 "Potential Change of Control" means and will
be deemed to have arisen if (i) the Company enters into an
agreement, the consummation of which would result in the
occurrence of a Change of Control, or (ii) any Person
(including the Company) publicly
4
<PAGE> 10
announces an intention to take or consider taking actions
which if consummated would constitute a Change of Control, or
(iii) any Person, other than a Related Party, files with the
Securities and Exchange Commission a Schedule 13D pursuant to
Rule 13d-1under the Act with respect to Voting Securities, or
(iv) any Person, other than the Company or a Related Party,
files with the Federal Trade Commission a notification and
report form pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 with respect to any Voting Securities
or any assets of the Company or its subsidiaries, or (v) the
Board or the Committee adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change of Control
has arisen. A Potential Change of Control will be deemed to
continue (i) with respect to an agreement within the purview
of clause (i) of the preceding sentence, until the agreement
is cancelled or terminated, or (ii) with respect to an
announcement within the purview of clause (ii) of the
preceding sentence, until the Person making the announcement
publicly abandons the stated intention or fails to act on such
intention for a period of twelve (12) calendar months, or
(iii) with respect to either the filing of a Schedule 13D
within the purview of clause (iii) of the preceding sentence
or the filing of a notification and report form within the
purview of clause (iv) of the preceding sentence with respect
to Voting Securities , until the Person involved publicly
announces that its ownership or acquisition of the Voting
Securities is for investment purposes only and not for the
purpose of seeking a Change of Control of such Person disposes
of the Voting Securities, or (iv) with respect to any
Potential Change of Control, until a Change of Control has
occurred or the Board or the Committee, on reasonable belief
after due investigation, adopts a resolution that the
Potential Change of Control has ceased to exist.
1.01.29 "Related Party" means (i) a majority owned
subsidiary of the Company, or (ii) an employee or group or
employees of the Company or any majority owned subsidiary of
the Company, or (iii) a trustee or other fiduciary holding
securities under an employee benefit plan of the company or
any majority owned subsidiary of the Company, or (iv) a
corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportion as their
ownership of stock of the Company.
1.01.30 "Rule 16b-3" means Rule 16b-3 promulgated by
the Securities and Exchange Commission under the Act and
codified at 17 CFR Section 240.16b-3, as such rule may be
amended or renumbered from time to time, or any successor
rule.
1.01.31 "Sale of a Business" means the sale or other
disposition by the Company or the Employer to any Person,
other than the Company or a Related Party (except an employee
or group of employees of the Company or a majority owned
subsidiary of the Company), of a branch, division, subsidiary
or other business unit (or all or substantially all of the
assets thereof) in which the Executive was employed prior to
such sale or disposition, provided the Executive is offered an
employment agreement by the acquiror of such branch, division,
subsidiary, business unit or assets containing substantially
the same terms and conditions provided in this Agreement.
1.01.32 "SRP" means the Company's Supplemental
Retirement Plan or any successor plan providing substantially
equivalent or better benefits
1.01.33 "Underpayment" will have the meaning assigned
in paragraph 5.03.1 hereof.
1.01.34 "Voting Securities" means any securities of
the Company which carry the right to vote generally in the
election of directors.
1.02 Construction. For purposes of this Agreement, the
following rules of construction will apply:
5
<PAGE> 11
1.02.1 No act or failure to act on the Executive's
part will be considered "willful" unless done or omitted to be
done by the Executive not in good faith and without reasonable
belief that such act or omission was in the best interest of
the Employer and the Company.
1.02.2 The word "or" is disjunctive but not
necessarily exclusive.
1.02.3 Words in the singular include the plural;
words in the plural include the singular; and words in the
neuter gender include the masculine and feminine genders and
words in the masculine or feminine gender include the other
and neuter genders.
SECTION 2. DUTIES OF EXECUTIVE.
2.01 Duties. The Employer will employe the Executive as its
President to perform the duties provided in or contemplated by the
By-laws of the Employer and customarily assigned to such office and
such other general executive duties, not inconsistent with such
office, as the Board of Directors of the Employer, the Board or any
officer of the Employer to whom the Executive reports may from time to
time assign to the Executive and will elect or reelect the Executive
to such office so long as this Agreement continues in effect. The
Executive acknowledges that the office (or offices) or position for
which he is employed under this Agreement constitutes a "bona fide
executive position" as such term is used in Section 12(c) of the Age
Discrimination in Employment Act, as amended (29 USC Section 631(c)).
2.02 Nature of Executive's Obligation. The Executive will,
during the term of this Agreement, perform the foregoing duties to the
best of his ability and will devote all time and attention reasonably
necessary to carry out such duties and will in good faith strive to
serve the best interests of the Employer and the Company.
SECTION 3. TERM AND TERMINATION.
3.01 Term. This Agreement will become effective as of the
date first above written and unless terminated as hereinafter
provided, will remain in effect for a term consisting of a continuous
thirty (30) calendar month period, renewing monthly. In no event,
however, will this Agreement continue in effect beyond the Normal
Retirement Date.
3.02 Termination by Employer or Executive. This Agreement may
be terminated by the Employer or the Executives as of the end of any
thirty (30) calendar month period, by delivery to the other parties
hereto of a Notice of Termination at least thirty (30) calendar months
prior to the Date of Termination. Upon such termination, except to
the extent otherwise expressly provided in the plan documents
governing any particular benefit, the Executive will be entitled to
receive, without duplication, (i) such compensation and benefits
provided for in paragraphs 4.01.1,4.01.2 and 4.01.4 hereof which are
accrued as of the Date of Termination, and (ii) any payments or
distributions which may be required under subsection 4.07 hereof.
3.03 Termination by the Employer.
3.03.1 In the event of a Disability, the Employer may
give written notice to the Executive of its intention to
terminate this Agreement. If the Executive fails to return to
work on a full-time basis within thirty (30) days from the
date of such notice, the Employer may terminate this Agreement
at any time after such thirty (30) day period by giving the
Executive Notice of Termination. Upon termination of this
Agreement, under this paragraph 3.03.1, the Executive will be
entitled to receive, without duplication, (i) the compensation
and benefits provided in subsection 4.02 hereof, and (ii) any
long-term disability or other benefits then regularly provided
by the Employer or the Company to disabled employees of the
Company or its subsidiaries.
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3.03.2 This Agreement may be terminated at any time
by the Employer for Cause; provided that (except in connection
with a Sale of a Business) there has been adopted in good
faith by at least a majority of the nonemployee members of the
Board at a meeting called for that purpose, notice of which,
setting forth in reasonable detail the acts or omissions
alleged to constitute Cause, was provided to the Executive at
least thirty (30) days prior thereto, and at which the
Executive was given the opportunity to be represented by
counsel and to present evidence and argument as to why Cause
does not exist, and concurred in or ratified by the Board of
Directors of the Employer, a resolution finding that Cause
exists and directing the termination of this Agreement.
Termination of this Agreement under this paragraph 3.03.2 will
be effective upon delivery to the Executive of a Notice of
Termination. In connection with a termination for Cause,
other than a Sale of a Business, a copy of the resolution
required by the first sentence of this paragraph 3.03.2 will
constitute such Notice of Termination. Upon such termination,
except to the extent otherwise expressly provided in the plan
documents governing any particular benefit or in subsection
3.07 hereof, the Executive will be entitled to receive,
without duplication, (i) such compensation and benefits
provided for in paragraphs 4.01.1, 4.01.2 and 4.01.4 hereof
which are accrued as of the Date of Termination, and (ii) any
payments or distributions which may be required under
subsection 4.07 hereof.
3.03.3 This Agreement may be terminated at any time
by the Employer without liability to the Executive other than
for compensation provided for in paragraphs 4.01.1 and 4.01.2
hereof which is accrued as of the Date of Termination,
provided that the Executive is offered employment by another
majority owned subsidiary of the Company on terms
substantially the same as those provided herein and in a
position with such other subsidiary corresponding to that
specified in subsection 2.01 hereof.
3.03.4 Except as otherwise provided in this
subsection 3.03, the Employer may terminate this Agreement at
any time in any otherwise lawful manner by giving thirty (30)
days' Notice of Termination to the Executive; provided,
however, that such termination will be deemed to constitute a
breach of this Agreement and will entitle the Executive to
receive, as liquidated damages, the payments and benefits
provided for in subsection 4.04 hereof. The Employer and the
Company otherwise waive all rights which either of them may
now have or may hereafter be conferred upon either of them, by
statute or otherwise, to terminate, cancel or rescind this
Agreement, in whole or on part.
3.03.4.1 If the Executive is eligible under
the terms of the Pension Plan for "early retirement,"
as such term is used in the Pension Plan, the
Executive may elect such "early retirement" in
connection with a termination of this Agreement under
this paragraph 3.03.4 without prejudice to the
Executive's entitlement to any payments and benefits
provided for under subsection 4.04 hereof.
3.04 Termination by the Executive.
3.04.1 The Executive may terminate this Agreement at
any time by giving Notice of Termination to the Employer in
the event of a breach or a constructive breach of this
Agreement by the Employer or the Company; provided, that if
the asserted breach or constructive breach results from the
existence of Good Reason, this Agreement will not terminate if
the Company or the Employer, as the case may be, within ten
(10) business days after the giving of the Notice of
Termination, cures the breach or constructive breach by
eliminating the condition or event constituting Good Reason
without cost, loss or detriment to the Executive. Such Notice
of Termination will set forth in reasonable detail the facts
and circumstances claimed by the Executive to constitute the
breach or constructive breach giving rise to the Executive's
right of termination. Upon termination of this Agreement
under this paragraph 3.04.1, the Executive will be entitled to
receive, as liquidated damages, the payments and benefits
provided for in subsection 4.04 hereof.
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3.04.1.1 Without limiting the facts and
circumstances that may otherwise constitute a breach
or constructive breach of this Agreement, the
existence of Good Reason will constitute a
constructive breach of this Agreement by the Employer
or the Company, provided that in no event will those
facts and circumstances identified in clauses (v),
(vi), (vii), (viii), (ix), (x), (xi) and (xv) of the
definition of Good Reason in paragraph 1.01.18 hereof
constitute a breach or constructive breach of this
Agreement by the Employer or the Company unless and
until a Change of Control has occurred or a
Potential Change of Control has arisen and is
continuing.
3.04.1.2 If the Executive is eligible under
the terms of the Pension Plan for "early retirement,"
as such term is used in the Pension Plan, the
Executive may elect such "early retirement" in
connection with a termination of this Agreement under
this paragraph 3.04.1 without prejudice to the
Executive's entitlement to any payments and benefits
provided for under subsection 4.04 hereof.
3.04.2 Except as otherwise provided in paragraph
3.04.1 hereof, this Agreement may be terminated by the
Executive at any time by giving thirty (30) days' Notice of
Termination to the Employer; provided, however, that such
termination will be deemed to constitute a breach of this
Agreement by the Executive. Upon such termination, except to
the extent otherwise expressly provided in the plan documents
governing any particular benefit or in subsection 3.07 hereof,
the Executive will be entitled to receive without duplication,
(i) such compensation and benefits provided for in paragraphs
4.01.1, 4.01.2 and 4.01.4 hereof which are accrued as of the
Date of Termination and (ii) any payments or distributions
which may be required under subsection 4.07 hereof.
3.05 Termination on Death of Executive. Upon the death of the
Executive, this Agreement will terminate without notice or other
action by the Employer or the Company. Upon such termination, the
Employer will pay or cause to be paid to the Executive's named
beneficiary or beneficiaries (or if none or none survives the
Executive or all such beneficiaries are disqualified, then to the
Executive's personal representative) or if the plan documents relating
to any such benefits provide for payment to other designated Persons,
then to such Persons, without duplication, (i) the compensation, and
the Employer or the Company will provide to such Persons the benefits,
provided in subsections 4.03 and 4.07 hereof, and (ii) any death or
other benefits then regularly provided by the Employer or the Company
with respect to deceased employees of the Company or its subsidiaries.
3.06 Termination upon Executive's Retirement. This Agreement
will automatically terminate upon the Executive's retirement under the
Pension Plan. Unless such retirement is prior to the Normal
Retirement Date and is elected by the Executive in connection with a
termination of this Agreement pursuant to paragraphs 3.03.4 or 3.04.1
hereof, the Executive will, in the event of termination under this
subsection 3.06, be entitled to receive, without duplication, (i) such
compensation and benefits provided for in paragraphs 4.01.1, 4.01.2
and 4.01.4 hereof which are accrued as of the Date of Termination,
(ii) such additional payments and benefits as may be provided for in
the Pension Plan and other benefit plans applicable generally to
retired senior executives of the Company and its subsidiaries
(including, but not limited to, the SRP and the Incentive Plans) and,
if participation therein is optional on the part of the employee, in
which the Executive has elected to participate, and (iii) any payments
or distributions which may be required under subsection 4.07 hereof.
3.07 Disputed Termination. In the event Notice of Termination
is given by the Employer pursuant to paragraph 3.03.1 hereof or
paragraph 3.03.2 hereof or by the Executive pursuant to paragraph
3.04.1 hereof and within thirty (30) days after the Notice of
Termination is given the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the basis
for the termination, then pending the resolution of any such dispute
the Executive will
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be excused from performing the duties contemplated hereby but the
Employer will continue to pay the Executive the compensation provided
for in paragraphs 4.01.1, 4.01.2 and 4.01.3 hereof, and the Employer
or the Company will provide the Executive the same or substantially
comparable benefits as provided in paragraph 4.01.4 hereof, as the
Executive was paid and provided immediately prior to the delivery of
the Notice of Termination.
3.07.1 If a termination by the Employer pursuant to
paragraph 3.03.1 hereof or paragraph 3.03.2 hereof is
challenged by the Executive and the termination is ultimately
determined to be justified, or a termination by the Executive
pursuant to paragraph 3.04.1 hereof is challenged by the
Employer and the termination is ultimately determined to be
not justified, then all sums paid by the Employer or the
Company to the Executive pursuant to this subsection 3.07,
plus the actual, out-of-pocket cost to the Employer or the
Company to provide the Executive such benefits (except with
respect to any such benefits to which the Executive would have
been entitled without regard to this Agreement) from the Date
of Termination to the Date of Resolution, will be promptly
repaid by the Executive to the Employer or the Company, as the
case may be, with interest at the rate charged from time to
time by Citibank, N.A., New York City, to its most favored
commercial customers, compounded annually, or, in the case of
a termination pursuant to paragraph 3.03.1 hereof, credited,
without interest, against the payments due to the Executive
under subsection 4.02 hereof.
3.07.2 Should it ultimately be determined that a
termination by the Employer pursuant to paragraph 3.03.1
hereof or paragraph 3.03.2 hereof was not justified, or that a
termination by the Executive pursuant to paragraph 3.04.1
hereof was justified, then the Executive will be entitled to
retain all sums paid to the Executive pending the resolution
of such dispute and to receive, in addition, the payments and
other benefits provided for in paragraph 3.03.1, paragraph
3.03.2 or paragraph 3.04.1 hereof, as applicable, plus
interest at the rate provided in paragraph 3.07.1 hereof, from
the Date of Termination to the Date of Resolution and at the
rate provided in subsection 6.02 hereof thereafter.
3.07.3 In the event of a termination of this
Agreement under paragraph 3.03.1 hereof is challenged by the
Executive pursuant to this subsection 3.07, each of the
parties will select a physician legally licensed to practice
and practicing within the health care field relevant to the
claimed Disability who will examine the Executive and opine as
to whether the claimed Disability exists and did exist and
could reasonably be expected to exist for the period required
by paragraph 3.03.1 hereof. If such physicians are unable to
agree, they will select a third physician similarly qualified
who will examine the Executive and opine as to whether the
claimed Disability exists and existed and could reasonably be
expected to exist for such required period. The determination
of such third physician will be binding on the parties. The
cost of the examinations under this paragraph 3.07.3,
including without limitation the fees and expenses of the
physicians, will be borne solely by the Employer and be paid
as incurred.
3.07.4 For purposes of this Agreement, the effective
date of resolution of a dispute ("Date of Resolution") will be
deemed to occur when such dispute is finally settled by mutual
written agreement of the parties, upon entry of a final,
non-appealable judgment, order or decree of a court of
competent jurisdiction, upon conclusion of such alternate
dispute resolution proceeding as the parties may agree to
employ in lieu of litigation or, if applicable, upon a final
determination under paragraph 3.07.3 hereof. Without limiting
the generality of Section 6.01 hereof, all costs, including
without limitation reasonable attorneys' fees, incurred by
either of the parties in resolving such dispute will be borne
solely by the Employer and be paid as incurred.
3.08 Employment Relationship. As contemplated by the parties,
the employment relationship between the Executive and the Employer is
dependent on and arises out of this
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Agreement and the parties intend that such relationship cease on the
Date of Termination. In the event any valid and applicable law or
regulation requires that the Executive and the Employer establish or
maintain such a relationship notwithstanding the termination of this
Agreement, (i) such relationship will, except as required by such law
or regulation, be deemed to be terminable-at-will, (ii) the Executive
will not be entitled to and will be deemed to have waived any rights
or remedies provided under this Agreement, and (iii) except as
provided in Section 6 hereof, none of the terms or provisions of this
Agreement will apply to such relationship.
SECTION 4. COMPENSATION AND BENEFITS.
4.01 Compensation and Benefits For Services. While this
Agreement continues in effect, the Employer or the Company as
specified, will pay to the Executive, as reasonable compensation for
the services to be rendered by the Executive as contemplated herein,
the following:
4.01.1 The Employer will pay to the Executive (less
any taxes required to be withheld) an annual base salary (the
"Base Salary") which will be payable in twenty-four (24)
semi-monthly installments. From the date of this Agreement
until January 1, 1991, the Base Salary, on an annualized
basis, will be $230,000. On January 1, 1991, and on January 1
of each calendar year thereafter, the Base Salary will be
increased at least by an amount (the "Minimum Increase")
equal, on a percentage basis, to the increase in the Consumer
Price Index (1982-1984=100), as published by the Bureau of
Labor Statistics, for the geographical area in which the
Executive is principally located, for the calendar year in
which such increase is to be effective over such index for the
preceding calendar year. The Base Salary will also be
increased in an amount commensurate with any increase in
responsiblities and authority upon any promotion of the
Executive and in no event will the Base Salary, as from time
to time increased, be reduced without the consent of the
Executive.
4.01.1.1 For the purpose of calculating the
Minimun Increase on January 1 of any year, the
increase in the Consumer Price Index will be
estimated and at such time as the actual increase, if
any, in the Consumer Price is know, the Minimum
Increase will be adjusted, up or down, in proportion
to any such actual increase in the Consumer Price
Index, but not below zero. If the actual increase in
the Base Salary is less than the adjusted Minimum
Increase, the Base Salary will be further increased
such that the aggregate increase in the Base Salary
is at least equal to the adjusted Minimum Increase.
Any such adjustment to the increase in the Base
Salary will be effective retroactively to January 1
of the year concerned and the amount of the
additional increase accrued to the date such
determination is made will be paid to the Executive
in a lump sum on the next regular pay day.
4.01.1.2 Notwithstanding anything to the
contrary in this paragraph 4.01.1 unless and until
(i) a Change of Control occurs or (ii) a Potential
Change of Control arises and is continuing, the
Employer may, but is not obligated to, increase the
Base Salary and the amount of any such increase will
be within the sole discretion of the Board or the
Committee.
4.01.2 The Employer will pay to the Executive, in
semi-monthly installments, (less any taxes required to be
withheld) the In-Lieu Payment. From the date of this
Agreement until January 1, 1991, the In-Lieu Payment, on an
annualized basis, will be equal to $25,350. On January 1,
1991, and on January 1 of each calendar year thereafter, the
In-Lieu Payment will be increased on the same basis as provided
in paragraph 4.01.1 hereof with respect to the Base Salary.
The In-Lieu Payment will also be increased in an amount
commensurate with any promotion of the Executive and in no
event will the In-Lieu Payment, as from time to time increased,
be reduced without the consent of the Executive.
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4.01.2.1 Notwithstanding anything to the
contrary in this subparagraph 4.01.2, unless and
until (i) a Change of Control occurs or (ii) a
Potential Change of Control arises and is continuing,
the Employer may, but is not obligated to, increase
the In-Lieu Payment and the amount of any such
increase will be within the sole discretion of the
Board or the Committee.
4.01.3 Unless explicitly contrary to the terms of an
applicable plan document, as a key employee of the Employer,
the Executive will participate in, and the Company will grant
to and pay or deliver, cash and stock awards (less any taxes
required to be withheld) to the Executive as permitted by,
each of the Incentive Plans on a comparable basis as other
senior executives of the Company or its subsidiaries, provided
that, unless and until (i) a Change of Control occurs or (ii)
a Potential Change of Control arises and is continuing, the
making of any award under any such plan and the amount of any
award made will be withing the sole discretion of the Board or
the Committee.
4.01.4 The Executive will be entitled to participate
in the Pension Plan and any other defined benefit plan, any
defined contribution plan, any employee welfare benefit plan,
the SRP and any other supplemental or excess pension plan and
any other benefit plan, sponsored by the Employer or the
Company, whether currently in existence or hereafter adopted,
and to have the use of facilities of the Employer or the
Company, on terms generally available to other senior
executives of the Company or its subsidiaries.
4.01.5 During the term of this Agreement, the
Employer will pay or reimburse the Executive for all
reasonable travel and other expenses incurred by the
Executive in performing the duties provided for or
contemplated in subsection 2.01 hereof and will
furnish the Executive with such secretarial, office
or other assistance and accommodations as may be
suitable to the character of the Executive's position
and reasonably necessary or appropriate for the
performance of such duties.
4.02 Continuation of Compensation and Benefits on Disability.
Subject to subsection 4.06 hereof (disregarding the first proviso in
the first sentence on such subsection), in the event this Agreement is
terminated by the Employer pursuant to paragraph 3.03.1 hereof, the
Employer will pay the compensation, and the Employer or the Company
will, without cost to the Executive other than normal employee
contributions required under the applicable plan document as in effect
on the Date of Termination, make available the benefits )or the
Employer will pay the monetary equivalent thereof), provided in
subsection 4.01 hereof to the Executive (less any taxes required to be
withheld) for a period of twelve (12) months following the Date of
Termination, provided that the Company may, but will not be obligated
to, grant any additional stock, stock option or long-term incentive
awards under any of the Incentive Plans during such twelve (12) month
period. The terms of subparagraphs 4.01.1.2 and 4.01.2.1 hereof will
not apply to payments required under this subsection 4.02.
4.03 Payments Upon Executive's Death. Subject to subsection
4.06 hereof (disregarding the first proviso in the first sentence of
such subsection), in the event this Agreement is terminated by virtue
of subsection 3.05 hereof, the Employer will pay to the party or
parties specified in such subsection (less any taxes required to be
withheld) an aggregrate amount equal to the compensation provided for
in paragraphs 4.01.1, 4.01.2 and 4.01.3 hereof as if the Executive had
survived and this Agreement remained in effect for a period of twelve
(12) months following the Date of Termination, provided that the
Company may but will not be obligated to grant any additional stock,
stock option or long-term incentive awards under any of the Incentive
Plans during such twelve (12) month period. In addition, the Employer
will pay to the Executive's surviving spouse, if any, or any surviving
dependent children an amount sufficient, on an after-tax basis (taking
into account state and federal, but not local, taxes), and after
normal survivor contributions required under the applicable plan
document as in effect on the Date of Termination, to pay for maximum
permitted coverage under such of the employee welfare benefit plans
referred
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to in paragraph 4.01.4 hereof in which such surviving spouse or
surviving dependent children may participate under the terms of the
applicable plan documents for a period of twelve (12) months following
the date of the Executive's death. The terms of subparagraphs
4.01.1.2 and 4.01.2.1 hereof will not apply to payments required under
this subsection 4.03.
4.04 Payments Upon Breach or Constructive Breach of this
Agreement. In the event this Agreement is terminated by the Employer
under paragraph 3.03.3 hereof or by the Executive pursuant to
paragraph 3.04.1 hereof, the Employer or the Company, as specified,
will make the following payments and provide the following benefits,
(or the monetary equivalent thereof), to or for the account of the
Executive, in each case as liquidated damages for the breach or
constructive breach, as the case may be, of this Agreement.
4.04.1 On the Date of Termination or in case of a
dispute under subsection 3.07 hereof, on the Date of the
Resolution, provided that in the latter case the dispute is
resolved on terms coming within the purview of paragraph
3.07.2 hereof, the Employer will pay to the Executive (less
any taxes required to be withheld) a cash amount equal to the
present value of the sum of (a) the aggregate Base Salary and
In-Lieu Payments which would have been paid to the Executive
by the Employer pursuant to paragraphs 4.01.1 and 4.01.2
hereof as compensation for services that would have been
rendered during the thirty (30) calendar month period
commencing on the first day of the month next following the
Date of Termination, but for such termination and (b) subject
to subsection 4.06 hereof, the aggregate of the awards that
would have been made to the Executive pursuant to the
individual award component and the corporate award component
under the EICP during the thirty (30) calendar month period
commencing on the first day of the month next following the
Date of Termination, but for such termination. In addition,
any payment or distribution which may be required under
subsection 4.07 hereof will be made to the Executive.
4.04.1.1 For purposes of this paragraph
4.04.1, the Base Salary and the In-Lieu Payments that
would have been paid will be calculated on the
assumption that the Base Salary and the In-Lieu
Payment would have been increased in each year during
such thirty (30) month period by an amount equal, on
a percentage basis, to the greatest year-to-year
increase in the Consumer Price Index in the three
calendar years preceding either the Date of
Termination or the Date of Resolution, whichever is
more favorable to the Executive.
4.04.1.2 In the event there are fewer
than thirty (30) whole calendar months
remaining from the first day of the month
following the Date of Termination to the
Normal Retirement Date, the cash payment due
pursuant to this paragraph 4.04.1 will be
reduced to a lesser sum determined by
multiplying the amount otherwise due by a
fraction the numerator of which is the number
of whole calendar months remaining from the
first day of the month following the Date of
Termination to the Normal Retirement Date and
the denominator of which is thirty (30).
4.04.2 The Employer or the Company at the Employer's
cost will provide to the Executive the following benefits or
(less any taxes required to be withheld) the monetary
equivalent thereof, payable on the Date of Termination or in
case of a dispute under subsection 3.07 hereof, on the Date of
Resolution, provided that in the latter case the dispute is
resolved on terms coming within the purview of paragraph
3.07.2 hereof:
4.04.2.1 (a) In addition to any benefits
payable to the Executive under the Pension Plan, the
SRP and any and all other pension or retirement plans
of the Company or the Employer (collectively, the
"Other Retirement Benefits"), the Employer will pay
to the Executive a special retirement benefit (the
"Special
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Retirement Benefit"). The Special Retirement Benefit
will equal an amount calculated such that, when added
to the Other Retirement Benefits, if any, the total
retirement benefits the Executive receives from the
Employer and the Company will at least equal the
amount which the aggregate of the Other Retirement
Benefits would have been if the Executive retired on
a date five (5) years following the Date of
Termination (or on the Normal Retirement Date, if
earlier).
(b) For purposes of this Agreement, in calculating
the Special Retirement Benefit and the Other
Retirement Benefits, the following will apply:
(i) If the Executive's credited service with
the Company or any of its majority owned
subsidiaries on the Date of Termination is
insufficient to result in benefits under the
Pension Plan being vested, the Executive will
be deemed to be credited with sufficient
service to result in such vesting;
(ii) This Agreement will be deemed to
continue in effect for five (5) years
following the Date of Termination (but not
beyond the Normal Retirement Date);
(iii) The Base Salary will be deemed to have
been increased each year of such five (5)
year period using the greatest year-to-year
increase in the Consumer Price Index in the
three calendar years preceding the Date of
Termination;
(iv) The Executive will be deemed to have
been granted awards under the EICP each year
of such five (5) year period on the basis
specified in the first sentence of subsection
4.06 hereof (disregarding the first proviso
in such sentence); and
(v) Five (5) years, or the time remaining to
the Normal Retirement Date, if less, will be
added to the Executive's age on the Date of
Termination.
4.04.2.2 Maximum coverage under the
Employer's or the Company's insured or self-insured
welfare benefit plans, as applicable to the
Executive, or the monetary equivalent thereof, will
be provided to the Executive by the Company, at no
cost to the Executive (other than normal employee
contributions required under the applicable plan
document as of the Date of Termination), for a period
of five (5) years from the Date of Termination (or
until the Normal Retirement Date, whichever is
sooner).
4.04.2.3 In the event, within two (2) years
after the Date of Termination, the Executive
relocates the Executive's principal residence by more
than 35 miles in order to accept full-time employment
or to pursue full-time self-employment, the Employer
will reimburse the Executive for all moving expenses
(including interest equalization expenses under the
Company's current interest equalization plan and
including any taxes resulting from payments made
pursuant to this subparagraph 4.04.2.3) incurred by
or for the account of the Executive relating to such
relocation, which are not reimbursed by another
employer, and to an extent at least as favorable to
the Executive as provided by the current policy of
the Company with respect to the relocation of senior
executives, indemnify the Executive against the
amounts, if any, by which the net proceeds realized
in the sale of the Executive's principal residence in
connection with such relocation are less than the
Executive's tax basis in such residence.
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4.04.2.4 If the Executive's credited service
with the Company or any of its majority owned
subsidiaries on the Date of Termination is
insufficient to result in the contributions
theretofore made by the Company or any such
subsidiaries for the account of the Executive to any
defined contribution plan maintained or sponsored by
the Company being vested in their entirety, then the
Employer will pay to the Executives (less any taxes
required to be withheld) a special benefit equal to
the difference between (i) the amount of such
contributions which are vested as of the Date of
Termination and (ii) the greater of (A) all such
contributions, vested and unvested, or (B) the sum of
the fair market value of the assets in which such
contributions, vested or unvested, are then invested
and all dividends or interest paid thereon and
accretions thereto not previously paid to the
Executive. For purposes of this subparagraph
4.04.2.4, "fair market value" means with respect to
any securities traded on a national stock exchange
the arithmetic average of the high and the low
selling prices of such stock on such stock exchange
during the thirty (30) calendar days preceding the
Date of Termination, or with respect to any
investment company shares not traded on a national
stock exchange, the arithmetic average of the bid and
the ask prices of such shares during the thirty (30)
calendar days preceding the Date of Termination, or
with respect to obligations issued or guaranteed by
the U.S. government, the face value of such
obligations, or with respect to other assets, the
value as established by an independent appraiser
jointly selected by the parties at the sole cost of
the Employer.
4.04.3 For purposes of this subsection 4.04, the
present value of any amount will be calculated using a
discount rate of nine and 48/100 percent (9.48%) unless the
terms of any applicable plan document provides a rate more
favorable to the Executive, in which case, such more favorable
rate will be used for payments made with respect to the plan
concerned.
4.04.4 The Executive will be required to mitigate the
amount of any payments provided for in this subsection 4.04 to
the extent provided in this paragraph 4.04.4 or in any final
regulations of the IRS under Section 280G of the Code,
whichever requires the greater degree of mitigation consistent
with the treatment of such payments as damages. The Executive
will not be required to seek other employment and may accept
or not accept, as the Executive determines, any offer of
employment and may reject any offer of employment for any
reason deemed by the Executive to be sufficient. If the
Executive accepts other employment with and receives
compensation from an employer other than the Company or onre
of its majority owned subsidiaries during the period beginning
on the Date of Termination and ending on the last day of the
thirtieth (30th) calendar month thereafter, any compensation
the Executive receives from such other employer during such
period (less any taxes withheld), up to the amount paid as
damages under this subsection 4.04, will be paid to the
Employer or the Company, as the case may be. For purposes of
this paragraph 4.04.4, compensation will be limited to base
salary and incentive compensation, and will exclude, among
other things, retainers or fees paid for service on a board of
directors or a committee thereof and benefits under any
defined benefit, defined contribution or welfare benefit plan.
4.05 Payment and Determination of Monetary Equivalent. The
payment of the monetary equivalent of any benefit permitted by any
provision of this Agreement will be at the Employer's option unless
such benefit relates to an insured or self-insured welfare benefit
plan and a comparable benefit would, in the sole judgment of the
Executive, be unavailable to the Executive at a reasonable cost, in
which event such payment will be at the Executive's option to be
exercised in writing within thirty (30) days following the Date of
Termination. In the event of a dispute between the parties as to the
monetary equivalent of any benefit or other distribution provided for
in this Agreement, such monetary equivalent will be determined by an
independent
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actuary jointly selected by the parties, at the sole cost of the
Employer, and will be determined from the standpoint of the cost of
such benefit or distribution to the Executive as a non-employee and
not the cost to the Employer or an employee of the Employer. The
monetary equivalent of any benefit or other distribution provided for
in this Agreement will be determined on a present value, after-tax
basis, taking into account state and federal, but not local, taxes.
4.06 Determination of EICP Awards. For purposes of subsection
4.02, 4.03 and 4.04 hereof, any payment or other distribution to be
made under or with reference to the EICP will be calculated on the
assumption that all "performance targets" are met and using the
maximum "award pool" and the Executive's "opportunity level," as those
terms are used in the EICP; provided that, for purposes of
subsection4.04 hereof (other than subparagraph 4.04.2.1) but not
subsections 4.02 or 4.03 hereof, each such award will be no less than
the highest similar award paid or granted to the Executive during any
one of the three calendar years preceding the Date of Termination; and
provided, further, that if the terms of the EICP would otherwise
require the payment of a greater amount than that required under this
subsection 4.06, such greater amount will be paid. In the event any
payment or other distribution to be made under or with reference to
the EICP will be made as to a partial year, then, for purposes of such
subsections, the awards under the EICP for such year will be
multiplied by the ratio that the number of business days in such year
prior to the date as of which such payment or distribution is
determined bears to the number of business days in such year. For
purposes of determining the highest award paid or granted during any
one of the three calendar years preceding the Date of Termination,
each award will be deemed to have been paid or granted in the
performance year for which awarded, and even though actual payment and
entitlement to receive some portion of an incentive award may have
been deferred, such award for any year will be the aggregate amount
paid or payable or granted for such year on either a current or
deferred basis.
4.07 Vested Incentive Awards and Benefits. Termination of
this Agreement for any reason will be without prejudice to the
Executive's entitlement to receive any awards or benefits, including
but not limited to incentive awards under any of the Incentive Plans,
or to exercise any rights, options or elections under any of the
Incentive Plans or any other benefit plan of the Company or the
Employer, which are vested in the Executive on the Date of Termination
under the terms of the applicable plan document. Without limiting the
generaliaty of the previous sentence, upon termination of this
Agreement for any reason, the Company or the Employer, as the case may
be, will pay or distribute to the Executive or such other Person or
Persons as may be designated to receive the same (less any taxes
required to be withheld) any unpaid or undistributed prior vested
deferred award to the Executive under the EICP or other Incentive
Plans, such payment or distribution to be made on the Date of
Termination or, if the termination is disputed as permitted by
subsection 3.07 hereof, on the earlier of the Date of Resolution or
the date provided for payment under the applicable plan document.
4.08 Continued Participation in Benefit Plans. Except as
otherwise provided in this Agreement or the terms of the applicable
plan documents, the Executive will not be entitled to participate in
any of the benefit plans of the Employer or the Company after the Date
of Termination. Except as otherwise expressly provided in this
Agreement, any distributions to which the Executive may be entitled
under the provisions in any of such plans will be governed by the
terms of the applicable plan document.
4.09 Conflicts. For purposes of this Agreement, in the event
of a conflict between the provisions of this Agreement and the terms
of a plan document with respect to a payment or benefit to be made or
provided to the Executive under this Agreement, whichever of the
provisions of this Agreement or such plan document that are most
favorable to the Executive will control.
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SECTION 5. CHANGE OF CONTROL.
5.01 Effect of Change of Control on Stock Based Incentive
Awards. Whether or not the applicable plan document so provides, in
the event of a Change of Control, without duplication of any amount
paid under any other provision of this Agreement with respect to the
same option, right, interest or award, unless the right to receive all
or a portion of the cash payment provided for hereunder is waived or
deferred by the Executive as provided in paragraph 5.01.1 hereof (in
which case payment will be made only as to any portion not waived or
deferred) and except as provided in paragraph 5.01.2 and 5.01.3
hereof, the Employer will pay to the Executive a cash amount (less any
taxes required to be withheld and less, with respect to stock subject
to any stock options or other purchase rights, an amount equal to the
aggregate option or purchase price, but no more than the aggregate
Change of Control Price, of such stock) equal to the aggregate Change
of Control Price of the shares of the common stock of the Company with
respect to which the Executive holds an option or purchase right or
has an interest, whether beneficial or of record, or has been granted
an award the value of which is based in whole or in part on the value
of such common stock, in each case under any Incentive Plan, including
without limitation the EICP, irrespective of whether any such option
or purchase right is then currently exercisable or not or any such
interest or award is then currently vested or payable or not. Such
payment will be due on the thirtieth calendar day after the effective
date of the Change of Control. Upon such payment, such stock options,
purchase rights, other interests or awards with respect to which such
payment is made will be cancelled and of no further force or effect.
5.01.1 In the event it is determined that the right
to receive cash under this subsection 5.01 with respect to any
option, purchase right, interest or awards under any Incentive
Plan may be waived or deferred by the Executive without
resulting in liability of the Executive for damages or
forfeitures under Section 16(b) of the Act or the
disqualification of the incentive Plan involved for exemption
under Rule 16b-3, the Executive may so waive or defer such
receipt as to such option, purchase right, interest or award
by giving notice to the Employer and the Company not later
than twenty (20) days after the Change of Control. If the
Executive may and does so waive such receipt of cash, the
related option, purchase right, interest or award will not be
cancelled but will continue in effect according to the terms
of the applicable plan document. If the Executive may and
does so defer such receipt, such cash payment will be made by
the Employer, without interest (other than any interest that
may be required under subsection 6.02 hereof), on the earliest
of (i) the date specified in the notice required hereunder, or
(ii) the date, if any, on which such payment would otherwise
be required under the applicable plan document, or (iii) a
date one (1) year after the Change of Control, as if such
Change of Control had occurred thirty (30) calendar days prior
to the date such payment is due and upon such payment, the
related option, purchase right, interest or award will be
cancelled.
5.01.2 Subject to paragraph 5.01.3 hereof, if it is
determined that the payment of a cash amount with respect to
an option, purchase right, interest or award under any
Incentive Plan as provided in this subsection 5.01 and the
contemporaneous cancellation of such option, purchase right,
interest or award would result in liability of the Executive
for damages or forfeitures under Section 16(b) of the Act or
the disqualification of the related Incentive Plan for
exemption under Rule 16b-3, then, notwithstanding anything in
this subsection 5.01 to the contrary, such cash payment will
not be made. In such event, the option, purchase right,
interest or award involved will continue in effect according
to the terms of the applicable plan document.
5.01.3 Notwithstanding anything in this subsection
5.01 to the contrary, if it is determined that the payment of
a cash amount under this subsection 5.01 with respect to any
option, purchase right, interest or award under any Incentive
Plan would result in liability of the Executive for damages or
forfeitures under Section 16(b) of the Act or
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disqualification of the related Incentive Plan for exemption
under Rule 16b-3 but that after the passage of time, such
payment may be made without such liability or
disqualification, then such payment will not be made to the
Executive, and the related option, purchase right, or
surrendered such interest or settled such award, and subject
to paragraph 5.01.1 hereof, the payment provided for in this
subsection 5.01 will then be made as if the Change of Control
had occurred thirty (30) calendar days prior to such date and,
upon such payment, the related option, purchase right,
interest or award will be cancelled. Until so cancelled or
otherwise terminated, each such option, purchase right,
interest or award will continue in effect in accordance with
the terms of the applicable plan document.
5.01.4 The determinations contemplated in paragraphs
5.01.1, 5.01.2 and 5.01.3 hereof and the length of the period
mentioned in paragraph 5.01.3 hereof will be made by
independent legal counsel duly licensed to practice law and
practicing with a nationally recognized law firm primarily in
the field of securities law, jointly selected by the parties,
at the sole cost of the Employer.
5.02 Establishment of Trust. As promptly as practicable
following the date of this Agreement, the Company will establish a
trust for the benefit of the Executive and other similarly situated
employees of the Employer or the Company, substantially on the terms
set forth in Exhibit 1 which is attached hereto and by this reference
made a part hereof. In the event of a conflict between the terms of
this Agreement and the terms of Exhibit 1, the terms of this Agreement
will control. Not later than thirty (30) calendar days after the
earlier of (i) a Potential Change of Control arising (unless the Board
or the Committee adopts a resolution within ten (10) business days
following the date the Potential Change of Control arises to the
effect that such action is not necessary to secure any payments
hereunder) or (ii) a Change of Control, the Company will deposit or
cause the Employer to deposit with the trustee monies or other
property having a fair market value at least equal to the present
value of the cash amounts to be paid and the monetary equivalents of
the benefits and other distributions to be provided to the Executive
under this Agreement or which would be so provided in the event of
either (i) a Change of Control or (ii) a termination of this Agreement
pursuant to paragraph 3.03.1, 3.03.3, 3.04.1 or 3.05 hereof, including
but not limited to amounts that may be payable under subsection 5.03
or 6.01 hereof. The amounts payable under subsection 6.01 hereof will
be estimated by independent legal counsel licensed to practice law in
the state, and practicing in the municipality, in which the
Executive's principal residence is located. All other amounts to be
deposited with the trustee will be determined by an independent
actuary. The fees and expenses of such actuary and counsel, each of
whom will be selected jointly by the parties, will be borne solely by
the Employer. Neither the establishment of the trust nor the making
or maintaining of the deposit required under this subsection 5.02 will
relieve the Company or the Employer of any of its obligations under
this Agreement to make any payment or provide any benefit to the
Executive, except to the extent such obligations are satisfied by
payments made from such trust.
5.03 Tax Payments. The amounts required to be paid pursuant
to subsection 4.04 hereof are intended to constitute damages for
breach of a contract providing for "compensation for personal service
to be rendered" within the meaning of Section 280G(b)(4)(A) of the
Code. Such payments are not intended to be subject to the excise tax
imposed under Section 4999 of the Code. The parties recognize,
however, that such payments may nevertheless be ultimately determined
to be subject to such excise tax and that other payments or
distributions under this Agreement, including without limitation
payments made under subsection 5.01 hereof, and other compensation,
benefits, payments or distributions under the Incentive Plans or other
plans or compensation arrangements with respect to the Executive may
also be subject to such tax (collectively, with any interest or
penalties incurred by the Executive relative thereto and any federal
and state excise or income taxes resulting from payments made pursuant
to this subsection 5.03, the "Excise Tax"). The Employer will pay the
Executive one or more cash payments ("Gross-up Payment") sufficient to
pay the Excise Tax.
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5.03.1 Subject to the provisions of 5.03.2 hereof,
all determinations required to be made under this subsection
5.03, including without limitation whether the Gross-up
Payment is required and the amount of the Gross-up Payment,
will be made by the Accounting Firm. The Executive will
provide the Accounting Firm any information reasonably
requested by it necessary to make such determination,
including without limitation copies of the Executive's tax
returns for the periods affected, all of which will be
maintained in confidence by the Accounting Firm. The
Accounting Firm will provide detailed supporting calculations
together with its written opinion with respect to the accuracy
of such calculations to the Employer, the Company and the
Executive within fifteen (15) business days of the Date of
Termination or the Change of Control, whichever is applicable,
or such earlier time as is requested by the Employer, the
Company or the Executive and agreed to by the Accounting Firm.
All fees and expenses of the Accounting Firm will be borne
solely by the Employer. The initial Gross-up Payment, if any,
as determined pursuant to this paragraph 5.03.1 will be paid
to the Executive within five (5) days of the receipt of the
Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it
will also furnish the Executive with an opinion that failure
to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a
negligence or similar penalty and in the absence of such an
opinion, a Gross-up Payment in the amount which the Accounting
Firm determines to be payable will be due and payable to the
Executive. Except as provided in the preceding sentence, any
determination by the Accounting Firm will be binding upon all
of the parties hereto. As a result of uncertainty in the
application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-up Payments which will not have been made
by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that the Employer or the Company
exhausts the remedies provided in paragraph 5.03.2 hereof and
the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm will determine the amount of
the Underpayment that has occurred and any such Underpayment
will be promptly paid by the Employer to or for the benefit of
the Executive.
5.03.2 The Executive will notify the Employer and the
Company in writing of any claim by the IRS that, if
successful, would required the payment by the Company of the
Gross-up Payment; provided, that failure by the Executive to
give such notification will not affect any of the Executive's
rights or the obligations of the Company or the Employer under
this Agreement. Such notification will be given as soon as
practicable but no later than ten (10) business days after the
Executive knows of such claim and will apprise the Employer
and the Company of the nature of such claim and the date on
which such claim is requested to be paid. The Executive will
not pay such claim prior to the expiration of the thirty (30)
day period following the date on which the Executive gives
such notice to the Employer and the Company (or such shorter
period ending on the date that any payment of taxes with
respect to such claim is due). If the Employer or the Company
notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the
Executive will:
(a) give the Employer or the Company, as the case may
be, any information reasonably requested by either of
them relating to such claim,
(b) take such action in connection with contesting
such claim as the Employer or the Company may
reasonably request in writing from time to time,
including without limitation accepting legal
representation with respect to such claim by an
attorney reasonably selected by the Employer or the
Company,
(c) cooperate with the Employer and the Company in
good faith in order effectively to contest such
claim, and
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(d) permit the Employer and the Company to
participate in any proceedings relating to such
claim;
provided, however, that the Employer will bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
will indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a
result of such representation, and payment of costs and
expenses. Without limiting the foregoing, the Employer or the
Company, as they may agree, will control all proceedings taken
in connection with such contest and, at the sole option of the
Employer or the Company, as the case may be, may pursue or
forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in repsect
of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive
will prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Employer or the
Company may determine; provided, however, that if the Employer
or the Company directs the Executive to pay such claim and sue
for a refund, the Employer or the Company, as the case may be,
will advance the amount of such payment to the Executive, on
an interest-free basis, and will indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax
or income tax, including interest or penalties with respect
thereto, imposed with respect to such advance or with respect
to any imputed income with respect to such advance; and
further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year
of the Executive with respect to which such contested amount
is claimed to be due is limited solely to such contested
amount. Furthermore,the control of the contest by the
Employer or the Company will be limited to issues with respect
to which a Gross-up Payment would be payable hereunder and
the Executive will be entitled to settle or contest, as the
case may be, any other issue raised by the IRS or any other
taxing authority.
5.03.3 If, after the receipt by the Executive of an
amount advanced by the Employer or the Company pursuant to
paragraph 5.03.2 hereof, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive
will (subject to compliance by the Employer or the Company, as
applicable, with the requirements of paragraph 5.03.2 hereof)
promptly pay to the Employer or the Company, as the case may
be, the amount of such refund (together with any interest paid
or credited thereon alter taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by
the Employer or the Company pursuant to paragraph 5.03.2
hereof, a determination is made that the Executive will not be
entitled to any refund with respect to such claim and the
Employer or the Company, as the case may be, does not notify
the Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) calendar days
after such determination, then such advance will be forgiven
and will not be required to be repaid and the amount of such
advance will offset, to the extent thereof, the amount of
Gross-up Payment required to be paid. Any contest of a denial
of refund will be controlled by paragraph 5.03.2 hereof.
SECTION 6. MISCELLANEOUS.
6.01 Executive's Attorneys' Fees. In the event of a dispute
between the parties and litigation or other formal dispute resolution
proceeding is initiated, whether by the Executive, the Employer, the
Company or any third party, to resolve such dispute or to enforce or
interpret any provision contained in this Agreement, the Employer will
indemnify the Executive and any other Person or Persons designated to
receive any payments or benefits under this Agreement for any costs
and expenses incurred by the Executive or such Person or Persons as a
result thereof, including without limitation reasonable attorneys'
fees, disbursements and other expenses for the
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preparation of such litigation or dispute resolution proceeding or for
the settlement thereof. The Employer will, promptly upon the request
of the Executive or such Person or Persons, advance to the Executive
or such Person or Persons or pay directly such costs and expenses as
they are incurred.
6.02 Obligation Unconditioned. Except as otherwise expressly
provided in this Agreement and except for any amounts required by law
to be withheld, the respective obligations of the Employer and the
Company to pay to or for the benefit of the Executive (or any other
Person or Persons designated to receive payments or benefits under
this Agreement) the amounts and to make the arrangements provided in
this Agreement are absolute and unconditional and will not be affected
by any circumstances, including without limitation any setoff,
counterclaim, recoupment, defense or other right which the Employer or
the Company may have against the Executive or anyone else, any
asserted or unasserted claim or other right of any third party against
the Executive, the Employer or the Company, or any real or alleged
uncertainty regarding the meaning or intent of Section 280G of the
Code or any regulations issued by the IRS thereunder. Without
limiting the generality of the foregoing, in no event will an asserted
violation of the provisions of subsections 6.09, 6.10, 6.11 or 6.12
hereof constitute a basis for deferring or withholding any amounts
otherwise payable to or for the benefit of the Executive or such
Person or Persons under this Agreement. All amounts payable to or for
the benefit of the Executive or such Person or Persons hereunder will
be paid without notice or demand, other than a Notice of Termination,
as to payments due in the event of a termination of this Agreement and
except payments made under subsection 5.03 hereof. Except as
expressly provided in subsections 3.07 and 5.03 hereof and subject to
the Executive's duty to mitigate under paragraph 4.04.4 hereof, each
and every payment made hereunder by the Employer or the Company will
be final and neither of them will seek to recover all or any part of
such payment from the Executive or from whosoever may be entitled
thereto, for any reason whatsoever. Any amount not paid by the
Company or the Employer to or for the benefits of the Executive or any
Person or Persons designated to receive payments or benefits under
this Agreement within five (5) business days from the date due will
bear interest at the rate specified in paragraph 3.07.1 hereof, plus
two percent (2%) per annum, compounded annually, from the due date
until paid.
6.03 Successors and Assigns. This Agreement will be binding
upon and inure to the benefit of the parties, the respective permitted
assigns of the Company and the Employer and the Executive's personal
or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. Except as provided in
paragraph 6.03.1 hereof, neither this Agreement nor any right
hereunder may be assigned by any party without the prior written
consent of the others. Except as otherwise expressly provided in this
Agreement, nothing contained in this Agreement is intented to confer
any rights or remedies, express or implied, on any Person or entity
not a party hereto. If the Executive should die while any amounts
would still be payable to the Executive under any provisions of this
Agreement if the Executive had continued to live, all such amounts,
unless otherwise provided herein, will be paid in accordance with the
terms of this Agreement to the parties identified in subsection 3.05
hereof.
6.03.1 Provided whichever of the Employer or the
Company may be involved gives notice of this Agreement to any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of its
business and/or assets, and requires such successor, by
agreement in form and substance satisfactory to the Executive,
to expressly assume and agree to perform its obligations under
this Agreement, whichever of the Employer or the Company may
be involved may assign this Agreement to such successor. No
such assignment will relieve whichever of the Employer or the
Company may be involved of any of its obligations under this
Agreement. Failure of whichever of the Employer or the
Company may be involved to obtain such agreement prior to the
effectiveness of any such assignment will consitute a breach
of this Agreement and entitle the Executive to liquidated
damages as provided in subsection 4.04 hereof, except that for
purposes of implementing the foregoing, the date on which such
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assignment becomes effective will be deemed the Date of
Termination and no Notice of Termination will be required.
6.04 Notice. For the purposes of this Agreement, all notices
and other communications provided for in this Agreement will be in
writing and will be deemed to have been duly given when delivered by
hand or dispatched by electronic facsimile transmission, one (1)
business day after being sent by Federal Express or another nationally
recognized next-day delivery service or three (3) business days after
being posted by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Roy A. Wilkens
6336 South Harvard
Tulsa, Oklahoma 74136
If to the Company:
The Williams Companies, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Chief Executive Officer
If to the Employer:
Williams Telecommunications Group, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Chairman of the Board
With a copy to: General Counsel, The Williams
Companies, Inc.
or to such other address as the party entitled to notice may have
furnished to the others in writing in accordance herewith, except that
notices of change of address will be effective only upon receipt.
6.05 Amendments; Waiver. No amendment of this Agreement, and
no waiver of compliance with any provision of this Agreement, will be
effective unless such amendment or waiver is in writing and signed by
each of the parties hereto. No waiver by any party hereto at any time
of any breach by any other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other
party will be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
6.06 Prior Agreement. This Agreement supercedes all prior
agreements among the parties or any of them with respect to the
subject matter hereof, and no agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter
hereof have been made by any party which are not set forth expressly
in this Agreement, except the various agreements listed on Exhibit 2
attached hereto.
6.07 Governing Law. The validity, interpretation,
construction and performance of this Agreement will be governed by the
laws of the State of Delaware (without regard to the conflict of laws
principles thereof).
6.08 Severability. The invalidity or unenforceability of any
provisions of this Agreement will not affect the validity or
enforceability of any other provision of this Agreement, which will
remain in full force and effect. Any provision in this Agreement
which is prohibited or unenforceable in any jurisdiction will, as to
such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the
remaining provisions
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hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such
provision in any other jurisdiction.
6.09 Confidential Information. The Executive will hold in a
fiduciary capacity for the benefit of the Employer and the Company all
secret or confidential information, knowledge or data relating to the
Employer or any of its afiiliates, and their respective businesses,
which are obtained by the Executive during the Executive's employment
by the Employer or any of its affiliates, except such as may be or
become public knowledge (other than by acts by the Executive in
violation of this Agreement). After termination of the Executive's
employment with the Employer, except as may be required by law or
legal process, the Executive will not, without prior written consent
of the Employer or the Company, communicate or divulge any such
information, knowledge or data to anyone other than the Employer or
the Company or those designated by either of them nor use any of the
same for any purpose adverse to the Employer or any of its affiliates.
The Executive acknowledges that this subsection 6.09 is a material
term of this Agreement and that its breach could result in damage to
the Employer or its affiliates that may be difficult to ascertain and
that upon any such breach or in reasonable anticipation of any such
breach, the Employer or the Company will be entitled to an order of
any court of competent jurisdiction to enjoin such breach.
6.10 Derogatory Remarks. The Executive will not make public
derogatory comments regarding the Employer or any of its affiliates at
any time before or after the termination of this Agreement.
6.11 Files and Records. Promptly upon termination of this
Agreement, the Executive will return to the Employer all property and
all files and other documentation belonging to or relating or in any
way pertaining to the Employer, the Company or their respective
businesses or operations, except as may be required by the Executive
in the bona fide enforcement of this Agreement.
6.12 Cooperation in Litigation. To the extent reasonably
necessary and upon reasonable notice, following the termination of
this Agreement, the Executive will cooperate with the Employer and its
present and past affiliates in connection with the prosecution or
defense of any claim asserted by or against any of them (including a
claim for Excise Taxes but excluding a claim in connection with the
enforcement of this Agreement) with respect to which the Executive may
have any knowledge, without additional compensation other than
reimbursement for reasonable expenses, unless more than an aggregate
of five (5) business days of the Executive's time is required in
connection with such cooperation, in which case the Executive will be
entitled to reasonable compensation, based upon the payments provided
for in paragaphs 4.01.1 and 4.01.2 hereof, in addition to
reimbursement for such expenses.
6.13 Survival of Certain Provisions. The provisions of
subsections 3.03, 3.04, 3.05, 3.06, 3.07, 4.02, 4.03, 4.04, 4.05, 4.07
and 6.01 hereof (to the extent any such subsections provide for the
payment of money or the providing of benefits following termination of
this Agreement) and subsections 5.02, 5.03, 6.02, 6.03, 6.09, 6.10 and
6.12 hereof will survive the termination of this Agreement.
6.14 Rights Exclusive. The rights and remedies of the
Executive provided in this Agreement for the termination of this
Agreement and the employment relationship arising out of this
Agreement are exclusive of any other rights or remedies at law or in
equity, except as may be otherwise required by any valid and
applicable law or regulation providing for any rights or remedies for
termination of such employment relationship. In the latter case, if
the Executive elects to pursue such other rights or remedies provided
by such law or regulation, such other rights or remedies will be
exclusive and the Executive will not seek any rights or remedies
provided herein.
22
<PAGE> 28
6.15 Consents. Except as otherwise expressly provided in this
Agreement, no consent by the Executive will be effective as to the
Executive or any Person or Persons claiming under the Executive unless
in writing and signed by the Executive.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first above written.
/s/ Roy A. Wilkens
--------------------------------------
Executive
THE WILLIAMS COMPANIES, INC.
By /s/ Joseph H. Williams
--------------------------------------
Joseph H. Williams
Chairman and Chief Executive Officer
WILLIAMS TELECOMMUNICATIONS GROUP, INC.
By /s/ Vernon T. Jones
--------------------------------------
23
<PAGE> 1
Exhibit 11.1
WORLDCOM, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 173,333 157,805 132,986
Common stock equivalents 4,912 - 4,941
Common stock issuable upon conversion of:
Series 1 preferred stock 14,089 - -
Series 2 preferred stock 1,115 - -
------------ ------------ -------------
193,449 157,805 137,927
============ ============ =============
Income (loss) applicable to common shareholders before
extraordinary item $ 234,469 $ (149,924) $ 112,638
Add back:
Dividend paid on Series 1 preferred stock conversions 15,312 - -
Dividend paid on Series 2 preferred stock conversions 858 - -
------------ ------------ -------------
Primary income (loss) applicable to common shareholders before
extraordinary item $ 250,639 $ (149,924) $ 112,638
Extraordinary item - - (7,949)
------------ ------------ -------------
Primary income (loss) applicable to common shareholders before
special dividend $ 250,639 $ (149,924) $ 104,689
Special dividend payment on Series 1 preferred stock conversion 15,000 - -
------------ ------------ -------------
Primary income (loss) applicable to common shareholders $ 265,639 $ (149,924) $ 104,689
============ ============ =============
Primary earnings (loss) per share:
Net income (loss) before extraordinary item $ 1.30 $ (0.95) $ 0.82
Extraordinary item $ - $ - $ (0.06)
Net income (loss) $ 1.30 $ (0.95) $ 0.76
Before special dividend payment to Series 1 preferred shareholder $ 1.37 $ (0.95) $ 0.76
Fully diluted:
Weighted average shares outstanding 173,333 157,805 132,986
Common stock equivalents 5,190 - 7,810
Common stock issuable upon conversion of:
5% convertible notes 5,135 - -
Series 1 preferred stock 14,089 - -
Series 2 preferred stock 3,748 - -
------------ ------------ -------------
201,495 157,805 140,796
============ ============ =============
Income (loss) applicable to common shareholders before
extraordinary item $ 234,469 $ (149,924) $ 112,638
Add back:
Interest on 5% convertible notes, net of taxes 5,963 - -
Series 1 preferred dividend requirement 15,312 - -
Series 2 preferred dividend requirement 2,879 - -
------------ ------------ -------------
Fully diluted income (loss) applicable to common shareholders before
extraordinary item $ 258,623 $ (149,924) $ 112,638
Extraordinary item - - (7,949)
------------ ------------ -------------
Fully diluted income (loss) applicable to common shareholders before
special dividend $ 258,623 $ (149,924) $ 104,689
Special dividend payment on Series 1 preferred stock conversion 15,000 - -
------------ ------------ -------------
Fully diluted income (loss) applicable to common shareholders $ 273,623 $ (149,924) $ 104,689
============ ============ =============
Fully diluted earnings (loss) per share:
Net income (loss) before extraordinary item $ 1.28 $ (0.95) $ 0.80
Extraordinary item $ - $ - $ (0.06)
Net income (loss) $ 1.28 $ (0.95) $ 0.74
Before special dividend payment to Series 1 preferred shareholder $ 1.36 $ (0.95) $ 0.74
</TABLE>
<PAGE> 1
Exhibit 12.1
WORLDCOM, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income (loss) from continuing operations $ 65,646 $ 20,401 $ 198,237 $ (76,108) $ 405,596
Fixed charges, net of capitalized interest 38,116 38,720 58,999 87,455 300,094
------------ ------------ ------------ ------------ --------------
Earnings $ 103,762 $ 59,121 $ 257,236 $ 11,347 $ 705,690
============ ============ ============ ============ ==============
Fixed charges:
Interest expense $ 31,595 $ 30,311 $ 35,557 $ 47,303 $ 249,062
Interest capitalized 2,900 3,504 3,100 1,900 4,883
Amortization of financing costs 1,018 1,464 1,792 2,086 2,811
Interest factor of rent expense 5,503 4,833 9,967 10,300 15,030
Preferred dividend requirements - 2,112 11,683 27,766 33,191
------------ ------------ ------------ ------------ --------------
Fixed charges $ 41,016 $ 42,224 $ 62,099 $ 89,355 $ 304,977
============ ============ ============ ============ ==============
Deficiency of earnings to fixed charges $ - $ - $ - $ (78,008) $ -
============ ============ ============ ============ ==============
Ratio of earnings to combined fixed
charges and preferred stock dividends 2.53:1 1.40:1 4.14:1 0.13:1 2.31:1
============ ============ ============ ============ ==============
</TABLE>
See notes to computation of ratio of earnings to combined fixed charges and
preferred stock dividends.
<PAGE> 2
NOTES TO COMPUTATION OF RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(1) On January 5, 1995, the Company completed the acquisition of Williams
Telecommunications Group, Inc. for approximately $2.5 billion in cash
which was accounted for as a purchase.
(2) As a result of the mergers with IDB Communications Group, Inc. (the
"IDB Merger") and Advanced Telecommunications Corporation (the "ATC
Merger"), the Company initiated plans to reorganize and restructure
its management and operational organization and facilities to
eliminate duplicate personnel, physical facilities and service
capacity, to abandon certain products and marketing activities, and to
further take advantage of the synergy available to the combined
entities. Also, during the fourth quarter of 1993, plans were
approved to reduce IDB Communications Group, Inc.'s cost structure and
to improve productivity. Accordingly, in 1994, 1993 and 1992, the
Company charged to operations the estimated costs of such
reorganization and restructuring activities, including employee
severance, physical facility abandonment and duplicate service
capacity. These costs totaled $43.7 million in 1994, $5.9 million in
1993 and $79.8 million in 1992.
Also, during 1994 and 1992, the Company incurred direct merger costs
of $15.0 million and $7.3 million, respectively, related to the IDB
Merger (in 1994) and the ATC Merger (in 1992). These costs include
professional fees, proxy solicitation costs, travel and related
expenses and certain other direct costs attributable to these mergers.
(3) In connection with certain debt refinancing, the Company recognized in
1993 and 1992 extraordinary items of approximately $7.9 million and
$5.8 million, respectively, net of income taxes, consisting of
unamortized debt discount, unamortized issuance cost and prepayment
fees.
(4) In the third quarter of 1995, Metromedia Company ("Metromedia")
converted its Series 1 Preferred Stock into 21,876,976 shares of
WorldCom common stock and exercised warrants to acquire 3,106,976
shares of WorldCom common stock and immediately sold its position of
30,849,548 shares of WorldCom common stock in a public offering. In
connection with the preferred stock conversion, WorldCom made a
one-time non-recurring payment of $15.0 million to Metromedia,
representing a discount to the minimum nominal dividends that would
have been payable on the Series 1 Preferred Stock prior to the
September 15, 1996 optional call date of approximately $26.6 million
(which amount includes an annual dividend requirement of $24.5 million
plus accrued dividends to such call date).
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF WORLDCOM, INC.(1)
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation Trade Name
------------------ ------------- ----------
<S> <C> <C>
Biz-Tel Corporation Florida LDDS WorldCom
Com Systems, Inc. California
Digital Communications of America, Inc. Oklahoma Digital Communications
GridNet, L.L.C. Oklahoma
Healan Communications, Inc. Georgia Healan Communications
IDB Communications Group Limited United Kingdom
IDB Media Group, Inc. Delaware
IDB WorldCom, Inc.
f/k/a IDB Communications Group, Inc. Delaware IDB WorldCom
IDB WorldCom Services, Inc.
f/k/a TRT/FTC Communications Delaware WSI, TRT/FTC Communications
ITC Tele-services, Inc. Washington Impact
International Computer Systems, Inc. Virginia ICS, ICS Information Technologies
LDDS Corporation Delaware
Military Communications Center, Inc. Delaware MCC, Military Communications
Ocean Satellite Television, Inc. Florida
TC WorldCom AG Switzerland
TRT/FTC Communications Limited United Kingdom
Touch 1 Long Distance, Inc. Alabama LDDS WorldCom
Transcall America, Inc. Georgia LDDS WorldCom
Virginia WorldCom, Inc. Virginia
WorldCom Caribbean, Inc. New York
WorldCom Federal Systems, Inc. Delaware
WorldCom International, Inc. Delaware
WorldCom Network Services, Inc. Delaware WilTel, WilTel Network Services
WorldCom Telecommunications Services, GmbH Germany WorldCom Germany
</TABLE>
_________________
(1) Excludes all inactive subsidiaries, all of which, when considered in
the aggregate as a single subsidiary, would not constitute a
significant subsidiary within the meaning of Rule 1-02(v) of
Regulation S-X.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in the Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 33-52168, 33-69322, 33-71450,
and 33-89072) and Form S-3 (File Nos. 33-63810, 33-67340, 33-69122, 33-71510,
33-71516, 33-87514, 33-77964, 33-87516 and 33- 58719).
ARTHUR ANDERSEN LLP
Jackson, Mississippi
March 28, 1996
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-63810, 33-67340, 33-71510, 33-87514, 33- 77964, 33-69122, 33-71516, 33-87516
and 33-58719 on Form S-3 and Registration Statement Nos. 33-52168, 33-69322,
33-71450 and 33-89072 on Form S-8 of WorldCom, Inc. and Subsidiaries
("WorldCom") of our report dated March 7, 1994 on the consolidated financial
statements of IDB Communications Group, Inc. appearing in the Annual Report of
WorldCom for the year ended December 31, 1995.
Deloitte & Touche LLP
Los Angeles, California
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORLDCOM, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 41,679
<SECURITIES> 0
<RECEIVABLES> 586,743
<ALLOWANCES> 57,980
<INVENTORY> 0
<CURRENT-ASSETS> 654,832
<PP&E> 2,056,412
<DEPRECIATION> (487,080)
<TOTAL-ASSETS> 6,634,571
<CURRENT-LIABILITIES> 1,978,812
<BONDS> 2,278,428
<COMMON> 1,932
0
12
<OTHER-SE> 2,185,342
<TOTAL-LIABILITY-AND-EQUITY> 6,634,571
<SALES> 3,639,875
<TOTAL-REVENUES> 3,639,875
<CGS> 1,992,413
<TOTAL-COSTS> 2,963,827
<OTHER-EXPENSES> (11,801)
<LOSS-PROVISION> 39,175
<INTEREST-EXPENSE> 249,062
<INCOME-PRETAX> 438,787
<INCOME-TAX> 171,127
<INCOME-CONTINUING> 267,660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 234,469
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.28
<FN>
</FN>
</TABLE>
