As filed with the Securities and Exchange Commission on November 4, 1996
Registration No. 333-10459
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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WORLDCOM, INC.
(formerly LDDS Communications, Inc.)
(Exact name of registrant as specified in its charter)
GEORGIA
(State or other jurisdiction of incorporation or organization)
58-1521612
(I.R.S. Employer Identification No.)
515 East Amite Street
Jackson, Mississippi 39201-2702
(601) 360-8600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
P. BRUCE BORGHARDT, Esq.
WorldCom, Inc.
10777 Sunset Office Drive, Suite 330
St. Louis, Missouri 63127
(314) 909-4100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of all correspondence to:
R. RANDALL WANG, ESQ
Bryan Cave LLP
One Metropolitan Square
211 North Broadway, Suite 3600
St. Louis, Missouri 63102-2750
(314) 259-2000
CHRISTIAN J. HOFFMANN III, ESQ.
Streich Lang, P.A.
Renaissance One
Two North Central Avenue
Phoenix, Arizona 85004
(602) 229-5200
KENNETH R. COHEN, ESQ.
23 Vreeland Road
Florham Park, New Jersey 07932
(201) 301-1900
Approximate date of commencement of proposed sale to public: From time to time
after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
================================================================================================================================
Proposed Proposed
maximum maximum
Title of each class of Amount to be offering price per aggregate Amount of
securities to be registered registered unit(1) offering price(1) registration fee
- --------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Common Stock, $.01 par value
per share(2) 2,088,921 shares $24.25 $50,656,334 $15,350(3)
================================================================================================================================
<FN>
(1) Estimated solely for purposes of determining the registration fee pursuant to Rule 457(c), based upon the average of the high
and low sales prices for the Common Stock as reported in The Nasdaq Stock Market (National Market) on November 1, 1996.
(2) Common Stock includes associated rights (the "Rights") to purchase shares of the Company's Series 3 Junior Participating
Preferred Stock, par value $.01 per share. Until the occurrence of certain prescribed events, none of which has occurred, the
Rights are not exercisable, are evidenced by the certificates representing the Common Stock, and will be transferred along
with and only with the Common Stock.
(3) Registration fee of $9,857 was paid on August 19, 1996 with the initial filing of this Form S-3, balance of $5,493 is paid
with this Amendment No. 1 to Form S-3.
</TABLE>
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 4, 1996
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- --------------------------------------------------------------------------------
PRELIMINARY PROSPECTUS
2,088,921 Shares
WORLDCOM, INC.
Common Stock
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This Prospectus relates to 2,088,921 shares (the "Shares") of common
stock, par value $.01 per share (the "Common Stock"), of WorldCom, Inc., a
Georgia corporation (the "Company"). The Shares are held by, or are issuable
upon exercise of options held by, certain former shareholders and related
entities (collectively, the "Choice Selling Shareholders") of Choice
Communications, Inc., an Arizona corporation ("Choice"), and by Jonathan
Kaufman, the former sole shareholder (the "Target Selling Shareholder", and
together with the Choice Selling Shareholders, the "Selling Shareholders"), of
Target Telecom, Incorporated, a New Jersey corporation ("Target"). See "Selling
Shareholders."
The Company will not receive any proceeds from the sale of Shares by
the Selling Shareholders. All expenses incurred in connection with this offering
are being borne by the Company, other than any commissions or discounts paid or
allowed by the Selling Shareholders to underwriters, dealers, brokers or agents.
The Selling Shareholders have not advised the Company of any specific
plans for the distribution of the Shares, but it is anticipated that the Shares
may be sold from time to time in transactions (which may include block
transactions) on The Nasdaq Stock Market at the market prices then prevailing.
Sales of the Shares may also be made through negotiated transactions or
otherwise. The Selling Shareholders and the brokers and dealers through which
the sales of the Shares may be made may be deemed to be "underwriters" within
the meaning set forth in the Securities Act of 1933, as amended, and their
commissions and discounts and other compensation may be regarded as
underwriters' compensation. See "Plan of Distribution."
The Common Stock is traded on The Nasdaq Stock Market under the symbol
"WCOM." The last reported sale price of the Common Stock as reported on The
Nasdaq Stock Market on November1, 1996, was $24.25 per share.
FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE
COMMON STOCK, SEE "INVESTMENT CONSIDERATIONS" ON PAGE 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is November 4, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). These reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission
maintains an Internet Web site (http://www.sec.gov.) that contains such
documents filed electronically by the Company with the Commission by its
Electronic Data Analysis and Retrieval System. Copies of such materials can also
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement or the exhibits thereto. As permitted by the
rules and regulations of the Commission, this Prospectus omits certain
information contained or incorporated by reference in the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document filed or incorporated by reference as an exhibit to
the Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement. For further information, reference is
hereby made to the Registration Statement and exhibits thereto, copies of which
may be inspected at the offices of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or obtained from the Commission at the same address at
prescribed rates.
INCORPORATION BY REFERENCE
The following documents filed with the Commission by the Company
(formerly LDDS Communications, Inc. ("LDDS") and Resurgens Communications Group,
Inc. ("Resurgens")) under File No. 0-11258 (formerly File No. 1-10415) pursuant
to the Exchange Act are incorporated herein by reference: (1) the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the
"1995 Form 10-K"); (2) the Company's Report by Issuer of Securities Quoted on
NASDAQ on Form 10-C dated July 12, 1996; (3) the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996; (4) the
Company's Current Reports on Form 8-K dated August 25, 1996 (filed August 26,
1996) (as amended on Form 8-K/A filed August 30, 1996) and November 4, 1996; (5)
audited financial statements as of December 31, 1994 and 1993 and for each of
the three years in the period ended December 31, 1994 of the network services
operations of Williams Telecommunications Group, Inc. ("WilTel"), including
WilTel, Inc., WilTel Undersea Cable, Inc. and WilTel International Inc., which
were wholly owned subsidiaries of WilTel (collectively "WilTel Network
Services"), included in the Company's Current Report on Form 8-K dated August
22, 1994 (filed September 8, 1994) (as amended by Current Reports on Form 8-K/A
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filed November 17, 1994, November 28, 1994 and April 19, 1995); (6) audited
financial statements as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995 of MFS Communications Company, Inc.
("MFS") included in the Company's Current Report on Form 8-K/A dated August 25,
1996 (filed November 4, 1996); (7) audited financial statements as of December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995) of UUNET Technologies, Inc. ("UUNET"), a wholly owned subsidiary of
MFS, included in the Company's Current Report on Form 8-K/A dated August 25,
1996 (filed November 4, 1996); (8) the description of the Company's (formerly
LDDS' and Resurgens') Common Stock as contained in Item 1 of Resurgens'
Registration Statement on Form 8-A dated December 12, 1989, as updated by the
descriptions contained in Amendment No. 2 of Resurgens' Registration Statement
on Form S-4 (File No. 33-62746), as declared effective by the Commission on
August 11, 1993, which includes the Joint Proxy Statement/Prospectus (the "1993
Joint Proxy Statement/Prospectus") with respect to Resurgens' Annual Meeting of
Shareholders held on September 14, 1993, under the following captions:
"Proposals No. 1 and 2 -- The Proposed Mergers -- Description of the Series 1
Preferred Stock," "-- Description of the Series 2 Preferred Stock," "-- Special
Redemption Provisions," "Information Regarding Resurgens -- Description of
Resurgens Capital Stock," and "-- Amendments to Resurgens' Restated Articles of
Incorporation -- LDDS Merger Agreement," and as further updated by the Company's
Annual Report on Form 8-K dated and filed August 14, 1995; and (9) the
description of the Company's Preferred Stock Purchase Rights contained in the
Company's Registration Statement on Form 8-A dated August 26, 1996.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof shall hereby be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing of such documents. See
"Available Information." Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document
incorporated or deemed to be incorporated herein by reference, which statement
is also incorporated herein by reference, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (EXCLUDING
EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
THE INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED BY FIRST CLASS MAIL
WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, UPON WRITTEN
OR ORAL REQUEST BY SUCH PERSON TO WORLDCOM, INC., 515 EAST AMITE STREET,
JACKSON, MISSISSIPPI 39201-2702, ATTENTION: SCOTT D. SULLIVAN, CHIEF FINANCIAL
OFFICER (TELEPHONE: (601) 360-8600).
No person has been authorized in connection with this offering to give
any information or to make any representation not contained or incorporated by
reference in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company,
the Selling Shareholders or any other person. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to purchase, any
securities other than those to which it relates, nor does it constitute an offer
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<PAGE>
to sell or a solicitation of an offer to purchase by any person in any
jurisdiction in which it is unlawful for such person to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
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<PAGE>
INVESTMENT CONSIDERATIONS
The following factors should be carefully considered in evaluating the
Company and its business before purchasing any of the Shares offered hereby.
Capitalized terms used and not defined herein have the same meanings ascribed to
them in the 1995 Form 10-K.
An investment in the Common Stock involves a high degree of risk.
Prospective investors should carefully consider the following investment
considerations, together with the other information contained in or incorporated
by reference into this Prospectus, in evaluating the Company and its business
before purchasing shares of Common Stock. In particular, prospective investors
should note that this Prospectus contains or incorporates by reference
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. In
addition, certain of the factors discussed below relate to the proposed merger
of a wholly owned subsidiary of the Company with and into MFS (the "MFS Merger")
pursuant to the terms of an Agreement and Plan of Merger dated August 25, 1996
(the "MFS Merger Agreement"). There can be no assurance that the MFS Merger will
be consummated. See "Recent Developments"
RISKS RELATED TO THE MFS MERGER
Stock Price Fluctuations. Since the announcement of the MFS Merger
Agreement on August 26, 1996, the market price of the Common Stock has been
subject to significant fluctuation in response to factors affecting MFS, UUNET,
which MFS recently acquired, and the telecommunications and Internet industries.
For example, between August 23, 1996 and November 1, 1996, the closing sales
price of the Common Stock has ranged from a high of $26.88 to a low of $18.38.
In addition, the stock market generally has experienced significant price and
volume fluctuations during such period. These market fluctuations could have a
material adverse effect on the market price or liquidity of the Common Stock.
Substantial Dilution of Ownership Interest in the Company. The MFS
Merger, if consummated, will result in the substantial dilution of the ownership
interest in the Company of current shareholders. Substantial sales of the Common
Stock could occur after the MFS Merger.
Sales of a substantial number of such shares of the Common Stock could
adversely affect or cause substantial fluctuations in the market price of the
Common Stock and impair the Company's ability to raise additional capital
through the sale of its equity securities.
Integration of the Company and MFS. Although the Company believes that
the MFS Merger will enhance its growth opportunities, strengthen its
competitiveness in the long distance and local telecommunications industry and
provide the opportunity for significant cost savings, if the MFS Merger is
consummated, there can be no assurance that the operations of MFS, together with
UUNET, will be completely integrated with the Company's operations or that such
benefits anticipated to result from the MFS Merger will materialize.
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Risks Associated with the Repurchase of MFS Senior Notes. MFS has
outstanding two issuances of public debt: 9-3/8% Senior Discount Notes Due 2004,
which were issued on January 19, 1994 (the "1994 Notes"); and 8-7/8% Senior
Discount Notes Due 2006, which were issued on January 18, 1996 (the "1996
Notes," and together with the 1994 Notes, the "MFS Notes"). Pursuant to the
terms of each of the MFS Notes, cash interest is not payable until January 15,
1999 with respect to the 1994 Notes and January 15, 2001 with respect to the
1996 Notes. As of June 30, 1996, the accreted value of the 1994 Notes was
approximately $624.6 million and the accreted value of the 1996 Notes was
approximately $622.9 million.
Pursuant to the terms of the Indentures governing the terms of the MFS
Notes, if the MFS Merger is consummated, the Company will be required to give
each holder of the MFS Notes the option to have the Company repurchase such
holder's MFS Notes, for cash, at 101% of the accreted value thereof on the date
of such repurchase. Such offer to purchase must generally be made to the holders
of the MFS Notes within 30 days of the effective date of the MFS Merger with all
cash payments completed within 60 days of such offer. Assuming that the MFS
Notes were repurchased as of September 30, 1996, the maximum cash that the
Company would be required to pay if all holders elect to require the Company to
repurchase their MFS Notes would be approximately $1.3 billion. The Company
believes that it can make such repurchase after the consummation of the MFS
Merger without materially adversely affecting the financial condition of the
combined company.
RISKS OF FINANCIAL LEVERAGE; DEBT SERVICE, INTEREST RATE FLUCTUATIONS,
POSSIBLE REDUCTION IN LIQUIDITY, DIVIDEND RESTRICTIONS, AND OTHER RESTRICTIVE
COVENANTS
The Company has a high degree of leverage. At June 30, 1996, the
Company reported $3.3 billion of long-term debt (including capital leases and
excluding current maturities) and a long-term debt-to-equity ratio of 1.6 to
1.0. On June 28, 1996, the Company replaced its then existing $3.41 billion
credit facilities with a new $3.75 billion five-year revolving credit facility
(the "Credit Facility"). As a result of the MFS Merger, the combined company
would have long-term debt (including capital leases and excluding current
maturities) of $4.7 billion and a long-term debt-to-equity ratio of 0.38 to 1.0.
See "-- Risks Associated with the Repurchase of MFS Senior Notes."
Borrowings under the Credit Facility 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 Facility. 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. In addition, the Credit
Facility restricts the payment of cash dividends and otherwise limits the
Company's financial flexibility.
The Company is committed to a priority plan of accelerating operating
cash flow to reduce debt. Additional capital availability may be generated
through a combination of commercial bank debt and public market debt. Successful
execution of the priority plan would provide continued compliance with required
operating ratio covenants, improved interest rate spread pricing, 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.
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ACQUISITION STRATEGY AND INTEGRATION
Both the Company and MFS have acquired complementary businesses as part
of their business strategies. The Company has recently acquired and integrated
the operations of WilTel and IDB. MFS is in the process of integrating the
operations of UUNET, which it recently acquired.
After the MFS Merger, the combined company may continue to acquire
complementary businesses, and any future acquisitions will be accompanied by the
risks commonly associated with acquisitions. These risks include potential
exposure to unknown liabilities of acquired companies or to acquisition costs
and expenses, the difficulty and expense of integrating the operations and
personnel of the companies, the potential disruption to the business of the
combined company and potential diversion of management time and attention, the
impairment of relationships with and the possible loss of key employees and
customers as a result of changes in management, incurring amortization expenses
if an acquisition is accounted for as a purchase and dilution to the
shareholders of the combined company if the acquisition is made for stock of the
combined company. There can be no assurance that products, technologies or
businesses of acquired companies will be effectively assimilated into the
business or product offerings of the combined company. In addition, the combined
company may incur significant expense to complete acquisitions and to support
the acquired products and businesses. There can be no assurance that any
acquired products, technologies or businesses will contribute to the combined
company's revenues or earnings to any material extent. Further, the challenge of
managing the integration of future acquisitions may distract management and may
interfere with the successful integration of the Company, MFS and UUNET. See "--
Risks Related to the MFS Merger -- Integration of the Company and MFS."
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 the Company on December 30, 1994 (the "IDB
Merger"). While the Company believes that the probable outcome 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" contained in the Company's 1995 Form 10-K, which is hereby
incorporated herein by reference.
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
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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 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 Commission 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 Commission has issued subpoenas to IDB and others,
including certain former officers of IDB, in connection with its investigation.
The National Association of Securities Dealers 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
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 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" contained in the Company 1995 Form 10-K for more information
regarding the foregoing litigation and investigations, as well as other pending
legal proceedings.
RISKS OF EXPANSION AND IMPLEMENTATION
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 cost 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
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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.
MFS is engaged in the expansion and development of its networks and
services. The expansion and development of its networks will depend on, among
other things, its ability to assess markets, design fiber optic network backbone
routes, install facilities and obtain rights-of-way, building access and any
required government authorizations and/or permits, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions, as well as its
ability to expand, train and manage its growing employee base. Such expansion
has placed, and is expected to continue to place, significant demands on MFS'
management and operational and financial resources. As a result, there can be no
assurance that MFS will be able to expand its existing networks or install new
networks. If MFS is not able to expand its networks or install or acquire new
networks, there will be a material adverse effect on its growth.
Foreign operations or investment may be adversely affected by local
political and economic developments, exchange controls, currency fluctuations,
royalty and tax increases, retroactive tax claims, expropriation, import and
export regulations and other foreign laws or policies as well as by laws and
policies of the United States affecting foreign trade, taxation and investment.
In addition, in the event of a dispute arising from foreign operations, the
Company or MFS may be subject to the exclusive jurisdiction of foreign courts or
may not be successful in subjecting foreign persons to the jurisdiction of
courts in the United States. The Company or MFS may also be hindered or
prevented from enforcing its rights with respect to a governmental
instrumentality because of the doctrine of sovereign immunity.
There can be no assurance that laws or administrative practice relating
to taxation, foreign exchange or other matters of countries within which the
Company or MFS operates or will operate will not change. Any such change could
have a material adverse effect on the business, financial condition and results
of operations of the Company or MFS.
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" contained in the Company's 1995 Form 10-K.
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
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can be no assurance that future regulatory changes will not have a material
adverse impact on the Company. On February 8, 1996, President Clinton signed the
Telecommunications Act of 1996 (the "Telecom Act"), which: permits, without
limitation, the Bell Operating Companies (the "BOCs") to provide domestic and
international long distance services to customers located outside of the BOC's
home regions; permits a petitioning BOC to provide domestic and international
long distance service to customers within its home region upon a finding by the
Federal Communications Commission (the "FCC") that a 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; and removes existing barriers to entry into local service
markets. Additionally, there are significant changes in: the manner in which
carrier-to-carrier arrangements are regulated at the federal and state level;
procedures to revise universal service standards; and penalties for unauthorized
switching of customers. The FCC has instituted proceedings addressing the
implementation of this legislation.
On August 1, 1996, the FCC announced its intention to conduct a
proceeding in the fall of 1996 leading to the reform of access charges. Such
charges are a principal component of the Company's line cost expense. The
Company cannot predict whether or not the result of such a proceeding will have
a material impact upon the Company.
On August 8, 1996, the FCC released its First Report and Order in the
Matter of Implementation of the Local Competition Provisions in the Telecom Act
(the "FCC Interconnect Order"). In the FCC Interconnect Order, the FCC
established nationwide rules designed to encourage new entrants to participate
in the local service markets through interconnection with the incumbent local
exchange carriers ("ILEC"), resale of the ILEC's retail services and unbundled
network elements. These rules set the groundwork for the statutory criteria
governing BOC entry into the long distance market. The Company cannot predict
the effect such legislation or the implementing regulations will have on the
Company or the industry. Motions to stay implementation of the FCC Interconnect
Order have been filed with the FCC and federal courts of appeal. Appeals
challenging, among other things, the validity of the FCC Interconnect Order have
been filed in several federal courts of appeal and assigned to the Eighth
Circuit Court of Appeals for disposition. The Eighth Circuit Court of Appeals
has stayed the pricing provisions of the FCC Interconnect Order. The Circuit
Justice of the Supreme Court has declined to review the propriety of the stay.
The Company cannot predict either the outcome of these challenges and appeals or
the eventual effect on its business or the industry in general.
FCC approval is required for the operation of the Company's
international facilities and services. The Company believes that it has all the
necessary FCC authorizations for its current operations. There can be no
assurance, however, that the Company 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.
The Company is or will be subject to the applicable laws and has
obtained or will need to obtain the approval of the regulatory authority of each
overseas 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 to enter new markets can be time-consuming and costly, and terms of
licenses vary for different countries. There can be no assurance that the
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Company 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.
MFS is subject to varying degrees of federal, state, local and
international regulation. In the United States, MFS is most heavily regulated by
the states, especially for the provision of local exchange services. MFS must be
separately certified in each state to offer local exchange and intrastate long
distance services. No state, however, subjects MFS to price cap or rate of
return regulation, nor is MFS currently required to obtain FCC authorization for
installation or operation of its network facilities used for domestic services.
FCC approval is required, however, for the installation and operation of its
international facilities and services. MFS is subject to varying degrees of
regulation in the foreign jurisdictions in which it conducts operations
including authorization for the installation and operation of its network
facilities. Although the trend in federal, state and international regulation
appears to favor increased competition, no assurance can be given that changes
in current or future regulations adopted by the FCC, state or foreign regulators
or legislative initiatives in the United States and abroad would not have a
material adverse effect on the Company or MFS.
Internet-related services are not currently subject to direct
regulation by the FCC or any other U.S. agency, other than regulation applicable
to businesses generally. The FCC recently requested comments on a petition filed
by the America's Carriers Telecommunication Association which requests that the
FCC regulate certain voice transmissions over the Internet as telecommunications
services. Changes in the regulatory environment relating to the
telecommunications or Internet-related services industry could have an adverse
effect on MFS' Internet-related services business. The Telecom Act may permit
telecommunications companies, BOCs or others to increase the scope or reduce the
cost of their Internet access services. Neither MFS nor the Company can predict
the effect that the Telecom Act or any future legislation, regulation or
regulatory changes may have on its business.
COMPETITION RISKS
Traditional Telecommunications Services. The Company faces intense
competition in providing long distance telecommunications services.
Domestically, the Company competes for interLATA and intraLATA services with
AT&T Corp. ("AT&T"), MCI Communications Corporation ("MCI"), Sprint Corporation
("Sprint"), the local exchange carriers ("LECs") and other national and regional
interexchange carriers ("IXCs"), where permissible. 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 the Company, and some of them are the source of communications
capacity used by the Company to provide its own services. In overseas markets,
the Company faces intense competition from the incumbent provider, which
typically offers local, intercity and international services and often enjoys
special privileges, as well as from other new entrants.
The Company 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 Telecom Act, the development of new technologies and
increased availability of domestic and international transmission capacity.
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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. See Item 1 -- "Business --
Competition" contained in the Company's 1995 Form 10-K.
Virtually all markets for telecommunications services are extremely
competitive, and the Company and MFS expect that competition will intensify in
the future. In each of the markets in which it offers telecommunications
services, MFS faces significant competition from larger, better financed
incumbent carriers. MFS competes, both domestically and internationally, with
incumbent providers, which have historically dominated their local
telecommunications markets, and long distance carriers, for the provision of
long distance services. In certain markets, especially international markets,
the incumbent provider offers both local and long distance services. The
incumbent LECs presently have numerous advantages as a result of their historic
monopoly control of the local exchange market. A continuing trend toward
business combinations and alliances in the telecommunications industry may
create significant new competitors to MFS. Many of MFS' existing and potential
competitors have financial, personnel and other resources significantly greater
than those of MFS. MFS also faces competition in most markets in which it
operates from one or more competitors, including competitive access providers
("CAPs") operating fiber optic networks, in some cases in conjunction with the
local cable television operator. Each of AT&T, MCI and Sprint has indicated its
intention to offer local telecommunications services in major U.S. markets using
its own facilities or by resale of the LECs' or other providers' services. Other
potential competitors include cable television companies, wireless telephone
companies, electric utilities, microwave carriers and private networks of large
end users. In addition, MFS competes with equipment vendors and installers and
telecommunications management companies with respect to certain portions of its
business.
Under the Telecom Act and ensuing federal and state regulatory
initiatives, barriers to local exchange competition are being removed. The
introduction of such competition, however, also establishes the predicate for
the BOCs to provide in-region interexchange long distance services. The BOCs are
currently allowed to offer certain "incidental" long distance service in- region
and to offer out-of-region long distance services. Once the BOCs are allowed to
offer in- region long distance services, both they and the three largest long
distance carriers (AT&T, MCI and Sprint) will be in a position to offer single
source local and long distance service similar to that being offered by MFS. The
Company and MFS expect that the increased competition made possible by
regulatory reform will result in certain pricing and margin pressures in the
domestic telecommunications services business.
MFS competes in three international markets: international services
from the United States; international services from certain countries in
continental Europe and Hong Kong; and domestic services within, and
international services from, the United Kingdom, Germany and Sweden. MFS offers
private line, high-speed LAN interconnect data and voice services in each of
these markets, subject to varying governmental authorizations. MFS faces
competition in international service originating in the United States from,
among others, AT&T, MCI, Sprint
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and the Company. These companies own significant international transmission
capacity and have established operating agreements with governmental and private
telecommunications providers in Europe, Asia and elsewhere, which greatly reduce
their cost of providing service. In international markets, MFS competes with the
incumbent telecommunications carrier, which generally offers both local and long
distance services and benefits from its status as an incumbent provider.
Internet-Related Services. The market for data communications services,
including Internet access and on-line services, is extremely competitive. There
are no substantial barriers to entry, and the Company and MFS expect that
competition will intensify in the future. The Company and MFS believe that their
ability to compete successfully depends on a number of factors, including:
market presence; the ability to execute a rapid expansion strategy; the
capacity, reliability and security of its network infrastructure; ease of access
to and navigation of the Internet; the pricing policies of its competitors and
suppliers; the timing of the introduction of new products and services by MFS
and its competitors; MFS' ability to support industry standards; and industry
and general economic trends. The success of MFS or the combined company in this
market will depend heavily upon its ability to provide high quality Internet
connectivity and value-added Internet services at competitive prices.
UUNET's current and potential competitors headquartered in the United
States generally may be divided into the following three groups: (1)
telecommunications companies, such as AT&T, MCI, Sprint, BOCs and @Home (a joint
venture between Tele-Communications, Inc. and a venture capital firm), and
various other cable companies; (2) other Internet access providers, such as BBN
Corporation ("BBN"), NETCOM On-Line Communication Services, Inc., PSINet Inc.
("PSI"), and other national and regional providers; and (3) on-line services
providers, such as America Online, Inc. ("America Online"), CompuServe
Corporation ("CompuServe"), Intuit Inc., Microsoft Corporation ("Microsoft") and
Prodigy. Certain of these competitors may have greater market presence,
engineering and marketing capabilities, and financial, technological and
personnel resources than those available to UUNET. As a result, they may be able
to develop and expand their communications and network infrastructures more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote greater resources to the marketing and sale of their
services than can UUNET.
MFS expects that all of the major on-line services providers and
telecommunications companies will expand their current services to compete fully
in the Internet access market. MFS believes that new competitors, including
large computer hardware, software, media and other technology and
telecommunications companies will enter the Internet access market, resulting in
even greater competition for UUNET. Certain companies, including America Online,
AT&T, BBN and PSI, have obtained or expanded their Internet access products and
services as a result of acquisitions and strategic investments. Such
acquisitions may permit UUNET's competitors to devote greater resources to the
development and marketing of new competitive products and services and the
marketing of existing competitive products and services. The Company and MFS
expect these acquisitions and strategic investments to increase, thus creating
significant new competitors to MFS or the combined company. In addition, the
ability of some of UUNET's competitors to bundle other services and products
with Internet access services, such as the Internet service offerings recently
announced by AT&T and MCI, could place UUNET or the combined company at a
competitive disadvantage.
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As MFS continues to expand UUNET's operations outside of the United
States, it will encounter competition from companies whose operating styles are
substantially different from those that it usually experiences. UUNET will be
forced to compete with and buy services from government owned or subsidized
telecommunications providers, some of which may enjoy an absolute monopoly on
telecommunications services essential to UUNET's business. For example, in the
United Kingdom, UUNET PIPEX competes directly with: (1) telecommunications
companies, such as British Telecommunications plc, Cable and Wireless plc,
Mercury Communications Limited and others; (2) other Internet access providers,
such as Demon Internet Limited and Eunet GB Limited; and (3) on-line services
providers, such as CompuServe, America Online/Bertelsmann, Microsoft and AT&T.
In addition to the risks ascribed to UUNET's previously described competitors,
these foreign competitors may possess a better understanding of their local
markets and may have better working relationships with local telecommunications
companies. There can be no assurance that MFS or the combined company can obtain
similar levels of local knowledge and failure to obtain that knowledge could
place MFS or the combined company at a serious competitive disadvantage.
As a result of increased competition in the industry, MFS expects that
UUNET will continue to encounter significant pricing pressure, which in turn
could result in significant reductions in the average selling price of UUNET's
services. UUNET has in the past reduced prices on certain of its Internet access
options and may do so in the future. There can be no assurance that UUNET will
be able to offset the effects of any such price reductions with an increase in
the number of its customers, higher revenue from enhanced services, cost
reductions or otherwise. In addition, MFS believes that the data communications
business, and in particular the Internet access and on-line services businesses,
are likely to encounter consolidation in the near future, which could result in
increased price and other competition in the industry. Increased price or other
competition could result in erosion of UUNET's market share and could have a
material adverse effect on the business, financial condition and results of
operations of MFS or the combined company. There can be no assurance that MFS or
the combined company will have the financial resources, technical expertise,
marketing and support capabilities or expansion and acquisition possibilities to
continue to compete successfully.
Network Systems Integration Services. MFS Network Technologies' primary
network systems integration competitors are the BOCs, long distance carriers,
equipment manufacturers and major independent telephone companies. In certain
circumstances, MFS Network Technologies may also compete with regional and local
systems integration and construction firms for integration and installation
projects. In the automatic vehicle identification market, MFS Network
Technologies competes with specific manufacturers and several of the aerospace
defense contractors that have indicated an intention to shift to commercial
markets.
RAPID TECHNOLOGICAL CHANGES; DEPENDENCE UPON PRODUCT DEVELOPMENT
The telecommunications industry is subject to rapid and significant
changes in technology. While neither the Company nor MFS believes that, for the
foreseeable future, these changes will either materially and adversely affect
the continued use of fiber optic cable or materially hinder its ability to
acquire necessary technologies, the effect of technological changes, including
changes relating to emerging wireline and wireless transmission and switching
technologies, on the businesses of the Company or MFS cannot be predicted.
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The market for MFS' Internet-related products and services is
characterized by rapidly changing technology, evolving industry standards,
emerging competition and frequent new product and service introductions. There
can be no assurance that MFS will successfully identify new product and service
opportunities and develop and bring new products and services to market in a
timely manner. MFS is also at risk from fundamental changes in the way Internet
access services are marketed and delivered. MFS' Internet service strategy
assumes that the Transmission Control Protocol/Internet Protocol ("TCP/IP"),
utilizing fiber optic or copper- based telecommunications infrastructures, will
continue to be the primary protocol and transport infrastructure for
Internet-related services. Emerging transport alternatives include cable modems
and satellite delivery of Internet information; alternative open protocol and
proprietary protocol standards have been or are being developed. MFS' pursuit of
necessary technological advances may require substantial time and expense, and
there can be no assurance that MFS will succeed in adapting its Internet
services business to alternate access devices, conduits and protocols.
DEPENDENCE ON KEY PERSONNEL
The Company's and MFS' businesses are managed by a number of key
executive officers, the loss of certain of whom, particularly Bernard J. Ebbers,
the Company's President and Chief Executive Officer, and James Q. Crowe, MFS'
Chairman of the Board and Chief Executive Officer, could have a material adverse
effect on the respective company. Each of the Company and MFS believes that its
future success will depend in large part on its continued ability to attract and
retain highly skilled and qualified personnel. Neither the Company nor MFS has
employment agreements with any of its key executive officers, with certain
limited exceptions.
POTENTIAL LIABILITY OF ON-LINE SERVICE PROVIDERS
The law in the United States relating to the liability of on-line
services providers and Internet access providers for information carried on,
disseminated through or hosted on their systems is currently unsettled. Several
private lawsuits seeking to impose such liability are currently pending. In one
case brought against an Internet access provider, Religious Technology Center v.
Netcom On-Line Communication Services, Inc., the United States District Court
for the Northern District of California ruled in a preliminary phase that under
certain circumstances Internet access providers could be held liable for
copyright infringement. The case has been settled by the parties. The Telecom
Act prohibits and imposes criminal penalties and civil liability for using an
interactive computer service for transmitting certain types of information and
content, such as indecent or obscene communications. On June 12, 1996, however,
a panel of three federal judges granted a preliminary injunction barring
enforcement of this portion of the Telecom Act to the extent that enforcement is
based upon allegations other than obscenity or child pornography as an
impermissible restriction on the First Amendment's right of free speech.
In addition, the U.S. Congress, in consultation with the U.S. Patent and
Trademark Office and the Administration's National Information Infrastructure
Task Force, is currently considering legislation to address the liability of
on-line service providers and Internet access providers, and numerous states
have adopted or are currently considering similar types of legislation. The
imposition upon Internet access providers or Web hosting sites of potential
liability for materials carried on or disseminated through their systems could
require MFS to implement measures to reduce its exposure to such liability,
which may require the expenditure of substantial resources or the
discontinuation of certain product or service offerings. MFS believes that it is
currently unsettled whether the Telecom Act prohibits and imposes liability for
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any services provided by UUNET should the content or information transmitted be
subject to the statute.
The law relating to the liability of on-line service providers and
Internet access providers in relation to information carried, disseminated or
hosted also is being discussed by the World Intellectual Property Organization
in the context of ongoing consideration of updating existing, and adopting new,
international copyright treaties. Similar developments are ongoing in the United
Kingdom and other jurisdictions. The scope of authority of various regulatory
bodies in relation to on-line services is at present uncertain. The Office of
Telecommunications in the United Kingdom has recently published a consultative
document setting out a number of issues for discussion, including the roles of
traditional telecommunications and broadcasting regulators with respect to
on-line services. The Securities Investment Board in the United Kingdom is
investigating the status of on-line services and the transmission of investment
information over networks controlled by access providers. Such transmissions may
make an access provider liable for any violation of securities and other
financial services legislation and regulations. Decisions regarding regulation,
enforcement, content liability and the availability of Internet access in other
countries may significantly affect the ability to offer certain services
worldwide and the development and profitability of companies offering Internet
and on-line services in the future. For example, CompuServe recently removed
certain content from its services worldwide in reaction to law enforcement
activities in Germany, and it has been reported that an Internet access provider
in Germany has been advised by prosecutors that it may have liability for
disseminating neo-Nazi writings by providing access to the Internet where these
materials are available.
The increased attention focused upon liability issues as a result of
these lawsuits, legislation and legislative proposals could affect the growth of
Internet use. Any costs incurred as a result of liability or asserted liability
for information carried on or disseminated through its systems could have a
material adverse effect on the business, financial condition and results of
operations of MFS or the combined company.
DEPENDENCE UPON NETWORK INFRASTRUCTURE; RISK OF SYSTEM FAILURE;
SECURITY RISKS
The success of each of the Company and MFS in marketing its services to
business and government users requires that such company provide superior
reliability, capacity and security via its network infrastructure. The networks
of each of the Company and MFS are subject to physical damage, power loss,
capacity limitations, software defects, breaches of security (by computer virus,
break-ins or otherwise) and other factors, certain of which have caused, and
will continue to cause, interruptions in service or reduced capacity for the
customers of such company. Similarly, UUNET's business relies on the
availability of its network infrastructure for the provision of Internet access
services. Interruptions in service, capacity limitations or security breaches
could have a material adverse effect on the business, financial condition and
results of operations of the Company or MFS.
VARIABILITY OF QUARTERLY OPERATING RESULTS
As a result of the significant expenses associated with the expansion
and development of its networks and services, the operating results of the
combined entity could vary significantly from period to period. Additional
factors contributing to variability of operating results include the pricing and
mix of services and products sold by the Company or MFS, respectively,
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customer terminations of service, the timing of the expansion of such company's
network infrastructure domestically and internationally, the timing and costs of
marketing and advertising efforts, and the timing and costs of any acquisitions
of businesses, products or technologies. In addition, MFS' network systems
integration revenues are, and generally will continue to be, dependent upon a
small number of large projects. Accordingly, these non-recurring revenues are
likely to fluctuate from period to period.
STRATEGIC RELATIONSHIP BETWEEN UUNET AND MICROSOFT
In December 1994, UUNET and Microsoft entered into a strategic
relationship for the development, operation and maintenance of a large-scale
high speed dial-up and ISDN TCP/IP access network which is the primary Internet
dial-up network and infrastructure for Microsoft, including The Microsoft
Network. The parties entered into a TCP/IP Local Access Network Agreement (the
"Microsoft Agreement") and a loan agreement under which Microsoft agreed to lend
UUNET up to $26.0 million to cover the anticipated capital cost of the network
equipment, which amount was increased subsequent to March 31, 1996, by $22.2
million to a total of $48.2 million. Revenues from Microsoft totaled
approximately 20% and 38% of UUNET's consolidated revenues during the year ended
December 31, 1995 and the six months ended June 30, 1996, respectively. MFS
expects that UUNET will continue to derive a significant portion of its revenues
from Microsoft for at least the next several years, and the Microsoft Agreement
limits UUNET's ability to enter into similar agreements for the development of
other large-scale dial-up networks prior to March 1997.
Although UUNET has met Microsoft's needs through June 30, 1996, there
can be no assurance that MFS or the combined company will be able to continue to
meet all future deployment commitments to Microsoft. After September 1996,
Microsoft may terminate the Microsoft Agreement if UUNET breaches certain
material terms of the Microsoft Agreement and is unable to cure, thereby causing
a sustained operational failure of the dial-up network. Termination of the
Microsoft Agreement by Microsoft for any reason could result in the loss of all
future revenues from Microsoft and the acceleration of UUNET's obligation to pay
to Microsoft amounts due under the loan agreement. Any such termination, loss or
acceleration or imposition of penalties would have a materially adverse effect
on the business of MFS or the combined company. In addition, any regulatory or
private party legal challenges to The Microsoft Network, including those in the
United States and Europe which have been threatened to date, could result in
termination or restructuring of the strategic relationship with Microsoft, which
would have a material adverse effect on MFS or the combined company. The terms
of construction, maintenance and operation (including the allocation of costs
and payment of fees) of international gateway hubs beyond the initial 14 such
hubs are subject to future agreement between Microsoft and UUNET. UUNET expects
that the terms of any funding or revenues from Microsoft relating to additional
international hubs, if any, will be different from those of the Microsoft
Agreement. In addition, UUNET and Microsoft have an understanding that providers
of Internet access services (such as Post, Telephone and Telegraph
Administrations ("PTTs"), which regulate telecommunications in foreign
jurisdictions) will begin to bear certain of the costs of the 14 international
gateway hubs. As this begins, Microsoft's share of such costs will decrease, and
UUNET will become more dependent upon such providers and their customers for
revenues to support such costs. Microsoft continues to evolve its international
strategy for The Microsoft Network, and its final strategy may differ materially
from that originally anticipated.
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Although UUNET is Microsoft's primary Internet access provider, there
can be no assurance that Microsoft will not obtain additional Internet network
infrastructure or capacity it may require from UUNET, other than that specified
in the Microsoft Agreement. Microsoft has announced a relationship with MCI
under which MCI will resell The Microsoft Network, Microsoft's Internet Explorer
Web browser software and other Microsoft Internet-related software. Although the
terms of the relationship have not been fully disclosed, this relationship with
MCI may allow access to The Microsoft Network through MCI's dial-up network.
Further, Microsoft is developing relationships with other Internet service
providers to resell The Microsoft Network and the Internet Explorer. As
originally planned, Microsoft is developing relationships with foreign and
domestic telecommunications companies and Internet access providers to resell
access to The Microsoft Network. If Microsoft fully develops these resale
relationships, MFS' revenues may not increase beyond Microsoft's guaranteed
minimum payments. Any failure of such revenues to increase could have a material
adverse effect on the business, financial condition or results of operations of
MFS or the combined company.
UUNET'S DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF SUPPLY
MFS relies on other companies to supply certain key components of
UUNET's network infrastructure, including telecommunications services and
networking equipment, which, in the quantities and quality demanded by UUNET,
are available only from sole or limited sources. UUNET has from time to time
experienced delays in receiving telecommunications services, and there can be no
assurance that UUNET will be able to obtain such services on the scale and
within the time frames required by UUNET at an affordable cost, or at all. Any
failure to obtain such services or additional capacity on a timely basis at an
affordable cost, or at all, would have a material adverse effect on the
business, financial condition and results of operations of MFS or the combined
company. MFS also is dependent on UUNET's suppliers' ability to provide
necessary products and components that comply with various Internet and
telecommunications standards, interoperate with products and components from
other vendors and function as intended when installed as part of the network
infrastructure. Any failure of UUNET's sole or limited source suppliers to
provide products or components that comply with Internet standards, interoperate
with other products or components used by UUNET in its network infrastructure or
by its customers or fulfill their intended function as a part of the network
infrastructure could have a material adverse effect on the business, financial
condition and results of operations of MFS or the combined company.
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% shareholders unless approved by a majority of the
continuing Board of Directors or unless certain minimum price, procedural and
other requirements are met; and (b) restricting aggregate beneficial ownership
of the capital stock of the Company by foreign shareholders to 20% of the total
outstanding capital stock, and subjecting excess shares to redemption. In
addition, the Bylaws of the Company (a) contain requirements regarding advance
notice of nomination of directors by shareholders, and (b) restrict the calling
of special meetings by shareholders to those owning shares representing not less
than 40% of the votes to be cast. These provisions may have an "anti-takeover"
effect. See "Information Regarding Resurgens -- Amendments to Resurgens'
Restated Articles of Incorporation -- LDDS Merger Agreement," "Proposals No. 1
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and 2 - The Proposed Mergers -- Special Redemption Provisions" contained in the
1993 Joint Proxy Statement/Prospectus, which are hereby incorporated herein by
reference.
RECENT DEVELOPMENTS
On August 25, 1996, the Company executed the MFS Merger Agreement,
pursuant to which a wholly owned subsidiary of the Company will be merged with
and into MFS. Pursuant to the MFS Merger Agreement, (i) each share of common
stock, par value $.01 per share, of MFS (the AMFS Common Stock@) will be
converted into the right to receive 2.1 shares of the Common Stock (the AMFS
Common Exchange Ratio@) (ii) each share of Series A 8% Cumulative Convertible
Preferred Stock, par value $.01 per share, of MFS (the AMFS Series A Preferred
Stock@) will be converted into the right to receive one (1) share of Series A 8%
Cumulative Convertible Preferred Stock, par value $.01 per share, of the Company
(the Athe Company Series A Preferred Stock@), and (iii) each share of Series B
Convertible Preferred Stock, par value $.01 per share, of MFS will be converted
into the right to receive one (1) share of Series B Convertible Preferred Stock,
par value $.01 per share, of the Company (the Athe Company Series B Preferred
Stock"). Each depositary share representing 1/100th of a share of MFS Series A
Preferred Stock will be exchanged for a depositary share representing 1/100th of
a share of the Company Series A Preferred Stock (the "Company Depositary
Shares"). In addition, holders of outstanding and unexercised options and
warrants exercisable for shares of MFS Common Stock will be converted into
options and warrants, respectively, exercisable for shares of the Common Stock
having the same terms and conditions as such options and warrants of MFS, except
that (i) the exercise price and the number of shares issuable upon exercise will
be divided and multiplied, respectively, by the MFS Common Exchange Ratio and
(ii) certain options will be instead entitled to receive the value of such
options in accordance with the terms thereof. As of November 1, 1996, the merger
consideration for MFS stock to be converted in the MFS Merger (the AMFS Capital
Stock@) is approximately $ 13.4 billion, based on the application of the MFS
Merger exchange ratios to the shares of MFS Capital Stock outstanding and the
closing sales prices of the Common Stock, MFS Common Stock and MFS Depository
Shares as of November 1, 1996.
Consummation of the MFS Merger is subject to certain conditions
including approval of the stockholders of each of the companies, approval of the
FCC and various state regulatory authorities, and the expiration of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "Hart-Scott-Rodino Act").
TERMS AND CONDITIONS OF THE MFS MERGER
The following is a summary of certain terms and conditions of the MFS
Merger Agreement, which also contains certain customary representations and
warranties by MFS and the Company. The summary does not purport to be complete
and is qualified in its entirety by reference to the MFS Merger Agreement, a
copy of which is filed as an exhibit to the Company's Current Report on Form 8-K
dated August 25, 1996 (filed August 26, 1996).
Certain Conditions. The MFS Merger Agreement provides that the
consummation of the MFS Merger is subject to certain terms and conditions,
including: (i) receipt of the requisite approval of the MFS Merger and the
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transactions contemplated thereby by the stockholders of MFS and the requisite
approval by the Company shareholders of the issuance of the Company capital
stock in the MFS Merger and the transactions contemplated thereby and the
proposed amendment to the Company Articles; (ii) receipt by the Company and MFS
of opinions from their respective tax counsel regarding certain tax matters;
(iii) approval of the shares of the Common Stock comprising consideration for
the MFS Merger for quotation on the Nasdaq National Market; (iv) receipt of all
material consents or approvals of governmental agencies or bodies required in
connection with the MFS Merger; and (v) satisfaction of other conditions
customary to transactions of this nature. Certain of the terms and conditions of
the MFS Merger, other than the requirement of shareholder approval, may be
waived by the parties. The MFS Merger will become effective at the time of the
filing, after satisfaction or waiver of all the conditions to the MFS Merger, of
a Certificate of Merger with the Secretary of State of the State of Delaware or
at such later time as may be specified in the Certificate of Merger. The date on
which such effective time occurs is referred to herein as the "MFS Closing
Date."
Agreement Not To Solicit Other Offers. Pursuant to the MFS Merger
Agreement, each of the parties has agreed to, and agreed to direct and use
reasonable efforts to cause its officers, directors, employees, representatives
and agents to, immediately cease any discussions or negotiations with any
parties that may have been ongoing as of August 25, 1996 with respect to a
Takeover Proposal (as hereinafter defined). Further, pursuant to the MFS Merger
Agreement, MFS and the Company have agreed not to, nor permit any of their
respective subsidiaries to, nor to authorize or permit its officers, directors,
employees, or any investment banker, financial advisor, attorney, accountant or
other representatives, directly or indirectly, to (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed or reasonably likely to facilitate, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, a Takeover
Proposal (as defined herein) or (ii) participate in any discussions or
negotiations regarding any inquiry, proposal or offer except as expressly
contemplated by the MFS Merger Agreement from any person relating to (a) any
direct or indirect acquisition or purchase of 15% or more of the assets of such
party and its subsidiaries or 15% or more of any class of equity securities of
such party or any of its subsidiaries, (b) any tender offer or exchange offer
that if consummated would result in any person beneficially owning 15% or more
of any class of equity securities of such party or any of its subsidiaries, (c)
any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving such
party or any of its subsidiaries other than transactions contemplated by the MFS
Merger Agreement, or (d) any other transaction, the consummation of which could
reasonably be expected to impede, interfere with, prevent or materially delay
the MFS Merger or which would reasonably be expected to dilute materially the
benefits to the other party of the transactions contemplated by the MFS Merger
Agreement (each such inquiry, proposal or offer being hereinafter referred to as
a "Takeover Proposal"); provided, that if, at any time prior to the MFS Closing
Date, the Board of Directors of such party determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to its shareholders under applicable law, then
such party may, in response to such a Takeover Proposal which was not solicited
subsequent to August 25, 1996, (x) furnish information with respect to such
party to any person pursuant to a customary confidentiality agreement and (y)
participate in negotiations regarding such Takeover Proposal.
The MFS Merger Agreement additionally provides that neither the Board
of Directors of MFS (the "MFS Board of Directors") or the Company's Board of
Directors nor any committee thereof shall (i) withdraw or modify in a manner
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adverse to the other party, or propose publicly so to do, its approval or
recommendation relating to the MFS Merger, the MFS Merger Agreement or any
transactions related thereto, (ii) approve or recommend, or propose publicly to
approve or recommend, any Takeover Proposal or (iii) cause MFS or the Company,
as the case may be, to enter into any letter of intent, agreement in principle,
acquisition agreement or similar agreement relating to a Takeover Proposal;
provided that, in the event that prior to the MFS Closing Date, the Board of
Directors of either party determines, in good faith, after consultation with
outside counsel that it is necessary to do so to comply with its fiduciary
duties to its shareholders under applicable law, such Board of Directors may
withdraw or modify its approval or recommendation of the MFS Merger and the MFS
Merger Agreement or approve or recommend a the Company or MFS Superior Proposal
(as defined below in "-- Termination of the MFS Merger Agreement"), as the case
may be, or terminate the MFS Merger Agreement, but in each case only at a time
that is after 10 business days following written notice to the other party of
such Superior Proposal, its material terms and conditions and the identity of
the party making such Superior Proposal.
In addition to the foregoing obligations, each party has the obligation
(i) to immediately advise the other party orally and in writing of any request
for information or of any Takeover Proposal, the material terms and conditions
of such request or Takeover Proposal and the identity of the persons making such
request or Takeover Proposal and (ii) to keep the other party fully informed of
the status and details of any such request or Takeover Proposal.
The MFS Merger Agreement provides that neither MFS nor the Company is
prohibited from taking and disclosing to its respective shareholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making
any disclosure to its shareholders if, in the good faith judgment of its Board
of Directors, after consultation with outside counsel, failure so to disclose
would be inconsistent with its fiduciary duties to its shareholders under
applicable law. Neither MFS nor the Company nor their respective Boards of
Directors nor any committee thereof may, however, except as permitted by the MFS
Merger Agreement, withdraw or modify or propose publicly to withdraw or modify,
its position with respect to the MFS Merger, the MFS Merger Agreement and the
transactions contemplated thereby or approve or recommend, or propose publicly
to approve or recommend, a Takeover Proposal.
Other Covenants. In addition to the foregoing, the Company has agreed
after the MFS Closing Date, to arrange for each employee participating in any
benefit plans of MFS or a subsidiary of MFS as are in effect on August 25, 1996
to participate in any counterpart benefit plans of the Company in accordance
with the eligibility criteria thereof, provided that (a) such participants will
receive full credit for years of service with MFS or its subsidiaries prior to
the MFS Merger for all purposes for which such service was recognized under the
MFS benefit plans, including recognition of service for eligibility, vesting
and, to the extent not duplicative of benefits received under such MFS benefit
plans, the amount of benefits; (b) such participants will participate in the
benefit plans of the Company on terms no less favorable than those offered by
the Company to similarly situated employees of the Company; and (c) the Company
will cause any and all pre-existing condition limitations (to the extent such
limitations did not apply to a pre-existing condition under MFS' benefit plans)
and eligibility waiting periods under any group health plans to be waived with
respect to such participants and their eligible dependents. The Company and MFS
acknowledged that the MFS Merger and transactions contemplated thereby will be
treated as a "change in control" for purposes of certain MFS benefit plans,
option agreements and employment agreements and agreed to honor the provisions
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of any such plans and agreements which relate to a change in control, including
the accelerated vesting and/or payment of equity-based awards. The Company has
agreed, and has agreed to cause its subsidiaries to agree, to take the position
that none of the execution of the MFS Merger Agreement, the approval of the MFS
Merger Agreement by MFS stockholders or the consummation of the MFS Merger will
constitute a change in control of MFS or a change in the ownership of a
substantial portion of the assets of MFS within the meaning of Section 280G of
the Code and has agreed that it will not withhold from any amounts payable to
any MFS employee by reason of consummation of the transactions contemplated by
the MFS Merger Agreement any amounts in respect of the excise tax described in
Section 4999 of the Code unless such position ceases to be supported by a good
faith interpretation of relevant tax authority as a result of a change in such
relevant authority which occurs after August 25, 1996.
The MFS Merger Agreement provides that the indemnification provisions
of the By-laws (the "MFS By-laws") and the Certificate of Incorporation (the
"MFS Certificate of Incorporation") of MFS, as the surviving corporation in the
MFS Merger, will not be amended, repealed or otherwise modified for a period of
six years after the MFS Closing Date in any manner that would adversely affect
the rights of individuals who were directors, officers, agents or employees of
MFS immediately prior to the MFS Closing Date unless required by applicable law.
The MFS Merger Agreement provides that, with respect to matters occurring
through the MFS Closing Date, the Company and the surviving corporation will
jointly and severally indemnify, defend and hold harmless the directors,
officers and agents of MFS as provided in the MFS Certificate of Incorporation,
MFS By-laws or indemnification agreements, as in effect as of August 25, 1996.
The Company also agreed to cause the surviving corporation to maintain in effect
for not less than three years after the MFS Closing Date, policies of directors'
and officers' liability insurance comparable to those maintained by MFS with
carriers comparable to MFS' existing carriers and containing terms and
conditions which are no less advantageous in any material respect to the
officers, directors and employees of MFS to the extent that such policies are
obtainable at an annual cost of not greater than two times MFS' last annual
premium prior to August 25, 1996; provided that if such coverage is not
available for such amount, the Company shall purchase as much coverage as
possible for such amount.
Pursuant to the terms of the MFS Merger Agreement, the Company has
agreed to cause the Company's Board of Directors as of the MFS Closing Date to
consist of an odd number of directors, with MFS being entitled to designate one
less director than the Company, subject to the consummation of the MFS Merger.
As of the date hereof, the Company's Board of Directors is composed of 12
directors. It is anticipated that the Company's Board of Directors will be
composed of 15 directors. The MFS Merger Agreement also provides that membership
on the compensation and stock option, audit and nominating committees of the
Company's Board of Directors will initially consist of an equal number of
designees of the Company and MFS.
Termination of the MFS Merger Agreement. The MFS Merger Agreement may
be terminated at any time prior to the MFS Closing Date, whether before or after
approval of the stockholders of MFS and the shareholders of the Company, by the
mutual consent of MFS and the Company.
In addition, the MFS Merger Agreement may be terminated at any time
prior to the MFS Closing Date, whether before or after approval of the
stockholders of MFS and the shareholders of the Company, by either MFS or the
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Company if: (i) the MFS Merger shall not have been consummated on or prior to
August 25, 1997, provided, however, that the right to so terminate is not
available to any party whose failure to perform any of its obligations under the
MFS Merger Agreement results in the failure of the MFS Merger to be consummated
by such time; (ii) the requisite approval of the respective shareholders of
either MFS or the Company is not obtained at the special meetings of the Company
or MFS shareholders or at any adjournments or postponements thereof; or (iii)
any governmental authority shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting the
consummation of the MFS Merger and such order, decree or ruling or other action
shall have become final and nonappealable.
Further, the MFS Merger Agreement may be terminated at any time prior
to the MFS Closing Date, whether before or after approval of the stockholders of
MFS and the shareholders of the Company, by the Company if (i) MFS shall have
breached in any material respect any of its representations, warranties,
covenants or other agreements in the MFS Merger Agreement, which breach or
failure to perform is incapable of being cured or has not been cured within 20
days after the giving of written notice to MFS; (ii) prior to the MFS Closing
Date, the Company's Board of Directors, after determining in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the Company's shareholders under applicable
law, determines to terminate the MFS Merger Agreement, but only at a time that
is after the tenth business day following receipt by MFS of written notice
advising MFS that the Company's Board of Directors has received a bona fide
proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 15% of the
combined voting power of the shares of the Common Stock and the Company
preferred stock then outstanding or all or substantially all of the assets of
the Company and otherwise on terms which the Company's Board of Directors
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be materially more favorable to
the Company's shareholders than the MFS Merger and for which financing, to the
extent required, is then committed or which, in the good faith judgment of the
Company's Board of Directors, is capable of being financed by such third party
(a "Company Superior Proposal"), specifying the material terms and conditions of
such the Company Superior Proposal and identifying the party making such the
Company Superior Proposal; provided that the Company complies with the
applicable requirements relating to the payment (including the timing of any
payment) of the Termination Fee (discussed below under "-- Termination Fees") to
MFS; (iii) MFS (a) shall have breached in any material respect, and MFS shall
have failed to promptly terminate the activity giving rise to such breach and
use its best efforts to cure such breach upon notice thereof from the Company,
relating to any covenant of MFS not to continue discussions relating to, or to
solicit any, Takeover Proposals relating to MFS (see "-- Agreement Not To
Solicit Other Offers") or (b) shall have failed to immediately advise the
Company orally or in writing of any request for information or of any Takeover
Proposal relating to MFS, the material terms and conditions of such request or
Takeover Proposal and the identity of the persons making such request or
Takeover Proposal; (iv) the MFS Board of Directors or any committee thereof (a)
shall have (I) withdrawn or modified in a manner adverse to the Company its
approval or recommendation of the MFS Merger and the MFS Merger Agreement, (II)
failed to reconfirm its recommendation with fifteen business days after a
written request from the Company to do so, or (III) approved or recommended any
Takeover Proposal with respect to MFS, or (b) shall have resolved to take any of
the actions described in clause (iv)(a) above; or (v) MFS or any of its
officers, directors, employees, representatives or agents shall have furnished
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information with respect to MFS to any person pursuant to a customary
confidentiality agreement or participated in negotiations regarding a Takeover
Proposal relating to MFS in response to a Takeover Proposal which was not
solicited subsequent to August 25, 1996, which the MFS Board of Directors has
determined in good faith, after consultation with outside counsel, is necessary
in order to comply with its fiduciary duties to the stockholders of MFS under
applicable law.
Further, the MFS Merger Agreement may be terminated at any time prior
to the MFS Closing Date, whether before or after approval of the stockholders of
MFS and the shareholders of the Company, by MFS if (i) the Company shall have
breached in any material respect any of its representations, warranties,
covenants or other agreements in the MFS Merger Agreement, which breach or
failure to perform is incapable of being cured or has not been cured within 20
days after the giving of written notice to the Company; (ii) prior to the MFS
Closing Date, the MFS Board of Directors, after determining in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to MFS' stockholders under applicable law,
determines to terminate the MFS Merger Agreement, but only at a time that is
after the tenth business day following receipt by the Company of written notice
advising the Company that the MFS Board of Directors has received a bona fide
proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 15% of the
combined voting power of the shares of MFS Common Stock and MFS preferred stock
then outstanding or all or substantially all of the assets of MFS and otherwise
on terms which the MFS Board of Directors determines in its good faith judgment
(based on the advice of a financial advisor of nationally recognized reputation)
to be materially more favorable to MFS' stockholders than the MFS Merger and for
which financing, to the extent required, is then committed or which, in the good
faith judgment of MFS' Board of Directors, is capable of being financed by such
third party (a "MFS Superior Proposal"), specifying the material terms and
conditions of such MFS Superior Proposal and identifying the party making such
MFS Superior Proposal; provided that MFS complies with the applicable
requirements relating to the payment (including the timing of any payment) of
the Termination Fee (discussed below under "-- Termination Fees") to the
Company in connection therewith; (iii) the Company (a) shall have breached in
any material respect, and the Company shall have failed to promptly terminate
the activity giving rise to such breach and use its best efforts to cure such
breach upon notice thereof from MFS, relating to any covenant of the Company not
to continue discussions relating to, or to solicit any, Takeover Proposals
relating to the Company (see "-- Agreement Not To Solicit Other Offers") or (b)
shall have failed to immediately advise MFS orally or in writing of any request
for information or of any Takeover Proposal relating to the Company, the
material terms and conditions of such request or Takeover Proposal and the
identity of the persons making such request or Takeover Proposal; (iv) the
Company's Board of Directors or any committee thereof (a) shall have (I)
withdrawn or modified in a manner adverse to MFS its approval or recommendation
of the MFS Merger and the MFS Merger Agreement, (II) failed to reconfirm its
recommendation with fifteen business days after a written request from MFS to do
so, or (III) approved or recommended any Takeover Proposal with respect to the
Company or (b) shall have resolved to take any of the actions described in
clause (iv)(a) above; (v) the Company or any of its officers, directors,
employees, representatives or agents shall have furnished information with
respect to the Company to any person pursuant to a customary confidentiality
agreement or participated in negotiations regarding a Takeover Proposal relating
to the Company in response to a Takeover Proposal which was not solicited
subsequent to August 25, 1996, which the Company's Board of Directors has
determined in good faith, after consultation with outside counsel, is necessary
in order to comply with its fiduciary duties to the shareholders of the
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Company under applicable law; or (vi) any person (other than MFS or any of its
affiliates or associates) shall have acquired beneficial ownership of, or any
group (other than a group in which MFS or any of its affiliates or associates is
a member) shall have been formed which beneficially owns, 25% or more of the
voting power of the Company.
Termination Fees. The MFS Merger Agreement provides that MFS shall
promptly, but in no event later than two days after the date of such
termination, pay to the Company a fee equal to $350 million (the "Termination
Fee"), payable by wire transfer of same day funds, in the event that: (i) the
MFS Merger Agreement shall have been terminated by either the Company or MFS
because the stockholders of MFS shall not have approved the MFS Merger and the
MFS Merger Agreement at the special meeting of MFS stockholders; (ii) a bona
fide Takeover Proposal relating to MFS shall have been made known to MFS or any
of its subsidiaries and made known to its stockholders generally or shall have
been made directly to its stockholders generally or any person shall have
publicly announced an intention (whether or not conditional) to make a bona fide
Takeover Proposal relating to MFS and such Takeover Proposal or announced
intention shall not have been withdrawn and thereafter the MFS Merger Agreement
is terminated by either the Company or MFS because the MFS Merger shall not have
been consummated on or prior to August 25, 1997 (but not by reason of the fault
on the part of the party so terminating), or (iii) the MFS Merger Agreement is
terminated (x) by MFS because the MFS Board of Directors, after determining in
good faith, after consultation with outside counsel, that it is necessary to do
so in order to comply with its fiduciary duties to the stockholders of MFS under
applicable law, after 10 business days notice to the Company of the material
terms of and identity of the third party making an MFS Superior Proposal, as
described above under "-- Termination of the MFS Merger Agreement," or (y) by
the Company pursuant to its right to terminate because (I) MFS shall have
breached in any material respect and shall have failed to promptly terminate the
activity giving rise to such breach and to use its best efforts to cure such
breach upon notice thereof from the Company, relating to any covenant of MFS not
to continue discussions relating to, or to solicit, any Takeover Proposals
relating to MFS (see "-- Agreement Not To Solicit Other Offers") or shall have
failed to immediately advise the Company orally or in writing of any request for
information or of any Takeover Proposal relating to MFS, (II) the MFS Board of
Directors shall have withdrawn or modified in a manner adverse to the Company
its approval or recommendation with respect to the MFS Merger Agreement or
failed to reconfirm its recommendation after a request from the Company, or
shall have approved or recommended any Takeover Proposal with respect to MFS or
shall have resolved to take any of the foregoing actions, or (III) MFS or any of
its officers, directors, employees, representatives or agents shall have
furnished information with respect to MFS, to any person pursuant to a customary
confidentiality agreement or participated in negotiations regarding a Takeover
Proposal relating to MFS in response to a Takeover Proposal which was not
solicited subsequent to August 25, 1996, which the MFS Board of Directors has
determined in good faith, after consultation with outside counsel, is necessary
in order to comply with its fiduciary duties to the stockholders of MFS under
applicable law; provided, however, that no Termination Fee shall be payable to
the Company pursuant to a termination by the Company described in clause
(iii)(y)(III) above unless and until within 18 months of such termination, MFS
or any of its subsidiaries enters into an acquisition agreement with a third
party or consummates any Takeover Proposal. MFS also agreed it would reimburse
the Company for its costs and expenses (including attorneys' fees), together
with interest on the amount of the Termination Fee at the prime rate of Citibank
N.A., if MFS fails to promptly pay the Termination Fee and, in order to obtain
such payment, the Company commences a suit which results in a judgment against
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MFS for the Termination Fee. If the Company terminates pursuant to clause
(iii)(y)(III) above, MFS shall promptly pay, upon the Company's request, all
out-of-pocket charges and expenses incurred by the Company in connection with
the MFS Merger Agreement and the transactions contemplated thereby in an amount
not to exceed $10 million, which payments shall be credited against any
Termination Fee that may subsequently become payable.
The MFS Merger Agreement further provides that the Company shall
promptly, but in no event later than two days after the date of such
termination, pay to MFS the Termination Fee, payable by wire transfer of same
day funds, in the event that: (i) the MFS Merger Agreement shall have been
terminated by either MFS or the Company because the shareholders of the Company
shall not have approved the MFS Merger and the MFS Merger Agreement at the
special meeting of the Company shareholders; (ii) a bona fide Takeover Proposal
relating to the Company shall have been made known to the Company or any of its
subsidiaries and made known to its shareholders generally or shall have been
made directly to its shareholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make a bona fide Takeover
Proposal relating to the Company and such Takeover Proposal or announced
intention shall not have been withdrawn and thereafter the MFS Merger Agreement
is terminated by either MFS or the Company because the MFS Merger shall not have
been consummated on or prior to August 25, 1997 (but not by reason of the fault
on the part of the party so terminating); (iii) the MFS Merger Agreement is
terminated (x) by the Company because the Company's Board of Directors, after
determining in good faith, after consultation with outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to the
shareholders of the Company under applicable law, after 10 business days notice
to MFS of the material terms of and identity of the third party making a the
Company Superior Proposal, as described above under "-- Termination of the MFS
Merger Agreement," or (y) by MFS pursuant to its right to terminate because (I)
the Company shall have breached in any material respect and shall have failed to
promptly terminate the activity giving rise to such breach and to use its best
efforts to cure such breach upon notice thereof from MFS, relating to any
covenant of the Company not to continue discussions relating to, or to solicit,
any Takeover Proposals relating to MFS (see "-- Agreement Not To Solicit Other
Offers") or shall have failed to immediately advise MFS orally or in writing of
any request for information or of any Takeover Proposal relating to the Company,
(II) the Company's Board of Directors shall have withdrawn or modified in a
manner adverse to MFS its approval or recommendation with respect to the MFS
Merger Agreement or failed to reconfirm its recommendation after a request from
MFS, or shall have approved or recommended any Takeover Proposal with respect to
the Company, or shall have resolved to take any of the foregoing actions, or
(III) the Company or any of its officers, directors, employees, representatives
or agents shall have furnished information with respect to the Company to any
person pursuant to a customary confidentiality agreement or participated in
negotiations regarding a Takeover Proposal relating to the Company in response
to a Takeover Proposal which was not solicited subsequent to August 25, 1996,
which the Company's Board of Directors has determined in good faith, after
consultation with outside counsel, is necessary in order to comply with its
fiduciary duties to the shareholders of the Company under applicable law, or
(IV) any person (other than MFS or its affiliates or associates) shall have
acquired beneficial ownership of, or any group (other than a group in which MFS
or any of its affiliates or associates is a member) shall have been formed which
beneficially owns, 25% or more of the voting power of the Company; provided,
however, that no Termination Fee shall be payable to MFS pursuant to a
termination by MFS described in clause (iii)(y)(III) above unless and until
within 18 months of such termination, the Company or any of its subsidiaries
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enters into an acquisition agreement with a third party or consummates any
Takeover Proposal. The Company also agreed it would reimburse MFS for its costs
and expenses (including attorneys' fees), together with interest on the amount
of the Termination Fee at the prime rate of Citibank N.A., if the Company fails
to promptly pay the Termination Fee and, in order to obtain such payment, MFS
commences a suit which results in a judgment against the Company for the
Termination Fee. If MFS terminates pursuant to clause (iii)(y)(III) above, the
Company shall promptly pay, upon MFS' request all out-of-pocket charges and
expenses incurred by MFS in connection with the MFS Merger Agreement and the
transactions contemplated thereby in an amount not to exceed $10 million, which
payments shall be credited against any Termination Fee that may subsequently
become payable.
In addition, in the event the MFS Merger Agreement is terminated under
circumstances in which either the Company or MFS is entitled to receive the
Termination Fee, the party entitled to receive the Termination Fee shall also be
entitled to receive, at its sole election, the services described in the
Services Agreement on the terms and conditions described in such Agreement. See
"-- Description of Services Agreement." In addition, under certain
circumstances, such party may also be entitled to exercise its Option Agreement.
See "-- Stock Option Agreements."
DESCRIPTION OF SERVICES AGREEMENT
The MFS Merger Agreement provides that in the event the MFS Merger
Agreement is terminated under circumstances in which either the Company or MFS
is entitled to a Termination Fee, the party entitled to receive the Termination
Fee (the "Terminating Party") will be entitled to receive, at its sole election,
from the other party (the "Non-Terminating Party") certain services described in
the Services Agreement.
Under the terms of the Services Agreement, the Non-Terminating Party
agrees to provide certain communications services to the Terminating Party at
Transfer Cost (as hereinafter defined) for a period of three years, commencing
180 days after the date of termination of the MFS Merger Agreement. The
communications services to be provided by the Non-Terminating Party under the
Services Agreement are the communication products sold by that party to an
independent third-party customer under an arms' length arrangement. These
services include the transport and switching of telecommunications and data
traffic, but do not include any ancillary or value-added services such as
facilities management.
The "Transfer Cost" consists of the total service long-run incremental
cost (the "TSLRIC") of providing a communications service, excluding any measure
of costs of capital, common costs and profits, and any retail related costs,
such as sales, marketing, billing, collection (other than carrier-to-carrier
billing and collection) and other costs associated with offering communications
services directly to end users. The TSLRIC shall be based upon the
forward-looking economic costs of the total quantity of the facilities and
functions that are directly attributable to, or reasonably identifiable as
incremental to, the provision of the service. A reasonable allocation of shared
costs of facilities directly attributable or incremental to the provision of a
particular service may be included in the TSLRIC. The TSLRIC will be revised
annually and will be computed, to the extent possible and subject to the
foregoing exclusions, in a manner consistent with certain specified FCC
standards.
The Non-Terminating Party will determine the Transfer Cost for each
type of service provided. If the Terminating Party wishes to dispute a Transfer
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Cost, it may propose a different Transfer Cost. The dispute will be resolved by
a third party, to be selected as provided for in the Services Agreement, who
will choose the Transfer Cost which such third party determines to be more
consistent with the proper Transfer Cost as defined above.
The Non-Terminating Party will provide up to $300 million in services
over the three-year period, with a maximum annual service commitment of $150
million. Due to the scope of services requested, the Terminating Party shall
provide to the Non-Terminating Party a 6-month rolling forecast of requirements.
During the first 12 months of the Services Agreement, the Non- Terminating Party
will not be obligated to install more that $500,000 of gross incremental service
per month. For the remaining term of the Services Agreement, the Non-Terminating
Party will not be obligated to install more than $1,000,000 in gross incremental
service per month.
The Non-Terminating Party will make available to the Terminating Party
up to one-third of all available capacity in its switches and networks. Where
sufficient capacity does not exist to satisfy the Terminating Party's
requirements, the Non-Terminating Party will commence a good faith effort to
construct the additional capacity in a timely manner. The Non-Terminating Party
must undertake such capacity construction where the requested capacity is in a
market or route in which the Non-Terminating Party normally operates and the
capacity is for services offered by the Non-Terminating Party to third parties.
If capacity construction is required, the Non- Terminating Party can construct
as much or as little capacity as it sees fit to satisfy the request. Therefore,
for this new construction, the limit of -- available capacity will not govern.
For purposes of the Services Agreement, available capacity will be determined
after taking into account constraints placed on the delivering party by
underlying service or network suppliers. If as a result of capacity constraints,
the Non-Terminating Party is not able to deliver at least 75% of its requested
installation amount for the first two years (subject to the limitation described
in the preceding paragraph), the Non-Terminating Party will extend the term of
its obligation under the Services Agreement by one year.
The quality of services provided by the Non-Terminating Party is
required generally to meet the standards of, and not be of a materially lower
quality than, the service provided to third parties purchasing similar services
during the same period of time. Should the Non-Terminating Party fail to deliver
services that meet such quality standards (other than for reasons beyond its
reasonable control), the Terminating Party will be entitled to service credits
equal to 1/96th of a day's bill for each 15 minutes of interrupted service. This
service credit will be calculated on a circuit-by-circuit basis. The sum of
service credits cannot exceed 24 hours in any one day, nor more than 30 days in
any one calendar month. Alternatively, if the overall quality of service
provided in aggregate for one month is materially less than the aggregate
quality of service provided by the Non-Terminating Party to its third-party
customers purchasing similar services for that same month (other than for
reasons beyond the reasonable control of the Non- Terminating Party), the
Non-Terminating Party will be liable to the Terminating Party for liquidated
damages equal to the value of one-half times the total bill for the month for
any service with materially substandard quality.
All services turned up will be on a circuit-by-circuit basis. Circuit
installation and disconnect charges will be calculated according to the Transfer
Cost definition above. Should the Terminating Party cancel service prior to one
year, the Terminating Party will be liable for any reasonable termination
charges resulting from the cancellation.
28
<PAGE>
At the end of the term of the Services Agreement, the parties will
negotiate the service rates to be charged by the Non-Terminating Party to the
Terminating Party thereafter. If the parties cannot agree on such rates, in
order to effect an orderly transition of service, the Non- Terminating Party
will be obligated to support all existing services for up to 18 months from the
termination date of the Services Agreement at rates equal to those in effect at
the time for other customers purchasing similar types and quantities of
services.
The Services Agreement is intended to increase the likelihood that the
MFS Merger will be consummated in accordance with the terms set forth in the MFS
Merger Agreement. Consequently, certain aspects of the Services Agreement may
have the effect of discouraging persons who, prior to the MFS Closing Date,
might be interested in acquiring all of, or a significant interest in, MFS or
the Company from considering or proposing such an acquisition, even if such
persons were prepared to offer to pay consideration to stockholders of MFS which
had a value greater than the MFS Merger consideration or to pay consideration to
shareholders of the Company which had a value greater than the expected value of
the shares of the Common Stock upon consummation of the MFS Merger.
The Services Agreement is filed as an exhibit to the Company's Form 8-K
dated August 25, 1996 (filed August 26, 1996) and reference is made thereto for
the complete terms of the Services Agreement. The foregoing discussion is
qualified in its entirety by reference to the Services Agreement.
STOCK OPTION AGREEMENTS
As an inducement to the other party to enter into the MFS Merger
Agreement, each of MFS and the Company entered into the Option Agreements in
favor of the other party as described herein.
MFS (as issuer) entered into a Stock Option Agreement (the "MFS Stock
Option Agreement") dated as of August 25, 1996 with the Company (as grantee),
pursuant to which MFS granted the irrevocable option (the "MFS Stock Option") to
the Company to purchase from MFS up to 43,953,073 shares of MFS Common Stock
(subject to adjustment in certain circumstances, and which represented 19.9% of
the then outstanding shares of MFS Common Stock as of the date thereof) at a
price of $55.3875 per share. The $55.3875 exercise price was determined through
negotiations and reflects the product of the MFS Common Exchange Ratio
multiplied by the closing sale price of the Common Stock on August 23, 1996, the
last trading day preceding announcement of the MFS Merger.
The Company (as issuer) entered into a Stock Option Agreement (the
"Company Stock Option Agreement") dated as of August 25, 1996 with MFS (as
grantee), pursuant to which the Company granted the irrevocable option (the
"Company Stock Option"; collectively with the MFS Stock Option, the "MFS Merger
Stock Options") to MFS to purchase from the Company up to 81,224,137 shares of
the Common Stock (subject to adjustment in certain circumstances, and which
represented 19.9% of the then outstanding shares of the Common Stock as of the
date thereof) at a price of $26.375 per share. The $26.375 exercise price was
determined through negotiations and reflects the closing sale price of the
Common Stock on August 23, 1996, the last trading day preceding announcement of
the MFS Merger.
29
<PAGE>
In the following discussion, the "Issuer" shall mean MFS with respect
to the MFS Stock Option Agreement and the Company with respect to the Company
Stock Option Agreement, and the "Grantee" shall mean the Company with respect to
the MFS Stock Option Agreement and MFS with respect to the Company Stock Option
Agreement.
If no injunction or other court order against delivery of the shares
covered by the applicable MFS Merger Stock Option is in effect, the Grantee may
exercise the MFS Stock Option or the Company Stock Option, as the case may be,
in whole or in part, at any time and from time to time following the happening
of certain events (each a "Purchase Event"), including:
(i) the Issuer shall have recommended to its shareholders, or the
Issuer or any person (other than the Grantee or any of its affiliates
or associates) shall have publicly proposed or publicly announced a
bona fide Takeover Proposal (as defined in "-- Agreement Not To Solicit
Other Offers") for the Issuer that shall not have been withdrawn at the
time of the exercise of the MFS Merger Stock Option;
(ii) any third party shall have acquired or shall have the right to
acquire beneficial ownership (as defined in the Exchange Act) of, or
any group (as defined in the Exchange Act) (other than a group in which
the Grantee or any of its affiliates or associates is a member) shall
have been formed which beneficially owns or has the right to acquire
beneficial ownership of, securities representing 15% or more of the
voting power of the Issuer; or
(iii) the Issuer's Board of Directors shall have withdrawn or modified
in a manner adverse to the Grantee its approval or recommendation with
respect to the MFS Merger, the MFS Merger Agreement and the
transactions contemplated thereby (or the increase in the authorized
the Common Stock with respect to the Company as Issuer);
provided that the MFS Merger Stock Option will terminate: (a) upon
consummation of the MFS Merger; (b) if the MFS Merger Agreement is terminated
for any reason and a Purchase Event has occurred prior to such termination, upon
eighteen months after the occurrence of such Purchase Event; (c) if the MFS
Merger Agreement is terminated pursuant to certain enumerated provisions of the
MFS Merger Agreement (including, without limitation, termination (I) by mutual
written consent of the Issuer and Grantee, (II) by either the Issuer or the
Grantee if (A) the MFS Merger shall not have been consummated on or prior to
August 25, 1997 (but not by reason of the fault of the party so terminating the
MFS Merger Agreement), (B) the approval of the shareholders of either the Issuer
or Grantee shall not have been obtained at the special meetings of the Company
and MFS shareholders, (C) any governmental authority shall have taken any action
permanently enjoining or prohibiting the consummation of the MFS Merger by a
final nonappealable order, (D) the Grantee shall have breached in any material
respect its obligations under the MFS Merger Agreement and the same shall not
have been cured in 20 days, (E) the Grantee shall have breached its obligations
regarding soliciting other offers (see "-- Agreement Not To Solicit Other
Offers"), (F) the Grantee's Board of Directors, or a committee thereof shall
have modified or withdrawn its approval or recommendation of the MFS Merger, the
MFS Merger Agreement and the related transactions contemplated thereby (or
failed to reconfirm the same upon request so to do) or (G) the officers,
30
<PAGE>
directors, employees, representatives or agents of the Grantee shall take any
action with regard to furnishing information or participating in negotiations
relating to a Takeover Proposal), and a Purchase Event has not occurred prior to
such termination, upon such termination; (d) if the MFS Merger Agreement is
terminated for any reason other than those enumerated in (c) above and a
Purchase Event has not occurred prior to such termination, upon eighteen months
after such termination; or (e) on August 25, 1999 if the MFS Merger has not been
consummated and the MFS Merger Agreement has not been terminated by such date.
To the knowledge of the Company, no Purchase Event has occurred as of
the date of this Prospectus.
The Grantee, with respect to any shares acquired by it on or prior to
the record date for the Issuer's special meeting, is deemed to have appointed
the Issuer as its proxy to vote in favor of the Issuer's proposals described
herein at the Issuer's special meeting and against any transaction in conflict
with the transactions contemplated by the MFS Merger Agreement. Such proxy is
irrevocable and is deemed coupled with an interest sufficient in law to support
an irrevocable power.
In the event of any change in the Issuer's common stock by reason of a
stock dividend, stock split, split-up, recapitalization, combination, exchange
of shares or similar transaction, the type and number of shares or securities
subject to the applicable MFS Merger Stock Option and the exercise price
therefor shall be adjusted appropriately so that the Grantee or holder of the
Grantee's MFS Merger Stock Option shall receive, upon exercise, the number and
class of shares or other securities or property that the Grantee or holder would
have received as if the MFS Merger Stock Option had been exercised immediately
prior to such event. If any additional shares of Common Stock of the Issuer are
issued after the date of the respective Option Agreement (other than pursuant to
the preceding sentence, upon exercise of any option to purchase Common Stock of
the Issuer outstanding on the date of such Option Agreement or upon conversion
into the Common Stock of the Issuer of any convertible security of the Issuer
outstanding on the date of such Option Agreement), the number of shares of
Common Stock of the Issuer subject to the MFS Merger Stock Option shall be
adjusted so that, after such issuance, it, together with any shares of Common
Stock of the Issuer previously issued pursuant to such Option Agreement, equals
19.9% of the number of shares of the Common Stock of the Issuer then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to the MFS Merger Stock Option.
In the event that prior to the termination of the Option Agreements,
the Issuer enters into an agreement (i) to consolidate with or merge into any
person, other than the Grantee or one of its subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger; (ii) to
permit any person, other than the Grantee or one of its subsidiaries, to merge
into the Issuer with the Issuer as the continuing or surviving corporation, but,
in connection therewith, the then outstanding shares of the Issuer's common
stock are changed into or exchanged for stock or other securities of the Issuer
or any other person or cash or any other property, or the outstanding shares of
the Issuer's common stock immediately prior to such merger shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company; or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than the Grantee or one of
its subsidiaries, then such agreement shall provide that the applicable MFS
31
<PAGE>
Merger Stock Options be converted into, or exchanged for, an option to acquire
the number and class of shares or other securities or property the holder of the
MFS Merger Stock Options would have received in respect of the Issuer's common
stock if the applicable MFS Merger Stock Option had been exercised immediately
prior to such consolidation, merger, sale or transfer, on the record date
therefor, as applicable.
The Issuer is required (but not more than once during any calendar year
and subject to certain other conditions described in the Option Agreements), if
requested by any holder, including the Grantee and any permitted transferee
acquiring at least 10% of the shares of the Issuer's common stock represented by
the applicable MFS Merger Stock Options (an "Option Selling Shareholder"), as
expeditiously as possible to prepare and file a registration statement under the
Securities Act if such registration is necessary in order to permit the sale or
other disposition of any or all shares of the Issuer's common stock or other
securities that have been acquired by or are issuable to the Option Selling
Shareholder upon exercise of the MFS Merger Stock Options in accordance with the
intended method of sale or other disposition stated by the Option Selling
Shareholder in such request, and the Issuer is required to use its best efforts
to qualify such shares or other securities for sale under applicable state
securities laws, subject to certain exceptions. The Option Selling Shareholder
also has the right, subject to certain conditions, as described in the Option
Agreements, to include the Option Selling Shareholder's shares in certain
underwritten public offerings of the Issuer's common stock by the Issuer after
the exercise of the MFS Merger Stock Options. Except where applicable state law
prohibits such payments, the Issuer will pay all expenses (including without
limitation registration fees, qualification fees, blue sky fees and expenses,
legal expenses, including the reasonable fees and expenses of one counsel to the
holders whose shares issued pursuant to the MFS Merger Stock Options are being
registered (not to exceed $15,000), printing expenses and the costs of special
audits or "cold comfort" letters, expenses of underwriters, excluding discounts
and commissions but including liability insurance if the Issuer so desires or
the underwriters so require and the reasonable fees and expenses of any
necessary special experts), in connection with each registration described
above.
The Issuer also is required to indemnify the Option Selling
Shareholder, and each underwriter thereof, including each person who controls
such Option Selling Shareholder or underwriter, in connection with any
registration pursuant to the respective Option Agreement against all expenses,
losses, claims, damages and liabilities caused by any untrue or alleged untrue,
statement of a material fact contained in any registration statement or
prospectus or notification or offering circular or any preliminary prospectus,
or caused by any omission, or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except to the extent that such expenses, losses, claims, damages or
liabilities are caused by an untrue statement or alleged untrue statement that
was included by the Issuer in reliance upon and in conformity with, information
furnished in writing to the Issuer by such indemnified party expressly for use
therein, in which instance, such Option Selling Shareholder agrees to indemnify
the Issuer.
The Option Agreements are intended to increase the likelihood that the
MFS Merger will be consummated in accordance with the terms set forth in the MFS
Merger Agreement. Consequently, certain aspects of the Option Agreements may
have the effect of discouraging persons who might now, or prior to the MFS
Closing Date, be interested in acquiring all of, or a significant interest in,
the Issuer from considering or proposing such an acquisition, even if such
persons were prepared to offer to pay consideration to stockholders of MFS which
32
<PAGE>
had a higher current market price than the shares of the Company Capital Stock
to be received for each share of the MFS Capital Stock pursuant to the MFS
Merger Agreement or to pay any consideration to shareholders of the Company
which had a value greater than the value of the shares of the Common Stock upon
consummation of the MFS Merger.
THE COMPANY
The Company is one of the four largest long distance telecommunications
companies in the United States, based on 1995 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 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 facsimile and data connections, television and radio
transmission and mobile satellite communications.
The Company 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 ("MCC") merged with and into
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. 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.
The Company's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702 and its telephone number is (601)
360-8600.
SELLING SHAREHOLDERS
In connection with the acquisition by the Company of Choice on July 24,
1996 (the "Choice Acquisition"), 1,123,955 Shares (the "Choice Existing Shares")
were issued to the Choice Selling Shareholders; the remaining 30,916 shares held
by the Choice Selling Shareholders are issuable upon exercise of options granted
by Choice to certain Choice Selling Shareholders and assumed by the Company in
connection with the Choice Acquisition (the "Option Shares"). The options were
originally granted with exercise prices equal to the fair market value of the
common stock on the date of grant.
The 934,050 Shares (together with the Choice Existing Shares, the
"Existing Shares") held by Target Selling Shareholder were issued to Target in
connection with the Company's purchase of certain assets of Target on August 23,
33
<PAGE>
1996 (together with the Choice Acquisition, the "Acquisitions") and were
subsequently distributed to Target Selling Shareholder.
None of the Selling Shareholders is an affiliate of the Company or owns
additional shares of Common Stock as of the close of business on November 1,
1996. Each Selling Shareholder presently owns beneficially less than one percent
of the outstanding Common Stock and has sole voting and investment power with
respect to the Existing Shares.
The following table sets forth, as of the close of business on
November 1, 1996, the number of Choice Existing Shares owned by each of the
Choice Selling Shareholders and the number of Option Shares which may be
acquired by certain of the Choice Selling Shareholders, all of which may be
offered from time to time, to the extent the Option Shares are issued as
aforesaid.
<TABLE>
<CAPTION>
Choice
Existing Option
Name of Choice Selling Shareholder Shares Shares
- ---------------------------------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Jeffrey M. Taffett, M.D. and Je're Taffet, in joint tenancy with rights of survivorship............. 5,218 --
Eugene Schupak, M.D ................................................................................ 46,965 --
MLPF&S Custodian, FBO Ronald A. Ewing IRA .......................................................... 6,088 --
Charles Michael Creasman, M.D ...................................................................... 13,915 --
Edwin C. Lynch ..................................................................................... 27,831 --
Butterfield Family LLC ............................................................................. 41,747 --
AGR Irrevocable Trust II ........................................................................... 4,348 --
AGR Irrevocable Trust I ............................................................................ 4,348 --
Brian J. O'Connor .................................................................................. 27,831 --
Russell George Piccoli and Jill Piccoli, in joint tenancy with right of survivorship................ 17,394 --
Goldman Sachs C/F Thomas J. Reardon IRA ............................................................ 17,394 --
Todd T. Turrell .................................................................................... 5,566 --
Betty S. Crosby .................................................................................... 2,261 --
William James Patterson and Cynthia Ann Patterson, in joint tenancy with right of survivorship...... 3,339 --
Jerry A. Gantz and Carla J. Gantz, in joint tenancy with right of survivorship...................... 4,174 --
Carl D. Wolfinger and Barbara J. Wolfinger, in joint tenancy with right of survivorship............. 11,132 --
Donald G. Hatfield and Margaret L. Hatfield, in joint tenancy with right of survivorship............ 17,394 --
William Goldstandt ................................................................................. 21,743 --
A & C Properties, Inc. ............................................................................. 26,092 --
34
<PAGE>
<CAPTION>
Choice
Existing Option
Name of Choice Selling Shareholder Shares Shares
- ------------------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Peter Vandegrift Sperling ............................................................................ 13,915 --
James G. Atkinson and Jennifer J. Atkinson, in joint tenancy with right of survivorship............... 17,394 --
Everen Clearing Corp. Cust. FBO Robert Scott Jackson IRA Rollover .................................... 17,394 --
Peter Brandeis and Judy Brandeis ..................................................................... 17,394 --
John Phelps Norton Family Trust ...................................................................... 46,190 --
Janet H. Cotton, as her sole and separate property ................................................... 75,623 --
John R. Norton ....................................................................................... 46,162 --
Mark Alan Perlow ..................................................................................... 9,277 --
Earl Perlow .......................................................................................... 9,277 --
Sheldon James Perlow ................................................................................. 9,277 --
Mark LeMay and Jori LeMay, in joint tenancy with right of survivorship ............................... 1,948 --
Smith Barney Cust FBO Brian Connelly IRA ............................................................. 6,957 --
Michael Kelly ........................................................................................ 1,130 --
Prudential Securities Incorporated C/F Bill Hammond IRA .............................................. 4,348 --
Dickenson and Company Cust. FBO Linda M. Armstrong IRA ............................................... 2,783 --
Prudential Securities Incorporated C/F Shannan Adams IRA ............................................. 278 --
Prudential Securities Incorporated C/F John Cooke, Jr. IRA ........................................... 2,435 --
Prudential Securities Incorporated C/F Robert Edward Crosby IRA ...................................... 3,800 --
Prudential Securities Incorporated C/F Sheila Crosby IRA ............................................. 577 --
Prudential Securities Incorporated C/F Kent Neill IRA ................................................ 1,043 --
Prudential Securities Incorporated C/F Jennifer Seely IRA ............................................ 556 --
Lawrence Bushkin and Seline Bushkin Community Property ............................................... 26,092 --
Mary Pat Sweetman .................................................................................... 13,915 --
Katherine A. Johnston ................................................................................ 13,915 --
Molly J. Poole ....................................................................................... 13,915 --
Thomas J. Reardon .................................................................................... 13,915
James A. Wolfinger ................................................................................... 201,998 --
35
<PAGE>
<CAPTION>
Choice
Existing Option
Name of Choice Selling Shareholder Shares Shares
- ------------------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Brian Connelly ....................................................................................... 16,160 3,024
Robert James ......................................................................................... 16,160 --
Prudential Securities Incorporated C/F Betty S. Crosby IRA ........................................... 869 --
John L. Cooke ........................................................................................ 1,800 --
Robert Edward Crosby ................................................................................. 2,043 4,033
Sheila Crosby ........................................................................................ 257 2,016
Prudential Securities Incorporated C/F Lynn Eldridge IRA ............................................. 2,783 --
Kent Neill ........................................................................................... 173 2,688
Shannan L. Adams ..................................................................................... 236 --
Diane Senich Angellotti and Steve Senich ............................................................. 789 --
Jon J. Bauman ........................................................................................ 869 --
Edward James Churchill ............................................................................... 478 --
Myron Davies and Myra Davies ......................................................................... 631 --
Prudential Securities Incorporated C/F Myron Davies IRA .............................................. 3,304 --
John Kramer and Laureen Kramer ....................................................................... 1,582 --
Prudential Securities Incorporated C/F Randall A. McCutchan IRA ...................................... 2,365 --
Prudential Securities Incorporated C/F Jack Mulligan IRA ............................................. 1,652 --
John Mulligan ........................................................................................ 2,261 9,410
Michael D. Reardon ................................................................................... 129,866 --
Kenneth W. Robinson and Denise A. Robinson ........................................................... 347 --
Christopher R. Sabin ................................................................................. 608 --
Janet L. Schumburg ................................................................................... 1,043 --
Prudential Securities Incorporated C/F Robert Spafford IRA ........................................... 12,698 --
Prudential Securities Incorporated C/F Eric Thorson IRA .............................................. 2,104 --
Prudential Securities Incorporated C/F James A. Wolfinger IRA ........................................ 8,406 --
Prudential Securities Incorporated C/F John Hagen IRA ................................................ 747 --
John E. Hagen ........................................................................................ 843 --
Prudential Securities Incorporated C/F Kathryn M.S. Adkins IRA ....................................... 664 --
36
<PAGE>
<CAPTION>
Choice
Existing Option
Name of Choice Selling Shareholder Shares Shares
- ------------------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Prudential Securities Incorporated C/F Lisa Wolfe IRA ................................................ 1,575 --
Lynn Eldridge ........................................................................................ -- 3,629
Randy McCutchan ...................................................................................... -- 3,159
Liane Armstrong ...................................................................................... -- 2,151
Michael Kelly ........................................................................................ -- 806
Columbia Capital Corporation ......................................................................... 34,384 --
---------- ----------
Total ....................................................................................... 1,123,955 30,916
</TABLE>
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold by the Selling Shareholders or by
pledgees, donees, transferees or other successors in interest (collectively with
the Selling Shareholders, the "Sellers") acting as principals for their own
accounts. The Company will not receive any of the proceeds of this offering.
The Sellers, directly or through brokers, dealers, underwriters, agents
or market makers, may sell some or all of the Shares. Any broker, dealer,
underwriter, agent or market maker participating in a transaction involving the
Shares may receive a commission from the Sellers. Usual and customary
commissions may be paid by the Sellers. The broker, dealer, underwriter or
market maker may agree to sell a specified number of the Shares at a stipulated
price per Share and, to the extent that such person is unable to do so acting as
an agent for the Sellers, to purchase as principal any of the Shares remaining
unsold at a price per Share required to fulfill the person's commitment to the
Sellers.
A broker, dealer, underwriter or market maker who acquires the Shares
from the Sellers as a principal for its own account may thereafter resell such
Shares from time to time in transactions (which may involve block or cross
transactions and which may also involve sales to or through another broker,
dealer, underwriter, agent or market maker, including transactions of the nature
described above) on The Nasdaq Stock Market, in negotiated transactions or
otherwise, at market prices prevailing at the time of the sale or at negotiated
prices. In connection with such resales, the broker, dealer, underwriter, agent
or market maker may pay commissions to or receive commissions from the
purchasers of the Shares. The Sellers also may sell some or all of the Shares
directly to purchasers without the assistance of a broker, dealer, underwriter,
agent or market maker and without the payment of any commissions.
The Company is bearing all of the costs relating to the registration of
the Shares (other than fees and expenses of counsel for the Selling
Shareholders). Any commissions, discounts or other fees payable to a broker,
dealer, underwriter, agent or market maker in connection with the sale of any of
the Shares will be borne by the Sellers.
Pursuant to the registration rights granted to the Selling Shareholders
in connection with the Acquisitions, the Company has agreed to indemnify the
Selling Shareholders and any person who controls a Selling Shareholder against
certain liabilities and expenses arising out of or based upon the information
set forth or incorporated by reference in this Prospectus, and the Registration
Statement of which this Prospectus is a part, including liabilities under the
Securities Act. Any commissions paid or any discounts or concessions allowed to
any broker, dealer, underwriter, agent or market maker and, if any such broker,
dealer, underwriter, agent or market maker purchases any of the Shares as
principal, any profits received on the resale of such Shares, may be deemed to
be underwriting commissions or discounts under the Securities Act.
38
<PAGE>
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1995 and 1994, and for each of the years in the three-year period
ended December 31, 1995, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and are incorporated herein by reference, in reliance upon
the authority of such firm as experts in accounting and auditing in giving said
reports.
The consolidated statements of operations, shareholders' equity and
cash flows of IDB Communications Group Inc. for the year ended December 31, 1993
and the related financial statement schedule (such financial statements and
financial statement schedule have not been separately included herein or
incorporated by reference) have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which has been incorporated by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and has been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The combined financial statements of WilTel Network Services, as of
December 31, 1994 and 1993 and for the three years ended December 31, 1994,
incorporated by reference in this Prospectus and Registration Statement, have
been audited by Ernst & Young LLP, independent auditors, to the extent indicated
in their reports thereon, also incorporated by reference in the Registration
Statement. Such combined financial statements are incorporated by reference
herein in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of MFS as of December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995,
included in the Company's Current Report on Form 8-K/A dated August 25, 1996
(filed November 4, 1996) and incorporated by reference into this Prospectus,
have been incorporated in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given upon the authority of that firm as experts in
accounting and auditing.
The consolidated financial statements of UUNET as of December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995,
included in the Company's Current Report on Form 8-K/A dated August 25, 1996
(filed November 4, 1996) and incorporated by reference into this Prospectus,
have been audited by Arthur Andersen LLP, independent accountants, as indicated
in their reports with respect thereto, and are incorporated herein by reference,
in reliance upon the authority of such firm as experts in accounting and
auditing in giving said reports.
39
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the expenses (other than underwriting
discounts and commissions), which other than the SEC registration fee are
estimates, payable by the Company in connection with the sale and distribution
of the shares registered hereby*:
SEC registration fee.............................................. $15,350
Accounting fees and expenses...................................... 3,000
Legal fees and expenses........................................... 3,000
Miscellaneous expenses............................................ 1,650
-------
Total.......................................... $23,000
=======
- ---------------
* The Selling Shareholders will pay any sales commissions or underwriting
discount and fees and expenses of their counsel incurred in connection with
the sale of shares registered hereunder.
Item 15. Indemnification of Directors and Officers
Section 14-2-202(b)(4) of the Georgia Business Corporation Code (the
"Georgia Code") provides that a corporation's articles of incorporation may
include a provision that eliminates or limits the personal liability of
directors for monetary damages to the corporation or its shareholders for breach
of their duty of care and other duties as directors; provided, however, that the
Section does not permit a corporation to eliminate or limit the liability of a
director for appropriating, in violation of his duties, any business opportunity
of the corporation, engaging in intentional misconduct or a knowing violation of
law, obtaining an improper personal benefit, or voting for or assenting to an
unlawful distribution (whether as a dividend, stock repurchase or redemption, or
otherwise) as provided in Section 14-2-832 of the Georgia Code. Section 14-2-
202(b)(4) also does not eliminate or limit the rights of the Company or any
shareholder to seek an injunction or other nonmonetary relief in the event of a
breach of a director's duty to the corporation and its shareholders.
Additionally, Section 14-2-202(b)(4) applies only to claims against a director
arising out of his role as a director, and does not relieve a director from
liability arising from his role as an officer or in any other capacity.
The provisions of Article Nine of the Company's Amended and Restated
Articles of Incorporation are similar in all substantive respects to those
contained in Section 14-2-202(b)(4) of the Georgia Code as outlined above.
Article Nine further provides that the liability of directors of the Company
shall be limited to the fullest extent permitted by amendments to Georgia law.
II-1
<PAGE>
Sections 14-2-850 to 14-2-859, inclusive, of the Georgia Code govern
the indemnification of directors, officers, employees, and agents. Section
14-2-851 of the Georgia Code permits indemnification of a director of the
Company for liability incurred by him in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including, subject to certain limitations, civil actions
brought as derivative actions by or in the right of the Company) in which he is
made a party by reason of being a director of the Company and for directors who,
at the request of the Company, act as directors, officers, partners, trustees,
employees or agents of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The Section
permits indemnification if the director acted in a manner he believed in good
faith to be in or not opposed to the best interest of the Company and, in
addition, in criminal proceedings, if he had no reasonable cause to believe his
conduct was unlawful. If the required standard of conduct is met,
indemnification may include judgments, settlements, penalties, fines or
reasonable expenses (including attorneys' fees) incurred with respect to a
proceeding. However, if the director is adjudged liable to the Company in a
derivative action or on the basis that personal benefit was improperly received
by him, the director is not entitled to indemnification by the corporation;
provided that the director may be entitled to indemnification for reasonable
expenses as determined by a court in accordance with the provisions of Section
14-2-854, or unless the Company's Amended and Restated Articles of Incorporation
or Bylaws, or a contract or resolutions approved by the Company's shareholders
pursuant to Section 14-2-856, authorizes indemnification.
Section 14-2-852 of the Georgia Code provides that unless limited by
the articles of incorporation, directors who are successful with respect to any
claim brought against them, which claim is brought because they are or were
directors of the Company, are entitled to mandatory indemnification against
reasonable expenses incurred in connection therewith. Conversely, if the charges
made in any action are sustained, the determination of whether the required
standard of conduct has been met will be made, in accordance with the provisions
of Section 14-2-855 of the Georgia Code, as follows: (i) by the majority vote of
a quorum of the members of the board of directors not a party to such action at
that time, (ii) if a quorum cannot be obtained, by a committee thereof duly
designated by the board of directors, consisting of two or more directors not a
party to such action at that time, (iii) by duly selected special legal counsel,
or (iv) by the shareholders, but, in such event, the shares owned by or voted
under the control of directors who are at the time parties to the proceeding may
not be voted.
Section 14-2-857 of the Georgia Code provides that an officer of the
Company (but not an employee or agent generally) who is not a director has the
mandatory right of indemnification granted to directors under Section 14-2-852,
as described above. In addition, the Company may, as provided by the Company's
Amended and Restated Articles of Incorporation, Bylaws, general or specific
actions by its board of directors, or by contract, indemnify and advance
expenses to an officer, employee or agent who is not a director to the extent
that such indemnification is consistent with public policy.
II-2
<PAGE>
The indemnification provisions of Article X of the Company's Bylaws and
Article Eleven of the Company's Amended and Restated Articles of Incorporation
are consistent with the foregoing provisions of the Georgia Code. However, the
Company's Amended and Restated Articles of Incorporation prohibit
indemnification of a director who did not believe in good faith that his actions
were in, or not contrary to, the Company's best interests. The Company's Bylaws
extend the indemnification available to officers under the Georgia Code to
employees and agents.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to such provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
The Company has agreed to indemnify the Selling Shareholders and any
person who controls the Selling Shareholders against certain liabilities and
expenses arising out of or based upon the information set forth or incorporated
by reference in this Prospectus, and the Registration Statement of which this
Prospectus is a part, including liabilities under the Securities Act of 1933, as
amended.
Item 16. Exhibits
See Exhibit Index.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this registration statement (or the
most recent post-effective amendment hereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in this registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in this
registration statement or any material change to such information in
this registration statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jackson, State of Mississippi, on November 4, 1996.
WORLDCOM, INC.
By: /s/ Scott D. Sullivan
------------------------------------------
Scott D. Sullivan, Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
- ---------------------------------- -------------------------- ----------------
/s/ Carl J. Aycock* Director November 4, 1996
- ----------------------------------
Carl J. Aycock
/s/ Max E. Bobbitt* Director November 4, 1996
- ----------------------------------
Max E. Bobbitt
/s/ Bernard J. Ebbers* Director, November 4, 1996
- ---------------------------------- President and Chief
Bernard J. Ebbers Executive Officer
(Principal Executive
Officer)
/s/ Francesco Galesi* Director November 4, 1996
- ----------------------------------
Francesco Galesi
/s/ Stiles A. Kellett, Jr.* Director November 4, 1996
- ----------------------------------
Stiles A. Kellett, Jr.
- ---------------------------------- Director November 4, 1996
Silvia Kessel
- ---------------------------------- Director November 4, 1996
John W. Kluge
II-5
<PAGE>
Name Title Date
- ---------------------------------- -------------------------- ----------------
/s/ John A. Porter* Director November 4, 1996
- ----------------------------------
John A. Porter
/s/ Stuart Subotnick* Director November 4, 1996
- ----------------------------------
Stuart Subotnick
/s/ Scott D. Sullivan* Director, Principal November 4, 1996
- ---------------------------------- Financial Officer and
Scott D. Sullivan Principal Accounting Officer
/s/ Lawrence C. Tucker* Director November 4, 1996
- ----------------------------------
Lawrence C. Tucker
/s/ Roy A. Wilkens* Director November 4, 1996
- ----------------------------------
Roy A. Wilkens
*By: /s/ Scott D. Sullivan
-----------------------------
Scott D. Sullivan
Attorney-in-Fact
II-6
<PAGE>
WORLDCOM, INC.
EXHIBIT INDEX
Exhibit Number Description
- -------------- ----------------------------------------------------------------
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,
and as amended by Articles of Amendment dated May 25, 1995
(incorporated by reference to Exhibit 4.1 to the Annual Report
on Form 10-K filed by the Company for the year ended December
31, 1995 (File No. 0-11258))
4.2 Articles of Amendment to Amended and Restated Articles of
Incorporation dated May 23, 1996 (incorporated by reference to
Exhibit 3(ii) to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996 (File No. 0-11258))
4.3 Bylaws of the Company (incorporated herein by reference to
Exhibit 3(iii) to the Quarterly Report on Form 10-Q filed by the
Company (File No. 1-11258) for the quarter ended June 30, 1996
4.4 Rights Agreement dated as of August 25, 1996 between WorldCom
and The Bank of New York, which includes the form of Certificate
of Designations, setting forth the terms of the Series 3 Junior
Participating Preferred Stock, par value $.01 per share, as
Exhibit A, the form of Rights Certificate as Exhibit B and the
Summary of Preferred Stock Purchase Rights as Exhibit C
(incorporated herein by reference to Exhibit 4 to the Current
Report on Form 8-K dated August 26, 1996 (as amended) filed by
WorldCom with the Securities and Exchange Commission on August
26, 1996 (File No. 0-11258)
5.1 Opinion of P. Bruce Borghardt, Esq.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
II-7
<PAGE>
Exhibit Number Description
- -------------- ----------------------------------------------------------------
23.3 Consent of Ernst & Young LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Coopers & Lybrand L.L.P.
23.6 Consent of P. Bruce Borghardt, Esq. (included in Exhibit 5.1)
24.1 Power of Attorney*
- ---------------------
* Previously filed
II-8
EXHIBIT 5.1
November 4, 1996
Board of Directors of
WorldCom, Inc.
515 East Amite Street
Jackson, Mississippi 39201
Ladies and Gentlemen:
I am General Counsel -- Corporate Development of WorldCom, Inc., a
Georgia corporation (the "Company"), and have acted as counsel in connection
with a Registration Statement on Form S-3 (the "Registration Statement") to be
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), with
respect to the proposed public offering and sale of 2,088,921 shares (the
"Shares") of Common Stock, par value $.01, of the Company ("Common Stock")
issued to the Selling Shareholders named herein in connection with (i) the
acquisition on July 24, 1996 of Choice Communications, Inc., an Arizona
corporation ("Choice"), pursuant to the Agreement and Plan of Merger dated as of
June 26, 1996, by and among Choice, certain directors, officers and shareholders
of Choice, and the Company (the "Choice Merger Agreement"); (ii) the acquisition
on August 23, 1996 of the assets of Target Telecom Incorporated, a New Jersey
corporation ("Target"), pursuant to an Asset Purchase Agreement dated as of
March 7, 1996, by and among Target and Jonathan Kaufman, the sole director and
shareholder of Target, and the Company (the "Target Purchase Agreement"); and
(iii) up to 30,916 shares of Common Stock (the "Option Shares") which are
issuable, subject to applicable vesting requirements, upon the exercise of
options held by certain of the Selling Shareholders and assumed by WorldCom
pursuant to the Choice Merger Agreement. Capitalized terms used herein and not
otherwise defined have the meanings assigned to them in the Choice Merger
Agreement.
In connection herewith, I have examined and relied without
investigation as to matters of fact upon the Registration Statement and the
Prospectus included as part thereof, the Articles of Incorporation and Bylaws of
the Company, certificates of public officials, certificates and statements of
officers of the Company, and such other corporate records, documents,
certificates and instruments as I have deemed necessary or appropriate to enable
me to render the opinions expressed herein. I have assumed the genuineness of
all signatures on all documents examined by me, the authenticity of all
documents submitted to me as originals, and the conformity to authentic
originals of all documents submitted to me as certified or photostatic copies. I
have also assumed the due authorization, execution and delivery of all
documents.
Based upon the foregoing, and in reliance thereon and subject to the
qualifications and limitations stated herein, I am of the following opinions:
<PAGE>
Board of Directors of
WorldCom, Inc.
November 4, 1996
Page 2
1. The Company is a corporation validly existing under the laws of the
State of Georgia; and
2. When,
(a) the Registration Statement, including any amendments thereto,
shall have become effective under the Act; and
(b) the Option Shares have been issued upon exercise of the options
held by the Selling Shareholders and assumed by the Company
pursuant to the Choice Merger Agreement;
then the Shares and the Option Shares will be legally issued, fully
paid and nonassessable.
This opinion is not rendered with respect to any laws other than the
latest codification of the Georgia Business Corporation Code (the "GBCC")
available to me. I note that the Choice Merger Agreement provides that it is
governed by and is to be construed and interpreted in accordance with the
internal laws of the State of Mississippi (except to the extent the Arizona Act
controls with respect to the Merger), the Target Purchase Agreement provides
that it is deemed to have been 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 that the options held by the Selling
Shareholders assumed by the Company pursuant to the Choice Merger Agreement are
governed by the laws of the State of Arizona. In rendering the opinions
expressed herein, I have assumed that such matters are governed exclusively by
the GBCC and I express no opinion as to which law any court construing the
Choice Merger Agreement, the Target Purchase Agreement and such options would
apply. This opinion has not been prepared by an attorney admitted to practice in
Arizona, Georgia or Mississippi.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
aforesaid Registration Statement on Form S-3. I also consent to your filing
copies of this opinion as an exhibit to the Registration Statement with agencies
of such states as you deem necessary in the course of complying with the laws of
such states regarding the offering and sale of the Shares and the Option Shares.
In giving this consent, I do not admit that I am in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Very truly yours,
/s/ P. Bruce Borghardt
P. Bruce Borghardt
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this Amendment No. 1 to Registration Statement No. 333-10459 on
Form S-3 of our report dated March 6, 1996 included in WorldCom, Inc.'s Form
10-K for the year ended December 31, 1995 and to all references to our Firm
included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Jackson, Mississippi
November 4, 1996
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-10459 of WorldCom, Inc. of our report dated March 7, 1994 (relating to the
financial statements of IDB Communications Group, Inc. not separately presented
herein or incorporated by reference) incorporated by reference in the
Prospectus, which is part of this Registration Statement and to the reference to
us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Los Angeles, California
November 4, 1996
EXHIBIT 23.3
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement on Form S-3 and related prospectus of
WorldCom, Inc. (f/k/a LDDS Communications, Inc.) for the registration of
2,088,921 shares of its common stock and to the incorporation by reference
therein of our reports dated July 29, 1994 and February 2, 1995, with respect to
the combined financial statements of WilTel Network Services for the three years
ended December 31, 1994 included in the Current Report on form 8-K of LDDS
Communications, Inc. dated August 22, 1994 and the Current Report on Form 8-K/A
of LDDS Communications, Inc. dated August 22, 1994, filed with the Securities
and Exchange Commission.
/s/ ERNST & YOUNG LLP
Tulsa, Oklahoma
November 4, 1996
EXHIBIT 23.4
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this Amendment No. 1 to Registration Statement No. 333-10459 of our
report dated January 31, 1996 on the Consolidated Financial Statements of UUNET
Technologies, Inc. included in WorldCom, Inc.'s Current Report on Form 8-K dated
August 25, 1996 as amended by Amendment No. 1 on Form 8-K/A filed on or around
November 1, 1996 and to all references to our Firm included in or made a part of
this registration statement.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
November 1, 1996
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 (File No. 333-10459) of WorldCom, Inc. of our report dated February 14,
1996, except for Note 20 as to which the date is April 16, 1996, on our audits
of the consolidated financial statements of MFS Communications Company, Inc. as
of December 31, 1995 and 1994, and for the three years in the period ended
December 31, 1995, which report is included in WorldCom, Inc.'s Current Report
on Form 8-K/A filed November 4, 1996. We also consent to the reference to our
firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Omaha, Nebraska
November 4, 1996
